-----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, MfLImVT0XLe6Dc2L4SZhIMD7u3hSSeGyE1VkllLaYr8TOyS6BIALIOKiRLQDp2iT 1jpWIGnbLA5PA7VI0/tCBQ== 0000950159-05-000375.txt : 20050331 0000950159-05-000375.hdr.sgml : 20050331 20050331152836 ACCESSION NUMBER: 0000950159-05-000375 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050331 DATE AS OF CHANGE: 20050331 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-07865 FILM NUMBER: 05719837 BUSINESS ADDRESS: STREET 1: 1870 S BAYSHORE DRIVE CITY: COCONUT GROVE STATE: FL ZIP: 33133 BUSINESS PHONE: 305-854-6803 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 10KSB 1 hmg10k2004.txt U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [X] Annual Report under Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the fiscal year ended December 31, 2004 [ ] Transition Report under Section 13 or 15(d) of the Securities and 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) 1870 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 class on which registered: Common Stock - Par value $1.00 per share American Stock Exchange 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: See Item 13, for items incorporated by reference into this Annual Report on Form 10KSB. Exhibit Index: Page No.: 60 The issuer's revenues for its most recent fiscal year were $5,472,481 The aggregate market value of the voting stock held by non-affiliates of the Registrant (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) based on the closing price of the stock as traded on the American Stock Exchange on March 28, 2005 was $4,576,556. The number of shares outstanding of the issuer's common stock, $1 par value as of the latest practicable date: 1,089,135 shares of common stock, $1 par value, as of March 28, 2005. TABLE OF CONTENTS PAGE PART I Item 1. Description of Business.................................. 3 Item 2. Description of Property.................................. 7 Item 3. Legal Proceedings........................................ 11 Item 4. Submission of Matters to a Vote of Security Holders......................................... 11 PART II Item 5. Market Price for Common Equity and Related Stockholder Matters and Purchases of Equity Securities....................... 12 Item 6. Management's Discussion and Analysis or Plan of Operation............................ 13 Item 7. Financial Statements..................................... 20 Item 8. Changes in and Disagreements with Accountants On Accounting and Financial Disclosure..................................... 51 Item 8A. Controls and Procedures.................................. 51 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act............................................. 52 Item 10. Executive Compensation................................... 53 Item 11. Security Ownership of Certain Beneficial Owners and Management......................... 54 Item 12. Certain Relationships and Related Transactions............................................. 55 Item 13. Exhibits and Reports on Form 8-K......................... 58 Item 14. Principal Accountants Fees and Services................................................. 58 SIGNATURES............................................... 59 2 Part I. Cautionary Statement. This Annual Report contains certain statements relating to future results of the Company that are considered "forward-looking statements" within the meaning of the Private Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions; interest rate fluctuation; competitive pricing pressures within the Company's market; equity and fixed income market fluctuation; technological change; changes in law; changes in fiscal, monetary, regulatory and tax policies; monetary fluctuations as well as other risks and uncertainties detailed elsewhere in this Annual Report or from time-to-time in the filings of the Company with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. Item 1. Description of Business. HMG/Courtland Properties, Inc. and subsidiaries ("HMG", or the "Company"), was organized in 1972 as a Delaware corporation. HMG (excluding its 95% owned subsidiary Courtland Investments, Inc., which files a separate tax return) qualifies for taxation as a real estate investment trust ("REIT") under the U.S. Internal Revenue Code. The Company's business is the ownership and management of income-producing commercial properties and its management considers other investments if such investments offer growth or profit potential. As discussed below, the Company relies on one tenant at its Grove Isle, hotel and resort property for a significant portion of its rental and related revenue. On August 20, 2004, the Company acquired a 50% interest in a restaurant, office/retail mall and marina property located in Coconut Grove (Miami), Florida known as Monty's (the "Monty's Property"). The total purchase price was approximately $13.9 million which included $7.7 million in goodwill and was financed by a bank loan of $10.1 million. The Monty's Property consists of a two story building with approximately 40,000 rentable square feet, approximately 15,000 square feet of outdoor space comprising the raw bar restaurant and approximately 3.7 acres of submerged land with approximately 132 dock slips comprising the marina portion of the property. A portion of the upstairs space is intended to be utilized as a restaurant and it and parts of the downstairs restaurant are currently being renovated. The Company expects to operate, or through a tenant-operator open, an upstairs restaurant over-looking the marina and will expand the downstairs raw bar, as well as renovate the office/retail mall. Construction is expected to be completed by late 2005 at estimated cost of $3.7 million. The acquired assets also include certain trademarks and other rights in connection with the restaurant and dock slips. The Monty's Property is subject to a ground lease, as amended, with the City of Miami, Florida which expires in 2035. Lease payments are based on percentage rents ranging from 5% to 15% of gross revenues from various components of the Monty's Property. In September 2004 the Company entered into an agreement with an affiliate of the Company's major tenant, Westgroup Grove Isle Associates, a subsidiary of Noble House Resorts, Inc. (a national operator of hotels and resorts) for the purpose 3 of developing and operating on the Grove Isle property, a commercial project consisting of a first class spa, together with related improvements and amenities (the "Spa Property"). The Company owns 50% of this new venture. The construction of the Spa Property is expected to be completed in 2005 at a cost of approximately $2.4 million. In conjunction with the spa property development, the Company amended and restated its lease with Westgroup to extend the term of the lease from December 31, 2006 to December 31, 2016, and includes two options to extend the lease term each for an additional 20 years. The lease with Westgroup accounts for a large portion of the Company's rental and related revenue. For the years ended December 31, 2004 and 2003, the Westgroup lease accounted for approximately 80% and 72%, respectively, of total rental and related revenue. In April 2004 the Company sold its Fashion Square shopping center located near Jacksonville, Florida for approximately $3.9 million and recognized a net gain on the sale of $1.8 million. The Company's principal assets include a hotel, private club with spa and marina, a 50% interest in a restaurant, marina and office/retail mall facility (as discussed above) and its corporate office building. All of these properties are located in the Coconut Grove section of Miami, Florida. The Company also owns a 70% interest in a 17,000 square foot commercial building in Kingston, New York, a 70% interest in a 13,000 square foot commercial building in Montpelier, Vermont and approximately 3 acres of land held for development in Houston, Texas. The Company's other investments consist of equity interests in various privately held entities, primarily limited partnerships, whose purpose is to invest venture capital funds in growth-oriented enterprises which may include investments in commercial real estate. Of the total amount committed in these other investments, approximately 18% (based on carrying values) is in real estate related investments and the remaining investments are in varied private entities which invest in diversified growth-oriented enterprises. Other investments give rise to exposure resulting from the volatility in capital markets. The Company mitigates its risks by diversifying its investment portfolio. Information with respect to the amounts and types of other investments including the nature of the declines in value is set forth in Note 5 of the Notes to Consolidated Financial Statements. The Company invests idle cash in income producing instruments, including equity and debt securities issued primarily by large capital companies or government agencies with readily determinable fair values in varying industries, including real estate investment trusts and mutual funds focusing in commercial real estate activities. Substantially all of the Company's marketable securities investments are in companies listed on major national stock markets, however the overall investment portfolio and some of the Company's investment strategies could be viewed as risky and the market values of the portfolio may be subject to fluctuations. Consistent with the Company's overall investment objectives and activities, management classifies all marketable securities as being held in a trading portfolio. Accordingly, all unrealized gains and losses on the Company's investments in marketable securities are recorded in the statement of income. Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. 4 The Company acquires its real estate and other investments utilizing available cash, trading securities or borrowing funds. The Company may realize gains and losses in its overall investment portfolio from time to time to take advantage of market conditions and/or manage the portfolio's resources and the Company's tax liability. The Company may utilize margin for its marketable securities purchases through the use of standard margin agreements with national brokerage firms. The use of available leverage is guided by the business judgment of management. The Company may also use options and futures to hedge concentrated stock positions and index futures to hedge against market risk and enhance the performance of the Company's portfolio while reducing the overall portfolio's risk and volatility. Reference is made to Item 12. Certain Relationships and Related Transactions for discussion of the Company's organizational structure and related party transactions. Information with respect to the amounts and types of investments in marketable securities is set forth in Note 4 of the Notes to Consolidated Financial Statements. Investment in affiliate. The Company's investment in affiliate consists of a 49% equity interest in T.G. I.F. Texas, Inc. (TGIF). T.G.I.F. is a Texas Corporation, which owns one net leased property in Louisiana and holds promissory notes receivable from its shareholders, including the Company's 95% owned subsidiary, Courtland Investments, Inc. ("CII") and Maurice Wiener, the Chairman of the Company. This investment's carrying value is approximately $3 million and the Company has as note payable to TGIF of approximately $3.7 million which is due on demand. Insurance, Environmental Matters and Other. In the opinion of management, all significant assets of the Company are adequately covered by insurance and the cost and effects of complying with environmental laws do not have a material impact on the Company's operations. The Company's subsidiary which operates a restaurant is subject to various federal, state and local laws affecting its business. In particular, this restaurant is subject to licensing and regulation by the alcoholic beverage control, health, sanitation, safety and fire department agencies of Miami-Dade County, Florida. To the extent that the Company's restaurant sells alcoholic beverages it is subject to the State of Florida's liquor liability statues or "dram shop laws" which allow a person injured by an "obviously intoxicated person" to bring a civil suit against the business (or social host) who had served intoxicating liquors to an already "obviously intoxicated person". Dram shop claims normally involve traffic accidents and the Company would generally not learn of such claims until such claims are filed. At the present time, there are no dram shop cases pending against the Company. The Company has in place insurance coverage to protect it from losses, if any. 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. 5 In addition, to the extent the Company 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. The food and beverage industry is highly competitive and are often affected by changes in taste and entertainment trends among the public, by local, national and economic conditions affecting spending habits, and by population and traffic patterns. The Company's restaurant is outdoors and subject to climate and seasonal conditions. In conjunction with the purchase of the restaurant, marina and mall facility in August 2004 the Company obtained the right to certain trademarks and service marks commonly known as "Monty Trainer's", "Monty's Stone Crab", "Monty's Conch", "Monty's" and "Monty's Marina, together with certain other trademarks, trade secrets, unique features, concepts, designs operating procedures, recipes and materials used in connection with the operation of the restaurant. The Company regards its trademarks and other proprietary rights as valuable assets which are essential to the related operations. The Company will vigorously monitor and protect its trademarks against infringement and dilution where legally feasible and appropriate. Employees. The Company has one employee who is an officer of Courtland Investments (a 95%-owned consolidated subsidiary). This employee assumed the responsibilities of the prior project manager of one of the Company's properties. The Company has no employees other than officers who are not compensated for their services as such in accordance with its Advisory Agreement (the "Agreement") with the Adviser. Reference is made to Item 12. Certain Relationships and Related Transactions. The labor costs relating to the food and beverage operations represent the Company's reimbursement to the manager of the restaurant for its employees and are not employees of the Company. Reference is made to discussion of restaurant, marina and mall in Item 2. Description of Property. Terms of the Agreement. Under the terms of the Agreement, the Adviser serves as the Company's investment adviser and, under the supervision of the directors of the Company, administers the day-to-day operations of the Company. All officers of the Company, other than the project manager described above (who is not employed by the Adviser), who are officers of the Adviser are compensated solely by the Adviser 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 Adviser and a majority of the Company's shareholders. The contract may be terminated at any time on 120 days written notice by the Adviser 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. On July 16, 2004, the shareholders approved the renewal of the Advisory Agreement between the Company and the Adviser for a term commencing January 1, 2005, and expiring December 31, 2005. 6 The Adviser is majority owned by Mr. Wiener with the remaining shares owned by certain officers, including Mr. Rothstein. The officers and directors of the Adviser are as follows: Maurice Wiener, Chairman of the Board and Chief Executive officer; Lawrence I. Rothstein, President, Treasurer, Secretary and Director; and Carlos Camarotti, Vice President - Finance and Assistant Secretary. Advisory Fees. For the years ended December 31, 2004 and 2003, the Company and its subsidiaries paid the Adviser fees of approximately $1,215,000 and $977,000, respectively, of which $900,000 represented regular compensation and approximately $315,000 and $77,000 represented incentive compensation for 2004 and 2003, respectively. The Adviser is also the manager for certain of the Company's affiliates and received management fees of approximately $38,000 and $14,000 in 2004 and 2003, respectively, for such services. Included in fees for 2004 was approximately $8,000 of management fees earned relating to management of restaurant portion of the property acquired in August of 2004. Item 2. Description of Property. Grove Isle Hotel, Club and Marina (Coconut Grove, Florida). A 50 room hotel and private club (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, banquet facilities and restaurant, tennis courts, and an 85-yacht slip marina. The facility has been leased since November 1996 to Westgroup Grove Isle Associates, Ltd., or "Westgroup", an affiliate of Noble House Resorts, Inc. ("NHR") which is a national operator of hotels and resorts. Westgroup operates all aspects of the facility, except for the marina which is operated by the Company. The original terms of the lease called for base rent of $918,400 plus participation rent consisting of a portion of Westgroup's operating surplus. Participation rent when and if due is payable at end of each lease year. There has been no participation rent since the inception of the lease. A 1999 lease amendment increased base rent commencing January 1, 2002 in accordance with changes in the Consumer Price Index ("CPI"). Base rent for 2004 was $1,003,157, increasing to $1,037,172 in 2005. Participation rent when and if earned will be reduced by the amount by which base rent increases solely as a result of CPI increases for the lease year. In September 2004 the Company entered into an agreement with Noble House Associates, LLC ("NHA"), an affiliate of the Westgroup, for the purpose of developing and operating on the Grove Isle property, a commercial project consisting of a first class spa, together with related improvements and amenities (the "Spa Property"). A newly formed subsidiary of the Company, CII Spa, LLC ("CIISPA") and NHA formed a Delaware limited liability company, Grove Spa, LLC ("GS") which is owned 50% by CIISPA and 50% by NHA. The Spa Property developed by GS will be sub-leased from Westgroup. The initial term of the sublease commenced on September 15, 2004 and ends on November 30, 2016, with the GS having the right to extend the term for two additional consecutive 20 year terms on the same terms as the original sublease. Annual base rent of the sublease is $10,000, plus GS shall pay real estate taxes, insurance, utilities and all other costs relating to the Spa Property. The construction of the Spa Property is expected to be completed in 2005 at a cost of approximately $2.4 million. 7 In conjunction with the Spa Property development, the Company amended and restated its lease with Westgroup to extend the term of the lease from December 31, 2006 to December 31, 2016, and includes two options to extend the lease term each for an additional 20 years. Furthermore, the lease's termination payment, as defined, was amended and restated to mean 50% of the amount by which the value of the leased property on the date of termination, as amended, exceeds $11,480,000, plus the value of NHA's percentage ownership interest in GS. The facility is encumbered by a mortgage note payable with an outstanding balance of approximately $4.3 million and $3.4 million as of December 31, 2004 and 2003, respectively. This loan calls monthly principal payments of $10,000 with all outstanding principal and interest due at maturity on September 29, 2010. Interest on outstanding principal is due monthly at an annual rate 2.5% plus one-month LIBOR Rate. In December 2004, this loan was modified to include an increase in the loan balance outstanding of $1 million. This additional borrowed amount (less loan costs) was loaned to GS to partially fund the construction of the Spa Property. As of December 31, 2004, 6 of the 85 yacht slips at the facility are owned by the Company and the other 79 are owned by unrelated individuals or their entities. During 2004, the Company sold two yacht slips for a total sales price of approximately $240,000. The net gain to the Company was approximately $166,000. The Company operates and maintains all aspects of the marina at Grove Isle in exchange for an annual maintenance fee from the slip owners to cover operational expenses. In addition the Company rents the unsold slips to boat owners on a short term basis. In 1997 and in conjunction with the original lease, the Company advanced $500,000 to the principal owner of Noble House Resorts, Inc. and received an unsecured promissory note bearing interest at 8% per annum with interest payments due quarterly beginning on July 1, 1997 with all principal due at maturity in 2006. All interest payments due have been received. The Company has included the accounts of CIISPA in its consolidated financial statements beginning from September 15, 2004, the date of agreement. Restaurant, marina and mall (Coconut Grove, Florida). On August 20, 2004, the Company, through two 50%-owned entities, Bayshore Landing, LLC ("Landing") and Bayshore Rawbar, LLC ("Rawbar"), (collectively, "Bayshore") purchased a restaurant, office/retail and marina property located in Coconut Grove (Miami), Florida known as Monty's (the "Monty's Property") for approximately $13.9 million. The other 50% owner of Bayshore is The Christoph Family Trust (the "Trust" or "CFT"). Members of the Trust are experienced real estate and marina operators. The seller, Bayshore Restaurant Management Corporation and affiliates ("BRMC"), is part of a larger privately-held organization which operates other restaurants in Florida. The acquired assets included a two story building with approximately 40,000 rentable square feet. A portion of the upstairs space is intended to be utilized as a restaurant. The property also includes approximately 15,000 square feet of outdoor space comprising the raw bar restaurant and approximately 3.7 acres of submerged land with approximately 132 dock slips comprising the marina portion of the acquired property. Also included in the acquired assets were certain trademarks and other rights in connection with the restaurant and dock slips. 8 The acquired property is subject to a ground lease with the City of Miami, Florida expiring in 2035 which was assigned to Bayshore upon acquisition. The annual rent under the ground lease is based on a percentage of revenues. The purchase price paid by Bayshore included proceeds from a bank loan secured by the Property in the amount of $10.1 million plus approximately $3.9 million in cash. The $10.1 million bank loan is part of a $13.275 million acquisition and construction loan. Proceeds from the construction loan are intended for renovations to the entire property. The outstanding principal balance of the bank loan shall bear interest at a rate of 2.45% per annum in excess of the LIBOR Rate. The bank loan shall be payable as follows: during the first year, monthly payments of accrued interest will be paid. After the first year and upon conversion to permanent terms, the loan will be repayable in equal monthly principal payments necessary to fully amortize the principal amount over the remaining twenty years of the loan, plus accrued interest. In conjunction with the mortgage Bayshore has also entered into an interest rate swap agreement to manage their exposure to interest rate fluctuation through the entire term of the mortgage. The effect of the swap agreement is to provide a fixed interest rate of 7.57%. The following table sets forth the allocation of the purchase price to the assets acquired: Marina slips $2,500,000 Buildings 2,900,000 Furniture and fixtures 765,000 Goodwill 7,729,000 Food and beverage inventory 49,000 ------------- Total Capitalized Costs $13,943,000 ============= The allocation above was based on independent appraisal and valuation reports which utilized as its primary valuation method the discounted cash flows from the existing operations assigning appropriate discount rates for each of the three operating components of the Monty's Property. The excess of capitalized cost assigned to specific assets over the purchase price was $7,729,000 and was recorded as goodwill. Goodwill is an intangible asset with an indefinite life. It will be reviewed for impairment annually and whenever an event occurs or circumstances change that would more likely than not reduce fair value below carrying value. For federal income tax purposes goodwill is expected to be amortized under the provisions of the Internal Revenue Code. The upstairs and parts of the downstairs of the Monty's Property are currently under construction. The Company expects a portion of the upstairs space to be utilized as a restaurant and is also expanding the downstairs raw bar restaurant. Construction is expected to be completed by late 2005 at an estimated cost of $3.7 million. Effective from the date of acquisition, the operations of Rawbar will be managed by a company (the "Manager") whose principal was a principal of the seller and has operated this restaurant for the last 15 years. The Manager also operates two other Monty's restaurants in Miami Beach and Key West. The Company has a 10% equity interest in the Key West location. Under the management agreement Rawbar will pay the Manager a management fee equal to the greater of $300,000 per year or 4% of gross sales, as defined. In addition, the Manager is entitled to an 9 incentive fee equal to 33% of all operating profits (as defined) greater than $1,200,000 per year. The operations of Rawbar are performed by employees of the Manager and the Company reimburses the Manager for such employees' payroll and related costs. The management agreement expires in August, 2009. In August 2004 the Company loaned $1 million to an entity which owns and operates a restaurant in Key West, Florida. The Company has had a 10% equity interest in this restaurant since its construction began in 1999. The proceeds of the loan were used for leasehold improvements. The principal owner of the restaurant is an entity whose principal is also the principal of BRMC, the seller and current manager of the restaurant operations acquired on August 20, 2004 as described above. The promissory note is secured by a 65-year leasehold interest and calls for quarterly payments of interest of 8% per annum beginning on July 31, 2004. All principal and accrued and unpaid interest is due on June 30, 2009. The Company also has a ten year option to acquire an additional 20% equity interest in this restaurant. The restaurant opened in October 2003 and for the three months ended December 31, 2003 reported net income from operations of $94,000 and for the year ended December 31, 2004 reported a net loss of $564,000. Land held for development (Texas and Rhode Island). As of December 31, 2004, the Company owns approximately 3 acres of vacant land held for development located in Houston, Texas. In September 2004 the Company sold 3.4 acres of undeveloped land for approximately $885,000 and recognized a net gain on the sale of $297,000. Additionally the Company owns approximately 50 acres of vacant land held for development located in Rhode Island. Retail stores (New York and Vermont). The Company owns a 70% interest in two retail store locations, one in Kingston, New York and the other in Montpelier, Vermont. The Kingston property is leased through June 2006 and calls for annual base rent of approximately $53,000 with a renewal option after three years with adjustments for inflation. The Montpelier property is vacant and held for development. The Kingston, NY retail store described above is owned by a joint venture of which the Company is an approximate 70% owner. The 30% minority partner is NAF Associates. Reference is made to Item 12. Certain Relationships and Related Transactions, HMG Fieber Associates. Executive offices (Coconut Grove, Florida). The principal executive offices of the Company and the Adviser are located at 1870 South Bayshore Drive, Coconut Grove, Florida, 33133, in premises owned by the Company and leased to the Adviser pursuant to a lease agreement dated December 1, 2004. The lease provides for base rent of $48,000 per year payable in equal monthly installments during the initial five year term of the lease. Additionally, the tenant pays the property taxes, insurance, utility, and maintenance and security expenses relating to the leased premises. This property is encumbered by mortgage loan due to a bank of approximately $343,000. This loan bears interest at a fixed rate of 4.75% through maturity and calls for monthly principal and interest payments with all principal due at maturity in August 2007. 10 The Company regularly evaluates potential real estate acquisitions for future investment or development and would utilize funds currently available or from other resources to implement its strategy. In April 2004 the Company sold the Fashion Square shopping center located near Jacksonville, Florida for approximately $3.9 million and recognized a net gain on the sale of $1.8 million. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders. On July 16, 2004, the shareholders approved the renewal of the Advisory Agreement between the Company and the Adviser for a term commencing January 1, 2005, and expiring December 31, 2005 (Reference is made to Item 1. Business), and reelected the Company's then existing Board of Directors by the following votes: Number of votes ------------------------------ For Against/Withheld ------------------------------ Amendment and renewal of Advisory Agreement (a) 1,032,394 27,007 Directors: Walter G. Arader 1,034,024 25,377 Harvey Comita 1,034,038 25,363 Clinton Stuntebeck 1,034,024 25,377 Lawrence Rothstein 1,034,238 25,163 Maurice Wiener 1,034,238 25,163 (a) The number of votes for the Amendment and renewal of the Advisory Agreement represents majority of the outstanding votes. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2004. 11 Part II. Item 5. Market Price for Common Equity and Related Stockholder Matters and Purchases of Equity Securities. The high and low per share sales prices of the Company's stock on the American Stock Exchange (ticker symbol: HMG) for each quarter during the past two years were as follows: High Low March 31, 2004 $8.80 $9.90 June 30, 2004 $9.70 $9.50 September 30, 2004 $12.93 $9.50 December 31, 2004 $14.90 $11.39 March 31, 2003 $7.60 $6.20 June 30, 2003 $9.35 $7.70 September 30, 2003 $9.00 $8.25 December 31, 2003 $8.80 $7.90 There were no dividends paid or declared in 2004. The Company's policy has been to pay dividends as are necessary for it to qualify for taxation as a REIT under the Internal Revenue Code. As of March 14, 2005, there were 393 holders of record of the Company's common stock. The following table illustrates securities authorized for issuance under the Company's equity compensation plan:
Number of securities Number of securities to Weighted-average remaining available for be issued upon exercise exercise price of future issuance under of outstanding options outstanding options equity compensation plans --------------------------- -------------------------- ---------------------------- Equity compensation plan 86,000 $7.84 34,000 approved by shareholders Equity compensation plan not approved by shareholders -- -- -- --------------------------- -------------------------- ---------------------------- Total 86,000 $7.84 34,000 =========================== ========================== ============================
12 Item 6. Management's Discussion and Analysis or Plan of Operation. Critical Accounting Policies and Estimates: Securities and Exchange Commission Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies and methods used in the preparation of the financial statements. Note 1 of the consolidated financial statements, included elsewhere on this annual report of Form 10-KSB, includes a summary of the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements. The Company believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the Company's financial statements: Marketable Securities. Consistent with the Company's overall investment objectives and activities, management has classified its entire marketable securities portfolio as trading. As a result, all unrealized gains and losses on the Company's investment portfolio are included in the statement of income. Our investments in trading equity and debt marketable securities are valued based on quoted market prices. Marketable securities are subject to fluctuations in value in accordance with market conditions. Other Investments. The Company's other investments consist primarily of nominal equity interests in various privately-held entities, including limited partnerships whose purpose is to invest venture capital funds in growth-oriented enterprises. The Company does not have significant influence over any investee and no single investment exceeds 5% of the Company's total assets. None of these investments meet the criteria of accounting under the equity method and are carried at cost; less distributions deemed return of capital and other than temporary unrealized losses. These investments do not have available quoted market prices, so we must rely on valuations and related reports and information provided to us by those entities. These valuations are by their nature subject to estimates which could change significantly from period to period. The Company regularly reviews the underlying assets in its other investment portfolio for events, including but not limited to bankruptcies, closures and declines in estimated fair value, that may indicate the investment has suffered an other-than-temporary decline in value. When a decline is deemed other-than-temporary, we permanently reduce the cost basis component of the investments. As such, any recoveries in the value of the investments will not be recognized until the investments are sold. Our estimates of each of these items historically have been adequate. However, due to uncertainties inherent in the estimation process, it is reasonably possible that the actual resolution of any of these items could vary significantly from the estimate and, accordingly, there can be no assurance that the estimates may not materially change in the near term. Real Estate. Land, buildings and improvements, furniture, fixtures and equipment are recorded at cost. Tenant improvements, which are included in buildings and improvements, are also stated at cost. Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Renovations and/or replacements, which improve or extend the life of the asset are capitalized and depreciated over their estimated useful lives. 13 Depreciation is computed utilizing the straight-line method over the estimated useful lives of ten to forty years for buildings and improvements and five to ten years for furniture, fixtures and equipment. Tenant improvements are amortized on a straight-line basis over the term of the related leases. The Company is required to make subjective assessments as to the useful lives of its properties for purposes of determining the amount of depreciation to reflect on an annual basis with respect to those properties. These assessments have a direct impact on the Company's net income. Should the Company lengthen the expected useful life of a particular asset, it would be depreciated over more years, and result in less depreciation expense and higher annual net income. Assessment by the Company of certain other lease related costs must be made when the Company has a reason to believe that the tenant will not be able to execute under the term of the lease as originally expected. The Company periodically reviews the carrying value of certain of its properties and long-lived assets in relation to historical results, current business conditions and trends to identify potential situations in which the carrying value of assets may not be recoverable. If such reviews indicate that the carrying value of such assets may not be recoverable, the Company would estimate the undiscounted sum of the expected future cash flows of such assets or analyze the fair value of the asset, to determine if such sum or fair value is less than the carrying value of such assets to ascertain if a permanent impairment exists. If a permanent impairment exists, the Company would determine the fair value by using quoted market prices, if available, for such assets, or if quoted market prices are not available, the Company would discount the expected future cash flows of such assets and would adjust the carrying value of the asset to fair value. Judgments as to impairments and assumptions used in projecting future cash flow are inherently imprecise. Results of Operations: For the year ended December 31, 2004, the Company reported net income of approximately $1.5 million (or $1.37 per diluted share) compared with net income of approximately $181,000 (or $.17 per diluted share) for the year ended December 31, 2003. Revenues: Total revenues for the year ended December 31, 2004 as compared with that of 2003 increased by approximately $2,186,000 (or 66%). This increase was primarily due to approximately $2.1 million in revenue related to the acquisition of the Monty's Property in August 2004. Revenues from the Monty's Property consisted of food and beverage revenue of $1.7 million, marina revenues of $337,000 and rents and related revenue of $63,000 for the period from August 20th to December 31, 2004. Real estate rentals and related revenue decreased by approximately $127,000 (or 8%) for the year ended December 31, 2004 as compared with 2003. This decrease was the result of decrease rental income of $249,000 due to the sale of the Jacksonville, FL shopping center in April 2004. This decrease was partially offset by an increase in rental and related revenues from the Grove Isle hotel 14 of approximately $35,000 primarily due to an inflationary adjustment to base rent in 2004, approximately $24,000 from the lease renewal of Kingston, NY retail store addition and approximately $63,000 from rental income from the retail mall acquired in August 2004. Marina revenues increased by approximately $320,000 (or 67%) for the year ended December 31, 2004 as compared with 2003. This increase was primarily the result of the acquisition of the Monty's Property in August 2004. During 2004, the Company sold two Grove Isle yacht slips for a total sales price of approximately $240,000. The net gain to the Company was approximately $166,000. Net gain from investments in marketable securities, including marketable securities distributed by partnerships in which the Company owns minority positions, for the years ended December 31, 2004 and 2003, is as follows:
Description 2004 2003 Net realized gain from sales of securities $188,000 $ 37,000 Unrealized net gain (loss) in marketable securities 233,000 754,000 Net change in sales of securities pending delivery - (24,000) ----------------------- ----------------------- Total net gain from investments in marketable securities $421,000 $767,000 ======================= =======================
Net realized gain from sales of marketable securities consisted of approximately $326,000 of gains net of $138,000 of losses for the year ended December 31, 2004. The comparable amounts in fiscal year 2003 were gains of approximately $362,000 net of $325,000 of losses. Approximately $195,000 and $197,000 of gains in fiscal years 2004 and 2003, respectively, were recognized from the sale of stock distributions from the Company's investments in privately held partnerships. Consistent with the Company's overall current investment objectives and activities, the entire marketable securities portfolio is classified as trading (versus available for sale, as defined by generally accepted accounting principles). Unrealized gains or losses from marketable securities are recorded as revenues in the statement of income. Investment gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's net earnings. However, the amount of investment gains or losses on marketable securities for any given period has no predictive value and variations in amount from period to period have no practical analytical value. Investments in marketable securities give rise to exposure resulting from the volatility of capital markets. The Company believes its risk to be mitigated by the diversity of its marketable securities portfolio. 15 Net gain (loss) from other investments is summarized below:
2004 2003 --------------------- ------------------- Venture capital funds - technology & ($123,332) ($108,507) communications (a) Real estate and related (b) 104,233 139,852 Venture capital funds - diversified businesses (c) 449,546 --- Income from investment in 49% owned affiliate (d) 67,323 32,130 Other (12,300) (12,300) --------------------- ------------------- Totals $485,470 $51,175 ===================== =================== (a) In connection with management's regular review of other investments which includes analyzing such factors as bankruptcies and realized losses of underlying investees the Company recorded adjustments to write down investments in these sectors for declines in value deemed to be other-than-temporary. In 2004 management recorded a total of $187,000 in write-downs of two investments in the technology-related industry. In 2003 the loss included approximately $114,000 of write-downs related to impairments experienced in three funds with a heavy concentration in technology-related businesses. (b) These gains consist primarily of gains from the disposition of assets held in partnerships in which the Company owns minority equity interests. (c) This gain is primarily from the sale of one of the portfolio companies owned by a limited partnership which owns various diversified businesses, primarily in the manufacturing and production related sectors. The Company's ownership percentage in this limited partnership is approximately .51%. Two of these businesses were sold in 2004 resulting in a net gain to the Company of approximately $450,000. (d) This gain represents income from the Company's 49% owned affiliate, T.G.I.F. Texas, Inc. The increase from the prior year is primarily as a result of increased rental revenue.
Net gain or loss from other investments may fluctuate significantly from period to period in the future and could have a significant impact on the Company's net earnings. However, the amount of investment gain or loss from other investments for any given period has no predictive value and variations in amount from period to period have no practical analytical value. Interest, dividend and other income for the year ended December 31, 2004 increased by approximately $171,000 (or 56%), as compared with that of 2003. This was primarily the result of interest from a new loan to the restaurant operator in Key West, Florida of $37,000 and increased earnings from investments in bonds of approximately $103,000. Expenses: Total expenses for the year ended December 31, 2004 as compared to that of 2003 increased by approximately $2,093,000 (or 61%). 16 Food and beverage costs are solely from the Monty's Property restaurant operations. Sales of food and beverage from August 20, 2004 (date acquired) through December 31, 2004 was approximately $1.73 million. The related cost of food and beverage sales was $537,000 or approximately 31% of food and beverage sales. Direct labor and related costs for the food and beverage operations was $356,000 or approximately 21% of sales, and all other costs relating to the food and beverage operations amounted to approximately $790,000 for the same period. Net profit from food and beverage operations (excluding payments between consolidated affiliates) was approximately $47,000 for the period since acquisition through December 31, 2004. Operating expenses of rental and other properties for the year ended December 31, 2004 increased by approximately $82,000 or (15%) as compared with that of 2003. This increase was primarily the result of $103,000 of costs related to the retail mall portion of the Monty's Property acquired in August 2004. This increase was partially offset by decreased expenses related to the Fashion Square shopping center which was sold in April 2004. Marina expenses increased by approximately $163,000 (or 43%) for the year ended December 31, 2004 as compared to 2003. This increase was primarily due to costs associated with the marina portion of the Monty's Property acquired in August 2004. Interest expense increased by approximately $235,000 (or 48%) for year ended December 31, 2004 as compared to 2003, primarily due to interest of approximately $285,000 on new borrowings related to the acquisition of the Monty's Property in August 2004. This increase was partially offset by decreased interest as a result of loan repayments from sales of property of approximately $38,000. Net gain on sales of real estate for the years ended December 31, 2004, and 2003 consisted of the following:
Net gain after incentive fee and minority interest --------------------------------------- Property Sold 2004 2003 Yacht slips, Coconut Grove, Florida $157,000 $356,000 Undeveloped land, Houston, Texas 298,000 282,000 Shopping center, Jacksonville, Florida 1,802,000 -- ------------------ ----------------- Total $2,257,000 $638,000 ================== =================
Net gain on sales of properties has been reduced, where applicable, by minority partners' interest in the gain of $8,000 and $19,000 for the years ended December 31, 2004 and 2003, respectively, and by adviser's incentive fees of $251,000 and $69,000 for the years ended December 31, 2004 and 2003, respectively. Provision for income taxes for the years ended December 31, 2004 and 2003 was $700,000 and $323,000, respectively. The 2004 provision includes $250,000 in current income tax liability relating to the Company's REIT activities. This tax may be eliminated or reduced if the Company elects to make a distribution as allowed for REIT's. The 2004 provision also includes deferred income tax expense 17 on non-REIT activities primarily relating to the utilization of prior year net operating loss carry forward. For the year ended December 31, 2003 the tax provision consisted entirely of deferred income tax expense and there was no current income tax provision or liability as the deferred income tax expense consisted primarily of the utilization of prior year net operating loss carry forward. The Company follows the liability method of accounting for income taxes. Under this method, deferred tax liabilities and assets are recognized for the expected future tax consequences of temporary differences between the carrying amount and the tax basis of assets and liabilities at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. As a result of timing differences associated with the carrying value of other investments and depreciable assets and the future benefit of a net operating loss, as of December 31, 2004 and 2003, respectively, the Company has recorded a net deferred tax asset of $28,000 and $478,000. A valuation allowance against deferred tax asset has not been established as management believes it is more likely than not, based on the Company's previous history and expectation of future taxable income before expiration, that these assets will be realized. Effect of Inflation. Inflation affects the costs of operating and maintaining the Company's investments. 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, Capital Expenditure Requirements and Capital Resources: The Company's material commitments primarily consist of maturities of debt obligations of approximately $3.9 million in 2005, contributions committed to other investments of approximately $1.0 million due upon demand and funding of remaining construction in progress of approximately $4.4 million. The funds necessary to meet these obligations are expected from the proceeds from the sales of properties or investments, bank construction loan, refinancing of existing bank loans, distributions from investments and available cash. Included in the maturing debt obligations for 2005 is a note payable to the Company's 49% owned affiliate, T.G.I.F. Texas, Inc. ("TGIF") ( Reference is made to Item 12 Certain Relationships and Related Transactions) of approximately $3.7 million. This amount is due on demand. The obligation due to TGIF will be paid with funds available from distributions from its investment in TGIF and from available cash. 18 A summary of the Company's contractual cash obligations at December 31, 2004 is as follows:
Payments Due by Period -------------------------------------------------------------------------------------------- Contractual Obligations Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years - ------------------------- ---------------- ------------------- ------------------- ------------------- --------------- Mortgages and notes $18,483,069 $3,929,573 $1,891,113 $4,403,603 $8,258,780 payable Other investments commitments (a) 994,441 994,441 -- -- -- Commitments to complete construction in progress (b) 4,400,000 4,400,000 -- -- -- - ------------------------- ---------------- ------------------- ------------------- ------------------- --------------- Total $23,877,510 $9,324,014 $1,891,113 $4,403,603 $8,258,780 ========================= ================ =================== =================== =================== =============== (a) The timing of amounts due under commitments for other investments is determined by the managing partners of the individual investments. These amounts are reflected as due in less than one year although the actual funding may not be required until some time in the future. (b) This amount represents an estimate as of December 31, 2004 of funding necessary to complete all construction in progress. Funding will be provided primarily from construction loans.
Material Changes in Operating, Investing and Financing Cash Flows. The Company's cash flows are generated primarily from its real estate activities, sales of investment securities, distributions from other investments and borrowings. For the year ended December 31, 2004 the Company used net cash in operating activities of approximately $314,000. This primarily consisted of purchases of marketable securities in excess of proceeds from sale of securities of approximately $1.8 million partially offset by increased broker margin payables of approximately $1.4. The Company believes that there will be sufficient cash flows in the next year to meet its operating requirements. For the year ended December 31, 2004, the net cash used in investing activities was approximately $12.1 million. This consisted primarily of the acquisition of and follow-on investments in the Monty's Property of $14.3 million, construction of the Grove Isle Spa property of approximately $1.5 million, additions to mortgages and notes receivable of $1.2 million and contributions to other investments of approximately $1.3 million. These uses were partially offset by net proceeds from the sales of properties of $4.4 million and distributions from investments of approximately $1.6 million For the year ended December 31, 2004, net cash used in financing activities was approximately $13.3 million. This consisted primarily of borrowings from mortgages and notes payable of $11.2 million ($10.1 million for Monty's Property acquisition and $1.0 million for Spa Property construction) and contributions from minority partners of $2.9 million. 19 Item 7. Consolidated Financial Statements Report of Independent Certified Public Accountant..................21. Consolidated balance sheets as of December 31, 2004 and 2003.......22. Consolidated statements of income for the years ended December 31, 2004 and 2003..........................23. Consolidated statements of stockholders' equity for the years ended December 31, 2004 and 2003..................24. Consolidated statements of cash flows for the years ended December 31, 2004, and 2003.........................25. Notes to consolidated financial statements.........................26. 20 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of HMG/Courtland Properties, Inc.: We have audited the accompanying consolidated balances sheets of HMG/Courtland Properties, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of comprehensive income, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HMG/Courtland Properties, Inc. and subsidiaries at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Sunrise, Florida March 17, 2005 Berenfeld, Spritzer, Shechter & Sheer 21
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003 - ------------------------------------------------------------------------------------------------------------------------------ December 31, December 31, 2004 2003 ASSETS Investment properties, net of accumulated depreciation: Commercial properties $4,721,261 $2,611,777 Commercial properties- construction in progress 210,965 - Hotel and club facility 3,827,201 4,212,734 Hotel and club facility-Spa construction in progress 1,489,702 - Marina properties 2,515,265 169,073 Land held for development 589,419 1,083,855 ------------------ ------------------ Total investment properties, net 13,353,813 8,077,439 Cash and cash equivalents 3,410,408 2,624,643 Investments in marketable securities 7,132,542 4,892,908 Other investments 5,190,543 5,048,016 Investment in affiliate 2,993,649 2,926,326 Loans, notes and other receivables 2,027,119 1,015,118 Notes and advances due from related parties 973,242 1,003,243 Deferred taxes 28,000 478,000 Goodwill 7,728,627 - Other assets 536,706 234,036 ------------------ ------------------ TOTAL ASSETS $43,374,649 $26,299,729 ------------------ ------------------ LIABILITIES Mortgages and notes payable $18,483,069 $8,086,227 Accounts payable and accrued expenses 885,132 229,462 Margin payable to broker 1,448,605 - Income taxes payable 250,000 - Interest rate swap contract payable 579,000 - ------------------ ------------------ TOTAL LIABILITIES 21,645,806 8,315,689 Minority interests 2,837,944 322,193 ------------------ ------------------ COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Preferred stock, $1 par value; 2,000,000 shares authorized; none issued - - Excess common stock, $1 par value; 500,000 shares authorized; none issued - - Common stock, $1 par value; 1,500,000 shares authorized; 1,315,635 shares issued and outstanding 1,315,635 1,315,635 Additional paid-in capital 26,571,972 26,571,972 Undistributed gains from sales of properties, net of losses 41,735,070 39,478,522 Undistributed losses from operations (48,524,414) (47,786,418) Accumulated other comprehensive loss (289,500) - ------------------ ------------------ 20,808,763 19,579,711 Less: Treasury stock, at cost (226,500 shares) (1,659,114) (1,659,114) Notes receivable from exercise of stock options (258,750) (258,750) ------------------ ------------------ TOTAL STOCKHOLDERS' EQUITY 18,890,899 17,661,847 ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,374,649 $26,299,729 ================== ==================
See notes to the consolidated financial statements 22
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------------------- REVENUES 2004 2003 Real estate rentals and related revenue $1,557,050 $1,684,201 Food & beverage sales 1,733,044 - Marina revenues 796,864 477,123 Net gain from investments in marketable securities 421,196 766,712 Net gain from other investments 485,470 51,175 Interest, dividend and other income 478,041 306,754 ----------------------------------------- Total 5,471,665 3,285,965 EXPENSES Operating expenses: Rental and other properties 622,148 540,098 Food and beverage cost of sales 537,319 - Food and beverage labor and related costs 433,526 - Food and beverage other operating costs 706,552 - Marina expenses 537,429 374,908 Depreciation and amortization 617,324 585,432 Adviser's base fee 900,000 900,000 General and administrative 288,716 271,422 Professional fees and expenses 175,584 177,619 Directors' fees and expenses 67,671 61,664 ----------------------------------------- Total operating expenses 4,886,269 2,911,143 Interest expense 723,410 488,370 Minority partners' interests in operating gain (loss) of consolidated entities (100,018) 20,406 ----------------------------------------- Total expenses 5,509,661 3,419,919 ----------------------------------------- Loss before sales of properties and income taxes (37,996) (133,954) Gain on sales of properties, net 2,256,548 637,743 ----------------------------------------- Income before income taxes 2,218,552 503,789 Provision for income taxes 700,000 323,000 ----------------------------------------- Net income 1,518,552 180,789 ========================================= Other comprehensive loss: Unrealized loss on interest rate swap agreement (289,500) - ----------------------------------------- Total other comprehensive loss (289,500) Comprehensive income $1,229,052 $180,789 ========================================= Net Income Per Common Share: Basic $1.39 $0.17 ===== ===== Diluted $1.37 $0.17 ===== ===== Weighted average common shares outstanding - Basic 1,089,135 1,089,135 ========= ========= Weighted average common shares outstanding - Diluted 1,112,417 1,094,993 ========= =========
See notes to the consolidated financial statements 23
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2004 AND 2003 - ----------------------------------------------------------------------------------------- Undistributed Gains from Sales Undistributed Common Stock Additional of Properties Losses from Shares Amount Paid-In Capital Net of Losses Operations Balance as of January 1, 2003 1,315,635 $1,315,635 $26,571,972 $38,840,779 ($47,329,464) Net income (loss) 637,743 (456,954) Repayment of Note receivable from exercise of Stock Options -------------------------------------------------------------------------------------------- Balance as of December 31, 2003 1,315,635 1,315,635 26,571,972 39,478,522 (47,786,418) Net income (loss) 2,256,548 (737,996) Unrealized loss on interest rate swap contract -------------------------------------------------------------------------------------------- Balance as of December 31, 2004 1,315,635 $1,315,635 $26,571,972 $41,735,070 ($48,524,414) ============================================================================================ Accumulated Notes Other Receivable Total Comprehensive Treasury Stock from exercise of Stockholders' Loss Shares Cost Stock Options Equity Balance as of January 1, 2003 - 226,500 ($1,659,114) ($288,750) $17,451,058 Net income (loss) 180,789 Repayment of Note receivable from exercise of Stock Options 30,000 30,000 ---------------------------------------------------------------------------------------------- Balance as of December 31, 2003 - 226,500 (1,659,114) (258,750) 17,661,847 Net income (loss) 1,518,552 Unrealized loss on interest rate swap contract ($289,500) (289,500) ---------------------------------------------------------------------------------------------- Balance as of December 31, 2004 ($289,500) 226,500 ($1,659,114) ($258,750) $18,890,899 ==============================================================================================
See notes to the consolidated financial statements 24
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 - ----------------------------------------------------------------------------------------------------------------------- 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,518,552 $180,789 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 617,324 585,432 Net gain from other investments (530,134) (51,175) Gain on sales of properties, net (2,256,548) (637,743) Net (gain) loss from investments in marketable securities (421,196) (766,712) Minority partners' interest in operating (losses) gains (100,018) 20,406 Deferred income tax expense 450,000 323,000 Changes in assets and liabilities: (Increase) decrease in other assets and other recievables (200,006) 36,540 Net proceeds from sales and redemptions of securities 4,751,314 2,208,322 Decrease in sales of securities pending delivery - (80,099) Increased investments in marketable securities (6,512,255) (2,579,794) Increase (decrease) in accounts payable and accrued expenses 670,273 (8,796) Increase in accrued income taxes payable 250,000 - Increase (decrease) in margin payable to brokers and other liabilities 1,448,605 (679,891) Repayment of note receivable from stock options exercised - 30,000 ----------------- ---------------- Total adjustments (1,832,641) (1,600,510) ----------------- ---------------- Net cash used in operating activities (314,089) (1,419,721) ----------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases and improvements of properties (including goodwill) (15,740,529) - Net proceeds from disposals of properties 4,395,355 1,599,997 Decrease in notes and advances from related parties (31,300) 411,731 Additions in mortgage loans and notes receivables (1,200,000) - Collections of mortgage loans and notes receivables 73,035 25,195 Distributions from other investments 1,620,019 1,523,226 Contributions to other investments (1,298,233) (843,140) ----------------- ---------------- Net cash (used in) provided by investing activities (12,181,653) 2,717,009 ----------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings from mortgages and notes payables 11,180,000 - Repayment of mortgages and notes payables (783,158) (536,179) Contributions from minority partners 2,915,108 - Distributions to minority partners (30,443) - ----------------- ---------------- Net cash provided by (used in) financing activities 13,281,507 (536,179) ----------------- ---------------- Net increase in cash and cash equivalents 785,765 761,109 Cash and cash equivalents at beginning of the period 2,624,643 1,863,534 ----------------- ---------------- Cash and cash equivalents at end of the period $3,410,408 $2,624,643 ----------------- ---------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $723,000 $488,000 ================= ================
See notes to the consolidated financial statements 25 HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2004 and 2003 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business and 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. The Company was organized in 1972 and (excluding its 95% owned subsidiary Courtland Investments, Inc., which files a separate tax return) qualifies for taxation as a real estate investment trust ("REIT") under the Internal Revenue Code. The Company's business is the ownership and management of income-producing commercial properties and its management considers other investments if such investments offer growth or profit potential. The Company's recurring operating revenue comes from rental and related income, gains from investments and beginning in August 2004 from food and beverage operations. All material transactions and balances 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 Yacht Club Associates and a 15% general partnership interest in Grove Isle Associates, Ltd. CII also invests in marketable securities and various investments in partnerships whose primary purpose is to make equity investments in growth-oriented enterprises and real estate. The Company holds a 95% non-voting interest and Masscap Investments Company, Inc. ("Masscap") holds a 5% voting interest in CII. The Company and Masscap have had a continuing arrangement with regard to the ongoing operations of CII, which provides the Company with complete authority over all decision making relating to the business, operations and financing of CII consistent with the Company's status as a real estate investment trust. Masscap is a wholly-owned subsidiary of Transco Realty Trust which is a 44% shareholder of the Company. CII files a separate tax return and its operations are not part of the REIT tax return. Courtland Bayshore Rawbar, LLC ("CBSRB"). This Florida limited liability company ("LLC") was formed in 2004 and is wholly owned by CII. CBSRB owns a 50% interest in Bayshore Rawbar, LLC ("BSRB") which operates the outdoor Monty's restaurant. The other 50% owner of BSRB is The Christoph Family Trust ("CFT") an unrelated party. HMG Bayshore, LLC ("HMGBS"). This Florida limited liability company ("LLC") was formed in 2004 for the purpose of owning a 50% interest in the real property and marina operations of Bayshore Landing, LLC ("BSL"). HMGBS and the CFT formed BSL for the purposes of acquiring and operating Monty's Property in Coconut Grove, Florida. 26 Courtland/Key West, Inc. ("CKWI"). This Florida corporation was formed in December 1999 and is wholly-owned by CII. CKWI owns a 10% interests in a limited liability company that owns and operates a restaurant in Key West, Florida. CII Spa, LLC ("CIISPA"). This Florida single-member limited liability company was formed in 2004 and is wholly-owned by CII. CIISPA owns a 50% interest Grove Spa, LLC ("GS"), as discussed below. In September 2004 the Company entered into an agreement with Noble House Associates, LLC ("NHA"), an affiliate of the Company's tenant at its Grove Isle property (Westgroup Grove Isle Associates, Ltd., or "Westgroup"), for the purpose of developing and operating on the Grove Isle property a commercial project consisting of a first class spa, together with related improvements and amenities (the "Spa Property"). A newly formed and wholly-owned subsidiary of the Company, CIISPA and NHA formed a Delaware limited liability company, GS which is owned 50% by CIISPA and 50% by NHA. The Spa Property developed by GS will be sub-leased from Westgroup. Grove Isle Associates, Ltd. ("GIA"). This limited partnership (owned 85% by the Company and 15% by CII) 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. Grove Isle Yacht Club Associates ("GIYCA"). This partnership was the developer of the 85 boat slips located at Grove Isle of which the Company owns six as of December 31, 2004. All other slips are privately owned. Grove Isle Marina, Inc. a wholly-owned subsidiary of GIYCA operates all aspects of the Grove Isle marina. The Grove Towne Center - Texas, Ltd ("TGTC"). This limited partnership is a wholly-owned by the Company. The sole asset of the partnership is 3 acres of undeveloped land located in suburban Houston, Texas. South Bayshore Associates ("SBA"). This is a 75% owned joint venture where the major asset is a receivable from the Company's 44% shareholder, Transco Realty Trust. HMG - Fieber Associates ("Fieber"). This is a 70% owned joint venture where the major asset is a retail store located in the state of New York. 260 River Corp ("260"). This is a wholly-owned corporation which owns a 70% interest in a vacant retail store location in Montpelier, Vermont. Preparation of Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. 27 Income Taxes. The Company's 95%-owned subsidiary, CII, files a separate income tax return and its operations are not included in the REIT's income tax return. The Company accounts for income taxes in accordance with the Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". SFAS No. 109 requires a Company to use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS No. 109, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred taxes only pertain to CII. The Company (excluding CII) qualifies as a real estate investment trust and distributes its taxable ordinary income to stockholders in conformity with requirements of the Internal Revenue Code and is not required to report deferred items due to their ability to distribute all taxable income. In addition, net operating losses can be carried forward to reduce future taxable income but cannot be carried back. Distributed capital gains on sales of real estate as they relate to REIT activities are not subject to taxes; however, undistributed capital gains are taxed as capital gains. State income taxes are not significant. 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 and amortization expense for the years ended December 31, 2004 and 2003 was approximately $617,000 and $585,000, respectively. The Grove Isle yacht slips are being depreciated on a straight-line basis over their estimated useful life of 20 years. The Monty's marina is being depreciated on a straight-line basis over its estimated useful life of 15 years. Fair Value of Financial Instruments. The carrying value of financial instruments including other receivables, notes and advances due from related parties, accounts payable and accrued expenses and mortgages and notes payable approximate their fair values at December 31, 2004 and 2003, due to their relatively short terms or variable interest rates. Marketable Securities. The entire marketable securities portfolio is classified as trading consistent with the Company's overall investment objectives and activities. Accordingly, all unrealized gains and losses on the Company's marketable securities investment portfolio are included in the statement of income. Gross gains and losses on the sale of marketable securities are based on the first-in first-out method of determining cost. Marketable securities from time to time are pledged as collateral pursuant to broker margin requirements. As of December 31, 2004 there was approximately $1.4 million of margin balances payable to brokers which were included in other liabilities. As of December 31, 2003 there were no such amounts outstanding. 28 Notes and other receivables. Management periodically performs a review of amounts due on its notes and other receivable balances to determine if they are impaired based on factors affecting the collectibility of those balances. Management's estimates of collectibility of these receivables requires management to exercise significant judgment about the timing, frequency and severity of collection losses, if any, and the underlying value of collateral, which may affect recoverability of such receivables. As of December 31, 2004 and 2003, there were no receivables that required an allowance. Sales of Securities Pending Delivery. Sales of securities pending delivery represent the fair market value of shares sold with the promise to deliver that security at some future date. The obligation may be satisfied with current holdings of the same security or by subsequent purchases or acquisitions of that security. Unrealized gains and losses from changes in the obligation are included in earnings. Equity investments. Investments in which the Company does not have a majority voting or financial controlling interest but has the ability to exercise influence are accounted for under the equity method of accounting, even though the Company may have a majority interest in profits and losses. The Company generally has no voting or financial controlling interests in its other investments which include entities that invest venture capital funds in growth oriented enterprises. These other investments are carried at cost less adjustments for other than temporary declines in value. Comprehensive Income (Loss). The Company reports comprehensive income (loss) in the consolidated statement of stockholders' equity. Comprehensive income (loss) is the change in equity from transactions and other events from nonowner sources. Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss). For the year ended December 31, 2004 comprehensive loss consisted of unrealized loss from interest rate swap agreement. There were no comprehensive income (loss) items in 2003. 29 Earnings Per Common Share. Net income per common share (basic and diluted) is based on the net income divided by the weighted average number of common shares outstanding during each year. Diluted net income per share includes the dilutive effect of options to acquire common stock. Common shares outstanding include issued shares less shares held in treasury. For the years ended December 31, 2004 2003 Basic: Net Income $1,518,552 $180,789 Weighted average shares outstanding 1,089,135 1,089,135 ---------------------------- Basic earnings per share $1.39 $.17 ============================ Diluted: Net Income $1,518,552 $180,789 Weighted average shares outstanding 1,089,135 1,089,135 Options to acquire common stock 23,282 5,858 ---------------------------- Diluted weighted average common shares 1,112,417 1,094,993 ---------------------------- Diluted earnings per share $1.37 $.17 ============================ Gain on Sales of Properties. Gain on sales of properties is recognized when the minimum investment requirements have been met by the purchaser and title passes to the purchaser. Furthermore, gain on sales of properties has been reduced, where applicable, by minority partners' interest in the gain of $8,000 and $19,000 for the years ended December 31, 2004 and 2003, respectively and adviser's incentive fees of $251,000 and $69,000 for the years ended December 31, 2004 and 2003, respectively. Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalent. Concentration of Credit Risk. Financial instruments that potentially subject the Company to concentration of credit risk are cash and cash equivalents, marketable securities, other receivables and notes and mortgages receivable. Derivative Instruments. The Company may or may not use derivative instruments to reduce interest rate risk. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative instruments. The Company does not hold derivative instruments for trading purposes. Interest rate swap contracts designated and qualifying as cash flow hedges are reported at fair value. The gain or loss on the effective portion of the hedge initially is included as a component of other comprehensive income and is subsequently reclassified into earnings when interest on the related debt is paid. 30 Inventories. Inventories consist solely of food and beverage and are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. Intangible Assets. Intangible assets consist primarily of goodwill and deferred loan costs. Goodwill is carried at historical cost if its estimated fair value is greater than its carrying value. However, if its estimated fair value is less than the carrying amount, goodwill is reduced to its estimated fair value through an impairment charge to the statement of income. Deferred loan costs are amortized over the life of the loan on a straight line basis which approximates effective interest rate method. Reclassifications. Certain amounts in prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. Minority Interest. Minority interest represents the minority partners' proportionate share of the equity of the Company's majority owned subsidiaries.
2004 2003 --------------- --------------- Minority interest balance at beginning of year $322,000 $271,000 Minority partners' interest in operating gains (losses) of consolidated subsidiaries (100,000) 20,000 Minority partners' interest in net gains on sales of real estate of consolidated subsidiaries 8,000 19,000 Net contributions from minority partners 2,885,000 --- Unrealized loss on interest rate swap agreement (290,000) --- Other 13,000 12,000 --------------- --------------- Minority interest balance at end of year $2,838,000 $322,000 =============== ===============
Stock-Based Compensation. In December 2004, the FASB issued SFAS No. 123R, "Accounting for Stock-Based Compensation." This statement is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service, the requisite service period (usually the vesting period). The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models. In addition, a public entity is required to measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value. The fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. 31 For public entities that file as small business issuers, this statement is effective as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. At the required effective date, all public entities that used the fair value based method for either recognition or disclosure under Statement 123 are required to apply this statement using a modified version of prospective application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under Statement 123 for either recognition or pro-forma disclosures. For periods before the required effective date, those entities may elect to apply the modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by Statement 123. The Company does not expect SFAS No. 123R to have a material effect on its financial statements. Revenue Recognition. The Company is the lessor of various real estate properties. 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 and are recognized on the accrual basis, based on the lessee's monthly sales. 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. In addition to base rent, the Company may receive participation rent consisting of a portion of the tenant's operating surplus, as defined in the lease agreement. Participation rent is due at end of each lease year and recognized when earned. Revenues earned from restaurant and marina operations are in cash or cash equivalents with an insignificant amount of customer receivables. Asset Impairments. The Company periodically reviews the carrying value of its properties and long-lived assets in relation to historical results, current business conditions and trends to identify potential situations in which the carrying value of assets may not be recoverable. If such reviews indicate that the carrying value of such assets may not be recoverable, the Company would estimate the undiscounted sum of the expected future cash flows of such assets or analyze the fair value of the asset, to determine if such sum or fair value is less than the carrying value of such assets to ascertain if a permanent impairment exists. If a permanent impairment exists, the Company would determine the fair value by using quoted market prices, if available, for such assets, or if quoted market prices are not available, the Company would discount the expected future cash flows of such assets and would adjust the carrying value of the asset to fair value. Recent Accounting Pronouncements. In December 2004, the FASB issued SFAS No. 123R, "Accounting for Stock-Based Compensation". This statement is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service, the requisite 32 service period (usually the vesting period). The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models. In addition, a public entity is required to measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value. The fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. For public entities that file as small business issuers, this statement is effective as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. At the required effective date, all public entities that used the fair value based method for either recognition or disclosure under Statement 123 are required to apply this statement using a modified version of prospective application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under Statement 123 for either recognition or pro-forma disclosures. For periods before the required effective date, those entities may elect to apply the modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by Statement 123. The Company does not expect SFAS No. 123R to have a material effect on its financial statements. 33 2. INVESTMENT PROPERTIES The components of the Company's investment properties and the related accumulated depreciation information follow:
December 31, 2004 ----------------------------------------------------------- Accumulated Cost Depreciation Net ------------------- ------------------- ------------------- Commercial Properties: Restaurant and retail mall (Coconut Grove, FL) - Building $2,900,000 $35,318 $2,864,682 Restaurant and retail mall (Coconut Grove, FL) - F,F &E 894,069 28,688 865,381 Corporate Office - (Coconut Grove, FL) - Building 642,686 127,525 515,161 Corporate Office - (Coconut Grove, FL) - Land 325,000 - 325,000 Other (New York and Vermont) - Buildings 191,416 187,392 4,024 Other (New York and Vermont) - Land 147,013 - 147,013 ------------------- ------------------- ------------------- 5,100,184 378,923 4,721,261 Commercial Properties- Construction in Progress: Restaurant and retail mall (Coconut Grove, FL) 210,965 - 210,965 ------------------- ------------------- ------------------- 210,965 - 210,965 Hotel and Club Facility (Coconut Grove, FL): Land 1,338,518 - 1,338,518 Building and improvements 6,967,862 4,479,179 2,488,683 ------------------- ------------------- ------------------- 4,479,179 8,306,380 3,827,201 Hotel and Club Facility - Construction in Progress: Hotel and club facility - Spa (Coconut Grove, FL) 1,489,702 - 1,489,702 ------------------- ------------------- ------------------- 1,489,702 - 1,489,702 Marina Properties (Coconut Grove, FL): 132 slips located at restaurant and retail mall 2,500,000 62,500 2,437,500 6 slips located at hotel and club facility (6 slips) 215,569 137,804 77,765 ------------------- ------------------- ------------------- 2,715,569 200,304 2,515,265 Land Held for Development: Houston, Texas (approximately 3 acres) 561,730 - 561,730 Hopkington, Rhode Island (approximately 50 acres) 27,689 - 27,689 ------------------- ------------------- ------------------- 589,419 - 589,419 ------------------- ------------------- ------------------- $ 18,412,219 $ 5,058,406 $ 13,353,813 =================== =================== ===================
34 2. INVESTMENT PROPERTIES (continued)
December 31, 2003 --------------------------------------------------- Accumulated Cost Depreciation Net Commercial Properties Land $1,289,786 $1,289,786 Buildings and improvements 2,280,394 $958,403 1,321,991 --------------------------------------------------- 3,570,180 958,403 2,611,777 Hotel and Club Facility (Coconut Grove, FL): Land 1,338,518 1,338,518 Hotel/club facility and improvements 6,819,032 3,949,069 2,869,963 Furniture, fixtures & equipment 144,164 139,911 4,253 --------------------------------------------------- 8,301,714 4,088,980 4,212,734 Yacht Slips 300,136 131,063 169,073 Land Held for Development 1,083,855 1,083,855 --------------------------------------------------- Total $13,255,885 $5,178,446 $8,077,439 ===================================================
3. ACQUISITION OF RESTAURANT, MARINA AND OFFICE/RETAIL PROPERTY, COCONUT GROVE, FLORIDA On August 20, 2004, the Company, through two 50%-owned entities, Bayshore Landing, LLC ("Landing") and Bayshore Rawbar, LLC ("Rawbar"), (collectively, "Bayshore") purchased a restaurant, office/retail and marina property located in Coconut Grove (Miami), Florida (the "Monty's Property") for approximately $13.9 million. The other 50% owner of Bayshore is The Christoph Family Trust ("CFT"). Members of CFT are experienced real estate and Marina operators. The seller, Bayshore Restaurant Management Corporation and affiliates, is part of a larger privately-held organization which operates other restaurants in Florida. The acquired assets included a two story building with approximately 40,000 rentable square feet. A portion of the upstairs space is intended to be utilized as a restaurant. The property also includes approximately 15,000 square feet of outdoor space comprising the raw bar restaurant and approximately 3.7 acres of submerged land with approximately 132 dock slips comprising the marina portion of the acquired property. Also included in the acquired assets were certain trademarks and other rights in connection with the restaurant and dock slips. The acquired property is subject to a ground lease with the City of Miami, Florida which expires on May 31, 2035. Under the lease the Company pays 35 percentage rents ranging from 5% to 15% of gross revenues from various components of the project. Total rent paid to the City of Miami for August 20th (date of purchase) to December 31, 2004 was approximately $268,000. The purchase price paid by Bayshore included proceeds from a bank loan secured by the Monty's Property in the amount of $10.1 million plus approximately $3.9 million in cash. The $10.1 million bank loan is part of a $13.275 million acquisition and construction loan. Proceeds from the construction loan are intended for renovations to the entire property. The outstanding principal balance of the bank loan shall bear interest at a rate of 2.45% per annum in excess of the LIBOR Rate. The bank loan shall be payable as follows: during the first year, monthly payments of accrued interest will be paid. After the first year and upon conversion to permanent terms, the loan will be repayable in equal monthly principal payments necessary to fully amortize the principal amount over the remaining twenty years of the loan, plus accrued interest. In conjunction with the mortgage Bayshore has also entered into an interest rate swap agreement to manage their exposure to interest rate fluctuation through the entire term of the mortgage. The effect of the swap agreement is to provide a fixed interest rate of 7.57%. The following table sets forth the allocation of the purchase price to the assets acquired: Marina slips $2,500,000 Buildings 2,900,000 Furniture and fixtures 765,000 Goodwill 7,729,000 Food and beverage inventory 49,000 ------------- Total Capitalized Costs $13,943,000 ------------- The allocation above was based on an independent appraisal and valuation report which utilized as its primary valuation method the discounted cash flows from the existing operations assigning appropriate discount rates for each of the three operating components of the Monty's Property. The excess of capitalized cost assigned to specific assets over the purchase price was $7,729,000 and was recorded as goodwill. Effective from the date of acquisition, the operations of Rawbar will be managed by a company (the "Manager") whose principal was a principal of the seller and has operated this restaurant for the last 15 years. The Manager also operates two other Monty's restaurants in Miami Beach and Key West. The Company has a 10% equity interest in the Key West location. Under the management agreement Rawbar will pay the Manager a management fee equal to the greater of $300,000 per year or 4% of gross sales, as defined. In addition, the Manager is entitled to an incentive fee equal to 33% of all operating profits greater than $1,200,000 per year. The operations of Rawbar are performed by employees of the Manager and the Company reimburses the Manager for such employees' payroll and related costs. The management agreement expires in August, 2009. The upstairs and parts of the downstairs of the Monty's Property are currently under construction. The Company expects a portion of the upstairs space to be utilized as a restaurant and is also expanding the downstairs raw bar 36 restaurant. Construction is expected to be completed by late 2005 at an estimated cost of $3.7 million. Summarized combined statement of income for Landing and Rawbar for the period from the date of purchase of August 20, 2004 through December 31, 2004 is presented below (Note: the Company's ownership percentage in these operations is 50%): Combined Bayshore Landing, LLC and August 20, 2004 through Bayshore Rawbar, LLC December 31, 2004 ----------------------------------------- ----------------------- Revenues: Food and Beverage Sales $1,733,000 Marina dockage, upland rents and other 400,000 ----------------------- Total Revenues 2,133,000 Expenses: Cost of food and beverage sold 537,000 Labor and related costs 355,000 Other food and beverage related costs 196,000 Insurance 137,000 Management fees 138,000 Utilities 107,000 Ground Rent 267,000 Interest 285,000 Depreciation 126,000 Other 214,000 ----------------------- Total Expenses 2,362,000 ----------------------- Net Loss ($229,000) ======================= Unaudited Pro-forma Results of Operations The following are the Company's results of operations for the year ended December 31, 2004 with comparative results of operations for the year ended December 31, 2003, as if the acquisition of the Monty's property had taken place at the beginning of the years. 2004 2003 ---- ---- Revenues $9,871,000 $9,314,000 ---------- ---------- Net income $1,939,000 $513,000 ---------- -------- Basic earnings per share $1.78 $.47 ----- ---- Diluted earnings per share $1.74 $.47 ----- ---- 37 4. INVESTMENTS IN MARKETABLE SECURITIES Investments in marketable securities consist primarily of large capital corporate equity and debt securities in varying industries or issued by government agencies with readily determinable fair values (see table below). These securities are stated at market value, as determined by the most recently traded price of each security at the balance sheet date. Consistent with the Company's overall current investment objectives and activities its entire marketable securities portfolio is classified as trading. Accordingly all unrealized gains and losses on this portfolio are recorded in the statement of income. For the years ended December 31, 2004 and 2003 net unrealized gains on trading securities were approximately $233,000 and $754,000, respectively.
December 31, 2004 December 31, 2003 ------------------------------------------------- ------------------------------------------------- Cost Fair Unrealized Cost Fair Unrealized Description Basis Value Gain (loss) Basis Value Gain (loss) Real Estate Investment Trusts $193,817 $354,048 $160,231 $177,256 $277,501 $100,245 Mutual Funds 873,132 958,742 85,610 625,389 683,584 58,195 Other Equity Securities 1,672,866 1,950,606 277,740 1,287,395 1,444,935 157,540 ------------ ---------------- -------------- ------------- -------------- -------------- Total Equity Securities 2,739,815 3,263,396 523,581 2,090,040 2,406,020 315,980 Corporate Debt Securities (a) 974,685 1,002,931 28,245 631,340 626,326 (5,014) Government Debt Securities (a) 2,949,187 2,866,215 (82,972) 1,921,289 1,860,562 (60,727) ------------ ---------------- -------------- ------------- -------------- -------------- Total Debt Securities 3,923,872 3,869,146 (54,727) 2,552,629 2,486,888 (65,741) ------------ ---------------- -------------- ------------- -------------- -------------- Total $6,663,687 $7,132,542 $468,855 $4,642,669 $4,892,908 $250,239 ============ ================ ============== ============= ============== ============== (a) As of December 31, 2004, corporate and government debt securities are scheduled to mature as follows: Cost Fair Value 2005 - 2009 $1,135,000 $1,190,000 2010-2014 878,000 852,000 2015 - thereafter 1,911,000 1,827,000 -------------- -------------- $3,924,000 $3,869,000 ============== ==============
38 Net gain from investments in marketable securities for the years ended December 31, 2004 and 2003 is summarized below: Description 2004 2003 Net realized gain from sales of securities $188,000 $37,000 Unrealized net gain in marketable securities 233,000 754,000 Net change in sales of securities pending delivery - (24,000) -------------- ------------- Total net gain $421,000 $767,000 ============== ============= Net realized gain from sales of marketable securities consisted of approximately $326,000 of gains net of $139,000 of losses for the year ended December 31, 2004. The comparable amounts in fiscal year 2003 were gains of approximately $362,000 net of $325,000 of losses. Approximately $195,000 and $197,000 of gains in fiscal years 2004 and 2003, respectively, were recognized from the sale of stock distributions from the Company's investments in privately held partnerships. Consistent with the Company's overall current investment objectives and activities the entire marketable securities portfolio is classified as trading (versus available for sale, as defined by generally accepted accounting principles). Unrealized gains or loss of marketable securities on hand are recorded in the statement of income. Net change in sales of securities pending delivery represents the changes in the market value of those securities and the delivery of securities during 2003 to realize gain or loss from these transactions. There were no sales of securities pending delivery as of December 31, 2004. Investment gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's net earnings. However, the amount of investment gains or losses on marketable securities for any given period has no predictive value and variations in amount from period to period have no practical analytical value. Investments in marketable securities give rise to exposure resulting from the volatility of capital markets. The Company attempts to mitigate its risk by diversifying its marketable securities portfolio. 5. OTHER INVESTMENTS The Company's other investments consist primarily of nominal equity interests in various privately-held entities, including limited partnerships whose purpose is to invest venture capital funds in growth-oriented enterprises. The Company does not have significant influence over any investee and no single investment exceeds 5% of the Company's total assets. None of these investments meet the 39 criteria of accounting under the equity method and are carried at cost less distributions and other than temporary unrealized losses. The Company's other investments consist of:
Carrying values as of December 31, ----------------------------------- Investment Focus 2004 2003 - ------------------------------------------------ ---------------- --------------- Venture capital funds - technology and communications $639,870 $882,748 Venture capital funds - diversified businesses 969,828 1,914,575 Restaurant development and operation 575,000 500,000 Real estate and related 955,506 745,686 Hedge and debt funds 1,753,339 645,007 Other 297,000 360,000 ---------------- --------------- Totals $5,190,543 $5,048,016 ================ ===============
As of December 31, 2004, the Company has unfunded commitments relating to other investments of approximately $994,000. During the years ended December 31, 2004 and 2003 the Company contributed approximately $1.3 million and $843,000, respectively, toward these commitments and received distributions from these investments (primarily cash distributions) of $1.7 million and $1.5 million, respectively. The Company regularly reviews the underlying assets in its investment portfolio for events, including but not limited to bankruptcies, closures and declines in estimated fair value, that may indicate the investment has suffered an other-than-temporary decline in value. When a decline is deemed other-than-temporary, the Company recognizes an investment loss. Net gain from other investments, which includes adjustments to write down the carrying value of such investments as a result of an other-than-temporary declines in value, is as follows (included in these amounts are investments written down during 2004 and 2003 of approximately $187,000 and $114,000, respectively): 40 Net gain from other investments:
Years ended December 31, ----------------------------------------- 2004 2003 --------------------- ------------------- Venture capital funds - technology & ($123,332) ($108,507) communications (a) Real estate and related (b) 104,233 139,852 Venture capital fund - diversified businesses (manufacturing) (c) 449,546 --- Income from investment in 49% owned affiliate (d) 67,323 32,130 Others, net (12,300) (12,300) --------------------- ------------------- Totals $485,470 $51,175 ===================== =================== (a) In connection with management's regular review of other investments including analyzing such factors as bankruptcies and realized losses of underlying investees the Company recorded adjustments to write down investments in these sectors for declines in value deemed to be other-than-temporary. In 2004 management recorded a total of $187,000 in write-downs of two investments in the technology-related industry. In 2003 the loss included approximately $114,000 of write-downs related to impairments experienced in three funds with a heavy concentration in technology-related businesses. (b) These gains consist primarily of gains from the disposition of assets held in partnerships in which the Company owns minority equity interests. (c) This gain is primarily from the sale of one of the portfolio companies owned by a limited partnership which owns various diversified businesses, primarily in the manufacturing and production related sectors. The Company's ownership percentage in this limited partnership is approximately .51%. Two of these businesses were sold in 2004 resulting in a net gain to the Company of approximately $450,000. (d) This gain represents income from the Company's 49% owned affiliate, T.G.I.F. Texas, Inc. (see Note 6 below). The increase from the prior year is primarily as a result of increased rental revenue.
Other investments give rise to exposure resulting from credit risks and the volatility in capital markets. The Company attempts to mitigate its risks by diversifying its investment portfolio. Net gain or loss from other investments may fluctuate significantly from period to period in the future and could have a significant impact on the Company's net earnings. 41 6. INVESTMENT IN AFFILIATE Investment in affiliate consists of CII's 49% equity interest in T.G. I.F. Texas, Inc. (T.G.I.F.). T.G.I.F. is a Texas Corporation, which owns one net leased property in Louisiana and holds promissory notes receivable from its shareholders, including CII and Maurice Wiener, the Chairman of the Company. Reference is made to Notes 8 and 10 for discussion on notes payable by CII to T.G. I.F. and notes payable by Mr. Wiener to T.G.I.F. This investment is recorded under the equity method of accounting. For the years ended December 31, 2004 and 2003 income from investment in affiliate amounted to approximately $67,000 and $32,000, respectively and is included in gain (loss) from other investments in the consolidated statement of income. 7. LOANS, NOTES AND OTHER RECEIVABLES In August 2004 the Company loaned $1 million to an entity which owns and operates a restaurant in Key West, Florida. The Company has had a 10% equity interest in this restaurant since its construction began in 1999. The proceeds of loan were used for leasehold improvements. The principal owner of the restaurant is an entity whose principal is also the principal of the seller and current manager of the restaurant operations acquired on August 20, 2004 (Monty's Property). The promissory note is secured by a 65-year leasehold interest and calls for quarterly payments of interest of 8% per annum beginning on July 31, 2004. All principal and accrued and unpaid interest is due on June 30, 2009. The Company also has a ten year option to acquire an additional 20% equity interest in this restaurant. The restaurant opened in October 2003 and for the three months ended December 31, 2003 reported net income from operations of $94,000 and for the year ended December 31, 2004 reported a net loss of $564,000. 8. NOTES AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES The Company has an agreement (the "Agreement") with HMG Advisory Corp. (the "Adviser") for its services as investment adviser and administrator of the Company's affairs. All officers of the Company who are officers of the Adviser are compensated solely by the Adviser for their services. The Company has one employee who is a vice president of CII. This employee assumed the responsibilities of the prior project manager of one of the Company's properties. The Adviser is majority owned by Mr. Wiener, the Company's Chairman, with the remaining shares owned by certain officers including Mr. Rothstein. The officers and directors of the Adviser are as follows: Maurice Wiener, Chairman of the Board and Chief Executive Officer; Lawrence I. Rothstein, President, Treasurer, Secretary and Director; and Carlos Camarotti, Vice President - Finance and Assistant Secretary. Under the terms of the Agreement, the Adviser serves as the Company's investment adviser and, under the supervision of the directors of the Company, administers the day-to-day operations of the Company. All officers of the Company, other than the project manager described above, who are officers of the Adviser are 42 compensated solely by the Adviser 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 Adviser and a majority of the Company's shareholders. The contract may be terminated at any time on 120 days written notice by the Adviser 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. On July 16, 2004, the shareholders approved renewal of the Advisory Agreement between the Company and the Adviser for a term commencing January 1, 2005, and expiring December 31, 2005. All terms of the existing Advisory Agreement will remain the same. For the years ended December 31, 2004 and 2003, the Company and its subsidiaries paid the Adviser approximately $1.2 million and $977,000 in fees, respectively, of which $900,000 represented regular compensation and approximately $315,000 and $77,000 represented incentive compensation for 2004 and 2003, respectively. The Adviser is also the manager for certain of the Company's affiliates and received management fees of approximately $17,000 and $12,000 in 2004 and 2003, respectively, for such services. Furthermore, for each of the fiscal years 2004 and 2003 the Company paid approximately $85,000 to one of the Company's officers in his capacity as project manager of a specific property, as described above. At December 31, 2004 and 2003, the Company had amounts due from the Adviser of approximately $234,000 and $259,000, respectively. In March 2005 the Adviser made a cash payment of $50,000 on amounts due the Company. The amount due from the Adviser bears interest at prime plus 1% and is due on demand. At December 31, 2004 and 2003, the Company had amounts due from Courtland Group, Inc. (CGI) (the former adviser) of approximately $303,000. In March 2005 CGI made a cash payment of $50,000 on amounts due the Company. The amount due from CGI bears interest at prime plus 1% and is due on demand. The Adviser leases its executive offices from CII pursuant to a lease agreement. This lease agreement is at the going market rate for similar property and calls for base rent of $48,000 per year payable in equal monthly installments. Additionally, the Adviser is responsible for all property insurance, utilities, maintenance, and security expenses relating to the leased premises. The lease term is five years, expiring in November 2009. In August 2004 the HMG Advisory Bayshore, Inc. ("HMGABS") (a wholly owned subsidiary of the Adviser) was formed for the purposes of overseeing the Monty's restaurant operations acquired in August 2004. HMGABS will receive a management fee $25,000 per year from Bayshore Rawbar, LLC. As of December 31, 2004 HMGBS had earned $8,333 in such management fees. On August 24, 2000, certain officers and directors of the Company exercised all of their stock options and purchased a total of 70,000 shares of the Company's stock for $358,750. The Company received $70,000 in cash and promissory notes for the balance of $288,750. These promissory notes bear interest at 6.18% per annum payable quarterly in arrears on the first day of January, April, July and October. The balance of the notes as of December 31, 2004 is $258,750. The 43 outstanding principal is due on August 23, 2005 and the notes are collateralized by the stock. The Company, via its 75% owned joint venture (SBA), has a note receivable from Transco (a 44% shareholder of the Company) of $300,000 plus accrued interest of approximately $132,000 and $139,000 as of December 31, 2004 and 2003, respectively. This note bears interest at the prime rate and is due on demand. Mr. Wiener is an 18% shareholder and the chairman and director of T.G.I.F. Texas, Inc., a 49% owned affiliate of CII (See Note 6). As of December 31, 2004 and 2003, T.G.I.F. had amounts due from CII in the amount of approximately $3,661,000. These amounts are due on demand and bear interest at the prime rate. All interest due has been paid. T.G.I.F. also owns 10,000 shares of the Company's common stock it purchased at market value in 1996. As of December 31, 2004 and 2003, T.G.I.F. had amounts due from Mr. Wiener in the amount of approximately $707,000. These amounts bear interest at the prime rate and principal and interest are due on demand. All interest due has been paid. The Adviser received no fees from TGIF during 2004 and received $4,000 during 2003. Mr. Wiener received consulting and director's fees from T.G.I.F totaling $41,000 and $29,000 for the years ended December 31, 2004 and 2003, respectively. 9. OTHER ASSETS The Company's other assets consisted of the following as of December 31, 2004 and 2003: Description 2004 2003 Deferred loan costs, net of accumulated amortization $214,225 $25,963 Prepaid expenses and other assets 148,148 122,956 Food and beverage inventory 97,853 - Utility deposits 76,480 - Deferred leasing costs - 85,117 ---------- --------- Total other assets $536,706 $234,036 ---------- --------- 44 10. MORTGAGES AND NOTES PAYABLES
December 31, ------------------------------------------- 2004 2003 ------------------ ------------------ Collateralized by Investment Properties (Note 2) Restaurant, marina and mall: Mortgage loan payable with interest at 1-month LIBOR plus 2.45% (4.05% as of December 31, 2004). Interest only monthly payments due for one year or until completion of construction at which time initial loan plus construction advances will be combined into one permanent loan. Upon conversion to permanent terms, the loan will be repayable in equal monthly principal payments of approximately $126,000 per month. The loan matures in August 2020. See (a) below. $10,180,000 $- Hotel, private club, yacht slips and spa: Mortgage loan payable with interest at 1-month LIBOR plus 2.5% (4.92% as of December 31, 2004). Monthly payments of principal of $10,000 with all unpaid principal and interest payable at maturity on September 29, 2010. 4,299,046 3,414,302 Office building: Mortgage loan payable, interest at prime plus 3/4% (6.0% as of December 31, 2004). Monthly payment of $3,981 in principal and interest. All unpaid principal and interest due on August 25, 2007. 343,352 361,254 Shopping center: Mortgage loans payable satisfied in April 2004 with proceeds from sale of shopping center. The interest rate on these loans was 7.5% fixed. - 650,000 Other (unsecured) (Note 6): Note payable to affiliate: Note payable is to affiliate T.G.I.F., interest at prime (5.25% at December 31, 2004) payable annually. Principal outstanding due on demand. 3,660,671 3,660,671 ------------------ ------------------ Totals $18,483,069 $8,086,227 ================== ==================
(a) In addition to the acquisition loan, the Company has committed to a construction loan of $3,225,000 which will be funded in installments as construction is completed. The loan is guaranteed by the Company as well as a personal guaranty from the trustee of CFT. The loan includes certain covenants regarding income. As of December 31, 2004, the Company was in compliance with the covenants. See Note 11 for discussion of interest rate swap agreement related to this loan. 45 A summary of scheduled principal repayments or reductions for all types of notes and mortgages payable is as follows: Year ending December 31, Amount 2005 $3,929,573 2006 298,174 2007 928,867 2008 664,072 2009 704,557 2010 and thereafter 11,957,826 ----------- Total $18,483,069 =========== 11. DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to interest rate risk through their borrowing activities. In order to minimize the effect of changes in interest rates, the Company has entered an interest rate swap contract under which the Company agrees to pay an amount equal to a specified rate of 7.57% times a notional principal approximating the outstanding loan balance, and to receive in return an amount equal to the one month LIBOR rate plus 2.45% times the same notional amount. The Company designated this interest rate swap contract as a cash flow hedge. The fair value of the cash flow hedge, which is a loss of $289,500 (net of 50% minority interest) at December 31, 2004, is deferred to other comprehensive loss and reclassified to interest expense over the life of the swap contract. The Company expects to reclassify $41,000 of deferred net loss on the interest rate swap to interest expense during 2005. 12. LEASE COMMITMENTS The Company's 50% owned subsidiary (Landing), as lessee, leases land and submerged lands on which it operates the Monty's Property under a lease with the City of Miami which expires on May 31, 2035. Under the lease, the Company pays percentage rents ranging from 5% to 15% of gross revenues from various components of the property's operations. Total rent paid to the City of Miami for the period since August 20, 2004 (acquisition date) through December 31, 2004 was approximately $268,000. 13. INCOME TAXES The Company (excluding CII) qualifies as a real estate investment trust and distributes its taxable ordinary income to stockholders in conformity with requirements of the Internal Revenue Code and is not required to report deferred items due to their ability to distribute all taxable income. In addition, net operating losses can be carried forward to reduce future taxable income but cannot be carried back. Distributed capital gains on sales of real estate as they relate to REIT activities are not subject to taxes; however, undistributed capital gains are taxed as capital gains. The Company's 95%-owned subsidiary, CII, files a separate income tax return and its operations are not included in the REIT's income tax return. The Company accounts for income taxes in accordance with the Statement of Financial Accounting Standards (SFAS) No. 109, 46 "Accounting for Income Taxes". SFAS No. 109 requires a Company to use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS No. 109, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred taxes only pertain to CII. As a result of timing differences associated with the carrying value of other investments and depreciable assets and the future benefit of a net operating loss, the Company has recorded a net deferred tax asset of $28,000. A valuation allowance against deferred tax asset has not been established as it is more likely than not, based on the Company's previous history, that these assets will be realized. The components of income before income taxes and the effect of adjustments to tax computed at the federal statutory rate for the years ended December 31, 2004 and 2003 were as follows:
2004 2003 ---- ---- Income before income taxes $2,218,000 $504,000 - ------------------------------------------------------------------------------------------------- Computed tax at federal statutory rate of 34% $754,000 $171,000 State taxes at 5.5% 122,000 25,000 REIT related adjustments (327,000) 136,000 Other items, net 151,000 (9,000) - ------------------------------------------------------------------------------------------------- Provision for income taxes $700,000 $323,000 - ------------------------------------------------------------------------------------------------- Effective tax rate 32% 64% - -------------------------------------------------------------------------------------------------
In 2004 the REIT related adjustments represent the difference between estimated taxes on undistributed dividends and book taxes computed on the REIT's income before income taxes. In 2003 the REIT related adjustments are for REIT related book losses for which there is no provision or benefit. The Company can elect to make a dividend distribution (relating to its REIT income) by the time it files its 2004 income tax return including extensions. The provision for income taxes in the consolidated statement of income consists of the following: Year ended December 31, 2004 2003 ---------------------------------------------------- Current: Federal $204,000 $- State 36,000 - ---------------------------------------------------- 250,000 - Deferred: Federal 405,000 296,000 State 45,000 27,000 ---------------------------------------------------- 450,000 323,000 ---------------------------------------------------- Total $700,000 $323,000 ==================================================== As of December 31, 2004 and 2003, the components of the deferred tax assets and liabilities are as follows: 47
As of December 31, 2004 As of December 31, 2003 Deferred tax Deferred tax ----------------------------------------------------------- Assets Liabilities Assets Liabilities ----------- --------------- ------------- ------------- Net operating loss carry forward $250,000 $705,000 Excess of book basis of 49% owned corporation over tax basis 608,000 583,000 Excess of tax basis over book basis of investment property 220,000 205,000 Unrealized gain/loss on marketable securities 120,000 44,000 Excess of tax basis over book basis of other investments 348,000 62,000 292,000 97,000 ----------- --------------- ------------- ------------- Totals $818,000 $790,000 $1,202,000 $724,000 =========== =============== ============= =============
14. STOCK-BASED COMPENSATION The Company applies APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its stock option 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 December 2004, the FASB issued SFAS No. 123R, "Accounting for Stock-Based Compensation". This statement is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service, the requisite service period (usually the vesting period). The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models. In addition, a public entity is required to measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value. The fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. For public entities that file as small business issuers, this statement is effective as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. At the required effective date, all public entities that used the fair value based method for either recognition or disclosure under Statement 123 are required to apply this statement using a modified version of prospective 48 application. Under that transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under Statement 123 for either recognition or pro-forma disclosures. For periods before the required effective date, those entities may elect to apply the modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by Statement 123. The Company does not expect SFAS No. 123R to have a material effect on its financial statements. The 2000 Stock Option Plan. In November 2000, the Company's Board of Directors authorized the 2000 Stock Option Plan, which was approved by the shareholders in June 2001. The Plan provides for the grant of options to purchase up to 120,000 shares of the Company's common stock to the officers and directors of the Company. Under the 2000 Plan, options are vested immediately upon grant and may be exercised at any time within ten years from the date of grant. Options are not transferable and expire upon termination of employment, except to a limited extent in the event of retirement, disability or death of the grantee. On June 25, 2001, options were granted to all officers and directors to purchase an aggregate of 86,000 common shares at no less than 100% of the fair market value at the date of grant. The average exercise price of the options granted in 2001 was $7.84 per share. The Company's stock price on the date of grant was $7.57 per share. There were no options granted in 2004 or 2003. A summary of the status of the Company's stock option plan as of December 31, 2004 and 2003, and changes during the years ending on those dates are presented below:
As of December 31, 2004 As of December 31, 2003 ---------------------------------------------------------------- Shares Weighted-Average Shares Weighted-Average Exercise Exercise Price Price ------------------------------------------------------------------------------------------------------ Outstanding at beginning of year 86,000 $7.84 86,000 $7.84 Granted -- -- -- -- Exercised -- -- -- -- Forfeited -- -- -- -- ------------------------------------------------------------------------------------------------------ Outstanding at end of year 86,000 $7.84 86,000 $7.84 ------------------------------------------------------------------------------------------------------ Options exercisable at year-end 86,000 $7.84 86,000 $7.84 Weighted average fair value of options granted during the year -- -- -- -- ======================================================================================================
49 15. OPERATING LEASES AS LESSOR Lease of Grove Isle hotel property. In November 1996, the Company entered into a long-term lease and a Master Agreement with Westgroup Grove Isle Associates, Ltd. ("Westgroup"), an affiliate of Noble House Resorts, Inc. which is a national operator of hotels and resorts. The Master Agreement, among other things, transferred the operations of the Grove Isle hotel and club to Westgroup. The term of the lease with Westgroup (as amended in 2004, see below) expires in November 2016 and calls for annual net base rent (as amended in 1999), of $918,400, plus real estate taxes and property insurance, payable in monthly installments. In addition to the base rent Westgroup pays 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. There has been no participation rent since the inception of the lease. The lease also calls for an increase in base rent commencing January 1, 2002 in accordance with changes in the Consumer Price Index ("CPI"). Base rent for 2004 was $1,003,157 increasing to $1,037,172 in 2005. Participation rent if due will be reduced by the amount by which base rent increases solely as a result of CPI increases for the lease year. In September 2004 the Company entered into an agreement with Noble House Associates, LLC ("NHA"), an affiliate of the Westgroup, for the purpose of developing and operating on the Grove Isle property a commercial project consisting of a first class spa, together with related improvements and amenities (the "Spa Property"). A newly formed subsidiary of the Company, CII Spa, LLC ("CIISPA") and NHA formed a Delaware limited liability company, Grove Spa, LLC ("GS") which is owned 50% by CIISPA and 50% by NHA. The Spa Property developed by GS will be sub-leased from Westgroup. The initial term of the sublease commenced on September 15, 2004 and ends on November 30, 2016, with the GS having the right to extend the term for two additional consecutive 20 year terms on the same terms as the original sublease. Annual base rent of the sublease is $10,000, plus GS shall pay real estate taxes, insurance, utilities and all other costs relating to the Spa Property. The construction of the Spa Property is expected to cost approximately $2.4 million and is to be completed in 2005. In conjunction with the Spa Property development, the Company amended and restated its lease with Westgroup to extend the term of the lease from December 31, 2006 to December 31, 2016 and includes two options to extend the lease term each for an additional 20 years. Furthermore, the lease's termination payment, as defined, was amended and restated to mean 50% of the amount by which the value of the leased property on the date of termination, as amended, exceeds $11,480,000, plus the value of NHA's percentage ownership interest in GS. During 1997 and in conjunction with the aforementioned agreements, GIA advanced $500,000 to the principal owner of the tenant of the Grove Isle property. GIA received a promissory note bearing interest at 8% per annum with interest payments due quarterly beginning on July 1, 1997 and all principal due at maturity in 2006. All interest payments due have been received. Minimum lease payments receivable. The Company leases its commercial and industrial properties under agreements for which substantially all of the leases specify a base rent and a rent based on tenant sales (or other benchmark) exceeding a specified percentage. Such percentage rent was not material in 2004 and 2003. 50 These leases are classified as operating leases and generally require the tenant to pay all costs associated with the property. Minimum annual rentals on non-cancelable leases in effect at December 31, 2004, are as follows: Year ending December 31, Amount 2005 $1,354,000 2006 1,343,000 2007 1,267,000 2008 1,103,000 2009 1,097,000 Subsequent years 7,259,000 ----------- Total $13,423,000 =========== Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There are no items to report. Item 8A. Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by the Annual Report on Form 10-KSB have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries, which we are required to disclose in the reports we file or submit under the Exchange Act of 1934, was made known to them by others within those entities and reported within the time periods specified in the SEC's rules and forms. There were no changes in our internal controls over financial reporting identified in connection with the evaluation of such internal control over financial reporting that occurred during our last fiscal year which have materially affected or are reasonably materially likely to affect, our internal control over financial reporting. 51 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 Years - Other Name and Office Age Directorships Maurice Wiener; Chairman of the 63 Chairman of the Board and Chief Executive Officer of the Adviser; Board of Directors and Chief Executive Trustee, Transco; Director, T.G.I.F. Texas, Inc.; Chairman Executive Officer of the Board and Chief Executive Officer of Courtland Group, Inc. Lawrence I. Rothstein; Director, 52 Director, President and Secretary of the Adviser; Trustee and Vice President, Treasurer and Secretary President of Transco; Director, President and Secretary of Courtland Group, Inc. Vice President and Secretary, T.G.I.F. Texas, Inc. Carlos Camarotti; Vice 44 Vice President - Finance and Assistant Secretary of the Adviser; President-Finance and Assistant Vice President - Finance and Assistant Secretary of Courtland Group, Secretary Inc. Walter Arader; Director 86 President, Walter G. Arader and Associates (financial and management consultants). Harvey Comita; Director 75 Business Consultant; Trustee of Transco Realty Trust. Clinton Stuntebeck; Director (since 66 Partner Emeritus, Schnader Harrison Segal & Lewis, LLP (2004); March 2004) Chairman, Concordia Holdings, Ltd. (investment and business consulting) Senior Partner, Schnader Harrison Segal & Lewis, LLP.
All executive officers of the Company were elected to their present positions to serve until their successors are elected and qualified at the 2005 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. All directors and executive officers have been in their present position for more than five years, except for Mr. Stuntebeck who became a director in March 2004. Code of Ethics. The Company has adopted a Code of Ethics that applies to directors, officers (including principal executive officer, principal financial officer, principal accounting officer and controller and HMG Advisory Corp. and subsidiary ("HMGA") and its employees in all instances in which HMGA is acting on behalf of the Company. The Company will provide to any person without charge, upon written request, a copy of the Code of Ethics including any amendments as well as any waivers that are required to be disclosed by the rules of the SEC or the American Stock Exchange. 52 Audit Committee and Audit Committee Financial Expert. The Company has a separately designated standing Audit Committee established in accordance with Section 3(a) (58) (A) of the Securities Exchange act of 1934, as amended (the "Exchange Act"). The members of the Audit Committee are Messrs. Arader and Comita. The Board of Directors has determined that each of Messrs. Arader and Comita is (1) an " audit committee financial expert," as that term is defined in Item 401(e) of Regulation S-B of the Exchange Act, and (2) independent as defined by the listing standards of the American Stock Exchange and Section 10A(m)(3) of the Exchange Act. 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 Adviser. Compensation of Directors. Each Director receives an annual fee of $8,000, plus expenses and $500 per each Board of Directors meeting attended. Stock Options. In November 2000, the Company's Board of Directors authorized the 2000 Stock Option Plan (the "Plan"), which was approved by the shareholders in June 2001. The Plan, which permits the grant of qualified and non-qualified options expires in 2010, and 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. On June 25, 2001, options were granted to all officers and directors to purchase an aggregate of 86,000 common shares at no less than 100% of the fair market value at the date of grant. The average exercise price of the options granted in 2001 is $7.84 per share. The Company's stock price on the date of grant was $7.57 per share. 53 Item 11. Security Ownership of Certain Beneficial Owners and Management. Set forth below is certain information concerning common stock ownership by directors, executive officers, directors and officers as a group, and holders of more than 5% of the outstanding common stock.
Shares Held as of March 4, 2005 Shares Owned by Named Additional Shares in Which the named Persons & Members of His Person Has, or Participates in, the Total Shares & Percent Name (7) Family (1) Voting or Investment Power (2) of Class Maurice Wiener 65,100 (4) 541,830 (3), (5) 606,930 52% Lawrence Rothstein 50,000 (4) 541,830 (3) 591,830 50% Walter G. Arader 15,400 (4) 15,400 1% Harvey Comita 10,000 (4) 477,300 (6) 487,300 41% All 6 Directors and 151,000 (4) 541,830 (3) 692,830 59% Officers as a Group Emanuel Metz 59,500 59,500 5% CIBC Oppenheimer Corp. One World Financial Center 200 Liberty Street New York, NY 10281 Transco Realty Trust 477,300 (5) 477,300 41% 1870 S. Bayshore Drive Coconut Grove, FL 33133 ___________________________ (1) Unless otherwise indicated, beneficial ownership is based on sole voting and investment power. (2) 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), Courtland Group, Inc. (54,530 shares) and T.G.I.F. Texas, Inc. (10,000 shares). 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 2000 Stock Option Plan, none of which have been exercised. These options have been granted to Mr. Wiener, 30,000; Mr. Rothstein, 25,000; 5,000 each to Mr. Arader and Mr. Comita; and 16,000 to two officers. Reference is made to Item 10. Executive Compensation for further information about the 2000 Stock Option Plan. (5) Mr. Wiener holds approximately 34% and 65% of the stock of Transco and Courtland Group Inc., respectively, and may therefore be deemed to be the beneficial owner of the shares of the Company held by Transco and Courtland Group, Inc. (6) This number represents the number of shares held by Transco Realty Trust, of which, Mr. Comita is a Trustee. (7) Except as otherwise set forth, the address for theses individuals is 1870 South Bayshore Drive, Coconut Grove, Florida 33133.
54 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 44% shareholder of the Company of which Mr. Wiener is its executive trustee of and holds 37% of its stock. HMG Advisory Corp. (the "Adviser") and subsidiary. The day-to-day operations of the Company are handled by the Adviser, as described above under Item 1. Business "Advisory Agreement." The Adviser is majority owned by Mr. Wiener, its Chairman and CEO. In August 2004 the HMG Advisory Bayshore, Inc. ("HMGABS") (a wholly owned subsidiary of the Adviser) was formed for the purposes of overseeing the Monty's restaurant operations acquired in August 2004. HMGABS will receive a management fee $25,000 per year from Bayshore Rawbar, LLC. As of December 31, 2004 HMGBS had earned $8,333 in such management fees. 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 Adviser. Courtland Group, Inc. ("CGI"). CGI served as the Company's investment Adviser until January 1, 1998 and owns approximately 32% of Transco's stock and owns approximately 5% of the Company's common stock. CGI is majority owned by Mr. Wiener, its Chairman and CEO Courtland Investments, Inc. ("CII"). The Company holds a 95% non-voting interest and Masscap Investment Company ("Masscap") holds a 5% voting interest in CII. In May 1998, the Company and Masscap entered into a written agreement in order to confirm and clarify the terms of their previous continuing arrangement with regard to the ongoing operations of CII, all of which provide the Company with complete authority over all decision making relating to the business, operation, and financing of CII consistent with the Company's status as a real estate investment trust. CII and its wholly-owned subsidiary own 100% of Grove Isle Club, Inc., Grove Isle Yacht Club Associates, Grove Isle Marina, Inc., CII Spa, LLC, Courtland Bayshore Rawbar, LLC and it also owns 15% of Grove Isle Associates, Ltd., (the Company owns the other 85%). T.G.I.F. Texas, Inc. ("T.G.I.F."). CII owns approximately 49% of the outstanding shares of T.G.I.F. Mr. Wiener is a director and chairman of T.G.I.F. and owns, directly and indirectly, approximately 18% of the outstanding shares of T.G.I.F. T.G.I.F also owns 10,000 shares of the Company's stock. 55 HMG-Fieber Associates ("Fieber"). The Company owns approximately 70% interest in Fieber and the other 30% is owned by NAF Associates ("NAF"). 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 Adviser. As of December 31, 2004 and 2003 the Adviser owed the Company approximately $234,000 and $259,000, respectively. In March 2005 the Adviser made a cash payment of $50,000 on amounts due the Company. Amounts due from the Adviser bear interest at the prime rate plus 1% payable monthly, with principal due on demand. The Adviser leases its executive offices from CII pursuant to a lease agreement. This lease agreement is at the going market rate for similar property and calls for base rent of $48,000 per year payable in equal monthly installments. Additionally, the Adviser is responsible for all property insurance, utilities, maintenance, and security expenses relating to the leased premises. The lease term is five years expiring in November 2009. In August 2004 the HMG Advisory Bayshore, Inc. ("HMGABS") (a wholly owned subsidiary of the Adviser) was formed for the purposes of overseeing the Monty's restaurant operations acquired in August 2004. HMGABS will receive a management fee $25,000 per year from Bayshore Rawbar, LLC. As of December 31, 2004 HMGBS had earned $8,333 in such management fees, none of which have been paid. South Bayshore Associates ("SBA"). SBA is a joint venture in which Transco and the Company hold interests of 25% and 75%, respectively. The sole major asset of SBA is a demand note from Transco, bearing interest at the prime rate, with an outstanding balance of approximately $432,000 in principal and interest as of December 31, 2004 compared to a balance of $439,000 as of December 31, 2003. The Company also holds a demand note from SBA bearing interest at the prime rate plus 1% with an outstanding balance as of December 31, 2004 and 2003 of approximately $1,122,000 and $1,107,000, in principal and accrued interest, respectively. Interest payments of $20,000 were made in 2004 and 2003. Accrued and unpaid interest is not added to the principal. Because the Company consolidates SBA, the note payable and related interest income is eliminated in consolidation. CGI. As of December 31, 2004 and 2003, CGI owed the Company approximately $303,000. In March 2005 CGI made a cash payment of $50,000 on amounts due the Company. Amounts due from CGI bear interest at the prime rate plus 1% payable monthly, with principal due on demand. CII. The Company holds a demand note due from CII bearing interest at the prime rate plus 1% with an outstanding balance of $3,695,000 and $3,401,000 as of December 31, 2004 and 2003, respectively. During 2004 and 2003, advances from 56 the Company to CII totaled $3.1 million and $769,000, respectively. Repayments from CII to the Company during 2004 and 2003 were $1.9 million and $483,000, respectively. Accrued and unpaid interest is capitalized and included in advances. Because CII is a 95%-owned consolidated subsidiary of the Company, the note payable and related interest is eliminated in consolidation. In 1986, CII acquired from the Company the rights to develop the marina at Grove Isle for a promissory note of $620,000 payable at an annual rate equal to the prime rate. The principal matures on January 2, 2006. Interest payments are due each January 2. Because the Company consolidates CII, the note payable and related interest income is eliminated in consolidation. CII compensates one employee directly in his capacity as project manager for the Company's Texas property. This employee is Mr. Bernard Lerner who is a vice president of Courtland Investments, Inc. and is also a cousin of the Company's Chairman and CEO Mr. Maurice Wiener. For the years ended December 31, 2004 and 2003 CII paid Mr. Lerner $85,000. CII Spa, LLC. As more fully discussed in Item 2.Description of Property, in September 2004 the Company entered into an agreement with Noble House Associates, LLC ("NHA"), an affiliate of the Company's tenant at Grove Isle ("Westgroup"), for the purpose of developing and operating on the Grove Isle property a commercial project consisting of a first class spa. A newly formed subsidiary of the Company, CII Spa, LLC ("CIISPA") and NHA formed a Delaware limited liability company, Grove Spa, LLC ("GS") which is owned 50% by CIISPA and 50% by NHA. The Spa Property developed by GS will be sub-leased from Westgroup. The initial term of the sublease commenced on September 15, 2004 and ends on November 30, 2016, with the GS having the right to extend the term for two additional consecutive 20 year terms on the same terms as the original sublease. Annual base rent of the sublease is $10,000, plus GS shall pay real estate taxes, insurance, utilities and all other costs relating to the Spa Property. In December 2004 the loan which secured by the Grove Isle property was renewed and extended with an additional $1 million borrowed. The additional $1 million (less loan costs) was loaned to GS to partially fund the construction of the spa. The Company received a promissory note from GS under the same terms as the renewed and extended bank loan. Since this loan is between two consolidated entities (i.e. Grove Isle Associates, Ltd and Grove Spa, LLC) it is eliminated in consolidation. T.G.I.F. As of December 31, 2004 and 2003, CII owed approximately $3,661,000 to T.G.I.F. All advances between CII and T.G.I.F. are due on demand and bear interest at the prime rate plus 1%. All interest due has been paid. As of December 31, 2004 and 2003, T.G.I.F. had amounts due from Mr. Wiener of approximately $707,000. These amounts are due on demand and bear interest at the prime rate. All interest due has been paid. The Adviser received management fees of $4,000 for the year ended 57 December 31, 2003 and no fees in 2004. Mr. Wiener received consulting and director's fees from T.G.I.F of $40,800 and $29,000 for the years ended December 31, 2004 and 2003, respectively. Also, T.G.I.F. owns 10,000 shares of the Company which were purchased in 1996 at the market value. Exercised stock options and related promissory notes. On August 24, 2000, certain officers and directors of the Company exercised all of their stock options and purchased a total of 70,000 shares of the Company's common stock for $358,750. The Company received $70,000 in cash and $288,750 in promissory notes for the balance. These promissory notes bear interest at 6.18% per annum payable quarterly in arrears on the first day of January, April, July and October. The balance of the notes as of December 31, 2003 is $258,750. The outstanding principal is due on August 23, 2005 and the notes are collateralized by the stock. Item 13. Exhibits and Reports on Form 8-K. (a) Exhibits listed in the Index to Exhibits. (b) Reports on Form 8-K: The Company filed a Report on Form 8-K/A to amend the Company's Report on Form 8-K filed on August 20, 2004, to include the required pro-forma financial statements pursuant to Item 9.01(b) (1) of Form 8-K. Item 14. Principal Accountants Fees and Services. The following table sets forth fees billed to the Company by the Company's independent auditors for the year ended December 31, 2004 and December 31, 2003 for (i) services rendered for the audit of the Company's annual financial statements and the review of the Company's quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of the Company's financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance. The Audit Committee pre-approved all services rendered by the Company's independent auditors. Principal Accountant Fees and Services For the fiscal year ended December 31, 2004 December 31, 2003 - ------------------------------------------------------- ------------------ Audit Fees $40,000 $56,000 Audit - Related Fees 21,000 3,222 Tax Fees 20,000 20,000 ------------------- ------------------ Total Fees $81,000 $79,222 =================== ================== 58 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. March 30, 2005 By: /s/ Maurice Wiener Maurice Wiener Chairman and Chief Executive Officer 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 March 30, 2005 - ----------------------------------- Maurice Wiener Chairman of the Board Chief Executive Officer /s/ Lawrence I. Rothstein March 30, 2005 - ----------------------------------- Lawrence I. Rothstein Director, President, Treasurer and Secretary Principal Financial Officer /s/ Walter G. Arader March 30, 2005 - ----------------------------------- Walter G. Arader, Director /s/ Harvey Comita March 30, 2005 - ----------------------------------- Harvey Comita, Director /s/ Clinton Stuntebeck March 30, 2005 - ----------------------------------- Clinton Stuntebeck, Director /s/ Carlos Camarotti March 30, 2005 - ----------------------------------- Carlos Camarotti Vice President - Finance and Controller Principal Accounting Officer 59
INDEX EXHIBIT Description (3) (a) Amended and Restated Incorporated by reference to Annex A of the Certificate of Incorporation May 29, 2001 Proxy Statement. (b) By-laws Incorporated by reference to Exhibit 6.1 to the Registration Statement of Hospital Mortgage Group, Inc. on Form S-14, No. 2-64, 789, filed July 2, 1979. (10) (a) Amended and restated lease Incorporated by reference to Exhibit 10(d) to agreement between Grove Isle the 1996 Form 10-KSB Associates, Ltd. and Westgroup Grove Isle Associates, Ltd. dated November 19, 1996. (b) Master agreement between Incorporated by reference to Exhibit 10(e) Grove Isle Associates, Ltd. to the 1996 Form 10-KSB Grove Isle Clubs Inc., Grove Isle Investments, Inc. and Westbrook Grove Isle Associates, Ltd. dated November 19, 1996. (c) Agreement Re: Lease Incorporated by reference to Exhibit 10(f) Termination between Grove Isle to the 1996 Form 10-KSB Associates, Ltd. and Grove Isle Club, Inc. dated November 19, 1996. (d) Amended and restated Incorporated by reference to Exhibit 10(f) agreement between NAF to the 1999 Form 10-KSB Associates and the Company, dated August 31, 1999. (e) Amendment to Amended and Incorporated by reference to Exhibit 10(g) restated lease agreement to the 1999 Form 10-KSB between Grove Isle Associates, Ltd. and Westgroup Grove Isle Associates, Ltd. dated December 1, 1999. 60 (f) Lease agreement between Incorporated by reference to Exhibit 10(h) Courtland Investments, Inc. and to the 1999 Form 10-KSB HMG Advisory Corp. dated December 1, 1999. (g) 2000 Incentive Stock Option Incorporated by reference to Exhibit 10(h) Plan of HMG/ Courtland to the 2001 Form 10-KSB Properties, Inc. (h) Amended and Restated Advisory Incorporated by reference to Exhibit 10(i) Agreement between the and 10(j) to the 2002 Form 10-KSB Company and HMG Advisory Corp. effective January 1, 2003. (i) Second Amendment to Amended and Included herein. restated lease agreement included herein between Grove Isle Associated, Ltd. and Westgroup Grove Isle Associates, Ltd. dated September 15, 2004 (j) Operating Agreement of Grove Included herein. Spa, LLC dated September 15, 2004 (k) Sublease between Westgroup Included herein. Grove Isle Associates, Ltd. and Grove Spa, LLC dated September 15, 2004 (l) Purchase and Sale Agreement Included herein. ("Acquisition of Monty's Property") between Bayshore Restaurant Management Corp. and Bayshore Landing, LLC dated August 20, 2004, and amendments thereto. (m) Ground Lease between City of Miami and Included herein. Bayshore Landing, LLC dated August 20, 2004 and related document 61 (n) Loan Agreement between Included herein. Wachovia Bank and Bayshore Landing, LLC dated August 20, 2004 (o) Operating Agreement of Bayshore Included herein. Landing, LLC dated August 19, 2004 (p) Management Agreement for Bayshore Included herein. Rawbar, LLC executed by RMI,LLC dated August 20, 2004. Included herein. (q) Management Agreement for Bayshore Rawbar, LLC executed by HMG Advisory Bayshore, Inc. dated August 20, 2004. (r) Management and Leasing Agreement for Included herein. Bayshore Landing, LLC executed by RCI Bayshore, Inc. dated August 20, 2004. (14) Code of Ethics for Chief Executive Incorporated by Officer and Senior Financial Officers reference to Item 99 of 2003 dated May 2003 Form 10-KSB. (21) Subsidiaries of the Company. Included herein. (31) (a) Certification of Chief Executive Included herein. Officer as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (b) Certification of Chief Financial Included herein. Officer as adopted pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (32) (a) Certification of Chief Executive Included herein. Officer pursuant to 18 U.S.C. ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (b) Certification of Chief Financial Included herein. Officer pursuant to 18 U.S.C. ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002
62 EX-10 2 ex10-i.txt EXHIBIT 10 (I) Exhibit 10 (i) SECOND AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT (the "Amendment") is dated as of September 15, 2004 and is 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 and Lessee are parties to that certain Amended and Restated Lease Agreement dated as of November 19, 1996, as amended by Amendment to Amended and Restated Lease Agreement dated December 10, 1999 (as so amended, the "Lease") pertaining to, among other things, the land, improvements, real property and FF&E described therein and which are collectively called therein the "Demised Premises". B. Lessee desires to sublease to Grove Spa, LLC, a Delaware limited liability company ("Spa Tenant") that portion of the Demised Premises depicted on Exhibit A hereto (the "Spa Property") and in connection therewith, the Lessor and Lessee desire to modify this Lease in certain respects. NOW, THEREFORE, in consideration of the Premises as well as the mutual benefits inuring to each party hereunder, the Lessor and Lessee agree that the foregoing recitals are true and correct and further agree as follows: 1. Definitions. All capitalized terms used in this Amendment without definition shall have the meanings given to them in the Lease. 2. Term. Article II of the Lease is amended to extend the initial Termination Date from December 31, 2006 to December 31, 2016. Accordingly, December 31, 2016 is substituted in lieu and place of December 31, 2006 in Article II. 3. Option to Extend. Article IV of the Lease is amended and restated in its entirety as follows: "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 twenty (20) 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." 1 4. Operating Revenue. Lessor confirms and agrees that Net Operating Surplus shall not include the results of operations of the Spa Tenant. 5. Consent to Sublease. Lessor hereby consents to Lessee's sublease of the Spa Property to the Spa Tenant pursuant to a sublease of even date herewith (the "Sublease"), a copy of which is attached hereto as Exhibit B. 6. Termination Payment. Section 5.1 of the Lease is amended and restated in its entirety as follows: "Provided Lessee exercises any Extension Option 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 $11,480,000.00, plus the value of Noble House Associates, LLC's percentage ownership interest in Grove Spa, LLC. 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 addition, 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). The payment of the Termination Payment shall terminate all rights and obligations of any kind under this Lease (and the sublease permitted hereunder attached hereto as Exhibit B) for all purposes." 7. Estoppel. Lessor represents and acknowledges that the Lease is in full force and effect that it has no knowledge that any uncured default exists under the Lease, and that all rent and other sums payable to Lessor thereunder through August 2004 have been paid in full. Lessee represents and acknowledges that the Lease is in full force and effect that it has no knowledge that any uncured default exists under the Lease. 8. Existing Spa Provision. Section 15.5 of the Lease is hereby deleted in its entirety. 9. No Implied Modification. Except as expressly set forth in this Amendment, the Lease shall remain in full force and effect without modification. 2 ESSOR: GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership, by Courtland Investments, Inc., a Delaware corporation, its sole general partner /s/ Lynette Benitez By: - ------------------------------ ------------------------------ Print Name: Lynette Benitez /s/ Keith W. Crank - ------------------------------ Print Name: Keith W. Crank LESSEE: WESTGROUP GROVE ISLE ASSOCIATES LTD., a Florida limited partnership, by WESTGROUP PARTNER, INC., a California corporation, its sole general partner By: ------------------------------ Patrick R. Colee, President - ------------------------------ Print Name: - ------------------------------ Print Name: 3 LESSOR: GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership, by Courtland Investments, Inc., a Delaware corporation, its sole general partner By: - ------------------------------ ------------------------------ Print Name: - ------------------------------ Print Name: LESSEE: 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 /s/ Christine Evens - ------------------------------ Print Name: Christine Evens /s/ Donna Mackner - ------------------------------ Print Name: Donna Mackner 4 EX-10 3 ex36g.txt EXHIBIT 10 (J) Exhibit 10 (j) OPERATING AGREEMENT OF GROVE SPA, LLC A DELAWARE LIMITED LIABILITY COMPANY THIS OPERATING AGREEMENT (the "Agreement") is made and entered into as of September 15, 2004, ("effective date") by and between NOBLE HOUSE ASSOCIATES, LLC, a Delaware limited liability company (hereinafter "NHA") and CII SPA, LLC, a Delaware limited liability company, (hereinafter "CII"). NHA and CII are the sole members, and they are sometimes herein referred to separately as a "Member" and collectively as the "Members". NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and the mutual promises contained herein, the parties, intending to be legally bound hereby, agree as follows: RECITALS A. NHA and CII intend to enter into a sublease (the "Lease") for a certain tract of improved real property and improvements and associated intangible rights located in Miami, Dade County, Florida more particularly described on Exhibit A attached hereto (the "Spa Property"). The Spa Property is a portion of a larger parcel of real estate in which affiliates of the Members hold a fee and/or leasehold interest (the "Primary Lease"). The Members have formed a limited liability company to sub-lease the Spa Property. B. The Members intend to develop and operate on the Spa Property a commercial project consisting of a first class spa, together with related improvements and amenities (collectively, the "Spa Improvement Project"). ARTICLE I FORMATION, PURPOSES, DURATION Section 1.1 Formation and Name. 1.1.1 Formation. The Members have formed a limited liability company (the "Company" or "GS" pursuant to Delaware Statutes (the "Act"), by filing a Certificate of Formation with the Delaware Department of State, for the limited purposes and scope set forth in this Agreement. The Company shall at all times be governed by the Act, except to the extent expressly provided herein to the contrary. Before conducting business in any jurisdiction, the members shall cause the Company to comply to the fullest extent possible under the laws of such jurisdiction with all requirements for the qualification or formation of the Company to conduct business as a limited liability company in such jurisdiction. 1.1.2 Name. The name of the Company shall be "Grove Spa LLC, a Delaware limited liability company". Except as may be approved by the Members, the business of the Company shall be conducted solely under such name and all assets of the Company shall be held under such name. Section 1.2 Purposes and Scope of the Company. The limited purposes of the Company are: (a) to enter into the Lease to lease the Spa Property and related assets; (b) to obtain entitlements, permits, develop, construct, own, manage, operate, lease, sublease, maintain, and improve the Spa Property; (c) to encumber, exchange, transfer or otherwise dispose of the Spa Property or any part thereof or interest therein; (d) to borrow money for the operation of the Company's business, in accordance with the terms hereof, whether unsecured or secured by the Spa Property including, without limitation, refinancing any borrowings outstanding from time to time; and (e) to engage in such activities as are reasonably incidental to the foregoing with respect to the Spa Property. The Company shall not engage in any business or activity unrelated to the Spa Improvement Project. Section 1.3 Other Business; Non-Compete. During the term of this Agreement, the Members and their affiliates shall not, directly or indirectly, independently or with others, engage in or possess an interest in any other business venture engaged or participating in a spa project using the name "Spa Terre" that is located south of Bal Harbour, Florida in Miami-Dade County. Section 1.4 Scope of Members' Authority. Except as otherwise expressly and specifically provided in this Agreement, no Member shall have authority to bind or act for, or assume any obligation or responsibility on behalf of the other Member. Neither the Company nor any Member shall, by virtue of executing this Agreement, be responsible or liable for any indebtedness or obligation of any other Member or otherwise relating to the Spa Property incurred or arising either before or after the execution of this Agreement, except as to those joint responsibilities, liabilities, indebtedness, or obligations expressly assumed by the Company as of the date hereof or incurred after the date hereof pursuant to and as limited by the terms of this Agreement. Nothing herein contained shall be considered to constitute any Member as the agent of any other Member, except as specifically authorized and provided for herein. Section 1.5 Principal Place of Business. The principal office and principal place of business of the Company shall be located at Four Grove Isle Drive, Miami, Florida, or at such other location as may be approved by the Members from time to time. Section 1.6 Term. The term of this Agreement shall be co-extensive with the period of duration of the Company as provided in the Certificate of Formation, unless extended or earlier terminated in accordance with this Agreement. No Member shall have the right and each Member hereby agrees not to withdraw from the Company or to dissolve, terminate or liquidate, or to petition a court for the dissolution, termination or liquidation of the Company, except as expressly permitted in this Agreement, approved by the Members or otherwise required by law, and no Member at any time shall have the right to petition or to take any action to subject the Spa Property or the Company assets to the authority of any bankruptcy, insolvency, receivership or similar proceeding. The Members irrevocably waive any right that they may have to maintain any action for partition with respect to any asset of the Company. Section 1 .7 Agent for Service of Process and Tax Matters Partner. (a) The name and address of the registered agent for service of process on the Company shall be set forth in the Certificate of Formation of the Company. (b) The name and address of the Tax Matters Partner of the Company shall be: Noble House Associates, LLC, 570 Kirkland Way, Kirkland, Washington 98033. Section 1.8 Closing Costs. Each Member shall be responsible for such Member's actual out-of-pocket costs and expenses incurred in connection with the formation of the Company, including, without limitation, attorneys' fees and expenses, and all costs and expenses paid by the Company must be approved by both Members. Section 1.9 Designation. Each Member shall, promptly after the execution of this Agreement, designate two (2) persons who are and shall be duly authorized to represent, act on behalf of, and bind such Member in connection with any and all approvals and acts of any nature whatsoever required hereunder, any and all decisions to be made, and any and all actions to be taken hereunder. Such Member may terminate any such appointment and the authority of any such representative at any time by notifying the other Member in writing to that effect, but at the same time as such notice is given, the Member giving such notice shall also appoint and designate a representative to take the place of the representative whose authority is then terminated. A Member may, at any time it elects to do so, designate in the same manner additional representatives who are authorized to act on behalf of and bind such Member, but each corporate Member expressly agrees that it will at all times during the term of this Agreement have at least two (2) representatives who are duly authorized to represent it as above provided. Both Members, or their duly authorized representatives, may appoint such committees in connection with the operation of the Company as they may deem necessary or desirable from time to time, and establish procedures for meeting, obtaining approvals, and making decisions that are consistent with the terms and provisions of this Agreement. Maurice Wiener and Lawrence Rothstein are appointed and designated to act for CII. Patrick Colee and John M. Donoghue are appointed and designated to act for NHA. Notwithstanding the number of representatives appointed by each Member, the consent of only one representative of each Member is necessary to conduct the business of the Company. Section 1.l0 Approvals. Whenever either Member is requested in writing by the other Member to evidence its approval of or agreement to any decision or action of any nature whatsoever that requires unanimous consent of the Members hereunder, such request shall be made to the designated representatives set forth in Section 1.9 above, and the Member to whom such request has been made shall respond in writing to such request for approval, action, or agreement with reasonable promptness. The Member to whom the request is made shall advise the requesting Member of its approval or its reasons for withholding the same. For the purposes of this Subsection, reasonable promptness shall mean ten (10) business days for decisions on all matters. The failure of a Member to respond within the applicable time period shall constitute a ratification and approval by a Member. Section 1.11 Retirement, Death, Incompetency, or Bankruptcy of a Member. No Member may voluntarily withdraw from the Company. Except as otherwise provided in this Agreement, the death, retirement, incompetency or bankruptcy of one or more of the Members shall not dissolve or terminate the Company and the business of the Company shall be continued thereafter by and for the benefit of the remaining Member(s). Section 1.12 The Members. The Members of the Company shall be CII, whose principal place of business is 1870 South Bayshore Drive, Coconut Grove, FL 33133, and NHA, whose principal place of business is 570 Kirkland Way, Kirkland, Washington 98033. ARTICLE II CAPITAL CONTRIBUTIONS OF MEMBERS Section 2.1 Initial Capital Contributions. 2.1.1 Initial Capital Contribution by NHA. NHA has contributed to the Company an initial cash capital contribution with an aggregate value of Five Hundred Thousand Dollars and 00/100 Dollars ($500,000.00). 2.1.2 Initial Capital Contribution by CII. CII has contributed to the Company an initial cash capital contribution with an aggregate value of Five Hundred Thousand Dollars ($500,000). 2.1.3 Borrowings. The Members shall, to the extent possible, borrow the cash needed for the construction, development and operations of the Company from third parties upon such terms and conditions as the Members, in their sole discretion, deem necessary or appropriate. Section 2.2 Additional Capital Requirements. 2.2.1 General. If additional funds are required by the Company in excess of (i) the initial capital contributions under Section 2.1 , (ii) the proceeds from financing the Spa Improvement Project, and (iii) any other proceeds received by the Company, either Member may give notice to the other Member in the manner provided in Section 12.2. Such notice shall specify in reasonable detail the amount and purpose of any such additional capital requirement (the amount of any such inadequacy is hereinafter referred to as a "Shortfall"). The Members shall thereafter meet as soon as reasonably practicable and shall determine, by unanimous consent, the method or methods by which the Company shall obtain the required funds insuring compliance with any applicable lender requirements. Such methods may include, without limitation, the making of additional capital contributions by the Members, or the borrowing of funds by the Company from the Members or from third-party lenders. 2.2.2 Additional Capital Contributions. If the Members decide to fund the Shortfall through additional capital contributions, each Member shall, within twenty (20) days thereafter, deliver for deposit in the Company's bank account an additional cash capital contribution in an amount equal to its share of the Shortfall, determined according to the Percentage Interests of the Members and the capital accounts of the Members shall be credited and the obligations for which funds were required shall be satisfied. 2.2.3 No Third Party Rights. The right of the Company to require any additional contributions or payments by the Members under the terms of this Agreement shall not be construed as conferring any rights or benefits to or upon any person or entity not a party to this Agreement, including, but not limited to, any tenant or purchaser of any part of the Spa Improvement Project or any creditor of the Company. 2.2.4 Contribution Loans. In the event any Member ("Non-Contributing Member") fails to make any additional capital contribution required of it pursuant to and within the time specified in this Agreement, the other Member ("Contributing Member") shall have the right, but not the obligation, to advance directly to the Company the funds required from the Non-Contributing Member as a loan to the Non-Contributing Member ("Contribution Loan"). Each loan shall be evidenced by a promissory note from the Non-Contributing Member in form reasonably satisfactory to the Contributing Member with reasonable personal guarantee(s) and reasonable collateral to secure payment, which collateral may include a security interest in the Non-Contributing Member's Percentage Interest in the Company. 2.2.5 Repayment through Distributions. In the event a Contributing Member elects to make a Contribution Loan, then the Contribution Loan shall bear interest at a rate equal to the lesser of (a) the Prime Rate (as announced from time to time in the Wall Street Journal), plus two and one-half percent (2 1/2%) per annum, or (b) the maximum legal rate of interest then permitted and, except as set forth in Section 2.2.6, shall be repaid out of any subsequent distributions made pursuant to this Agreement to which the Non-Contributing Member for whose account the Contribution Loan was made would otherwise be entitled, which amounts shall be applied first to interest and then to principal, until the Contribution Loan is paid in full. If not sooner repaid, all Contribution Loans shall become immediately due and payable upon the dissolution and liquidation of the Company. 2.2.6 Remedies. In the event any Contribution Loan has not been repaid in full within ninety (90) days of the date the Contribution Loan is made, then in addition to any other rights or remedies available to a Contributing Member at law or in equity or pursuant to this Agreement, at any time thereafter a Contributing Member may elect to proceed under subparagraph (a), (b) or (c) below. (a) Unless and until a Contributing Member has elected to proceed under subparagraph (b) or (c) below or has elected to pursue any other remedy available to it at law or in equity, each Contribution Loan shall remain in place and shall bear interest and be repaid as provided in Section 2.2.5 above. (b) Upon thirty (30) days prior written notice to the Non-Contributing Member, a Contributing Member may elect to reduce the Percentage Interest of the Non-Contributing Member in the Company (a "Dilution") by a Purchase Price calculated as follows: (1) a Contributing Member will treat its Contribution Loan as a paid-in additional capital contribution for credit to the capital account of the Contributing Member. (2) the Percentage Interest of each Member will then be recalculated based on all the capital contributed by all the Members to determine an adjusted Percentage Interest for each Member. (3) By way of example, if a Non-Contributing Member fails to repay a Five Hundred Thousand ($500,000) Dollar loan from a Contributing Member (which would be such Non-Contributing Member's share of a One Million ($1,000,000) Dollar capital call), the Percentage Interests of the Members shall be recalculated based on total capital contribution by the Contributing Member of One Million Five Hundred Thousand ($1,500,000) Dollars and the Contributing Member's Percentage Interest shall be 75% (.75) and the Non-Contributing Member 25% (.25). See Schedule I attached hereto for a tabular example of the above. (4) the Purchase Price shall be equal to and paid by a cancellation of the promissory note. (5) the notice required under this Section 2.2.6(b) shall state that the option to purchase is thereby exercised, and specifying the place in Miami, Florida, and the time when such purchase shall be closed. The notice shall be signed by the Member sending the same, shall be sent by United States registered or certified mail, postage prepaid, to the address of the Non-Contributing Member set forth in Section 12.2 below. The date of such notice shall be the date the same is deposited in the mail. The closing of said purchase shall be within thirty (30) days after the date of such notice at the time and place specified in such notice. 6 (c) A Contributing Member may elect to make written demand upon the Non-Contributing Member for payment in full of such Contribution Loan, including accrued interest. Upon failure of the Non-Contributing Member to pay the Contribution Loan and interest in full within ten (10) days of such demand, the Contributing Member may elect to treat such failure to pay as an Event of Default under Section 9.1 hereof, and may sue to collect the promissory note. Section 2.3 No Withdrawal of Capital; No Interest. Except as otherwise provided herein, no portion of the capital of the Company may be withdrawn at any time without the approval of both the Members. Upon termination of the Company, the Members' capital shall be distributed pursuant to Section 9.4 hereof. No interest shall be paid on the initial or on any subsequent capital contribution made by any Member to the Company, except as otherwise mutually agreed upon by all the Members as reflected by an amendment to this Agreement. Section 2.4 Development Financing. It is the Members' intent that the Company seek a credit facility (the "Development Financing Loan") secured by the Spa Property or a portion thereof to fund one-half the cost of the Spa Improvement Project. Such credit facility shall be for approximately One Million and 00/100 Dollars ($1,000,000.00) for construction financing. Upon acceptance of the Project Development Budget Construction Plans and Development Contract ("Development Plan"), CII will use its best efforts to arrange or facilitate Spa Improvement Project borrowings required to fulfill the Development Plan. If required by the lender under the Development Financing Loan, each Member shall deliver a pro rata guaranty, from a creditworthy guarantor, of repayment of such Development Financing Loan to such lender, and the Members shall enter into a contribution and indemnity agreement amongst themselves. , If the Development Financing Loan is secured by a Permitted Mortgage (as defined in the Primary Lease), then the holder of such Permitted Mortgage shall provide (i) a Non-Disturbance Agreement (as defined in the Primary Lease) to Westgroup Grove Isle Associates, Ltd. as contemplated by Section 13.3 of the Primary Lease, and (ii) a non-disturbance agreement (similar to the type of Non-Disturbance Agreement to be provided to Westgroup Grove Isle Associates, Ltd. to the Company, provided that the Company's non-disturbance agreement shall be conditioned upon there being no default under the Spa Lease and the Primary Lease. ARTICLE III MANAGEMENT Section 3.1 Powers and Responsibilities of and Limitations on the Members. 3.1.1 Management by Members. The Members acting together shall have full and complete charge of all affairs of the Company. The management and control of the Company's business shall rest with the Members subject to the terms and conditions of 7 this Agreement and the Spa Management Agreement, referenced in Section 3.13. The Members shall not be required to devote their full time to the Company business. Each Member shall devote to the affairs of the Company, through its officers and other personnel, whatever time shall reasonably be necessary to operate and manage the assets of the Company. Except as otherwise specifically provided generally in this Agreement, and specifically in Section 1.3 herein, nothing in this Agreement shall be deemed to restrict in any manner the right of either Member to engage in any other business or activity whatsoever, even if such business or activity competes with the business of the Company. The Members shall possess all of the powers and rights of a Member under the Act, and all actions taken by the Company shall require the unanimous consent of the Members acting through their herein appointed representative(s). 3.1.2 Deadlock. If at any time the Members reach an impasse on any issue or decision and they are unable to resolve the issue or decide upon an alternative course of action within three (3) days thereafter (such state of affairs being hereafter referred to as a "Deadlock"), either of such Members may declare that a Deadlock has occurred by giving notice thereof to the other Member in the manner notices are to be given under this Agreement, in which case the Members and their respective advisors shall negotiate in good faith for a period of five (5) days or such shorter or longer period as they are able to agree upon. If after the end of such time period, the Deadlock is still not resolved, the matter shall be resolved in accordance with the buy/sell procedure described in Section 3.4. 3.1.3 Spa Management Agreement; Development Agreement. The Members hereby authorize the Company to enter into the spa management agreement (the "Spa Management Agreement"), attached hereto as Exhibit B, and the development agreement (the "Development Agreement"), attached hereto as Exhibit C, with an affiliate of NHA. In the event of a material default of the terms of this Agreement by either party, including without limitation, a failure to make a herein required capital contribution, subject to the notice and cure provisions contained herein, then, the non-defaulting Member shall have the right, in such non-defaulting Member's sole and absolute discretion, to cancel the Spa Management Agreement. 3.1.4 Development Plan; Annual Plan. The developer under the Development Agreement shall prepare a proposed development plan for the overall site plan covering such issues over such period of time as the Members deem reasonably appropriate. Once approved by the Members, the development plan shall thereafter be deemed to be the "Development Plan" until amended as approved by the Members. The Members shall review the Development Plan at least monthly and update it as needed or as may be directed by the Members. In accordance with the Spa Management Agreement, the manager acting thereunder shall prepare and submit to the Members for their unanimous approval the following items (collectively, the "Annual Plan") on an annual basis: (i) an operating budget (the "Operating Budget") setting forth the 8 estimated revenues and expenses of the Company (including, without limitation, the estimated expenses of the Spa Improvement Project), with a reserve for contingencies, (ii) a marketing plan, (iii) a capital budget setting forth the proposed capital expenditures of the Company relating to the development initiative, and sources of funds in connection therewith, including the projected time for, and amount of, any required additional capital contributions by the Members during the period covered by such budget, (iv) a Development Plan, and following the approval of the initial Development Plan, a monthly update of such Development Plan including a description of milestone events or conditions that affect the Company's ability to achieve its financial objective and minimum sales and revenue projections, (v) such narrative description as may be necessary to explain key elements of the Annual Plan or Development Plan, and (vi) an analysis of the market in which the Spa Improvement Project is located and competing projects. The Annual Plan for each subsequent fiscal year of the Company shall be submitted for the approval of CII not more than ninety (90) days and not less than sixty (60) days prior to the first day of the fiscal year covered thereby. References herein to the "Annual Plan" shall mean the approved Annual Plan then in effect for the period then in question, unless the reference expressly otherwise provides. The Members shall review the proposed Annual Plan (including the initial Annual Plan proposed pursuant to this Section) and either approve or disapprove it within thirty (30) days after receipt thereof (in the latter event, specifying its objections thereto). The Members shall thereupon meet immediately to resolve any conflicts created by the Annual Plan. 3.1.5 Limitation on Liability; Indemnification by Company. Neither Member shall be liable, responsible or accountable in damages or otherwise to the Company for any act performed or failure to act by such Member done or not done in good faith and within the scope of this Agreement unless such act or failure to act is attributable to gross negligence, willful misconduct, fraud or breach of fiduciary duty. The Company shall, at its own cost and expense, indemnify, defend and hold harmless the Members from and against any liabilities, obligations, claims, demands, losses, damages, lawsuits or other proceedings, judgments and awards, and costs and expenses (including but not limited to, attorneys' fees and expenses) arising directly or indirectly, in whole or in part, out of this Agreement or at law. Section 3.3 Agreements with Affiliates. Except as provided herein, the Company shall not enter into any agreement or other arrangement for the furnishing to or by the Company of goods or services with itself or any individual, corporation, company, joint venture, association, firm, joint stock company, trust, unincorporated association or other entity (a "Person") that is a Member or Affiliate of a Member unless such agreement or arrangement is approved by both the Members. As used in this Agreement, an "Affiliate" of a Member shall mean any of the following Persons: (a) Any "Owning Person," which shall mean a Person owning directly or 9 indirectly more than five percent (5%) of the issued and outstanding stock of or more than a five percent (5%) beneficial interest in a Member. (b) Any "Owned Person," which shall mean a Person owning more than five percent (5%) of the issued and outstanding stock of which or more than a five percent (5%) beneficial interest in which is owned directly or indirectly by a Member. (c) Any "Affiliated Person," which shall mean (i) a Person owning more than five percent (5%) of the issued and outstanding stock of which, or more than a five percent (5%) beneficial interest in which, is owned by an Owning Person or an Owned Person, and (ii) a Person which owns more than five percent (5%) of the issued and outstanding stock of, or more than a five percent (5%) beneficial interest in, any Owning Person or any Owned Person. (d) Any member of the family, agent, officer, director, employee or partner (or any member of the family of any agent, officer, director, employee or partner) of a Member, any Owning Person, any Owned Person or any Affiliated Person. (e) The Members acknowledge and approve the appointment of Noble House Grove Isle, Ltd., an Affiliate of NHA, as the initial manager of the Spa Improvement Project pursuant to the Spa Management Agreement and Noble House Hotels and Resorts, Ltd. as the developer under the Development Agreement. Section 3.4 Buy/Sell (a) From the date hereof pursuant to Section 7.2 and at any time after the second anniversary of the effective date of this Agreement, either Member (the "Proposer") may seek to acquire the entire Percentage Interest of the other Member (the "Responder") by giving written notice (the "Proposal Notice") to the Responder in accordance with the notice provisions in Section 12.2. The Proposal Notice shall contain a firm price (the "Proposal Price") for all cash above any company liabilities other than the Development Financing Loan which will be discharged in accordance with Section 3.4(d), to purchase all of the Company assets subject to all the Company liabilities. The Responder shall have thirty (30) days after the giving of the Proposal Notice in which to accept or reject the Proposer's Offer, by counter-notice in writing. If the Responder rejects the Proposer's Offer, the Responder shall be deemed to have offered to purchase the Proposer's Percentage Interest for the Proposer's Share (the "Proposer's Share") at the Proposal Price (and the Proposer shall be deemed to have accepted such offer. If the Responder fails to respond within thirty (30) days to the Proposer's Offer, the Responder shall be deemed to have accepted the Proposer's Offer. (b) In the case of a Member that is a corporation, every offer or acceptance provided by this Section shall be in writing, be fully executed, and be 10 accompanied by a copy of a resolution by the Board of Directors of the offering or accepting corporate Member authorizing such act. Such copy shall be certified to be true and correct by the secretary or an assistant secretary of the corporate Member and by at least a majority of the members of the Board of Directors of the corporate Member. A Member receiving an offer or acceptance not conforming with these formalities may elect to waive them. (c) The Closing shall take place sixty (60) days after the giving of the Proposer's Offer. The Closing shall be at the office of the Proposer, at the hour and location designated in the written notice of Proposer's Offer. (d) At settlement: i. The selling Member shall convey its interest in the Company to the buying Member, by an assignment in the form attached hereto as Exhibit B, and shall acknowledge that it is no longer a Member of the Company and execute such other documents as shall be appropriate in conjunction with its withdrawal from the Company. ii. The transfer shall be free and clear of any liens or encumbrances as against the seller Member that are not liens against either the Company or both Members. The proceeds of the sale shall be applied to satisfy any liens or encumbrances that are exclusively those of the selling Member. The buying Member shall indemnify and hold the selling Member harmless from all Company obligations, including attorneys' fees. The buying Member shall indemnify, defend, and hold harmless the selling Member from and against any and all claims, demands, losses, damages, liabilities, lawsuits and other proceedings, judgments and awards, and costs and expenses (including but not limited to attorneys' fees and expenses) incurred in, or arising directly or indirectly, in whole or in part, out of operation of the business of the Company before the date of such transfer. At closing, the seller Member will deliver to the buying Member cash collateral in the amount of one-half of the remaining outstanding balance on the Development Financing Loan, and buying Member will deliver to selling Member a complete release and waiver of any selling Member guaranty and lien rights held by the lender under the Development Financing Loan, or appropriate indemnity and hold harmless agreements indemnifying selling Member from any obligations under the Development Financing Loan. iii. The purchase consideration shall at settlement be paid in cash, or by a wire transfer to, cashier's check of, or certified check of, a bank doing business in Miami, Florida. iv. At Closing, the Company shall have the right, but not the obligation to cancel the Spa Management Agreement and the Development Agreement. 11 (e) Any breach by a Member of an obligation arising under this Section 3.4 shall constitute an Event of Default under Section 9.1 of this Agreement. ARTICLE IV BOOKS AND RECORDS; BANK ACCOUNTS; REPORTS Section 4.1 Books and Records. 4.1.1 General. At all times during the term hereof, the manager under the Spa Management Agreement, without additional fee, shall cause accurate books and records of account to be maintained in which shall be entered all matters relating to the Company, including all income, expenditures, assets and liabilities. 4.1.2 Accrual Basis. Such books and records of account shall be maintained on an accrual basis in accordance with generally accepted accounting principles (unless another method is approved by the Members) or tax accounting principles, as appropriate, and shall be adequate to provide each Member with all financial and tax information as may be needed by each Member or any Affiliate of each Member for purposes of satisfying the financial and tax reporting obligations of each Member or its Affiliates. 4.1.3 Information to Members. Each Member shall be entitled to any additional information necessary for the Member to adjust its financial basis statement to a tax basis as the Member's individual needs may dictate. Section 4.2 Location and Rights of Inspection. 4.2.1 Location. NHA, at the Company's expense, shall keep, or cause to be kept, full and accurate records of all transactions of the Company, at the principal place of business of the Company as specified in Article I hereof. 4.2.2 Inspection of Records. Each Member or such Member's duly authorized representative shall have the right, upon reasonable request, to do each of the following: (a) Inspect and copy, upon paying the reasonable cost thereof, during normal business hours any of the Company records required to be maintained under Section 4.1; and (b) Obtain from NHA, promptly after their becoming available, a copy of the Company's federal, state and local income tax or information returns for each year. NHA shall send to CII within ninety (90) days after the end of each tax year the information necessary for CII to complete its federal and state income tax or information returns, and a copy of the Company's federal, state and local income tax or 12 information returns for the year. Section 4.3 Fiscal Year. The tax and fiscal year of the Company shall end on December 31 of each year unless another fiscal year is required by the Internal Revenue Code of 1986, as amended (the "Code") or the Treasury Regulations ("Regulations"). Section 4.4 Statements of Financial Condition. NHA shall prepare a balance sheet and income statement of the Company as of the last day of each month and deliver same to CII within twenty (20) days after the end of each year. Each balance sheet and income statement shall be prepared in accordance with generally accepted accounting principles and shall be certified to be true and correct to the best of NHA's knowledge and belief. Copies shall be furnished to CII, an annual income statement and an annual statement of cash flow (unaudited) shall be furnished by NHA to CII within ninety (90) days after the close of the fiscal year. Section 4.5 Audit. The independent certified public accounting firm to audit the records and render an opinion will be chosen at the first meeting of the Members. The Company shall, at the Company's expense, engage the accounting firm on an annual basis to perform an annual audit of Spa Improvement Project finances. The accounting firm shall (a) audit the records and accounts of the Company, (b) render their opinion on the statement of financial condition of the Company as of the end of the last fiscal year through the latest month, and of the results of its operations, the changes in its financial condition and its income for each fiscal year and to date, as prepared by NHA, and (c) render their opinion on the annual computations of cash flow for each fiscal year as to whether distributions thereof are in accordance with this Agreement. The accountants shall determine if the records were substantially correct. Section 4.6 Bank Accounts. Funds of the Company shall be deposited in an account or accounts of a type, in form and name and in a bank or banks approved by the Members. Neither Member shall commingle the Company's funds with those of any other person or employ or permit another to employ these funds or assets in any manner except for the exclusive benefit of the Company (except to the extent that funds are temporarily retained by agents of the Company). Section 4.7 Development Reports. NHA shall prepare current schedules and development status reports for the Spa Improvement Project for each calendar month of each fiscal year, which reports shall contain sufficient information to enable each Member to determine the status of the Spa Improvement Project, including, without limitation, a narrative report on construction, expenditures, any deviations or expected deviations from the project budget and the construction schedule, status of permits, and other factors of significance to the Company. Copies shall be furnished to CII within ten (10) business days after the end of each calendar month. Section 4.8 Information from Members. Each Member shall furnish to the Company in a timely manner such information as the Company may require to comply with its tax or other reporting requirements under federal, state, local or foreign law. 13 ARTICLE V DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES TO THE MEMBERS Section 5.1 Percentage Interests; Distributions. Each Member's initial percentage interest in the Company ("Percentage Interest") shall be as follows: NHA 50% CII 50% TOTAL 100% No adjustment to the initial Percentage Interest of any Member shall be made except as provided in Section 2.2.6 or as a result of a transfer of a Member's interest or a portion thereof pursuant to Article VII or IX hereof. All distributions shall be made according to these Percentage Interests as adjusted from time to time. Section 5.2 Allocations; Compliance. Subject to Section 5.3, all profits and losses shall be allocated to the Members in accordance with their Percentage Interests. Each Member shall be at risk with respect to Company obligations in accordance with such Member's Percentage Interest. This Agreement shall comply with Code Section 704 and the Regulations thereunder. Section 5.3 Account for Dilution. For purposes of applying the provisions of this Article V, the Company's books shall be closed as of the close of business on the day prior to the date on which a Dilution occurs in accordance with Section 2.2.6(b). All distributable income and profits and losses attributable to the period prior to the date on which the Dilution occurs, as reasonably determined by the Members, shall be distributed and/or allocated, as applicable, with reference to the Percentage Interests of the Members prior to any adjustment pursuant to Section 2.2.6(b). All distributable income and profits and losses attributable to the period beginning on the date the Dilution occurs, as reasonably determined by the Members, shall be distributed and/or allocated, as applicable, with reference to the Percentage Interests of the Members subsequent to any adjustment pursuant to Section 2.2.6(b). ARTICLE VI INCOME TAX RETURNS, TAX ACCOUNTING, TAX ELECTIONS Section 6.1 Preparation of Tax Returns. Federal, state and local income tax returns of the Company, as required, shall be prepared, reviewed and signed by NHA. Within 90 days after the end of each fiscal year, NHA shall send to CII such tax information as shall be necessary for the preparation by CII of its federal income tax return, and any state income and other tax returns with regard to the jurisdiction in which the Company is formed. 14 Section 6.2 Section 754 Election. The Company shall, if requested by either Member, make the election under Section 754 of the Code. Section 6.3 Tax Decisions Not Specified. Federal, state, local, foreign, and other tax decisions and elections for the Company not expressly provided for herein must be approved by both Members. Notwithstanding that NHA is the Tax Matters Partner ("TMP"), all non ministerial decisions regarding tax elections, audit, tax litigation, settlement and other tax matters shall be subject to the approval of the Members. The TMP shall promptly take such action as may be necessary to cause each Member to become a "notice partner" within the meaning of Section 6231(a)(8) of the Code. The TMP shall furnish to each Member a copy of all notices or other written communications received by the TMP from the IRS. The TMP shall notify CII of all communications it has had with the IRS and shall keep CII informed of all matters which may come to its attention in its capacity as TMP by giving them written notice thereof within five (5) business days after the TMP becomes informed of any such matter or within such shorter period as may be required by the appropriate statutory or regulatory provisions. Section 6.4 Notice of Tax Audit. Prompt notice shall be given to the Members upon receipt of advice that the IRS or any other tax authority intends to examine Company income tax returns or books and records for any year. ARTICLE VII SALE, TRANSFER OR MORTGAGE OF 1NTERESTS Section 7.1 No Third Party Sale or Transfer. Except as provided in Section 7.3, neither Member may sell, transfer, convey or offer to sell its Percentage Interest to any third party, and any attempt to sell shall be an event of default and any attempted transfer shall be void. Section 7.2 Change in Control of a Member. At any time, a "Change in Control" of a Member shall be deemed to be a sale, transfer or conveyance of such Member's Percentage Interest and shall trigger the right of the other Member to purchase such Member's Percentage Interest pursuant to Section 9.2 as if this change in control was a default by the changed member. For purposes of this Agreement "Change in Control" of a Member shall mean a change in the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Member, whether through the ownership of voting securities, by contract or otherwise, and shall be construed as such term is used in the rules promulgated under the Securities and Exchange Act of 1934. Section 7.3 Sale of Percentage Interest in the Company in conjunction with the Sale of Fee/Leasehold Interest. For purposes of this Section 7.3, references to NHA shall include Westgroup Grove Isle Associates, Ltd., in its capacity as Lessee under the Primary Lease and affiliates. References to CII shall include Grove Isle Associates, Ltd., in its capacity as Lessor under the Primary Lease, and HMG/Courtland Properties, Inc. and their affiliates. 15 Notwithstanding any provision contained in this Agreement prohibiting the sale or transfer of a Member's Percentage Interest to a third party, a sale or transfer of a Member's Percentage Interest in the Company to a third party may take place only in conjunction with a sale or transfer of NHA's leasehold estate in the Primary Lease to a third party or the sale or transfer of CII's fee interest in the real property constituting the Primary Lease if and only if the following conditions are met. (a)Any sale or transfer of a Members' Percentage Interest in the Company may only be made to the same party that is also acquiring such Member's leasehold or fee interest in the Primary Lease. (b)If NHA, after compliance with the Right of First offer provisions of the Primary Lease elects to sell its entire leasehold estate in the Primary Lease and its interest in the Company to a third party, NHA shall advise CII in writing of the name of the prospective purchaser and the proposed closing date and whether or not the prospective purchaser chooses to purchase CII's Percentage Interest in the Company at a price to be established pursuant to Article X of this Agreement. If such an election is made under the Primary Lease, CII agrees to sell and assign its Percentage Interest at the appraised value established under Article X, with the closing to occur simultaneously with the closing of the sale of the leasehold estate. (c)If CII, after compliance with the Right of First Offer provisions of the Primary Lease, elects to sell its fee interest in the Primary Lease and its Percentage Interest in the Company to a third party, CII shall advise NHA in writing of the name of the prospective purchaser and the proposed closing date. NHA shall have fourteen (14) days after receipt of such notice to elect to purchase CII's Percentage Interest in the Company at a price to be determined in accordance with the appraisal procedures set forth in Article X of this Agreement, with the closing to occur simultaneously with the closing of the fee interest. (d)The transfer of a Member's Percentage Interest in the Company shall be by assignment and shall be on the same basis and confer the same rights as a transfer made pursuant to the Buy/Sell provisions of Section 3.4. Notwithstanding anything in this Agreement, the affiliates of CII and NHA may sell or transfer their respective interests in the Primary Lease, subject to any restrictions in the Primary Lease or otherwise in effect, while CII and NHA retain their Percentage Interests in the Company. ARTICLE VIII MEETINGS Section 8.1 Place of Meetings. Monthly meetings shall be held until the Members agree otherwise. Any meetings called pursuant to this Article VIII shall be held at the principal place of business of the Company or at such other place approved by the Members when called in accordance with the provisions of this Article VIII. 16 Section 8.2 Meetings of the Members. A meeting of the Members may be called by either of the Members for the purpose of discussing and deciding any major decision upon notice given as required by the Act. At any Members meeting a quorum shall be present only if the designated representative or alternate of each Member is present at such meeting. Section 8.3 Actions by Members Without a Meeting. With respect to any matter requiring or contemplating any action or approval by the Members, pursuant to this Agreement or pursuant to law, such action or approval will be deemed to have been accomplished without a meeting if consents in writing setting forth the action to be taken are signed by the Members. Section 8.4 Participation at Meetings by Means of Communications Equipment. Either of the Members may participate in any meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall be deemed to constitute presence in person at such meeting. ARTICLE IX DEFAULT AND DISSOLUTION Section 9.1 Events of Default. 9.1.1 Events of Default and Cure Periods. The occurrence of any of the following events shall constitute an event of default ("Event of Default") hereunder on the part of a Member if within thirty (30) days following notice of such default from any other Member (twenty (20) days if the default is due solely to the nonpayment of monies), such Member (i) fails to pay such monies, or (ii) in the case of non-monetary defaults, fails to substantially cure such default, or, if such default cannot reasonably be substantially cured within such thirty (30) day period, thereafter fails within a reasonable time to prosecute to completion with diligence and continuity the curing of such default, or, (iii) in the case of a breach of a representation or warranty as to which the underlying factual circumstance making the representation or warranty not true when made can be corrected such that the representation or warranty would be true, fails to substantially correct such factual circumstance and to remedy any damage that may have resulted from such breach of such representation or warranty, or, if such default cannot reasonably be substantially cured within such thirty (30) day period, thereafter fails to prosecute to completion with diligence and continuity the correction of such factual circumstance and remedy of damage resulting from the breach of representation or warranty; provided, however, that the occurrence of any of the events described in subparagraphs (b)-(h) below shall constitute an Event of Default immediately upon such occurrence without any requirements of notice or passage of time except as specifically set forth in any such subparagraph: 17 (a) the failure of a Member to make any agreed upon capital contribution to the Company as and when required pursuant to this Agreement. (b) a general assignment by a Member for the benefit of creditors. (c) the institution by a Member of a case or other proceeding under any section or chapter of the federal or any state bankruptcy act as now existing or hereafter amended or becoming effective, or under any other similar laws relating to the relief of debtors or the rights of creditors generally. (d) the institution against a Member of a case or other proceeding under any section or chapter of the federal or any state bankruptcy Act as now existing or hereafter amended or becoming effective, or under any other similar laws relating to the relief of debtors or the rights of creditors generally, which proceeding is not dismissed, stayed or discharged, within a period of sixty (60) days after the filing thereof or if stayed, which stay is thereafter lifted without a contemporaneous discharge or dismissal of such proceeding. (e) a proposed plan of arrangement or other action taken by a Member with its creditors. (f) the appointment of a receiver, custodian, trustee or like officer, to take possession of the assets of a Member if the pendency of said receivership would reasonably tend to have a materially adverse effect upon the performance by such Member of its obligations under this Agreement, which receivership remains undischarged for a period of sixty (60) days from the date of its imposition. (g) admission by a Member in writing of its inability to pay its debt as they mature. (h) attachment, execution or other judicial seizure of all or any substantial part of a Member's assets or its interest, or any part thereof, not dismissed or discharged for a period of thirty (30) days after the levy thereof, if the occurrence of such attachment, execution or other judicial seizure would reasonably tend to have a materially adverse effect upon the performance by such Member of its obligations under this Agreement; provided, however, that said attachment, execution or seizure shall not constitute an Event of Default hereunder if such Member posts a bond sufficient to fully satisfy the amount of such claim or judgment within thirty (30) days after the levy thereof and such Member's assets are thereby released from the lien of such attachment. 18 (i) the violation of or failure to comply with the provisions of Article VII above. (j) material default in performance of or failure to comply with any other agreements, obligations or undertakings of such Member contained herein or a material default by NHA's Affiliate in the Spa Management Agreement or Development Agreement. (k) a materially adverse misrepresentation by either Member set forth herein on any other agreement executed by the Members. Upon the occurrence of an Event of Default of a Member, the Non-Defaulting Member may enforce the Defaulting Member's obligations hereunder with respect to the payment of money by charging the same against any distributions or other amounts which the Defaulting Member would be entitled to receive hereunder. In addition, the Non-Defaulting Member shall have all other remedies available at law or in equity or under this Agreement, provided that the Non-Defaulting Member shall not be entitled to recover any consequential or punitive damages alleged to have been incurred by the Non-Defaulting Member, including but not limited to lost profits or lost opportunity. 9.1.2 Acts of Insolvency. The occurrence of any events described in subparagraphs (b)-(h) of Section 9.1.1 shall also constitute an "Act of Insolvency", as said term is used in this Agreement. Section 9.2 Purchase of the Defaulting Member's Interest. (a) Upon the occurrence of an Event of Default of a Member (the "Defaulting Member"), the Member who is not then the Defaulting Member (the "Non-Defaulting Member") shall have the right to acquire the interest of the Defaulting Member for cash. In furtherance of such right, the Non-Defaulting Member may notify the Defaulting Member at any time following an Event of Default of its election to institute the appraisal procedure set forth in Article X. The purchase price the Defaulting Member would be entitled to receive pursuant to this Section 9.2 shall be based on the amount the Defaulting Member would have been entitled to receive upon dissolution of the Company pursuant to the liquidation distribution formula set forth in Article IX if the Company had sold the Company assets for cash to a third party, based on the net fair market value of the Company assets as determined by an appraisal conducted pursuant to Article X. Within fifteen (15) days of receipt of notice of determination of the adjusted purchase price to be paid for the Defaulting Member's interest, the Non-Defaulting Member may notify the Defaulting Member of its election to purchase the interest of the Defaulting Member for that adjusted purchase price. (b) Closing of the purchase pursuant to this Section 9.2 shall take place as provided below: 19 i. The closing of any sale pursuant to this Section 9.2 (the "Closing") shall be held at the principal offices of the Company, unless otherwise mutually agreed, on a mutually acceptable date not more than sixty (60) days after receipt by the Defaulting Member of the written notice of election to purchase provided in Section 9.2(a). ii. At the Closing, any closing adjustments which are then usual and customary in Dade County, Florida, shall be made between the purchasing party or parties and the selling party or parties as of the date of Closing. The price to be paid pursuant to Section 9.2 for the interest of the Defaulting Member also shall be adjusted as of the date of the Closing to account for any additional capital contributions and contribution loans made by the Defaulting Member pursuant to Article II and any distributions between the date as of which the price for such interest was established and the date of the Closing to the extent such amounts alter the amounts that would be distributed to the Members in a liquidation distribution. Any Member transferring its interest shall transfer such interest free and clear of any liens, encumbrances or any interests of any third party and shall execute or cause to be executed any and all documents required to fully transfer such interest to the purchasing Member, including, but not limited to, any documents necessary to evidence such transfer, and all documents required to release any interest of a Member's spouse or any other party who may claim an interest in such Member's interest. Any monetary default by the Defaulting Member must be cured out of the proceeds from such sale at the Closing. iii. As of the effective date of any transfer permitted hereunder by a Member of its entire interest in the Company, such Member's rights and obligations hereunder shall terminate except as to items accrued as of such date, any indemnity obligations of such Member attributable to acts or events occurring prior to such date, and liabilities to third parties or otherwise arising prior to such date; provided that no removed Member shall remain responsible for any liabilities taken into account in determining the value of the Spa Property or the interest under Section 9.2(a). Thereupon, except as limited by the preceding sentence, this Agreement shall terminate as to the transferring Member, but at the non-transferring Member's election, shall remain in effect as to the non-transferring Member(s) and the Company. Following the date of Closing, a transferring Member shall have no further rights to any distributions of cash flow or other Company income and all such rights shall vest in such transferring Member's transferee. In the event of a transfer of a Member's entire interest to another Member, the Member to whom such interest is transferred shall indemnify, defend and hold harmless the Member so transferring its interest from and against any and all claims, demands, losses, damages, liabilities, lawsuits and other proceedings, judgments and awards, and costs and expenses (including but not limited to attorneys' fees and expenses) incurred in, or arising directly or indirectly, 20 in whole or in part, out of operation of the business of the Company after the date of such transfer except as provided above. Section 9.3 Dissolution. The Company shall be dissolved and terminated upon the earliest to occur of the following: (a) at the option of the solvent Member upon the occurrence of an Act of Insolvency (as defined in Section 9.1.2) of any Member or the breach by any Member of its covenant not to withdraw pursuant to Section 1.6; (b) the Members mutually agree in writing to terminate the Company; (c) at the option of the non-defaulting Member upon the default by a Member hereunder which is not cured by the Defaulting Member or which is not waived by the Non-Defaulting Member; (d) the sale or other disposition of all the Property and all other Company assets by the Company, or of substantially all of the Property; or (e) entry of a decree of judicial dissolution under the Act. (f) the termination or expiration of the lease of the Spa Property. Section 9.4 Procedure in Dissolution and Liquidation. 9.4.1 Winding Up. Upon dissolution of the Company pursuant to Section 9.3 hereof, the Company shall immediately commence to wind up its affairs and the Members shall proceed with reasonable promptness to liquidate the business of the Company. The Members (hereafter the "Liquidator") shall commence to wind up the affairs of the Company and to liquidate the Company's assets. The Members shall continue to share profits and losses during the period of liquidation in the same proportion as before the dissolution. The Liquidator shall have full right and unlimited discretion to determine the time, manner and terms of any sale or sales of Company property pursuant to this liquidation, giving due regard to the activity and condition of the relevant market and general financial and economic conditions, and may liquidate the assets for cash, securities, or such other consideration as it deems appropriate and distribute those assets in kind. Any Member or an Affiliate may purchase Company property upon liquidation, but any such purchase shall be at the property's fair market value as determined by independent appraisal. If assets are to be distributed to the Members, all such assets shall be valued at their then fair market value as determined by the Liquidator. The fair market value shall be used for purposes of determining the amount of any distribution to a Member pursuant to Section 9.4.4. 9.4.2 Management Rights During Winding Up. Except as otherwise described in this Section 9.4, during the period of the winding up of the affairs of 21 9/10/2004 the Company, the rights and obligations of the Members set forth herein with respect to the management of the Company shall continue. 9.4.3 Work in Progress. If the Company is dissolved for any reason while there is work in progress on the development or construction of the Project or otherwise with respect to the Property, winding up of the affairs and termination of the business of the Company may include completion of the work in progress as the Members may determine to be necessary to bring the matters under construction to a state of completion convenient to permit a sale of the Company's interest in such work. 9.4.4 Distributions in Liquidation. The assets of the Company shall be applied or distributed in liquidation in the following order of priority: (a) In payment of debts and obligations of the Company owed to third parties in the order of priority as provided by law, which shall include a Member as the holder of any secured loan. (b) To the setting up of any reserves that the Members may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company or of any Member arising out of or in connection with the Company. Such reserves shall be paid over to any attorney of the State of Florida, or trust company, selected by the Members, as escrowee, to be held for a period not longer than three years, for the purpose of disbursing such reserves in payment of the aforementioned contingencies, and at the expiration of such period, to distribute the balance remaining, as provided in this provision. (c) Repayment on a pro rata basis of any outstanding loans or advances made by the Members to the Company. (d) Distribution among all the Members according to Section 5.1. Notwithstanding the foregoing, in the event there are any outstanding Contribution Loans at the time of any distribution pursuant to this Section 9.4.4, then the Member to whom such Contribution Loan is owed shall be entitled to payment of the Contribution Loan on a priority basis out of the distributions to which the Member for whose benefit the Contribution Loans were made is entitled, to be applied to the Contribution Loans in order of priority based on the chronological order in which they were made, the earliest to be paid first in full, and to each Contribution Loan in payment first of interest and then of principal. 9.4.5 Final Reports. Within a reasonable time following the completion of the liquidation of the Company's properties, the Liquidator shall supply to each of the Members a statement that shall set forth the assets and liabilities of the Company as of the date of complete liquidation, each Member's portion of distributions pursuant to Section 9.4.4 and the amounts paid to the Member 22 pursuant to Section 9.4.4. 9.4.6 Termination. Upon the completion of the distribution of Company assets as provided in this Section, the Member conducting the winding up of the business of the Company as provided in Section 9.4.1 shall take over such other actions as may be necessary to terminate completely the Company. 9.4.7 Expenses. Expenses of dissolution and liquidation shall be charged to the capital accounts of the Members in proportion to each Member's respective Percentage Interest. 9.4.8 Deficit Capital Account Restoration. If, upon the dissolution and liquidation of the Company, after crediting all income upon sale of the Company's assets that have been sold, and after making the allocations provided for in Section 9.4.1 , any Member has a negative capital account, such Member shall not be obligated to contribute to the Company an amount equal to the negative capital account. Section 9.5 Disposition of Documents and Records. All documents and records of the Company, including, without limitation, all financial records, vouchers, cancelled checks and bank statements, shall be held as agreed to by the Members. Unless otherwise approved by the Members, NHA shall retain such documents and records for a period of not less than seven (7) years at the Company's main offices. ARTICLE X APPRAISAL Section 10.1 General. Whenever this Agreement provides for the valuation of the assets of the Company or an interest in the Company to be purchased or sold, including, without limitation, pursuant to Section 9.2, the value of such interest in the Company shall be determined as follows. The parties shall first attempt to agree upon the "net fair market value" of the Company assets. The "net fair market value" of the Company assets shall mean the cash price which a sophisticated purchaser would pay on the effective date of the appraisal for all tangible assets owned by the Company as if the Company were owned free and clear of any encumbrances and is a going concern. Section 10.2 Appraisal Procedure. In the event the parties are unable to mutually agree upon the net fair market value of the Company assets within ten (10) days of the date the appraisal procedure of this Article X is instituted as provided in this Agreement, they shall each select one appraiser to determine the net fair market value of the Company assets as of the date the appraisal procedure of this Article X is instituted as provided in this Agreement. Each appraiser so selected shall furnish the Members and the certified public accountants for the Company, or hired for purposes of the subject determination only, with a written appraisal within thirty (30) days of his or her selection, setting forth his or her determination of the net fair market value. If only one appraisal is submitted within the requisite time period, the determination of the fair market value 23 of the Company pursuant to such appraisal shall be final and binding on the Members. If both appraisals are submitted within such time period, and if the two appraisals so submitted differ by less than five percent (5%) of the lower of the two, the average of the two shall be the determination of fair market value and shall be final and binding on the Members. If the two appraisals differ by more than five percent (5%) of the lower of the two, then the two appraisers shall immediately select a third appraiser who shall within sixty (60) days after his or her selection make a determination of the fair market value of the Company assets and submit such determination to the Members and such certified public accountants. The third appraisal will then be averaged with the closer of the two previous appraisals and the result shall be the determination of fair market value and shall be final and binding on the Members, unless the first two appraisals differ from the third appraisal by the same amount, in which case the determination of the fair market value pursuant to the third appraisal shall be final and binding on the Members. All appraisers appointed pursuant to this Article X shall be members of the American Institute of Real Estate Appraisers with not less than ten (10) years experience appraising projects similar to the Project. The cost of the appraisals shall be an expense of the Company, except that if the appraisal procedure is instituted pursuant to Section 9.2, the cost shall be an expense of the Defaulting Member. ARTICLE Xl (RESERVED FOR FUTURE USE) ARTICLEXII GENERAL PROVISIONS Section 12.1 Complete Agreement; Amendment. This Agreement constitutes the entire agreement between the parties and supersedes all agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter hereof, and neither party hereto shall be bound by or charged with any oral or written agreements, representations, warranties, statements, promises, or understandings not specifically set forth in this Agreement or the exhibits hereto. The Members may, without prior written consent from any other Member, amend any provision of this Agreement from time to time to (i) add to the Agreement any further covenants, restrictions, deletions, or provisions for the protection of the Members; (ii) to cure an ambiguity or to correct or supplement any provisions contained herein; or (iii) to make such other provision in regard to matters or questions arising under this Agreement which will not adversely affect the interests of the Members. No amendment to this Agreement shall be effective if, in the opinion of counsel to the Company such amendment could result in the Company's not being taxed as a "partnership" for federal income tax purposes or the Company's being terminated for tax purposes. Section 12.2 Notices. Any notice, consent, demand or other communication required or permitted to be given under this Agreement shall be in writing and shall be delivered by hand, sent by reputable air courier, sent by prepaid registered or certified United States mail with return receipt requested or sent by facsimile (with a confirmation copy by mail), and shall be deemed to have been given upon the date of receipt. Rejection 24 of other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be received. Such notices, consents, demands or other communications shall be addressed as follows: TO : CII Spa, LLC c/o Maurice Wiener 1870 South Bayshore Drive Coconut Grove, FL 33133 Fax No. (305) 856-7342 TO: Noble House Associates, LLC do Patrick R. Colee 570 Kirkland Way Kirkland, Washington 98033 Fax No. (425) 827-6707 Notwithstanding the foregoing, the failure to provide copies of any such notices, consents, demands or other communications to any attorneys as provided above shall not render any such notice, consent, demand or other communication ineffective. Whenever a notice, offer, acceptance, rejection, or a copy is required or provided for to be sent to more than one person, all such communications shall, whenever reasonably possible, be sent within a single twenty-four (24) hour period. Whenever any party gives a notice, makes an offer, or tenders an acceptance to any other party, the party giving such notice, making such offer, or tendering such notice shall use its best efforts to send a copy of such communication to all Members. Section 12.3 Attorneys' Fees. Should any litigation be commenced between the parties hereto or their representatives or should any party institute any proceeding in a bankruptcy or similar court which has jurisdiction over any other party hereto or any or all of such party's or parties property or assets concerning any provision of this Agreement or the rights and duties of any person or entity in relation thereto, the party or parties prevailing in such litigation shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for such party's or parties' attorneys' fees, and court costs in such litigation which shall be determined by the court in such litigation or in a separate action brought for that purpose. In addition, any prevailing party shall be entitled to recover costs of enforcing a judgment, including attorneys' fees, and any ultimately prevailing party shall be entitled to recover costs of appeal, including attorneys' fees. Section 12.4 Survival of Rights. Except as provided herein to the contrary, this Agreement shall be binding upon and inure to the benefit of the parties signatory hereto, their respective heirs, executors and legal representatives and permitted successors and assigns. Section 12.5 Governing Law. All questions with respect to this Agreement and the rights and liabilities of the parties hereto shall be governed by the laws of that State of 25 Delaware. Each of the parties agrees to submit to the jurisdiction of the state chancery court in Wilmington, Delaware in any action, claim, or other proceeding arising out of any dispute in connection with this Agreement. Section 12.6 Waiver. No consent or waiver, express or implied, by a Member to or of any breach or default by the other Member in the performance by such other Member of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other Member of the same or any other obligations of such other Member hereunder. Failure on the part of a Member to complain of any act or failure to act of the other Member or to declare the other Member in default, irrespective of how long such failure continues, shall not constitute a waiver by such Member of such default or its rights hereunder. The giving of consent by a Member in any one instance shall not limit or waive the necessity to obtain such Member's consent in any future instance. Section 12.7 Remedies in Equity. The rights and remedies of any of the Members hereunder shall not be mutually exclusive, except as specifically provided herein to the contrary, i.e., the exercise of one or more of the provisions hereof shall not preclude the exercise of any other provisions hereof. Each of the Members confirms that damages at law will be an inadequate remedy for a breach or threatened breach of this Agreement and agree that, in the event of a breach or threatened breach of any provision hereof, the respective rights and obligations hereunder shall be enforceable by specific performance, injunction or other equitable remedy, but nothing herein contained is intended to, nor shall it, limit or affect any rights at law or by statute or otherwise of any party aggrieved as against the other for a breach or threatened breach of any provision hereof, it being the intention by this Section to make clear the agreement of the Members that the respective rights and obligations of the Members hereunder shall be enforceable in equity as well as at law or otherwise. Nothing herein contained shall have the effect, or be construed to have the effect, of giving to, or vesting in, any persons not a party to this Agreement any rights or remedies of any kind whatsoever for a breach or threatened breach of this Agreement. Section 12.8 Terminology. All personal pronouns used in this Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders, and the singular shall include the plural and vice versa. Titles of Articles and Sections are for convenience only, and neither limit nor amplify the provisions of this Agreement itself. The use herein of the work "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not non-limiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that could reasonably fall within the broadest possible scope of such general statement, term or matter. Section 12.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same agreement. 26 Section 12.10 Survival of Indemnity Obligations. Any and all indemnity obligations of either party hereto shall survive any termination of this Agreement or to the Company. Section 12.11 Fees and Commissions. Each Member hereby represents and warrants that as of the date of this Agreement there are no known claims for brokerage or other commissions or finder's or similar fees in connection with the transactions covered by this Agreement insofar as such claims shall be based on actions, arrangements or agreements taken or made by or on its behalf, and each Member hereby agrees to indemnify and hold harmless the other Member from and against any liabilities, costs, damages and expenses from any party making any such claims through such Member. Section 12.12 Good Faith and Fair Dealing; Further Assurances. In carrying out the terms of this Agreement, each Member agrees to deal with the other Member in good faith and in a manner of fair dealing. Each party hereto agrees to do all acts and things and to make, execute and deliver such written instruments, as shall from time to time be reasonably required to carry but the terms and provisions of this Agreement. Section 12.13 Time is of the Essence. Time is of the essence of this Agreement. Section 12.14 Representations, Warranties and Covenants of CII. CII hereby represents and warrants to NHA all of the items set forth in this Section 12.14 and, to the extent any such items are not yet required to be and are not fully performed, covenants to perform all such items following the formation of the Company in connection with the development and management of the Project. To the extent provided herein, such performance shall be at the expense of CII. 12.14.1 Valid Formation, Execution. (a) CII is a Delaware limited liability company duly formed, validly existing and in good standing under the laws of Delaware. (b) This Agreement and the other agreements or instruments to be delivered in connection herewith (collectively, "related documents") by CII and its Affiliates, as applicable, have been duly authorized and validly executed and constitute the binding obligations of and are enforceable against CII and its Affiliates, as applicable, in accordance with their respective terms. CII and its Affiliates, as applicable, have full power, authority and capacity to enter into this Agreement and the related documents, as applicable, and to carry out their respective obligations as described in this Agreement and the related documents, as applicable. Each Company or corporate Affiliate of CII is duly formed, validly existing and in good standing in the State of Delaware. 12.14.2 No Litigation. No litigation or proceedings, including without limitation, arbitration proceedings are pending or threatened relating to CII or any of its 27 Affiliates or to the best knowledge of CII, relating to the Spa Property which, if adversely determined, could individually or in the aggregate have an adverse effect on title to or the use and enjoyment or value of the Spa Property, or which could interfere with the consummation and performance of this Agreement or the related documents. 12.14.3 Obligations and Liabilities Relating to the Spa Property. At all times prior to the acquisition of the Spa Property by the Company, CII and its Affiliates will perform or caused to be performed (i) all contractual obligations imposed upon such parties relating to the Spa Property, and (ii) all obligations imposed upon such parties relating to the Spa Property under all applicable laws. CII shall not transfer any of its interest in the Company in any manner that would constitute a default under, or to otherwise be in violation of, a loan to the Company. Neither CII nor any of its Affiliates has incurred any obligations or liabilities which, except for liabilities expressly permitted by this Agreement, would become obligations or liabilities of NHA, a Member or the Company. 12.14.4 Not Foreign Person. CII is not a "foreign person" within the meaning of the Foreign Investment in Real Property Tax Act of 1980, as amended (FIRPTA). 12.14.5 Full Disclosure Neither this Agreement nor any other written communication by or on behalf of CII or its Affiliates in connection with this transaction contains, as of the time made, an untrue statement of a fact or omits a fact necessary to make the statements contained therein or herein not materially misleading. There is no other fact (which shall exclude general market or economic projections) known to CII which CII has not disclosed to NHA in writing which materially adversely affects, or to the best knowledge of CII, will materially and adversely affect, the Spa Property or the use or enjoyment of the value thereof, or the ability of the parties hereto perform the transactions contemplated by this Agreement. 12.14.6 Survival. The representations and warranties in this Section 12.14 shall survive the formation and the termination of the Company, provided that these representations shall only continue after the termination of the Company to the extent that a notice of breach thereof is given to CII within one year after termination of the Company. 12.14.7 Indemnity. CII shall indemnify, defend and hold harmless NHA and its Affiliates and the Company from and against any and all claims, demands, losses, damages, liabilities, lawsuits and other proceedings, judgments and awards, and costs and expenses (including but not limited to attorneys' fees and expenses) arising directly or indirectly, in whole or in part, out of any misrepresentation or any breach of any of the representations or warranties or breach of covenant made by CII or any of its Affiliates in this Agreement or in any document, certificate, exhibit or schedule given or delivered to the other Members by such parties pursuant to or in connection with this Agreement. Notwithstanding the foregoing provisions, the indemnification set forth above 28 shall exclude any punitive or consequential damages which NHA may claim to have incurred by reason of such indemnified matters, including, but not limited to lost profits or lost opportunity, but shall include indemnification for punitive or consequential damages claims by third parties. 12.14.8 Risk. CII recognizes that real estate investments involve certain risks, CII has taken full cognizance of and understands such risks and acknowledges that neither NHA nor any Affiliate thereof has guaranteed the return of CII's investment or any profit thereon. Section 12.15 Representations, Warranties and Covenants of NHA. NHA hereby represents and warrants to CII and the Members all of the items set forth in this Section 12.15 and, to the extent any such items are not yet required to be and are not fully performed, covenants to perform all such items following the formation of the Company in connection with the development and management of the Project. To the extent provided herein, such performance shall be at the expense of NHA. 12.15.1 Valid Formation, Execution. (a) NHA is a Delaware limited liability company, duly formed, validly existing and in good standing under the laws of Delaware. (b) This Agreement and the other agreements or instruments to be delivered in connection herewith (collectively, "related documents") by NHA and any of its Affiliates, as applicable, have been duly authorized and validly executed and constitute the binding obligations of and are enforceable against NHA and its Affiliates, as applicable, in accordance with their respective terms. NHA and its Affiliates, as applicable, have full power, authority, and capacity to enter into this Agreement and the related documents, as applicable, and to carry out their respective obligations as described in this Agreement and the related documents, as applicable. No community property or other similar interest exists with respect to any Company asset on the part of any Person that is not a party to this Agreement. Each Company or corporate Affiliate of NHA is duly formed, validly existing and in good standing in the State of Delaware. 12.15.2 No Litigation. No litigation or proceedings, including, without limitation arbitration proceedings, are pending or threatened relating to NHA or any of its Affiliates or to the best knowledge of NHA, relating to the Spa Property which, if adversely determined, could individually or in the aggregate have an adverse effect on title to or the use and enjoyment or value of the Spa Property, or which could interfere with the consummation and performance of this Agreement or the related documents. 12.15.3 Obligations and Liabilities Relating to the Property. At all times prior to the date of this Agreement, NHA and its Affiliates have performed or caused to be performed (i) all contractual obligations imposed upon such parties relating to the Spa Property, and (ii) all obligations imposed upon such parties 29 relating to the Spa Property under all applicable laws. NHA shall not transfer any of its interest in the Company in any manner that would constitute a default under, or to otherwise be in violation of a loan to the Company. Neither NHA nor any of its Affiliates has incurred any obligations or liabilities which would become obligations or liabilities of CII or the Company. 12.15.4 Not Foreign Person. NHA is not a "foreign person" without the meaning of the Foreign Investment in Real Property Act of 1980, as amended ("FIRPTA"). 12.15.5 Full Disclosure. Neither this Agreement nor any other written communication by or on behalf of NHA or its Affiliates in connection with this transaction contains, as of the time made, an untrue statement of a fact or omits a fact necessary to make the statements contained therein or herein not materially misleading. There is no other fact (which shall exclude general market or economic projections) known to NHA which NHA has not disclosed to CII in writing which materially adversely affects, or to the best knowledge of NHA will materially and adversely affect the Spa Property or the use or enjoyment or the value thereof, or the ability of the parties hereto to perform the transactions contemplated by this Agreement. 12.15.6 Survival. The representations and warranties in this Section 12.15 shall survive the formation and the termination of the Company, provided that these representations shall only continue after the termination of the Company to the extent that a notice of breach thereof is given to NHA within one year after termination of the Company. 12.15.7 Indemnity. NHA shall indemnify, defend and hold harmless CII and its Affiliates and the Company from and against any and all claims, demands, losses, damages, liabilities, lawsuits and other proceedings, judgments and awards, and costs and expenses (including but not limited to attorneys' fees and expenses) arising directly or indirectly, in whole or in part, out of any misrepresentation or any breach of any of the representations or warranties or breach of covenant made by NHA or any of its Affiliates in this Agreement or in any document, certificate, exhibit or schedule given or delivered to the other Members by such parties pursuant to or in connection with this Agreement. Notwithstanding the foregoing provisions, the indemnification set forth above shall exclude any punitive or consequential damages which CII may claim to have incurred by reason of such indemnified matters, including but not limited to, lost profits or lost opportunity, but shall include indemnification for punitive or consequential damages claims by third parties. 12.15.8 Risk. NHA recognizes that real estate investments involve certain risks, NHA has taken full cognizance of and understands such risks and acknowledges that neither CII nor any Affiliate thereof has guaranteed the return of NHA's 30 investment or any profit thereon. Section 12.16 Partial Enforceability. If any provision of this Agreement, or the application of the provision to any person or circumstance shall be held invalid, the remainder of this Agreement, or the application of that provision to persons or circumstances other than those with respect to which it is held invalid, shall not be affected thereby. Section 12.17 Partition. No Member shall have the right of partition of the Company, or assets of the Company, which rights are hereby waived. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above set forth. "NHA" Noble House Associates, LLC a Delaware limited liability company By: Colee Family Trust Managing Member By: /s/ Patrick R. Colee ------------------------ Patrick R. Colee Trustee Managing Member "CII" CII Spa, LLC a Delaware limited liability company by /s/ Larry Rothstein - ---------------------- Print: Courtland Investments, Inc. Its Member and Manager Larry Rothstein, President 31 Schedule I ---------- Dilution Pursuant to Section 2.2.6(b) (assumes $1,000,000 capital call)
Total Member A Member B ----- -------- -------- Initial capital contribution 1,000,000 500,000 500,000 Capital contribution from 500,000 500,000 contributing member Member loan for non contributing 500,000 500,000 member Total 2,000,000 1,500,000 500,000 Recalculated Percentage Interest 100.00% 75.00% 25.00%
32 EX-10 4 ex10k.txt EXHIBIT 10 (K) Exhibit 10 (k) SUBLEASE -------- THIS SUBLEASE (the "Sublease") is made and entered into as September 15, 2004, by and between WESTGROUP GROVE ISLE ASSOCIATES, LTD., a Florida limited partnership ("Sublessor") in favor of GROVE SPA, LLC, a Delaware limited liability company ("Sublessee"). RECITALS -------- A. Pursuant to that certain Amended and Restated Lease Agreement dated November 19, 1996 by and between Grove Isle Associates, Ltd. ("Prime Lessor") as lessor and Sublessor, as lessee (the "Prime Lease"), Sublessor is the owner of the leasehold estate created under the Prime Lease in and to the real property and improvements described in the Prime Lease as the "Real Property" and sometimes referred to herein as the "Entire Resort Property". B. Sublessor is operating the Entire Resort Property as a hotel and club (collectively, the "Resort"). C. Sublessor desires to sublease to Sublessee, and Sublessee desires to sublease from Sublessor that portion of the Entire Resort Property which is depicted on Exhibit A hereto (together with all easements, servitudes, benefits and other rights and interests appurtenant thereto and/or necessary for the use and enjoyment thereof, the "Spa Property") for the purpose of developing, constructing and operating a first class spa thereon. NOW, THEREFORE, in consideration of the mutual agreement set forth hereinafter, the Sublessor and Sublessee agree as follows: 1. Demise. Upon the terms and conditions hereinafter set forth, and in consideration of the payment of the rents and prompt performance by the Sublessee of the covenants and agreements to be kept and performed by the Sublessee, the Sublessor does hereby sublet to Sublessee and the Sublessee hereby sublets from the Sublessor, the Spa Property, including all improvements thereon. This demise is subject to the following: (a) All conditions, restrictions and limitations now appearing of record; (b) Prorated taxes and assessments for the year 2004 and all subsequent years; (c) A nonexclusive right in favor of the Prime Lessor, Grove Isle Yacht Club Associates ("Yacht Club"), Grove Isle Marina, Inc., and their respective agents, contractors, guests and invitees, to use and enjoy all driveways, walkways, parking facilities and open spaces now or hereafter located at the Spa Property to the extent necessary or appropriate for the use and enjoyment of the marina located upon and/or adjacent to the Entire Resort Property; (d) The terms, conditions, covenants, agreements and provisions of the Prime Lease; (e) All zoning and land use ordinances of the City of Miami, Florida and in any other competent governmental body now existing or which may hereafter exist during the term of this Sublease; and (f) The Tenant's proper performance of all terms and conditions contained in this Sublease. 2. Term. 2.1 Initial Term. The term of this Sublease shall commence on ___________, 2004 (the "Commencement Date") and end on November 30, 2016 (the "Termination Date"), unless and to the extent such term is sooner terminated or extended as provided below, in which event the Termination Date shall be, and the term of this Sublease shall end on, such earlier or later date, as applicable. 2.2 Extension Option. Provided that the Sublessee is not in default under this Sublease, the Sublessee shall have the right to extend the term of this Sublease for two (2) additional consecutive twenty (20) year terms on the same terms and conditions as contained in this Sublease (each such option to extend is called an "Extension Option"), provided that Sublessee gives Sublessor written notice of Sublessee's intention to exercise such Extension Option prior to the Termination Date, or the first extended Termination Date, as applicable. 2.3 Return of Possession. Upon the termination of this Sublease, the Sublessee shall peaceably and quietly deliver to the Sublessor possession of the Spa Property. 2.4 TERMINATION OF PRIME LEASE. NOTWITHSTANDING ANY PROVISION HEREIN TO THE CONTRARY, IN THE EVENT THE PRIME LEASE IS TERMINATED FOR ANY REASON, THIS SUBLEASE SHALL AUTOMATICALLY TERMINATE. 3. Rent. 3.1 Base Rent. Annual base rent for this Sublease shall be TEN THOUSAND DOLLARS ($10,000.00), plus sales tax, payable annually in advance to Sublessor at its notice address set forth below or at such other place as the Sublessor may specify in writing from time to time. The first annual base rent payment shall be paid on the date hereof and each subsequent annual base rent payment shall be paid on the same day of each year thereafter. 2 3.2 Net Lease. All payments shall be net to Sublessor, so that this Sublease shall yield net to the Sublessor the rent to be paid during the term of this Sublease. Accordingly, the Sublessee shall pay all sales tax on rent, as well as all costs, expenses and obligations of every kind or nature on, or with respect to, the Spa Property, which may arise or become due during the term of this Sublease, including without limitation, real estate taxes to the extent set forth in Section 3.3 below, utilities and insurance premiums. 3.3 Taxes. The Sublessee shall pay, before any fine, penalty, interest or cost may be added, become due or be imposed for nonpayment thereof (or, if earlier, the date required under the "Spa Mortgage" or under any other "Permitted Mortgage", each defined below), all taxes, assessments, water and sewer rents, rates and charges, transit taxes, charges for public utilities, excise, levies, license and permit fees and other governmental charges, general and special, ordinary and extraordinary, unforeseen and foreseen, of any kind and nature, which at any time during the term of this Sublease may be assessed, levied, confirmed, imposed upon or grow to be due and payable out of or in respect of, or become a lien on, the Spa Property or any part thereof or arising out of the rent received by the Sublessee from any subtenants, any use or occupation of the Spa Property by Sublessee, and such franchises as may be appurtenant to the use of the Spa Property, or any document (to which the Sublessee is a party) creating or transferring an interest or estate in the Spa Property. In no event, however, shall the Sublessee be required to pay (a) municipal, state or federal income taxes assessed against the Sublessor or its income, or (b) the Sublessor's municipal, state or federal capital levy, or (c) the Sublessor's estate, succession, inheritance, or transfer taxes, or (d) corporate franchise taxes imposed upon any corporate owner of the fee of the Spa Property or the leasehold estate created under the Prime Lease, or (e) any tax on any other activities of Sublessor, but Sublessee shall pay all ad valorem real and personal property taxes on the Spa Property. If, however, the Spa Property is not assessed separately from the Entire Resort Property, then the Sublessor and Sublessee shall mutually agree upon a fair and reasonable allocation of such taxes to the Spa Property and Sublessee shall pay to Sublessor such share of such tax upon demand by Sublessor. If Sublessee desires to contest the validity of any tax or tax claim, it may do so without being in default hereunder, provided that Sublessee gives the Sublessor written notice of its intention to contest such tax or claim, that any such contest stays the enforcement against the Spa Property of such tax or claim, provided, however, that if the Spa Property is not assessed separately from the Entire Resort Property, Sublessee shall not have any right to contest such taxes. 3.4 Proration. Notwithstanding anything to the contrary in this Sublease, taxes for the years in which the commencement date and termination date occur shall be prorated proportionately between Sublessor and Sublessee. 4. Sublessee's Covenants as to Use and Occupancy. 4.1 Use. Sublessee shall use the Spa Property only for the purpose of a first class spa under the name and style "Spa Terre", pursuant to a pre-paid non- 3 exclusive license to the use of the Spa Terre name and mark, or such other name and style approved by Sublessor (the "Approved Use"). Sublessee shall continuously, actively and diligently operate the Spa Property for the Approved Use so long as the Resort is in operation. Sublessee shall comply with 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 Spa Property or any part thereof, or any of the adjoining sidewalks, streets or ways, or any use or condition of the Spa Property 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 (collectively, "Legal Requirements"). 4.2 FF&E. The Sublessee shall install and maintain at all times in the Spa Property modern and high quality fixtures, furnishings, fittings and equipment. 4.3 Care. Sublessee shall keep in good state of repair and in first class condition all buildings, furniture, fixtures and equipment thereon and shall not suffer or permit any waste or neglect of the Spa Property, provided, however, that Sublessee shall be permitted to replace any or all of such furniture, fixtures and equipment with items of equal or better value, and provided, further, that Sublessee shall be permitted to demolish the interior of the existing buildings in connection with the "Sublessee's Work" (defined below). 4.4 Maintenance. Sublessee will be responsible, at Sublessee's sole cost and expense, and at all times throughout the term thereof, for all maintenance, repairs and replacements in, on or about the Spa Property, and the Spa Property and all equipment and property thereon shall be maintained in first class condition. Sublessee's responsibilities hereunder include, but are not limited to, the replacement, repair and maintenance of the roof and all structural components, all exterior and interior improvements, fixtures, appliances, equipment, and systems, including, but not limited to, air conditioning, heating, plumbing, electrical systems, and glass; and all of the foregoing shall be maintained in good operating condition at all times and shall be kept immaculately clean. All replacements, repairs and maintenance shall be performed by licensed contractors or workmen. Sublessee shall be responsible for all utilities, including the sanitation, storage and daily removal of all garbage generated by Sublessee. Sublessee shall perform the aforesaid maintenance, repairs, replacements and services and shall otherwise use the Spa Property in a manner which is sensitive to and consistent with the nature of the Resort. If the Sublessee does not make repairs promptly and adequately or otherwise fails to comply with this Section, the Sublessor may, but need not, make repairs or correct such failure, and the Sublessee shall pay Sublessor the cost thereof on demand. 4 5. Improvements and Delivery of Possession. Sublessee represents that Sublessee has inspected the Spa Property and is accepting the same in "as is" condition. No representations except those expressly contained herein have been relied on by Sublessee with respect to the condition, design, capacity or completion of the Spa Property or any other aspect of the Spa Property. Sublessee will make no claim against Sublessor on account of any representation of any kind, whether made by any renting agent, broker, officer or other representative of Sublessor or which may be contained in any advertisement relating to the Spa Property unless such representation is specifically set forth in this Sublease. All improvements shall become Sublessor's property and remain on the Spa Property upon termination of this Sublease. Notwithstanding anything to the contrary contained in this Sublease the obtaining and maintenance of all permits, licenses, zoning and governmental authorizations required for Sublessee's business operations shall be Sublessee's sole responsibility and at Sublessee's sole cost and expense and in no case shall the obtaining or maintenance of such be a condition to Sublessee's obligations hereunder. Notwithstanding any contrary provision of this Sublease, if any personal property is located in the Spa Property, the Sublessee accepts such personal property in its existing condition, as-is, and without representation or warranty as to title, condition or any latent defects. 6. Alterations, Additions or Improvements. 6.1 The Sublessee shall, at its sole cost and expense, promptly and diligently perform (or cause to be performed) all work necessary to complete the Spa Property for the Approved Use ("Sublessee's Work"). Sublesee's Work shall consist solely of the redevelopment and renovation of the improvements to the Spa Property contemplated by and expressly described in that certain Development Agreement of even date herewith by and between Sublessee, as "Owner", and Noble House Hotels and Resorts, Ltd., as "Developer". Sublessee shall commence and perform (or cause to be commenced and performed) Sublessee's Work pursuant to and in accordance with the Development Agreement, including without limitation the plans, specifications and drawings attached thereto and approved thereunder. Sublessee's Work, and any future repairs, replacements, additions or modifications to the Spa Property (collectively, the "Alterations") shall be performed: (i) at the sole cost of the Sublessee; (ii) by licensed contractors and subcontractors and workmen; (iii) in a good and workmanlike manner; (iv) in accordance with the drawings and specifications therefor; (v) in accordance with all applicable laws and regulations; and (vi) subject to the restrictions against liens set forth in Section 7 below. After the completion of Sublessee's Work, Sublessee shall notify Sublessor of any future Alterations prior to the commencement thereof. Upon installation, all improvements made pursuant to Sublessee's Work and all Alterations, other than trade fixtures, shall become the property of Sublessor and shall remain upon and be surrendered with the Spa Property. Sublessee's Work and all Alterations shall be accomplished in a good and workmanlike manner so as not to damage the primary structure or structural qualities of the improvements to the Spa Property. The right, title and interest of Sublessor in all or any portion of the Spa Property, underlying property or attached fixtures shall not be subject to any liens arising directly or indirectly out of any 5 improvements, alterations or changes made to the Spa Property, by or on the behalf of Sublessee, its officers, employees, contractors or agents. The Sublessee shall promptly pay for all materials supplied and work done with respect to the Spa Property. 6.2 Without limitation of the foregoing, and notwithstanding anything to the contrary elsewhere in this Sublease, Sublessee acknowledges that applicable Legal Requirements for the Spa Property, including without limitation the building and zoning codes of the City of Miami, county, state and/or federal laws relating to facilities of the handicapped, and other laws and regulations have changed many times since the date on which the existing improvements to the Spa Property were constructed and/or prior renovations to such improvements were completed, and that as a result of such changes in Legal Requirements, certain components of such existing improvements are or may not be in compliance with current Legal Requirements, although such components may not be required to be brought into such compliance unless and until building permits are requested for additional work to such improvements, such as building permits for Sublessee's Work. Sublessee nevertheless accepts the Spa Property "AS IS", and agrees that if any Sublessee's Work shall cause or result in the imposition of any requirement upon Sublessor for making alterations, additions or improvements to, or otherwise bringing all or any portion of any structure, improvement or area into compliance with current, or hereafter enacted, Legal Requirements (any and all such work is herein called "Compliance Work"), Sublessee shall be responsible for performing such Compliance Work and paying the full cost thereof. 7. Construction Liens. Sublessee has no right, power or authority to create any mechanics', materialmen's or construction liens upon the Sublessor's interest in the Spa Property, and the Sublessor's interest in the Spa Property shall not be subject to liens for improvements made by the Sublessee and the Sublessee shall not subject the Sublessor's interest in the Spa Property to any mechanics', materialmen's or other construction liens. Sublessee shall notify all materialmen, suppliers, contractors, mechanics and laborers involved with work or improvements to the Spa Property that such party must look only to the Sublessee or Sublessee's property interests for payment. The Sublessor may (but shall not be obligated to) put all materialmen, suppliers, contractors, mechanics and laborers on notice of this provision pursuant to Florida Statutes 713.10. If, notwithstanding the terms hereof, any such lien becomes effective against the Sublessor's interest in the Spa Property, the Sublessee shall cause the Spa Property to be released therefrom in any manner permitted under Florida law within 20 days after written notice from the Sublessor. The Sublessee agrees to indemnify and save harmless the Sublessor from any and all liabilities, expenses, costs, expenditures or otherwise, including reasonable attorneys' fees at all judicial levels, for breach of this provision. 8. Mutual Indemnification. During the entire term of this Sublease, 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 Spa Property or any of the other real property arising out of any act or omission of the indemnifying party or any contractor, agent, licensee or invitee of such 6 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. 9. Insurance. 9.1 At all times during the term of this Sublease, the Sublessee will keep the Spa Property, including all buildings and improvements thereon, insured for casualty loss, public liability, and business interruption, in amounts no less than the amounts required under the Prime Lease. Such policies shall (i) include the Sublessor, the Prime Lessor and any mortgagee under any mortgage permitted under the Prime Lease or this Sublease (a "Permitted Mortgagee"), as loss payees or additional insured parties (as applicable), (ii) fully protect both Sublessor, Sublessee, Prime Lessor and such Permitted Mortgagee, as their respective interests may appear, and (iii) provide for 60 days' prior written notice of cancellation to Sublessor, Prime Lessor and such Permitted Mortgagee. All proceeds of insurance shall be held, applied and disbursed as set forth in the Prime Lease, provided that the insurance proceeds for damage or destruction to the Spa Property shall be made available by Sublessor to Sublessee as soon as such proceeds are available to Sublessor under the Prime Lease. Sublessor shall not impose any restriction whatsoever on the release of insurance proceeds relating to the Spa Property to Sublessee so long as the requirements to such release (if any) imposed by the Prime Lessor under the Prime Lease have been satisfied. Sublessor shall have no duty, obligation or liability for any action or inaction of Prime Lessor, including, without limitation, breach of any duty to disburse insurance proceeds. 9.2 Certificates. The Sublessee shall deliver to the Sublessor certified Certificates of Insurance with original signatures, along with the receipted bills evidencing payment of the premium for them. However, nothing contained herein shall prohibit the Sublessee from financing such premiums and if Sublessee does so, such receipt shall evidence that the installment premium payment or payments are paid at or before their respective maturities. 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 Sublessee to surrender possession of the Spa Property, to terminate this Sublease, to violate any of its provisions, or to cause any rebate or reduction in the Rent when due or thereafter becoming due under its terms. If the Sublease is cancelled because of the Sublessee'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 Sublease, be deemed immediately to become the absolute and unconditional property of the Sublessor. 7 9.4 Proceeds Payable to Mortgagee. Any Permitted Mortgagee may, in accordance with its terms, require that the insurance proceeds be paid to it and thereafter disbursed for the cost of reconstruction, repair and restoration ("Restoration") in accordance with such mortgagee's own construction disbursement procedures, but subject to Section 9.2 of the Prime Lease and Section 9.6 hereof, the Sublessee 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 Sublessee is not then in default under this Sublease, then Sublessee shall be paid any excess money received from insurance remaining after the building or buildings upon the Spa Property are reconstructed, repaired or restored. If, after damage or destruction caused by fire, windstorm, or other cause, the Sublessee does not commence Restoration within three (3) months from the date of payment of the loss and prosecute the Restoration so that it will be completed within nine (9) months after the damage or destruction occurs, then Sublessee shall pay to the Sublessor the amount collected, or the balance thereof remaining in the joint account, plus any additional funds required to complete such Restoration. If the Sublessee is obligated under this Sublease to effectuate any Restoration but fails to so do within the time specified, the Sublessor may terminate this Sublease and retain the amount as liquidated and agreed upon damages. The 9-month period for Restoration shall be extended by delays caused without the Sublessee's fault or neglect by act of God, strikes, lockouts, or other conditions (other than matters of finance) beyond the Sublessee's control. 9.6 Damage Near End of Term. Notwithstanding anything herein to the contrary, if the improvements upon the Spa Property are damaged or destroyed so that operation thereof as contemplated under this Sublease is significantly impaired or impracticable and such damage or destruction occurs within the last 18 months of the term of this Sublease (without giving effect to any unexercised extension options), then, Sublessee shall have no obligation to effect any Restoration and unless Sublessee agrees to do so, this Sublease shall terminate as of the date of such damage or destruction and the Sublessee shall have no further extension options; provided, however, that Sublessee shall insure that the Spa Property complies with all Legal Requirements with respect to casualty losses of such type (for example, any partially damaged building shall be secured and made safe from collapse or further damage), and shall be entitled to any available insurance proceeds for such purpose. Sublessor shall be entitled to receive any insurance proceeds not used by Sublessee in accordance with the immediately preceding sentence. 10. Transfer. 10.1 Neither Sublessor nor Sublessee shall 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, this Sublease or all or any part of any interest in the Spa Property or any part thereof (any such disposition, transaction or agreement is herein called a "Transfer"), and any such purported Transfer shall be null 8 and void and of no force or effect, except a sale or transfer made in compliance with Section 7.3 of the Operating Agreement of Sublessee in effect between affiliates of Sublessor and Sublessee. 10.2 Intentionally left blank. 11. Condemnation. If at any time during the term of this Sublease, all or any portion of the Spa Property is taken, appropriated or condemned by reason of eminent domain, the Sublessor and Sublessee shall divide that portion of the proceeds and awards to which the Sublessor is entitled, 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 60 days after the award has been made, the disputed matter 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 Spa Property is wholly taken by condemnation, this Sublease shall terminate as of the date of such taking. 12. Mortgages. Sublessee shall not suffer or permit its interest in the Spa Property or the Spa to be subject to any mortgage or other lien, provided, however, that Sublessee shall be permitted to encumber the Spa Property with a mortgage (the "Mortgage") securing a principal sum not to exceed $1,000,000 to finance Sublessee's Work and the renovation of the Spa Property, bearing interest at a market rate of interest, maturing not later than 20 years after the date hereof. Although Sublessee shall have the right to encumber Sublessee's leasehold interest in the Spa Property created by this Sublease with a Spa Mortgage, the Spa Mortgage shall be subject and subordinate to the terms, conditions, covenants and provisions of the Prime Lease and any Permitted Mortgages (including the Existing Mortgage), and the respective rights and interests of Prime Lessor and Prime Lessee and the holder of the Permitted Mortgages thereunder, however, Sublessee shall be entitled to a non-disturbance agreement (similar to the type of Non-Disturbance Agreement to be provided to the Prime Lessee under Section 13.3 of the Prime Lease), provided that Sublessee's non-disturbance agreement shall be conditioned upon there being no default under this Sublease or the Prime Lease. In no event shall Sublessor have any personal liability for payment of the indebtedness secured by the Spa Mortgage or for the performance of any other obligation thereunder. Sublessee shall promptly fulfill and perform all obligations of Sublessee under the Spa Mortgage and the obligations secured thereby and shall indemnify and hold harmless the Sublessor of, from and against any and all loss, claim or damage which may be incurred by or threatened against Sublessee as a result of Sublessee's failure to promptly fulfill and perform all of its obligations under the Spa Mortgage and the obligations secured thereby. 13. Default. 13.1 Definition. A "default" or "Default" by any party to this Sublease means a failure of such party to pay or perform any of its obligations under this 9 Sublease (such failure to pay or perform is called a "breach") and in each case, expiration of any notice, grace or cure period. 13.2 By Sublessee. (a) Notice; Cure. If at any time the Sublessee fails to pay any sum of money on the day it is due and payable, or if the Sublessee breaches any other covenant under this Sublease, the Sublessor shall give written notice thereof to Sublessee, but Sublessor shall not be entitled to declare this Sublease in default unless the payment is not paid within ten (10) days after Sublessee receives Sublessor's notice, and, in the case of any other breach, the breach continues for thirty (30) days after Sublessee receives Sublessor's notice. However, nothing contained herein shall be construed as precluding the Sublessor from having any other remedy that may be necessary to preserve its right and its interest in the Spa Property and this Sublease, 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 Sublessor's rights, estate and interest in this Sublease or the Spa Property. (b) Remedies. Upon any breach by Sublessee and expiration of all applicable notice, grace and cure periods, the Sublessor may declare the Sublease term ended. In that event, the Sublessor may re-enter upon any part of the Spa Property, either with or without process of law, the Sublessee waiving any demand for possession of the Spa Property. The Sublessor shall also have all other remedies provided by law and/or equity and this Sublease. Immediately upon termination of the term, at the Sublessor's election or in any other way, the Sublessee shall peaceably surrender and deliver up the Spa Property to the Sublessor, or its agent or attorney. If the Sublessee, or its agent, attorney, or Sublessees, holds the Spa Property, or any part thereof, one day after the date for their surrender, according to the terms of this Sublease, the Sublessee shall be deemed guilty of forcible detainer of the Spa Property and shall be subject to eviction or removal, forcibly or otherwise, with or without process of law. (c) Revenue: Receiver. Subject to the rights of the holder of the Spa Mortgage or any other Permitted Mortgagee to which this Sublease is or is made subordinate, the Sublessee pledges with, and assigns to, the Sublessor as security for Sublessee's obligations under this Sublease all rents, issues, operating revenue, accounts, proceeds and profits ("Revenue") that might otherwise accrue to the Sublessee for the use, enjoyment, and operation of the Spa Property. In connection with such pledging of such Revenue, the Sublessee covenants and agrees with the Sublessor that if the Sublessor, upon the Sublessee's default, elects to file suit to enforce this Sublease and protect its rights, the Sublessor may, as ancillary to such suit, apply to any court of competent jurisdiction for the appointment of a receiver of all and singular the Spa Property. Nothing contained in this Section shall be construed as empowering the Sublessor to collect or receive Revenue accruing from the Spa Property, unless and until the Sublessee is in default. 10 13.3 By Sublessor. (a) In the event of a breach by the Sublessor, the Sublessee shall give written notice to the Sublessor, but Sublessee shall not be entitled to declare this Sublease 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 Sublessor receives Sublessee's notice that such payment is due, and in the case of any other violation, the violation continues for thirty (30) days after Sublessor receives Sublessee's notice. However, nothing contained herein shall be construed as precluding the Sublessee from having any other remedy that may be necessary to preserve its right and its interest in the Spa Property, and this Sublease, 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 Sublessee's rights, estate and interest in this Sublease, or the Spa Property. (b) Remedies. Upon any default by Sublessor and expiration of all applicable notice and cure periods, the Sublessee may terminate this Sublease, and shall also have all other remedies provided by law and/or equity and this Sublease. 13.4 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 lesser of (i) 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, or (ii) the maximum rate permitted by law. 13.5 Sublessor's Right to Cure. If Sublessee shall fail to promptly fulfill any or all of its obligations under this Sublease, Sublessor shall have the right, but not obligation, to take such actions and expend such monies as are necessary or desirable in order to fulfill such obligation, and advance all amounts necessary or desirable in order to do so, and the amounts so advanced by Sublessor shall bear interest at the Default Rate until paid, and shall be due and owing from Sublessee to Sublessor on demand. Sublessee shall have no claim or cause of action against Sublessor for any action or inaction taken by Sublessor in connection with the exercise of its rights under this Section. 13.6 Cumulative Remedies. During the continuance of this Sublease, each party shall have all rights and remedies which this Sublease and the laws of the State of Florida assure to it. All rights and remedies accruing to the Sublessor shall be cumulative; that is, the Sublessor may pursue all of such rights and remedies, in whatever order it desires and the law permits without being compelled to resort to any one remedy in advance of any other. 14. Prime Lease. This Sublease is and shall be expressly subject and subordinate to the Prime Lease and the terms, provisions, covenants and conditions 11 thereof. This Sublease is also subject and subordinate to all instruments, agreements and other matters to which the Prime Lease is or shall be subject or subordinate. Sublessee shall conform to, and use the Spa Property in accordance with, all the terms, provisions, covenants, agreements and conditions of the Prime Lease as same apply to the Spa Property, and will do no act which will result in a default or violation of said terms, provisions, covenants, agreements and conditions. To the extent there are inconsistencies between any provisions of the Prime Lease and any provisions of this Sublease, the provisions of this Sublease shall control unless the use or occupancy of the Spa Property by Sublessee or any action or inaction by Sublessee in accordance with said provision would be a violation of or default under the terms of the Prime Lease, in which event the provisions of the Prime Lease shall control. 15. Marina Rights. 15.1 Sublessee shall sublease to Yacht Club or its designee during the entire term of this Sublease approximately 240 square feet of space in the Spa Property for use as a dockmaster's office (the "Dockmaster's Office") at an annual rental rate of $15.00 per square foot "net" ("Dockmaster Rent"), subject to annual increases as hereinafter provided. Dockmaster Rent shall be paid in twelve (12) equal monthly installments on the first day of each month, commencing on the first day of the first month following substantial completion of Sublessee's Work and delivery of possession of the Dockmaster's Office to Yacht Club. Dockmaster Rent shall be adjusted and increased each year on the first anniversary of the substantial completion of the Sublessee's Work and on each anniversary thereafter (each an "Adjustment Date"), by adding thereto an amount equal to the product of (i) the Dockmaster Rent for the first full year that Dockmaster Rent is due (the "First Year"), and (ii) a fraction, the numerator of which is the "Index" (as defined in the Prime Lease) for the month immediately preceding the Adjustment Date minus the Index for the month immediately preceding the First Year, and the denominator of which is the Index for the month immediately preceding the First Year. Sublessee shall notify Yacht Club of the increase (if any) to the Dockmaster Rent for the applicable year and the increased amount of the new monthly installments due with respect thereto (if applicable), and Yacht Club's Dockmaster Rent shall be adjusted accordingly. In the event that the utilities consumed at the Dockmaster's Office are separately submetered, Yacht Club shall pay for all such utilities directly to the utility company providing same. However, if utilities are not separately submetered, Yacht Club will pay to Sublessee, in addition to the monthly rent hereinabove provided, an additional fifty dollars ($50.00) per month for all utilities used or consumed at the Dockmaster's Office, subject to annual increases based on the same adjustments as Dockmaster Rent. Sublessee shall be responsible for completion of leasehold improvements constituting the Dockmaster's office, with the exception of any future expansion. 15.2 Sublessor and its employees, agents, contractors and lawful users of the Resort shall have and enjoy a nonexclusive right to use and enjoy all driveways, walkways, parking facilities and open spaces now or hereafter located at the Spa Property; subject, however, in all cases, to the reasonable restrictions imposed by 12 Sublessee upon all users of such facilities and Sublessee's right to relocate, remove, alter or demolish such facilities from time to time. Sublessor shall indemnify and hold Sublessee harmless from and against any and all laws, claim or damage which may be incurred by or threatened against and as a result of, or in connection with, any gross negligence or intentional misconduct of Sublessor or its employees, agents, invitees and licensees on or with respect to the Spa Property and agrees to maintain and keep in effect at all times during the term of this Sublease, liability insurance policies relating to the Resort (including the Spa Property) in the amounts required under the Prime Lease. 15.3 Sublessee and its employees, agents, contractors and lawful users of the Spa shall have and enjoy a nonexclusive right, for the term of this Sublease, (a) to use and enjoy all driveways, walkways, and open spaces now or hereafter located at the Entire Resort Property, to the extent necessary or appropriate for the construction of the Spa and/or for their use and enjoyment of the Spa, as applicable, and (b) to erect, maintain and repair directional signage for the Spa at the Entire Resort Property so long as such sign is conformed to all applicable legal requirements and are in the same locations as, and are similar in size and design to, existing signage at the Entire Resort Property; subject, however, in all cases, to the reasonable restrictions imposed by Sublessor upon all users of such facilities and Sublessor's right to relocate, remove, alter or demolish such facilities from time to time. Sublessee shall indemnify and hold Sublessor harmless from and against any and all laws, claim or damage which may be incurred by or threatened against and as a result of, or in connection with, the exercise ` ,~ of its right to maintain and repair its signage hereunder or any gross negligence or intentional misconduct of Sublessee or its employees, agents, Spa invitees and licensees on or with respect to the Entire Resort Property and agrees to maintain and keep in effect at all times during the term of this Sublease, liability insurance policies relating to the Spa Property in an amount not less than $5,000,000. Sublessor shall provide parking for Spa guests and Spa employees on the same basis as provided under the Prime Lease. 16. Quiet Enjoyment. Subject to the terms hereof, so long as the Sublessee keeps and performs all of its covenants and conditions under this Sublease, Sublessee shall have quiet, undisturbed and continued possession of the Spa Property, free from all claims against the Sublessor and all persons claiming by, through or under the Sublessor. 17. Right of Entry. The Sublessor and its agents may enter upon the Spa Property 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 which does not unreasonably interfere with the Sublessee in the conduct of its business on the Spa Property. If the Spa Property is damaged by fire, windstorm or other casualty which causes it to be exposed to the elements, the Sublessor may enter upon them to make emergency repairs if the Sublessee fails to do so. However, if it does so, the act or acts shall not be deemed to excuse the Sublessee from its obligation to keep the Spa Property in repair, and the Sublessee shall, upon 13 Sublessor's demand, immediately reimburse Sublessor for the cost of the emergency repairs. 18. License. Sublessor, being the holder of a license from the Prime Lessor, to use the "Names" and "Marks" defined below, hereby grants to Sublessee, to the extent Sublessor has the power and authority to do so, a pre-paid non exclusive sublicense to use, during the term of this Sublease, solely for the purposes set forth below in this section, any and all trademarks, trade names and fictitious names "Grove Isle Club", "Grove Isle Hotel", "Grove Isle Resort", "Little Grove Isle" or any combination or derivation thereof (collectively the "Names"), 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 sublicense granted hereunder shall be utilized only in connection with the use, operation and management, advertisement and promotion of the Spa Property and not for any other properties, for the Approved Use. Sublessee 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 the Prime Lease and Article 4 of this Sublease. Sublessor also grants to Sublessee a pre-paid nonexclusive license to use the Name and Mark "Spa Terre" in connection with the operation of the Spa Property. The sublicense and license granted hereunder shall remain in full force and effect for the term of this Sublease, is not assignable or otherwise transferrable, directly or indirectly, and shall automatically terminate on termination of this Sublease. 19. 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 Sublessor or Sublessee 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; provided, however, that no such extension shall extend beyond the period allowed for such performance under the Prime Lease (including force majeure delays allowed under the Prime Lease). 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 calendar 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: 14 (a) Whether this Sublease 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 Sublease, in accordance with its tenor as then constituted; (c) The existence of any default under this Sublease; (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 Sublease 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 Sublease. This short form lease will set forth a description of the Spa Property, the term of this Sublease, and any other portion thereof, except for the rental provisions, reasonably 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 Spa Property and this Sublease, 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, except gross negligence, fraud or intentional misrepresentations. 19.6 Consent Not to be Unreasonably Withheld. Except to the extent, if any, specifically provided otherwise herein, the Sublessor shall not unreasonably withhold its consent, permission, or approval for any act which may be required or desired by the Sublessee under the provisions of this Sublease. Such consent, permission, or approval shall be deemed to have been granted if, within forty-five (45) days after Sublessor receives the request, fails to notify the Lessee of its express disapproval and the reasons therefor, except as otherwise provided herein. 19.7 Non-Waiver. No waiver of a breach of any covenant in this Sublease shall be construed to be a waiver of any succeeding breach of the same 15 covenant. No delay or failure by either party to exercise any right under this Sublease, and no partial or single exercise of that right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein. 19.8 Miscellaneous. Sublessor represents, warrants and covenants that it will provide the services described in this Section 19.8 to Sublessee in the event the affiliate of Sublessor who is a Member of Sublessee is no longer a Member of Sublessee for any reason. Such services will include all billing and bookkeeping services for Spa usage by members and Resort guests billed to the Grove Isle Club and Resort, cooperative advertising and marketing programs, and an incoming telephone extension from the hotel main switchboard. Provided that Sublessor provides all such services at the level and quality required herein, Sublessee shall pay a monthly fee for such services equal to (i) three percent (3%) of incurred revenue for such month (for all billing and bookkeeping services), and (ii) one percent (1%) of "Gross Operating Revenue" for such month (for all cooperative advertising and marketing programs). The capitalized terms used herein with quotation marks shall have the meanings given to them in that certain Spa Management Agreement of even date herewith by and between Sublessee, as owner, and Noble House Grove Isle, Ltd., as operator, governing the management and operation of the Spa Property. 19.9 Relationship. The relationship between parties is that of Sublessor and Sublessee only, and in no event shall the parties be deemed to be partners or joint venturers. 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 contains the entire agreement between parties as of this date with respect to 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 herein or in any other documents executed in connection herewith. 19.12 Notices. All notices and responses which are required or permitted under this Sublease 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 Sublessor: Westgroup Grove Isle Associates c/o Noble House Hotels & Resorts 570 Kirkland Way Kirkland, WA 98033 Attn: Mr. Patrick R. Colee (a) If to Sublessor: Westgroup Grove Isle Associates c/o Noble House Hotels & Resorts 570 Kirkland Way Kirkland, WA 98033 Attn: Mr. Patrick R. Colee 16 With a copy to: Patrick Dyer, Esq. 570 Kirkland Way Kirkland, WA 98033 (b) If to Sublessee: Grove Spa, LLC c/o Courtland Investments 1870 Bayshore Drive Coconut Grove, FL 33133 With a copy to: Noble House Associates, LLC. 570 Kirkland Way Kirkland, WA 98033 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 (Sublessor and Sublessee) consist of more than one person, such persons shall be jointly and severally liable on the covenants of this Sublease. 19.14 Liability Continued. All references to the Sublessor and Sublessee mean the persons who, from time to time, occupy the positions, respectively, of Sublessor and Sublessee. 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 Sublessor and Sublessee at one time, unless such release is provided for under other provision of this Sublease. 19.15 No Third Party Benefits. This Sublease 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; Venue. In the event of any litigation, action, suit or proceeding between any parties to this Sublease pertaining to the construction or enforcement of this Sublease, 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. Any action or proceeding brought by the parties concerning any matters arising out of this Sublease shall be heard in a court sitting in Miami-Dade County, Florida, the parties hereto hereby waiving any objections to such venue. Sublessor and Sublessee knowingly, intentionally and voluntarily waive all rights to a trial by jury in any action or proceeding relating to or arising out of this Sublease. 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. 17 19.18 Headings. Headings in this Sublease 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 Sublease and of each provision hereof. 19.20 Counterparts. This Sublease may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one instrument. 19.21 Partial Invalidity. If any term, covenant or condition of this Sublease, or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Sublease, or the application of such term, covenant or condition to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected thereby and each other term, covenant and condition of this Sublease shall be valid and be enforced, to the fullest extent permitted by law. 19.22 Radon Gas. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county health department. IN WITNESS WHEREOF, the Sublessor and Sublessee have hereunto set their hands and seals as of the day and year above written. SUBLESSOR: WESTGROUP GROVE ISLE ASSOCIATES LTD., a Florida limited partnership, by WESTGROUP PARTNER, INC., a California corporation, its sole general partner /s/ Christine Evans By /s/ Patrick R. Colee - ------------------- ----------------------- Print Name: Christine Evans Patrick R. Colee, President /s/ Donna Macnear - ----------------- Print Name: Donna Macnear SUBLESSEE: 18 GROVE SPA, LLC, a Delaware LLC By: NOBLE HOUSE ASSOCIATES, LLC, a Delaware limited liability company /s/ Christine Evans By: /s/ illegible - ------------------- ----------------- Print Name: Christine Evans Its Managing Member /s/ Donna Macnear - ----------------- Print Name: Donna Macnear By: CII SPA, LLC a Delaware limited liability Company /s/ Lynette Benitez By: /s/ Larry Rothstein - ------------------- ----------------------- Print Name: Lynette Benitez Courtland Investments, Inc. Its Managing Member and Member Larry Rothstein, President /s/ Keith W. Crank By: - ------------------ Print Name: Keith W. Crank Exhibits: - --------- Exhibit A - Spa Property 19 EX-10 5 ex37a.txt EXHIBIT 10 (L) Exhibit 10 (l) PURCHASE AND SALE AGREEMENT FOR CERTAIN ASSETS ---------------------------------------------- THIS PURCHASE AND SALE AGREEMENT FOR CERTAIN ASSETS (this "Agreement") is entered into this ___ day of May, 2004, by and among BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation ("Bayshore"), MONTY'S IN THE GROVE, INC., a Florida corporation, f/k/a, Terremark Stone Crabs, Inc. ("Monty's Upstairs"), and HOCUS-POCUS, INC., a Florida corporation ("Hocus-Pocus") (Bayshore, Upstairs and Hocus-Pocus are sometimes collectively referred to herein as, "Seller"), and BAYSHORE LANDINGS, LLC, a Florida limited liability company ("Landings"), its successors and/or assigns and HMG BAYSHORE, LLC, a Florida limited liability company ("HMG", its successors and/or assigns and together with Landings, collectively, "Buyer"). The "Effective Date" of this Agreement, shall be the day in which the last of Seller, Buyer or any joinder party signs this Agreement and a fully executed copy delivered to Buyer. RECITALS: A. The City of Miami, Florida, a municipal corporation of the State of Florida (the "City"), entered into that certain Lease Agreement with Bayshore Properties, Inc. ("BPI") dated September 20, 1985 (the "Lease") for certain premises described on Exhibit "A", attached hereto and made a part hereof (the "Leased Premises"). B. BPI assigned all of its rights and obligations under the Lease to Grove Marina Market, Ltd., a Florida limited partnership ("Master Tenant") by virtue of that certain Assignment of Lease dated March 16, 1986, that certain Acceptance of Assignment of Lease, dated March 14, 1986, and that certain Consent by and between the City and BPI dated March 13, 1986 (the Lease together with the foregoing agreements is collectively referred to as the "Master Lease"). Pursuant to the terms of the Master Lease Master Tenant constructed certain improvements on the Leased Premises (collectively, the "Improvements") including but not limited to approximately 20,000 rentable square feet of office/retail space ("Retail Space"); approximately 20,000 rentable square feet of restaurant space located on the second floor of the Retail Space ("Restaurant Space"); and approximately 15,000 rentable square feet of space comprising the raw bar ("Raw Bar Space") and approximately 3.7 acres of submerged land and approximately 132 dock slips comprising the marina portion of the Leased Premises (the "Marina Space"). C. Master Tenant entered into that certain Sublease dated as of March 14, 1986 (the "Original Sublease") with Marina Restaurant, Ltd. ("Master Subtenant"), under which Master Subtenant subleased the entire Leased Premises. The Original Lease was subsequently amended by that certain Amendment to Sublease dated as of June 30, 1986 and that certain Second Amendment to Sublease (the Original Sublease as modified by the foregoing amendments is collectively referred to herein as the "Master Sublease"). D. Master Tenant, Master Subtenant and Bayshore, entered into that certain Assignment of Sublease effective as of March 1, 1991 whereby the Master Sublease was assigned by Master Subtenant to Bayshore, as subtenant. Bayshore desires to assign to Buyer all of its rights under the Master Sublease and sell its ownership of the Improvements to Buyer pursuant to the terms and conditions contained in this Agreement. E. Subsequent to the assignment of the Master Sublease to Bayshore, Bayshore entered into an agreement with Monty's to operate the Raw Bar Space and in connection therewith Monty's owns certain equipment, inventory and other personal property that it desires to sell to Buyer pursuant to the terms and conditions contained in this Agreement. F. The Restaurant Space was further subleased by Bayshore to Terremark Stone Crabs, Inc., (now known as Monty's in the Grove, Inc., and defined herein as "Monty's Upstairs"), pursuant to that certain Sub-Lease Agreement dated effective as of April 28, 1991 (the "Upstairs Restaurant Sublease"). Monty's Upstairs and Bayshore desire to assign to Buyer all of their respective rights under the Upstairs Restaurant Sublease. Monty's Upstairs currently operates a restaurant in the Restaurant Space and in connection therewith owns certain equipment, inventory and other personal property that it desires to sell to Buyer pursuant to the terms and conditions contained in this Agreement. G. Master Tenant has leased certain submerged land contained within the Leased Premises from the Trustees of the Internal Improvement Fund ("TIIF") by virtue of Sovereign Submerged Land Lease No. 130288206 (the "Tenant Submerged Land Lease") and Seller has the right to use the Submerged Land and the improvements constructed thereon by virtue of the terms of the Master Lease. By its joinder to this Agreement, Master Tenant shall assign its rights under the Tenant Submerged Land Lease and its ownership of the improvements constructed on the land demised therein to Buyer pursuant to the terms and conditions contained in this Agreement. H. The City is in the process of leasing certain submerged land contained within the Leased Premises from TIIF by virtue of a sovereign submerged land lease ("City Submerged Land Lease") and Seller has the right to use the submerged land referenced therein by virtue of the Master Lease. The remaining portion of the submerged land within the Leased Premises is owned by the City and the Seller has the right to use it by virtue of the Master Lease. (The Tenant Submerged Land Lease and the City Submerged Land Lease are sometimes collectively referred to herein as the "Submerged Land Lease"). The Seller owns certain improvements within the area demised under the City Submerged Land Lease and shall transfer its ownership of such improvements to Buyer. I. Hocus-Pocus is the current registered owner of the trademarks and service marks commonly known as "Monty Trainer's," Monty's Stone Crab," "Monty's Conch," "Monty's" and Monty's Marina, together with certain other trademarks, trade secrets, unique features, concepts, designs operating procedures recipes and materials used in connection with the Restaurant Space and the Raw Bar Space (collectively, the "Trademarks and Other Rights"). Hocus-Pocus desires to permit Buyer to use the Trademarks and Other Rights on a non-exclusive basis in connection with its business operations at the Project (as defined below) pursuant to the terms and conditions and conditions contained in this Agreement. J. Buyer desires to purchase all of Seller's rights to use the Leased Premises, own the Improvements, own certain personalty used in connection with and operate two restaurants, a marina and retail and office facility located at the Leased Premises and use the Trademarks and Other Rights on a non- exclusive basis (collectively, the "Project"). Seller desires to sell and 2 assign to Buyer the assets of the Project pursuant to the terms and conditions contained in this Agreement. NOW THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Sole and Purchase. Upon the terms and subject to the conditions set forth in this Agreement, Seller (and/or each individual party comprising Seller, as appropriate) shall sell, transfer, convey, assign and deliver to Buyer, and Buyer shall purchase and acquire from Seller (and/or each individual party comprising Seller, as appropriate), free and clear of all liens, ~ pledges, mortgages, charges and encumbrances of any nature whatsoever, at the Closing on the Closing Date (as such terms are defined below), all of Seller's right, title and interest in and to the following assets (collectively the "Acquired Assets"): 1.1 The Master Sublease, Master Lease, the Upstairs Restaurant Sublease, the Tenant Submerged Land Lease and the City Submerged Land Lease (collectively, the "Master Lease Agreements") to be conveyed at the Closing by assignment of Seller's interest in the Master Lease Agreements and by an assignment of Master Tenant's interest in the Master Lease and the Tenant Submerged Land Lease; 1.2 Any and all Improvements located on, in or about the Leased Premises (including, but not limited to the buildings, awnings, walkways, docks, piers, fences, chickee huts, signage and light fixtures located in the Retail Space, the Raw Bar Space, the Restaurant Space and the Marina Space); 1.3 All tangible personal property of any kind owned by Seller and located on, attached to or used in connection with the Project and/or the Improvements, including, but not limited to, all furniture, fixtures, equipment, appliances, tools, kitchen and bar supplies, food and liquor inventory, linens, glassware, menus, recipes, signage, silverware, pots and pans, carts, cleaning supplies and materials, telephone numbers and exchanges, computers, computer software, menus, signs and other tangible personalty, all to the extent owned by Seller, located at the Leased Premises and used in connection with the Project, some of which are specifically listed in Exhibit "C" attached hereto (collectively the "Personalty"); 1.4 Any and all leases, licenses, concessionaire's agreements and all other similar agreements relating to the use or occupancy of the Retail Space, the Marina Space or any other portion of the Project (collectively, the "Tenant Leases"), and all security deposits and other similar deposits if any ("Tenant Security"), made by licensees, tenants, concessionaires or other users at the Project (collectively, the "Tenants") under such Tenant Leases; 1.5 If and to the extent transferable, any and all governmental licenses and permits for the operation of the Property (collectively, the "Operating Permits"), including but not limited to the 4COP SRX Liquor License No. BEV 2300929 ("Liquor License") used at the Restaurant Space and the Raw Bar Space; 3 1 .6 Any and all of Seller's rights, easements, licenses and privileges at the Leased Premises or appertaining to the Project; and 1 .7 Any and all of the leases and the maintenance, service, advertising and other like contracts and agreements with respect to the operation of the Project listed in Exhibit "C" attached to this Agreement (the "Operating Contracts"); unless Buyer provides written notice to Seller during the Due Diligence Period that it does not elect to assume certain Operating Contracts then Buyer shall only acquire the Operating Contracts it so elects. 2. Purchase Price. The Purchase Price for which Seller agrees to sell and assign the Acquired Assets to Buyer, and which Buyer agrees to pay to Seller, subject to the terms and conditions hereof and subject to adjustments, credits and prorations as hereinafter provided, is Thirteen Million Five Hundred Thousand and No/100 Dollars ($13,500,000.00) (the "Purchase Price"). The Purchase Price shall be paid in accordance with the following terms and conditions: 2.1 One Hundred Thirty-Five Thousand and No/100 Dollars ($135,000.00) (the "Initial Escrow Deposit") will be deposited with Bilzin Sumberg Baena Price & Axelrod LLP ("Escrow Agent") within two (2) business days after the Effective Date; 2.2 In the event that this Agreement is not terminated by Buyer on or before the expiration of the Due Diligence Period (as defined in Section 4 below), on the first business day thereafter, Buyer shall deposit and additional Three Hundred Sixty-Five and No/100 ($365,000.00) (the "Additional Escrow Deposit") with Escrow Agent (once the Additional Escrow Deposit is made, the Initial Escrow Deposit and the Additional Escrow Deposit shall collectively be referred to as, the "Escrow Deposit"). After the Additional Escrow Deposit is made, the Escrow Deposit shall be non-refundable to Buyer, except in the event of a Seller default or failure of a condition precedent in Section 3.1 , but shall be applicable against the Purchase Price at Closing. The Initial Escrow Deposit and if paid the Additional Escrow Deposit shall be held by Escrow Agent in accordance with the provisions set forth in Exhibit "B" attached hereto. In the event that Buyer terminates this Agreement on or before the expiration of the Due Diligence Period or fails to timely deliver the Additional Escrow Deposit, the Initial Escrow Deposit shall be refunded to Buyer by Escrow Agent, and thereafter the parties to this Agreement shall have no other obligations to each other, except for this obligations that expressly survive such early termination. 2.3 The balance of the Purchase Price, subject to the prorations set forth in Section 10, shall be paid by Buyer at Closing. 3 . Buyer's Conditions Precedent to Closing. Buyer's obligation to purchase the Acquired Assets pursuant to this Agreement shall be subject to unconditional completion of the following (collectively, the "Conditions Precedent"); 3.1 Seller obtaining a memorandum of understanding and/or estoppel letter(s), in form and content acceptable to Buyer, by and among Seller, Buyer, the City and Master Tenant containing, among other things, the following provisions: (i) all required approvals by the 4 City, the Trustees of the Internal Improvement Fund ("TIIF") and any applicable governmental authority to the Assignment of the Master Lease Documents to Buyer; (ii) conceptual approval by the City and any applicable governmental authority of the proposed conversion of a portion of the Restaurant Space into office space and the expansion of a portion of Restaurant Space to include a second floor outdoor eating area and bar (such conceptual approval does not include formal site plan approval and/or the issuance of building permits), (iii) certification by the City, TIIF and any applicable governmental authority that all obligations of the Master Tenant under the Master Lease have been met as of the Closing Date, and that no additional liabilities under the Master Lease that accrued before the Closing Date shall be the obligation of Buyer; (iv) certification by the Master Tenant and any other applicable person or entity that all obligations of Master Subtenant and Bayshore under the Master Sublease have been met as of the Closing Date, and that no additional liabilities under the Master Sublease that accrued before the Closing Date shall be the obligation of Buyer; (v) confirmation from the City, TIIF and the Master Tenant that, as of the Closing Date, no default exists under any of the Master Lease Documents or with the passage of time or the giving of notice would constitute default thereunder; and (vi) a general consent by the City and any applicable governmental authority of the assignment of the other Acquired Assets to Buyer. 3.2 A certification by Buyer that the Personalty remains on, attached to or available for Buyer's use in connection with the continued operation of the Project as of the Closing Date. 3.3 Delivery of all of the Seller's Closing Documents (defined below). 3.4 The City, TIIF and any applicable governmental authority shall have: (i) executed and delivered the City Submerged Land Lease and any necessary amendments thereto to provide for a term of no less than 10 years, the legal description of the City Submerged Land Lease shall, at a minimum, describe the land upon which the current docks are located and (ii) the Buyer shall have the express right to use the submerged land demised under the City Submerged Land Lease and any deed or other restriction preventing the same shall have been waived. The Tenant Submerged Land Lease shall have been assigned to Buyer and all necessary governmental consents and/or approvals shall have been obtained. 3.5 Buyer shall have received appropriate approvals from the applicable governmental authorities to transfer the Liquor License to Buyer. In the event Buyer fails to obtain such approvals but is confident that such approvals will be forthcoming, Buyer shall close provided that the applicable Seller agrees to enter into a concession agreement whereby the Seller holding the Liquor License sells liquor at the Project at no additional charge until such time as the Liquor License is transferred to Buyer. Buyer shall use diligent efforts to obtain such approvals prior to Closing. 3.6 All representations and warranties of Seller contained in this Agreement shall be true and correct as of the Closing Date in all material respects. 3.7 Seller shall have obtained from the "New Shareholders" as defined in that certain Second Amendment to Shareholders' Agreement of Monty's Holdings, Inc. ("Holdings") 5 dated August 27, 2003 among Stephen J. Kneapler, Manuel A. Diaz, Robert Licero, Ralph Velocci, Daniel J. Long, Rolando Delgado, Julissa Caso Delgado, Emilio Sauma, Hayment Sauma, Frank Torres, Jacqueline Torres, Eduardo J. Garcea and Aradelyses Garcea, a binding payoff letter which upon payment of such sums shall satisfy any and all claims and/or disputes arising amongst any of the shareholders of Holdings and/or Holdings, consent to the sale of the Acquired Assets to Buyer, release all claims of each New Shareholder, and provide a general release, substantially in the form of the estoppel letter and general release attached hereto as Exhibit "F" ("Estoppel and Release"). The fully executed Estoppel and Release shall be obtained by Seller within 15 days after the Effective Date ("Estoppel and Release Delivery Date") and copies delivered to Buyer. The original executed Release(s) shall be held in escrow by Escrow Agent. At Closing the Escrow Agent shall pay the New Shareholders the amounts set forth in the Estoppel(s) from the Closing proceeds and deliver the Releases to the parties being released therein. 4. Title and Due Diligence Period. 4.1 Due Diligence Period. Buyer shall have until 5:00 p.m. (Eastern time) on the thirtieth (30th) day following the Estoppel and Release Delivery Date (the "Due Diligence Period") within which to inspect the Project. Seller shall allow Buyer and its agents reasonable access to the Project during normal business hours to conduct such review as Buyer deems appropriate. Within three (3) business days after the Effective Date, Seller shall deliver to Buyer all documents, records and other information relating to the Project which are in Seller's possession, including, but not limited to: 4.1.1 The Master Lease Documents and the Tenant Leases (including any and all amendments, assignments, memoranda or other agreements related thereto (i.e. the waiver(s) of the deed restriction(s) by TIIF with respect to the use of the submerged land by a private entity and the calculation of all fees and or payments due in connection with such waiver(s)); 4.1.2 A list of all Tenants, with terms of the Tenant Leases (the "Rent Roll") including amount of rent, the amount of the security deposit, if any, whether a brokerage commission, if any, is due and the duration of the lease. 4.1.3 Copies of all Trademarks and Other Rights; 4.1.4 A video tape containing the Personalty not expressly set forth on the attached Exhibit "C" 4.1.5 Copies of the inventory lists for the Raw Bar and Restaurant for March 2004 and April 2004; 4.1.6 Copies of all Operating Permits, certificates of occupancy, licenses, permits and other governmental approvals used by Seller in connection with its business operations at the Project or the construction of any improvements at the Project; 6 4.1.7 Copies of all Operating Contracts and similar agreements currently affecting the Leased Premises and/ or the Project; 4.1.8 A list of all of Seller's employees together with a description of their work duties, experience and current compensation; 4.1.9 Copies of all surveys, plans and specifications, engineering, environmental, property condition and similar type reports regarding the Leased Premises and/ or the Project; 4.1.10 Copies of all settlement agreements and correspondence with the Florida Department of Revenue and the Internal Revenue Service and other taxing authorities concerning any delinquent tax payments and/or settlement agreements or payment plans with respect thereto. In the event the foregoing information is not timely delivered Buyer in an orderly fashion, the Due Diligence Period shall be extended one day for each day the Seller is late in delivering the same. 4.2 Inspection Rights. Buyer's right of inspection shall be subject to the rights of Tenants under the Tenant Leases. Seller shall have the right to be present at any or all inspections but Seller's unavailability shall not delay such inspections. Buyer shall be entitled to contact Tenants without the consent of Seller. Buyer shall be responsible for restoring the Leased Premises or any portion thereof to the condition in which it was prior to Buyer's inspection and for repairing any damage thereto resulting from such inspections performed by Buyer, its agents, engineers or inspectors. Notwithstanding anything to the contrary contained in this Agreement, Buyer shall indemnify and hold Seller harmless from and against any and all losses, costs, damages, liabilities and other expenses (including, without limitation, attorneys' fees incurred in connection therewith) arising out of or resulting from Buyer's inspections as provided for herein. Within seven (7) days prior to the expiration of the Due Diligence Period Seller shall obtain on Buyer's behalf and deliver to Buyer, estoppel letters in form and content reasonably acceptable to Buyer, from all Tenants at the Project for any Retail Space, for any slip users that are associated with any Leases for the Retail Space and any additional estoppel letters required by any lender of Buyer. 4.3 Termination Right. Buyer shall have the right to terminate this Agreement for any reason whatsoever in its sole and absolute discretion on or prior to the expiration of the Due Diligence Period by delivering notice to Seller during the Due Diligence Period, whereupon the Escrow Deposit shall be returned to Buyer, and then neither party shall have any further rights or obligations under this Agreement. Buyer's failure to deposit the Additional Escrow Deposit with the Escrow Agent on or before the expiration of the Due Diligence Period as provided for in Section 2 shall also serve as Buyer's election to terminate the Agreement. In the event Buyer does not terminate the Agreement, the Buyer, its agents and employees shall have access to the Leased Premises and Project through Closing for inspection purposes. . 7 4.4 Evidence of Title. Seller shall, within three (3) days after the date of this Agreement, deliver to Buyer a copy of an existing title insurance policy for the Leased Premises and a survey. Seller shall at least five (5) business days prior to the expiration of the Due Diligence Period, deliver to Buyer a current ALTA Survey dated within 90 days of the Closing Date, certified to the Escrow Agent, Title Insurer (as defined below), Buyer and any lender selected by Buyer (the "Survey"). Buyer shall, prior to the expiration of the Due Diligence Period, obtain a current title insurance commitment for the Leased Premises from a nationally recognized title insurance company, issued by and through the Escrow Agent (the "Title Insurer"). If the Title Commitment discloses exceptions that are objectionable to Buyer, then Buyer shall have ten (10) days after its receipt of the Title Commitment and the Survey within which to notify Seller of any such exceptions to title to which Buyer objects. If any such exceptions to title arise between the date of the Title Commitment and the Closing, Buyer shall have five (5) days after its receipt of notice of same within which to notify Seller of any such exception to title to which it objects. Any such exceptions not objected to by Buyer as aforesaid shall become Permitted Exceptions. If Buyer objects to any such exceptions to title, Seller shall have until Closing (but in any event at least fifteen (15) days after it receives notice of Buyer's objection(s)) to remove such exceptions as instructed by the Title Insurer. As of the Closing Date, if Seller fails to remove any such exceptions or cure any of Buyer's title objections, Buyer may, as its sole and exclusive remedy, terminate this Agreement and obtain a return of the Initial Escrow Deposit. If Buyer does not elect to terminate this Agreement, Buyer shall consummate the Closing and accept a leasehold interest in the Leased Premises subject to all such exceptions to title (in which event, all such exceptions to title shall be deemed "Permitted Exceptions"). If the Title Commitment shows any pending liens against the Project, Seller shall pay the amount of such liens at or prior to Closing. In addition, Seller shall cure all outstanding financial obligations relating to the Acquired Assets, including, but not limited to, any mortgage or other liability, delinquent taxes (of any kind), employee wages or related expenses, equipment lease liabilities, shareholder suits or related claims, or any other item contained on Part 1 of Schedule B of the title commitment on or before Closing. All such liens and encumbrances shall be paid through escrow at Closing. Notwithstanding the foregoing, nothing contained in this Section 4.4 shall limit Buyer's right to terminate this Agreement in its sole discretion in accordance with and pursuant to the provisions of Section 4.3 hereof. 5. "AS-IS" Condition. Except as expressly provided for herein, Seller is selling the Acquired Assets in their respective "As-Is" condition, however, Seller agrees that on or after the Effective Date Seller shall not remove any of the Acquired Assets from the Leased Premises without the written consent of the Buyer, except for routine consumption of inventory and the replacement of like Personalty in the normal course of Seller's business operations. 6. Seller's Covenants. Seller, jointly and severally, agrees to the following: 6.1 Seller's Pre-Closing Covenants. From the Effective Date until the Closing Date, Seller shall operate, maintain and manage the Project in substantially the same manner as it is presently being operated (but in compliance with all applicable laws and governmental regulations), such that at the Closing Date the Acquired Assets shall be in substantially the same physical condition as on the date hereof, normal wear and tear, damage or destruction by fire or 8 other casualty or damage caused by Buyer during the Due Diligence Period and consumption of inventory in the normal course of business excepted. 6.1.1 Seller shall continue in effect all applicable insurance coverage for the Project existing as of the Effective Date, and Seller shall not enter into any new agreements except those, which are cancelable upon thirty days' prior written notice. 6.1.2 Seller shall not take any action that would make any of Seller's representations and warranties herein untrue or incorrect. Seller shall notify Buyer promptly if Seller becomes aware of any transaction or occurrence prior to the Closing which would make any representation and warranty made by Seller herein untrue or incorrect in any material respect. Seller shall not modify or terminate, or waive or release any rights, exercise any options or grant any consents under the Leases, the Operating Contracts or Operating Permits. 6.1.3 Seller shall not modify or terminate, or waive or release any rights, exercise any options or grant any consents under the Tenant Leases. Seller shall not enter into any new lease or other agreement or arrangement that would or could remain binding on Buyer after the Closing; except that the Seller shall have the right, prior to the Closing, to continue (and shall continue) to enter into licenses with boat owners for boat slips provided the term is 30 days or less and the terms and conditions thereof are at market rates and substantially the same as (or more favorable to Seller than) the boat slip licenses that have been entered into by Seller within the three-month period immediately prior to the date hereof. 6.1.4 Seller shall keep all Operating Permits in full force and renew any of the same which expire prior to the Closing. In the event that any Operating Permit is suspended or revoked, Seller will promptly notify Buyer of that fact, and, if such suspension or revocation is based on the actions (or inaction) of Seller, Seller, at its sole expense, shall use commercially reasonable efforts to have such Operating Permit reinstated without limitation or condition. 6.1.5 Seller shall maintain at the Property normal and customary quantities of supplies for the use, operation and maintenance of the Property. Seller shall maintain the Inventory in the Raw Bar Space to the standards necessary to continue the routine operation of the Raw Bar Space without interruption. 6.1.6 Seller shall perform and observe in all material respects all of the covenants and conditions required to be performed and observed by them under the Master Lease Documents, the Leases, the Operating Contracts, and Operating Permits and shall promptly deliver to Buyer copies of any notices given or received by any Seller to or from any other party thereto. 6.1.7 Seller shall pay for when due all goods and supplies delivered to, and services performed at, the Leased Premises prior to the Closing Date. 6.1.8 Seller shall pay all brokerage commissions in connection with the current term of all Leases and any expansions, modifications, amendments, renewals or 9 extensions to the Leases that are due and payable prior to the Closing Date. Seller shall not apply any Lease Security to cure a default by a tenant, unless such application is permitted thereunder and such tenant either has vacated, or, with Buyer's prior written consent, has been evicted or dispossessed from, the Project. 6.1.9 Seller shall not alter the Project except to make necessary non-structural repairs to the Project. Seller shall not perform or permit any excavation, construction or removal of any improvements upon or about the Project. 6.1.10 Seller shall pay when due all sales taxes, employee taxes and other payments due to any governmental authority. 6.2 Seller's Post-Closing Covenants. 6.2.1 Seller shall, jointly and severally, remain solely liable for all liabilities related to the Leased Premises, the Project and the Acquired Assets accruing on or before the Closing Date regardless as to when Seller is notified or becomes aware of such liabilities. Except for the Acquired Assets, Buyer does not assume, and shall not in any manner become responsible or liable for, and Seller, jointly and severally, shall retain, pay, discharge, and perform in full, all other debts, obligations or liabilities of Seller of any nature whatsoever, whether known or unknown, fixed, contingent or otherwise, including, without limitation, any debts, obligations or other liabilities directly or indirectly arising out of, or resulting from, the Seller's lease, ownership or use of the Leased Premises, the Acquired Assets and/or the Project prior to the Closing Date. Seller, jointly and severally, also agree to pay:(i) for all sales tax; (ii) all income tax, withholding tax, payroll tax, Social Security tax, unemployment tax and other tax of any employees of Seller arising prior to the Closing Date; (iii) all workers' compensation and other insurance premiums due with respect to the employees of Seller for the period ending as of the Closing Date, (iv) real estate taxes and assessments (even if charged subsequent to Closing but applicable to the time period prior to the Closing Date); and (v) all other costs and expenses incurred by Seller in connection with the use of the Leased Premises, the ownership of the Acquired Assets and the operation of the Project prior to or on the Closing Date. The indemnification provisions of this Section 6.2.1 shall expressly survive Closing. 6.2.2 For as long as the Master Lease is in effect, none of Seller, Monty's Holdings, Inc. or any of their respective principals shall operate, own or control any raw bar type restaurant or casual seafood restaurant within a two mile radius of the Project. 7. Representations and Warranties of Seller. Seller hereby represents and covenants to Buyer that each of the following representations and warranties is true and correct as of the Effective Date and shall be true and correct as of the Closing Date in all material respects. Each of the representations and warranties contained herein shall survive the Closing. 7.1 Authority. Each of the entities comprising Seller: (i) is an entity, duly formed validly existing and in good standing under the laws of the State of Florida, and (ii) has full and absolute power and authority to enter into this Agreement and all documents to be delivered pursuant hereto, and to assume and perform all of their respective obligations 10 hereunder. The execution and delivery of this Agreement and the performance by the each of the entities comprising Seller of their respective obligations hereunder: (i) has been duly authorized by all requisite action and no further action of approval is required to consummate the transactions herein; (ii) do not and will not cause any of the entities comprising Seller to be in violation of any law, ordinance, order or requirement or of any agreement or contract to which each or any of the entities comprising Seller is a party. The undersigned individual(s) is/are authorized to sign on behalf of each of the entities comprising Seller and no additional signatures are required to bind Seller. This Agreement constitutes, and such other documents will each constitute, the legal, valid and binding obligations of Seller, enforceable in accordance with their respective terms. 7.2 Legal Action Against Seller. Except as expressly disclosed on Schedule 7.2, there are no judgments, orders, or decrees of any kind against Seller unpaid or unsatisfied of record, nor any legal action, suit or other legal or administrative proceeding pending before any court or administrative agency relating to the Leased Premises, the Acquired Assets or the Project, nor are there any threatened legal action, suit or other legal administrative proceeding relating to the Leased Premises, the Acquired Assets or the Project. If there are any insurance claims or lawsuits (hereinafter a "Claim") handled by Seller's insurance company, a list of such claims shall be provided by Seller to Buyer within 3 business days of the Effective Date of this Agreement. Otherwise, Seller has received no other notice of any Claim or action against Seller or any entity comprising Seller that affects the Leased Premises, the Acquired Assets or the Project. 7.3 Intellectual Property. Hocus-Pocus is the legal owner of the Trademarks and Other Rights, such Trademarks and Other Rights are fully assignable, on a non-exclusive basis, and there are no other intellectual property, trade or service marks that are currently used at or in connection with the current business operations at the Project. 7.4 Liens. Except as expressly disclosed on Schedule 7.4, there are no claims for labor, services, profit or materials furnished for constructing, repairing or improving the same, nor does Seller anticipate any such claims, except in the normal course of Seller's business, which will be paid as of the Closing Date. Sellers have good and marketable title (a leasehold right with respect to the Leased Premises) to all of the Acquired Assets, free and clear of all mortgages, liens, pledges, charges or encumbrances of any nature whatsoever, except for those certain first and second leasehold mortgages in favor of Ocean Bank. 7.5 Hazardous Materials. To the best of Seller's knowledge, (i) the Leased Premises is not in violation of any law, rule, order, regulation, ordinance or other legal requirement pertaining to or imposing liability or standards of conduct concerning environmental regulation, contamination or clean-up, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Emergency Planning and Community Right-to-Know Act of 1986, the Hazardous Substances Transportation Act, the Solid Waste Disposal Act, the Clean Water Act, the Clean Air Act, the Toxic Substance Control Act, the Safe Drinking Water Act, the Occupational Safety and Health Act, any state super-lien and environmental clean-up statutes and all amendments to and regulations in respect of the foregoing laws (collectively, 11 "Environmental Laws"); (ii) the Leased Premises is not subject to any private or governmental lien or judicial or administrative notice of violation, action or inquiry, investigation or claim relating to hazardous, toxic, dangerous and/or regulated substances, wastes, materials, raw materials which include hazardous constituents, pollutants or contaminants, including, but not limited to, asbestos, asbestos containing materials, petroleum, tremolite, anthlophylite, actinolite, polychlorinated biphenyls, solvents, and any other substances or materials which are included under or regulated by Environmental Laws or which are considered by scientific opinion to be otherwise dangerous in terms of the health, safety and welfare of humans (collectively, "Hazardous Substances"); (iii) no Hazardous Substances are or have been discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from any of the Leased Premises in violation of Environmental Laws; (iv) no Hazardous Substances are present in, on or under any of the Leased Premises, except for substances commonly used in the operation and maintenance of the Project which have been and are used, stored and disposed of in accordance with Environmental Laws; and (v) no underground storage tanks exist in the Leased Premises. 7.6 Tenant Leases. Seller represents that each of the Tenant Leases is in full force and effect in accordance with its terms and has not been modified, amended or extended except as set forth therein, and is assignable by the Seller to the Buyer without the need for the consent of any party. The Rent Roll is true and correct in all material aspects and there are no additional leases or other occupancy agreements affecting the Project that are not contained on the Rent Roll. Unless noted otherwise set forth on Schedule 7.6 by Seller, none of the Tenants are in default (beyond any applicable grace period provided by such Tenant Lease) in the payment of any rent due under its respective Tenant Lease or, to the Seller's knowledge, in the performance or observance of any substantially material covenant or condition to be kept, observed or performed by it under its Lease. Seller has fully performed (or shall on the Closing Date) all of Seller's material obligations under the Tenant Lease that are required to be performed and all tenant improvement construction work completed by Seller has been accepted by the tenants. No brokerage commission or other compensation is due or payable to any person, firm, corporation or other entity with respect to or on account of any of the Leases, or any renewals thereof. 7.7 Operating and Financial Statements. The operating statements to be provided to Buyer for January 2004, February 2004 and March 2004 and all financial statements delivered to Buyer were prepared in accordance with generally acceptable accounting principles consistently applied and accurately and completely reflect the revenue, expenses add income for the Leased Premises for the periods covered thereby, and the amount of each individual item of revenue and expense set forth therein is true and correct in all material aspects. 7.8 Insurance. Seller has in full force and effect fire, extended risk liability insurance and windstorm policies covering the Leased Premises, the Acquired Assets and the Project for the full replacement cost thereof. Seller has not received from any insurance company carrying insurance or that has carried insurance on the Leased Premises, the Acquired Assets and/or the Project any notice of defect or inadequacy in connection with it or its operation. Seller 12 does not self-insure any portion of the Leased Premises, the Acquired Assets or the Project. Seller maintains proper flood insurance coverage. 7.9 Licenses and Permits. All required certificates of occupancy, Operating Permits, authorizations and approvals necessary for the operation of the Project have been validly issued and are in good standing and shall remain so as of the Closing Date. All charges and fees for such have been paid in full through the Closing Date. 7.10 Taxes. Except as expressly disclosed on Schedule 7.10, Seller has received no written notice that the Project or any portion thereof, is subject to any special taxes, assessments or benefit charges except those, if any, which are of record in the Public Records of Miami-Dade County, Florida nor has Seller received notice of intention of any governmental authority to impose any such special taxes, assessments or benefit charges. Except as expressly disclosed on Schedule 7.10, the Seller has paid in full all: (i) ad valorem property taxes and other assessments levied on their respective assets and properties; (ii) excise taxes; (iii) franchise taxes; (iv) license fees; (v) personal property taxes; (vi) sales and use taxes ; (vii) payroll and employment taxes; and (viii) and income taxes which have become due and payable as of the Closing Date. Seller shall remedy all outstanding tax matters on or before Closing. 7.11 Inventories. The inventories of Seller to be acquired by Buyer, shall consist of items of quality and quantity usable or saleable in the normal course of its business and the values at which Seller's inventories are carried reflect the normal inventory valuation policy of the Seller. 7.12 Employees. As of the Closing Date, Seller shall not have any employees employed at the Project ("Seller's Employees"). On or prior to the Closing Date, Seller shall pay all Seller's Employees such amounts as shall be due and owing to them for their services through and including the Closing Date and all Seller's Employees shall remove their personal property from the Project as of the Closing Date. None of the entities comprising Seller are party to any collective-bargaining agreement. There are no union organizational representation efforts underway or any unfair labor practice claims pending or threatened, nor any existing labor strikes, slowdowns, disputes, grievances or disturbances. 7.13 No Material Omissions. Neither this Agreement (including the Schedules and Exhibits) nor any other certificate, statement, document or other information furnished to Buyer by or on behalf of Seller pursuant to or in connection with the transaction contemplated by this Agreement contains any material misstatement of fact, or omits to state a fact necessary in order to make the representations, warranties and other statements herein or therein contained not misleading. 7.14 Foreign Person. No entity comprising Seller is a foreign person within the meaning of Section 1445(f) of the Internal Revenue Code, and Seller agrees to execute any and all documents required by the Internal Revenue Service in connection with such declaration(s) and the certificate required. 13 7.15 Operating Contracts. Exhibit "D" attached hereto is a correct and complete list of all Operating Contracts to which any Seller is a party or by which it or its assets are bound, and such list sets forth with respect to each the name of the other party(ies) thereto, the date thereof and the dates of any modifications, amendments, extensions, or supplements thereto. 7.16 Notices. Except as set forth on Schedule 7.16, Seller has not received any notice with respect to and has no knowledge of (i) any violations of applicable laws, ordinances or public regulations relating to the Leased Premises which remain uncured, or (ii) any pending or threatened condemnation, eminent domain or similar proceedings with respect to the Leased Premises, the Acquired Assets and/or the Project. Seller's entry into this Agreement and the Closing of the transaction contemplated hereunder is not in violation of any agreement to which Seller or any of its principals is a party. 7.17 Outstanding Payables. Attached hereto as Exhibit "G" is a true, accurate and complete list of all outstanding payables with respect to the Acquired Assets and the Project as of February 29, 2004. Seller shall provide an updated list of payables each month until the Closing. Within five (5) business days prior to the Closing Date Sellers shall provide to Escrow Agent binding estoppel payoff letters from all payees who potentially have lien rights against the Acquired Assets confirming the amount(s) due and payable to them as of the Closing Date. In the event the appropriate estoppel payoff letters are not timely obtained by Seller the Closing Date shall be extended until Seller delivers the estoppel payoff letters or the parties and Title Insurer agree upon a mutually agreeable alternative, it being the intention of the parties that all such payables be paid in full as of the Closing Date. 8. Representations and Warranties of Buyer. Buyer represents and warrants to Seller as follows, and such representations and warranties shall be true and correct as of the Effective Date and shall be true and correct as of the Closing Date in all material respects. Each of the representations and warranties contained herein shall survive Closing: 8.1.1 Landings is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Florida. 8.1.2 HMG is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Florida. 8.1.3 Buyer has full power and authority to execute and deliver this Agreement and all other documents now or hereafter to be executed and delivered by it pursuant to this Agreement and to perform all obligations arising under this Agreement and such other documents. The execution and delivery of this Agreement and the performance by Buyer does not and will not cause Buyer to be in violation of any law, ordinance, order or requirement or of any agreement or contract to which Buyer is a party. The undersigned individual is authorized to sign on behalf of Buyer and no additional signatures are required to bind Buyer. 14 8.1.4 This Agreement constitutes, and such other documents will each constitute, the legal, valid and binding obligations of Buyer, enforceable in accordance with their respective terms. 9. Closing. The transfer of the Acquired Assets (the "Closing") shall take place on or before the date that is fifteen (15) days following the satisfaction of all of the Conditions Precedent (the "Closing Date"). In the event that the satisfaction of all of the Conditions Precedent has not occurred on or before August 15, 2004 (the "Outside Closing Date"), in addition to Buyer's remedies hereunder and at law or in equity, Buyer may elect to terminate this Agreement by delivery of written notice of such termination to Buyer and Escrow Agent within thirty days following the Outside Closing Date, provided that Seller has not satisfied such outstanding conditions precedent within such 30-day period following Seller's termination notice. 9.1 At the Closing, Seller (or any of its respective principals or affiliates as necessary) shall execute and deliver or cause to be delivered to Escrow Agent and/or Buyer in accordance with the provisions of this Agreement all of the following documents, the form of which shall be reasonably agreed upon by Buyer and Seller during the Due Diligence Period; (a) Seller's Assignment of the Master Lease Documents, (b) a deed or bill of sale (at Buyer's election) conveying the Improvements and warranting Seller's lien free title thereto, (c) a bill of sale and general assignment with warranties conveying all of the Personalty, (d) an Assignment and Assumption of the Tenant Leases, (e) An Assignment and Assumption of the Operating Contracts Buyer elects to assume and evidence of Seller's termination of the non- assumed Operating Contracts, (f) full and complete releases of all of Seller's liabilities concerning the Acquired Assets, (g) if necessary, an agreement whereby Seller agrees to act as Buyer concessionaire and operator for the Liquor License and to continue to cooperate with Buyer until the Liquor License is actually transferred to Buyer, in the event that Seller is unable to obtain a transfer of the Liquor License on or before the Closing Date, (h) an opinion given by Seller's counsel, reasonably acceptable to Buyer confirming that: (i) the Seller has obtained all necessary consents and/or authorization to consummate the actions contemplated hereby. (ii) each of the Closing Documents has been duly authorized, executed and delivered by Seller; (iii) the sale of the Acquired Assets does not constitute a sale of substantially all of the assets of Monty's Holdings, Inc. as interpreted by the applicable Florida Statutes, 15 (i) such evidence as Escrow Agent may reasonably require of the due authorization, execution and delivery of this Agreement, the Deed, the Lease Assignment and any other documentation required by such Title Insurer such customary Seller's affidavits as the Closing Agent shall reasonably require in order to omit standard title exceptions that may be omitted on the basis of the confirmation of facts known to Seller such as gap, parties in possession and Form 9 coverage, (j) Original Files, Master Lease Documents, Leases, Licenses, Property Contracts or copies, if originals are unavailable, (k) Notices to all third parties such as Tenants and all utility providers and vendors, advising them of the sale of the Project to Buyer, (1) An indemnity in favor of Buyer with respect to the payment of all sales tax through the Apportionment Date, (m) Certification that Seller is not a foreign person under FIRPTA (ss.1445 of the Internal Revenue Code), signed by a duly authorized representative of Seller, (n) Seller shall deliver to Buyer (or leave in a designated office at the Property) keys (and/or combinations or other entry or opening mechanisms) to the Leased Premises, and to all safes and other applicable articles of Personalty, (o) Seller shall deliver to Buyer a release and termination by each officer, shareholder and principal of Seller (and any applicable affiliates of the same) of any and all agreements, arrangements, rights and privileges that may have been entered into by it with or granted to it by any Seller with respect to the use of any of the Property (including boat slips at the Marina not leased on arms-length terms), (p) A closing statement, (q) Master Tenant's assignment of the Master Lease and the Tenant Submerged Land Lease to Buyer, (r) The Management Agreement defined in Section 23, (s) The Estoppel and Release shall be disbursed from Escrow and originals delivered to Seller, and (t) A lease agreement between operator, as defined in the Management Agreement, and Buyer for approximately 1 ,950 rentable square feet of office space ("Office Lease"). 9.2 At the Closing, Buyer shall execute and deliver or cause to be delivered to Escrow Agent in accordance with the provisions of this Agreement, the following: 16 (a) Buyer shall deliver the Purchase Price in immediately available funds (with due credit given for Deposit) after all adjustments are made at the Closing as herein provided by Federal Reserve wire transfer, (b) An Assignment and Assumption of Seller's obligations under the Master Lease Documents, (c) An Assignment and Assumption of Seller's obligations under the Tenant Leases, (d) An Assignment and Assumption of the Operating Contracts Buyer elected to assume, (e) An Assignment and Assumption of Master Tenant's obligations under the Master Lease an the Tenant Submerged Land Lease, (f) A closing statement, (g) The Management Agreement defined in Section 23, and (h) The Office Lease. 9.3 Seller and Buyer shall execute and deliver to each other such other instruments and documents, and shall pay or cause to be paid such sums of money, to which the other party may be entitled pursuant to any of the other provisions of this Agreement or which may be reasonably required in connection with the Closing pursuant hereto. Each instrument and document to be delivered at the Closing, the form of which is not attached to this Agreement as an exhibit, shall be consistent with the applicable provisions of this Agreement, shall be in the form or contain the information or provisions provided for in this Agreement and shall otherwise be reasonably satisfactory in form and substance to Seller and Buyer. 10. Closing Prorations and Adjustments. The following are to be adjusted and prorated between Seller and Buyer as of 11:59 P.M. on the day preceding the Closing Date (the "Apportionment Date"), and the net amount thereof shall be added to (if such net amount is in Seller's favor) or deducted from (if such net amount is in Buyer's favor) the payment required pursuant to Section 2: (a) Personal property taxes, assessments, water and sewer rents and charges, utility fees and charges, and all other fees, taxes and charges relating to or payable in connection with the use, occupancy, repair and maintenance, ownership and operation of the Project, shall be adjusted and prorated on the basis of the fiscal year for which assessed, or the fiscal period covered by the appropriate invoice, bill or statement, or based on the most recently available meter reading therefor. Metered utility charges for the period from the last reading date prior to the Closing Date through the day before the Closing Date shall be apportioned on the basis of such last reading, but shall be reapportioned according to actual charges promptly after the first reading following the Closing Date. Unmetered water charges shall be apportioned on 17 the basis of the charges therefor for the same period in the preceding calendar year, but applying the current rate thereto. (b) Rents and other sums and charges (collectively, "Rents") paid or payable by Tenants under the Tenant Leases shall be adjusted and prorated to the extent paid by said tenants as of the Closing Date. Any amount collected by Buyer or Seller after the Closing from tenants who owed Rents for periods prior to the Closing shall be applied (i) first in payment of Rents due for the period on or after the Closing Date, and (ii) second, in payment of Rents due for the period before the Closing Date. Each such amount, less any costs of collection (including reasonable counsel fees) reasonably allocable thereto, shall be adjusted and prorated as provided above, and the party who receives such amount shall promptly pay over to the other party the portion thereof to which it is so entitled. Buyer shall use commercially reasonable efforts to collect all such past due Rents from tenants, and shall bill tenants, who owe Rents for periods prior to the Closing, on a monthly basis following the Closing Date until amounts due are paid or such earlier date on which Buyer ceases all billings to the tenant in question due to the expiration or early termination of the subject Tenant Lease. Seller shall notify Buyer promptly after a Seller receives any payment of Rents after the Closing. Any payment by a tenant in an amount less than the full amount of Rents then due and payable by such tenant shall be applied to Rents collectively in the same order of priority as to time periods as is set forth in this section (c). Based upon Buyer's review of the Rent Roll and the list of delinquent tenants, Buyer shall inform Seller prior to the expiration of the Due Diligence Period which tenants, if any, Seller shall be required to evict prior to Closing. Notwithstanding anything contained herein to the contrary, provided the lease between Seller and Ralph Novarro and/or South Florida Yachts is in good standing as of the Closing Date and continues to be in good standing thereafter with no late rent payments, Seller shall have the right to collect up to $100,000 in past due rent directly from said tenant. Seller shall collect the past due rent at its sole risk and shall not have any right to enforce the terms of the lease (i.e. eviction rights) against said tenant after Closing. (c) Any Lease Security held by a Seller, together with accrued interest thereon wherever interest is provided for in the applicable Tenant Leases or by law; provided, that any transferable non-cash security deposits made by tenants shall be delivered to Buyer at the Closing, together with such instruments of transfer as may be necessary to enable Buyer to succeed to Seller's rights thereunder. Buyer shall indemnify and hold Seller harmless from and against all claims by, and liabilities to, any tenants pertaining to the application or return of the Lease Security paid over to Buyer or for which Buyer receives a credit against the Purchase Price. (d) Charges and transferable deposits under transferable assumed Operating Contracts. Buyer shall pay the termination fee for any Operating Contracts it elects not to assume if such agreements contain commercially reasonable terms or if such agreements are with non-affiliates of any Seller or of their respective principals. Seller shall pay any termination fees for any Operating Contracts not assumed by Buyer that contain commercially unreasonable terms or are with affiliates of any Seller or of their respective principals. (e) The Purchase Price includes all food, beverages, cleaning and other restaurant supplies located at the Project at no additional charge. To the extent that the 18 inventory is insufficient as of the Closing Date to continue the routine operations of the Raw Bar Space without interruption, Seller shall reimburse the Buyer for all inventory costs incurred by Buyer to achieve such level as of the Closing Date. (f) Any funds remaining in vending and telephone machines shall be cleared by Seller prior to the Closing and such amounts retained by Seller. Seller shall retain all accounts receivable and accounts payable as of the Closing Date. Seller shall also remove all cash from any cash registers and safes at the Project on the Closing Date. (g) All closing and other transaction costs shall be paid as follows: Seller shall be responsible for the payment of: (i) all documentary stamp taxes and surtaxes due if any, (ii) the cost of the Survey to Buyer, (iii) the cost to record any title curative instruments, and (iv) all of Seller's attorneys fees and costs. Buyer shall be responsible for the payment of: (i)the cost of recording the Assignment of the Master Lease Documents or Memoranda with respect thereto, (ii) all costs associated with Buyer's due diligence regarding the Project, (iii) any documentary stamp taxes and intangible taxes associated with any financing of the Purchase Price, (iv) Buyer's attorneys fees and costs, and (v) the cost of any title insurance policy. To expedite the closing process, the parties may use the last day of the month immediately prior to Closing Date to calculate the estimated apportionment of certain items and within 60 days after Closing the parties shall re-prorate such items as of the Apportionment Date and pay any necessary adjustments. Any income received or expense incurred by a Seller or Buyer with respect to the Project after the Closing shall be promptly allocated in the manner described herein, and the parties shall promptly pay or reimburse any amount due. Within ten (10) days after a request by either party, made not later than one year after the Closing, accompanied by a statement in reasonable detail establishing (based on information becoming available after the Closing or the discovery of errors in the prorations made at Closing) that such party is entitled to a credit under this Section 9 that was not accounted for at Closing, the other party shall pay such credit (net of any such credit to which such other party may then be entitled) to the requesting party pursuant to the payment obligations set forth in this Section 9. The provisions of this Section 9 shall survive the Closing. 11. Assignment. Seller shall not have any right to assign this Agreement. Buyer may assign this Agreement without need to first obtain consent from Seller however the consent of both Buyers shall be required. Seller further acknowledges that Buyer may elect to have Seller assign the Acquired Assets to various entities affiliated with any Buyer and Seller shall reasonably cooperate in connection therewith. 12. Indemnification. The Seller, jointly and severally, shall indemnify and hold Buyer harmless from and against the following: 12.1 Any and all losses, costs, liabilities, damages or deficiencies resulting from: (a) any misrepresentation, breach or failure of any warranty; or (b) not fulfilling any agreement, covenant or undertaking of the Seller, or any of them or (c) any failure of the Settlement Agreement or any lawsuit by any party to the Second Amended Shareholders' Agreement against any of Buyer, its affiliates or its principals, and any and all actions, suits, 19 proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing including, but not limited to, reasonable attorneys' fees at all levels of trial, on appeal and in bankruptcy. 12.2 Any and all losses, costs, liabilities or damages arising out of or resulting from Seller's breach or failure of the representations set forth herein or from Seller's ownership, operation or administration of the rights sold hereunder prior to the Closing Date, and any and all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing including, but not limited to, reasonable attorneys' fees at all levels of trial, on appeal and in bankruptcy. 12.3 Any taxes, charges, fees, interest or penalties relating to or arising out of the breach of the representations contained herein or out of the failure of Seller to pay or accrue any taxes attributable to periods prior to the Closing Date not paid as of the Closing Date; and any and all actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing including, but not limited to, reasonable attorneys' fees at all levels of trial, on appeal and in bankruptcy. The provisions of this Section 12 shall expressly survive the Closing. 13. Brokerage Commission. Seller and Buyer each represent and warrant to the other than neither of them has employed any real estate or other broker in connection with this transaction. Seller hereby agrees to defend, indemnify and hold harmless Buyer from and against . any claim by third parties arising by, through, or under Seller, for brokerage, commission, finders or other fees relative to this Agreement for the sale of the Acquired Assets, and any court costs, attorneys' fees, or any other costs or expenses arising therefrom. Buyer hereby agrees to defend, indemnify, and hold harmless Seller from and against any claim by third parties arising by, through, or under Buyer, for brokerage, commission, finders' or other fees relative to this Agreement for the sale of the Acquired Assets, and any other costs, attorneys' fees, or, any other costs or expenses arising therefrom. The provisions of this Section 13 shall survive the Closing. 14. Notices. Any notice provided or permitted to be given under this Agreement must be in writing and may be served by, (i) overnight courier service, addressed to the party to be notified, postage prepaid (ii) by delivering the same in person to such party; or (iii) by telecopier provided the sender obtains a confirmation of successful transmission. Notice given in accordance with option (i) shall be effective upon actual delivery by overnight courier service, and notice given in any other manner shall be effective only upon receipt at the address of the addresses. For purposes of notice, the addresses and telecopy numbers of Seller and Buyer are as follows: To Seller: Stephen J. Kneapler, President 120 San Souci Drive Coral Gables, Florida 33133 Facsimile: 305-285-4299 20 With a copy to: Fernando S. Aran, Esq. Aran Correa & Guarch, P.A. 710 South Dixie Highway Coral Gables, Florida 33146 Facsimile: 305-665-2250 To Buyer: Bayshore Landings, LLC c/o RCI Group 300 Alton Road, Suite 303 Miami Beach, Florida 33139 Attention: Robert W. Christoph Facsimile: 305-673-5995 With a coy to: HMG/Bayshore LLC 1870 S. Bayshore Drive Coconut Grove, Florida 33133 Attention: Larry Rothstein, President Facsimile: 305-856-7342 With copy to: Suzanne M. Amaducci, P.A. Bilzin Sumberg Baena Price & Axelrod LLP 200 South Biscayne Boulevard, Suite 2500 Miami, Florida 33131 Facsimile: 305-351-2207 If to Escrow Agent: Suzanne M. Amaducci, P.A. Bilzin Sumberg Baena Price & Axelrod LLP 200 South Biscayne Boulevard, Suite 2500 Miami, Florida 33131 Facsimile: 305-351-2207 15. Governing Law; Venue; Jury Trial Waiver. This Agreement shall be governed by and construed and enforced in accordance with, the laws of the State of Florida. Any action or proceeding arising directly, indirectly or otherwise in connection with, out of, related to or from this Agreement shall be litigated only in courts having a situs within Miami-Dade County, State of Florida. Buyer and Seller hereby waive their respective rights to a trial by jury in any action or proceeding based upon, or related to, the subject matter of this Agreement, whether arising in contract, tort or otherwise. 16. Destruction, Damage or Taking Before Closing. It at any time prior to the Closing, any portion of the Leased Premises, Acquired Assets and/or the Project is destroyed or damaged as a result of fire or any other cause whatsoever, or becomes subject to condemnation or eminent domain proceedings, Seller shall promptly give notice thereof to Buyer, and Buyer shall have fifteen (15) days after such notice in which to either: (1) accept the assignment of the 21 Master Lease Documents, and/or Acquired Assets as applicable in their respective destroyed and/or damaged condition, or subject to such condemnation or eminent domain proceedings, by giving written notice thereof to Seller, in which event at Closing Seller shall assign to Buyer all proceeds of insurance or condemnation awards for such damage or condemnation with no reduction or abatement in the Purchase Price; or (ii) terminate this Agreement by giving notice to such effect to Seller, and upon the giving of such notice to Buyer, the Escrow Agent shall promptly return Escrow Deposit to Buyer. 17. Radon Gas. Pursuant to Fla. Stat. 404.056, the following disclosure is made: RADON GAS: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantifies, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. 18. Construction; Entire Agreement; Invalid Provisions. The headings of the Sections contained in this Agreement are for convenience only and shall not be taken into account in determining the meaning of any provision of this Agreement. This Agreement and any documents delivered pursuant hereto shall be construed without regard to the identity of the person who drafted the various provisions thereof, and each and every provision of this agreement and such other documents shall be construed as though all parties hereto had participated equally in the drafting thereof, so that any rule of construction that a document is to be construed against the drafting party shall not be applicable. This Agreement (including the Exhibits and Schedules hereto) is the entire agreement Seller and Buyer concerning the sale of the Acquired Assets and no modifications hereof or subsequent agreement relative to the subject matter hereof shall be binding on either party unless reduced to writing and signed by the party to be bound. This Agreement supersedes all prior agreements, discussions and conversations between the parties relating to the Project. Except for the representations, warranties and covenants expressly contained in this Agreement. If any provisions of this Agreement (except the provisions relating to Seller's obligations to convey the Acquired Assets and Buyer's obligation to pay the Purchase Price, the invalidity of either of which shall cause this Agreement to be null and void) is held to be illegal, invalid of unenforceable under present or future laws, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision bad never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision of by its severance from this Agreement. 19. Recordation. This Agreement or a memorandum of this Agreement may be recorded at the option of either party. 20. Attorney's Fees. In the event of litigation between the parties in connection with the Agreement, the prevailing party shall be entitled to recover its reasonable attorney's fees and 22 costs from the non-prevailing party. The obligation in the immediately preceding sentence shall survive any termination of this Agreement or this Closing as a surviving obligation. 21. Confidentially. Both Seller and Buyer covenant and agree not to disclose the terms or existence of this Agreement to any person or entity, other than to their respective attorneys and other representatives, and to certain third parties such as bankers, tenants, the City and others with whom they must communicate in order to consummate the proposed transaction, unless compelled by law. 22. Time is of the Essence. Time is of the essence in this Agreement. 23. Management Agreement. At closing, the Buyer and Stephen Kneapler or an entity owned and controlled by him shall execute the Management Agreement in the form attached hereto as Exhibit "E" ("Management Agreement") 24. No Third Party Beneficiaries. The provisions contained in this Contract are for the sole benefit of the parties to this Agreement and for the successors and assigns, if any, of Buyer and shall not give rise to any rights by or on behalf of anyone other than such parties. 25. Relationship of Parties. Nothing contained in this Agreement or in the activities contemplated hereby shall be construed to create the relationship of principal and agent, partnership, joint venture, trust, tenants in common or any other relationship between the parties hereto other than separate and distinct entities dealing at arm's length as Seller and Buyer, respectively, for their own separate interests and benefit. 26. Improvements. Buyer hereby agrees that it shall invest at least $3,000,000 in connection with making improvements to the Project after Closing. 27. I-Dine. Seller hereby discloses that it is a party to an agreement with I-Dine that has a 60 day termination period. Seller shall cancel its agreement with I-Dine as of the Closing Date and, notwithstanding anything to the contrary in Section 10(d) or elsewhere in this Agreement Seller shall pay any and all termination fees, penalties, charges and the like with respect to the I-Dine agreement at Closing. At Closing $25,000.00 shall be held in escrow by Escrow Agent to pay for any I-Dine charges that may be assessed after Closing or against Buyer. Seller shall remain liable for all I-Dine charges even if the escrow amount is insufficient to pay for I-Dine charges. 28. Trademarks and Other Rights. Hocus-Pocus hereby grants to Buyer the right to use the Trademarks and Other Rights on a non-exclusive basis for the term of the Master Lease and any extension thereof. Hocus-Pocus hereby acknowledges that it has received $100.00 as express consideration for such grant. Hocus Pocus further acknowledges that the Trade Marks and Other Rights are freely assignable to any lender of Buyer or any third party in connection with its use of the Raw Bar Space. Hocus Pocus shall execute any reasonable documentation necessary in connection therewith. Buyer's continued right to use the Trade Marks and Other Rights shall be conditioned upon Buyer maintaining menu items, prices and food quality substantially similar to other Monty's Raw Bars in Miami-Dade County, Florida; however Buyer 23 can add up to 30% additional items to the menu ("Operating Covenant"). In order to assist Buyer in complying with the Operating Covenant Hocus Pocus shall provide Buyer with written notice of any change in the menu items and Buyer shall have 30 days to implement such change. For so long as Stephen J. Kneapler or a company owned or controlled by him operates the Raw Bar Space pursuant to the Management Agreement or other agreement the foregoing condition shall be deemed to meet the Operating Covenant. The failure to meet the Operating Covenant shall be grounds for Seller revoking its grant provided in this Section 28 after notice and expiration of a 30-day period of time to cure. The Seller's decision to revoke such rights for failure to meet the Operating Covenant shall be subject to challenge by the Buyer whose remedy shall be to submit the dispute to a panel of three arbitrators of the American Arbitration Association (the "AAA") in accordance with AAA Rules and the decision shall be final and binding. Each party will select one arbitrator (the "Party Arbitrators") and the Party Arbitrators will select the third arbitrator. The fees of the AAA for the arbitration and the fees of the third arbitrator shall be shared equally. Each party shall pay its Party Arbitrators' fees and its own attorney's fees and costs. The provisions of this Section 28 shall survive the Closing. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 24 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the respective dates shown below.
WITNESSES: SELLER: BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation /s/ Wanda Hemmingway - ---------------------------------------------- By: /s/ Stephen J. Kneapler 5/12/04 Name: Wanda Hemmingway --------------------------------------------------- - ------------------------------------------------- Stephen J. Kneapler, President /s/ Carlos Camarotti - ---------------------------------------------- Date: 5/12/04 Name: Carlos Camarotti --------------------------------------------------- ------------------------------------------- MONTY'S IN THE GROVE, INC., a Florida corporation /s/ Wanda Hemmingway - ---------------------------------------------- By: /s/ Stephen J. Kneapler 5/12/04 Name: Wanda Hemmingway --------------------------------------------------- ------------------------------------------- Stephen J. Kneapler, President /s/ Carlos Camarotti - ---------------------------------------------- Date: 5/12/04 Name: Carlos Camarotti --------------------------------------------------- ------------------------------------------- HOCUS-POCUS, INC., Florida corporation /s/ Wanda Hemmingway - ---------------------------------------------- By: /s/ Stephen J. Kneapler 5/12/04 Name: Wanda Hemmingway --------------------------------------------------- ------------------------------------- Stephen J. Kneapler, President /s/ Carlos Camarotti - ---------------------------------------------- Date: 5/12/04 Name: Carlos Camarotti --------------------------------------------------- ------------------------------------------- BUYER: BAYSHORE LANDINGS, LLC, a Florida limited liability company /s/ Robert W. Christoph By: /s/ Robert W. Christoph - ------------------------------------------------ --------------------------------------------------- Name: Robert W. Christoph Robert W. Christoph, Manager /s/ Rudolph F. Rodriguez Date: May 12, 2004 - ------------------------------------------------ --------------------------------------------------- Name: Rudolph F. Rodriguez 25 HMG BAYSHORE, LLC., a Florida limited liability company /s/ Wanda Hemmingway - ---------------------------------------------- By: /s/ Larry Rothstein Name: Wanda Hemmingway --------------------------------------------------- ---------------------------------------- Larry Rothstein, President /s/ Carlos Camarotti - ---------------------------------------------- Date: 5/12/04 Name: Carlos Camarotti --------------------------------------------------- ----------------------------------------
26 JOINDER ------- The undersigned hereby executes this joinder to confirm the accuracy of Recitals A, B, C. D and G of the Agreement to which this joinder is attached and to confirm its obligations to deliver the executed documents required by Sections 3.1 and 9.1(q) thereof, in form and content reasonably acceptable to Buyer, for $100.00 of the Purchase Price set forth in the Agreement. GROVE MARINA MARKET, LTD., a Florida limited partnership By: Grove Marina Market, Inc., a Florida corporation, its general partner By: /s/ Juan T. O'Naghten ----------------------------------------- Juan T. O'Naghten, President Date: May 19, 2004 The undersigned, being all of the partners of Grove Marina Market, Ltd. hereby consent to the foregoing joinder and the actions required thereunder. GENERAL PARTNER (owner of 1% ownership interest) GROVE MARINA MARKET, INC. By: /s/ Juan T. O'Naghten --------------------------------------------- Juan T. O'Naghten, President Date: May 19, 2004 LIMITED PARTNER: (owner of 99% ownership interest) AVIATION RESTAURANT INVESTMENT, INC. By: /s/ Juan T. O'Naghten ------------------------------------------------ Juan T. O'Naghten, President Date: May 19, 2004 JOINDER AND CONSENT ------------------- The undersigned, being the sole shareholder of Bayshore Restaurant Management Corp. and Monty's in the Grove, Inc. hereby executes this joinder to consent to and confirm its obligations under Sections 3.7 and 9.1(s) of the Agreement to which this joinder is attached. Witnesses: MONTY'S HOLDINGS, INC., a Florida corporation /s/ Tamra Rae Jenkins by: /s/ Stephen J. Kneapler - ------------------------------------- ------------------------------------- Name: Tamra Rae Jenkins Stephen J. Kneapler, President /s/ Daniel Stern Date: 5/12/04 - ------------------------------------- ------------------------------------- Name: Daniel Stern JOINDER AND CONSENT ------------------- The undersigned, being all of the shareholders of Hocus Pocus, Inc., hereby consent to the obligations of Hocus Pocus, Inc. in Section 28 of the Agreement to which this joinder is attached, and agree to cause Hocus Pocus, Inc. to comply with its obligations thereunder for $100.00 of the Purchase Price set forth in the Agreement. Witnesses: /s/ Tamra Rae Jenkins /s/ Stephen J. Kneapler 5/12/04 - ---------------------------------- ---------------------------------------- Name: Tamra Rae Jenkins Stephen J. Kneapler (owns 50% interest) /s/ Daniel Stern - ---------------------------------- Name: Daniel Stern /s/ Tamra Rae Jenkins /s/ Monty Trainer 5/12/04 - ---------------------------------- ---------------------------------------- Name: Tamra Rae Jenkins Monty Trainer (owns 50% interest) /s/ Daniel Stern - ---------------------------------- Name: Daniel Stern FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT FOR CERTAiN ASSETS This First Amendment to Purchase. and Sale Agreement for Certain Assets The ("Amendment") is entered into as of this 1st day of June 2004 by and among BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation ("Bayshore"), MONTY'S IN THE GROVE, INC., a Florida corporation, f/k/a, Terremark Stone Crabs, Inc. ("Monty's Upstairs") and HOCUS-POCUS, INC., a Florida corporation (`Hocus-Pocus") (Bayshore, Upstairs and Hocus-Pocus are sometimes collectively referred to herein as, "Seller"), and BAYSHORE LANDINGS, LLC, a Florida limited liability company ("Landings"), its successors and/or assigns and HMG BAYSRORE, LLC. a Florida limited liability company ("HMG", its successors and/or assigns and together with Landings, collectively, "Buyer"). RECITALS A. On or about May 24, 2004 Seller and Buyer entered into that certain Purchase and Sale Agreement for Certain Assets ("Agreement") whereby Buyer has the right to purchase from Seller certain assets more particularly described in the Agreement. B. Seller and Buyer desire to modify the Agreement as specifically set forth herein. NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Recitals. The above recitals are true and correct and are incorporated herein by reference. 2. Effective Date. The parties hereby stipulate that the Effective Date of the Agreement is June 1, 2004. 3. Due Diligence Period. The Due Diligence Period shall commence upon Buyer's receipt of all other documents referenced in Section 4 of the Agreement and the Seller's deliver to Buyer of complete Schedules for Schedules 7.2, 7.4, 7.6, 7. 10 and 7.16 of the Agreement and any other incomplete schedules referenced therein. The parties acknowledge that the Seller has received some due diligence materials but that the information provided is incomplete and the information has been received piecemeal. Buyer shall prepare one package of Due Diligence materials for the Seller to pick up ('Due Diligence Package"). Upon Buyer's receipt of the Due Diligence Package the Due Diligence Period shall begin and the Buyer shall provide written confirmation to Seller of the date that the Due Diligence Period began. If the Buyer discovers that materials are missing from the Due Diligence Package, the Buyer shall promptly provide written notice oft he missing items to Seller and the Due Diligence Period shall be extended the same number of days it takes the Seller to deliver the missing due diligence documents set forth in the Buyer's notice to Buyer. 4. Conditions Precedent. a. Submerged Land Leases. To date the seller has not delivered to the Buyer a copy of the Tenant Submerged Land Lease (as defined in Recital G) and the Buyer's as consultants have not been able to obtain a copy of it from the public records. In the event that it is determined that the Tenant Submerged Land Lease (or a submerged land lease for the portion of the submerged land within the Lease Premises and any additional lans where docks surrently exisr on submerged land that is not owned by the City) does not existm as a condition precendent to Closing, the seller shall obtain a submerged land lease for at least the term of the Lease and upon such economic terms acceptable to Buyer in its sole and absolute discretion. 5 . Outside Closing Date. The term Outside Closing Date as defined in Section 9 of the Agreement shall be changed from August 15, 2004 to September 15, 2004. 6. Post Closing Escrow. Seller hereby unconditionally and irrevocably guarantees to Buyer the truth and accuracy or the representations and warranties contained herein, the Seller's obligations under the Agreement, and the indemnification obligations under Section 12 of the Agreement (collectively, "Guaranteed Obligatons") At Closing $300,000 of the Purchase Price (`Escrow Amount") shall be placed in escrow with the Escrow Agent for two years to secure the Guaranteed Obligations. The Post C1osing provisions of Exhibit "B" to the Agreement. Holdings hereby agrees to indemnify and hold harmless Buyer from and against the matter set forth in Section 12 of the Agreement and that the Escrow Amount may be used by Buyer to satisfy any of Holdings's obligations hereunder. 7. Counterparts. This Amendment may be executed in any number of counterparts each of which when taken together shall constitute one complete document. Facsimile signature may be deemed sufficient to expedite the execution hereof. 8. Reaffirmation. Except as specifically set forth herein, the terms and provisions of the Agreement shall remain unchanged and in full force and effect. (Signatures on next page)
IN WITNESS WHEREOF the parties hereto have executed this Amendment as of the day and year first written above. WITNESSES SELLER BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation /s/ Sandra C. Ovando - ------------------------------------ Name: SANDRA C. OVANDO By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Leanne I. Trigoura Date: 06/01/04 MONTY'S IN THE GROVE, INC., a Florida Corporation /s/ Sandra C. Ovando - ------------------------------------ Name: SANDRA C. OVANDO By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Leanne I. Trigoura Date: 06/01/04 HOCUS-POCUS, INC., Florida corporation /s/ Sandra C. Ovando - ------------------------------------ Name: SANDRA C. OVANDO By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Leanne I. Trigoura Date: 06/01/04 BUYER: BAYSHORE LANDINGS, LLC, a Florida limited Liability company /s/ Sandra C. Ovando - ------------------------------------ Name: SANDRA C. OVANDO By: - ------------------------------------ ---------------------------------- Robert W. Christoph, Manager Name: Leanne I. Trigoura Date: June 1, 2004 HMG BAYSHORE, LLC, a Florida limited Liability company /s/ Lynette Bonitez - ----------------------------------- Name: LYNETTE BONITEZ By: - ------------------------------------ ---------------------------------- Larry Rothstein, President /s/ Keith W. Crane - ----------------------------------- Name: Keith W. Crane Date: 06/01/04
JOINDER ------- Monty's Holdings, Inc. hereby executes this joinder acknowledge its obligations under Sections 4(a) and 6 of the Amendment to which this joinder attached. MONTY'S HOLDINGS, INC., Florida corporation /s/ Sandra C. Ovando - ------------------------------------ Name: SANDRA C. OVANDO By:------------------------------ Stephen J. Kneapler, President Date: 06/01/04 - ------------------------------------ Name: ------------------------------- SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT FOR CERTAIN ASSETS This Second Amendment to Purchase and Sale Agreement for Certain Assets ("Amendment") is entered into as of this 13 day of July 2004 by and among BAYSHORE RESTAURANT MANAGEMENT CORP., A florida corporation ("Bayshore"), MONTY'S IN THE GROVE, INC., a Forida corporation, f/k/a, Terremark Stone Crabs, Inc. ("Monty's Upsatirs"), and HOCUS-POCUS, INC, a Florida corporation ("Hocus-Pocus") (Bayhsore, Upstairs and Hocus-Pocus are sometimes collectively referred to herein as, "Seller"), and BAYSHORE LANDINGS, LLC, a Forida limited liability company ("Landings"), its successors and/or assigns and together with Landings, collectively, "Buyer"). RECITALS A. On or about May 24, 2004 Seller and Buyer entered into that certain Purchase and Sale Agreement for Certain Assets whereby Buyer has the right to purchase from Seller certain assets more particularly describes therein, which Agreement was amended by virtue of that certain First Amendment to Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated as of June 1, 2004 (as modified, the "Agreement") B Seller and Buyer desire to modify the Agreement further at specifically set forth herein. NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ther parties herefo agree as follows: 1. Recitals. The above recitals are true and correct and are incorporated herein by reference. 2. Due Diligence Period. The Due Diligence Period is hereby extended until July 26, 2004. 3. Submerged Land Leases. The parties have determined that the Tenant Submerged Land Lease (as defined in Recital G of the Agreement) does not exist, never did exist and is not appropriate. Therefore the requirement to deliver the Tenant Submerged Land Lease at Closing is hereby deleted. Notwithstanding the foregoing, the parties acknowledge that as a condition precent to Closing, a submerged land lease is required between the State of Florida, Trustees of the Internal Improvement Fund, and the City for that portion of the submerged land in the Project commonly known as "Parcel C-2" (the "Parcel C-2 Submerged Land Lease"). Seller shall deliver to Buyer a fully executed copy of the Parcel C-2 Submerged Land Lease at least 10 days before Closing. The terms and conditions of the Parcel C-2 Submerged Land Lease as well as any payments or other monetary or other concessions the City may require of the Buyer as a result of obtaining the Parcel C-2 Submerged Land Lease must be acceptable to Buyer in its sole and absolute discretion. 4. Waiver of Deed Restrictions. The parties acknowledge that waivers of existing deed restrictions (collectively, the "Waivers") eith respect to that portion of the Project commonly know as Parcel 5, Parcels A-2 and Parcel B-2 are required as a condition precedent to Closing."). Seller shall deliver to Buyer a fully executed copy of the Waivers at least 10 days prior to Closing. The terms and conditions od the Waivers as wekk as any payments or other monetary or other concessions the City may require of the Buyer as a result of obtaining the Waivers must be acceptable to Buyer in its sole and absolute discretion. 5. Purchase Price. The Purchase Price is hereby increased to $18.649.807.48. 6. Counterparts. This amendment may be executed in any number of counterparts each of which when taken together shall constitute one cpmplete document. Facsimile signature may be deemed sufficient to expedite the execution hereof. 7. Reaffirmation. Except as specifically set forth herein, the terms and provisions of the Agreement shall remain unchanged and in full force and effect. (Signatures on next page)
IN WITNESS WHEREOF the parties hereto have executed this Amendment as of the day and year first written above. WITNESSES SELLER BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation Name: STEPHANIE WHITNEY By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President - ----------------------------------- Name: John Queen Date: 07/15/04 MONTY'S IN THE GROVE, INC., a Florida Corporation Name: STEPHANIE WHITNEY By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President - ----------------------------------- Name: John Queen Date: 07/15/04 HOCUS-POCUS, INC., Florida corporation Name: STEPHANIE WHITNEY By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President - ----------------------------------- Name: John Queen Date: 07/15/04 BUYER: BAYSHORE LANDINGS, LLC, a Florida limited Liability company Name: Robert W. Christoph By: - ------------------------------------ ---------------------------------- Robert W. Christoph, Manager Name: RUDOLPH F. RODRIGUEZ Date: 07/15/04 - ------------------------------------ ---------------------------------- HMG BAYSHORE, LLC, a Florida limited Liability company Name: RUDOLPH F. RODRIGUEZ By: - ------------------------------------ ---------------------------------- Larry Rothstein, President - ------------------------------------ Name: RHONDA RUBIN Date: 07/15/04
THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT FOR CERTAIN ASSETS This Third Amendment to Purchase and Sale Agreement for Certain Assets ("Amendment") is entered into as of this ____day of July 2004 by and among BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation ("Bayshore"), MONTY'S IN THE GROVE, INC., a Florida corporation, f/k/a, Terremark Stone Crabs, Inc. ("Monty's Upstairs"), and HOCUS-POCUS, INC., a Florida corporation ("Hocus-Pocus") (Bayshore, Upstairs and Hocus-Pocus are sometimes collectively referred to herein as, "Seller"), and BAYSHORE LANDINGS, LLC, a Florida limited liability company ("Landings"), its successors and/or assigns and HMG BAYSHORE, LLC, a Florida limited liability company ("11MG", its successors and/or assigns and together with Landings, collectively, "Buyer"). RECITALS A. On or about May 24, 2004 Seller and Buyer entered into that certain Purchase and Sale Agreement for Certain Assets whereby Buyer has the right to purchase from Seller certain assets more particularly described therein, which Agreement was amended by virtue of that certain First Amendment to Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated as of June 1 , 2004 and that Second Amendment to Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated as of July 13, 2004 (as modified, the "Agreement") B. Seller and Buyer desire to modify the Agreement further as specifically set forth herein. S NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1 . Recitals. The above recitals are true and correct and are incorporated herein by reference. 2. Due Diligence Period. The Due Diligence Period is hereby extended until July 30, 2004 at 5:00 PM. 3. Counterparts. This Amendment may be executed in any number of counterparts each of which when taken together shall constitute one complete document. Facsimile signature may be deemed sufficient to expedite the execution hereof. S 4. Reaffirmation. Except as specifically set forth herein, the terms and provisions of the Agreement shall remain unchanged and in full force and effect. (Signatures on next page)
IN WITNESS WHEREOF the parties hereto have executed this Amendment as of the day and year first written above. WITNESSES SELLER BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation Name: PAUL PAGET By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President - ------------------------------------ Name: Ralph Navarro Date: 07/26/04 MONTY'S IN THE GROVE, INC., a Florida Corporation Name: PAUL PAGET By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President - ------------------------------------ Name: Ralph Navarro Date: 07/26/04 HOCUS-POCUS, INC., Florida corporation Name: PAUL PAGET By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President - ------------------------------------ ---------------------------------- Name: Ralph Navarro Date: 07/26/04 BUYER: BAYSHORE LANDINGS, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Robert W. Christoph, Manager Name: Date: - ------------------------------------ ---------------------------------- HMG BAYSHORE, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Larry Rothstein, President Name: WANDA HEMMINGWAY Date: 07/26/04 - ------------------------------------ ---------------------------------- BUYER: BAYSHORE LANDINGS, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Robert W. Christoph, Manager Name: Date: 8/3/2004 - ------------------------------------ ---------------------------------- HMG BAYSHORE, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Larry Rothstein, President Name: Date: - ------------------------------------ ----------------------------------
FOURTH AMENDMENT TO PURCRASE AND SALE AGREEMENT FOR CERTAiN ASSETS This Fourth Amendment to Purchase and Sale Agreement for Certain Assets ("Amendment") Is entered into as of this 20th day of July 2004 by and among BAYSMORE RESTAURANT MANAGEMENT CORP., a Florida corporation, f/k/a, Terremark Stone Crabs, Inc. (Monty's Upstairs"), and ("Bayshore"). MONTY'S IN THE GROVE. INC., a Florida corporation~ f/k/a, and HOCUS-POCUS, INC., a Florida corporation ("Hocus-Pocus") (Bayshore, Upstairs and Hocus-Pocus are sometimes collectively referred to herein as, "Seller"), and BAYSHORE LANDINGS, LLC, a Florida limited liability company ("Landings"), its successors and/or assigns and HMG BAYSHOR.E, LLC, a Florida limited liability company ("HMG", its successors and/or assigns and together with Landings, collectively, "Buyer"). RECITALS A On or about May 24, 2004 Seller and Buyer entered into that certain Purchase and Sale Agreement for Certain Assets whereby Buyer has the right to purchase from Seller certain assets more particularly described therein, which. Agreement was amended by virtue of that certain First Amendment to Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated as of June 1, 2004 that Second Amendment to Purchase and Sale Aggrement for Certain Assets between the Buyer and Seller dated as of July 13, 2004; and that Third Amendment to Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated as of July 26, 2004 (as modified, the "Agreement") B Seller and Buyer desire to modify the Agreement further as specifically set forth herein. NOW, THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and.sufficiency .of which.are hereby acknowledged, the parties hereto agree as follows: 1. Recitals. The above recitals are true and correct and are incorporated herein by reference. 2. Due Diligence Period. The Due Diligence Period is hereby extended until August 6, 2004 at 5:00 PM. 3. Closing Date. Despite the extension of the Due Diligence Period Buyer acknowledges that it is using reasonable attempts to close the transaction by August 13, 2004; however this acknowledgement shall not modify the express terms of the Agreement. 4. Environmental Issues. Seller shall be obligated to close any exiting monitoring wells located at the Project In accordance with all applicable law and regulations and provide to Buyer written confirmation thereof from the applicable governmental entity or agency at least three(3) business days prior to Closing. 5. Use of Monty's Trademarks. For clarification purposes only, the rights granted in Section 28 of the Agreement shall include but not be limited to the sale of merchandise (e.g. hats, t-oshirts, glasses). The provisions of this Section shall survive Closing. 6. Counterparts. This Amendment may be executed in any number of counterparts each of which when taken together shall constitute one complete document. Facsimile signature may be deemed sufficient to expedite the execution hereof. 7. Reaffirmation. Except as specifically set forth herein, the terms and provisions of the Agreement shall remain unchanged and in full force and effect. (Signatures on next page)
IN WITNESS WHEREOF the parties hereto have executed this Amendment as of the day and year first written above. WITNESSES SELLER BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation Name: TAMRA RAE JENKINS By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Tamra Rae Jenkins Date: 07/29/04 - ------------------------------------ ---------------------------------- MONTY'S IN THE GROVE, INC., a Florida Corporation Name: TAMRA RAE JENKINS By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Tamra Rae Jenkins Date: 07/29/04 - ------------------------------------ ---------------------------------- HOCUS-POCUS, INC., Florida corporation Name: TAMRA RAE JENKINS By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Tamra Rae Jenkins Date: 07/29/04 - ------------------------------------ ---------------------------------- (Signatures on next page) BUYER: BAYSHORE LANDINGS, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Robert W. Christoph, Manager Name: Date: HMG BAYSHORE, LLC, a Florida limited Liability company Name: Carlos Camaroti By: - ------------------------------------ ---------------------------------- Larry Rothstein, President Name: Wanda Hemmingway Date: 7/30/04 - ------------------------------------ ---------------------------------- BUYER: BAYSHORE LANDINGS, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Robert W. Christoph, Manager Name: Date: 8/3/2004 - ------------------------------------ ---------------------------------- HMG BAYSHORE, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Larry Rothstein, President Name: Date: - ------------------------------------ ----------------------------------
FIFTH AMENDMENT TO PURCHASE AND SALE AGREEMENT FOR CERTAIN ASSETS This Fifth Amendment to Purchase and Sale Agreement for Certain Assets (`Amendment") IS entered into as of this 6th day of August 2004 by and among BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation ("Bayshore"), MONTYS IN THE GROVE, INC. a FIorida corporation, f/k/a, Terremark Stone Crabs, Inc. ("Monty's Upstairs"), and HOCUS~POCUS, INC., Florida corporation ("Hocus-Pocus") (Bayshore, Upstairs and Hocus-Pocus are sometimes collectively referred to herein as. "Seller"), and BAYSHORE LANDINGS, LLC, a Florida limited liability company ("Landings"), its successors and/or assigns and HMG BAYSHORE, LLC, a Florida limited liability company ("HMG". its successors and/or assigns and together with Landings, collectively, "Buyer). RECITALS A. On or about May 24, 2004 Seller and Buyer entered into that certain Purchase and Stile Agreement for Certain Assets whereby Buyer has the right to purchase from Seller certain assets more particularly described therein, which Agreement was amended by virtue of that certain First Amendment to Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated us of June 1. 2004; that Second Amendment to Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated as of July 13, 2004; that Third Amendment Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated as of July 26, 2004; and that Fourth Amendment to Purchase and Sale Agreement for Certain Assets between the Buyer and Seller dated as of July 30, 2004 (as modified, the "Agreement"). B. Seller and Buyer desire to modify the Agreement further as specifically set forth herein. NOW, THEREFORE. in consideration of $10.00 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. the parties hereto agree as follows: 1 . Recitals. The above recitals are true and correct and are incorporated herein by reference. 2, Due Diligence Pcriod. The Due Diligence Period is hereby extended until August 11, 2004 at 5:00 PM. 3. Closing Date Despite the extension of the Due Diligence Period Buyer acknowledges that it is using commercially reasonable attempts to close the transaction by August 19, 2004; however this acknowledgement shall not modify the express terms of the Agreement. 4. Counterparts. This Amendment may be executed in any number of counterparts each of which when taken together shall constitute one complete document. Facsimile signature may be deemed sufficient to expedite the execution hereof. 5. Reaffirmation. Except as specifically set forth herein, the terms and provisions of the Agreement shall remain unchanged and in full force and effect. (Signatures on next page)
IN WITNESS WHEREOF the parties hereto have executed this Amendment as of the day and year first written above. WITNESSES SELLER BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida corporation Name: By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Date: 8/06/04 - ------------------------------------ ---------------------------------- MONTY'S IN THE GROVE, INC., a Florida Corporation Name: By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Date: 8/06/04 - ------------------------------------ ---------------------------------- HOCUS-POCUS, INC., Florida corporation Name: By: - ------------------------------------ ---------------------------------- Stephen J. Kneapler, President Name: Date: 8/06/04 - ------------------------------------ ---------------------------------- (Signatures on next page) BUYER: BAYSHORE LANDINGS, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Robert W. Christoph, Manager Name: Date: - ------------------------------------ ---------------------------------- HMG BAYSHORE, LLC, a Florida limited Liability company Name: Lynnette Benitez By: - ------------------------------------ ---------------------------------- Larry Rothstein, President Name: Wanda Hemmingway Date: 8/9/04 - ------------------------------------ ---------------------------------- BUYER: BAYSHORE LANDINGS, LLC, a Florida limited Liability company Name: Kiki Rubin Seigel By: - ------------------------------------ ---------------------------------- Robert W. Christoph, Manager Name: Sandra C. Ovando Date: 8/6/04 - ------------------------------------ ---------------------------------- HMG BAYSHORE, LLC, a Florida limited Liability company Name: By: - ------------------------------------ ---------------------------------- Larry Rothstein, President Name: Date: - ------------------------------------ ----------------------------------
EX-10 6 ex10m.txt EXHIBIT 10 (M) Exhibit 10 (m) LEASE AGREEMENT THIS LEASE AGREEMENT made this 20th day of September 1985, between the CITY OF MIAMI, a Municipal corporation of the State of Florida, hereinafter called the "City", and BAYSHORE PROPERTIES, INC., a Florida corporation, with offices at 2460 South Bayshore Drive, Miami, Florida 33133, hereinafter referred to as the "Company." WITNESSETH: WHEREAS, the City of Miami desires redevelopment and utilization of two adjoining parcels of City-owned property known as the Kelley Property and the Miley Property in general accord with the Dinner Key Master Plan; and WHEREAS, the City and Bayshore Properties, Inc. have entered into a Lease Agreement dated the 30th day of Apri1, 1981. for the Kelley Property and a separate Lease Agreement for the Miley Property effective the 1st day of June, 1977; and WHEREAS, both Lease Agreements were to expire in the year 2007; and WHEREAS, because of complex litigation which precluded the development and use of the Kelley Property for a period in excess of three years the Commission adopted Resolution No. 84-1450 which extended the terms of the Kelley Property lease agreement an additional three years to the year 2010; and WHEREAS, Bayshore Properties, Inc. desires to redevelop the two parcels as an integrated site to provide additional waterfront commercial and recreational activities for the benefit of the public; and WHEREAS, in order to develop the sites in a financially feasible manner Bayshore Properties, Inc. has requested that the two leases be combined into one lease and said lease terms be extended for an additional 25 years from the year 2010; and WHEREAS, the Charter of the City requires that under certain circumstances an extension or modification to an existing lease, of waterfront property first be approved by a majority of the voters of the City of Miami; and WHEREAS, the City Commission has determined the requested modification and extension is in the best interest of the public and herein directs that a special municipal election be held; and WHEREAS, on the 13th day of August, 1985, the requested modifications and extension were approved by a majority of the voters; and WHEREAS, the parties agree that upon execution of this Lease Agreement the two lease agreements referred to hereinabove are hereby terminated and the covenants, obligations and conditions contained therein are extinguished; and WHEREAS, the City Commission in Resolution No. 85-7l7 upon the recommendation of the City Manager, and subject to referendum, approved the herein Lease Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions herein contained, it is agreed by the parties hereto as follows: 1. DESCRIPTION OF PREMISES: The City hereby leases unto the Company for the purpose and under the conditions hereinafter set forth, the following real property and bay bottom lands (hereinafter referred to as the "Property"), located on Biscayne Bay, City of Miami, Dade County, Florida, as described in Exhibit A attached hereto and made a part hereof. 2. TERM: The term of this Lease Agreement shall commence on the 30th day of September , 1985, and shall end on the 31st day of May, 2035. 3. USE OF PROPERTY: The Company will develop, manage, and promote the property to prospective tenants in such a manner that will offer the Essential Services (as hereinafter defined) required and encourage public enjoyment, use, and participation so as to make the project financially feasible to both the Company and the City, as well as to reach the objectives of the Dinner Key Master Plan. -2- The Company covenants and agrees to provide each and every Essential Service as required in its use of the Property, as hereinafter listed, if allowed by law; and subject to the issuance of a certificate of use and occupancy with City zoning approval. The Essential Services will be provided during the entire term of this lease (subject to interruption for reasonable periods if due to a loss of a tenant or concessionaire providing Essential Services) unless and until the Company files a request in writing for permission to discontinue a use or service and the reasons therefor and said permission is granted by the City Manager. The City Manager shall only permit discontinuance of an Essential Service or use if he or she finds, that it is no longer essential and that the discontinuance of said Essential Service(s) or use is in the greater interest of the public. Essential Services required in the use of the Property: 1. A restaurant; 2. Retail facilities; 3. A marina, including. an adequate number of spaces for transient vessels; In addition, the following list of uses may be provided for by the Company or the tenant(s) of the Property: (a) A refreshment stand; (b) Boat rentals; (c) Bait and tackle shop; (d) Convenience food store for the benefit of marina tenants; (e) Marine supply store, including diving gear; (f) Outboard motor sale and incidental service; (g) Marine clothing sales; (h) Marine furniture sales and incidental manufacturing; (i) Boat tours; (j) Fishing area; (k) Sporting goods store; -3- (1) Antique store; (m) Art galleries and book store open to the general public; (n) Bakery; (o) Bicycle sales and repair; (p) China and crockery; (q) Confectionery or ice cream store; (r) Clothing; (s) Photographic sales; (t) Gift shop; (u) Hobby shop; (v) Jewelry and watch sales, repair and service; (w) Leather goods - sales and incidental assembly and repair; (x) Lounges; (y) News stand or sundry; (z) Barber shop, beauty parlor, and shoe polishing stand; (aa) Travel and ticket agency; (ab) Sailmaker; (ac) Arts and crafts; (ad) Office for management and rental of the Property; (ae) Marine fuel pumps; (af) Any related or allied uses to the above if approved by the City Manager which approval may not be unreasonably withheld or delayed. All Marina operations, including rental of all boat slips shall be directly controlled and operated by the Company unless the consent of the City Manager is given in writing to do otherwise on such conditions as are mutually agreeable to the City Manager and the Company. 4. NON-DISCRIMINATION: The Company agrees that there will be no discrimination under any circumstances against any person -4- on account of race, color, sex, religious creed, ancestry, or national origin desiring to use the Property and the improvements. Any such acts will be considered a default subject to the terms and conditions of Paragraph 18, and it is expressly understood that upon final determination of such discrimination the City shall have the right to terminate this Lease Agreement. The Company agrees that minorities shall participate in the development of the Project, including construction contracts and jobs as well as in the work force created by the development. Minorities shall have priority in the leasing of all tenant spaces. 5. PUBLIC ACCESS TO THE WATERFRONT: The public shall be allowed access to the waterfront areas of the Property and all facilities located on the Property shall be available to the public, subject to the right of the Company to establish and enforce rules and regulations to provide for the orderly operation, security, and public safety of said facilities. A copy of all rules and regulations and any changes occurring therein shall be subject to the approval of the City Manager, which approval shall not be unreasonably withheld or delayed. 6. REDEVELOPMENT PLANS: The Company agrees to redevelop the property in substantial accordance with plans and specifications furnished in its public proposal (Exhibit "B") as may be allowed by law. The redevelopment of the docking facilities is anticipated by the Company. If by law dredging and/or land fill is not permitted, this will not substantially alter the remaining overall project, and a boardwalk would still border the bay-front. The developmental plans of the Company must complement the overall design and planning of the Coconut Grove Dinner Key area. Any waiver by the City of the execution of any part of the proposed plans shall not be construed to be a waiver of any other part of such plan. The Company agrees that no structure of any kind now existing on the premises shall be altered or any new structure erected upon the Property unless the plans therefor shall have been approved by the City Manager, which approval -5- shall not be unreasonably withheld or delayed. Construction shall commence within eighteen (18) months of the date of execution of said Agreement and shall be completed within five (5) years from this date unless permit delays or other delays are caused by the City, and in such case, this eighteen (18) month and/or five (5) year period shall be extended by the same time period (the "Delay Period"). Composite Exhibit "B" attached hereto describes the plans and specifications furnished in the Company's proposal. It is agreed that the improvements to the Property, as described in Paragraph 1, and to be made by the Company, will require the expenditure of not less than Two Million Six Hundred Thousand Dollars ($2,600,000.00) (the "Improvement Expenditure"). This sum does not include the expenditure for improvements to a parking site or sites as described in Paragraph 11, said sum, which is not to be less than Four Hundred Thousand ($400,000.00) Dollars (the "Parking Sites Expenditure"), which Parking Site's Expenditure is to be in addition to the Improvement Expenditure. The Company will submit copies of paid invoices corresponding to the Improvement Expenditure and the Parking Sites Expenditure in accordance with Paragraph 15. The City agrees, within ninety (90) days after the execution of this lease, to provide adequate water and sanitary sewage lines to the property line in accordance with normal City services. The Company shall have the responsibility of ensuring and providing for adequate electrical power, gas, and telephone service to the property. The Company shall provide the required ornamental landscaping and lighting, all in accordance with the redevelopment plan. The boardwalk, as proposed in the Company's proposal document (Composite Exhibit "B"), shall be constructed in accordance with the design standards set forth in the Dinner Key Master Plan and shall be constructed by the Company. The public shall have free and unobstructed use of the boardwalk at all times. Said boardwalk shall be completed prior to the issuance of a certificate of occupancy for the proposed project. -6- 7. PERMITS: The Company agrees to have final' plans prepared which will comply with all pertinent provisions of the South Florida Building Code and the ordinances, rules and regulations of Dade County and the City of Miami. The Company agrees that no structure of any kind now existing on the Property shall be altered or a new structure erected upon the Property unless the plans for said construction have been approved by the City Manager, which approval shall not be unreasonably withheld or delayed. As a condition to this Lease the Company shall obtain at its sole cost and expense all permits, approvals, and related documents from any and all Federal, State, and local governments and agencies requiring them for the construction, or construction of any new docking or upland Company facilities. The Company shall apply for and obtain all permits or approvals necessary to commence construction, dredging, and/or filling on the Property. CONSTRUCTION SECURITY BOND: The Company shall, prior to the commencement of construction or the awarding of any contract for construction on the Property by the Company or any agent of the Company, furnish the City with a Statutory Payment and Performance Bond (the "Construction Bond"), in the amount of Seven Hundred Fifty Thousand ($750,000.00) Dollars, naming the City as the owner and the Company as the principal. The conditions of the Construction Bond shall be to insure that the Company will: (1) promptly make payment to all claimants, as defined in Section 255.05 (1) Florida Statutes, supplying the principal with labor, materials, or supplies, used directly or indirectly by the principal in the prosecution of the work provided for in the Agreement; (2) pay the owner all losses, damages, expenses, costs, and attorney's fees, including appellate proceedings, that the owner sustains because of a default by the principal under the Agreement, and; (3) perform the guarantee of all works and materials furnished under the Agreement for the time specified in the Agreement. The Construction Bond may be terminated, with the written approval of the City Manager of the City, at such time as -7- the proposed construction project is completed arid fully operational and open to the public; and satisfactory evidence is provided by the Company to the City Manager that all requirements of the Construction Bond have been satisfactorily concluded. The form of the Construction Bond shall be as approved by the City Finance Department, Risk Management Division, in accordance with the requirements of Chapter 255, Florida Statutes, and Miami City Code ss.18.57. 9. LICENSES: The Company agrees to obtain and pay for all required licenses necessary for the proposed operation and conduct of its business, and agrees to comply with all laws governing the responsibility of an employer with respect to persons employed by the Company. It will be the responsibility of the Company to obtain the necessary liquor licenses to permit the sale of alcoholic beverages as permitted by this Agreement. The Company may sell all alcoholic beverages incidental to the restaurant but only beer and wine sales will be permitted from the refreshment stands and convenience food store. All alcoholic beverages sold in accordance with the provisions of this Agreement shall be sold in accordance with applicable State Beverage Regulations . 10. TAXES:During the term hereof, the Company covenants and agrees to pay all taxes of whatsoever nature lawfully levied or assessed against the Property and improvements, property, sales, rents or operations thereon, including, but not limited, to, ad valorem taxes. Payment thereof shall commence with and shall include taxes assessed for the current year. The Company further covenants and agrees to pay all of the said taxes, if any, lawfully assessed, on such dates as they become due and payable. The failure of the Company to pay the taxes as aforesaid shall constitute grounds for the immediate cancellation of this Lease Agreement by the City, subject to the terms and conditions of Paragraph 18. 11. PARKING: The Company shall meet the lawful off-street parking requirements for the use of the Property. The City shall provide one or more sites for said off-street parking. The -8- Company will develop and construct the parking on such sites at its expense and according to the standard specifications of the City. All parking so developed shall be used in common with the public but shall count for required off-street parking of Company. The Company shall be allowed by the City to use the area shown on Exhibit "C" to meet its required parking until such time as the City Commission requires the Company to vacate because of imminent construction activity on the area as a result of the City Commission's approval of other development for the area or if required to do so by judicial action. In either case the City Commission shall provide the required parking in the Dinner Key area. The Company shall provide a tram service during normal hours of operation from the parking sites to the subject Property, which service shall run a minimum of twelve (12) times daily from the parking sites to the Property. The tram service shall be provided at the sole cost and expense of the Company, its agents or assigns. The Company shall indemnify the City in the operation of said tram service as provided in paragraph 23 and shall provide the City with adequate insurance coverage, which is usual and customary to cover an exposure of this type for the tram service, subject to the approval of the Department of Finance, Risk Management Division. 12. EASEMENT FOR WATER TAXI OR TRAM STATION: In the event the City decides to provide or grant a franchise to provide a tram or people mover system for the Dinner Key area, the Company agrees to permit the City to establish a station and roadway for access for said system on the Property so long as the same does not unreasonably interfere with the operations of the Company or its tenants under this lease. Any costs in adjusting the site to accommodate said system shall be borne by the City or its franchisee as the case may be. Location of said facilities as described above are subject to approval by the Company which the Company shall not unreasonably withhold or delay. 13. CONSIDERATION: I. Minimum Annual Guaranteed Rental: As consideration for the lease of the said property, the Company shall pay to the -9- City the greater of: (1) the Minimum Annual Guaranteed Rental as hereinafter defined; or (2) Percentage Rental as hereinafter defined. The Minimum Annual Guaranteed Rental shall be payable as follows: (a) beginning upon the execution of this Agreement, Two Hundred Forty-Seven Thousand Five Hundred Eighty-Six Dollars ($247,586.00) per annum; (b) beginning twelve (12) months after the execution of this Agreement, Two Hundred Fifty-Seven Thousand Five Hundred Eighty-Six Dollars ($257,586.00) per annum; and (c) beginning twenty-four (24) months after the execution of this Agreement and through the year 2010, Two Hundred Seventy-Seven Thousand Five Hundred Eighty-Six Dollars ($277,586.00) per annum. The Minimum Annual Guaranteed Rental shall become, for the remainder of this Agreement, the average of the immediately preceding three (3) years rental payments to the City. The Company shall pay on a monthly basis one-twelfth (1/12th) of the Minimum Annual Guaranteed Rental on the first day of each month in advance. For permanent capital improvements over Three Million Dollars ($3,000,000.00), a credit towards rental payments, not to exceed Three Hundred Thousand Dollars ($300,000.00) in any one (1) year, shall be given, dollar for dollar, amortized over the first ten (10) years following completion of construction. II. Percentage Rental: As an alternative amount of consideration in lieu of the Minimum Annual Guaranteed Rental, the Company shall pay the Percentage Rental based on the following formulae throughout the entire term of this agreement: (a) Eight (8%) per cent on all gross receipts up to One Million ($1,000,000.00) Dollars in gross receipts per lease year. (b) Ten (10%) per cent on all gross receipts in excess of One Million ($1,000,000.00) Dollars per lease year. Percentage Rental shall be determined annually and shall be paid monthly, if applicable within twenty-five (25) days from the end of the preceding month. Adjustments to the rental shall be made at the end of the -10- lease year based upon the annual percentage rent set forth herein. The term "gross sales" as used herein shall be considered synonymous and interchangeable with the term "gross receipts" and shall be construed to include all income, whether collected or accrued, from all business conducted on the Property by Company, including but not limited to, the rental of space, the sale of food and beverage, goods and services, or from any source whatsoever, but excluding receipts from dockage and gas sales. Gross sales and/or gross receipts shall only include revenues and/or percentages of revenues collected or accrued by the Company, and shall be computed on the basis of gross receipts by the Company only. (It shall not be computed on the basis of gross receipts of tenants, lessees, or sublessees of the Company (fuel sales excepted)). However, any sales taxes imposed by law which are separately stated to and and paid by the purchaser or user, and are directly payable to a taxing authority by the Company, shall be excluded from gross receipts. Gross sales and/or gross receipts shall also include any revenues, whether accrued or collected, attributable to any direct or indirect participation by the Company or any of its officers or principals in the business or enterprise of another entity, person or tenant of the property besides the Company per se, to the extent that such participation entitles Company, its officers or principals to receive remuneration; and further provided that such other business or enterprise is done on or "in connection with" the Property provided, however, that the term "in connection with" shall not include revenues which result merely from the physical adjacency of location or merely from joint promotional effort and advertising. The Company shall include in every remittance to the City, of the monthly consideration as required, the applicable amount of State of Florida sales and use tax. The Company covenants and agrees that goods and services offered and sold on the subject property by the Company, its -11- tenants, lessee or sublessee, shall be regularly audited, during normal business hours and in a manner in accordance with Paragraph 16, by the City, and that the full amount of gross receipts attributable to the subject property shall not in any way be diverted to any other business or enterprise. For permanent capital improvements over Three Million Dollars ($3,000,000.00), a credit towards rental payments, not to exceed Three Hundred Thousand dollars ($300,000.00) in any one (1) year, shall be given, dollar for dollar, amortized over the first ten (10) years following completion of construction. III. Special Percentage Rental on Fuel Sales and Dockage: In addition, as separate and additional consideration due the City, not included in the hereinabove Percentage Rental, or the Minimum Annual Guaranteed Rental, the Company shall also pay to the City on the first day of each month, throughout the term of this agreement the following: Two and a half cents ($0.025) per gallon, of fuel sold by the Company or its subtenant from the Property in the prior month, and fifteen (15%) per cent of gross receipts which are collected by the Company from dockage rental and dry storage of boats at the Property in the prior month. 14. PERFORMANCE BONDS: The Company shall post a performance bond in the amount of Ten Thousand ($10,000.00) Dollars with the City within thirty (30) consecutive calendar days after the execution of this Agreement to stand as security for the performance of the Company's obligations hereunder. Said performance bond shall be posted in cash or issued by a surety company authorized to do business in the State of Florida and shall be refundable at the termination of this Agreement if all terms and conditions of this Agreement have been satisfied. If the performance bond is on an annual coverage basis, certified evidence of renewal for each succeeding year shall be submitted to the Department of Finance, Risk Management Division, thirty (30) days prior to the termination date of the existing performance bond. -12- 15. ACCOUNTING: The Company shall report all "Gross Receipts" or Gross Sales on or before the 25th day of each month beginning at the completion of the first month after the execution of this Lease. Each and every month thereafter, reports shall be submitted to Property and Lease Management Division, Department of Finance of the City, or at such other place or places as may be designated hereafter by the City. The Company shall provide a statement in certificate form signed by a duly authorized officer of the Company, setting forth in such detail as it might be necessary or considered necessary by the Director of Finance of the City to determine the Gross Sales per month for the Property. An additional detailed report of Gross Sales for the year in conjunction with the payment of the Annual Percentage Rent shall be submitted at the end of the lease year for the purpose of computing the Annual Percentage Rental. The Company shall submit quarterly reports commencing within thirty (30) days after the first quarter of the Lease Agreement, and continuing during the effective period thereof, and each and every quarter thereafter, identifying expenditures on the part of the Company for making improvements to the Property, equipment purchases and improvements and expenditures related to improving the facility's amenities and services of the Property. Such reports shall continue during the term of this lease, in order to provide proper accounting in accordance with Paragraphs 15 and 19 of this lease. 16. BOOKS , RECORDS , ACCOUNTS AND STATEMENTS : The Company shall keep true, accurate, and complete books, records, and account of all sales, rentals, and business being transacted upon the Property. Further, the Company shall, upon demand make available all books and records, leases, agreements, reports and financial statements in any way pertaining to the Property to authorized representatives of the Division of Internal Audit, or such other authorized representative as the City Manager of the City shall designate at the Property during normal business hours. The Internal Auditing Department of the City shall be furnished any and all records of the Company necessary to make a -13- full and complete audit of the books and operations of the facilities described in this Lease Agreement. In addition the Company will provide the City with all sales tax records from any and all business conducted on the Property. EXAMINATION OF THE PREMISES BY THE CITY: The Company agrees to permit the City, by its City Manager's designated personnel, to enter upon the Property at any time for any purpose the City Manager of the City deems necessary or incidental to or connected with the performance of City's duties and obligation hereunder or in the exercise of its rights or functions. 18.DEFAULT: If the Company abandons or, vacates the Property prior to the expiration of the term hereof, or If the Company fails to make the rental payments as set forth herein and said payment is not made within thirty (30) days after written notice is given to the Company, or If the Company fails to commence construction or complete same in accordance with the requirements of Paragraph 6 of this Agreement, or If the Company fails to perform in accordance with any of the other terms and conditions herein contained, and such default is not cured within thirty (30) days after written notice is given to the Company or if the nature of the default is such that the Company cannot reasonably cure same within said period and the Company fails to take diligent measures to commence and pursue the cure thereof, Then the Company shall be in default and the City may re-enter the Property and terminate this lease in any manner then permitted or provided by law. At such time, all improvements erected on the Property shall revert to the City. In addition to the right to re-enter and terminate the lease, the City, in case of a breach in the payment of rent or in case of the breach of any other of the Company's obligations hereunder, shall have all other remedies, including but not limited to the right to operate the facility and collect rents directly from tenants or other remedies afforded by the laws of -14- the State of Florida, including but not limited to the right to sue for and collect rent, and to bring distress proceedings. Said remedies may be pursued concurrently or consecutively and the resort to one shall not be considered an election. 19. NOTICES: All notices and rental payments shall be sent to the parties at the following addresses: TO THE CITY: The City Manager The City of Miami, Florida P.O. Box 330708 Miami, Florida 33133 TO THE COMPANY: Bayshore Properties, Inc. Monty Trainer, President 2562 South Bayshore Drive Miami, Florida 33133 The City or the Company may change such mailing addresses at any time upon giving the other party written notice. All notices under this Lease Agreement must be in writing and shall be deemed to be served when delivered to the address of the addressee. 20. ATTORNEYS' FEES: In the event that it is deemed necessary for either party to file a lawsuit in the appropriate court of law in order to enforce any of the terms or provisions of this Lease Agreement, then the prevailing party shall be entitled to reasonable attorneys' fees. 21. INSURANCE: The Company shall maintain during the term of this Agreement the following insurance subject to the approval of Risk Management Division, Department of Finance of the City: (a) Public Liability, including Products Liability, Insurance in the amounts of not less than $1,000,000 per occurrence for death or bodily injury and not less than $50,000 per occurrence for property damage. (b) A standard Fire, Lightning, and Windstorm Insurance policy on the premises and all furniture, fixtures, equipment, and improvements, including the perils of fire, extended coverage, and other perils, for the cash value thereof. (c) Automobile Liability Insurance covering all owned, nonowned, and hired vehicles in amounts of not less than $100,000 per accident and $300,000 per occurrence of bodily injury and $10,000 property damage. -15- (d) Liability insurance covering the operation of the tram service between the designated parking sites and the Property which is considered adequate at the time of the inception of the service and meets the approval of the Department of Finance, Risk Management Division. (e) The City shall be named as an additional insured under the policies of insurance as required by this Agreement. (f) The City shall be given at least thirty (30) days' advance written notice of cancellation of said policies or any material modifications thereof. (g) Certificates of insurance shall be filed with the Finance Department, Risk Management Division, of the City of Miami. (h) The insurance coverage required shall include those classifications as listed in standard liability insurance manuals which most nearly reflect the operations of the Company. (i) All insurance policies shall be issued by companies authorized to do business under the laws of the State of Florida and must be rated at least "A" as to management and Class "X" as to financial strength, all in accordance with A. M Best's Key Rating Guide, latest edition. (j) The City reserves the right to amend the insurance requirements according to usual and customary standards in the Insurance Industry as circumstances dictate in order to protect the interest of the City in this Lease Agreement. (k) The Company shall furnish certificates of insurance to the City prior to the commencement of operations, which certificates shall clearly indicate the Company has obtained insurance in the type, amount, and classifications as required for strict compliance with this covenant and shall be subject to the approval of the Department of Finance, Risk Management Division. (1) The policy shall be endorsed as follows: "It is agreed that in the event of any claim or suit against the insured for damages covered by this policy, the insurance company will not deny liability by the use of a defense based on governmental immunity". -16- 22. INDEMNIFICATION: The Company covenants and agrees that it shall indemnify and save harmless the City from and against any and all claims, suits, actions, damages or causes of action arising during the' term of this Lease Agreement for any personal injury, by reason of or as a result of, the Company's occupancy thereof, and from and against any orders, judgments or decrees, which may be entered thereon, and from and against all costs, attorneys' fees, expenses, and liabilities incurred in and about the defense of such claim and the investigation thereof; provided, however, that before the Company shall become liable for said cost, the Company shall be given notice in writing that the same are about to be incurred and shall have the option itself to make the necessary investigation and employ counsel of the Company's selection for the necessary defense of any claims. The City may, at its option, retain its own counsel at its sole cost and expense in addition to the provisions hereinabove set forth. 23. DAMAGE OR LOSS TO COMPANY'S PROPERTY: The Company assumes all risk of damage or loss to the Property for any cause whatsoever, which shall include, but not be restricted to, any damage or loss that may occur to merchandise, goods, equipment, or other property covered under the Lease Agreement, if lost, damaged or destroyed by fire, theft, rain, water or leaking of any pipes or waste water in or about said Property or from hurricane or any act of God, or any act of negligence of any user of the facilities, or occupants of the Property or any person whomsoever. 24. DESTRUCTION OF PROPERTY: The Company agrees to keep all improvements on the Property insured to the full insurable value thereof and shall provide to the City a standard fire insurance policy insuring against loss or destruction for all of the perils of fire, extended coverage and malicious vandalism. Subject to the rights of the Company's first mortgage lender, in the event of loss or destruction due to any cause whatsoever, all insurance monies shall be payable to the City, to be held by it until the Company furnishes a bond to the City for construction or repair, as the case may be, of like tenor and effect and under the same -17- conditions as the bond hereinbefore required in the case at the initial redevelopment. Upon the furnishing of such bond, the City shall promptly pay to the Company all insurance proceeds. It is provided, however, that should the cost of repairs not exceed the sum of $25,000 then the City shall pay over to the Company, without the necessity of any bond, the amount of insurance policies thereafter collected by the City. The Company shall furnish to the City duplicate originals of all insurance policies required under this Lease Agreement. The insurance policy required hereunder shall be approved by the City as to form, amount, and insurer or insurers and shall provide that all proceeds shall be payable to the City as provided in the Lease Agreement. All construction and repairs shall be effected as promptly as circumstances permit. Plans for reconstruction or repairs shall be submitted to and approved by the City Manager, and permits therefor and inspection fees shall be procured and paid for by the Company. If within one hundred eighty (180) days after any such destruction or damage, the Company fails `to furnish said plans and bond to the City, then all insurance monies collected by the City shall be and become the property of the City and this Lease Agreement shall be cancelled and terminated automatically. 25. BUILDING MAINTENANCE: The Company accepts the building and grounds in their present condition and without any warranty by the City as to their condition. The Company, at its sole cost and expense, shall maintain the grounds and the interior and exterior of the buildings. The Company agrees to provide adequate janitorial services. The Company further agrees to maintain the buildings and Property in a condition of proper cleanliness, orderliness, and state of attractive appearance at all times. If the buildings and Property are not kept reasonably clean and attractive in appearance, the Company shall be so advised. Corrective action shall be taken by the Company within seven (7) days time. In the event such action is not taken, the City shall have the right to make repairs or cause the Property -18- to be cleaned and the Company shall then be required to reimburse the City within thirty (30) days for said cost and charges. 26. UTILITIES: The Company shall pay for all utilities consumed on the Property as well as connection charges thereof and waste collection fees, if any. The Company further agrees to place all utilities required by its use of the leased Property underground. 27. PURE FOOD AND SANITARY LAWS: The Company shall abide by all pure food and sanitary laws and the employees involved in the handling or sale of any food or beverage shall all possess health certificates. All food and beverage sold shall be of the highest grade and quality standards as established by law. 28. CONFORMITY TO THE LAW: The Company covenants to comply with all laws, ordinances, regulations, deed restrictions and orders of Federal, State, County and Municipal authorities pertaining to the Property and operation thereon. 29. DOCKAGE RATES: The Company agrees to maintain the dock rates at a level not to exceed those charged by comparable marinas in the Dinner Key Area providing like services. 30. PLEDGE OF LEASEHOLD INTEREST: The Company may pledge this leasehold interest as security for' industrial development bonds provided the quality of the assignee or pledge is approved by the City Manager which approval may not be unreasonably withheld. This section shall under no circumstances be construed to require the City to participate in the financing or the proposed redevelopment improvements. The City shall fully cooperate with the Company in respect to the reasonable requirements of Company's lender. 31. ASSIGNMENT AND SUBLETTING OF PREMISES OR TRANSFER OF STOCK: The Company shall not at any time during the term of this Lease agreement assign this Lease Agreement or any portion or part thereof, except and by virtue of written authorization granted by the City Manager of the City. Said authorization shall not be unreasonably withheld or delayed. This clause shall not apply to sub-leasing space to tenants of the Company. -19- The Company is a corporation authorized to do business in the State of Florida, and agrees that it will not transfer any stock in the corporation or change managers subsequent to entering into this Agreement or during the term of this Agreement until such transferor change is approved by the City Manager of the City, which approval shall not be unreasonably withheld. 32. BINDING ON SUCCESSORS: The terms and provisions of the Lease Agreement shall, subject to the provisions of Paragraphs 17 and 23, be binding and inure to the benefit of the successors and assigns respectively of the City and the Company. 33. INVENTORY: All fixtures, furnishings, furniture, and equipment, if any, in or upon the Property and their condition will be inventoried before occupancy by the Company. The Company will maintain fixtures, furnishings, furniture and equipment, if any, in good and operable condition during the term of this Agreement at its sole cost and expense, and that said Property shall be deemed in its sole custody and care. In the event any of the aforementioned items are lost, stolen, or damaged, they shall be replaced or repaired at the cost and expense of the Company, ordinary wear and tear excepted, during the term of this Agreement. The Company may acquire any additional fixtures, furnishings, furniture, or equipment that the Company deems necessary for the operation of the Property at the Company's own expense, consistent with the purposes for which the Property is leased. 34. OWNERSHIP OF IMPROVEMENTS: All improvements, furnishings and equipment constructed or installed on the Property by the Company shall be personal property and Company shall have legal title thereto during the term of this Lease. Upon the expiration or termination of this Lease, title to all permanent improvements constructed on the premises shall vest in the City. Title to all supplies, furnishings, inventories, removable fixtures and removable equipment and other personal property shall remain vested with the Company and the Company shall have the right to remove such items from the premises unless the Company is in default hereunder. -20- 35. EXPIRATION: At the expiration of the term of this Lease Agreement or at its prior termination, all permanent improvements placed on the property by the Company shall be and become the property of the City and the Company shall quietly and peaceably deliver the same to the City. 36. ENTIRE AGREEMENT: A waiver of the breach of any of the covenants of this Lease Agreement shall not be construed to be a waiver of any other covenant or any succeeding breach. The provisions of this Lease Agreement contain the entire understanding of the parties hereto concerning the subject matter hereof. No modifications, release, discharge or waiver of any of the provisions hereof shall be of any force and effect unless signed in writing by the City Manager of the City. 37. CAPTIONS: The captions contained in this Lease Agreement are inserted only as a matter of convenience and for reference and in no way define, limit or prescribe the scope of this Lease Agreement or the intent of any provisions thereof. IN WITNESS WHEREOF, the parties herein have executed this Agreement the day and year first above written. CITY OF MIAMI, FLORIDA, a municipal corporation By: /s/ illegible ATTEST: -------------------------- /s/ Illegible CITY MANAGER - ----------------------------------- CITY CLERK BAYSHORE PROPERTIES, INC., a Florida corporation /s/ illegible By: illegible - ------------------------------------- -------------------------- PRESIDENT (SEAL) ATTEST: /s/ illegible - ------------------------------------ SECRETARY APPROVED AS TO FORM AND CORRECTNESS: /s/ Lucia A. Dougherty - ----------------------------------- LUCIA A. DOUGHERTY CITY ATTORNEY -21- MEMORANDUM OF UNDERSTANDING This Memorandum entered into this 30thday of August, 1991, by and between Grove Marina Market, Ltd., a Florida limited partnership ("GMM"), Bayshore Restaurant Management Corp., a Florida corporation ("BRMC"), Terremark Stone Crabs, Inc., a Florida corporation, ("Stone Crabs") and the City of Miami, a municipal corporation of the State of Florida, (hereinafter referred to as the "City" ). WHEREAS, the CITY and Bayshore Properties, Inc., a Florida corporation ("Bayshore" ) entered into a Lease Agreement dated September 20, 1985, (the "Lease"); and WHEREAS, Bayshore assigned its rights and obligations to GMM pursuant to an Assignment of Lease dated March 16, 1986 (the "Assignment"); and WHEREAS, GMM entered into a sublease agreement with Marina Restaurant, LTD., a Florida limited partnership ("MR") on March 14, 1986, (the "MR Sublease") a true and correct copy of which is attached hereto and made part hereof as Exhibit "A" whereby GMM subleased to MR a certain portion of the premises encumbered by the Lease; and WHEREAS, the MR Sublease was assigned by MR to BRMC on March 13, 1991 (the "Sublease Assignment"); and WHEREAS, BRMC entered into an agreement dated the 28th day of April, 1991 to sublease a portion of the premises encumbered by the Lease, as more specifically described in Exhibit "B" attached hereto, (the "Subleased Premises") to Stone Crabs as evidenced by a true and correct copy of the sublease between BRMC and Stone Crabs which is attached hereto and made part hereof as Exhibit "C", (the "Stone Crabs Sublease"); and WHEREAS, the parties hereto wish to clarify the meaning of certain provisions of the Lease in order to properly apply said provisions in the manner originally intended by the parties; NOW THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto mutually agree as follows: -1- I. ASSIGNMENT AND SUBLETTING OF PREMISES: It is acknowledged by the parties hereto that the language set forth in Section 31 of the Lease that reads "This clause shall not apply to sub-leasing space to tenants of the Company[]" means that the Company may sublease space without approval of the City Manager to only those tenants who are not providing Essential Services (as that term is defined in the Lease). Specifically, the parties hereto agree that the City Manager's written consent shall be necessary for the valid subleasing of the Restaurant, Marina and Retail Facilities portions of the Property. The term "Retail Facilities" as used herein shall mean all of the tenant spaces included in the Property other than the Restaurant and the Marina. However, the parties hereto agree that the Company may sublease, to individual tenants, separate and distinct spaces within the Retail Facilities for any valid purpose without the authorization of the City Manager. It is the subleasing of the Retail Facilities as a whole which requires the Manager's authorization prior to being subleased. It is acknowledged by the parties hereto that, for purposes of clarification, the term "Restaurant" means Monty's Raw Bar, located on the ground floor of the Property, as such establishment currently exists or as it may be expanded in the future. The Company agrees that it shall not sublease, assign or otherwise use the Property for any purpose that requires an occupational license for a restaurant without the prior written authorization of the City Manager, other than the Restaurant or the Subleased Premises. In light of the acknowledgments pertaining to Section 31, all parties hereto agree that the Sublease and the Sublease Assignment shall be subject to the approval of the City Manager and that the gross sales and/or gross receipts of any subtenant of the Company subleasing the Restaurant and/or the Marina portions of the Property at any particular time shall be used to compute the Percentage Rental payable by the Company to the City pursuant to Section 13 of the Lease. -2- II. DETERMINATION OF PERCENTAGE RENTAL: Company agrees that the Percentage Rental, as said term is defined in the Lease, shall be paid monthly on the first day of each month in advance during the term of the Lease. The amount to be paid each month in any given Lease year shall be equal to the annual gross sales, as said term is defined in the Lease, for the immediately preceding lease year, multiplied by each applicable percentage rate provided for in the Lease, divided by twelve (12). As an example, which is included herein for purposes of clarification only, if the annual gross sales for the Lease year ending September 30, 1995, are Twelve Million Dollars ($12,000,000) and the applicable percentage rate is ten percent (10%), monthly payments for the Lease year commencing October 1, 1995 shall be equal to ten percent (10%) of Twelve Million Dollars divided by twelve (12),which equals One Hundred Thousand Dollars ($100,000) ($12,000,000 x ..10 / 12 = $100,000). III. CREDIT TOWARDS RENTAL PAYMENTS FOR PERMANENT CAPITAL IMPROVEMENTS OVER THREE MILLION DOLLARS ($3,000,000): An annual credit exclusively applicable towards each Lease year's rental payments, (the `Credit") not to exceed Three Hundred Thousand Dollars ($300,000) in any one year, shall be given annually to Company for the ten (10) year period commencing with the Lease year 1989-1990, which has been determined by the City to be the first year following completion of construction of permanent capital improvements, and ending with the Lease year 1998-1999. Company shall apply the Credit by deducting an amount not to exceed the sum of Twenty-Five Thousand Dollars ($25,000) each month from the monthly consideration due the City. The Credit shall be applicable to either the Minimum Annual Guaranteed Rental or the Percentage Rental, as the case may be, as said terms are defined in the Lease. -3- IV. OUTSTANDING CONSIDERATION: The parties hereto acknowledge that the City is due the following consideration pursuant to Section 13 of the Lease: 1. Final Audit for the Lease year 1989-1990 - City hereby acknowledges that invoice Number 42-2965 forwarded to GMM on May 30, 1991 in the amount of Three Hundred and Twenty-Four Thousand Seven Hundred and Sixty Four Dollars ($324,764) have been paid by the Company in the form of an increase in the monthly payments paid the City for the lease year 1990-1991, and therefore such invoice is declared null and void except for any amounts which may be a part of the outstanding monthly rental as shown in Subsection IV(2) of this Memorandum. 2. Monthly Rental - The parties hereto agree that the City is owed all rental payments for the months of June, July, August and September, 1991. (The "Payments Due"). The Payments Due, in the total amount of Two Hundred Forty One Thousand One Hundred and Sixteen Dollars ($241,116), as of September 30, 1991, determined in accordance with the terms of this Memorandum and the Lease, shall be paid to the City over a period of twelve (12) months, commencing October 1, 1991 and ending September 30, 1992, at the rate of Twenty Thousand Ninety-Three Dollars ($20,093) each month until paid in full. The Payments Due shall be in addition to the payment of all other considerations to be paid pursuant to Section 13 of the Lease and the relevant sections of this Memorandum. V. INTENT OF THE PARTIES: The clarifications and restatements set forth in Sections I, II, III, and IV above and agreed upon by the parties hereto are included herein as a means of reemphasizing the original intent of the Lease provisions being clarified. The parties hereto -4- therefore agree that all provisions of the Lease, as clarified above, continue in full force and effect. VI. CONSENT TO SUBLETTING TO MR: The City Manager, for good and valuable consideration, hereby consents to the execution of the MR Sublease solely for the purposes described in the Lease. VII. CONSENT TOASSIGNMENT OF MR SUBLEASE: The City Manager hereby consents to the execution of the Sublease Assignment solely for the purposes described in the Lease. As consideration for the granting of this consent, GMM and BRMC hereby agree that all payments due from BRMC to GMM pursuant to the terms of the MR Sublease as assigned and under the terms of this Memorandum (including section VIII), shall be made directly by BRMC to the , City. The City agrees and acknowledges that the amounts due from BRMC to GMM under the terms of the MR Sublease as assigned and under the terms of this Memorandum (including section VIII) equals and fully satisfies the total consideration owed by GMM to the City in accordance with the Lease. GMM shall remain liable to the City, as lessee under the Lease and as party to this Memorandum, for any default that may occur in connection with the Lease or this Memorandum, whether by virtue of the failure of BRMC to pay any sums due to the City pursuant to the Lease or this Memorandum, or for any other reason whatsoever. BRMC hereby agrees that it shall abide by all the provisions of the Lease and, in particular, shall provide the City all information it may require in connection with Sections 15 and 16 of the Lease. VIII. CONSENT TO SUBLETTING TO STONE CRABS: GMM hereby consents to the execution of the Stone Crabs Sublease solely for the purposes described in the Lease. In consideration of GMM's consent to the Stone Crabs Sublease, BRMC -5- shall pay GMM an amount equal to one hundred percent (100%) of the rents due to BRMC pursuant to the terms of the Stone Crabs Sublease, which shall not be less than five percent (5%) of the gross sales of Stone Crabs. IX. NO FURTHER CONSENT NECESSARY: No further consent by the City shall be necessary nor shall any further written authorization be required pursuant to the Lease, to permit the MR Sublease and/or the Sublease Assignment and/or the Stone Crabs Sublease. X. CONDITION PRECEDENT: MR, BRMC and Stone Crabs have each been furnished with a copy of the Lease and agree to assume any and all obligations heretofore performed by GMM with respect to the Property and the Lease. GMM, BRMC and Stone Crabs each hereby accepts and agrees to be bound by the above-mentioned conditions. XI. LIMITED CONSENT: The parties hereto agree that the consent to the MR Sublease, the Sublease Assignment and the Stone Crabs Sublease granted hereunder is not intended to endorse, ratify or substantiate any representations, recitals, covenants or agreements made by GMM, MR, BRMC or Stone Crabs in the text or pursuant to the terms of the, MR Sublease, the Sublease Assignment, the Stone Crab Sublease or any documents or agreements collateral thereto. It is the City's sole purpose hereunder to consent to the execution of the MR Sublease and the Sublease Assignment, granting those rights and imposing those duties contemplated and provided for in the Lease. XII. CAPITALIZED TERMS: All capitalized terms used in this Memorandum but not defined herein are understood to have the meaning ascribed to such terms in the Lease. -6- XIII. LEASE RATIFICATION: . Upon the execution of this Memorandum, the parties hereto hereby ratify the Lease and agree that there are no parties in default under the terms of the Lease. The parties hereto currently have no claims against each other arising from the Lease, this Memorandum or any document collateral thereto, other than those set forth in Section IV or hereof. XIV. ACKNOWLEDGEMENT It is hereby acknowledged that the United States Government has granted to the City of Miami all right, title and interest in certain property as described in a quitclaim deed dated February 11, 1972 as long as said premises are used for public park and public recreation area purposes. The existing ancillary recreational parking facilities located on the premises shall be maintained consistent with the deed restrictions. The approved use as specified in the Program of Utilization as approved by the Department of Interior in 1978 and ratified by subsequent biennial review shall continue. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by the respective officials thereunto duly authorized, this the day and year first above written. CITY OF MIAMI, a municipal corporation of the State of Florida ATTEST: /s/ Matty Hirai By: /s/ Cesar H. Odio - ------------------------------ ------------------------------- City Clerk City Manager ATTEST: GROVE MARINA MARKET, LTD., a Florida Limited Partnership /s/ illegible By: /s/ illegible - ------------------------------ ------------------------------- Secretary (SEAL) as president of Grove Marina Market, Inc., general partner -7- ATTEST: BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida Corporation /s/ illegible By: /s/ illegible - ------------------------------ ------------------------------- Corporation Secretary (SEAL) ATTEST: TERREMARK STONE CRABS, INC., a Florida corporation /s/ illegible By: /s/ illegible - ------------------------------ ------------------------------- Secretary (SEAL) APPROVED AS TO INSURANCE APPROVED AS TO FORM AND REQUIREMENTS: CORRECTNESS: /s/ Segundo R. Perez /s/ Jorge L. Fernandez - ------------------------------ ------------------------------- Risk Management City Attorney -8- MEMORANDUM OF UNDERSTANDING THIS AGREEMENT is made this 10th day of September, 1993 by and between Grove Marina Market, Ltd., a Florida limited partnership (the "Lessee") and Bayshore Restaurant Management Corp., a Florida corporation (the "Sublessee") and the City of Miami, a municipal corporation of the State of Florida, (the "City"). RECITALS Whereas, on August 24, 1992, Hurricane Andrew produced disastrous weather conditions in the South Florida area, including the City, which as determined by the Legislature of the State of Florida, caused damage of sufficient severity and magnitude to warrant substantial disaster assistance under Chapter 93-186, Laws of Florida (the "Law"); and WHEREAS, pursuant to the Law, the State of Florida has allocated to the City the sum of $2,333,229, for purposes of funding certain expenditures and losses resulting from Hurricane Andrew, subject to certain terms and conditions set forth in a Memorandum of Agreement entered into between the State of Florida, Department of Community Affairs and the City (the "MOA"), a copy of which is attached hereto and made a part hereof; and WHEREAS, various City owned properties located in the coastal areas of the City, including certain docks (the "Docks") located at Monty Trainer's Bayshore Restaurant and Marina were particularly impacted by the storm's powerful force; and WHEREAS, the City and Bayshore Properties, Inc , a Florida corporation entered into a Lease Agreement dated September 20, 1985, (the "Lease") which was assigned to the Lessee pursuant to an Assignment of Lease dated March 16, 1986; and WHEREAS, pursuant to a Sublease Agreement dated March 14, 1986, (the "Sublease"), the Sublesee is presently the operator of the Docks; and WHEREAS, the City under the terms of the MOA is authorized to utilize funds in an amount not to exceed $820,000 (the "Allocation")for the restoration of the Docks; and NOW, THEREFORE, for good and valuable consideration, the receipt of which ~ is hereby acknowledged, the parties hereto mutually agree as follows: 1. INCORPORATION OF RECITALS The above recitals are expressly incorporated here and made part of this Agreement. 2 . PURPOSE OF AGREEMENT The purpose of this Agreement is to extend to the Sublessee disaster assistance funding in accordance with the provisions of the NOA and the Law, to defray the Sublessee's cost of rebuilding the Docks. 3. DISBURSEMENT OF FUNDS A. Request for Payment. The Sublessee hereby agrees that it shall submit to the City a request for payment which is to include all invoices, cancelled checks, executed contracts, receipts, purchase orders, billing , etc., and any other appropriate back up documentation sufficient to demonstrate that the reported costs were incurred in the performance of eligible work and that said costs have been paid by the Sublessee. Upon receipt of said documentation, the City shall, subject to funding availability from the State, reimburse the Sublessee, for eligible costs incurred and paid by the Sublessee, an amount not to exceed the Allocation, in accordance with the terms and conditions of the MOA, the Law, and the provisions of paragraph B as set forth below. B. Final Payment. The City shall withhold the sum of $250,000, from the Allocation which sum shall be disbursed to the Sublessee as final payment only after all of the following conditions are satisfied: a. Verification that all work undertaken at the Docks for repair or replacement of docks or docking facilities was performed in compliance with all applicable laws, regulations and requirements of any and all federal, state and local governments and agencies, including but not limited to all requirements of Metropolitan Dade County, Department of Environmental Resources Management and Section 24-58(1) of the Metropolitan Dade County Code. -2- b. City inspection of the restoration work to ascertain completion of the work in accordance with the scope of work described in the request for payment and in accordance with the eligibility criteria set forth in the MOA. c. Final inspection by the State to insure that the work was performed within the scope of the MOA. d. Verification that the Sublessee, at a minimum, has obtained insurance including Flood and Windstorm coverage for the Docks, for the amount of disaster assistance funding requested. e. Satisfactory evidence of discharge of any and all liens filed against the property or the leasehold by reason of work, labor, services or materials supplied in connection with the restoration of the Docks. f. Satisfactory evidence that the funds to be disbursed will not duplicate any federal, state, insurance, public or private funds available to the Sublessee for the restoration of the Docks. g. Compliance by the Sublessee with any other requirement that the City may reasonably imposed upon the Sublessee pursuant to the terms of the MOA, the Law and this Agreement. 4 .RECOVERY OF FUNDS Notwithstanding any other provision of this Agreement, including those of Section 3 above, in the event that an audit by either the State of Florida or the City determines that funds allocated to the Sublessee under this Agreement were not spent in accordance with the terms and conditions of the NOA or the Law, or that funds allocated to the Sublessee exceeded the amount of actual eligible costs, the Sublessee shall, within thirty (30) days of receipt of notice from the City, repay to the City the amount determined to be ineligible for funding. 5. RECORDS MAINTENANCE The Sublessee agrees to maintain all records pertaining to the work performed on the Docks and to the funds received under this Agreement for a period of no less than three (3) years from the date of the final payment hereunder. Access to those records must be provided to the City and to the Comptroller General of the State of Florida and the Department of Community Affairs, and their respective employees and agents. -3- 6. ACKNOWLEDGEMENT The parties hereto agree that all terms and conditions of the Lease and the Sublease remain in full force and effect, and all the terms and conditions of this Agreement are subject to the terms and conditions of the Lease and the Sublease. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by the respective officials thereunto duly authorized, this the day and year first above written. ATTEST: CITY OF MIAMI, a municipal corporation of the State of Florida /s/ illegible, Asst. City Clerk /s/ Cesar H. Odio - ------------------------------------ ------------------------------- for MATTY HIRAI CESAR H. ODIO City Clerk City Manager ATTEST: GROVE MARINA MARKET, LTD., a Florida Limited Partnership /s/ illegible /s/ illegible - ------------------------------------ ------------------------------- Corporate Secretary Vice-President ATTEST: BAYSHORE RESTAURANT MANAGEMENT CORP., a Florida Corporation /s/ illegible /s/ illegible - ------------------------------------ ------------------------------- Corporation Secretary (SEAL) APPROVED AS TO INSURANCE APPROVED AS TO FORM AND REQUIREMENTS: CORRECTNESS: /s/ Sujan s. Chhabra, Director /s/ A. Quinn Jones, III - ------------------------------------ ------------------------------- SUJAN S. CHHABRA, Director A. QUINN JONES, III Risk Management Department City Attorney -4- AMENDMENT TO LEASE AGREEMENT BETWEEN THE CITY OF MIAMI AND GROVE MARINA MARKET, LTD. This amendment to the Lease Agreement is entered into this 14th day of November 2001, by and between the City of Miami, a municipal corporation of the State of Florida (the "City"), and Grove Marina Market, Ltd. [current assignee (the "Company")] for the purpose of amending that certain Lease Agreement between the City and Company dated September 20, 1985 (the "Agreement"). WHEREAS, South Florida business that depend significantly on the tourism industry have been greatly impacted by the fallout of the September 11 , 2001 terrorist strikes; and WHEREAS, the City rents certain space to businesses impacted by the loss of tourism; and WHEREAS, on September 25, 2001, the City Commission adopted Resolution 01-996 to provide for a temporary deferral of rent for those businesses affected by loss of tourism and who rent space from the City; NOW, THEREFORE. in consideration of mutual covenants hereinafter set forth and in consideration of other valuable consideration the parties covenant and agree as follows: 1. Incorporation of Recitals: The recitals and findings set forth above are hereby adopted by reference thereto and incorporated herein as if fully set forth in this Agreement. 2.Amendment Effective Date: This effective date of this Amendment shall be the date upon which it is executed by the City Manager (the "Amendment Effective Date"). 3. Temporary Rent Abatement: Notwithstanding anything in the Agreement to the contrary, Company is hereby granted a deferment of Rent due and payable on the months of October, November and December, 2001 (the "Deferred Period"). The amount of deferred Rent shall be paid in equal monthly installments on the first day of each month, commencing January 1, 2002 and ending September 1 , 2002. Failure to complete payment of deferred Rent by September 1, 2002 shall constitute a default under the Agreement. Nothing contained herein shall affect the payment of percentage rent, if any, due and payable during the Deferred Period but accruing prior to the Deferred Period, nor the payment of impositions, or any other amounts due under the Agreement during the Deferred Period." Except as specifically provided herein, all of the, terms and provisions of the Agreement shall remain in effect. Attest: Grove Marina Market, Ltd. /s/ Claudia Gutierrez By: /s/ Juan T. O'Naghten - ------------------------------- ---------------------------------- Signature Signature Claudia Gutierrez Juan T. O'Naghten, President - ------------------------------- ---------------------------------- Print Name and Title Print Name and Title Grove Marina Market, Inc. General Partner Attest City of Miami, a municipal corporation of the State of Florida By: /s/ Walter J. Foeman By: /s/ Carlos A. Gimenez - ------------------------------- ---------------------------------- Walter J. Foeman Carlos A. Gimenez City Clerk City Manager Approved As To Form And Correctness By: /s/ illegible - ------------------------------- illegible City Attorney , SECOND AMENDMENT TO LEASE AGREEMENT BETWEEN THE CITY OF MIAMI AND GROVE MARINA MARKET, LTD. This Second Amendment to Lease Agreement (this "Amendment") is entered into this 20th day of August, 2004, by and between the City of Miami, a municipal corporation of the State of Florida (the "City"), and Grove Marina Market, Ltd. (assignee of Bayshore Properties, Inc., the "Company") for the purpose of amending that certain Lease Agreement between the City and the Company dated September 20, 1985, as amended by: (1) that certain Memorandum of Understanding dated August 30, 1991 (the "1991 Memorandum"), (2) that certain Memorandum of Understanding dated September 10, 1993, and that certain Amendment to Lease Agreement dated November 14, 200l, copies of which are attached hereto as Attachment I (the Lease Agreement dated September 20, 1985, the Memorandum of Understanding dated August 30, 1991, the Memorandum of Understanding dated September 10, 1993, and the Amendment to Lease Agreement dated November 14, 2001 are hereinafter collectively referred to as the "Agreement", "Lease Agreement" or "Lease"). WHEREAS, pursuant to the Lease Agreement, the City leased to Bayshore Properties, Inc. certain property located at approximately 2550 South Bayshore Drive, Miami, Florida (the "Property" or "Leased Premises"), commencing September 30, 1985 and expiring on May 3 1, 2035;and WHEREAS, pursuant to an Assignment of Lease dated March 16, 1986, Bayshore Properties, Inc., assigned to the Company its rights and obligations under the Lease Agreement, and said assignment was consented to by the City by virtue of that certain Consent to Assignment dated March 13, 1986; and WHEREAS, the Property comprises upland and submerged land, a portion of which lies within an area deeded to the City by the Board of Trustees of the Internal Improvement Fund of the State of Florida (the "Trustees") pursuant to Deed No. 19448; and WHEREAS, Deed No. 19448 contains a restriction that the lands described therein are granted, bargained, conveyed and sold to the City of Miami, solely for public purposes, including municipal purposes; and WHEREAS, the Trustees approved a Waiver of Deed Restrictions on June 21, 1981; and WHEREAS, recently it was discovered that the legal description of the Property contained in the Lease Agreement does not accurately describe the submerged lands currently and historically used by the Company; and WHEREAS, it was determined that: (i) a portion of such submerged land used by the Company is owned by the City pursuant to Deed No. 19448 from the Trustees, and, therefore, subject to the restrictions thereof and (ii) certain boats that dock along the first pier of the Property encroach onto State of Florida owned submerged lands; and WHEREAS, it was therefore necessary to obtain: (i) an Amendment to the Waiver of Deed Restrictions to expand the scope of the Waiver to include such submerged land and the docks that lie within the area deeded by the Trustees, and (ii) a sovereignty submerged lands lease agreement for that area of encroachment; and WHEREAS, the City Commission adopted Resolution 03-857 at its July 24, 2003 meeting, authorizing: (1) the City Manager to execute a submerged lands lease with the State of Florida for the submerged lands currently utilized by the Company for dockage purposes; (2) acceptance of an amended waiver of deed restrictions to accurately reflect the area being utilized by the Company; and (3) the City Manager to execute an Amendment to the Lease Agreement to accurately describe the lands being leased to the Company; and WHEREAS, this Second Amendment to Lease Agreement incorporates a new Exhibit A-1 to the Lease Agreement to accurately reflect the legal descriptions of the upland and submerged land leased to the Company, an acknowledgement by the Company of the imposition of rental payments due to the State for the use of the State owned submerged lands and for the Waiver of Deed Restrictions, a clarification of certain other terms and conditions of the Lease Agreement and other terms and conditions as set forth below; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and in consideration of other valuable consideration, the parties covenant and agree as follows: 1. Incorporation of Recitals: The recitals and findings set forth above are hereby adopted by reference thereto and incorporated herein as if fully set forth in this Amendment. 2. Amendment Effective Date: The effective date of this Amendment shall be the date upon which it is executed by the City Manager and attested to by the City Clerk (the "Amendment Effective Date"). 2 3. The Lease Agreement is hereby amended as follows: A. Exhibit A: Exhibit A of the Lease Agreement is hereby deleted in its entirety and replaced with Exhibit A-1 , attached hereto and made a part hereof. Any and all references to Exhibit A shall hereinafter be deemed to refer to Exhibit A-1. B. A new Section 1A is hereby added to the Lease, as follows: 1A. Acknowledgment of State Conditions: The City has received the following from the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida (the "Trustees"): (a) a 10-year lease (the "State Lease"), attached hereto and made a part hereof as Exhibit B, for the property identified as Parcel C2, on Exhibit A-1 attached hereto and made a part hereof (the "State Lease Property"), containing 21,344 square feet, more or less, to operate an existing 34 slip docking facility for the mooring of commercial and recreational vessels in conjunction with the upland commercial marina and restaurant; and (b) a Waiver of Deed Restrictions and Amendment to Waiver of Deed Restrictions (collectively, the "Waiver") attached hereto and made a part hereof as Exhibit C, for the property identified as Parcels 2, A2, 5 and B2, as more particularly described in Exhibit A-1 attached hereto and made a part hereof (the "Waiver Property"), containing 88,311 square feet, more or less, of deeded submerged lands associated with the use of the upland commercial marina. The Company has been provided copies of the State Lease and the Waiver (collectively the "State Agreements") and agrees to comply with all of the terms and conditions of the State Agreements in all respects. The Company acknowledges that Section 20 of the State Lease allows for its renewal at the sole option of the State of Florida (the "State"), no sooner than 120 days and no later than 30 days prior to the expiration of the term thereof (each a "Renewal Period"). The City shall in good faith exercise its best efforts to renew and continue renewing the State Lease during each Renewal Period for the entire term of this Agreement and provide copies of such renewal requests to the Company. In the event the City does not apply for such renewal within 90 days prior to the expiration of the term of the State Lease, the City does not object to the Company making application to the State for a renewal of the State Lease. In addition, in the event that the Company elects to: (a) extend the term of the State Lease prior to the City commencing its efforts to extend the term of the State Lease and/or (b) extend the term of the State Lease to e co-terminus with 3 this Agreement, then in that event the City shall, at no cost to the City other than its internal administrative costs, assist and support the Company in its attempt to cause the term of the State Lease to be extended; provided, however, that in such event, the Company shall bear the cost of any additional increase in rents (imposed as a result of the early extension of the State Lease) above the rent that the City would otherwise be required to pay under the State Lease. During the term of the State Lease and any renewal(s) thereof, the City shall continue to be required to pay the sums set forth in Section 1B(i) of this Lease, as increased annually based upon increases in the Consumer Price Index ("CPI"). In the event the State Lease is not renewed or expires prior to the expiration of this Agreement: (1) the Company shall cease to operate the slip docking facility and any wet slips that encroach onto the State Lease Property, and (2) this Agreement shall terminate as to the State Lease Property. The City agrees to comply with all the terms and conditions of the State Agreements in all respects. C. A new Section lB is hereby added to the Lease, as follows: 1B. Payments to the State: The State Agreements provide for the payment of fees in accordance with Section 18-21.011, Florida Administrative Code, which section provides for the payment of a minimum annual fee or six percent (6%) of the annual rental value from the wet slip rental area, whichever is greater. Notwithstanding anything contained in the State Agreements to the contrary, the Company and the City shall pay their respective shares of the payments due to the State during the term of the State Agreements and any extensions thereof, as follows: (i) State Lease: Commencing on July 1 , 2004, the City shall pay to the State for the State Lease Property annual rent in an amount not to exceed $2,000, as increased annually based upon increases in the CPI. The initial annual base rent for the period from July 1 , 2004 through June 30, 2005 is $1,952.98. Forty-five (45) days prior to the due date, the Company shall pay to the City for remittance to the State any and all rental fees as provided for in the State Lease in excess of $2,000 as increased annually based upon increases in the CPI. (ii) Waiver on Parcels 2 and A2: The City shall pay to the State for Parcels 2 and A2 annual fees that shall in the aggregate not exceed $27,000, as increased annually based upon increases in the CPI. The initial annual base fee for the period from October 1, 2004 through June 30, 2005 shall be $3,l 03.20; thereafter, the annual base fee shall be calculated each year for the period from July 1st through June 30th of the following year. 4 Forty five (45) days prior to the due date, the Company shall pay to the City for remittance to the State any and all other amounts due pursuant to the Waiver which are in excess of $27,000, as increased annually based upon increases in the CPI as provided above. (iii) Waiver on Parcels 5 and B2: Forty-five (45) days prior to the due date, the Company shall pay to the City for remittance to the State one hundred percent (100%) of any and all fees due to the State pursuant to the Waiver on Parcels 5 and B2. (iv) The City shall remit payments due to the State during the term of the State Agreements and any extensions thereof within fourteen (14) days after the City shall have received all fees due from the Company for the State Lease Property and the Waiver Property and provide, written evidence thereof to the Company. In the event the City does not timely remit such payments as provided above, the Company may make such payments to the State, and any portion thereof that the City is obligated to pay as aforesaid may be deducted by the Company from the next rental payment(s) due from the Company to the City. D. Section 2 of the Lease is hereby amended to read as follows: Section 2. Term. The term of this Agreement shall commence on the 30th day of September, 1985 and shall end on the 31st day of May, 2035. Notwithstanding any other provision of this Agreement, the term of this Agreement with regard to the State Lease Property shall expire on the earlier of: (1) the expiration or earlier termination of the State Lease (or any renewal or extension thereof), or (2) May 31, 2035. E. Section 3 of the Lease is hereby amended to read as follows: 3. Use of Property: The Company will develop, manage and promote the property to prospective tenants in such a manner that will offer the Essential Services (as hereinafter defined) required and encourage public enjoyment, use and participation so as to make the project financially feasible to both the Company and the City, as well as to reach the objectives of the Dinner Key Master Plan 1984, as amended January, 1985. The Property shall at all times be managed by an Acceptable Operator as defined below. Should any event occur during this Lease term causing the then current Acceptable Operator to cease managing the Property, the Company shall have a period of six (6) months to have an Acceptable Operator manage the Property. 5 "Acceptable Operator" means an entity or entities whose manager(s), principal(s) or member(s) possess the business experience, good reputation, financial resources, and adequate personnel necessary for the proper performance of all of the Company's obligations under this Lease, in a manner consistent with the quality, reputation and economic viability of the Property and the leasehold improvements, and with no instance of termination of a lease with the City as a result of default. The Acceptable Operator as an entity or its personnel individually shall have a minimum of five (5) years of proven or demonstrated experience in the successful operation and management of a marina and retail development. The Company covenants and agrees to provide each and every Essential Service as required in its use of the Property, as hereinafter listed, if allowed by law. The Essential Services will be provided during the entire term of this Lease (subject to interruption for reasonable periods if due to a loss of a tenant or concessionaire providing Essential Services or in the event of casualty or condemnation as provided in Sections 24 and 41 of this Lease, respectively) unless and until the Company files a request in writing for permission to discontinue a use or service and the reasons therefore and said permission is granted by the City Manager. The City Manager shall only permit discontinuance of an Essential Service or use if he or she finds that it is no longer essential and that the discontinuance of said Essential Service(s) or use is in the greater interest of the public. Essential Services required in the use of the Property: 1. Restaurant: One casual dining restaurant ("Restaurant"). The raw bar restaurant located on the ground floor of the Leased Premises, as such establishment currently exists or as it may be expanded in the future meets this requirement. A sketch of the Restaurant as it currently exists is attached hereto as Exhibit "D"; 2. Retail Facilities: "Retail Facilities" shall mean all of the tenant spaces included in the Property that sell goods and/or services directly to the public and shall not include the areas of the Property utilized for the Restaurant and the Marina. In the event the Company elects to operate an Upstairs Restaurant, as defined in Section 13, the Retail Facilities shall also exclude such area utilized for the Upstairs Restaurant; 3. Marina: A marina, including an adequate number of spaces for transient vessels; In addition, the following uses may be provided by the Company or the tenant(s) of the Property, but are not required: (a) A refreshment stand; (b) Boat rentals; (c) Bait and tackle shop; (d) Convenience food store for the benefit of marina tenants; 6 (e) Marine supply store, including diving gear; (f) Outboard motor sale and incidental service; (g) Marine clothing sales; (h) Marine furniture sales and incidental manufacturing; (i) Boat tours; (j) Fishing area; (k) Sporting goods store; (1) Antique store; (m) Art galleries and book store open to the general public; (n) Bakery; (o) Bicycle sales and repair; (p) China and crockery; (q) Confectionery or ice cream store; (r) Clothing; (s) Photographic sales; (t) Gift shop; (u) Hobby shop; (v) Jewelry and watch sales, repair and service; (w) Leather goods - sales and incidental assembly and repair; (x) Lounges; (y) News stand or sundry; (z) Barber shop, beauty parlor, and shoe polishing stand; (aa) Travel and ticket agency; (ab) Sailmaker; (ac) Arts and crafts; (ad) Office for management and rental of the Property; (ae) Marine fuel pumps; (af) Any related or allied uses to the above if approved by the City Manager which approval may not be unreasonably withheld, conditioned or delayed. All Marina operations, including rental of all boat slips shall be directly controlled and operated by the Company unless the consent of the City Manager is given in writing to do otherwise on such conditions as are mutually agreeable to the City Manager and the Company. F. Section 8 of the Lease is hereby amended to read as follows: 8. Construction Security Bond: Prior to the commencement of construction or the awarding of any contract for construction on the Property, which construction cost per contract is in excess of $200,000, the Company, at its sole cost and expense, shall furnish to the City a Payment and Performance Bond and/or Letter of Credit in an amount equal to 100% of the hard construction costs 7 of the improvements to be constructed pursuant to said contract, and which shall name the City as the owner, dual obligee or beneficiary, as appropriate. The forms of such Payment and Performance Bond and/or Letters of Credit and the surety or institution issuing the same shall be subject to the prior written approval of the City Manager, which approval shall not be unreasonably withheld. Any Payment and Performance Bond and/or Letter of Credit may be enforced by the City in accordance with its terms. C. Section 10 of the Lease is hereby amended to read as follows: 10. Taxes: During the term hereof, the Company covenants and agrees to pay all taxes of whatsoever nature lawfully levied or assessed against the Property and improvements, property, sales, rents or operations thereon, including but not limited to, ad valorem taxes. Payment thereof shall commence with and shall include taxes assessed for the current year. The Company further covenants and agrees to pay all of the said taxes, if any, lawfully assessed on such dates before delinquency. In the event the Company fails to pay the real property taxes by April 1st of each year, the Company shall be responsible to pay any interest and/or penalties charged by the tax assessor's office. In addition to the interest and/or penalties payable to the tax assessor's office, in the event that the Company becomes delinquent in the payment of real property taxes, the City, upon providing written notice to the Company, may require either of the following, at its sole, option: (1) the Company to escrow monthly to the City an amount equal to one-twelfth of the amount billed for ad valorem taxes, without discounts, during the previous calendar year plus 5% to cover estimated annual tax increases, provided, however, that sufficient funds, as determined by the City in its sole judgment, shall be paid to the City, with the first such escrow payment so that the aggregate of all such escrow payments shall be sufficient to pay the real estate taxes for that calendar year when due. Said amount shall be paid with the rent due on the first day of each month. In the event the amount escrowed is not sufficient to pay the full amount of taxes due, the Company shall pay the difference to the City, for remittance to the County within fifteen (15) days of receipt of notice from the City of the amount of such deficiency. In the event the amount of monies escrowed are in excess of the taxes due, the balance shall be applied to the following year's tax payment; or (2) the Company shall enroll in the Dade County Ad Valorem Tax Payment Plan. Provided, however, that notwithstanding any provision hereof to the contrary, the provisions of this paragraph shall not apply in the event that the Company pays a monthly escrow for ad valorem taxes to a leasehold mortgagee pursuant to the requirements of a leasehold mortgage. 8 Failure of the Company: (i) to pay the real property taxes when due and any interest or penalties charged in connection therewith, or, (ii) if required in accordance with the previous paragraph hereof, to pay the monthly real estate tax escrow to the City or enroll in the Dade County Ad Valorem Tax Payment Plan, shall Constitute an event(s) of default under this Lease Agreement, subject to the notice and cure provisions provided in Section 18 of this Lease. H. Section 13, paragraphs II and III are hereby amended to read as follows: II. Percentage Rental: The Percentage Rental shall be an amount equal to the cumulative total of the following percentages of Gross Receipts as defined herein: (a) Restaurant: 8% of the annual Gross Receipts of the Restaurant up to one million dollars ($1,000,000) and ten percent (10%) of the annual Gross Receipts of the Restaurant in excess of one million dollars ($1,000,000). (b) Retail Facilities: 10% of the annual rents received from the rentals paid by the respective retail subtenants, licensees and concessionaires; (c) Upstairs Restaurant: In the event the Company operates a restaurant on the second floor of the building on the Property (the "Upstairs Restaurant"), the Upstairs Restaurant shall pay 5% of the Gross Receipts of the Upstairs Restaurant. Percentage Rental shall be paid monthly in advance on the first day of each month during the term of this Lease. The amount to be paid each month in any given Lease year shall be equal to the aggregate of the following divided by twelve (12): (i) the annual Gross Receipts for the Restaurant for the immediately preceding Lease year multiplied by the applicable percentage rate provided for in (a) above, plus (ii) the annual Gross Receipts for the Retail Facilities for the immediately preceding Lease year multiplied by ten percent (10%), plus (iii)the annual Gross Receipts for the Upstairs Restaurant for the immediately preceding Lease year multiplied by five percent (5%). 9 As an example, which is included herein for purposes of clarification only, if: (a) the annual Gross Receipts for the Restaurant for the Lease year ending September 30, 2004 are five million dollars ($5,000,000), and (b) the annual Gross Receipts for the Retail Facilities for the Lease year ending September 30, 2004 are four hundred thousand dollars ($400,000), and (c) the annual Gross Receipts for the Upstairs Restaurant for the Lease year ending September 30, 2004 are four million dollars ($4,000,000) then, monthly payments for the Lease year commencing October 1, 2004 shall be equal to seven hundred twenty thousand dollars ($720,000) divided by twelve (12), which equals sixty thousand dollars ($60,000) as follows: [($1,000,000 x 8%) plus ($4,000,000 x 10%) plus ($400,000 x 10%) plus ($4,000,000 x 5%)] divided by 12 = $60,000 III. Special Percentage Rental: In addition, as separate and additional consideration due the City, not included in the hereinabove Percentage Rental or the Minimum Annual Guaranteed Rental, the Company shall also pay to the City the following Special Percentage Rental: (a) Two and a half cents ($0.025) per gallon of fuel sold; and (b) 15% of the annual Gross Receipts collected from dockage rental and dry storage of boats at the Property. Special Percentage Rental shall be paid monthly in advance on the first day of each month during the term of this Lease, and calculated in the manner indicated above for the payment of Percentage Rental. A new Section 13.IV is hereby added to the Lease, as follows: IV. Gross Sales/Gross Receipts: For purposes of this Lease, the term "Gross Sales" shall be considered synonymous and interchangeable with the term "Gross Receipts" and shall be construed to include all income to the Company and sublessees, whether collected or accrued, from all business conducted on the Property, including, but not limited to, the rental of space, the sale of food and beverage goods and services, or from any source whatsoever. 10 Gross Sales and/or Gross Receipts shall only include revenues and/or percentages of revenues collected or accrued. Gross Sales and/or Gross Receipts shall also include any revenues whether accrued or collected, attributable to any direct or indirect participation by the Company and/or its sublessees, or any of their officers or principals in the business or enterprise of another entity, person or tenant of the property besides the Company and/or sublessee per se, to the extent that such participation entitles Company and/or its sublessees, their officers or principals to receive remuneration; and further provided that such other business or enterprise is done on or "in connection with" the Property provided, however, that the term "in connection with" shall not include revenues which result merely from the physical adjacency of location or merely from joint promptional effort and advertising. Notwithstanding the foregoing, Gross Receipts shall exclude any sales taxes imposed, by law which are separately stated to and paid by the `purchaser or user, and are directly payable to a taxing authority. Gross Receipts shall further exclude gratuities or service charges which are payable to restaurant employees, all sums and credits received in settlement of claims for loss or damage to inventory or equipment, gains or losses from the sale of any capital assets or furniture, fixtures and equipment, and proceeds of any financing or refinancing of the Company's leasehold interest or improvements. In addition, Gross Receipts shall also exclude any sublease rent or other income received by the Company from the Restaurant, the Marina and/or `the Upstairs Restaurant in excess of the percentages described in Sections 13.II and 13.III above (Percentages: Restaurant: 8% of Gross Receipts up to $1,000,000; 10% of Gross Receipts in excess of $1,000,000; Upstairs Restaurant: 5% of Gross Receipts; and Marina: 15% of Gross Receipts). Gross Receipts shall not include shall not include the gross sales of a subtenant in the Retail Facilities. The parties agree that the gross receipts of any subtenant subleasing the Restaurant, the Marina and/or the Upstairs Restaurant portions of the Property at any particular time shall be used to compute the Percentage Rental and Special Percentage Rental, as applicable, payable by the Company to the City pursuant to this section. Each remittance to the City of the monthly consideration, as required, shall include the applicable amount of State of Florida sales and use tax. The Company covenants and agrees that goods and services offered and sold on the Property by the Company, its tenants or sublessees that pay percentage rent, may be regularly audited by the City and/or its designee, during normal business hours and in a manner in accordance with Paragraph 16, and that the full 11 amount of Gross Receipts attributable to the subject Property shall not in any way be diverted to any other business or enterprise. The City shall also have the right, at its option, to seek a tenant estoppel certificate or other confirmation from any sublessee or sub-sublessee who pays rent on a flat fee basis to confirm the computation of the rents paid and the computation of Rental payments due hereunder. J. A new Section 13.V is hereby added to the Lease, as follows: V. Late Fees. i. The Company hereby acknowledges that late payment by the Company to the City of rent and other sums due hereunder will cause the City to incur costs not contemplated by this Agreement, the exact amount of which will be extremely difficult to ascertain. Accordingly, if any installment of rent or any other sum due from the Company shall not be received by the City within fifteen (15) days after the Company's receipt of written notice from the City that such payment was not made on the date on which such sum was due (each, a " Notice of Payment Due"), the Company shall pay to the City a late charge equal to 5% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs the City will incur by reason of late payment by the Company. Acceptance of such late charge by the City shall not constitute a waiver of the Company's default with respect to such overdue amount, nor prevent the City from exercising any of its other rights and remedies granted hereunder or at law or in equity. ii. Any amount not paid to the City within fifteen (15) days after the Company's receipt of a Notice of Payment Due shall bear interest at the rate of 12% per annum from its due date until paid. Payment of such interest shall not excuse or cure any default by the Company under this Agreement. K. Section 1 9 is hereby amended to read as follows: Upon execution of the Assignment and Assumption of Lease by and between the Company and Bayshore Landing, LLC, notices shall be sent to the parties at the following addresses: 12 To the City: To the Company: City of Miami Bayshore Landing, LLC City Manager Robert W. Christoph, Jr. 3500 Pan American Drive 300 Alton Road, Suite 303 Miami, FL 33133 Miami Beach, FL 33139 With copies to: With copies to: City of Miami Bayshore Landing, LLC Director of Economic Development Attn: Larry Rothstein 444 SW 2 Avenue, 3rd floor 1870 S Bayshore Drive Miami,FL33130 Miami, FL 33133 City of Miami Wachovia Bank, NA City Attorney Attn: Anita Aedo, Senior VP 444 SW 2 Avenue, 9th Floor 200 S Biscayne Blvd, Suite 1500 Miami, FL 33130 Miami, FL 33131 Wachovia Bank, NA Mail Code 739 P0 Box 13327 Roanoke, VA 24011 All Rental payments to the City shall be mailed to the following address: City of Miami Finance Department - Rent Collections 444 SW 2 Avenue, 6th Floor Miami, FL 33130 The City, the Company or the Leasehold Mortgagee may change such mailing addresses at any time upon giving the other party written notice. In every case where under any of the provisions of this Lease Agreement or otherwise it shall or may become necessary or desirable to make or give any declaration or notice of any kind, such notice shall be in writing and shall be sent by United States certified or registered mail, postage prepaid, return receipt requested, or by hand delivery, addressed to the above addresses. L. Section 21 of the Lease is hereby amended to read as follows: 21. Insurance: The Company shall maintain during the term of this Agreement the following insurance subject to the approval of the City of Miami, Department of Risk Management. 13 (a) Property Insurance: "Special Forth" property insurance form with extended coverage against loss or damage by earthquake, mudslide, windstorm, and flood. Amounts: Such coverage shall be in the following amounts: One Hundred Percent (100%) of the replacement cost on the building, business personal property and leasehold improvements (exclusive of foundation and excavation costs), lessee's alterations, improvements, fixtures, equipment, furniture, trade fixtures and floor coverings, including the expense of removal of debris as a result of damage by an insured peril (collectively, the "insured property") on the property with a maximum deductible of one percent (1%) for all perils other than windstorm and Two percent (2%) of the insured value for the peril of windstorm. Such windstorm and flood insurance is to be provided to the extent commercially available. Notwithstanding the foregoing, the parties acknowledge and agree `that coastal properties are often precluded from being insured by private insurers and that any casualty and windstorm insurance may have to be written through the Florida Joint Underwriters Association and/or other governmental or other insurance pool which may include certain prohibitions such as no replacement cost coverage. (b) Business Interruption Insurance: "Special Form" coverage with limits not less than the minimum annual rent, loss of profits, remuneration, and the debt service payments for the leasehold improvements during the full period of reconstruction following a loss. (c) Equipment Breakdown (Boiler and Machinery): Insurance covering repair and replacement of all boilers and machinery serving or benefiting the leasehold improvements. The policies of insurance shall be endorsed so as to provide use and occupancy coverage for the leasehold improvements in such amount as may be reasonably acceptable to the City. (d)Commercial General Liability Insurance: Commercial General Liability insurance on a commercial general liability coverage form with "broad form" coverage, or its equivalent, including contractual liability, products and completed operations, personal injury, liquor liability, and premises coverage, including parking lot coverage against sums adjudicated to be payable by the insured on account of bodily injury, death or property damage occurring in or about the property. 14 Amounts: The limits of such coverage shall not be less than One Million Dollars ($1,000,000) per occurrence and Two Million Dollars ($2,000,000) aggregate single limit for bodily injury and property damage. The City must be included as an additional insured or additional loss payee, as applicable. (e) Marine Operators Legal Liability: Insurance with limits not less than One Million Dollars (1,000,000). The City must be included as an additional insured or additional loss payee, as applicable. (f) Property Coverage Docks and Piers: All Risk including Windstorm and Flood subject to replacement cost with a maximum deductible of five percent (5%) on all perils including the peril of windstorm. Such windstorm and flood insurance is to be provided to the extent commercially available. Notwithstanding the foregoing, the parties acknowledge and agree that coastal properties are often precluded from being insured by private insurers and that any casualty and windstorm insurance may have to be written through the Florida Joint Underwriters Association and/or other governmental or other insurance pool which may include certain prohibitions such as no replacement cost coverage. (g) Automobile Liability: Automobile Liability insurance covering all owned, non-owned, and hired vehicles used in connection with operations covered by this lease. The policy or policies of insurance shall contain limits not less than Five Hundred Thousand ($500,000) combined single limit for bodily injury and property damage. The City shall be named as an additional insured or additional loss payee, as applicable, on this coverage. The requirements of this provision will be waived upon submission of a written statement from the Company that no automobiles are used to conduct business. (h) Worker's Compensation: Worker's Compensation and occupational disease coverage in the amounts and types required by Chapter 440, of the Florida Statutes. Only the Company shall be named as an insured. (i) Umbrella: The Company shall further maintain an excess liability umbrella policy with limits not less than a combined single limit of One Million Dollars ($1,000,000). (j) Required Policy Provisions: All policies of insurance required to be provided and obtained may not be amended, 15 cancelled, or materially changed without thirty (30) days written notice to the City of Miami. Said notice should be delivered to the City of Miami, Division of Risk Management, 444 S.W. 2nd Avenue, 9th Floor, Miami, Florida 33130, with a copy to City of Miami, Department of Economic Development, 444 S.W. 2nd Avenue, Miami, Florida 33130, or such address that may be designated from time to time. (k) Delivery: Current evidence of insurance coverage shall be supplied to the City of Miami Department of Risk Management with a copy to City of Miami Department Economic Development at the commencement of this Agreement, and a new evidence of insurance coverage shall be supplied at least Twenty (20) days prior to the expiration~ of each such policy. Insurance policies required above shall be issued by companies authorized to do business ` under the laws of the State of Florida, with the following qualifications as to management and financial strength: the company should be rated "A" as to management and no less than class "V" as to financial strength, in accordance with the latest edition of Best's Key Rating Guide, or the company holds a valid Florida Certificate of Authority' issued by the State of Florida, Department of Insurance, and be a member of the Florida Guarantee Fund. Receipt of any documentation of insurance by the City or by its representatives, which indicates less coverage than required, does not constitute a waiver of the Company's obligation to fulfill the insurance requirements hereof. The insurance coverage required shall include those classifications as listed in standard liability insurance manuals which most nearly reflect the operations of the Company. (1) Right to amend Insurance requirements: The City reserves the right to `reasonably amend the insurance requirements according to usual and customary standards in the insurance industry as circumstances dictate in order to protect the interest of the City in this Lease' Agreement. (m) Endorsement: The insurance policies required by this Agreement shall be endorsed as follows: "It is agreed that in the event of any claim or suit against the insured for damages covered by this policy, the insurance company will not deny liability by the use of a defense based on governmental immunity." 16 M. Section 30 of the Lease is hereby amended to read as follows: 30. Pledge of Leasehold Interest; Leasehold Mortgage: 30.1 Definitions. For purposes of this Section 30, the following words shall have the meanings set forth below: (a) "Leasehold Mortgage" means a mortgage, deed of trust, or other instrument which constitutes, or any security interest given in connection therewith, which together constitute an encumbrance or lien upon the Company's leasehold estate or any part of it, or any related personal property, and Company's interest in the leasehold improvements (including the Company's interest as sublessor in any present or future subleases and any other interest of the Company in the leasehold improvements and personal property) as security for any loan, including the Company's construction loan provided that a Leasehold Mortgage shall not encumber the City's fee simple interest in the Property. (b) "Leasehold Mortgagee" means any holder of the Leasehold Mortgage and note or notes secured by it. 30.2 Pledge of Leasehold Interest (a) The Company may pledge its leasehold interest as security for industrial development bonds provided the quality of the assignee or pledge is approved by the City Manager which approval may not be unreasonably withheld. This section shall under no circumstances be construed to require the City to participate in the financing or the proposed redevelopment improvements. The City shall fully cooperate with the Company in respect to the reasonable requirements of Company's lender. (b) Notwithstanding the provisions set forth in Section 31 hereof and further provided that the City has not notified the Company in writing that an event of default has occurred which remains uncured, the Company shall have the right during the term of this Lease, to encumber the Company's leasehold interest by Leasehold Mortgage, for the purpose of acquisition financing, securing the financing of construction costs of leasehold improvements or the long-term financing or any refinancing of the same, provided that such Leasehold Mortgage shall not encumber the City's leasehold estate in the State Lease Property nor its fee simple title to the remainder of the Property. Notwithstanding anything to the contrary in this Section or in this Lease, it is expressly agreed by and between the City and the Company, and (by acceptance 17 of the Leasehold Mortgage) any Leasehold Mortgagee that the Company's right to place a Leasehold Mortgage against the Company's leasehold interest is subject to the following: 1. At the time the Leasehold Mortgage is made, the Company has not been notified of any event of default under this Lease which remains uncured. 2. No Leasehold Mortgagee or anyone claiming by, through or under the Leasehold Mortgage, shall by virtue of it, acquire any greater rights in the Property than the Company has under this Lease. 3. The Leasehold Mortgage shall be expressly subject and subordinate to all conditions and covenants of this Lease and to the rights of the City and the State as to the State Lease Property. The Leasehold Mortgagee of any Leasehold Mortgage and the owner of any indebtedness secured by the Leasehold Mortgage, upon acquiring the Company's leasehold interest shall take the same subject to the terms, covenants and provisions of this Lease. 4. The Leasehold Mortgage shall expressly provide that the Leasehold Mortgagee shall notify the City of default by the Company under the Leasehold Mortgage prior to commencing foreclosure proceedings. 5. That any right of remedy available to any Leasehold Mortgagee as provided in this Section 30 shall be deemed to apply in all respects to any designee or nominee of such Leasehold Mortgagee. 6. That the City shall execute and deliver to any Leasehold Mortgagee a non-disturbance agreement in form and substance reasonably satisfactory to such Leasehold Mortgagee and the City. 7. That except as expressly prohibited by the provisions of this Section 30, any Leasehold Mortgage may be upon such terms and conditions as the Company and Leasehold Mortgagee may agree. 8. In no event may the amount of such leasehold financing (or refinancing) when made exceed the greater of: (a) Eighty percent (80%) of the fair market value of the leasehold interest and all the leasehold improvements thereon, or (b) Eighty percent (80%) of the Replacement Costs ("Replacement Costs" are defined as the total construction costs in the future for replacing and/or replacing and improving the leasehold improvements on the Property). The Company shall deliver to City promptly after execution by the Company a true and verified copy of any Leasehold Mortgage, and/or any amendment, modification or extension 18 thereof, together with the name and address of the owner and holder thereof. The Company may not encumber the Company's leasehold interest as security for any indebtedness of the Company with respect to any real or personal property now or hereinafter owned or leased by the Company other than the leasehold interest and leasehold improvements. 9. During the continuance of any Leasehold Mortgage until such time as the lien of any Leasehold Mortgage has been satisfied, and provided a true and verified copy of such Leasehold Mortgage (and any amendments, modifications or extension thereof) shall have been delivered to the City Manager together with a written notice of the name and address of the owner and holder thereof as provided in Section 30(b) above: (a) The City shall not agree to any mutual termination nor accept any surrender of this Lease (except upon the expiration of the term hereof). In additions the City shall not consent to any material amendment or modification of this Lease, or waive any rights or consents it may be entitled to pursuant to the terms hereof, without the prior written consent of Leasehold Mortgagee, which consent shall not be unreasonably delayed or withheld. (b) Notwithstanding any default by the Company in the performance or observance of any covenant, condition or agreement of this Lease on the part of the Company to be performed or observed, the City shall have no right to terminate this Lease even though a default or an event of default under this Lease shall have occurred and be continuing, unless and until the City Manager shall have given Leasehold Mortgagee written notice of such default or event of default; and Leasehold Mortgagee shall have failed to remedy such default or to acquire the Company's leasehold interest created hereby or to commence foreclosure or other appropriate proceedings in the nature thereof, all as set forth in, and within the time specified by this Section 30. (c) Subject to the provisions of subparagraph (d) immediately below, Leasehold Mortgagee shall have the right, but not the obligation, at any time prior to termination of this Lease, to pay all of the rent and other payments due hereunder, to provide any insurance, to pay any taxes and make any other payments, to make any repairs and improvements, to continue to construct and complete the leasehold improvements, and do any other act or thing required of the Company hereunder, and to do any act or thing which may be necessary and proper to be done in the performance and observance of the covenants, conditions and agreements hereof to prevent the termination of this Lease. All payments so made and all things so done and performed by 19 Leasehold Mortgagee shall be as effective to prevent a termination of this Lease as the same would have been if made, done and performed by the Company instead of by Leasehold Mortgagee. Any act or inaction by a Leasehold Mortgagee shall be at the sole discretion of the Leasehold Mortgagee. (d) Should any event of default under this Lease occur, Leasehold Mortgagee shall have sixty (60) days, or such additional time as is reasonably necessary to diligently cure same, after receipt of written notice from the City Manager setting forth the nature of such default, to remedy same and, if the default is such that possession of the Property may be reasonably necessary to remedy the default, Leasehold Mortgagee shall, within one hundred fifty (150) days after receipt of such written notice from the City Manager, commence and diligently prosecute a foreclosure action or such other proceeding as may be necessary to enable Leasehold Mortgagee to obtain such possession; provided that (i) Leasehold Mortgagee shall have fully cured any default in the payment of any monetary obligations of the Company under this Lease within such sixty (60) day period and shall continue to pay currently such monetary obligations as and when the same are due, (ii) the Leasehold Mortgagee shall within six (6) months of the date that it takes possession of the Property employ an Acceptable Operator, subject to the approval of the city Manager which approval shall not be unreasonably withheld, conditioned or delayed, for the continued operation of the Property and leasehold improvements, under the terms and conditions of this Lease, and (iii) the Leasehold Mortgagee shall have acquired the Company's leasehold interest created hereby or commenced foreclosure or other appropriate proceedings in the nature thereof within such one hundred and fifty (150) day period, and shall be diligently and continuously prosecuting any such proceedings to completion. All rights of the City Manager to terminate this Lease as the result of the occurrence of any event of default shall be subject to and conditioned upon the City Manager having first given Leasehold Mortgagee written notice of such default and Leasehold Mortgagee having failed to remedy such default or acquire the Company's leasehold interest created hereby or commence foreclosure or other appropriate proceedings in the nature thereof as set forth in and within the time period specified by this subparagraph (d). (e) An event of default under this Lease which in the nature thereof cannot be remedied by Leasehold Mortgagee shall be deemed to be remedied if: (i) within one hundred and fifty (150) days after receipt of written notice from the City Manager setting forth the nature of such default, Leasehold Mortgagee shall have 20 acquired the Company's leasehold interest or commenced foreclosure or other appropriate proceedings in the nature thereof (ii) Leasehold Mortgagee shall diligently and continuously prosecute any such proceedings to completion; (iii) within sixty (60) days after receipt of written notice of default from the City~ Manager setting forth the . nature of such default, Leasehold Mortgagee shall have fully cured any default which does not require possession of the Property, including a default in the payment of any monetary obligations of the Company under this Lease, and shall thereafter continue to faithfully perform all such obligations which do not require possession of the Property; and (iv) within six (6) months after Leasehold Mortgagee shall have gained possession of the Property, Leasehold Mortgagee shall have employed an Acceptable Operator and shall continue to employ an Acceptable Operator throughout the Lease term. (f) If the Leasehold Mortgagee is prohibited by any process, or injunction issued by any court, or by reason of any action by any court having jurisdiction of any bankruptcy, debtor rehabilitation or insolvency proceedings involving the Company from commencing, or prosecuting foreclosure or other appropriate proceedings in the nature thereof, the times specified in subparagraphs (d) and (e) above for commencing or prosecuting such forec1osure or other proceeding shall be extended for the period of such prohibition; provided that Leasehold Mortgagee shall have fully cured any default including a default in the payment of any monetary obligations of the Company under this Lease, and shall continue to perform currently such obligations as and when the same fall due, and provided that Leasehold Mortgagee shall diligently attempt to remove any such prohibition. (g) The City Manager shall mail to Leasehold Mortgagee a duplicate copy by certified mail of any and all notices: (i) which the City may from time to time give to or serve upon the Company pursuant to the provisions of this Lease, and (ii) which the City shall have received from the State of Florida with regard to the State Agreements. No notice by the City Manager to the Company hereunder shall be deemed to have been given unless and until a copy thereof has been mailed to the Leasehold Mortgagee. (h) Foreclosure of a Leasehold Mortgage or any sale thereunder, whether by judicial proceedings or by virtue of any power of sale contained in the Leasehold Mortgage, or any conveyance of the leasehold interest to Leasehold Mortgagee (or an entity owned or controlled by it) by virtue or in lieu of the foreclosure or other appropriate proceedings in the nature thereof. 21 or by reason of an action by a court having jurisdiction of any bankruptcy, debtor rehabilitation or insolvency proceedings involving the Company, shall not require the consent of the City or constitute a breach of any provision of, or a default under, this Lease. Upon such foreclosure, sale or conveyance, the City shall recognize Leasehold Mortgagee, an entity owned or controlled by it, or other foreclosure sale purchaser as tenant hereunder; provided, that Leasehold Mortgagee, an entity owned or controlled by it or other foreclosure sale purchaser shall qualify as or shall employ an Acceptable Operator within six (6) months of the date of such foreclosure, sale or conveyance, and shall continue to qualify as or employ an Acceptable Operator throughout the term of this Lease. Said Acceptable Operator shall be subject to approval by the City Manager which approval shall not be unreasonably withheld, conditioned or delayed. Notwithstanding anything herein to the contrary, the Leasehold Mortgagee, an entity owned or controlled by it, or other foreclosure sale purchaser, shall not become liable for the performance or observance of any covenants or conditions to be performed or observed by the Company, unless or until the Leasehold Mortgagee, an entity owned or controlled by it, or other foreclosure sale purchaser acquires possession of the leasehold estate. Such Leasehold Mortgagee, an entity owned or controlled by it, or other foreclosure sale purchaser acquiring the leasehold estate shall be liable for the performance and observance of the terms, covenants and conditions of this Lease for so long as such Leasehold Mortgagee, an entity owned or controlled by it, or other foreclosure sale purchaser owns such leasehold estate. Further, provided, that in the event there are two or more Leasehold Mortgages or foreclosure sale purchasers (whether the same or different Leasehold Mortgages), the City shall have no duty or obligation whatsoever to determine the relative priorities of such Leasehold Mortgages or the rights of the different holders thereof and/or foreclosure sale purchasers. (i) Nothing contained herein or in any Leasehold Mortgage shall be deemed or construed to relieve the Company from the full and faithful observance and performance of its covenants, conditions and agreements contained herein, or from any liability for the non-observance or non-performance thereof; or to require or provide for the subordination to the lien of such Leasehold Mortgage of any estate, right, title or interest of the City in or to the Property, the leasehold improvements or this Lease. Nothing in this Lease Agreement shall be deemed an agreement on the part of the City to subordinate its leasehold estate in the State 22 Lease Property or its fee simple interest in the remainder of the Property to the lien of any Leasehold Mortgage placed on the Company's leasehold interest. (j) The City hereby subordinates and waives any and all liens on and security interests in the Company's property which the City may now have or may be entitled to in the future pursuant to Florida Statutes ss.83.08, to any and all liens and security interests which the Leasehold Mortgagee may now or hereafter have on the Company's property as security for any loan(s) now or hereafter made by' the Leasehold Mortgagee to the Company relating to the Property. The City hereby agrees that this subordination and waiver shall be self-operative as to any future lien(s) or security interest(s), which the Leasehold Mortgagee may acquire on the Company's property as security for any loan(s) to the Company relating to the Property, and no further instrument of waiver shall be required. N. Section 31 of the Lease is hereby amended to read as follows: 31. Assignment and Subletting of Premises or Transfer of Stock: The Company shall not at any time during the term of this Lease Agreement assign this Lease Agreement or sublet any portion or part thereof, except and by virtue of written authorization granted by the City Manager. Said authorization shall not be unreasonably withheld, conditioned or delayed. The foregoing requirement shall not apply to sub-leasing space to subtenants of the Company, or their respective subtenants, provided that any such sublease is not for (i) the entire Leased Premises, (ii) the entire Retail Facilities, as defined herein, (iii) the entire Marina, (iv) the Restaurant (currently known as Monty's Raw Bar), located on the ground floor of the Property, as such establishment currently exists or as it may be expanded in the future, or (v) any other sublease that will need an occupational license for a restaurant in order to operate its business within the proposed subleased premises. The Company agrees that all such subleases shall be in writing and shall provide for the payment of rents that are not substantially below the then fair market value of similar facilities in the Coconut Grove area of the City of Miami. Provided, however, that in the event the Company does not self manage the Restaurant and/or the Retail Facilities, the Company shall be permitted to sublease not more than 2,000 square feet of the Retail Facilities to any sublessee managing one or more of the Essential Services, at a rate that is not less than $9 per square foot. 23 The Company is a limited partnership authorized to do business in the State of Florida, and agrees that it will not transfer any partnership interests or change any general partners during the term of this Agreement until such transfer or change is approved by the City Manager of the City, which approval shall not be wireasonably withheld, conditioned or delayed. Bayshore Landing, LLC ("Bayshore") is a limited liability company and upon execution of the Assignment and Assumption of Lease with Grove Marina Market, Ltd., Bayshore shall become the "Company" for the purposes of this Lease. Bayshore agrees that, except as provided below, it will not transfer any membership interests in, or change managers of, Bayshore during the term of this Agreement until such transfer or change is approved by the City Manager of the City, which approval shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Bayshore shall be permitted to transfer membership interests in the Company and change managers so long as either the Christoph Family Trust or HMG Bayshore, LLC has a controlling interest in the Company and the management thereof. In the event a corporation were to become the "Company" for the purposes of this Lease, that corporation shall not be permitted to transfer any of its stock in the corporation or change the management thereof during the term of this Agreement until such transfer or change is approved by the City Manager of the City, which approval shall not be unreasonably withheld, conditioned or delayed. O. A new Section 38 is hereby added to the Lease, as follows: 38. Discharge of Mechanics Liens. The Company shall not suffer or permit any mechanics liens to be filed against the fee simple title to the Property, nor against the Company's leasehold estate or the improvements, by reason of the work, labor, services or materials supplied or claimed to have been supplied to the Company or any sublessee. The Company shall obtain releases or waivers of the contractor, subcontractors and any other persons furnishing work and materials discharging all liens and claims for all work and materials furnished and similar releases from the architect or other recipient in the case of payments out of the funds to the architect or other recipient. Nothing in this Agreement shall be construed as constituting the consent or request of the City, expressed or implied, by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishing of any materials for any specific improvement, alteration or repair of or to the Property or the leasehold improvements. If any mechanics lien shall at any time be filed against the Property including the leasehold improvements, the Company shall cause it to be discharged of record or transferred to bond or contested within thirty (30) days or such additional time as reasonably necessary after the date the Company has knowledge of its filing. If the Company shall fail to discharge or transfer to bond 24 or contest a mechanics lien within that period, then in addition to any other right or remedy, the City may, but shall not be obligated to, discharge the lien either by paying the amount claimed to be due or by procuring the discharge of the lien by deposit in court or bonding, or in the event the City shall be entitled, if it so elects, to compel the prosecution of any action for the foreclosure of the mechanics lien by the lienor and to pay the amount of the judgment, if any, in favor of the lienor with interest, costs and allowances with the understanding that all amounts paid by the City shall constitute additional rent due and payable under this Agreement and shall be repaid to the City by the Company immediately upon rendition of an invoice or bill by the City. The Company shall not be required to pay or discharge any mechanics lien so long as the Company shall in good faith proceed to contest the lien by appropriate proceedings and if the Company shall have given notice in writing to the City of its intention to contest the validity of the lien and upon request of the City, if necessary to protect the City's fee simple interest, shall furnish and keep in effect a surety bond of a responsible and substantial surety company reasonably acceptable to the City or other security reasonably satisfactory to the City in an amount sufficient to pay one hundred ten percent of the amount of the contested lien claim with all interest on it and costs and expenses, including reasonable attorneys fees, to be incurred in connection with it. P. A new Section 39 is hereby added to the Lease, as follows: 39. Safety: The Company and each of its sublessees shall allow the City inspectors, agents or representatives the ability to monitor compliance with safety precautions as required by federal, state or local laws, rules, regulations and ordinances. By performing these inspections the City, its agents, or representatives are not assuming any liability by virtue of these laws, rules, regulations and ordinances. The Company and its sublessees shall have no recourse against the City, its agents or representatives from the occurrence, non-occurrence or result of such inspection(s). Simultaneously with the assignment of this Agreement, the Company shall contact the City's Risk Management Department Safety Unit in writing to coordinate such inspection(s). Q. A new Section 40 is hereby added to the Lease, as follows: 40. Americans With Disabilities Act: The Company and each of its sublessees shall affirmatively comply with all applicable provisions of the Americans with Disabilities Act ("ADA"), including Titles I and II of the ADA (regarding nondiscrimination on the basis of disability) and all applicable regulations, guidelines and standards. The City shall not require the Company to make improvements or renovations not otherwise required by ADA or other 25 applicable law. Additionally, the Company shall, and shall require that each of its Sublessees, take affirmative steps to ensure nondiscrimination in the employment of disabled persons. R. A new Section 41 is hereby added to the Lease, as follows: 41. Condemnation: 41.1 Definitions. For purposes of this Section 41, the following words shall have the meanings set forth below: (a) "Date of Taking" means the earlier of: (i) the date on which actual possession of all or less than all of the Property and leasehold improvements, as the case may be, is acquired by any lawful power or authority pursuant to the provisions of applicable law, or (ii) the date on which title to all or less than all of the Property and leasehold improvements, as the case may be, has vested in any lawful power or authority pursuant to the provisions of applicable law. (b) "Net Condemnation Award" means the actual amount of the award paid, in connection with or arising from the acquisition or other taking of all or less than all of the Property and leasehold improvements, as the case may be, less all reasonable out-of-pocket expenses incurred by the City, the Company or any Leasehold Mortgagee in connection with obtaining such award, including, without limitation, all reasonable attorneys' fees and disbursements incurred in connection therewith. 41.2 Entire Property Taken by Condemnation. In the event that all of the Property and the leasehold improvements (or such portion thereof as shall, in the good faith opinion of the Company, render it economically unfeasible to effect restoration thereof for its intended purpose) shall be taken for any public purpose by the right of condemnation, the exercise of the power of eminent domain or shall be conveyed by the City and the Company acting jointly to avoid proceedings of such taking, the Rental pursuant to this Lease shall be prorated and paid by the Company to the Date of Taking or conveyance in lieu thereof, and this Lease shall terminate and become null and void as of the Date of Taking or such conveyance; and the amount of damages resulting to the City and the Company, respectively, and to their respective interests in and to the Property, the leasehold improvements, and in connection with this Lease, shall be separately determined and computed by the court having jurisdiction and separate awards and judgments with respect to damages to 26 the City and the Company, respectively, and to each of their respective interests, shall be made and entered. In the event that a court shall make a single Net Condemnation Award without separately determining the respective interests of the City and the Company, and if the City and the Company shall not agree in writing as to their respective portions of an award within thirty (30) days after the date of the, final determination by the court of the amount of it, the City and the Company agree to submit the matter to the court on stipulation for the purpose of a judgment determinative of their respective shares. In any event, the City shall be entitled to receive its reversionary interest in the Property and leasehold improvements and the City's present value of Rental due under the terms of the Lease Agreement. The Company shall be entitled to an award for the value of the Company's leasehold estate in the Property and the leasehold improvements, which a buyer willing but not obligated to buy, would pay therefor in an arms length transaction. In no event shall the Company be entitled to compensation for any fee ownership interest in the Property at the time of condemnation. 41.3 Partial Taking of Property by Condemnation. (a) in the event less than all of the Property and/or leasehold improvements shall be taken for any public use or purpose by the right or the exercise of the power of eminent domain, or shall be conveyed by the City and the Company acting jointly to avoid proceedings of such taking, and the Company shall be of the good faith opinion that it is economically feasible to effect restoration thereof, then this Lease and all the covenants, conditions and provisions hereunder shall be and remain in full force and effect as to all of the Property not so taken or conveyed (except as provided in subsection 41.4). Subject to the rights of the Leasehold Mortgagee, the Company shall to the extent the proceeds of the Net Condemnation Award are made available to it, pursuant to the terms hereof, remodel, repair and restore the leasehold improvements so that they will be comparable to the leasehold improvements prior to the condemnation, taking into consideration the fact of the condemnation; provided, however, that in so doing, the Company shall not be required to expend more than the amount of any Net Condemnation Award actually received by the Company. (b) The Net Condemnation Award allowed to the City and the Company shall be paid to and received by the parties hereto as follows: 27 (i) There shall be paid to the City the value of the portion of the land so taken, which land shall be valued as if unimproved and unencumbered; (ii) There shall be paid to the Company any amount by which the Company's profits and value of the Company's interest in this Lease have been reduced by the taking; (iii) There shall be paid to the Company the amount, required to complete the remodeling and repairs to the leasehold improvements pursuant to (a) above; (iv) The City and the Company shall be paid portions of the balance of the Net Condemnation Award or awards, if any, which are allocable to and represented by the value of their respective interest in the Property as found by the court in its condemnation award. In the event that a court shall make a single Net Condemnation Award without separately determining the respective interests of the City and the Company and if the City and the Company shall not agree in writing as to their respective portions of such award within thirty (30) days after the date of the final determination by the court of the amount of it, the City and the Company agree to submit the matter to the court on stipulation for the purpose of a judgment determinative of their respective shares. 41.4 Adjustment of Minimum Annual Guaranteed Rental Upon Partial Taking. In the event a part of the Property and the leasehold improvements thereon, if any, shall be taken for any public use or purpose by the exercise of the power of eminent domain, or shall be conveyed by the City and the Company acting jointly to avoid proceedings of such taking, then Rental pursuant to this Lease Agreement shall be paid by the Company to the Date of Taking or conveyance in lieu thereof, and after such date the Minimum Annual Guaranteed Rental for the remainder of the Property shall be reduced by an amount equal to the Minimum Annual Guaranteed Rental then in effect multiplied by the percent by which gross receipts is affected by such taking. 41.5 Deposit of Condemnation Award with Escrow Agent. Unless the effect of a condemnation proceeding shall be to terminate this Lease Agreement by operation of law or as provided in Section 41.2 above, and except as may be provided in any Leasehold Mortgage to, or agreement with, any Leasehold Mortgagee described in Section 30 above, any Net Condemnation Award made in respect of the 28 leasehold improvements in a condemnation proceeding shall be deposited with the Leasehold Mortgagee as escrow agent (unless Leasehold Mortgagee refuses to act as such, in which case the City and the Company shall select a bank to serve as escrow agent) to be disbursed for the cost of restoring the leasehold improvements and for related purposes. 41.6 Rights of Leasehold Mortgagee. The City and the Company shall not settle or compromise the amount or division of any Net Condemnation Award in any condemnation proceeding without any Leasehold Mortgagee's reasonable consent. Any Leasehold Mortgagee of the Company shall be entitled to appear in any condemnation proceedings and make claim for the share of any award to which the Company is entitled by the terms of this Section. 41.7 Temporary Taking. In the event that all or any portion of the leasehold improvements or the Property shall be taken by the right of condemnation or the exercise of the power of eminent domain for governmental use or occupancy for a temporary period, this Lease Agreement shall not terminate and the Company shall continue to perform and observe all of its obligations (including the obligation to pay Rental as provided throughout this Lease Agreement) as though the temporary taking had not occurred except only to the extent that it may be prevented from so doing by the terms of the order of the authority which make the temporary taking or by the conditions resulting from the taking, including the loss of its possession of all or any part of the leasehold improvements or the Property. In the event the temporary taking for governmental occupancy is for a period entirely within the term of this Lease Agreement, then the Company shall be entitled to receive the entire amount of any Net Condemnation Award made for the taking, whether paid by way of damages, rent or otherwise. If the period of governmental occupancy extends beyond the termination of the Lease term, the City shall be entitled to receive that portion of the Net Condemnation Award allocable to the period beyond the termination of the Lease term. The amount of any Net Condemnation Award payable to the Company, on account of a temporary taking of all or any part of the leasehold improvements, shall be deemed a part of the Company's leasehold estate for all purposes in this Lease Agreement. If the Net Condemnation Award does not separately determine the amount applicable to the taking of the interest of the City in this Lease Agreement and in the leasehold improvements and if the City and the Company shall not agree in writing as to their respective portions of such award, then the City and the Company shall submit the matter to the court on stipulation for the purpose of a judgment determinative of the interest of the parties. 29 S. The City and the Company agree that the 1991 Memorandum is hereby superseded and replaced by this Amendment. T. Exhibit C: Exhibit C of the Lease Agreement is hereby deleted in its entirety and replaced with Exhibit C-1, attached hereto and made a part hereof. Any and all references to Exhibit C shall hereinafter be deemed to refer to Exhibit C-1. In addition to the public parking spaces provided in Exhibit C-1, the Company shall have the right to use, on a non-exclusive basis and in common with the public, the parking spaces located in: (i) the waterfront users' parking lot immediately adjacent to the Property at 2600 South Bayshore Drive, and (ii) the public parking lot at the corner of South Bayshore Drive and Pan American Drive. In the event any of the above spaces are no longer available for the Company's use, the City shall provide an alternative parking space(s) to fulfill its obligations in accordance with Section 11 of this Lease. 4. Release of City: The Company, for itself, and its heirs, successors and assigns, does hereby absolutely and irrevocable waive, and remise, release, acquit, satisfy and forever discharge the City of Miami and its respective elected officials, officials, employees, administrators, agents, consultants, committees and members thereof, whether public employees or private citizens, and their respective heirs, executors, administrators, personal representatives, successors and assigns (the "Released Parties"), of and from, any and all causes of action, actions, suits, obligations, liabilities, debts, dues, sums of money, costs, losses, penalties, fines, expenses (including attorney's fees), damages, judgments, claims and demands whatsoever which the Company, or any of its successors or assigns, now has, ever had, or may have in the future, whether asserted or unasserted, against the Released Parties, or any of them, by reason of any matter, cause or thing whatsoever relating to, or arising out or in connection with or resulting , in any manner from, this Lease, the State Lease or the Waiver. 30 5. No Implied Modifications: Except as specifically provided herein, all of the terms and provision of the Agreement shall remain in effect. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment to the Lease Agreement on the day and year first above written. ATTEST: City of Miami, a municipal corporation of the State of Florida By: /s/ Priscilla A. Thompson By: /s/ Joe Arriola - --------------------------------------- ----------------------------- Priscilla A. Thompson, City Clerk Joe Arriola, City Manager Approved As To Form And Correctness: /s/ Maria J. Chiaro - ------------------------------------------ Maria J. Chiaro, Interim City Attorney Approved As To Insurance Requirements: Approved - ---------------------------------------------- Dania Carrillo, Risk Manager [REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY] 31 Grove Marina Market, Ltd., a Florida limited liability company By: Grove Marina Market, Inc., a Florida corporation, its general partner By: /s/ Juan T. O'Naghten --------------------------------------- Juan T. O'Naghten WITNESSES: /s/ L.S. Wittenmyer - ---------------------------------- Signature L.S. Wittenmyer - ---------------------------------- Print Name /s/ Diane Clark - ---------------------------------- Signature Diane Clark - ---------------------------------- Print Name 32 EX-10 7 ex10-n.txt EXHIBIT 10 (N) Exhibit 10 (n) LOAN AGREEMENT among BAYSHORE LANDING, LLC, a Florida limited liability company, BAYSHORE RAWBAR, LLC, a Florida limited liability company and BAYSHORE RESTAURANT, LLC, a Florida limited liability company Collectively, as Borrowers and WACHOVIA BANK, NATIONAL ASSOCIATION as Lender As of August 19, 2004 LOAN AGREEMENT -------------- This Loan Agreement (this "Agreement ") is entered into as of August 19, 2004 among WACHOVIA BANK, NATIONAL ASSOCIATION ("Lender"), BAYSHORE LANDING, LLC, a Florida limited liability company, BAYSHORE RAWBAR, LLC, a Florida limited liability company and BAYSHORE RESTAURANT, LLC, a Florida limited liability company (collectively, "Borrowers" and individually, a "Borrower"). RECITALS: 1. Borrowers have requested Lender to make an acquisition, construction and term loan to Borrowers in the principal amount of $13,275,000.00 (the `Loan") for the purposes set forth in this Agreement. . 2. The Loan is evidenced by a Promissory Note in the original principal amount of $13,275,000.00 (the "Note"), made by Borrowers, jointly and severally, payable to the order of Lender and bearing the same date as this Agreement. 3. The Note is secured by, inter alia, a Leasehold Mortgage and Security Agreement (the `Mortgage"), made by Borrowers in favor of Lender and bearing the same date as this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement and other good and valuable considerations, the receipt and sufficiency of which Lender and Borrowers hereby acknowledge, Lender and Borrowers agree that the foregoing recitals are true and correct and incorporated herein and further agree as follows: ARTICLE 1. CERTAIN DEFINITIONS Section 1.1. Certain Definitions. As used herein, the following terms have the meanings indicated: (1) "Acquisition Loan" means the portion of the Loan in the amount of $10,050,000.00 to finance acquisition of the Mortgaged Property by Borrowers. (2) "Advance Request" has the meaning assigned in Section 2.3(1). (3) "Advances" means advances of the Loan proceeds subject to the terms and conditions of this Agreement. (4) "Affiliate" means (a) any corporation in which any Borrower or any general partner, shareholder, director, officer, member, or manager of any Borrower directly or indirectly owns or controls more than ten percent (1 0%) of the beneficial interest, (b) any 1 partnership, joint venture or limited liability company in which any Borrower or any general partner, shareholder, director, officer, member, or manager of any Borrower is a partner, joint venturer or member, (c) any trust in which any Borrower or any general partner, shareholder, director or officer of any Borrower is a trustee or beneficiary, (d) any entity of any type which is directly or indirectly owned or controlled by any Borrower or any general partner, shareholder, director, officer, member or manager of any Borrower, (e) any general partner, shareholder, director, officer, member or manager of any Borrower, (1) any Person related by birth, adoption or marriage to any general partner, shareholder, director, officer, member or manager of any Borrower, or (g) any Borrower Party. (5) "Agreement" means this Loan Agreement, as amended from time to time. (6) "Architect" has the meaning set forth in Schedule 2.2. (7) "Architect's Contract" has the meaning set forth in Schedule 2.2. (8) "Assignment of Leases and Rents" means the Assignment of Leases and Rents, executed by Borrowers for the benefit of Lender, and pertaining to leases of space in the Mortgaged Property. (9) "Bankruptcy Party" has the meaning assigned in Section 9.16. (10) "Bayshore Landing" means Bayshore Landing, LLC, a Florida limited liability company. (11) "Bayshore Rawbar" means Bayshore Rawbar, LLC, a Florida limited liability company. (12) "Bayshore Restaurant" means Bayshore Restaurant, LLC, a Florida limited liability company. (13) "Bonds" has the meaning assigned in Section 8.30. (14) "Borrower Party" means each Guarantor, and each member and each manager of each Borrower. (15) "Budget" means the detailed line item budget of Direct Costs and Indirect Costs attached hereto as Schedule 1.1 (15), and showing the total costs for each line item and the amount of each line item to be funded from the Construction Loan and/or Borrowers' equity, as the same may be revised from time to time with the written approval of Lender. (16) "Business Day" means a day other than a Saturday, a Sunday, or a legal holiday on which national banks located in the State of New York are not open for general banking business. (17) "Christoph Trusts" means those trusts created under that certain Trust Agreement of the Christoph Family Trust dated March 19, 1997 by and between Robert W. Christoph, Sr. as Grantor and Robert W. Christoph, Sr. and Carter N. McDowell as Trustees 2 (18) "City" means the City of Miami, a municipal corporation of the State of Florida. (19) "City Lease" as described on Schedule 1.1 (19) attached hereto. (20) "Closing Date" means August 19, 2004. (21) "Closing Site Assessments and Environmental Documents" as described on Schedule 1.1 (21) attached hereto. (22) "Completion Conditions" has the meaning assigned in Section 8.23. (23) "Completion Date" means August 19, 2005 with respect to all portions of the Project except for the improvements to be made under the Restaurant Sublease, and February 19, 2006 with respect to the improvements to be made under the Restaurant Sublease. (24) "Construction Contract" has the meaning set forth in Schedule 2.2. (25) "Construction Documents" means the Construction Contract, the Architect's Contract and all other present and future construction contracts, contracts with architects, engineers or other design professionals, the Plans and Specifications, all present and future drawings, budgets, bonds and other agreements pertaining to construction of the Project, and any and all engineering, soil and other reports and studies and all surveys pertaining thereto. ` (26) "Construction Lien Law" means Florida Statutes Chapter 713, Part I, as same may be amended from time to time. (27) "Construction Loan" means the portion of the Loan in the amount of $3,225,000.00 to finance construction of the Project. (28) "Construction Period" means the period of time commencing on the Closing Date and ending on the Completion Date. (29) "Debt " means, for any Person, without duplication: (a) all indebtedness of such Person for borrowed money, for amounts drawn under a letter of credit, or for the deferred purchase price of property for which such Person or its assets is liable, (b) all unfunded amounts under a loan agreement, letter of credit, or other credit facility for which such Person would be liable, if such amounts were advanced under the credit facility, (c) all amounts required to be paid by such Person as a guaranteed payment to partners or a preferred or special dividend, including any mandatory redemption of shares or interests, (d) all indebtedness guaranteed by such Person, directly or indirectly, (e) all obligations under leases that constitute capital leases for which such Person is liable, (f) and all obligations of such Person under interest rate swaps, caps, floors, collars and other interest hedge agreements, in each case whether such Person is liable contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations such Person otherwise assures a creditor against loss. (30) "Debt Service Coverage Ratio" means the ratio of Borrowers' consolidated (a) (i) net income, plus (ii) depreciation and amortization expense, plus (iii) interest 3 expense, minus (iv) unfinanced capital expenditures, minus (v) distributions, all divided by (b) paid current maturities of long term debt (including capital leases) plus interest expense, all as determined in accordance with GAAP. (31) "Default Rate" means the maximum rate of interest allowed by applicable law. (32) "Development Agreement" means any agreements now or hereafter existing with the City of Miami or the County of Miami- Dade or any providing utility company or authority relating to the Project. (33) "Direct Costs" means direct construction costs incurred by Borrowers in connection with the construction of the Project, as itemized in the Budget, as the same may be revised from time to time with the written approval of Lender. (34) "Entity Guarantors" means, collectively, HMG/Courtland `Properties, Inc., a Delaware corporation, the Christoph Family Trust FBO Robert Christoph, Jr. and the Christoph Family Trust FBO Hunter Christoph. Each of such Entity Guarantors is individually referred to as an "Entity Guarantor." (35) "Environmental Laws" has the meaning assigned in Article 4. (36) "Equity Requirement" means an amount equal to the greater of (i) $1,075,000.00 or (ii) twenty- five percent (25%) of the Direct Costs or (iii) the amount by which in the reasonable opinion of Lender and Lender's Inspector the aggregate of Direct Costs set forth in the Budget exceeds the amount of the Construction Loan. Should the Direct Costs not exceed $4,300,000.00, the Construction Loan shall be reduced to an amount equal to seventy-five percent (75%) of the reduced Direct Costs, and the equity requirement shall be the difference between the Direct Costs and the Construction Loan. (37) "Event of Default" has the meaning assigned in Article 9. (38) "Excusable Delays" means unusually adverse weather conditions which have not been taken into account in the construction schedule for the Project; fire, earthquake or other acts of God; strike, lockout, acts of public enemy, riot or insurrection or any unforeseen circumstances or events (except financial circumstances or events or matters which may be resolved by the payment of money) beyond the control of any Borrower, not to exceed, except as otherwise agreed to by Lender in Lender's sole and absolute discretion, 15 consecutive days in any one instance, or more than 30 days in the aggregate, provided Borrowers shall notify Lender in writing within 5 days after any such occurrence. (39) "General Contractor" has the meaning set forth in Schedule 2.2. (40) "Generally Accepted Accounting Principles" or "GAAP" means generally accepted accounting principles as recognized by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board, as in effect from time to time in the United States, consistently applied. 4 (41) "Guarantors" means each Person now or hereafter executing a Guaranty, including initially the Entity Guarantors and the Individual Guarantor. (42) "Guaranty" means the instruments of guaranty now or hereafter in effect from a Guarantor to Lender. (43) "Hazardous Materials" has the meaning assigned in Article 4. (44) "Hedge Documents" means, collectively, that certain ISDA Master Agreement between Bayshore Landing and Lender, Schedule to the Master Agreement between Bayshore Landing and Lender and all applicable confirmations relating thereto, all of which are dated August ___, 2004. (45) "Indirect Costs" means costs, other than Direct Costs, incurred by Borrowers in connection with the Project, as itemized in the Budget, as the same may be revised from time to time with the written approval of Lender. (46) "Individual Guarantor" means Robert Christoph, Sr., individually. (47) "Lender's Inspector" has the meaning assigned such term in Section 2.2(6). (48) "LIBOR Rate" means for any day the rate for 1 month U.S. dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a London business day, then the immediately preceding London business day (or if not so reported, then as determined by Lender from another recognized source or interbank quotation). (49) "Lien" means any interest, or claim thereof, in the Mortgaged Property securing an obligation owed to, or a claim by, any Person other than the Borrowers, whether such interest is based on common law, statute or contract, including the lien or security interest arising from a deed of trust, mortgage, assignment, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting the Mortgaged Property. (50) "Loan" means the loan in the aggregate amount of $13,275,000 to be made by Lender to Borrowers under this Agreement and all other amounts secured by the Loan Documents. (51) "Loan Documents" means: (a) this Agreement, (b) the Note, (c) each Guaranty, (d) the Hedge Documents, (e) the Mortgage, (f) the Assignment of Leases and Rents, (g) Uniform Commercial Code financing statements, (h) such assignments of management agreements, contracts and other rights as may be required by Lender, (i) all other documents evidencing, securing, governing or otherwise pertaining to the Loan, and (j) all amendments, modifications, renewals, substitutions and replacements of any of the foregoing. 5 (52) "Maturity Date" means the earlier of (a) (i) August 19, 2020 if the Completion Conditions are satisfied by the Completion Date, and no uncured Event of Default then exists, or (ii) August 19, 2005 if the Completion Conditions are not satisfied by the Completion Date or an uncured Event of Default then exists, or (b) any earlier date on which the entire Loan is required to be paid in full, by acceleration or otherwise, under this Agreement or any of the other Loan Documents. (53) "Mortgage" means the Leasehold Mortgage and Security Agreement, executed by Borrowers in favor of Lender and covering the Mortgaged Property. (54) "Mortgaged Property" means, without limitation, Bayshore Landing's leasehold interest in the real property legally described on Schedule A attached hereto, all improvements, structures, docks, piers and all other facilities now or hereafter located thereon, all easements, licenses, leases, subleases and other rights appurtenant thereto, the businesses known as the "Coconut Grove Marina" and "Monty's Restaurants" located in Coconut Grove, Florida, all amenities, fixtures, and personal property appurtenant thereto, Bayshore Landing's leasehold interest in the City Lease, Bayshore Rawbar's leasehold interest in the Rawbar Sublease and Bayshore Restaurant's leasehold interest in the Restaurant Sublease. (55) "Note" means the Promissory Note of even date, in the stated principal amount of $13,275,000.00, executed by Borrowers jointly and severally, and payable to the order of Lender in evidence of the Loan. (56) "Permanent Period" means the period of time commencing on August 20, 2005 and ending on the Maturity Date. (57) "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, real estate investment trust, government or any agency or political subdivision, thereof, or any other form of entity (58) "Plans and Specifications" means the final plans and specifications, including without limitation all maps, sketches, diagrams, surveys, drawings and lists of materials, for the construction of the Project, to prepared by the Architect and subject to the review by and approval of Lender, and any and all modifications thereof made with the written approval of Lender. (59) "Potential Default" means the occurrence of any event or condition which, with the giving of notice, the passage of time, or both, would constitute an Event of Default. (60) "Project" means the construction on the Mortgaged Property of the improvements described in the Plans and Specifications. (61) "Rawbar Sublease" means that certain sublease agreement of even date herewith between Bayshore Landing, as lessor, and Bayshore Rawbar, as lessee. 6 (62) "Restaurant Sublease" means that certain sublease agreement of even date herewith between Bayshore Landing, as lessor, and Bayshore Restaurant, as lessee. (63) "Retainage" means the greater of (a) 10% of Direct Costs actually incurred by Borrowers for work in place as part of the Project, as certified from time to time by Lender's Inspector, or (b) the amount actually held back by Borrowers from the General Contractor and each subcontractor and supplier engaged in the construction of the Project. (64) "Single Purpose Entity" shall mean a Person (other than an individual, a government, or any agency or political subdivision thereof), whose sole business is owning the Mortgaged Property (or applicable portion thereof), and that conducts business only in its own name, does not engage in any business or have any assets unrelated to the Mortgaged Property (other than cash and investment grade securities), does not have any indebtedness other than as permitted by this Agreement, has its own separate books, records, and accounts (with no commingling of assets), holds itself out as being a Person separate and apart from any other Person, and observes corporate and partnership formalities independent of any other entity, and which otherwise constitutes a single purpose entity as determined by Lender. (65) "Site Assessment" means an environmental engineering report for the Mortgaged Property prepared by an engineer engaged by Lender at Borrowers' expense, and in a manner satisfactory to Lender, based upon an investigation relating to and making appropriate inquiries concerning the existence of Hazardous Materials on or about the Mortgaged Property, and the past or present discharge, disposal, release or escape of any such substances, all consistent with good customary and commercial practice. (66) "State" means the State of Florida. (67) "State Lease" as described on Schedule I .1 (67) attached hereto. (68) "State Waivers" as described on Schedule 1.1 (68) attached hereto. (69) "Title Insurer" means First American Title Insurance Company. (70) "Verified Project Costs" means the aggregate, from time to time, of (a) Indirect Costs actually incurred by Borrowers and approved for funding by Lender, and (b) Direct Costs actually incurred by Borrowers for work in place as part of the Project, as certified by Lender's Inspector, from time to time, pursuant to the provisions of this Agreement, minus a sum equal to the aggregate of (i) the portion of the Equity Requirement which Borrowers are required to have invested in the Project from time to time pursuant to this Agreement, and (ii) the Retainage. ARTICLE 2. LOAN TERMS; ADVANCES Section 2.1. Acquisition Loan. The Acquisition Loan shall be funded in one Advance to Borrowers on the Closing Date provided the conditions as set forth on Schedule 2.1 attached 7 have been satisfied. The proceeds of the Acquisition Loan shall be used by Borrowers to finance the acquisition of the Mortgaged Property. Section 2.2. Construction Loan. (1) Advances. Subject to compliance by Borrowers with the terms and conditions of this Agreement, including without limitation, satisfaction of the conditions set forth on Schedule 2.2 attached hereto, Lender shall make Advances to Bayshore Landing of the Construction Loan during the Construction Period for Direct Costs and Indirect Costs; provided, however, that in no event shall Lender be obligated to make disbursements of the Construction Loan in excess of Verified Project Costs. All Direct Costs and Indirect Costs must, to the extent possible, be verified by fixed cost contracts, and all items of cost reasonably incapable of verification by means of fixed cost contracts must be supportable as reasonable estimates. (2) Equity Requirement. Prior to any Advance by Lender of the Construction Loan, Borrowers shall invest an amount equal to the Equity Requirement into the construction of the Project in accordance with the Budget. The Equity Requirement shall remain invested in the Project for the term of the Loan and Borrowers agree that no portion of the Equity Requirement will be reimbursed directly or indirectly without Lender's prior written consent. At the request of Lender, the amount of the Equity Requirement shall be deposited with Lender and disbursed by Lender for construction of the Project in accordance with the terms and conditions of this Agreement. (3) Retainage. Lender shall retain from each Advance of the Construction Loan an amount equal to the Retainage. The Retainage shall be released by Lender, provided that no Event of Default then exists hereunder or under any of the other Loan Documents, at the time of, and subject to the conditions set forth on Schedule 2.2 with respect to, the final Advance of the Construction Loan. (4) Deficiency in Loan Amount. If, prior to any Advance of the Construction Loan, for any reason, Lender shall determine in its sole discretion that the actual cost to complete construction of the Project exceeds the undisbursed balance of the Construction Loan, Lender may require Borrowers to deposit with Lender within seven (7) days after written notice from Lender the projected deficiency. At Lender's option, no Advances of the Construction Loan shall be made until Borrowers have fully complied with this requirement. All such deposited funds shall be additional security for the Loan and at Lender's option, shall be disbursed, in accordance with the provisions of this Agreement, to pay costs to complete construction of the Project before any further Advances of the Construction Loan. (5) Contingency Reserve. Advances from that portion of the Construction Loan proceeds allocated to "contingency" (the "Contingency Reserve") on the Budget, if any, may be disbursed in Lender's sole and absolute discretion for payment of Direct Costs or Indirect Costs as documented by paid receipts and otherwise as provided herein. Lender may determine in its absolute discretion whether to pay interest from the Contingency Reserve. (6) Lender's Inspector. Lender shall have the right to retain, at Borrowers' expense, any individual designated by Lender from time to time (`Lender's Inspector") to act 8 as Lender's consultant in connection with the Construction Loan and the construction of the Project, to review and advise Lender with respect to the Construction Documents, and other matters related to the design, construction, operation and use of the Project, to monitor the progress of construction, and to review Advance Requests and change orders submitted hereunder. The fees and expenses of Lender's Inspector shall be due and payable by Borrowers as provided for herein or otherwise on demand. Borrowers shall provide to Lender and Lender's Inspector facilities commonly made available by responsible contractors for the inspection of the Project, and to afford full and free access by Lender and Lender's Inspector to all Construction Documents. Borrowers acknowledge that (a) Lender's inspector has been retained by Lender to act as a consultant, and only as a consultant, to Lender in connection with the construction of the Project, (b) Lender's Inspector shall in no event have any power or authority to make any decision or to give any approval or consent or to do any other thing which is binding upon Lender and any such purported decision, approval, consent or act by Lender's Inspector on behalf of Lender shall be void and of no force or effect, (c) Lender reserves the right to make any and all decisions required to be made by Lender under this Agreement, in its sole and absolute discretion, and without in any instance being bound or limited in any manner whatsoever by any opinion expressed or not expressed by Lender's Inspector to Lender or any other person with respect thereto, and (d) Lender reserves the right in its, sole and absolute discretion to replace Lender's Inspector with another inspector at any time and without prior notice to or approval by Borrowers. (7) No Warranty by Lender. Nothing contained in this Agreement or any other Loan Document shall constitute or create any duty on or warranty by Lender regarding (a) the accuracy or reasonableness of the Budget, (b) the proper application by Borrowers, General Contractor or any subcontractor of the Loan proceeds, (c) the quality or condition of the Project, or (d) the competence or qualifications of the General Contractor or any other party furnishing labor or materials in connection with the construction of the Project. ` Each Borrower (i) acknowledges that it has not relied and will not rely upon any experience, awareness or expertise of Lender regarding the aforesaid matters; and (ii) shall indemnify, hold harmless, and defend Lender from any costs, expenses, damages, judgments or liabilities, including without limitation, attorneys' fees, arbitration fees, and expert witness fees, arising from or connected with (A) such matters, (B) payment or non-payment for labor or materials furnished for construction of the Project, (C) any claims of mechanics or materialmen or (D) any action or inaction by any Borrower in connection with the foregoing. Section 2.3. Procedures for Advances of the Construction Loan (1) Advance Requests. For each request for an Advance, Borrowers shall submit to Lender, at least five (5) business days prior to the requested date of disbursement, a completed written disbursement request (each, an "Advance Request") in such form and detail as required by Lender, together with a check in the amount of the inspection fee set forth in Section 2.3(2) hereof. All Advances of the Construction Loan shall be made from time to time as construction progresses upon written application of Borrowers pursuant to an Advance Request. Borrowers shall file Advance Requests with Lender no more frequently than monthly, covering work performed since the prior Advance Request. Each Advance Request shall certify in detail, acceptable to Lender, the cost of the labor that has been performed and the materials that have been incorporated into the Project and all Indirect Costs that have been incurred since 9 the date of the previous Advance, and shall be accompanied by such supporting data as Lender may require, including, without limitation, receipts, vouchers, invoices, waivers of mechanic's and materialmen's liens, and AlA Forms G702 and G703 certified by the General Contractor and, if required by Lender, the Architect or engineer for the Project. The proceeds of each Advance shall be used by Borrowers solely to pay or as reimbursement for the obligations for which the Advance is sought. Each Advance Request shall constitute a representation by Borrowers that the work done and the materials supplied to the date thereof are in accordance with the Plans and Specifications; that the work and materials for which payment is requested have been physically incorporated into the Project; that the value is as stated; that the work and materials conform with all applicable rules and regulations of the public authorities having jurisdiction; that payment for the items described in such Advance Request has been made or will be made with the proceeds of the Advance for which the Advance Request was submitted; that such Advance Request is consistent with the Budget; that the proceeds of the previous Advance have been actually paid by Borrowers in accordance with the approved Advance Request for such previous Advance; and that no Event of Default or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default has occurred and is continuing. (2) Lender's Inspector. Upon receiving each Advance Request, Lender's Inspector will determine (a) whether the work completed to the date of such Advance Request has been done satisfactorily and in accordance with the Plans and Specifications, (b) the percentage of construction of the Project completed as of the date of such Advance Request, (c) the Direct Costs actually incurred for work in place as part of the Project as of the date of such Advance Request, (d) the actual sum necessary to complete construction of the Project in accordance with the Plans and Specifications, and (e) the amount of time from the date of such Advance Request which will be required to complete construction of the Project in accordance with the Plans and Specifications. Borrowers shall pay a reasonable inspection fee to Lender upon submission of each Advance Request. All inspections by or on behalf of Lender shall be solely for the benefit of Lender, and Borrowers shall have no right to claim any loss or damage against Lender or Lender's Inspector arising from any alleged (i) negligence in or failure to perform such inspections, (ii) failure to monitor Advances of the Construction Loan or the progress or quality of construction, or (iii) failure to otherwise properly administer the Construction Loan. (3) Disbursement of Advances. At Lender's option, Lender may fund Advances of the Construction Loan directly into a separate construction disbursement account or other account of Bayshore Landing with Lender, to Bayshore Landing directly, to a title insurance company or other third party, directly to the General Contractor, subcontractor, materialmen or other suppliers providing labor, services or materials in connection with the construction of the Project, or jointly to Borrower(s) and any such person. Lender shall have no obligation after making Advances of the Construction Loan in a particular manner to continue to make Advances of the Construction Loan in that manner. Notwithstanding the foregoing, Lender's records of any Advance of the Construction Loan made pursuant to this Agreement shall, in the absence of manifest error, be deemed correct and acceptable and binding upon Borrowers. 10 (4) Stored Materials. Lender shall not be required to make Advances of the Construction Loan for costs incurred by Borrowers with respect to materials stored on or off the Mortgaged Property unless Lender shall, in its sole discretion, deem it advisable to do so. If Lender elects to make an Advance of the Construction Loan for stored materials, all stored materials must be incorporated into the Project within forty five (45) days of Borrowers' Advance Request regarding such materials, and the following additional conditions shall apply: (a) copies of all invoices relating to such stored materials and a stored materials inventory sheet shall be submitted with the Advance Request; (b) with respect to materials stored on the Mortgaged Property, such materials shall be adequately secured, as determined by Lender's Inspector; and (c) with respect to materials stored off the Mortgaged Property, such materials must be (i) adequately stored at a bonded warehouse, (ii) insured under an Inland Marine Policy naming Lender as an additional insured, (iii) subject to a first priority lien held by Lender, and (iv) subject to inspection by Lender's Inspector. Lender may impose such additional conditions and requirements as it deems appropriate in its sole discretion. Section 2.4. Interest Rate; Late Charge. (1) Interest Rate. The outstanding principal balance of the Loan (including any amounts added to principal under the Loan Documents) shall bear interest at a rate of interest equal to 2.45% (i.e., 245 basis points) per annum in excess of the LIBOR Rate. Interest shall be computed on the basis of a fraction, the denominator of which is three hundred sixty (360) and the numerator of which is the actual number of days elapsed from the date of the initial advance or the date on which the immediately preceding payment was due. (2) Late Charge. If Borrowers fail to pay any installment of interest or principal within five (5) days after the date on which the same is due, Borrowers shall pay to Lender a late charge on such past due amount, as liquidated damages and not as a penalty, five percent (5%) of such amount. Borrowers acknowledge that the late charge imposed herein represents a reasonable estimate of the expenses of Lender incurred because of such lateness. Acceptance by Lender of any late payment without an accompanying late charge shall not be deemed a waiver of Lender's right to collect such late charge or to collect a late charge for any subsequent late payment received. Borrowers further acknowledge that the provisions herein shall not be construed to provide a grace period for payments of installments of principal or interest. (3) Default Rate. While any Event of Default exists, the Loan shall bear interest at the Default Rate. Section 2.5. Terms of Payment. The Loan shall be payable as follows: (1) Construction Period. During the Construction Period, monthly payments of accrued and unpaid interest on the outstanding principal balance of the Loan from time to time shall be due and payable commencing on September 1 9, 2004 and continuing on the I 9th day of each successive month thereafter through and including August 19, 2005. (2) Permanent Period. During the Permanent Period, principal and interest shall be due and payable commencing on September 19, 2005 and continuing on the 19th day of 11 each successive month thereafter in consecutive monthly installments in an amount equal to the sum of (a) all then accrued and unpaid interest, plus (b) a principal payment in the amount set forth in the Repayment and Prepayment Schedule attached hereto as Schedule 2.5(2). (3) Maturity. On the Maturity Date, Borrowers shall pay to Lender all outstanding principal, accrued and unpaid interest, and any other amounts due under the Loan Documents. (4) Prepayment. Upon not less than fifteen (15) days' prior written notice to Lender, Borrowers may prepay the Loan, in whole but not in part, without prepayment premium, provided Bayshore `Landing shall pay to Lender any and all amounts due under the Hedge Documents in connection with such prepayment, including without limitation, breakage or unwind costs or other losses incurred by Lender in order to break its underlying swap contract with the financial institution provided such swap in connection with the Loan. If the Loan is accelerated for any reason, Bayshore Landing shall likewise pay to Lender any and all amounts due under the Hedge Documents, including without limitation, breakage or unwind costs or other such losses. (5) Application of Payments. All payments received by Lender under the Loan Documents shall be applied: first, to any unpaid and delinquent fees and expenses due to Lender under the Loan Documents; second, to any Default Rate interest or late charges; third, to accrued and unpaid interest; and fourth, to the principal sum and other amounts due under the Loan Documents. (6) Time and Place of Payments. Borrowers shall make each payment of principal of and interest on the Loan and fees hereunder not later than 12:00 noon (local time Miami, Florida) on the date when due, without set off, counterclaim or other deduction, in immediately available funds to Lender at its address as directed by Lender. Whenever any payment of principal of, or interest on, the Loan or of fees shall be due on a day which is not a Business Day, the date for payment thereof shall be extended to the next succeeding Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. Section 2.6. Security. The Loan, Bayshore Landing's obligations under the Hedge Documents and Borrowers' obligations under the other Loan Documents shall be secured by (1) the Mortgage creating a first lien on the Mortgaged Property, (2) the Assignment of Rents and Leases and (3) the other Loan Documents. ARTICLE 3. INSURANCE, CONDEMNATION, AND IMPOUNDS Section 3.1. Insurance. Borrowers shall maintain insurance as follows: (1) Casualty; Business Interruption. Borrowers shall (a) keep the Mortgaged Property insured against damage by fire and the other hazards including windstorm covered by a standard extended coverage and all-risk insurance policy for the full insurable value thereof (without reduction for depreciation or co-insurance), (b) during construction of the Project or any 12 other improvements on the Mortgaged Property, maintain "all-risk" builders risk insurance which must include windstorm, hail damage, fire and vandalism (non-reporting Completed Value with Special Cause of Loss form), in an amount not less than the completed replacement value of the improvements under construction, endorsed to provide that occupancy by any person shall not void such coverage and (c) maintain such other casualty insurance as reasonably required by Lender. Borrowers shall keep the Mortgaged Property insured against loss by flood if the Mortgaged Property is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards in an amount at least equal to the principal balance outstanding under the Loan from time to time. Borrowers shall `maintain use and occupancy insurance covering, as applicable, rental income or business interruption, with coverage in an amount not less than twelve (12)-months anticipated gross rental income or gross business earnings, as applicable in each case, with a minimum of $3,600,000 in coverage and no co-insurance, attributable to the Mortgaged Property. Borrowers shall not maintain any separate or additional insurance which is contributing in the event of loss unless it is properly endorsed and otherwise satisfactory to Lender in all respects. The proceeds of insurance paid, on account of any damage or destruction to the Mortgaged Property shall be paid to Lender to be applied as provided in Section 3.2. (2) Liability. Borrowers shall maintain (a) commercial general liability insurance with respect to the Mortgaged Property providing for limits of liability of not less than $1 ,000,000 with an additional $4,000,000 umbrella coverage for both injury to or death of a person and for property damage per occurrence, and (b) other liability insurance as reasonably required by Lender. (3) Form and Quality. All insurance policies shall be endorsed in form and substance acceptable to Lender to name Lender as an additional insured, loss payee or mortgagee thereunder, as its interest may appear, with loss payable to Lender, without contribution, under a standard New York (or local equivalent) mortgagee clause. All such insurance policies and endorsements shall be fully paid for and contain such provisions and expiration dates and be in such form and issued by such insurance companies licensed to do business in the State, with a rating of "A-IX" or better as established by Best's Rating Guide (or an equivalent rating approved in writing by Lender). Each policy shall provide that such policy may not be cancelled or materially changed except upon thirty (30) days' prior written notice of intention of non-renewal, cancellation or material change to Lender and fiat no act or thing done by any Borrower shall invalidate any policy as against Lender. If Borrowers fail to maintain insurance in compliance with this Section 3.1, Lender may obtain such insurance and pay the premium therefor and Borrowers shall, on demand, reimburse Lender for all expenses incurred in connection therewith. Borrowers shall assign the policies or proofs of insurance to Lender, in such manner and form that Lender and its successors and assigns shall at all times have and hold the same as security for the payment of the Loan. Borrowers shall deliver copies of all original policies certified to Lender by the insurance company or authorized agent as being true copies, together with the endorsements required hereunder. The proceeds of insurance policies coming into the possession of Lender shall not be deemed trust funds, and Lender shall be entitled to apply such proceeds as herein provided. (4) Adjustments. Borrowers shall give immediate written notice of any loss that exceeds $50,000 to the insurance carrier and to Lender. Each Borrower hereby irrevocably 13 authorizes and empowers Lender, as attorney- in- fact for Borrowers coupled with an interest, to make proof of loss, to adjust and compromise any claim under insurance policies, to appear in and prosecute any action arising from such insurance policies, to collect and receive insurance proceeds, and to deduct therefrom Lender's expenses incurred in the collection of such proceeds. Notwithstanding the foregoing, provided there is no Potential Default or Event of Default, and provided further the casualty loss is fully insured, Borrowers shall have the right to settle casualty claims of $500,000 or less, in which event Borrowers shall keep Lender fully and immediately informed of any settlement. Nothing contained in this Section 3.1 shall require Lender to incur any expense or take any action hereunder. Section 3.2. Use and Application of Insurance Proceeds. Lender shall apply insurance proceeds as follows: ` (1) if the loss is less than or equal to $200,000, Lender shall apply the insurance proceeds to restoration provided no Event of Default or Potential Default exists, and Borrowers promptly commence and are diligently pursuing restoration of the Mortgaged Property; (2) if the loss exceeds $200,000 but is not more than $1,000,000, Lender shall apply the insurance proceeds to restoration provided that at all times during such restoration (a) no Event of Default or Potential Default exists; (b) lender determines that there are sufficient funds available to restore and repair the Mortgaged Property to a condition approved by Lender; (c) Lender determines that the Debt Service Coverage Ratio covenant set forth in Section 8.12 hereof during restoration will be maintained; (d) Lender determines that restoration and repair of the Mortgaged Property to a condition approved by Lender will be completed within six months after the date of loss or casualty and in any event one (1) year prior to the Maturity Date; and (e) Borrowers promptly commence and are diligently pursuing restoration of the Mortgaged Property; (3) if the conditions set forth above are not satisfied or the loss exceeds the maximum amount specified in Subsection (2) above, in Lender's sole discretion, Lender may apply any insurance proceeds it may receive to the payment of the Loan or allow all or a portion of such proceeds to be used for the restoration of the Mortgaged Property; and (4) insurance proceeds applied to restoration will be disbursed on receipt of satisfactory plans and specifications, contracts and subcontracts, schedules, budgets, lien waivers and architects' certificates, and otherwise in accordance with prudent commercial construction lending practices for construction loan advances. Section 3.3. Condemnation Awards. Borrowers shall immediately notify Lender of the institution of any proceeding for the condemnation or other taking of the Mortgaged Property or any portion thereof Lender may participate in any such proceeding and Borrowers will deliver to Lender all instruments necessary or required by Lender to permit such participation. Without Lender's prior consent, Borrowers (1) shall not agree to any compensation or award, and (2) shall not take any action or fail to take any action which would cause the compensation to be determined. All awards and compensation to any Borrower for the taking or purchase in lieu of condemnation of the Mortgaged Property or any part thereof are hereby assigned to and 14 shall be paid to Lender. Borrowers authorize Lender to collect and receive such awards and compensation, to give proper receipts and acquittances therefor, and in Lender's sole discretion to apply the same toward the payment of the Loan, notwithstanding that the Loan may not then be due and payable, or to the restoration of the Mortgaged Property. Borrowers, upon request by Lender, shall execute all instruments requested to confirm the assignment of the awards and compensation to Lender, free and clear of all liens, charges or encumbrances. Section 3.4. Impounds. At Lender's option exercisable at any time during the term of the Loan, Borrowers shall deposit with Lender, monthly, one-twelfth (1/12th) of the annual charges for ground or other rent, if any, and real estate taxes, assessments and similar charges relating to the Mortgaged Property, and for insurance premiums. At Lender's option , at or before the initial advance of the Loan, Borrowers shall deposit with Lender a sum of money which together with the monthly installments will be sufficient to make each of such payments thirty (30) days prior to the date any delinquency or penalty becomes due with respect to such payments. Deposits shall be made on the basis of Lender's estimate from time to time of the charges for the current year (after giving effect to any reassessment or, at Lender's election, on the basis of the charges for the prior year, with adjustments when the charges are fixed for the then current year). All funds so deposited shall be held by Lender, without interest, and may be commingled with Lender's general funds. Borrowers hereby grant to Lender a security interest in all funds so deposited with Lender for the purpose of securing the Loan. While an Event of Default exists, the funds deposited may be applied in payment of the charges for which such funds have been deposited, or to the payment of the Loan or any other charges affecting the security of Lender, as Lender may elect, but no such application shall be deemed to have been made by operation of law or otherwise until actually made by Lender. Borrowers shall furnish Lender with bills for the charges for which such deposits are required at least thirty (30) days prior to the date on which the charges first become payable. If at any time the amount on deposit with Lender, together with amounts to be deposited by Borrowers before such charges are payable, is insufficient to pay such charges, Borrowers shall deposit any deficiency with Lender immediately upon demand. Lender shall pay such charges when the amount on deposit with Lender is sufficient to pay such charges and Lender has received a bill for such charges. Section 3.5. Notices. Notwithstanding Section 11.1, all notices to Lender under Sections 3.1 and 3.2 shall be addressed as follows: Wachovia Bank, National Association P.O. Box 700308 Dallas, Texas 75370 ARTICLE 4. ENVIRONMENTAL MATTERS Section 4.1. Certain Definitions. As used herein, the following terms have the meanings indicated: (1) "Environmental Laws" means any federal, state or local law (whether imposed by statute, or administrative or judicial order, or common law), now or hereafter 15 enacted, governing health, safety, industrial hygiene, the environment or natural resources, or Hazardous Materials, including, such laws governing or regulating the use, generation, storage, removal, recovery, treatment, handling, transport, disposal, control, discharge of, or exposure to, Hazardous Materials.' (2) "Hazardous Materials" means (a) petroleum or chemical products, whether in liquid, solid, or gaseous form, or any fraction or by-product thereof, (b) asbestos or asbestos-containing materials, (c) polychlorinated biphenyls (pcbs), (d) radon gas, (e) underground storage tanks, (f) any explosive or radioactive substances, (g) lead or lead-based paint, or (h) any other substance, material, waste or mixture which is or shall be listed, defined, or otherwise determined by any governmental authority to be hazardous, toxic, dangerous or otherwise regulated, controlled or giving rise to liability under any Environmental Laws. (3) "Release" means and includes disposal, discharging, injecting, spilling, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing, and the like, of any Hazardous Materials into or upon any land or water or air, or otherwise entering into the environment. Section 4.2. Representations and Warranties on Environmental Matters. Except as set forth in the Closing Site Assessments and Environmental Documents: (1) no Hazardous Material is now or to any Borrower's knowledge was formerly used, stored, generated, manufactured, installed, disposed of, treated or otherwise present at or about the Mortgaged Property or any property adjacent to the Mortgaged Property (except for the sewage pump out facility currently on the Mortgaged Property, any recycling facility now or hereafter located on the Mortgaged Property, and cleaning and other products currently used in connection with the routine maintenance, operation or repair of the Mortgaged Property, all in full compliance with Environmental Laws); (2) all permits, licenses, approvals and filings required by Environmental Laws have been obtained, and the use, operation and condition of the Mortgaged Property does not, and to Borrowers' knowledge did not previously, violate any Environmental Laws; (3) the Mortgaged Property is presently free from contamination by Hazardous Materials, and the Mortgaged Property and the activities conducted thereon do not pose any significant hazard to human health or the environment or violate any applicable Environmental Laws; (4) there is no evidence of any existing Release of Hazardous Materials at the Mortgaged Property; (5) except for the sewage pump out facility currently on the Mortgaged Property, any recycling facility now or hereafter located on the Mortgaged Property, and cleaning and other products currently used in connection with the routine maintenance, operation or repair of the Mortgaged Property, all in full compliance with Environmental Laws, to each Borrower's knowledge, there are no surface impoundments, lagoons, waste piles, landfills, injection wells, underground storage areas, tanks, storage vessels, drums, containers or other man- made facilities which may have accommodated Hazardous Materials on the Mortgaged Property. Neither any Borrower nor any third persons have stored, placed, buried or released Hazardous Materials on the Mortgaged Property, including the soil, surface water and ground water; (6) to Borrowers' knowledge there has been no treatment, storage or other Release of any Hazardous Materials on land adjacent or near to the Mortgaged Property which may constitute a risk of contamination of the Mortgaged Property or surface or ground water flowing to the Mortgaged Property; and (7) no inspection, audit, inquiry or other investigation has been or is being conducted by any governmental agency or other third person with respect to the presence or discharge of Hazardous Materials at the Mortgaged 16 Property or the quality of the air, or surface or subsurface conditions at the Mortgaged Property. Except as disclosed in the Closing Site Assessments and Environmental Documents, no Borrower has received notice that any such inspection, audit, inquiry or investigation is pending or proposed, nor has any Borrower or to Borrowers' knowledge any previous owner or occupant of the Mortgaged Property received any warning notice, notice of violation, administrative complaint, judicial complaint or other formal or informal notice alleging that Hazardous Materials have been stored or Re leased at the Mortgaged Property or that conditions on the Mortgaged Property are in violation of any Environmental Laws. Section 4.3. Covenants on Environmental Matters. (1) Each Borrower shall (a) comply strictly and in all respects with applicable Environmental Laws; (b) notify Lender immediately upon Borrower's discovery of any spill, discharge, other Release or presence of any Hazardous Material at, upon, under, within, contiguous to or otherwise affecting the Mortgaged Property that violates applicable Environmental Laws; (c) promptly remove such Hazardous Materials and remediate the Mortgaged Property in full compliance with Environmental Laws and in accordance with the recommendations and specifications of an independent environmental consultant approved by Lender as to how to achieve compliance with Environmental Laws; (d) promptly forward to Lender copies of all orders, notices, permits, applications or other written communications and reports in connection with any spill, discharge or other Release of any Hazardous Material or any other matters relating to the Environmental Laws or any similar laws or regulations, as they may affect the Mortgaged Property or any Borrower; and (e) promptly advise Lender in writing of any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened by any governmental authority with respect to the Mortgaged Property from time to time under any applicable Environmental Laws. (2) No Borrower shall cause, and each Borrower shall prohibit any other Person within the control of such Borrower from causing, and shall use prudent, commercially reasonable efforts to prohibit other Persons (including tenants) from (a) causing any spill, discharge or other Release of any Hazardous Materials at, upon, under, within or about the Mortgaged Property, (b) except in full compliance with applicable Environmental Laws, causing the use, storage, generation, manufacture, installation, or disposal of any Hazardous Materials at, upon, under, within or about the Mortgaged Property or the transportation of any Hazardous Materials to or from the Mortgaged Property (except for the sewage pump out facility currently on the Mortgaged Property, any recycling facility now or hereafter located on the Mortgaged Property, and cleaning and other products currently used in connection with the routine maintenance, operation or repair of the Mortgaged Property, all in full compliance with Environmental Laws), (c) except for repair, upgrade or replacement of the existing fueling facilities which are required by Environmental Laws or which are reasonably prudent measures in the operation of such facility, installing any underground storage tanks at the Mortgaged Property, or (d) conducting any activity that requires a permit or other authorization under Environmental Laws, except that Borrowers or Persons within Borrowers' employ may conduct activities that require permits or other authorizations under Environmental Laws, provided such activities are conducted in full compliance with applicable Environmental Laws. 17 (3) Without Lender's prior written consent, no Borrower shall enter into any settlement, consent or compromise with respect to any Hazardous Materials or pursuant to Environmental Laws which might, in Lender's reasonable judgment, impair the value of Lender's security under the Mortgage; provided, however, that Lender's prior consent shall not be necessary for Borrowers to take any remedial action if ordered by a court of competent jurisdiction or if required by applicable governmental authorities or if the presence of Hazardous Materials at the Mortgaged Property poses an immediate significant threat to the health, safety or welfare of any individual or otherwise requires an immediate remedial response. In any event, Borrowers shall promptly notify Lender of any action so taken. (4) Borrowers shall provide to Lender, at Borrowers expense promptly upon the written request of Lender from time to time, a Site Assessment or, if required by Lender, an update to any existing Site Assessment, to assess the presence or absence of any Hazardous Materials and the potential costs in connection with abatement, cleanup or removal of any Hazardous Materials found on, under, at or within the Mortgaged Property. Borrowers shall pay the cost of no more than one such Site Assessment or update in any twelve (12) month period, unless Lender's request for a Site Assessment is based on information provided under this Article 4, a reasonable suspicion of Hazardous Materials at or near the Mortgaged Property, a breach of representations under Section 4.2, or an Event of Default, in which case any such Site Assessment or update shall be at Borrowers' expense. Section 4.4. intentionally omitted Section 4.5. Allocation of Risks and Indemnity. (1) As between Borrowers and Lender, all risk of loss associated with non-compliance with Environmental Jaws, or with the presence of any Hazardous Material at, upon, within, contiguous to or otherwise affecting the Mortgaged Property, shall lie solely with Borrowers. Accordingly, Borrowers shall bear all risks and costs associated with any loss (including any loss in value attributable to Hazardous Materials), damage or liability therefrom, including all costs of removal of Hazardous Materials or other remediation required by Environmental Laws. (2) Each Borrower hereby agrees to indemnify Lender and hold Lender and its directors, officers, employees, successors and assigns harmless from and against any and all claims, losses, damages (including all foreseeable and unforeseeable consequential damages), liabilities, fines, penalties, charges, interest, administrative and judicial proceedings and orders, judgments, remedial action requirements, enforcement actions of any kind, and all costs and expenses incurred in connection therewith (including but not limited to reasonable attorneys' fees and expenses), directly or indirectly resulting in whole or in part from (a) the presence, use, generation, treatment or storage on, under or about the Mortgaged Property of any Hazardous Materials, or the disposal or other Release of Hazardous Materials on, under or from the Mortgaged Property; 18 (b) any claims made or threatened by any party against any Borrower or with respect to the Mortgaged Property relating to Hazardous Materials or Environmental Laws; (c) the costs of any necessary inspection, audit, cleanup or detoxification of the Mortgaged Property under any Environmental Laws, and the preparation and implementation of any closure, remedial or other required plans, consent orders, license applications or the like; or (d) any activity carried on or undertaken on the Mortgaged Property, whether prior to or during the term of the Loan, by any Borrower or any predecessor in title or any employees, agents or contractors of any Borrower or any predecessor in title, or any third persons at any time occupying or present on the Mortgaged Property lawfully and with the permission of any Borrower or a predecessor in title of any Borrower, in connection with the handling, treatment, removal, storage, decontamination, clean-up, transport, disposal or other Release of any Hazardous Materials at any time located or present on, under or about the Mortgaged Property; provided however, Borrowers shall not be liable under such indemnification (i) to the extent such loss, liability, damage, claim, cost or expense results solely from Lender's gross negligence or willful misconduct or (ii) to the extent such loss, liability, damage, claim, cost or expense is covered by insurance carried by Lender's receiver in possession of the Mortgaged Property. Lender's receiver in possession of the Mortgaged Property shall maintain liability insurance with limits equal to the lesser of $2,000,000 or the limits required of Bayshore Landing under the terms of the City Lease, and shall name Lender, Bayshore Landing and the City as additional insureds. (3) Lender shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any matter for which it is indemnified under this Section 4.5 and to have its reasonable attorneys' fees and expenses in connection therewith paid by Borrowers, or be defended by Borrowers from and against any such matters. (4) All sums paid and costs incurred by Lender with respect to any matter indemnified against hereunder shall bear interest at the Default Rate from the date so paid or incurred until reimbursed by Borrowers, and shall be secured by the Mortgage and all other Loan Documents and shall be paid by Borrowers to Lender not later than thirty (30) days after demand. Borrowers' obligations under this Section 4.5 shall arise upon the discovery of the presence of any Hazardous Material, whether or not any governmental authority has taken or threatened any action in connection with the presence of any Hazardous Material, and whether or not the existence of any such Hazardous Material or potential liability on account thereof is disclosed in the Site Assessment and shall continue notwithstanding the repayment of the Loan or any transfer or sale of any right, title and interest in the Mortgaged Property (by foreclosure, deed in lieu of foreclosure or otherwise). 19 Section 4.6. No Waiver. Notwithstanding any provision in this Article 4 or elsewhere in the Loan Documents, or any rights or remedies granted by the Loan Documents, Lender does not waive and expressly reserves all rights and benefits now or hereafter accruing to Lender under the "security interest" or "secured creditor" exception under applicable Environmental Laws, as the same may be amended. No action taken by Lender pursuant to the Loan Documents shall be deemed or construed to be a waiver or relinquishment of any such rights or benefits under the "security interest exception." ARTICLE 5. LEASING MATTERS Section 5.1. Representations and Warranties on Leases. Borrowers represent and warrant to Lender. with respect to leases of the Mortgaged Property that: (1) the rent roll(s) delivered to Lender is (are) true and correct, and the leases are valid and in and full force and effect; (2) the leases (including amendments) are in writing, and there are no oral agreements with respect thereto; (3) the copies of the leases delivered to Lender are true and complete; (4) neither the landlord nor, to any Borrower's knowledge, any tenant is in default under any of the leases; (5) no Borrower has knowledge of any notice of termination or default with respect to any lease; (6) no Borrower has assigned or pledged any of the leases, the rents or any interests therein except to Lender; (7) no tenant or other party has an option to purchase all or any portion of the Mortgaged Property; (8) no tenant has the right to terminate its lease prior to expiration of the stated term of such lease; (9) no tenant has prepaid more than one month's rent in advance; and (10) the City has approved each of the leases to the extent such approval is required pursuant to the terms of the City Lease. Section 5.2. Approval Rights. All leases and other rental arrangements shall in all respects be approved by Lender and by the City. Borrowers shall hold, in trust, all tenant security deposits in a segregated account, and, to the extent required by applicable hw, shall not commingle any such funds with any other funds of Borrowers. Within ten (1 0) days after Lender' 5 request, Borrowers shall furnish to Lender a statement of all tenant security deposits, and copies of all leases not previously delivered to Lender, certified by Borrowers as being true and correct. Notwithstanding the foregoing, Lender's approval shall not be required for future leases or lease extensions or amendments to existing leases with respect to premises other than those subject to the Rawbar Sublease or the Restaurant Sublease, provided the following conditions are satisfied: (1) there exists no Potential Default or Event of Default; and (2) the leased premises, when combined with all other space in the Mortgaged Property leased to the same tenant or any affiliate thereof, are not greater than 5,000 rentable square feet. Section 5.3. Covenants. Each Borrower (1) shall perform the obligations which it is required to perform under the leases; (2) shall enforce the obligations to be performed by its tenants; (3) shall promptly furnish to Lender any notice of default or termination received by it from any tenant under which the leased premises, when combined with all other space in the Mortgaged Property leased to the same tenant or any affiliate thereof, are equal to or greater than 5,000 rentable square feet, and any notice of default or termination given by such Borrower to any such tenant; (4) shall not collect any rents for more than thirty (30) days in advance of the time when the same shall become due; (5) shall not further assign or encumber any lease; (6) 20 shall not, except with Lender's prior written consent, cancel or accept surrender or termination of any lease; and (7) shall not, except with Lender's prior written consent, modify or amend any lease (except for minor modifications and amendments entered into in the ordinary course of business, consistent with prudent property management practices, not affecting the economic terms of the lease), and any action in violation of this Section 5.3 shall be void at the election of Lender. Notwithstanding the foregoing, provided there exists no Potential Default or Event of Default, Borrowers may cancel, accept the surrender of, terminate, modify or amend any lease, other than those covering the premises or portions thereof subject to the Rawbar Sublease or the Restaurant Sublease, under which the leased premises, when combined with all other space in the Mortgaged Property leased to the same tenant or any affiliate thereof, are not greater than 5,000 rentable square feet. Section 5.4. Tenant Estoppels. At Lender's request, Borrowers shall obtain and furnish to Lender, written estoppels in form and substance satisfactory to Lender, executed by tenants under leases in the Mortgaged Property and confirming the term, rent, and other provisions and matters relating to the leases. ARTICLE 6. REPRESENTATIONS AND WARRANTIES Each Borrower represents and warrants to Lender with respect to itself and the Borrower Parties related to such Borrower that: Section 6.1. Organization and Power. Each Borrower and each Borrower Party is duly organized, validly existing and in good standing under the laws of the state of its formation or existence, and is in compliance with legal requirements applicable to doing business in the State. No Borrower is a "foreign person" within the meaning of ss. 1445(f)(3) of the Internal Revenue Code. Section 6.2. Validity of Loan Documents. The execution, delivery and performance by Borrowers and each Borrower Party of the Loan Documents: (1) are duly authorized and do not require the consent or approval of any other party or governmental authority which has not been obtained; and (2) will not violate any law or result in the imposition of any lien, charge or encumbrance upon the assets of any such party, except as contemplated by the Loan Documents. The Loan Documents constitute the legal, valid and binding obligations of each Borrower and each Borrower Party, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, or similar laws generally affecting the enforcement of creditors' rights. Section 6.3. Liabilities; Litigation. (1) The financial statements delivered by such Borrower and each Borrower Party are true and correct in every material respect with no significant change since the date of preparation. Except as disclosed in such financial statements, there are no liabilities (fixed or contingent) affecting the Mortgaged Property, such Borrower or any Borrower Party. Except as disclosed in such financial statements, there is no litigation, administrative proceeding, investigation or other legal action (including any proceeding under any state or federal bankruptcy or insolvency law) pending or, to the knowledge of Borrowers, threatened, against 21 the Mortgaged Property, any Borrower or any Borrower Party which if adversely determined could have a material adverse effect on such party, the Mortgaged Property or the Loan. (2) Neither any Borrower nor any Borrower Party is contemplating either the filing of a petition by it under state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or property, and neither any Borrower nor any Borrower Party has knowledge of any Person contemplating the filing of any such petition against it. Section 6.4. Taxes and Assessments. The Mortgaged Property is comprised of one or more parcels, each of which constitutes a separate tax lot and none of which constitutes a portion of any other tax lot. There are no pending or, to Borrowers' best knowledge, proposed, special or other assessments for public improvements or otherwise affecting the Mortgaged Property, nor are there any contemplated improvements to the Mortgaged Property that may result in such special or other assessments. Section 6.5. Other Agreements; Defaults. Neither any Borrower nor any Borrower Party is a party to any agreement or instrument or subject to any court order, injunction, permit, or restriction which might adversely affect the Mortgaged Property or the business, operations, or condition (financial or otherwise) of any Borrower or any Borrower Party. Neither any Borrower nor any Borrower Party is in violation of any agreement which violation would have an adverse effect on the Mortgaged Property, any Borrower, or any Borrower Party or any Borrower's or any Borrower Party's business, properties, or assets, operations or condition, financial or otherwise. Section 6.6. Compliance with Law (1) Each Borrower and each Borrower Party have all requisite licenses, permits, franchises, qualifications, certificates of occupancy or other governmental authorizations to own, lease and operate the Mortgaged Property and carry on its business, and the Mortgaged Property is in compliance with all applicable legal requirements and is free of structural defects, and all building systems contained therein are in good working order, subject to ordinary wear and tear. The Mortgaged Property does not constitute, in whole or in part, a legally non-conforming use under applicable legal requirements; (2) No condemnation has been commenced or, to Borrowers' knowledge, is contemplated with respect to all or any portion of the Mortgaged Property or for the relocation of roadways providing access to the Mortgaged Property; and (3) The Mortgaged Property has adequate rights of access to public ways, and the Mortgaged Property and Project are and shall continue to be upon completion of the Project served by adequate water, sewer, sanitary sewer and storm drain facilities. All public utilities necessary or convenient to the full use and enjoyment of the Mortgaged Property and the Project are located in the public right-of-way abutting the Mortgaged Property, and all such utilities are connected so as to serve the Mortgaged Property and the Project without passing over other property, except to the extent such other property is subject to a perpetual easement for such utility benefiting the Mortgaged Property. All roads necessary for the full utilization of the 22 Mortgaged Property and the Project for their current and intended purposes have been completed and dedicated to public use and accepted by all governmental authorities. Section 6.7. Location of Borrowers. Each Borrower's principal place of business and chief executive offices are located at the address stated in Section 11.1. Section 6.8. ERISA. No Borrower has established any pension plan for employees which would cause any Borrower to be subject to the Employee Retirement Income Security Act of 1974, as amended. Section 6.9. Margin Stock. No part of proceeds of the Loan will be used for purchasing or acquiring any "margin stock" within the meaning of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. Section 6.10. Tax Filings. Each Borrower and each Borrower Party have filed (or have obtained effective extensions for filing) all federal, state and local tax returns required to be filed and have paid or made adequate provision for the payment of all federal, state and local taxes, charges and assessments payable by each Borrower and each Borrower Party, respectively. Section 6.11. Solvency. Giving effect to the Loan, the fair saleable value of each Borrower's assets exceeds and will, immediately following the making of the Loan, exceed that Borrower's total liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. The fair saleable value of each Borrower's assets is and will, immediately following the making of the Loan, be greater than that Borrower's probable liabilities, including the maximum amount of its contingent liabilities on its Debts as such Debts become absolute and matured, each Borrower's assets do not and, immediately following the making of the Loan will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. No Borrower intends to, and each Borrower does not believe that it will, incur Debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such Debts as they mature (taking into account the timing and amounts of cash to be received by that Borrower and the amounts to be payable on or in respect of obligations of that Borrower). Section 6.12. Full and Accurate Disclosure. The financial statements of Borrowers and each Borrower Party delivered to Lender are true and correct, have been prepared in accordance with GAAP and fairly present the financial condition of Borrowers and each Borrower Party as of the respective dates of such statements. This Agreement and all financial statements, budgets, schedules, opinions, certificates, confirmations, statements, applications, affidavits, reports, agreements and other materials submitted to Lender in connection with or in furtherance of this Agreement by or on behalf of any Borrower or any Borrower Party fully and fairly state the matters with which they purport to deal, and neither misstate any material fact nor, separately or in the aggregate, fail to state any material fact necessary to make the statements made not misleading. Section 6.13. Single Purpose Entity. Each Borrower is and has at all times since its formation been operated as a Single Purpose Entity. 23 Section 6.14. No Debt; No Liens. Except as disclosed in the financial statements of' Borrowers previously delivered to Lender and except for unsecured trade payables in the ordinary course of business, no Borrower has Debt other than the Loan. Other than for non-delinquent ad valorem real property taxes, as of the date the Loan is funded, the Mortgaged Property shall be free and clear of all Liens of every nature whatsoever. Section 6.15. Ownership Interests. Attached hereto as Schedule 6.15 is a schedule reflecting all persons or entities who are members and managers of each Borrower and who have an equity interest in any Borrower or in its members and managers. Section 6.16. City Lease. Borrowers represent and warrant to Lender as follows with respect to the City Lease: (1) the City Lease is current and in good standing and full force and effect, and has not been amended or modified except as described in Schedule 1.1(19) attached hereto; (2) to the best knowledge of Borrowers', there exist no defaults or "Events of Default," or events, conditions or circumstances that with the passage of time or the giving of notice or both would constitute a default or "Event of Default," under the City Lease; (3) any and all improvements and/or work the tenant is required to make and/or perform pursuant to the terms of the City Lease have been completed and are acceptable to and have been accepted by the City; and (4) the City has consented to the Rawbar Sublease, the Restaurant Sublease and all other subleases and other occupancy agreements currently affecting the Mortgaged Property or any portion thereof to the extent such approval is required pursuant to the terms of the City Lease. Section 6.17. Rawbar Sublease. Borrowers represent and warrant to Lender as follows with respect to the Rawbar Sublease: (1) the Rawbar Sublease is current and in good standing and full force and effect, and has not been amended or modified; and (2) to the best knowledge of Borrowers', there exist no defaults or "Events of Default," or events, conditions or circumstances that with the passage of time or the giving of notice or both would constitute a default or "Event of Default," under the Rawbar Sublease. Section 6.18. Restaurant Sublease. Borrowers represent and warrant to Lender as follows with respect to the Restaurant Sublease: (1) the Restaurant Sublease is current and in good standing and full force and effect, and has not been amended or modified; and (2) to the best knowledge of Borrowers', there exist no defaults or "Events of Default," or events, conditions or circumstances that with the passage of time or the giving of notice or both would constitute a default or "Event of Default," under the Restaurant Sublease. 24 Section 6.19. State Lease. Borrowers represent and warrant to Lender as follows with respect to the State Lease: (1) to Borrowers' knowledge, the State Lease is current and in good standing and full force and effect, and has not been amended or modified except as described in Schedule 1.1(67) attached hereto; and (2) to the best knowledge of Borrowers, there exist no defaults or "Events of Default," or events, conditions or circumstances that with the passage of time or the giving of notice or both would constitute a default or "Event of Default," under the State Lease. Section 6.20. State Waivers. Borrowers represent and warrant to Lender as follows with respect to the State Waivers: (1) to Borrowers' knowledge, the State Waivers are current and in good standing and full force and effect, and have not been amended or modified except as described in Schedule 1.1(68) attached hereto; and (2) To the best knowledge of Borrowers, there exists no defaults or "Events of Default", or events, conditions or circumstances that with the passage of time or the giving of notice or both would constitute a default or "Event of Default", under the State Waivers. Section 6.21. Laws, Zoning and Approvals. (1) The Plans and Specifications (when completed), the use of the Mortgaged Property and the anticipated use of the Project comply with all applicable restrictive covenants, zoning ordinances, building laws and codes, and other applicable laws, regulations and requirements (including without limitation, the Americans with Disabilities Act, as amended); (2) the current zoning classification of the Mortgaged Property and any covenants and restrictions affecting the Mortgaged Property permit the current use of the Mortgaged Property and the construction and intended use of the Project; and (3) Borrowers have obtained all permits and approvals of any type required in connection with the current operation and use of the Mortgaged Property, and all such permits and approvals are final and unappealable and remain in full force and effect without restriction or modification. Section 6.22. Public Improvements. Any and all public improvements included as part of the Project have been fully authorized by appropriate municipal ordinance or other required municipal action. No Borrower is in a party to any Development Agreement. ARTICLE 7. FINANCIAL REPORTING Section 7.1. Financial Statements. (1) Periodic Financial Statements. Each Borrower shall deliver to Lender, within 45 days after the end of each of that Borrower's fiscal six-month periods (i.e., by August 15 of each year), unaudited management-prepared financial statements, on a consolidated and consolidating basis. 25 (2) Annual Financial Statements. Each Borrower shall deliver to Lender, (a) within 120 days after the end of each of that Borrower's fiscal years (i.e., by April 30 of each year with respect to the previous year), reviewed financial statements on a consolidated and consolidating basis along with a copy of the audited revenue statement as provided to the City pursuant to the terms of the Lease and that Borrower's financial projections for the coming year and (b) copies of any of its financial statements that are certified by an independent public accountant. (3) Borrowers' Tax Return. Each Borrower shall deliver to Lender, within 30 days of filing, cornp1ete copies of federal and state tax returns, as applicable, each of which shall be signed and certified by that Borrower's managers to be true and complete copies of such returns. In the event an extension is filed, that Borrower shall deliver a copy of the extension within 30 days of filing. (4) Guarantors' Financial Statements. Borrowers shall cause Individual Guarantor to deliver to Lender annually, within 120 days of Bayshore Landing's fiscal year end, Individual Guarantor's personal financial statements, which shall disclose all of Individual Guarantor's assets, liabilities, net worth, income and contingent liabilities, all in reasonable detail and acceptable to Lender and submitted on a form to be provided by Lender or on such other form acceptable to Lender, signed by Individual Guarantor and certified by Individual Guarantor to Lender to be true, correct and complete. If requested by Lender, such financial statements shall also be accompanied by bank and/or brokerage statements to support reported liquidity. (5) Guarantors' Financial Statements. Borrowers shall cause HMG/Courtland Properties, inc. (one of the Entity Guarantors) to deliver to Lender annually, within 120 days of such entity's fiscal year end, such Entity Guarantor's 10K report, certified by such Entity Guarantor's chief financial or chief executive officer to Lender to be true, correct and complete. (6) Guarantors' Tax Returns. Borrowers shall cause Individual and Entity Guarantors to deliver to Lender, within 30 days of filing, complete copies of federal and state tax returns, including any and all schedule K-1s, as applicable, each of which shall be signed and certified by Guarantors to be true and complete copies of such returns. In the event an extension is filed, Guarantors shall deliver a copy of the extension within 30 days of filing. (7) Certificate of Full Compliance. Borrowers shall deliver to Lender, with the annual financial statements required in subsection (2) above, a certification by Borrowers' independent certified public accountant that Borrowers are in full compliance with the financial covenants contained in Sections 8.8, 8.10 and 8.12 hereof. Additionally, together with each submission required by subsections (1) and (2) above, each Borrower shall deliver to Lender a compliance certificate in form satisfactory to Lender from that Borrower's chief financial officer reflecting compliance with the covenants set forth in Sections 8.8, 8.10 and 8.12 hereof, and certifying that no Potential Default or Event of Default with respect to such covenants then exists or if such a Potential Default or Event of Default exists, the nature and duration thereof and Borrowers' intention with respect thereto, and in addition, Borrowers shall cause Borrowers' independent auditors (if applicable) to submit to Lender, together with its audit report, a statement that, in the course of such audit, it discovered no circumstances which it believes would result in a Potential Default or Event of Default or if it discovered any such 26 Section 7.2. Accounting Principles. All financial statements shall be prepared in accordance with GAAP, consistently applied from year to year. Section 7.3. Other Information. Borrowers shall deliver to Lender such additional information regarding any Borrower, its business, any Borrower Party, and the Mortgaged Property within 30 days after Lender's reasonable request therefor. ARTICLE 8. COVENANTS Each Borrower covenants and agrees with Lender as follows: Section 8.1. Due on Sale and Encumbrance; Transfers of Interests. Without the prior written consent of Lender, each Borrower agrees with respect to itself as follows: (1) neither Borrower nor any other Person having an ownership or beneficial interest in Borrower shall (a) directly or indirectly sell, transfer, convey, mortgage, pledge, or assign the interest of Borrower in the Mortgaged Property or any part thereof (including any membership or any other ownership interest in Borrower); (b) further encumber, alienate, grant a Lien or grant any other interest in the Mortgaged Property or any part thereof (including any membership or other ownership interest in Borrower), or, with respect to Borrower, on any of its other assets, whether voluntarily or involuntarily; or (c) enter into any easement or other agreement granting rights in or restricting the use or development of the Mortgaged Property; (2) no new member, manager or other Person having the ability to control the affairs of Borrower shall be admitted to or created in Borrower (nor shall any existing member, manager or other controlling Person partner withdraw from Borrower), and no change in Borrower's organizational documents relating to control over Borrower and/or the Mortgaged Property shall be effected; and (3) no transfer shall be permitted which would cause the trustees under the Christoph Trusts to own less than a thirty three percent (33%) beneficial interest in Borrower. Notwithstanding the foregoing, upon written notice to Lender (a) transfers shall be allowed among members in Borrowers provided that the trustees under the Christoph Trusts at all times own not less than a thirty three percent (33%) beneficial interest in each Borrower, and provided further that any such transfer does not cause Borrowers to be in violation of the covenants in Section 8.3 and (b) new members may be admitted to Borrowers provided any such member is reasonably acceptable to Lender and such new member must guaranty the Loan and Borrowers' obligations under the Loan Documents pursuant to a guaranty agreement acceptable to Lender. As used in this Section 8.1, "transfer" shall include the sale, transfer, conveyance, mortgage, pledge, or assignment of the legal or beneficial ownership of (y) the Mortgaged Property, and (z) any membership interest in any Borrower; "transfer" shall not include the leasing of space within 27 the Mortgaged Property so long as Borrowers comply with the provisions of the Loan Documents relating to such leasing activity. Section 8.2. Taxes; Charges. Borrowers shall pay on the initial due date, and shall not enter into any agreement to defer, any real estate taxes and assessments, franchise taxes and charges, and other governmental charges that may become a Lien upon the Mortgaged Property or become payable during the term of the Loan, and will promptly furnish Lender with evidence of such payment; however, Borrowers' compliance with Section 3.4 of this Agreement relating to impounds for taxes and assessments shall, with respect to payment of such taxes and assessments, be deemed compliance with this Section 8.2. Borrowers shall not suffer or permit the joint assessment' of the Mortgaged Property with any other real property constituting a separate tax lot or with any other real or personal property. Borrowers shall pay when due all claims and demands of mechanics, materialmen, laborers and others which, if unpaid, might result in a Lien on the Mortgaged Property. Section 8.3. Control; Management. There shall be no change in the day-to-day control and management of any Borrower without the prior written consent of Lender. The Mortgaged Property shall at all times be managed by Robert Christoph, Sr. or by an entity acceptable to Lender that is controlled by Robert Christoph, Sr. and one hundred percent (100%) owned by Robert Christoph, Sr. and/or members of his immediate family. Borrowers shall not terminate, replace or appoint any manager or terminate or materially amend the management agreement(s) for the Mortgaged Property without Lender's prior written approval. Borrowers shall fully perform all of its covenants, agreements and obligations under the management agreement(s). Any change in ownership or control of the manager(s) shall be `cause for Lender to re-approve such manager and management agreement(s). Each manager shall hold and maintain all necessary licenses, certifications and permits required by law. Section 8.4. Operation; Maintenance; Inspection. Borrowers shall observe and comply with all legal requirements applicable to the ownership, use and operation of the Mortgaged Property. Borrowers shall maintain the Mortgaged Property in good condition and promptly repair any damage or casualty. Borrowers shall permit Lender and its agents, representatives and employees, upon reasonable prior notice to Bayshore Landing, to inspect the Mortgaged Property and conduct such environmental and engineering studies as Lender may require. Section 8.5. Taxes on Security. Borrowers shall pay all taxes, charges, filing, registration and recording fees, excises and levies payable with respect to the Note or the Liens created or secured by the Loan Documents, other than income, franchise and doing business taxes imposed on Lender. If there shall be enacted any law (I) deducting the Loan from the value of the Mortgaged Property for the purpose of taxation, (2) affecting any Lien on the Mortgaged Property, or (3) changing existing laws of taxation of mortgages, deeds of trust, security deeds, or debts secured by real property, or changing the manner of collecting any such taxes, Borrowers shall promptly pay to Lender, on demand, all taxes, costs and charges for which Lender is or may be liable as a result thereof; however, if such payment would be prohibited by law or would render the Loan usurious, then instead of collecting such payment, Lender may declare all amounts owing under the Loan Documents to be immediately due and payable. 28 Section 8.6. Legal Existence; Name, Etc. Each Borrower shall preserve and keep in full force and effect its existence as a Single Purpose Entity, entity status, franchises, rights and privileges under the laws of the state of its formation, and all qualifications, licenses and permits applicable to the ownership, use and operation of the Mortgaged Property. Neither any Borrower nor any Borrower Party shall wind up, liquidate, dissolve, reorganize, merge, or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of all or substantially all of its assets, or acquire all or substantially all of the assets of the business of any Person. Each Borrower shall conduct business only in its own name and shall not change its name, identity, or organizational structure, or the location of its chief executive office or principal place of business unless Borrowers (1) shall have obtained the prior written consent of Lender to such change, and (2) shall have taken all actions necessary or requested by Lender to file or amend any financing statement or continuation statement to assure perfection and continuation of perfection of security interests under the Loan Documents. Each Borrower shall maintain its separateness as an entity, including maintaining separate books, records, and accounts and observing company formalities independent of any other entity, shall pay its obligations with its own funds and shall not commingle funds or assets with those of any other entity. Section 8.7. Transactions with Affiliates. Except as set forth in Schedule 8.7, Borrowers shall not directly or indirectly purchase, acquire or lease any property from, or sell, transfer or lease any property to, pay any management fees to or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate. The foregoing restriction shall not prohibit Affiliates, including Guarantors and other members of Borrowers, from entering into unrelated transactions amongst themselves, provided that no Borrower is a party to any such transaction and provided further that any such transaction does not affect the Mortgaged Property. Section 8.8. Limitation on Other Debt. No Borrower shall, without the prior written consent of Lender, directly' or indirectly incur any Debt other than the Loan and customary trade payables which are payable, and shall be paid, within sixty (60) days of when incurred. Section 8.9. Limitation on Other Liens. No Borrower shall create, place or permit to be created or placed, or through any act or failure to act voluntarily acquiesce in the placing of, or allow to remain, any Lien against or covering the Mortgaged Property or any part thereof (other than the Lien of the Mortgage), regardless of whether the same are expressly or otherwise subordinate to the liens or security interest of the Mortgage. If any Lien becomes attached hereafter in any manner to any part of the Mortgaged Property without the prior written consent of Lender which Lender may withhold in its sole and absolute discretion, then Borrowers will cause the same to be promptly discharged and released (by transfer to a bond or otherwise). Section 8.10. Guaranties and Other Investments. No Borrower shall directly or indirectly guaranty, assume or otherwise become liable or responsible for the Debt of any other Person, or offer or agree to do so, including agreements to purchase those obligations or to purchase, sell or lease any securities, assets, properties or services or make any capital contribution, advance or loan for the purpose of paying or discharging such Debt. No Borrower shall directly or indirectly make or permit to exist any advances or loans to, or own, purchase or make any commitment to purchase any stock, bonds, notes, debentures or other securities of, or any interest in, or make any capital contributions to or in any Person except for (1) purchases of 29 direct obligations of the federal government, (2) deposits in commercial banks, (3) commercial paper of any U.S. corporation having the highest ratings then given by the Moody's Investors Services, Inc. or Standard & Poor's Corporation, (4) endorsement of negotiable instruments for collection in the ordinary course of business and (5) investment grade securities. Section 8.11. Banking Accounts. During the term of the Loan, each Borrower shall maintain its primary depository account and cash management account relationship with Lender. Section 8.12. Minimum Debt Service Coverage Ratio. Borrowers shall maintain on an annual basis during the term of the Loan a consolidated Debt Service Coverage Ratio of not less than 1.15 to 1.0. Section 8.13. Further Assurances. Borrowers shall promptly (1) cure any defects in the execution and delivery of the Loan Documents, and (2) execute and deliver, or cause to be executed and delivered, all such other documents, agreements and instruments as Lender may reasonably request to further evidence and more fully describe the collateral for the Loan, to correct any omissions in the Loan Documents, to perfect, protect or preserve any liens created under any of the Loan Documents, or to make any recordings, file any notices, or obtain any consents, as may be necessary or appropriate in connection therewith. Section 8.14. Estoppel Certificates. Borrowers, within ten (10) days after request, shall furnish to Lender a written statement, duly acknowledged, setting forth the amount due on the Loan, the terms of payment of the Loan, the date to which interest has been paid, whether any offsets or defenses exist against the Loan and, if any are alleged to exist, the nature thereof in detail, and such other matters as Lender reasonably may request. Section 8.15. Notice of Certain Events. Borrowers shall promptly notify Lender of (1) any Potential Default or Event of Default, together with a detailed statement of the steps being taken to cure such Potential Default or Event of Default; (2) any notice of default received by any Borrower under other obligations relating to the Mortgaged Property that equal or exceed $50,000, or otherwise material to any Borrower's business; and (3) any threatened or pending legal, judicial or regulatory proceedings, including any dispute between any Borrower and any governmental authority, affecting any Borrower or the Mortgaged Property in any amount if any such proceeding or dispute concerns the City Lease, the State Lease or the State Waivers, and otherwise, if the amount equals or exceeds $50,000. Section 8.16. Indemnification. Borrowers shall indemnify, defend and hold Lender harmless from and against any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever, including the reasonable fees and actual expenses of Lender's counsel, in connection with (1) any inspection, review or testing of or with respect to the Mortgaged Property, (2) any investigative, administrative, mediation, arbitration, or judicial proceeding, whether or not Lender is designated a party thereto, commenced or threatened at any time (including after the repayment of the Loan) in any way related to the execution, delivery or performance of any Loan Document or to the Mortgaged Property, (3) any proceeding instituted by any Person claiming a Lien, and (4) any brokerage commissions or finder's fees claimed by any broker or other party, other than an employee of Lender, in connection with the Loan, the Mortgaged Property, or any 30 of the transactions contemplated in the Loan Documents, including those arising from the joint, concurrent, or comparative negligence of Lender, except to the extent any of the foregoing is caused by Lender's gross negligence or willful misconduct. Section 8.17. City Lease. (1) Covenants. Without limiting the generality of any other provision hereof, Bayshore Landing hereby covenants and agrees: (a) to promptly pay all rent, additional rent, taxes and all other sums and charges when due and payable under the terms of the City Lease, without offset or deduction whatsoever (unless expressly permitted under the terms of the City Lease or as otherwise approved by the City in writing), and to fully and promptly perform and observe all of the agreements, terms, covenants and conditions required to be performed and observed by Bayshore Landing under the City Lease within the grace or cure periods provided therein for the tenant's performance (in contrast to any additional grace periods as may be provided for curative action by Lender), and shall do all things necessary to preserve and keep unimpaired Bayshore Landing's rights under the City Lease. Within ten (10) days after demand, Borrowers shall furnish to Lender proof of payment of all sums which the City Lease requires the tenant thereunder to pay and to provide proof of such payment to the City; (b) to immediately notify Lender in writing of any default under the City Lease; and (c) to immediately cause a copy of each written default notice given by City to any Borrower to be delivered to Lender, regardless of the nature of such notice. (2) Lender's Right to Perform In the event Bayshore Landing fails to perform any of the terms, covenants and conditions required to be performed or observed by the tenant under the City Lease, then even though the existence of such default or the nature thereof be questioned or denied by Bayshore Landing or by any person on behalf of Bayshore Landing, Lender may, but without obligation to do so and without relieving Borrowers from any obligation hereunder or under the other Loan Documents, take any action Lender deems necessary or desirable to prevent or cure any such default. Lender agrees to attempt to provide Bayshore Landing a curtsey notice of the initial action taken by Lender, provided that the failure of Lender to provide such curtsey notice shall not give rise to any liability to Lender, nor shall it provide any Borrower with any claims, defenses, offsets, rights or remedies of any nature against Lender. Borrowers hereby expressly grants to Lender the absolute and immediate right to enter in and upon the Mortgaged Property or any part thereof to such extent and as often as Lender in its sole discretion deems necessary or desirable to prevent or cure any such default by Bayshore Landing. All costs, charges and expenses incurred or paid by Lender in conjunction therewith, together with interest thereon, at the Default Rate from the date incurred until paid by Borrowers, shall become indebtedness secured by the Mortgage and other Loan Documents and shall be paid by Borrowers to Lender not later than thirty (30) days after demand. The performance or observance of any such covenant or condition by the Lender shall not prevent the Borrowers' failure so to perform or observe from constituting an Event of Default. 31 (3) No Merger. Unless Lender shall otherwise consent in writing, the fee title to the Mortgaged Property and the leasehold under the City Lease shall not merge for so long as the Loan remains unpaid, but shall always remain separate and distinct estates, notwithstanding the union thereof in the City, in Bayshore Landing or in any third person whomsoever, whether by purchase or otherwise. (4) Borrowers have no Interest If the City Lease is terminated before the natural expiration of its term for any reason whatsoever and if Lender or its designee shall acquire from the City a new lease of the Mortgaged Property or any portion thereof (whether pursuant to any provision of the City Lease or otherwise), then no Borrower shall have any right, title or interest whatsoever in or to such new lease or the leasehold estate created thereby. (5) No Liability. The Mortgage creates in favor of Lender a collateral (rather than an absolute) assignment of and security interest in the City Lease and the leasehold estate created thereunder, and neither the Mortgage or any other Loan Document shall impose on Lender any liability to the City with respect thereto (whether by privity or estate or otherwise) unless and until Lender shall have acquired the leasehold estate thereunder absolutely (whether by foreclosure or assignment in lieu thereof or otherwise), and then such liability shall be limited to the obligations of the lessee under the City Lease arising after such acquisition and only during the time that Lender is the owner of such leasehold estate and not thereafter. (6) No Surrender, Modification, Etc. Each Borrower agrees that it will not (a) surrender any of its rights under the City Lease, (b) terminate or cancel or release the City Lease or (c) consent to any modification, change or any alteration or amendment of the City Lease, either orally or in writing. (7) New Lease. Borrowers agree to use their continuous best efforts to provide to Lender an agreement from the City in favor of Lender, in form and substance acceptable to Lender, under which the City agrees to enter into a new lease with Lender on the same terms and conditions as the City Lease in the event the City Lease is terminated due to or as a result of (a) any voluntary or involuntary case or other proceeding against any Bankruptcy Party which seeks liquidation, reorganization or other relief with respect to it or its debts or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeks the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any of its property or (b) any default under the City Lease that are incapable of cure by Lender. Section 8.18. Rawbar Sublease. (1) Covenants. Without limiting the generality of any other provision hereof, Bayshore Rawbar hereby covenants and agrees: (a) to promptly pay all rent, additional rent, taxes and all other sums and charges when due and payable under the terms of the Rawbar Sublease, without offset or deduction whatsoever (unless expressly permitted under the terms of the Rawbar Sublease or as otherwise approved by the landlord thereunder in writing), and to fully and promptly perform and observe all of the agreements, terms, covenants and conditions required to be performed and observed by Bayshore Rawbar under the Rawbar Sublease within the grace or cure periods 32 provided therein for the tenant's performance (in contrast to any additional grace periods as may be provided for curative action by Lender), and shall do all things necessary to preserve and keep unimpaired Bayshore Rawbar's rights under the Rawbar Sublease. Within ten (10) days after demand, Borrowers shall furnish to Lender proof of payment of all sums which the landlord under the Rawbar Sublease requires the tenant thereunder to pay and to provide proof of such payment to such landlord; (b) to immediately notify Lender in writing of any default under the Rawbar Sublease; and (c) to immediately cause a copy of each written default notice given by the landlord under the Rawbar Sublease to any Borrower to be delivered to Lender, regardless of the nature of such notice. (2) Lender's Right to Perform. In the event Bayshore Rawbar fails to perform any of the terms, covenants and conditions required to be performed or observed by the tenant under the Rawbar Sublease, then even though the existence of such default or the nature thereof be questioned or denied by Bayshore Rawbar or by any person on behalf of Bayshore Rawbar, Lender may, but without obligation to do so and without relieving Borrowers from any obligation hereunder or under the other Loan Documents, take any action Lender deems necessary or desirable to prevent or cure any such default. Lender agrees to attempt to provide Bayshore Rawbar a courtesy notice of the initial action taken by Lender, provided that the failure of Lender to provide such courtesy notice shall not give rise to any liability to Lender, nor shall it provide any Borrower with any claims, defenses, offsets, rights or remedies of any nature against Lender. Borrowers hereby expressly grants to Lender the absolute and immediate right to enter in and upon the Mortgaged Property or any part thereof to such extent and as often as Lender in its sole discretion deems necessary or desirable to prevent or cure any such default by Bayshore Rawbar. All costs, charges and expenses incurred or paid by Lender in conjunction therewith, together with interest thereon, at the Default Rate from the date incurred until paid by Borrowers, shall become indebtedness secured by the Mortgage and other Loan Documents and shall be paid by Borrowers to Lender not later than thirty (30) days after demand. The performance or observance of any such covenant or condition by the Lender shall not prevent the Borrowers' failure so to perform or observe from constituting an Event of Default. (3) No Merger. Unless Lender shall otherwise consent in writing, the leasehold interest under the City Lease and the subleasehold interest under the Rawbar Sublease shall not merge for so long as the Loan remains unpaid, but shall always remain separate and distinct estates, notwithstanding the union thereof in Bayshore Landing, Bayshore Rawbar or in any third person whomsoever, whether by purchase or otherwise. (4) Borrowers have no Interest. If the Rawbar Sublease is terminated before the natural expiration of its term for any reason whatsoever and if Lender or its designee shall acquire a new sublease of the area leased under the Rawbar Sublease or any portion thereof, then no Borrower shall have any right, title or interest whatsoever in or to such new lease or the leasehold estate created thereby. 33 (5) No Liability. The Mortgage creates in favor of Lender a collateral (rather than an absolute) assignment of and security interest in the rawbar Sublease and the leasehold estate created thereunder, and neither the Mortgage or any other Loan Document shall impose on Lender any liability to the landlord thereunder with respect thereto (whether by privily or estate or otherwise) unless and until Lender shall have acquired the subleasehold estate thereunder absolutely (whether by foreclosure or assignment in lieu thereof or otherwise), and then such liability shall be limited to the obligations of the lessee under the Rawbar Sublease arising after such acquisition and only during the time that Lender is the owner of such subleasehold estate and not thereafter. (6) No Surrender, Modification, Etc. Bayshore Landing and Bayshore Rawbar each agrees that it will not, without first obtaining Lender's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, (a) surrender any of its rights under the Rawbar Sublease, (b) terminate or cancel or release the Rawbar Sublease or (c) consent to any modification, change or any alteration or amendment of the Rawbar Sublease, either orally or in writing. (7) Termination of Rawbar Sublease. From and after any Event of Default under this Agreement, Lender may, in its sole and absolute discretion, without cause and without penalty, terminate the Rawbar Sublease on ten (10) days' written notice to Bayshore Rawbar. In such event, upon the expiration of such ten (I 0) day period, the Rawbar Sublease shall immediately terminate, and Bayshore Rawbar shall immediately vacate the premises leased thereunder. Section 8.19. Restaurant Sublease. (1) Covenants. Without limiting the generality of any other provision hereof, Bayshore Restaurant hereby covenants and agrees: (a) to promptly pay all rent, additional rent, taxes and all other sums and charges when due and payable under the terms of the Restaurant Sublease, without offset or deduction whatsoever (unless expressly permitted under the terms of the Restaurant Sublease or as otherwise approved by the landlord thereunder in writing), and to fully and promptly perform and observe all of the agreements, terms, covenants and conditions required to be performed and observed by Bayshore Restaurant under the Restaurant Sublease within the grace or cure periods provided therein for the tenant's performance (in contrast to any additional grace periods as may be provided for curative action by Lender), and shall do all things necessary to preserve and keep unimpaired Bayshore Restaurant's rights under the Restaurant Sublease. Within ten (10) days after demand, Borrowers shall furnish to Lender proof of payment of all sums which the landlord under the Restaurant Sublease requires the tenant thereunder to pay and to provide proof of such payment to such landlord; (b) to immediately notify Lender in writing of any default under the Restaurant Sublease; and 34 (c) to immediately cause a copy of each written default notice given by the landlord under the Restaurant Sublease to any Borrower to be delivered to Lender, regardless of the nature of such notice. (2) Lender's Right to Perform. In the event Bayshore Restaurant fails to perform any of the terms, covenants and conditions required to be performed or observed by the tenant under the Restaurant Sublease, then even though the existence of such default or the nature thereof be questioned or denied by Bayshore Restaurant or by any person on behalf of Bayshore Restaurant, Lender may, but without obligation to do so and without relieving Borrowers from any obligation hereunder or under the other Loan Documents, take any action Lender deems necessary or desirable to prevent or cure any such default. Lender agrees to attempt to provide Bayshore Restaurant a courtesy notice of the initial action taken by Lender, provided that the failure of Lender to provide such courtesy notice shall not give rise to any liability to Lender, nor shall it provide any Borrower with any claims, defenses, offsets, rights or remedies of any nature against Lender. Borrowers hereby expressly grants to Lender the absolute and immediate right to enter in and upon the Mortgaged Property or any part thereof to such extent and as often as Lender in its sole discretion deems necessary or desirable to prevent or cure any such default by Bayshore Restaurant. All costs, charges and expenses incurred or paid by Lender in conjunction therewith, together with interest thereon, at the Default Rate from the date incurred until paid by Borrowers, shall become indebtedness secured by the Mortgage and other Loan Documents and shall be paid by Borrowers to Lender not later than thirty (30) days after demand. The performance or observance of any such covenant or condition by the Lender shall not prevent the Borrowers' failure so to perform or observe from constituting an Event of Default. (3) No Merger. Unless Lender shall otherwise consent in writing, the leasehold interest under the City Lease and the subleasehold interest under the Restaurant Sublease shall not merge for so long as the Loan remains unpaid, but shall always remain separate and distinct estates, notwithstanding the union thereof in Bayshore Landing, Bayshore Restaurant or in any third person whomsoever, whether by purchase or otherwise. (4) Borrowers have no Interest. If the Restaurant Sublease is terminated before the natural expiration of its term for any reason whatsoever and if Lender or its designee shall acquire a new sublease of the area leased under the Restaurant Sublease or any portion thereof, then no Borrower shall have any right, title or interest whatsoever in or to such new lease or the leasehold estate created thereby. (5) No Liability. The Mortgage creates in favor of Lender a collateral (rather than an absolute) assignment of and security interest in the Restaurant Sublease and the leasehold estate created thereunder, and neither the Mortgage or any other Loan Document shall impose on Lender any liability to the landlord thereunder with respect thereto (whether by privily or estate or otherwise) unless and until Lender shall have acquired the subleasehold estate thereunder absolutely (whether by foreclosure or assignment in lieu thereof or otherwise), and then such liability shall be limited to the obligations of the lessee under the Restaurant Sublease arising after such acquisition and only during the time that Lender is the owner of such subleasehold estate and not thereafter. 35 (6) No Surrender, Modification, Etc. Bayshore Landing and Bayshore Restaurant each agrees that it will not, without first obtaining Lender's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed, (b) terminate or cancel or release the Restaurant Sublease or (c) consent to any modification, change or any alteration or amendment of the Restaurant Sublease, either orally or in writing. (7) Termination of Restaurant Sublease. From and after any Event of Default under this Agreement, Lender may, in its sole and absolute discretion, without cause and without penalty, terminate the Restaurant Sublease on ten (10) days' written notice to Bayshore Restaurant. In such event, upon the expiration of such ten (10) day period, the Restaurant Sublease shall immediately terminate, and Bayshore Restaurant shall immediately vacate the premises leased thereunder. Section 8.20 State Lease. (1) Covenants. Without limiting the generality of any other provision hereof, Bayshore Landing hereby covenants and agrees: (a) to promptly pay any and all payments it or the City may be required to make under or in connection with the State Lease, and to fully and promptly perform and observe any and all of the agreements, terms, covenants and conditions it or the City may be required to perform thereunder or in connection therewith, and shall do all things necessary to preserve and keep unimpaired Bayshore Landing's and the City's rights under the State Lease. Promptly after Lender's demand, Borrowers shall request the City to furnish to Lender proof of payment of all sums which the City is required to pay under the State Lease, and by May 3 1 of each year throughout the term of the Loan, and at all other times within ten (10) days after demand, Borrowers shall furnish to Lender proof of payment of all sums required to be paid under or in connection with the State Lease. Promptly after Lender's demand, Borrowers shall use its continuous best efforts to obtain and furnish to Lender a written estoppel from the State with respect to the State Lease that is in form and substance satisfactory to Lender; (b) to promptly notify Lender in writing of any default under the State Lease that any Borrower at any time becomes aware of, and (c) to promptly cause a copy of each notice given to any Borrower in connection with the State Lease to be delivered to Lender, regardless of the nature of such notice. (2) Lender's Right to Perform. In the event any of the terms, covenants and conditions required to be performed or observed under the State Lease are not performed, then Borrowers have no objection if Lender, in its sole discretion and without obligation to do so, takes any action Lender deems necessary or desirable to prevent or cure any such default. Lender agrees to attempt to provide Bayshore Landing a courtesy notice of the initial action taken by Lender, provided that the failure of Lender to provide such courtesy notice shall not give rise to any liability to Lender, nor shall it provide Borrowers with any claims, defenses, offsets, rights or remedies of any nature against Lender. Borrowers hereby expressly grants to Lender the absolute and immediate right to enter in and upon the Mortgaged Property or any part thereof to such extent and as often as Lender in its sole discretion deems necessary or desirable 36 to prevent or cure any such default. All costs, charges and expenses incurred or paid by Lender in conjunction therewith, together with interest thereon, at the Default Rate from the date incurred until paid by Borrowers, shall become indebtedness secured by the Mortgage and other Loan Documents and shall be paid by Borrowers to Lender not later than thirty (30) days after demand. (3) No Liability. The Mortgage creates in favor of Lender a collateral (rather than an absolute) assignment of and security interest in Borrowers' rights under the State Lease, and neither the Mortgage or any other Loan Document shall impose on Lender any liability to the City or the State with respect thereto (whether by privily or estate or otherwise). (4) No Surrender, Modification. Etc. Each Borrower agrees that it will not (a) surrender any of its rights under the State Lease, (b) consent to any termination or cancellation or release of the State Lease or (c) without Lender's prior written consent, consent to any modification, change or any alteration or amendment of the State Lease, either orally or in writing. (5) Extension of Term of State Lease. Not later than that date that is six (6) months prior to the last day of the term of the State Lease, and not later than that date that is six (6) months prior to the last day of each extended term of the State Lease, Borrowers shall formally request the City to immediately commence the process of obtaining an extension of the term of the State Lease for the maximum term available under applicable law, rule or regulation, or for the longest renewal term that the State will grant after diligent effort to achieve the maximum term available. Section 8.21 State Waivers. (1) Covenants. Without limiting the generality of any other provision hereof, Bayshore Landing hereby covenants and agrees: (a) to promptly pay any and all payments it or the City may be required to make under or in connection with the State Waivers, and to fully and promptly perform and observe any and all of the agreements, terms, covenants and conditions it or the City may be required to perform thereunder or in connection therewith, and shall do all things necessary to preserve and keep unimpaired Bayshore Landing's and the City's rights under the State Waivers. Promptly after Lender's demand, Bayshore Landing shall request the City to furnish to Lender proof of payment of all sums which the City is required to pay under the State Waivers, and by May 31 of each year throughout the term of the Loan with respect to the portion of the Mortgaged Property referred to as Parcels A2, B2 and 2, and by April 30 of each year throughout the term of the Loan with respect to the portion of the Mortgaged Property referred to as Parcel 5, and at all other times within ten (10) days after demand, Borrowers shall furnish to Lender proof of payment of all sums required to be paid under or in connection with the State Waivers; (b) to promptly notify Lender in writing of any default under the State Waivers that any Borrower at any time becomes aware of; and 37 (c) to promptly cause a copy of each notice given to any Borrower in connection with the State Waivers to be delivered to Lender, regardless of the nature of such notice. (2) Lender's Right to Perform. In the event any of the terms, covenants and' conditions required to be performed or observed under the State Waivers are not performed, then Borrowers have no objection if Lender, in its sole discretion and without obligation to do so, takes any action Lender deems necessary or desirable to prevent or cure any such , default. Lender agrees to attempt to provide Bayshore Landing a courtesy notice of the initial action taken by Lender, provided that the failure of Lender t provide such courtesy notice shall not give rise to any liability to Lender, nor shall it provide Borrowers with any claims, defenses, offsets, rights or remedies of any nature against Lender. Borrowers hereby expressly grants to' Lender the absolute and immediate right to enter in and upon the Mortgaged Property or any part thereof to such extent and as often as Lender in its sole discretion deems necessary or desirable to prevent or cure any such default. All costs, charges and expenses `incurred or paid by Lender in conjunction therewith, together with interest thereon, at the Default Rate from the date incurred until paid by Borrowers, shall become indebtedness secured by the Mortgage and other Loan Documents and shall be paid by Borrowers to Lender not later than thirty (30) days after demand. (3) No Liability. The Mortgage creates in favor of Lender a collateral (rather than an absolute) assignment of and security interest in Borrowers' rights under the State Waivers, and neither the Mortgage or any other Loan Document shall impose on Lender any liability to the City or the State with respect thereto (whether by privity or estate or otherwise). (4) No Surrender, Modification, Etc. Each Borrower agrees that it will not (a) surrender any of its rights under the State Waivers, (b) consent to any termination or cancellation or release of the State Waivers or (c) without Lender's prior written consent, consent to any modification, change or any alteration or amendment of the State Waivers, either orally or in writing. Section 8.22. Construction of Project. Construction of the Project, including delivery of materials or performance of lienable work, shall not commence before recording of the Mortgage or before recording a notice of commencement as required by Schedule 2.2, and posting of such notice of commencement at the Project as required by the Construction Lien Law. Borrowers shall not cause a notice of commencement to be recorded prior to the recordation of the Mortgage. Unless otherwise agreed in writing by Lender and subject to Excusable Delays, construction of the Project shall commence within one hundred twenty (120) days from the date of this Agreement and be carried on diligently and without delay or interruption for more than ten (10) consecutive days. The Project shall be constructed in a good and workmanlike manner, in accordance with the Plans and Specifications and the other Construction Documents submitted or to be submitted to Lender, and in compliance with the Budget and/or disbursement schedule, as applicable. Section 8.23. Completion of the Project. Borrowers shall complete construction of the Project, including, without limitation, all tenant improvement work, by no later then the Completion Date. The Completion Date shall be extended as a result of any Excusable Delays; 38 provided, however, the existence of an Excusable Delay shall not serve to extend the Maturity Date or otherwise suspend or abate any other obligation of Borrowers under this Agreement or the other Loan Documents. For purposes of this Agreement, completion of the Project shall be deemed to have occurred only when the following conditions (the "Completion Conditions") shall have been satisfied: (1) Certificate(s) of Occupancy. Borrowers shall furnish to Lender temporary certificate(s) of occupancy or its equivalent and such other permits and/or certificates (including a certificate of completion in accordance with the Plans and Specifications from the Architect issued to Lender) as shall be required to establish to Lender's satisfaction that the Project (including, without limitation, all tenant improvement work) has been properly completed and is not subject to any violations or uncorrected conditions noted or filed in any municipal department. (2) Releases of Lien Borrowers shall submit to Lender full and complete releases of liens from each contractor, subcontractor and supplier, together with a final contractor's affidavit as required under the Construction Lien Law and other proof reasonably required by Lender confirming that final payment has been made for all materials supplied and labor furnished in connection with the Project (including, without limitation, all tenant improvement work). (3) Inspection Report. The Project (including, without limitation, all tenant improvement work) shall have been finally completed in all respects in accordance with the Plans and Specifications, as verified by a final inspection report satisfactory to Lender from Lender's Inspector, certifying that the Project (including, without limitation, all tenant improvement work) has been constructed in a good and workmanlike manner and is in satisfactory condition, and that all mechanical, electrical, plumbing, structural and roof systems are in acceptable operating condition. Lender reserves the right to require that an escrow be established in an amount satisfactory to Lender to remedy any physical deficiency in any of the Project. Borrowers shall furnish to Lender permanent certificate(s) of occupancy or its equivalent not later than sixty (60) days after the Completion Date. (4) As-Built Survey. If reasonably requested by Lender, Borrowers shall deliver to Lender a satisfactory as-built survey disclosing no conditions unacceptable to Lender and showing lot and street lines, the location of all improvements, easements, rights-of-way and utilities (including all easements listed as exceptions on the mortgagee policy of title insurance delivered to and accepted by Lender), and containing a certification addressed to Lender in form and content satisfactory to Lender. Section 8.24. Change Orders. No amendment shall be made to the Plans and Specifications, the Architect's Contract or to the Construction Contract, nor shall any change orders be made thereunder without the prior written consent of Lender and the surety under the Bonds. 39 Section 8.25. Subcontractors. Borrowers agree that none of them will engage or permit the General Contractor to engage or continue to employ any contractor, subcontractor or materialman who may be reasonably objectionable to Lender. If requested by Lender, Borrowers shall deliver to Lender a fully executed copy of each of the agreements between any Borrower and such contractors and between the General Contractor and its subcontractors, each of which shall be in form and substance satisfactory to Lender. Lender's approval of a construction contract is specifically conditioned upon the following: (1) the total contract price thereof does not exceed the fair and reasonable cost of the work to be performed thereunder, and (2) the contractor or subcontractor is of recognized standing in the trade, has a reputation for complying with contractual obligations, and is otherwise acceptable to Lender. Section 8.26. Liens and Lien Waivers. Borrowers shall take all action necessary to have any mechanic's and materialmen's liens, judgment liens or other liens or encumbrances filed against the Mortgaged Property released or transferred to bond within twenty (20) days of the date any Borrower receives notice of the filing of such liens or encumbrances. If any such lien or encumbrance is filed, Lender shall not be required t make any Advances until it is removed and a copy of the recorded release thereof is received by Lender and accepted by the Title Insurer. Lender shall not be obligated to disburse any funds to any Borrower if, in the opinion of Lender, any Advance, the Mortgaged Property, or any other collateral for the Loan would be subject to a mechanic's or materialmen's lien or any other lien or encumbrance. Borrowers shall be fully and solely responsible for compliance in all respects whatsoever with the applicable mechanic's and materialmen's lien laws. Borrowers shall (1) notify Lender of any and all notices to owner and claims of lien under the Construction Lien Law within 5 days of receipt thereof, and (2) comply with all provisions of the Construction Lien Law, including but not limited to payment and notice provisions. Borrowers authorize Lender to demand on Borrowers' behalf the statement of account referred to in Section 713.16(2) of the Florida Statutes of any person or entity filing a notice to owner. Lender's rights to request such statements of account will not impose any obligation on Lender to use such authority, and the exercise of such authority shall not create or imply any obligation to exercise such authority on subsequent occasions. Section 8.27. Surveys. If reasonably requested by Lender, Borrowers shall deliver to Lender, each in compliance with Lender's survey requirements, (1) a foundation survey within thirty (30) days after completion of the foundation of the Project, (2) an as-built survey within thirty (30) days after the completion of the Project but prior to the final Advance of the Construction Loan, and (3) any additional surveys requested by Lender, Lender's Inspector or the Title Insurer, within thirty (30) days after such request. Any change in the state of facts shown in any such updated survey shall be subject to approval by Lender and Lender's Inspector. Section 8.28. Compliance with Laws and Restrictions. All construction shall be performed strictly in accordance with all applicable statutes, ordinances, codes, regulations and restrictions. The Project shall be constructed entirely on the Mortgaged Property and will not encroach upon or overhang any easement, right of way, or any other land, and shall be constructed wholly within applicable building setback restrictions. All contractors, subcontractors, mechanics or laborers and other persons providing labor or material in construction of the Project shall have or be covered by worker's compensation insurance, if required by applicable law. 40 Section 8.29. Ownership of Material and Fixtures. No materials, equipment or fixtures incorporated by Borrowers into the Project shall be purchased or installed under any security agreement, conditional sales contract, lease, or other arrangement wherein the seller reserves title or any interest in such items or the right to remove or repossess such items or to consider them personal property after their incorporation into the Project, without the prior written consent of Lender. Section 8.30. Payment and Performance Bonds. Borrowers shall furnish Lender with both payment and performance bonds (collectively, the "Bonds") equal to 100% of the stipulated sum or guaranteed maximum set forth in the Construction Contract, and in form and substance satisfactory to Lender, issued by a surety acceptable to Lender, and naming Lender and Bayshore Landing as dual obligees thereunder. ART1CLE 9. EVENTS OF DEFAULT Each of the following shall constitute an Event of Default under the Loan: Section 9.1. Payments. Borrowers' failure to pay any regularly scheduled installment of principal, interest or other amount due under the Loan Documents within five (5) days after the date when due, or Borrowers' failure to pay the Loan at the Maturity Date, whether by acceleration or otherwise. Section 9.2. Insurance. Borrowers' failure to maintain insurance as required under Section 3.1 of this Agreement. Section 9.3. Sale, Encumbrance, Change in Control or Manager, Etc. The sale, transfer, conveyance, pledge, mortgage or assignment of any part or all of the Mortgaged Property, or any interest therein, or of any interest in any Borrower, or changes in control or management, in violation of Sections 8.1 or 8.3 of this Agreement. Section 9.4. City Lease. (1) any default or "Event of Default" by Bayshore Landing under the City Lease that remains uncured after any applicable grace or cure period contained within the City Lease; (2) Lender's receipt of any notice from the City of intention to terminate the City Lease for any reason whatsoever, or any termination or purported termination of the City Lease (whether voluntarily or by operation of law) subject to the expiration of any grace or cure period specified in said notice; (3) any surrender, termination, cancellation, release, modification, change, supplement, alteration or amendment whatsoever to the City Lease without Lender's prior written consent, which Lender may grant or withhold in its reasonable discretion; or (4) any election by the City (or its trustee in bankruptcy) to reject the City Lease pursuant to section 365(h) of the Federal Bankruptcy Code of I 978 (or any successor provision) or under any similar law or right of any nature. Section 9.5. Rawbar Sublease. (1) any default or "Event of Default" by Bayshore Rawbar under the Rawbar Sublease that remains uncured after any applicable grace or cure period contained within the Rawbar Sublease; (2) Lender's receipt of any notice from the landlord under the Rawbar Sublease of intention to terminate the Rawbar Sublease for any 41 reason whatsoever, or any termination or purported termination of the Rawbar Sublease (whether voluntarily or by operation of law) subject to the expiration of any grace or cure period specified in said notice; (3) any surrender, termination, cancellation, release, modification, change, supplement, alteration or amendment whatsoever to the Rawbar Sublease without Lender's prior written consent, which Lender may grant or withhold in its reasonable discretion; or (4) any election by the landlord under the Rawbar Sublease (or its trustee in bankruptcy) to reject the Rawbar Sublease pursuant to section 365(h) of the Federal Bankruptcy Code of I 978 (or any successor provision) or under any similar law or right of any nature. Section 9.6. Restaurant Sublease. (1) any default or "Event of Default" by Bayshore Restaurant under the Restaurant Sublease that remains uncured after any applicable grace or cure period contained within the Restaurant Sublease; (2) Lender's receipt of any notice from the landlord under the Restaurant Sublease of intention to terminate the Restaurant Sublease for any reason whatsoever,~' or any termination or purported termination of the Restaurant Sublease (whether voluntarily or by operation of law) subject to the expiration of any grace or cure period specified in said notice; (3) any surrender, termination, cancellation, release, modification, change, supplement, alteration or amendment whatsoever to the Restaurant Sublease without Lender's prior written consent, which Lender may grant or withhold in its reasonable discretion; or (4) any election by the landlord under the Restaurant Sublease (or its trustee in bankruptcy) to reject the Restaurant Sublease pursuant to section 365(h) of the Federal Bankruptcy Code of I 978 (or any successor provision) or under any similar law or right of any nature. Section 9.7. intentionally deleted Section 9.8. intentionally deleted Section 9.9. State Waivers (1) any default or "Event of Default" under the State Waivers that remains uncured after any applicable grace or cure period contained therein; (2) Lender's receipt of any notice from the City, the State or any other Person of intention to terminate the State Waivers for any reason whatsoever, or any termination or purported termination of the State Waivers (whether voluntarily or by operation of law) subject to the expiration of any grace or cure period specified in said notice; (3) any surrender, termination, cancellation, release, modification, change, supplement, alteration or amendment whatsoever to the State Waivers without Lender's prior written consent, which Lender may grant or withhold in its reasonable discretion; or (4) any election by the City, the State Agency or any other Person (or a trustee in bankruptcy) to reject the State Waivers pursuant to section 365(h) of the Federal Bankruptcy Code of 1978 (or any successor provision) or under any similar law or right of any nature. Section 9.10. intentionally deleted Section 9.11. Debt Service Coverage Ratio Covenant. Borrowers' failure to maintain the Debt Service Coverage Ratio as required under Section 8.12 of this Agreement. Section 9.12. Hedge Documents. Any "Event of Default" by Bayshore Landing under the Hedge Documents. 42 Section 9.13. Covenants. Any Borrower's failure to perform or observe any of the other agreements and covenants contained in this Agreement or in any of the other Loan Documents and the continuance of such failure for thirty (30) days after notice by Lender to Bayshore Landing; however, subject to any shorter period for curing any failure by Borrowers as specified in any of the other Loan Documents, Borrowers shall have an additional thirty (30) days to cure such failure if (1) such failure does not involve the failure to make payments on a monetary obligation; (2) such failure is curable but cannot reasonably be cured within the initial thirty (30) day period; (3) Borrowers are diligently undertaking to cure such default, and (4) Borrowers have provided Lender with security reasonably satisfactory to Lender against any interruption of payment or impairment of collateral as a result of such continuing failure. The notice and cure provisions of this Section 9. 13 do not apply to the Events of Default described in any other Section of this Article 9. Section 9.14. Representations and Warranties. Any representation or warranty made in any Loan Document proves to be untrue in any material respect when made or deemed made, or if any report, statement, certificate, schedule or other document or information furnished (whether prior to, on or after the date of this Agreement) in connection with this Agreement or any of the other Loan Documents shall prove to have been false or misleading when furnished in any way reasonably deemed material by Lender. Section 9.15. Other Encumbrances. Any default under any document or instrument, other than the Loan Documents, evidencing or creating a Lien on the Mortgaged Property or any part thereof. ` Section 9.16. Involuntary Bankruptcy or Other Proceeding. Commencement of an involuntary case or other proceeding against any Borrower, any Borrower Party or any other Person having an ownership or security interest in the Mortgaged Property (each, a `Bankruptcy Party") which seeks liquidation, reorganization or other relief with respect to it or its debts or other liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeks the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any of its property, and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of 90 days; or an order for relief against a Bankruptcy Party shall be entered in any such case under the Federal Bankruptcy Code. Section 9.17. Voluntary Petitions, etc. Commencement by a Bankruptcy Party of a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its Debts or other liabilities under any bankruptcy, insolvency or other similar law or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official for it or any of its property, or consent by a Bankruptcy Party to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or the making by a Bankruptcy Party of a general assignment for the benefit of creditors, or the failure by a Bankruptcy Party, or the admission by a Bankruptcy Party in writing of its inability, to pay its debts generally as they become due, or any action by a Bankruptcy Party to authorize or effect any of the foregoing; 43 Section 9.18 Guaranty Defaults. If any Guarantor shall default in the due observance or performance of any term, covenant or condition in its/his Guaranty or any other Loan Document. Section 9.19. intentionally deleted Section 9.20. Default Under Other Obligations. If any other obligation now or hereafter owed by any Borrower or any Borrower Party to Lender shall be in default and not be cured within the grace period, if any, provided therein, or any Borrower or any such Borrower Party shall be in default under any obligation in excess of $50,000 owed to any other obligee, or a material default by any Borrower in payment or performance of any of its obligations under other any contracts or agreements. Section 9.21. Material Adverse Change. If there shall occur any change in the condition (financial or otherwise) of any Borrower and/or any Borrower Party which, in the reasonable opinion of Lender, could have a Material Ad verse Effect. `Material Adverse Effect" means any (1) material adverse effect upon the validity, performance or enforceability of any of the Loan Documents or any of the transactions contemplated hereby or thereby, (2) material adverse effect upon the properties, business, prospects or condition (financial or otherwise) of any Borrower and/or any Borrower Party, or (3) material adverse effect upon the ability of any Borrower or any Borrower Party to fulfill any obligation under any of the Loan Documents. Section 9.22. General Contractor. The bankruptcy or insolvency of the General Contractor, unless not later than fifteen (15) days thereafter, such General Contractor is substituted by another general contractor acceptable to Lender, or the termination of the Construction Contract without Lender's prior written approval. Section 9.23. Commencement and Completion of Construction; Plans and Specifications. Subject to Excusable Delays, failure to commence construction of the Project by that date that is one hundred twenty (120) days after the date of this Agreement or failure to complete the Project in accordance with the Plans and Specifications in the judgment of Lender's Inspector on or before the Completion Date or changes in the Plans and Specifications are made without securing the prior express written consent of Lender as required. Section 9.24. Progress of Construction. Failure to proceed with reasonable diligence with the construction of the Project in the judgment of Lender's Inspector, or abandonment of or cessation of work on the Project, at any time prior to the completion of the Project, for a period of more than fifteen (15) days. ARTICLE 10. REMEDIES Section 10.1. Remedies - Insolvency Events. Upon the occurrence of any Event of Default described in Section 9.16 or 9.17, the obligations of Lender to advance amounts hereunder shall immediately terminate, and all amounts due under the Loan Documents immediately shall become due and payable, all without written notice and without presentment, 44 demand, protest, notice of protest or dishonor, notice of intent to accelerate the maturity thereof, notice of acceleration of the maturity thereof, or any other notice of default of any kind, all of which are hereby expressly waived by Borrowers; however, if the Bankruptcy Party under Section 9.16 or 9.17 is other than any Borrower or a Borrower Party, then all amounts due under the Loan Documents shall become immediately due and payable at Lender's election, in Lender's sole discretion. Section 10.2. Remedies - Other Events. Except as set forth in Section 10.1 above, while any Event of Default exists, Lender may (1) by written notice to Bayshore Landing, declare the entire Loan to be immediately due and payable without presentment, demand, protest, notice of protest or dishonor, notice of intent to accelerate the maturity thereof, notice of acceleration of the maturity `thereof, or other notice of default of any kind, all of which are hereby expressly waived by Borrowers, (2) terminate the obligation, if any, of Lender to make any further Advance hereunder, and (3) exercise all rights and remedies therefor under the Loan Documents and at law or in equity. Section 10.3. Lender's Right to Perform the Obligations. If any Borrower shall fail, refuse or neglect to make any payment or perform any act required by the Loan Documents, then while any Event of Default exists, and without notice to or demand upon any Borrower and without waiving or releasing any other right, remedy or recourse Lender may have because of such Event of Default, Lender may (but shall not be obligated to) make such payment or perform such act for the account of and at the expense of Borrowers, and shall have the right to enter upon the Mortgaged Property for such purpose and to take all such action thereon and with respect to the Mortgaged Property as it may deem necessary or appropriate. If Lender shall elect to pay any sum due with reference to the Mortgaged Property, Lender may do so in reliance on any bill, statement or assessment procured from the appropriate governmental authority or other issuer thereof without inquiring into the accuracy or validity thereof. Similarly, in making any payments to protect the security intended to be created by the Loan Documents, Lender shall not be bound to inquire into the validity of any apparent or threatened adverse title, lien, encumbrance, claim or charge before making an advance for the purpose of preventing or removing the same. Without limiting the generality of the foregoing, Lender may take immediate possession of the Mortgaged Property, as well as all other security to which title is held by any Borrower as is necessary to fully complete the Project, and appoint a receiver, as a matter of strict right without regard to the solvency of any Borrower, for the purpose of preserving the Mortgaged Property, preventing waste, and to protect all rights accruing to Lender by virtue of this Agreement and of the Loan Documents, and expressly to make any and all further improvements, whether on-site or off-site, as may be determined by Lender for the purpose of completing the development and construction of the Project. Additionally, if any Hazardous Materials affect or threaten to affect the Mortgaged Property, Lender may (but shall not be obligated to) give such notices and take such actions as it deems necessary or advisable in order to abate the discharge of any Hazardous Materials or remove the Hazardous Materials. Borrowers shall indemnify Lender for all losses, expenses, damages, claims and causes of action, including reasonable attorneys' fees, incurred or accruing by reason of any acts performed by Lender pursuant to the provisions of this Section 10.3, including those arising from the joint, concurrent, or comparative negligence of Lender, except as a result of Lender's gross negligence or willful misconduct. All sums paid by Lender pursuant to this Section 10.3, and all other sums expended by Lender to which it shall be entitled to be indemnified, together with interest thereon 45 at the Default Rate from the date of such payment or expenditure until paid, shall constitute additions' to the Loan, shall be secured by the Loan Documents and shall be paid by Borrowers to Lender not later than thirty (30) days after demand. ARTICLE 11. MISCELLANEOUS Section 11.1. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and either shall be mailed by certified mail, postage prepaid, return receipt requested, or sent by overnight air courier service, or personally delivered to a representative of the receiving party, or sent by telecopy (provided an identical notice is also sent simultaneously by mail, overnight courier, or personal delivery as otherwise provided in this Section 11.1). All such communications shall be mailed, sent or delivered, addressed to the party for whom it is intended at its address set forth below. If to any Borrower: 300 Alton Road, Suite 303 Miami Beach, Florida, 33139 Attention: Robert W. Christoph, Jr. Telecopy:(305) 673-5995 With copies to: Bilzin Sumberg Baena Price and Axeirod LLP 2500 Wachovia Financial Center 200 South Biscayne Boulevard Miami, Florida 3313 1-2336 Attn: Suzanne Amaducci, Esq. Telecopy: (305) 351-2207 HMG Bayshore LLC 1870 S. Bayshore Drive Miami, Florida 33130 Attn: Larry Rothstein Telecopy: (305) 856-7342 If to Lender: Wachovia Bank, National Association Commercial Banking 200 S. Biscayne Boulevard, I 5t)~ Floor Miami, Florida 33131 Attn: Anita Aedo, Senior Vice President Telecopy: (305) 789-5036 With copies to: Wachovia Bank, National Association 10 S. Jefferson Street Roanoke, Virginia 24011 Attn: Commercial Banking Notices Any communication so addressed and mailed shall be deemed to be given on the earliest of (1) when actually delivered, (2) on the first Business Day after deposit with an overnight air courier 46 service, or (3) on the third Business Day after deposit in the United States mail, postage prepaid, in each case to the address of the intended addressee (except as otherwise provided' in the Mortgage), and any communication so delivered in person shall be deemed to be given when receipted for by, or actually received by Lender or Borrowers, as the case may be. If given by telecopy, a notice shall be deemed given and received when the telecopy is transmitted to the party's telecopy number specified above, and confirmation of complete receipt is received by the transmitting party during normal business hours or on the next Business Day if not confirmed during normal business hours, and an identical notice is also sent simultaneously by mail, overnight courier, or personal delivery as otherwise provided in this Section 11.1. Either party may designate a change of address by written notice to the other by giving at least ten (10) days prior written notice of such change of address. Section 11.2 Amendments and Waivers. No amendment or waiver of any provision of the Loan Documents shall be effective unless in writing and signed by the party against whom enforcement is sought. Section 11.3. Limitation on Interest. It is the intention of the parties hereto to conform strictly to applicable usury laws. Accordingly, all agreements between any Borrower and Lender with respect to the Loan are hereby expressly limited so that in no event, whether by reason of acceleration of maturity or otherwise, shall the amount paid or agreed to be paid to Lender or charged by Lender for the use, forbearance or detention of the money to be lent hereunder or otherwise, exceed the maximum amount allowed by law. If the Loan would be usurious under applicable law (including the laws of the State and the laws of the United States of America), then, notwithstanding anything to the contrary in the Loan Documents: (I) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received under the Loan Documents shall under no circumstances exceed the maximum amount of interest allowed by applicable law, and any excess shall be credited on the Note by the holder thereof (or, if the Note has been paid in full, refunded to Borrowers); and (2) if maturity is accelerated by reason of an election by Lender, or in the event of any prepayment, then any consideration which constitutes interest may never include more than the maximum amount allowed by applicable law. In such case, excess interest, if any, provided for in the Loan Documents or otherwise, to the extent permitted by applicable law, shall be amortized, prorated, allocated and spread from the date of advance until payment in full so that the actual rate of interest is uniform through the term hereof. If such amortization, proration, allocation and spreading is not permitted under applicable law, then such excess interest shall be cancelled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the Note (or, if the Note has been paid in full, refunded to Borrowers). The terms and provisions of this Section 11.3 shall control and supersede every other provision of the Loan Documents. The Loan Documents are contracts made under and shall be construed in accordance with and governed by the laws of the State, except that if at any time the laws of the United States of America permit Lender to contract for, take, reserve, charge or receive a higher rate of interest than is allowed by the laws of the State (whether such federal laws directly so provide or refer to the law of any state), then such federal laws shall to such extent govern as to the rate of interest which Lender may contract for, take, reserve, charge or receive under the Loan Documents. 47 Section 11.4. Invalid Provisions. If any provision of any Loan Document is held to be illegal, invalid or unenforceable, such provision shall be fully severable; the Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part thereof the remaining provisions thereof shall remain in full effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance therefrom; and in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of such Loan Document a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible to be legal, valid and enforceable. Section 11.5. Reimbursement of Expenses. Borrowers shall pay all expenses incurred by Lender in connection with the Loan, including reasonable fees and expenses of Lender's attorneys, environmental, engineering and other consultants, and fees, charges or taxes for the recording or filing of Loan Documents. Borrowers shall pay all expenses of Lender in connection with the administration of the Loan, including reasonable audit costs, reasonably inspection fees, settlement of condemnation and casualty awards, and premiums for title insurance and endorsements thereto. Borrowers shall, upon request, promptly reimburse Lender for all amounts expended, advanced or incurred by Lender to collect the Note, or to enforce the rights of Lender under this Agreement or any other Loan Document, or to defend or assert the rights and claims of Lender under the Loan Documents or with respect to the Mortgaged Property (by litigation or other proceedings), which amounts will include all court costs, reasonable attorneys' fees and expenses, reasonable fees of auditors and accountants, and reasonable investigation expenses as may be incurred by Lender in connection with any such matters (whether or not litigation is instituted), together with interest at the Default Rate on each such amount from the date of disbursement until the date of reimbursement to Lender, all of which shall constitute part of the Loan and shall be secured by the Loan Documents and shall be paid by Borrowers to Lender not later than thirty (30) days after demand. Section 11.6. Approvals; Third Parties; Conditions. All approval rights retained or exercised by Lender with respect to leases, contracts, plans, studies and other matters are solely to facilitate Lender's credit underwriting, and shall not be deemed or construed as a determination that Lender has passed on the adequacy thereof for any other purpose and may not be relied upon by any Borrower or any other Person. This Agreement is for the sole and exclusive use of Lender and Borrowers and may not be enforced, nor relied upon, by any Person other than Lender and Borrowers. All conditions of the obligations of Lender hereunder, including the obligation to make Advances, are imposed solely and exclusively for the benefit of Lender, its successors and assigns, and no other Person shall have standing to require satisfaction of such conditions or be entitled to assume that Lender will refuse to make Advances in the absence of strict compliance with any or all of such conditions, and no other Person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any and all of which may be freely waived in whole or in part by Lender at any time in Lender's sole discretion. Without limiting the generality of the foregoing the parties hereto do not intend the benefits of this Agreement to inure to any third party. Notwithstanding anything contained herein or any other Loan Document, or any conduct or course of conduct by any of the parties hereto, this Agreement shall not be construed as creating any rights, claims, or causes of action against Lender, or any of its officers, agents, or employees, in favor of any contractor, subcontractor, supplier of labor, materials or services, or any of their respective creditors, or any other person or entity other than Borrowers. 48 Section 11.7. Lender Not in Control; No Partnership. None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Lender the right or power to exercise control over the affairs or management of any Borrower, the power of Lender being limited to the rights to exercise the remedies referred to in the Loan Documents. The relationship between Borrowers and Lender is, and at all times shall remain, solely that of debtor and creditor. No covenant or provision of the Loan Documents is intended, nor shall it be deemed or construed, to create a partnership, joint venture, agency or common interest in profits or income between Lender and any Borrower or to create an equity in the Mortgaged Property in Lender. Lender neither undertakes nor assumes any responsibility or duty to any Borrower or to any other person with respect to the Mortgaged Property or the Loan, except as expressly provided in the Loan Documents; and notwithstanding any other provision of the Loan Documents: (1) Lender is not, and shall not be construed as, a partner, joint venturer, alter ego, manager, controlling person or other business associate or participant of any kind of any Borrower or its members or managers and Lender does not intend to ever assume such status; (2) Lender shall in no event be liable for any Debts, expenses or losses incurred or sustained by any Borrower; and (3) Lender shall not be deemed responsible for or a participant in any acts, omissions or decisions of any Borrower or its members or managers. Lender and Borrowers disclaim any intention to create any partnership, joint venture, agency or common interest in profits or income between Lender and any Borrower, or to create an equity in the Mortgaged Property in Lender, or any sharing of liabilities, losses, costs or expenses. Section 11.8. Time of the Essence. Time is of the essence with respect to this Agreement. Section 11.9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Lender and Borrowers and their respective successors and assigns of Lender and Borrowers, provided that neither any Borrower nor any other Borrower Party shall, without the prior written consent of Lender, assign any rights, duties or obligations hereunder. Lender shall have the right to enter into one or more participation with other lenders with respect to the Loan, provided Borrowers shall incur no additional cost or expense solely relating to the entry by Lender into any such participation. Upon prior notice to Bayshore Landing of such participation, Borrowers shall thereafter furnish to such participant any information furnished by any Borrower to Lender pursuant to the terms of the Loan Documents. Nothing in this Agreement or any other Loan Document shall prohibit Lender from pledging or assigning this Agreement and Lender's rights under any of the other Loan Documents, including collateral therefor, to any Federal Reserve Bank in accordance with applicable law. Section 11.10. Renewal, Extension or Rearrangement. All provisions of the Loan Documents shall apply with equal effect to each and all promissory notes and amendments thereof hereinafter executed which in whole or in part represent a renewal, extension, increase or rearrangement of the Loan. For portfolio management purposes, Lender may elect to divide the Loan into two or more separate loans evidenced by separate promissory notes so long as the payment and other obligations of Borrowers are not effectively increased or otherwise modified. Borrowers agree to cooperate with Lender at no additional cost to Borrowers and to execute such documents as Lender reasonably may request to effect such division of the Loan. 49 Section 11.11. Waivers. No course of dealing on the part of Lender, its officers, employees, consultants or agents, nor any failure or delay by Lender with respect to exercising any right, power or privilege of Lender under any of the Loan Documents, shall operate as a waiver thereof. Section 11.12. Cumulative Rights. Rights and remedies of Lender under the Loan Documents shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy. Section 11.13. Singular and Plural. Words used in this Agreement and the other Loan Documents in the singular, where the context so permits, shall be deemed to include the plural and vice versa. The definitions of words in the singular in this Agreement and the other Loan Documents shall apply to such words when used in the plural where the context so permits and vice versa. Section 11.14. Phrases. When used in this Agreement and the other Loan Documents, the phrase "including" shall mean "including, but not limited to," the phrase "satisfactory to Lender" shall mean "in form and substance satisfactory to Lender in all respects," the phrase "with Lender's consent" or "with Lender's approval" shall mean such consent or approval at Lender's discretion, and the phrase "acceptable to Lender" shall mean "acceptable to Lender at Lender's sole discretion." Section 11.15. Schedules. The schedules attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein. Section 11.16. Titles of Articles, Sections and Subsections. All titles or headings to articles, sections, subsections or other divisions of this Agreement and the other Loan Documents or the schedules hereto and thereto are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections or other divisions, such other content being controlling as to the agreement between the parties hereto. Section 11.17. Promotional Material. Borrowers authorize Lender to issue press releases, advertisements and other, promotional materials in connection with Lender's own promotional and marketing activities, and describing the Loan in general terms or in detail and Lender's participation in the Loan. All references to Lender contained in any press release, advertisement or promotional material issued by any Borrower shall be approved in writing by Lender in advance of issuance. Section 11.18. Survival. All of the representations, warranties, covenants, and indemnities hereunder (including environmental matters under Article 4), and under the indemnification provisions of the other Loan Documents shall survive the repayment in full of the Loan and the release of the liens evidencing or securing the Loan, and shall survive the transfer (by sale, foreclosure, conveyance in lieu of foreclosure or otherwise) of any or all right, title and interest in and to the Mortgaged Property to any party, whether or not an Affiliate of any Borrower. 50 Section 11.19. Waiver of Punitive or Consequential Damages. Neither Lender nor Borrowers shall be responsible or liable to the other or to any other Person for any punitive, exemplary or consequential damages which may be alleged as a result of the Loan or the transaction contemplated hereby, including any breach or other default by any party hereto. Section 11.20. Governing Law. The Loan Documents are being executed and delivered, and are intended to be performed, in the State and the laws of the State (without regard to provisions thereof regarding conflicts of law) and of the United States of America shall govern the rights and duties of the parties hereto and the validity, construction, enforcement and interpretation of the Loan Documents, except to the extent otherwise specified in any of the Loan Documents. Section 11.21. Joint and Several Liability. The obligations and promises set forth herein shall be joint and several undertakings of each of the Borrowers, and the Lender may proceed hereunder against any one or more of the Borrowers without waiving its right to proceed against any of the others. Section 11.22. Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding between Lender and Borrowers and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements of the parties. There are m unwritten oral agreements between the parties. If any conflict or inconsistency exists between the Commitment and this Agreement or any of the other Loan Documents, the terms of this Agreement and the other Loan Documents shall control. Section 11.23. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which shall constitute one document. Section 11.24. City Lease. As set forth in the City Lease, the Mortgage is subject and subordinate to all conditions and covenants of the City Lease and the rights of the City and the State as to the property subject to the State Lease. Lender and the owner of any indebtedness secured by the Mortgage, upon acquiring Bayshore Landing's leasehold interest under the City Lease, and shall take the same subject to the terms, covenants and provisions of the City Lease. Lender agrees to notify the City of any Event of Default prior to commencing foreclosure proceedings. 51 ARTICLE 12 LIMITATION ON LIABILITY Section 12.1. Limitation on Liability. Except as provided in this Article 12, Bayshore Rawbar and Bayshore Restaurant shall not be personally liable for amounts due under the Loan Documents. Bayshore Rawbar and Bayshore Restaurant shall be personally liable jointly and severally to Lender for any deficiency, loss or damage suffered by Lender because of: (1) any Borrower's or any Borrower Party's commission of a criminal act, (2) the failure to comply with provisions of the Loan Documents prohibiting the sale, transfer or encumbrance of the Project, any other collateral, or any direct or indirect ownership interest in any Borrower; (3) the misapplication by any Borrower or any Borrower Party of any funds derived from the Mortgaged Property or any portion thereof, including without limitation, restaurant revenues, security deposits, insurance proceeds and condemnation awards; (4) the fraud or misrepresentation by any Borrower or any Borrower Party made in or in connection with the Loan Documents or the Loan; (5) any Borrower's collection of rents more than one month in advance or entering into or modifying leases (including without limitation, the City Lease, the State Lease, the Rawbar Sublease and the Restaurant Sublease), or receipt of monies by any Borrower or any Borrower Party in connection with the modification of any leases, in violation of this Agreement or any of the other Loan Documents; (6) any Borrower's failure to apply proceeds of rents or any other payments in respect of the leases or other income generated by the Mortgaged Property or any portion thereof, including without limitation, restaurant revenues, to the costs of maintenance and operation of the Project and to the payment of taxes, lien claims, insurance premiums, payment of principal and interest under the Loan and all other amounts due under the Loan Documents; (7) any Borrower's interference with Lender's exercise of rights under any of the Loan Documents; (8) any Borrower's failure to maintain insurance as required by this Agreement or to pay any taxes or assessments affecting the Mortgaged Property or any portion thereof; (9) damage or destruction to the Mortgaged Property or any portion thereof caused by the acts or omissions of any Borrower, their agents, employees, or contractors; (10) Borrowers' obligations with respect to environmental matters under Article 4; or (11) any transfer by Bayshore Landing to Bayshore Rawbar or Bayshore Restaurant of any monies or other property not required to be transferred pursuant to the terms of the Rawbar Sublease or Restaurant Sublease, as applicable. None of the foregoing limitations on the personal liability of Bayshore Rawbar and Bayshore Restaurant shall modify, diminish or discharge the personal liability of Bayshore Landing or any of the Guarantors. Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provision of the United States Bankruptcy Code, as such sections may be amended, or corresponding or superseding sections of the Bankruptcy Amendments and Federal Judgeship Act of 1984, to file a claim for the full amount due to Lender under the Loan Documents or to require that all collateral shall continue to secure the amounts due under the Loan Documents. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BORROWERS AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN 52 CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY OR ANY EXERCISE BY ANY PARTY OF THEIR RESPECTIVE RIGHTS UNDER THE LOAN DOCUMENTS OR IN ANY WAY RELATING TO THE LOAN OR THE MORTGAGED PROPERTY (INCLUDING, WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS AGREEMENT, AND ANY CLAIM OR DEFENSE ASSERTING THAT THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER THIS AGREEMENT. EXECUTED as of the date first written above. LENDER: WACHOVIA BANK, NATIONAL ASSOCIATION By /s/ ANITA AEDO Anita Aedo Senior Vice President BORROWERS: BAYSHORE LANDING, LLC, a Florida limited liability company By: /s/ ROBERT W. CHRISTOPH, JR. ROBERT W. CHRISTOPH, JR. Manager By: /s/ LARRY ROTHSTEIN LARRY ROTHSTEIN Manager BAYSHORE RAWBAR, LLC, a Florida limited liability company By: /s/ ROBERT W. CHRISTOPH, JR. ROBERT W. CHRISTOPH, JR. Manager 53 By: /s/ LARRY ROTHSTEIN LARRY ROTHSTEIN Manager BAYSHORE RESTAURANT, LLC, a Florida limited liability company By: /s/ ROBERT W. CHRISTOPH, JR. ROBERT W. CHRISTOPH, JR. Manager By: /s/ LARRY ROTHSTEIN LARRY ROTHSTEIN Manager 54 SCHEDULE A LEGAL DESCRIPTION OF MORTGAGED PROPERTY LOTS 20, 21 AND 22 AND THE NORTHEASTERLY HALF OF LOT 23, BLOCK 43, OF "SAMUEL RHODES PLAT OF NEW BISCAYNE", ACCORDING TO THE PLAT THEREOF AS RECORDED IN PLAT BOOK "B" AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; LESS THE NORTHWESTERLY 4 FEET THEREOF, AS RIGHT-OF-WAY DEDICATED TO THE CITY OF MIAMI. PARCEL 2: A PARCEL OF SUBMERGED LAND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: (COMMENCE AT THE NORTHERLY CORNER OF LOT 20, BLOCK 43, OF "SAMUEL RHODES PLAT OF NEW BISCAYNE", ACCORDING TO THE PLAT THEREOF RECORDED IN PLAT BOOK "B" AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA: THENCE SOUTH 40 DEGREES 23 MINUTES 32 SECONDS EAST ALONG THE NORTHERLY LINE OF SAID LOT 20 AND ITS SOUTHEASTERLY PROLONGATION THEREOF FOR 691.46 FEET, MORE OR LESS, TO A POINT OF INTERSECTION WITH THE MIAMI-DADE COUNTY BULKHEAD LINE (U.S. HARBOR LINE) AS RECORDED IN PLAT BOOK 74, AT PAGE 3 (SHEET 5), OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA, SAID POINT BEING THE POINT OF BEGINNING OF THE FOLLOWING DESCRIBED PARCEL OF SUBMERGED LAND; THENCE CONTINUE SOUTH 40 DEGREES 23 MINUTES 32 SECONDS EAST ALONG THE SAID SOUTHEASTERLY PROLONGATION OF THE NORTHEASTERLY L1NE OF LOT 20 FOR 270.0 FEET; THENCE SOUTH 49 DEGREES 33 MINUTES 29 SECONDS WEST FOR 166.94 FEET, MORE OR LESS TO THE POINT OF INTERSECTION WITH THE SOUTHEASTERLY PROLONGATION OF THE SOUTHWESTERLY LINE OF THE NORTHEASTERLY 1/2 OF SAID LOT 23, BLOCK 43; THENCE NORTH 40 DEGREES 23 MINUTES 32 SECONDS WEST ALONG THE SOUTHEASTERLY PROLONGATION OF THE SOUTHWESTERLY LINE OF THE NORTHEASTERLY 1/2 OF SAID LOT 23 FOR 1 83 .76 FEET, MORE OR LESS, TO A POINT OF INTERSECTION WITH THE SAID MIAMI-DADE COUNTY BULKHEAD LINE THENCE NORTH 21 DEGREES 41 MINUTES 51 SECONDS EAST ALONG SAID MIAMI-DADE COUNTY BULKHEAD LINE (U.S. HARBOR LINE) FOR 184.53 FEET, MORE OR LESS; THENCE NORTH 49 DEGREES 33 MINUTES 29 SECONDS EAST ALONG SAID MIAMI-DADE COUNTY BULKHEAD LINE FOR 3.87 FEET, MORE OR LESS, TO THE POINT OF BEGINNING. PARCEL 3: LOT 24 AND THE SOUTHWESTERLY HALF OF LOT 23, BLOCK 43, OF "SAMUEL RHODES PLAT OF NEW BISCAYNE", ACCORDING TO THE PLAT THEREOF RECORDED IN PLAT BOOK "B", AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; LESS THE NORTHWESTERLY 4 FEET THEREOF, AS RIGHT-OF-WAY DEDICATED TO THE CITY OF MIAMI. PARCEL 4: A PARCEL OF SUBMERGED LAND IN BISCAYNE BAY IN SECTION 22, TOWNSHIP 54 SOUTH, RANGE 41 EAST, MIAMI-DADE COUNTY, FLORIDA, LYING SOUTHEASTERLY OF AND ABUTTING LOT 24 AND THE SOUTHWESTERLY ONE-HALF OF LOT 23 (LESS THE NORTHERLY 4 FEET THEREOF) OF BLOCK 43 OF "SAMUEL RHODES AMENDED MAP OF NEW BISCAYNF', AS RECORDED IN PLAT BOOK "B", PAGE 16, OF THE PUBLIC RECORDS 55 OF MIAMI-DADE COUNTY, FLORIDA, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: ` BEGIN AT THE SOUTHWESTERLY CORNER OF SAID LOT 24, SAID CORNER BEING IN THE MEAN HIGH WATER LINE OF BISCAYNE BAY; THENCE SOUTH 40 DEGREES 23 MINUTES 32 SECONDS EAST ALONG THE SOUTHEASTERLY EXTENSION OF THE SOUTHWESTERLY LINE OF SAID LOT 24, A DISTANCE OF 538.57 FEET TO A POINT IN THE BULKHEAD LINE ESTABLISHED FOR THIS AREA AS SHOWN ON MAP IN PLAT BOOK 74, PAGE 3 (SHEET 5), OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; THENCE NORTH 21 DEGREES 41 MINUTES 51 SECONDS EAST ALONG SAID BULKHEAD LINE A DISTANCE OF 84.87 FEET TO THE INTERSECTION WITH THE SOUTHEASTERLY EXTENSION OF NORTHEASTERLY LINE OF THE SAID SOUTHWESTERLY ONE-HALF OF LOT 23; THENCE NORTH 40 DEGREES 23 MINUTES 32 SECONDS WEST ALONG SAID SOUTHEASTERLY EXTENSION A DISTANCE OF 497.47 FEET TO THE MEAN HIGH WATER LINE OF BISCAYNE BAY; THENCE SOUTHWESTERLY ALONG SAID MEAN HIGH WATER LINE BOUNDARY OF SAID SOUTHWESTERLY ONE-HALF OF LOT 23 AND OF SAID LOT 24, A DISTANCE OF 75.00 FEET, MORE OR LESS, TO THE POINT OF BEGINNING. PARCEL 5 : A PARCEL OF SUBMERGED LAND MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE SOUTHEASTERLY EXTENSION OF THE SOUTHWESTERLY LINE OF LOT 24, BLOCK 43, OF THE PLAT OF "NEW BISCAYNE AMENDED", AS SHOWN IN PLAT BOOK "B", AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA WITH THE MIAMI-DADE COUNTY BULKHEAD LINE AS SHOWN IN PLAT BOOK 74, AT PAGE 3, (SHEET 5), OF THE PUBLIC RECORDS OF MIAMI- DADE COUNTY, FLORIDA; THENCE RUN NORTH 21 DEGREES 41 MINUTES 51 SECONDS EAST ALONG SAID BULKHEAD LINE FOR A DISTANCE OF 84.87 FEET, TO ITS INTERSECTION WITH THE SOUTHEASTERLY EXTENSION OF THE NORTHEASTERLY LINE OF THE SOUTHWESTERLY 1/2 OF LOT 23, BLOCK 43 OF THE AFORESAID PLAT OF "NEW BISCAYNE AMENDED"; THENCE RUN SOUTH 40 DEGREES 23 MINUTES 32 SECONDS EAST ALONG THE SOUTHEASTERLY EXTENSION OF SAID NORTHEASTERLY LINE OF THE SOUTHEASTERLY 1/2 OF LOT 23 FOR A DISTANCE OF 283.73 FEET (285.72 FEET CALCULATED) TO A POINT; THENCE RUN SOUTH 49 DEGREES 36 MINUTES 28 SECONDS WEST FOR A DISTANCE OF 115.68 FEET (114.64 FEET CALCULATED) TO A POINT; THENCE RUN NORTH 40 DEGREES 23 MINUTES 32 SECONDS WEST FOR A DISTANCE OF 225.0 FEET TO A POINT ON THE MIAMI-DADE COUNTY BULKHEAD LINE; THENCE NORTH 21 DEGREES 41 MINUTES 51 SECONDS EAST ALONG SAID BULKHEAD LINE FOR A DISTANCE OF 44.86 FEET TO THE POINT OF BEGINNING OF THE HEREIN DESCRIBED TRACT OF SUBMERGED LAND. (SEE DEED 19448, RECORDED IN DEED BOOK 3130, PAGE 260). PARCEL 6: A PARCEL OF SUBMERGED LAND IN BISCAYME BAY IN SECTION 22, TOWNSHIP 54 SOUTH, RANGE 41 EAST, MIAMI-DADE COUNTY, FLORIDA, LYING SOUTHEASTERLY OF LOTS 20, 21, 22 AND THE NORTHEASTERLY HALF OF LOT 23, BLOCK 43, "RHODES NEW BISCAYNE AMENDED", ACCORDING TO THE PLAT THEREOF RECORDED IN PLAT BOOK "B", AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA, MORE PARTICULARLY DESCRIBED AS FOLLOWS: 56 COMMENCE AT THE SOUTHWEST CORNER OF THE SE 1/4 OF SECTION 15, TOWNSHIP 54 SOUTH, RANGE 41 EAST, MIAMI-DADE COUNTY, FLORIDA; THENCE NORTH 87 DEGREES 30 MINUTES 21 SECONDS EAST, ALONG THE SOUTH LINE OF THE SE 1/4 OF SAID SECTION 15, FOR A DISTANCE OF 34.46 FEET TO A POINT ON THE MONUMENT LINE OF KIRK STREET, AS ESTABLISHED BY THE CITY OF MIAMI, FLORIDA; THENCE SOUTH 38 DEGREES 09 MINUTES 56 SECONDS EAST, ALONG THE SAID MONUMENT LINE OF KIRK STREET, FOR A DISTANCE OF 128.73 FEET TO A POINT ON THE MONUMENT LINE OF SOUTH BAYSHORE DRIVE, AS ESTABLISHED BY THE CITY OF MIAMI, FLORIDA; THENCE SOUTH 51 DEGREES 56 MINUTES 48 SECONDS WEST, ALONG THE SAID MONUMENT LINE OF SOUTH BAYSHORE DRIVE, FOR A DISTANCE OF 1,528.96 FEET TO THE INTERSECTION S THEREOF WITH THE PROLONGATION NORTHWESTERLY OF THE NORTHEASTERLY LINE OF LOT 20, BLOCK 43 OF "RHODES NEW BISCAYNE AMENDED", PLAT BOOK "B", AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; THENCE SOUTH 40 DEGREES 23 MINUTES 32 SECONDS EAST, ALONG THE PROLONGATION NORTHWESTERLY OF THE NORTHEASTERLY LINE OF THE SAID LOT 20 AND ALONG THE NORTHEASTERLY LINE OF THE SAID LOT 20 FOR A DISTANCE OF 724.46 FEET TO THE INTERSECTION THEREOF WITH THE MIAMI-DADE COUNTY BULKHEAD LINE, AS ESTABLISHED BY THE BOARD OF COUNTY COMMISSIONERS OF MIAMI-DADE COUNTY, FLORIDA (POINT OF BEGINNING); THENCE SOUTH 49 DEGREES 33 MINUTES 29 SECONDS WEST, ALONG THE SAID MIAMI-DADE COUNTY BULKHEAD LINE FOR A DISTANCE OF 3.97 FEET; THENCE SOUTH 21 DEGREES 41 MINUTES 51 SECONDS WEST, ALONG THE SAID MIAMI-DADE COUNTY BULKHEAD LINE, FOR A DISTANCE OF 184.49 FEET TO THE . INTERSECTION WITH THE PROLONGATION SOUTHEASTERLY OF THE SOUTHWESTERLY LINE OF THE NORTHEASTERLY HALF OF LOT 23 OF SAID BLOCK 43; THENCE NORTH 40 DEGREES 28 MINUTES 32 SECONDS WEST, ALONG THE PROLONGATION SOUTHEASTERLYo OF THE SOUTHWESTERLY LINE OF THE NORTHEASTERLY HALF OF THE SAID LOT 23 FOR A DISTANCE OF 497.6 FEET, MORE OR LESS, TO THE FACE OF AN EXISTING CONCRETE BULKHEAD; THENCE NORTHEASTERLY ALONG THE FACE OF AN EXISTING CONCRETE BULKHEAD LINE, FOR A DISTANCE OF 10 FEET MORE OR LESS; THENCE SOUTHEASTERLY, ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 82 FEET, MORE OR LESS; THENCE NORTHEASTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 53.9 FEET, MORE OR LESS; THENCE SOUTHEASTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 74.3 FEET, MORE OR LESS; THENCE NORTHEASTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 12 FEET, MORE OR LESS; THENCE NORTHWESTERLY, ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 52 FEET, MORE OR LESS; THENCE NORTHEASTERLY, ALONG THE FACE OF AN EXISTING BULKHEAD, FOR A DISTANCE OF 17 FEET, MORE OR LESS; THENCE SOUTHEASTERLY, ALONG THE FACE OF AN EXISTING BULKHEAD, FOR A DISTANCE OF 156.75 FEET, MORE OR LESS; THENCE NORTHEASTERLY, ALONG THE FACE OF AN EXISTING BULKHEAD, FOR A DISTANCE OF 31 FEET, MORE OR LESS, THENCE NORTHWESTERLY, ALONG THE FACE OF AN EXISTING BULKHEAD, FOR A DISTANCE OF 19 FEET, MORE OR LESS; THENCE NORTHEASTERLY FOR A DISTANCE OF 33 FEET, MORE OR LESS, TO A POINT IN THE PROLONGATION SOUTHEASTERLY OF THE NORTHEASTERLY LINE OF THE SAID LOT 20; THENCE SOUTH 40 DEGREES 23 MINUTES 32 SECONDS EAST, ALONG THE PROLONGATION SOUTHEASTERLY ON THE NORTHEASTERLY LINE OF THE SAID LOT 20 FOR A DISTANCE OF 164.4 FEET, MORE OR LESS, TO THE POINT OF BEGINNING. 57 PARCEL 7: A PARCEL OF SOVEREIGNTY LAND, NOW FILLED, LYING IN BISCAYNE BAY IN SECTION 22, TOWNSHIP 54 SOUTH, RANGE 41 EAST, MIAMI-DADE COUNTY, FLORIDA, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCE AT THE SOUTHWEST CORNER OF THE SE 1/4 OF SECTION 15, TOWNSHIP 54 SOUTH, RANGE 41 EAST, MIAMI-DADE COUNTY, FLORIDA; THENCE NORTH 87 DEGREES 30 MINUTES 21 SECONDS EAST, ALONG THE SOUTH LINE OF THE SE 1/4 OF THE SAID SECTION 15, FOR A DISTANCE OF 34.46 FEET TO A POINT ON THE MONUMENT LINE OF KIRK STREET, AS ESTABLISHED BY THE CITY OF MIAMI, FLORIDA; THENCE SOUTH 38 DEGREES 09 MINUTES 56 SECONDS EAST, ALONG THE SAID MONUMENT LINE OF KIRK STREET, FOR A DISTANCE OF 128.73 FEET TO A POINT ON THE MONUMENT LINE OF SOUTH BAYSHORE DRIVE, AS ESTABLISHED BY THE CITY OF MIAMI, FLORIDA; THENCE SOUTH 51 DEGREES 56 MINUTES 48 SECONDS WEST, ALONG THE SAID MONUMENT LINE OF SOUTH BAYSHORE DRIVE, FOR A DISTANCE OF 1,528.96 FEET TO THE INTERSECTION THEREOF WITH THE PROLONGATION NORTHWESTERLY OF THE NORTHEASTERLY LINE OF LOT 20, BLOCK 43 OF "RHODES NEW BISCAYNE AMENDED", PLAT BOOK "B", AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; THENCE SOUTH 40 DEGREES 23 MINUTES 32 SECONDS EAST, ALONG THE PROLONGATION NORTHWESTERLY OF THE NORTHEASTERLY LINE OF THE SAID LOT 20 AND ALONG THE NORTHEASTERLY LINE OF THE SAID LOT 20 FOR A DISTANCE OF 323 FEET MORE OR LESS TO A POINT ON THE ORIGINAL HIGH TIDE LINE OF BISCAYNE BAY AS SAID HIGH TIDE LINE IS SHOWN ON THE SAID PLAT OF "RHODES NEW BISCAYNE AMENDED"; (POINT OF BEGINNING); THENCE CONTINUE SOUTH 40 DEGREES 23 MINUTES 32 SECONDS EAST ALONG THE PROLONGATION SOUTHEASTERLY OF THE NORTHEASTERLY LINE OF THE SAID LOT 20; FOR A DISTANCE OF 237 FEET, MORE OR LESS, TO THE EXISTING HIGH TIDE LINE OF BISCAYNE BAY; THENCE SOUTHWESTERLY, MEANDERING THE HIGH TIDE LINE OF BISCAYNE BAY FOR A DISTANCE OF 33 FEET, MORE OR LESS, TO A POINT ON THE FACE OF AN EXISTING BULKHEAD; THENCE SOUTHEASTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 19 FEET, MORE OR LESS; THENCE SOUTHWESTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 31 FEET, MORE OR LESS; THENCE NORTHWESTERLY, ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 156.75 FEET, MORE OR LESS; THENCE SOUTHWESTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 17 FEET, MORE OR LESS; THENCE SOUTHEASTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 52 FEET, MORE OR LESS; THENCE SOUTHWESTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 12 FEET, MORE OR LESS; THENCE NORTHWESTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 74.3 FEET, MORE OR LESS; THENCE SOUTHWESTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 53.9 FEET, MORE OR LESS; THENCE NORTHWESTERLY ALONG THE FACE OF AN EXISTING BULKHEAD FOR A DISTANCE OF 82 FEET MORE OR LESS TO A POINT ON THE ORIGINAL HIGH TIDE LINE OF BISCAYNE BAY AS SHOWN ON THE SAID PLAT OF "NEW BISCAYNE AMENDED"; THENCE NORTHEASTERLY MEANDERING THE SAID ORIGINAL HIGH TIDE LINE OF BISCAYNE BAY FOR A DISTANCE OF 157 FEET, MORE OR LESS TO THE POINT OF BEGINNING. AND ALL LANDS ALSO DESCRIBED IN WARRANTY DEED DATED APRIL 17, 1968 AND FILED IN OFFICIAL RECORDS BOOK 5913, PAGES 253 AND 254 OF THE PUBLIC RECORDS OF DADE COUNTY, FLORIDA. THE AFORESAID PARCELS ARE TO BE USED AS AN EASEMENT FOR INGRESS EGRESS FOR THE FOLLOWING PARCELS OF SUBMERGED LAND: 58 PARCEL A2: A PARCEL OF SUBMERGED LAND IN BISCAYNE BAY BEING IN SECTION 22, TOWNSHIP 54 SOUTH, RANGE 41 EAST, MIAMI-DADE COUNTY, FLORIDA, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCE AT THE NORTHERLY CORNER OF LOT 20, BLOCK 43 "RHODES AMENDED PLAT OF NEW BISCAYNE", ACCORDING TO THE PLAT THEREOF AS RECORDED IN PLAT BOOK B, AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; THENCE SOUTH 40(degree)23'32" EAST ALONG THE NORTHERLY LINE OF SAID LOT 20 AND ITS SOUTHEASTERLY PROLONGATION THEREOF FOR 691.46 FEET, MORE OR LESS, TO A PONT OF INTERSECTION WITH THE MIAMI-DADE COUNTY BULKHEAD LINE (U.S. HARBOR LINE) AS RECORDED IN PLAT BOOK 74, AT PAGE 3 (SHEET 5), OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; THENCE CONTINUE SOUTH 40(degree)23'32" EAST ALONG THE SAID SOUTHEASTERLY PROLONGATION OF THE NORTHEASTERLY LINE OF LOT 20 FOR 270.0 FEET; THENCE SOUTH 49(degree)33'29" WEST FOR 41.09 FEET, MORE OR LESS TO THE POINT OF BEGINNING OF THE HEREIN DESCRIBED SUBMERGED PARCEL OF LAND; THENCE SOUTH 39(degree)25'15" EAST, 90.15 FEET; THENCE SOUTH 50(degree)34'45" WEST, 92.00 FEET; THENCE NORTH 39(degree)25'15" WEST, 88.51 FEET; THENCE NORTH 49(degree)33'29" EAST, 92.01 FEET TO THE POINT OF BEGINNING. CONTAINING 0.19+/- ACRES. PARCEL B2: A PARCEL OF SUBMERGED LAND IN BISCAYNE BAY BEING IN SECTION 22, TOWNSHIP 54 SOUTH, RANGE 41 EAST, MIAMI-DADE COUNTY, FLORIDA, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION . OF THE SOUTHEASTERLY EXTENSION OF THE SOUTHWESTERLY LINE OF LOT 24, BLOCK 43, OF THE PLAT OF "NEW BISCAYNE AMENDED", AS SHOWN IN PLAT BOOK "B", AT PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA, WITH THE MIAMI-DADE COUNTY BULKHEAD LINE AS SHOWN IN PLAT BOOK 74, AT PAGE 3 (SHEET 5), OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; THENCE RUN S 21(degree)41'51" W ALONG SAID BULKHEAD LINE FOR A DISTANCE OF 44.86 FEET TO THE POINT OF BEGINNING OF THE HEREIN DESCRIBED PARCEL OF SUBMERGED LAND; THENCE S 40(degree)23'32" E, 225.00 FEET; THENCE N 49(degree)36'28" E, 92.14 FEET; THENCE S 40(degree)23'32" E, 63.39 FEET; THENCE S 49(degree)36'28" W, 120.25 FEET; THENCE N 40(degree)23'32" W, 273.50 FEET TO A POINT ON THE AFORESAID MIAMI-DADE COUNTY BULKHEAD LINE; THENCE N 21(degree)41'51" E ON SAID BULKHEAD LINE, 31.81 FEET TO THE POINT OF BEGINNING. CONTAINING 0.315+/- ACRES. PARCEL C2: A PARCEL OF SUBMERGED LAND IN BISCAYNE BAY BEING IN SECTION 22, TOWNSHIP 54 SOUTH, RANGE 41 EAST, MIAMI-DADE COUNTY, FLORIDA, LYING SOUTHEASTERLY OF LOT 24, BLOCK 43, OF "SAMUEL RHODES PLAT OF NEW BISCAYNE", AS RECORDED IN PLAT BOOK "B", PAGE 16, OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGIN AT THE SOUTHWESTERLY CORNER OF SAID LOT 24, SAID CORNER BEING THE MEAN HIGH WATER LINE OF BISCAYNE BAY; THENCE S 40(degree)23'32"E ALONG THE SOUTHEASTERLY EXTENSION OF THE SOUTHWESTERLY LINE OF SAID LOT 24, FOR 538.57 59 FEET TO A POINT IN THE MIAMI-DADE COUNTY BULKHEAD LINE ESTABLISHED FOR THIS AREA AS SHOWN ON MAP IN PLAT BOOK 74, PAGE 3 (SHEET 5), OF THE PUBLIC RECORDS OF MIAMI-DADE COUNTY, FLORIDA; THENCE S 21(degree)41'51" W ALONG SAID BULKHEAD LINE, 67.75 FEET TO A POINT ON THE SOUTHEASTERLY LINE EXTENSION OF THE SOUTHWESTERLY RIGHT-OF-WAY LINE OF AVIATION AVENUE; THENCE N 40(degree)23'32" W, ALONG SAID SOUTHEASTERLY EXTENSION LINE OF SAID SOUTHWESTERLY RIGHT-OF- WAY LINE, 88.93 FEET; THENCE N 49(degree)36'18" E, 25.98 FEET; THENCE N 40(degree)23'32" W, 460.24 FEET; THENCE S 57(degree)28'54" W, 26.23 FEET TO A POINT ON THE AFOREMENTIONED SOUTHEASTERLY EXTENSION OF THE SOUTHWESTERLY RIGHT-OF-WAY LINE OF AVIATION AVENUE; THENCE N 40(degree)23'32 W ON THE AFOREMENTIONED EXTENSION OF THE AFORESAID RIGHT-OF-WAY LINE, 25.24 FEET TO THE FACE OF AN EXISTING CONCRETE BULKHEAD; THENCE N 57(degree)28'54" E ALONG THE FACE OF AN EXISTING CONCRETE BULKHEAD FOR A DISTANCE OF 60.57 FEET TO THE POINT OF BEGINNING. CONTAINING 0.49+/- ACRES. 60 SCHEDULE 1.1(19) CITY LEASE That certain Lease Agreement by and between The City of Miami, Florida, a municipal corporation of the State of Florida (the "City"), as landlord, and Bayshore Properties, Inc. ("BPI"), as tenant, dated September 20, 1985; as subsequently, assigned by BPI to Grove Marina Market, Ltd. by virtue of (i) that certain Assignment of Lease dated March 16, 1986, (ii) that certain Acceptance of Assignment of Lease, dated March 14, 1 986, and (iii) that certain Consent by and between the City and BPI dated March 13, 1986; and amended by virtue of : (i) that certain Memorandum of Understanding dated August 30, 1991, (ii) that certain Memorandum of Understanding dated September 10, 1993, that certain (iii) Amendment to Lease Agreement dated November 14, 2001 ; and (iv) that certain Second Amendment to Lease Agreement dated on or about August 19, 2004; and further assigned by virtue of that certain Assignment and Assumption of Master Lease between Grove Marina Market, Ltd and Bayshore Landing, LLC dated as of August 19, 2004. 1 SCHEDULE 1.1 (21) ----------------- CLOSING SITE ASSESSMENTS AND ENVIRONMENTAL DOCUMENTS ---------------------------------------------------- Phase I Environmental Site Assessment Report, Monty's Marian, Miami, Florida , dated as of July 21, 2004, prepared by The Phoenix Environmental Group, Inc. 1 SCHEDULE 1.1(67) STATE LEASE Sovereign Submerged Lands Lease between the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida as Lessor and the City of Miami, Florida as Lessee recorded on August 11, 2004 in Official Records Book 22562 at Page 1642. 1 SCHEDULE 1.1(15) BUDGET 1 SCHEDULE 1.1(68) STATE WAIVERS Waiver of Deed Restrictions attached to Certificate, recorded on May 26, 2004, in Official Records Book 22337, at Page 1498 in the Public Records of Miami-Dade County, Florida, as modified by Amendment to Waiver of Deed Restrictions recorded on August 13, 2004 in Official Records Book 22572 at Page 4690 in the Public Records of Miami-Dade County, Florida. As modified by Modification to Correct Legal Description, recorded on August 20, 2004 in Official Records Book 22593, at Page 3188 in the Public Records of Miami-Dade County, Florida. 1 SCHEDULE 2.5(1) --------------- REPAYMENT AND PREPAYMENT SCHEDULE --------------------------------- Remaining Principal Payment Due Date Principal Payment Due Outstanding - ---------------- --------------------- ------------------- (following scheduled principal payment) Aug 19, 2004 0.00 10,000,000.00 Sep 20, 2004 (272,916.67) 10,272,916.67 Oct 19, 2004 (272,916.67) 10,545,833.34 Nov 19, 2004 (272,916.67) 10,818,750.01 Dec 20, 2004 (272,916.67) 11,091,666.68 Jan 19, 2005 (272,916.67) 11,364,583.35 Feb 22, 2005 (272,916.67) 11,637,500.02 Mar 21, 2005 (272,916.67) 11,910,416.69 Apr 19, 2005 (272,916.67) 12,183,333.36 May 19, 2005 (272,916.67) 12,456,250.03 Jun 20, 2005 (272,916.67) 12,729,166.70 Jul 19, 2005 (272,916.67) 13,002,083.37 Aug 19, 2005 (272,916.67) 13,275,000.04 Sep 19, 2005 37,903.02 13,237,097.02 Oct 19, 2005 40,933.56 13,196,163.46 Nov 21, 2005 32,867.20 13,163,296.26 Dec 19, 2005 46,935.02 13,116,361.24 Jan 19, 2006 38,937.12 13,077,424.12 Feb 21, 2006 33,691.15 13,043,732.97 Mar 20, 2006 50,381.79 12,993,351.18 Apr 19, 2006 42,471.19 12,950,879.99 May 19, 2006 42,739.11 12,908,140.88 Jun 19, 2006 40,294.43 12,867,846.45 Jul 19, 2006 43,262.92 12,824,583.53 Aug 21, 2006 35,445.66 12,789,137.87 Sep 19, 2006 46,448.71 12,742,689.16 1 Oct 19, 2006 44,052.45 12,698,636.71 Nov 20, 2006 3 8,989.86 12,659,646.85 Dec 19, 2006 47,238.35 12,612,408.50 Jan 19, 2007 42,222.19 12,570,186.31 441529 Remaining Principal Outstanding (following scheduled principal Payment Due Date Principal Payment Due payment) - ---------------- --------------------- ------------------------------- Feb 20, 2007 39,854.19 12,530,332.12 Mar 19, 2007 53,296.62 12,477,035.50 Apr 19, 2007 43,104.64 12,433,930.86 May 21, 2007 40,771.04 12,393,159.82 Jun 19, 2007 48,863.40 12,344,296.42 Jul 19, 2007 46,565.64 12,297,730.78 Aug 20, 2007 41,687.52 12,256,043.26 Sep 19, 2007 47,122.37 12,208,920.89 Oct 19, 2007 47,419.64 12,161,501.25 Nov 19, 2007 45,161.48 12,116,339.77 Dec 19, 2007 48,003.67 12,068,336.10 Jan 22, 2008 38,155.68 12,030,180.42 Feb 19, 2008 53,606.55 11,976,573.87 Mar 19, 2008 51,403.77 11,925,170.10 Apr 21, 2008 41,686.84 11,883,483.26 May 19, 2008 54,470.27 11,829,012.99 Jun 19, 2008 47,328.84 11,781,684.15 Jul 21, 2008 45,159.94 11,736,524.21 Aug 19, 2008 52,867.60 11,683,656.61 Sep 19, 2008 48,276.37 11,635,380.24 Oct 20, 2008 48,591.06 11,586,789.18 Nov 19, 2008 51,344.25 11,535,444.93 Dec 19, 2008 51,668.15 11,483,776.78 Jan 20, 2009 47,164.52 11,436,612.26 2 Feb 19, 2009 52,291.62 11,384,320.64 Mar 19, 2009 57,409.23 11,326,911.41 Apr 20, 2009 48,220.05 11,278,691.36 May 19, 2009 55,659.49 11,223,031.87 Jun 19, 2009 51,279.00 11,171,752.87 Jul 20, 2009 51,613.27 11,120,139.60 441529 Remaining Principal Outstanding (following scheduled principal Payment Due Date Principal Payment Due payment) - ---------------- --------------------- ------------------------------- Aug 19, 2009 54,288.03 11,065,851.57 Sep 21, 2009 47,649.79 11,018,201.78 Oct 19, 2009 59,564.86 10,958,636.92 Nov 19, 2009 53,002.49 10,905,634.43 Dec 21, 2009 51,054.78 10,854,579.65 Jan 19, 2010 58,245.75 10,796,333.90 Feb 19, 2010 54,060.48 10,742,273.42 Mar 19, 2010 61,189.46 10,681,083.96 Apr 19, 2010 54,811.75 10,626,272.21 May 19, 2010 57,403.51 10,568,868.70 Jun 21, 2010 51,098.44 10,517,770.26 Jul 19, 2010 62,511.29 10,455,258.97 Aug 19, 2010 56,283.81 10,398,975.16 Sep 20, 2010 54,464.03 10,344,511.13 Oct 19, 2010 61,356.18 10,283,154.95 Nov 19, 2010 57,405.69 10,225,749.26 Dec 20, 2010 57,779.90 10,167,969.36 Jan 19, 2011 60,294.64 10,107,674.72 Feb 22, 2011 52,173.32 10,055,501.40 Mar 21, 2011 67,347.47 9,988,153.93 Apr 19, 2011 63,529.26 9,924,624.67 May 19, 2011 61,829.74 9,862,794.93 3 Jun 20, 2011 58,071.93 9,804,723.00 Jul 19, 2011 64,647.83 9,740,075.17 Aug 19, 2011 60,945.82 9,679,129.35 Sep 19, 2011 61,343.10 9,617,786.25 Oct 19, 2011 63,765.38 9,554,020.87 Nov 21, 2011 58,140.64 9,495,880.23 Dec 19, 2011 68,527.95 9,427,352.28 Jan 19, 2012 62,984.34 9,364,367.94 441529 Remaining Principal Outstanding (following scheduled principal Payment Due Date Principal Payment Due payment) - ---------------- --------------------- ------------------------------- Feb 21, 2012 59,456.67 9,304,911.27 Mar 19, 2012 71,608.95 9,233,302.32 Apr 19, 2012 64,249.27 9,169,053.05 May 21, 2012 62,740.04 9,106,313.01 Jun 19, 2012 68,906.78 9,037,406.23 Jul 19, 2012 67,426.61 8,969,979.62 Aug 20, 2012 64,079.58 8,905,900.04 Sep 19, 2012 68,256.19 8,837,643.85 Oct 19, 2012 68,686.78 8,768,957.07 Nov 19, 2012 67,276.16 8,701,680.91 Dec 19, 2012 69,544.48 8,632,136.43 Jan 22, 2013 62,722.60 8,569,413.83 Feb 19, 2013 73,982.78 8,495,431.05 Mar 19, 2013 74,418.37 8,421,012.68 Apr 19, 2013 69,544.27 8,351,468.41 May 20, 2013 69,997.61 8,281,470.80 Jun 19, 2013 72,195.30 8,209,275.50 Jul 19, 2013 72,650.73 8,136,624.77 Aug 19, 2013 71,398.09 8,065,226.68 Sep 19, 2013 71,863.50 7,993,363.18 4 Oct 21, 2013 70,651.13 7,922,712.05 Nov 19, 2013 76,124.44 7,846,587.61 Dec 19, 2013 74,938.69 7,771,648.92 Jan 21, 2014 70,508.81 7,701,140.11 Feb 19, 2014 77,475.60 7,623,664.51 Mar 19, 2014 79,551.14 7,544,113.37 Apr 21, 2014 72,087.72 7,472,025.65 May 19, 2014 80,443.95 7,391,581.70 Jun 19, 2014 76,254.73 7,315,326.97 Jul 21, 2014 75,213.56 7,240,113.41 441529 Remaining Principal Outstanding (following scheduled principal Payment Due Date Principal Payment Due payment) - ---------------- --------------------- ------------------------------- Aug 19, 2014 80,286.97 7,159,826.44 Sep 19, 2014 77,765.46 7,082,060.98 Oct 20, 2014 78,272.38 7,003,788.60 Nov 19, 2014 80,255.35 6,923,533.25 Dec 19, 2014 80,761.62 6,842,771.63 Jan 20, 2015 78,393.33 6,764,378.30 Feb 19, 2015 81,765.63 6,682,612.67 Mar 19, 2015 85,091.84 6,597,520.83 Apr 20, 2015 80,043.60 6,517,477.23 May 19, 2015 84,693.64 6,432,783.59 Jun 19, 2015 82,504.77 6,350,278.82 Jul 20, 2015 83,042.58 6,267,236.24 Aug 19, 2015 84,901.76 6,182,334.48 Sep 21, 2015 81,537.33 6,100,797.15 Oct 19, 2015 88,517.44 6,012,279.71 Nov 19, 2015 85,245.87 5,927,033.84 Dec 21, 2015 84,555.23 5,842,478.61 Jan 19, 2016 88,809.82 5,753,668.79 5 Feb 19, 2016 86,931.65 5,666,737.14 Mar 21, 2016 87,498.32 5,579,238.82 Apr 19, 2016 90,415.07 5,488,823.75 May 19, 2016 89,812.25 5,399,011.50 Jun 20, 2016 88,108.23 5,310,903.27 Jul 19, 2016 92,051.40 5,218,851.87 Aug 19, 2016 90,417.91 5,128,433.96 Sep 19, 2016 91,007.31 5,037,426.65 Oct 19, 2016 92,659.81 4,944,766.84 Nov 21, 2016 90,125.02 4,854,641.82 Dec 19, 2016 95,854.53 4,758,787.29 Jan 19, 2017 93,416.90 4,665,370.39 441529 Remaining Principal Outstanding (following scheduled principal Payment Due Date Principal Payment Due payment) - ---------------- --------------------- ------------------------------- Feb 21, 2017 92,063.80 4,573,306.59 Mar 20, 2017 98,472.63 4,474,833.96 Apr 19, 2017 96,208.84 4,378,625.12 May 19, 2017 96,815.75 4,281,809.37 Jun 19, 2017 96,526.13 4,185,283.24 Jul 19, 2017 98,035.42 4,087,247.82 Aug 21, 2017 96,075.49 3,991,172.33 Sep 19, 2017 100,099.19 3,891,073.14 Oct 19, 2017 99,891.39 3,791,181.75 Nov 20, 2017 98,927.14 3,692,254.61 Dec 19, 2017 101,922.01 3,590,332.60 Jan 19, 2018 101,033.60 3,489,299.00 Feb 20, 2018 100,958.47 3,388,340.53 Mar 19, 2018 105,200.28 3,283,140.25 Apr 19, 2018 103,036.07 3,180,104.18 May 21, 2018 103,039.01 3,077,065.17 6 Jun 19, 2018 105,673.47 2,971,391.70 Jul 19, 2018 105,693.05 2,865,698.65 Aug 20, 2018 105,154.61 2,760,544.04 Sep 19, 2018 107,023.15 2,653,520.89 Oct 19, 2018 107,698.29 2,545,822.60 Nov 19, 2018 107,842.35 2,437,980.25 Dec 19, 2018 109,057.99 2,328,922.26 Jan 22, 2019 107,787.08 2,221,135.18 Feb 19, 2019 111,360.03 2,109,775.15 Mar 19, 2019 112,015.69 1,997,759.46 Apr 19, 2019 111,414.96 1,886,344.50 May 20, 2019 112,141.23 1,774,203.27 Jun 19, 2019 113,245.31 1,660,957.96 Jul 19, 2019 113,959.70 1,546,998.26 441529 Remaining Principal Outstanding (following scheduled principal Payment Due Date Principal Payment Due payment) - ---------------- --------------------- ------------------------------- Aug 19, 2019 114,353.30 1,432,644.96 Sep 19, 2019 115,098.72 1,317,546.24 Oct 21, 2019 115,571.96 1,201,974.28 Nov 19, 2019 117,107.87 1,084,866.41 Dec 19, 2019 117,593.88 967,272.53 Jan 21, 2020 117,725.51 849,547.02 Feb 19, 2020 119,257.00 730,290.02 Mar 19, 2020 119,984.23 610,305.79 Apr 20, 2020 120,330.90 489,974.89 May 19, 2020 121,449.69 368,525.20 Jun 19, 2020 122,035.31 246,489.89 Jul 20, 2020 122,830.81 123,659.08 Aug 19, 2020 123,659.08 0.00 7 SCHEDULE 2.1 CONDITIONS TO ADVANCE OF ACQUISITION LOAN The Advance of the Acquisition Loan shall be subject to Lender's receipt, review, approval and/or confirmation of the following, at Borrowers' cost and expense, each in form and content satisfactory to Lender in its sole discretion: 1. The Loan Documents, executed by Borrowers and, as applicable, each Borrower Party. 2. The commitment fee of $99,562.50 in cash. 3. An ALTA leasehold mortgagee policy of title insurance in the maximum amount of the Loan, with reinsurance and endorsements as Lender may require, containing no exceptions to title (printed or otherwise) which are unacceptable to Lender, and insuring that the Mortgage is a first-priority Lien on the Mortgaged Property and related collateral. 4. All documents evidencing the formation, organization, valid existence, good standing, and due authorization of and for each Borrower and each Borrower Party for the execution, delivery, and performance of the Loan Documents by each Borrower and each Borrower Party. 5. Legal opinions issued by counsel for each Borrower and each Borrower Party, opining as to the due organization, valid existence and good standing of each Borrower and each Borrower Party, and the due authorization, execution, delivery, enforceability and validity of the Loan Documents with respect to, each Borrower and each Borrower Party; that the Loan, as reflected in the Loan Documents, is not usurious; to the extent that Lender is not otherwise satisfied, that the Mortgaged Property and its use and the anticipated use of the Project are in full compliance with all legal requirements; and as to such other matters as Lender and Lender's counsel reasonably may specify. 6. Current Uniform Commercial Code searches for each Borrower and each Borrower Party. 7. Evidence of insurance as required by this Agreement, and conforming in all respects to the requirements of Lender. 8. A current "as-built" survey of the Mortgaged Property, dated or updated to a date not earlier than thirty (30) days prior to the date hereof, certified to Lender and such title insurer, prepared by a licensed surveyor acceptable to Lender and the issuer of the title insurance, and conforming to Lender's current standard survey requirements. 9. A current Site Assessment. 1 10. A current rent roll of the Mortgaged Property, certified by Borrowers and true and correct copies of all leases of the Mortgaged Property. 11 . A copy of the City Lease, the Rawbar Sublease, the Restaurant Sublease, the State Lease, the State Waivers and the management agreement for the Mortgaged Property, each certified by Borrowers as being true, correct and complete, together with estoppel letters from the City, the State and the manager under the management agreement. 12. Evidence that the Mortgaged Property, the operation thereof and the anticipated use and operation of the Project comply with all legal requirements, including without limitation that all requisite certificates of occupancy, building permits, environmental permits and other licenses, certificates, approvals or consents required of any governmental authority have been issued without variance or condition and that there is no litigation, action, citation, injunctive proceedings, or like matter pending or threatened with respect to the validity of such matters. 13. Current financial statements and tax returns of each Borrower and each Borrower Party. No adverse change shall have occurred in the financial condition of any Borrower or any Borrower Party. 14. No condemnation or adverse zoning or usage change proceeding shall have occurred or shall have been threatened against the Mortgaged Property; the Mortgaged Property shall not have suffered any significant damage by fire or other casualty which has not been repaired; no law, regulation, ordinance, moratorium, injunctive proceeding, restriction, litigation, action, citation or similar proceeding or matter shall have been enacted, adopted, or threatened by any governmental authority, which would have, in Lender's judgment, a material adverse effect on any Borrower, any Borrower Party or the Mortgaged Property. 15. All fees and commissions payable to real estate brokers, mortgage brokers, or any other brokers or agents in connection with the Loan or the acquisition of the Mortgaged Property have been paid, such evidence to be accompanied by any waivers or indemnifications deemed necessary by Lender. S 16. Payment of Lender's costs and expenses in underwriting, documenting, and closing the transaction, including fees and expenses of Lender's inspecting engineers, consultants, and outside counsel. 17. Estoppel certificates and subordination, non-disturbance and attornment agreements from tenants, as requested by Lender. 18. Such other documents or items as Lender or its counsel reasonably may require. 19. The representations and warranties contained in this Loan Agreement and in all other Loan Documents are true and correct. 20. No Potential Default or Event of Default shall have occurred or exist. 21. Evidence that Borrowers have invested not less than $3,450,000 in the acquisition of the Mortgaged Property. 2 SCHEDULE 2.2 CONDITIONS TO CONSTRUCTION LOAN ADVANCES PART A: GENERAL CONDITIONS FOR EACH ADVANCE Each Advance of the Construction Loan shall be subject to the following conditions: 1 . There shall exist no Potential Default or Event of Default (currently and after giving effect to the requested Advance). 2. The representations and warranties contained in this Loan Agreement and in all other Loan Documents are true and correct. 3. Borrowers shall have paid Lender's costs and expenses in connection with such withdrawal (including title charges, and costs and expenses of Lender's inspecting engineer and attorneys). 4. There shall have been no change which could have a Material Adverse Effect on the condition, financial or otherwise, of any Borrower or any Borrower Party from such condition as it existed on the date of the most recent financial statements of such Person delivered to Lender from time to time. 5 . Lender shall (i) have timely received all financial information from all Guarantors as required under the Loan Documents, and (ii) not have received notice from any Guarantor or any surety terminating or repudiating such Person's Guaranty. 6. No condemnation or adverse, as determined by Lender, zoning or usage change proceeding shall have occurred or shall have been threatened against the Mortgaged Property; the Mortgaged Property shall not have suffered any damage by fire or other casualty which has not been repaired or is not being restored in accordance with this Agreement; no law, regulation, ordinance, moratorium, injunctive proceeding, restriction, litigation, action, citation or similar proceeding or matter shall have been enacted, adopted, or threatened by any governmental authority, which would have, in Lender's judgment, a material adverse effect on the Mortgaged Property or any Borrower's or any Borrower Party's ability to perform its obligations under the Loan Documents. PART B: CONDITIONS TO THE INITIAL ADVANCE OF THE CONSTRUCTION LOAN Lender's obligation hereunder to make the initial Advance of the Construction Loan is conditioned upon Lender's receipt of the following, each in form and substance satisfactory to Lender: 1 . Evidence of the satisfaction of all conditions set forth on Schedule 2.1. 1 2. A notice of commencement signed by Borrowers shall have been recorded in the Public Records of Miami- Dade County, Florida, and a certified copy thereof shall have been posted at the Mortgaged Property in compliance with the Construction Lien Law. An executed copy of the Bonds shall be attached to and recorded with the notice of commencement. 3. A guaranteed maximum fixed price contract ("Construction Contract") with a general contractor acceptable to Lender in Lender's sole discretion (the `General Contractor") with respect to the Project, together with (i) an assignment of the Construction Contract in favor of Lender as additional security for the Loan and (ii) an agreement from the General Contractor in favor of Lender under which the General Contractor (a) acknowledges Borrowers' assignment of the Construction Contract to Lender; (b) agrees that if Lender succeeds to Borrowers' rights as to the Mortgaged Property, the General Contractor will complete the Project for Lender pursuant to the Construction Contract; and (c) containing such other agreements as Lender considers appropriate. The Construction Contract must include a guarantee of completion. 4. The Bonds as required in Section 8.30. 5. A contract ("Architect's Contract") with an Architect (the "Architect") with respect to the Project, together with (i) an assignment of the Architect's Contract in favor of Lender as additional security for the Loan and (ii) an agreement from the Architect in favor of Lender under which the Architect (a) acknowledges Borrowers' assignment of the Architect's Contract to Lender; (b) acknowledges Borrowers' assignment of the Plans and Specifications to Lender; (c) agreeing that, if Lender so requires, Lender may use the Plans and Specifications to complete the Project; (d) certifying that the Plans and Specifications comply with all applicable laws and other governmental requirements; and (e) containing such other agreements and certifications as Lender considers appropriate. 6. An agreement from the Project engineer in favor of Lender consenting that, if Lender so requires, Lender may use the Plans and Specifications to complete the Project. 7. Executed copies of all other Construction Documents. 8. Final Plans and Specifications approved by the City and all other applicable governmental authorities, and accepted by the General Contractor. 9. Detailed trade breakdown of the Project construction costs. 10. A plan and cost review, at Borrowers' expense, pursuant to which Lender's Inspector shall review and advise Lender with respect to the Plans and Specifications, the adequacy of the Budget and other matters related to the design, construction, operation and use of the Project. 11 . Copies of all applicable approvals and permits of governmental agencies for the construction of the Project, including without limitation the building permit, all of which shall have been issued without variance or condition, and there shall be no litigation, action, citation, injunctive proceedings, or like matter pending or threatened with respect to the validity of such approvals and permits. 2 12. Evidence that Borrowers have invested the required portion of the Equity Requirement in tie Project. PART C: CONDITIONS TO SUBSEQUENT ADVANCES OF THE CONSTRUCTION LOAN. , Lender's obligations hereunder to make any subsequent Advances of the Construction Loan are conditioned upon Lender's receipt of the following, each in form and substance satisfactory to Lender: 1. A timely Advance Request, together with all required supporting documentation. 2. Evidence that Borrowers have invested the required portion of the Equity Requirement in the Project. 3. An endorsement to the loan policy of title insurance delivered to and accepted by Lender continuing the effective date of such policy through the date of the Advance and insuring that there has been no change in the status of the title to the Mortgaged Property, and increasing the amount of such policy by the amount of the Advance being made in connection therewith. 4. A satisfactory inspection report from Lender's Inspector. 5. Such other documents, instruments, information, agreements and certificates as Lender or the Title Insurer may reasonably require. PART D: CONDITIONS TO FINAL ADVANCE OF THE CONSTRUCTION LOAN. Lender's obligation hereunder to make the final Advance of the Construction Loan is conditioned upon Lender's receipt of the following, each in form and substance satisfactory to Lender: 1 . Each of the items set forth in Part C of this Schedule 2.2, except as otherwise provided in this Part D. 2. A final endorsement to the loan policy of title insurance delivered to and accepted by Lender continuing the effective date of such policy so as to insure the Loan as fully disbursed and removing any "pending disbursement" clause, any survey exceptions and any other exceptions to title arising out of the construction of the Project. 3 . Evidence of the satisfaction of the Completion Conditions set forth in Section 8.23. 3 1 SCHEDULE 6.15 OWNERSHIP INTERESTS 1. The Christoph Family Trust 50% 2. HMG Bayshore, LLC, a Delaware limited liability company 50% 1 SCHEDULE 8.7 TRANSACTIONS WITH AFFILIATES NONE 1 EX-10 8 ex10-o.txt EXHIBIT 10 (O) Exhibit 10 (o) OPERATING AGREEMENT OF BAYSHORE LANDING, LLC a Florida limited liability company This Operating Agreement (this "Agreement") is made, as of August 19, 2004 by and between The Christoph Family Trust f/b/o Robert W. Christoph, Jr. under the trust agreement dated March 19, 1997 ("Robert Jr.'s Trust") and The Christoph Family Trust f/b/o Hunter Christoph under the trust agreement dated March 19, 1997 ("Hunter's Trust," and, together with Robert Jr.'s Trust, collectively, the "Trusts") and HMG Bayshore, LLC, a Florida limited liability company ("HMG") (the Trusts and HMG are, hereafter, collectively, the "Members"), pursuant to the provisions of the Florida Limited Liability Company Act, on the following terms and conditions. ARTICLE 1 THE LIMITED LIABILITY COMPANY 1.1 Definitions. Capitalized words and phrases used in this Agreement have the following meanings: (a) "Act" means the Florida Limited Liability Company Act, as set forth in ss. 608.401 to 608.514, Florida Statutes (1997), as amended from time to time (or any corresponding provisions of succeeding law). (b) "Asset Purchase Agreement" means that certain Purchase and Sale Agreement for Certain Assets, dated May 24, 2004, originally between the Company and HMG Bayshore, LLC, as "Buyer," and Bayshore Restaurant Management Corp. Monty's in the Grove, Inc. and Hocus-Pocus, Inc., as "Seller," as amended. (c) "Capital Contributions" means, with respect to any Member, the amount of money or value of property (other than money) contributed to the Company with respect to the Membership Interest held by such Member pursuant to the terms of this Agreement. (d) "Code" means the Internal Revenue Code of 1 986, as amended from time to time (or any corresponding provisions of succeeding law). (e) "Company" means the limited liability company governed by this Agreement, and the limited liability company continuing the business of the Company in the event of dissolution as herein provided. (f) "Managers" shall mean, collectively, the HMG Managers and the Trust Managers, and, individually, each of the HMG Managers and each of the Trust Managers. (g) "Net Cash from Operations" means the gross cash proceeds from Company operations less the portion thereof used to pay or establish reserves for all Company expenses, including the reimbursement to Managers of any out-of-pocket expenses incurred on 1 behalf of the Company, pursuant to Section 5.2 hereof, debt payments, capital improvements, replacements, and contingencies, all as determined by the Managers. "Net Cash from Operations" shall not be reduced by depreciation, amortization, cost recovery deductions, or similar allowances, but shall be increased by any reductions of reserves previously established. (g) "Membership Interest" means, with respect to any Member, the Membership Interest set forth opposite such Member's name on Exhibit "A" attached hereto. In the event any Membership Interest is transferred in accordance with the provisions of this Agreement, the transferee of such interest shall succeed to the Membership Interest of its transferor to the extent it relates to the transferred interest. (h) "Net Cash from Sales or Refinancing" means the net cash proceeds from all sales, other dispositions, and refinancing of Property, less any portion thereof used to establish reserves, and any reimbursement to Managers for out-of-pocket expenses incurred on behalf of the Company, pursuant to Section 5.2 hereof, all as determined by the Managers. "Net Cash from Sales or Refinancing" shall include all principal and interest payments with respect to any note or other obligation received by the Company in connection with the sale or other disposition of the Property. (i) "Property" means all real and personal property acquired by the Company, and shall include both tangible and intangible property. Property shall include, without limitation, the "Leased Premises," the "Trademarks and Other Rights," the "Project," the "Acquired Assets" and the other properties and interests which are the subject of purchase under the Asset Purchase Agreement. (j) "HMG Managers" shall mean Larry Rothstein and Maurice Wiener, or such other individuals as may be appointed from time to time by HMG. However, pursuant to Article 5, there shall be only a single vote accorded to the HMG Managers. (k) "Transfer" or "Transferred" means, as a noun, any voluntary or involuntary transfer, assignment, conveyance, sale, pledge, encumbrance, hypothecation, or other disposition and, as a verb, voluntarily or involuntarily to transfer, assign, convey, sell, pledge, encumber, hypothecate, or otherwise dispose of (1) "Trust Managers" shall mean Robert W. Christoph and Robert W. Christoph, Jr., or such other individuals as may be appointed from time to time by the Trusts. However, pursuant to Article 5, there shall be only a single vote accorded to the Trust Managers. 1.2 Organization. The Company is hereby organized as a Florida limited liability company effective as of the date hereof pursuant to, in accordance with, and for purposes of, the provisions of the Act. 1.3 Company Name. The name of the Company shall be "Bayshore Landing, LLC" and all business of the Company shall be conducted in and its properties held in such name unless otherwise agreed upon by the Managers. 2 1.4 Place of Business. The principal place of business of the Company shall be located at 300 Alton Road, Suite 303, Miami Beach, Florida 33139, or at such other place within or without the State of Florida as may be determined by the Managers. 1.5 Purpose. The purpose of the Company is to acquire, renovate, develop, lease and operate the restaurant and other interests acquired pursuant to the Asset Purchase Agreement. In furtherance thereof, the Company may: (i) obtain financing for the acquisition and/or development of the Property and/or improvements; (ii) negotiate contracts for construction and development of the Property and improvements, and for the provision of utility and other services to, or benefiting, the Property and/or improvements; (iii) negotiate leases and subleases for the Property; and (iv) do such other acts as the Managers may deem appropriate in connection with all or any of the purposes of the Company. 1.6 Purposes Limited. The Company shall be organized only for the purpose specified in Section 1 .5 hereof. Except as otherwise provided in this Agreement, the Company shall not engage in any other activity or business and no Member shall have any authority to hold such Member out as a general agent of another Member in any other business or activity. 1.7 No Payments of Individual Obligations. The Members shall use the Company's credit and assets solely for the benefit of the Company. No asset of the Company shall be transferred or encumbered for or in payment of any individual obligation of a Member. 1.8 Statutory Compliance. The Company shall exist under and be governed by, and this Agreement shall be construed in accordance with, the applicable laws of the State of Florida. The Managers shall make all filings and disclosures required by, and shall otherwise comply with, all such laws. The Managers shall execute and file in the appropriate records any documents and instruments as may be necessary or appropriate with respect to the information of, and conduct of business by, the Company. 1.9 Title to Property. All assets owned by the Company shall be owned by the Company as an entity and, insofar as permitted by applicable law, no Member shall have any ownership interest in such property in its individual name or right, and each Member's interest in the Company shall be personal property for all purposes. 1.10 Term. The term of the Company shall commence on the date hereof and shall continue until the winding up and liquidation of the Company and its business is completed following a "Liquidating Event," as provided in Article 8 hereof. ARTICLE 2 CAPITAL CONTRIBUTIONS 2. 1 Members; Initial Capital Contributions. (a) The names, addresses, initial Capital Contributions, and Membership Interests of the Members are set forth on Exhibit "A" hereto. 3 (b)The initial Capital Contributions shall include any deposits made, and any sums paid, by the Members under the Asset Purchase Agreement as well as cash paid concurrently with the execution of this Agreement. In exchange for the initial capital contributions, the Members shall receive the percentage set forth opposite their names in Exhibit "A." 2.2 Additional Capital Contributions from Members. (a) Except as required by any Budget (defined below), no Member shall be required to make any contribution to the capital of the Company other than the Member's initial Capital Contribution. (b) In the event any construction budget, daily operating budget, capital improvement budget, leasing commission and tenant improvement budget or any other budget that is approved by the Managers (collectively, the "Budgets") requires that additional funds be loaned or contributed to the Company (the "Shortfall"), and the Managers determine that loans are not available from third parties, then the Members shall be requested to make additional Capital Contributions to fund such Shortfall, pro-rata, in proportion to the Membership Interest owned by each Member. In the event a Member fails to make such additional Capital Contribution, the other Members may recalculate the Membership Interests so that each Member's Membership Interest shall be that percentage which such Member's aggregate Capital Contributions (including any additional Capital Contributions actually made) bears to the aggregate of Capital Contributions actually made by all Members (including any additional Capital Contributions). Notwithstanding the foregoing sentence or the provisions of Section 3.2 below, where a Member (the "Non-Contributing Member") fails to make an additional Capital Contribution as required for the Shortfall, the other Member (the "Contributing Member") may, at its option and in lieu of making the Non-Contributing Member's additional Capital Contribution for the Shortfall and effecting an adjustment of the Membership Interests in the Company: (i) deem the Contributing Member's additional Capital Contribution a loan to the Company at an interest rate selected by the Contributing Member; and (ii) make an additional loan to the Company on behalf of the Non-Contributing Member in an amount equal to the Non-Contributing Member's additional Capital Contribution for the Shortfall, at the same rate of interest as in subsection (i) and be deemed granted, without further action or documentation, a first priority lien and security interest in the Non-Contributing Member's Membership Interest; and (iii) both of the loans and interest thereon shall be repaid to the Contributing Member pursuant to Sections 3.2(a)(i) and 3.2(b)(i) below prior to distribution of any Net Cash from Operations, or Net Cash from Sales or Refinancings, or repayment of any Member Loan amounts (including principal or interest), to the Non-Contributing Member. A Member will be deemed to fail to meet a request to fund a Shortfall when such Member sends a written notice to the Company of its reftisal to make the requested additional Capital Contribution, or when such Member fails to make the requested payment within fifteen (1 5) days after the written notice of the requested additional Capital Contribution is given to such Member in the manner specified in Section 10.1 of this Agreement. (c) Notwithstanding anything to the contrary contained herein, prior to making a call for additional Capital Contributions pursuant to Section 2.2(b), above, the 4 Managers may request that all of the Members loan to the Company their pro rata share of the funds necessary to cover the Shortfall. The Members may agree to such request by written notice delivered to the Managers and the other Members (the "Lending Notice"). The aforementioned loans ("Member Loans") shall be on such terms and conditions as are set forth in the Lending Notice which is approved by the Managers (in the sole and absolute discretion of the Managers); provided, however, all Members may, at their election, participate in the Member Loans on the terms and conditions set forth in the Lending Notice, as approved by the Managers pursuant to this Subsection 2.2(c). The participation by each of the Members shall be a percentage based on each participating Member's respective Membership Interest. 2.3 General. (a) Except as otherwise provided in this Agreement, no Member shall demand or receive a return of such Member's Capital Contributions or withdraw from the Company without the consent of all Members. Under circumstances requiring a return of any Capital Contributions, no Member shall have the right to receive property other than cash except as may be specifically provided herein. (b) No Member shall receive any interest, salary, or drawing with respect to such Member's Capital Contributions or for services rendered on behalf of the Company or otherwise in the capacity as Member, except as otherwise provided in this Agreement. (c) Except as otherwise provided in this Article 2 and Article 6 hereof, S relating to Transfers of Membership Interests, no additional Member shall be admitted to theCompany as a Member without the unanimous vote of the Managers, which vote may be denied in the sole and absolute discretion of either the HMG Managers or the Trust Managers, as the case may be. (d) No Member shall incur any expense on behalf of the Company unless and until the Managers approve such expense. ARTICLE 3 ALLOCATIONS AND DISTRIBUTIONS 3. 1 Allocations. All income, gain, losses, expenses and cash, including but not limited to, Net Cash from Operations, Net Cash from Sales or Refinancing and liquidation proceeds, shall be allocated and distributed among the Members in proportion to their Membership Interests. 3.2 Priority of Distributions. (a) All distributions of Net Cash From Operations shall be made quarterly or at such other intervals as determined from time to time by the Managers, in the following order and priority: 5 (i) First, to Members in repayment of any Member Loans, and interest thereon, to the Company (and if more than one loan exists, repayment to each Member shall be in proportion that such Member's Member Loan bears to all Member Loans which are then outstanding); and (ii) Thereafter, to all Members pro rata, based on their respective Membership Interests. (b) All distributions Net Cash from Sales or Refinancing shall be made in the following order and priority: (i) First, to Members in repayment of any Member Loans, and interest thereon, to the Company (and if more than one loan exists, repayment to each Member shall be in proportion that such Member's Member Loan bears to all Member Loans which are then outstanding); and (ii) Thereafter, to all Members pro rata, based on their respective Membership Interests. No distributions may be made unless assets of the Company, after giving effect to the distribution, exceed liabilities of the Company (other than liabilities of the Company to the Members for their Capital Contributions and liabilities wherein recourse by creditors is limited to specific property of the Company). ARTICLE 4 ACCOUNTING AND RECORDS 4.1 Books and Records. The Company shall maintain at its principal place of business separate books of account for the Company which shall show a true and accurate record of all costs and expenses incurred, all charges made, all credits made and received, and all income derived in connection with the operation of the Company's business in accordance with generally accepted accounting principles consistently applied or in such other manner as the Managers shall agree. The Company shall use the accrual method of accounting in preparation of its annual reports and for tax purposes and shall keep its books accordingly. The expenses chargeable to the Company shall include only those which are reasonable and necessary for the ordinary and efficient operation of the Company's business and the performance of the obligations of the Company under any agreements relating to the business of the Company. Each Member shall, at such Member's sole expense, have the right, at any time without notice to any other Member, to examine, copy, and audit the Company's books and records during normal business hours for any purpose reasonably related to the Member's Membership Interest. 4.2 Reports. The Managers shall be responsible for the preparation of financial reports of the Company and the coordination of financial matters of the Company with the Company's accountants. 6 4.3 Tax Returns. The Managers shall cause the Company's accountants, selected by the Managers, to prepare all income and other tax returns of the Company and shall cause the same to be filed in a timely manner. 4.4 Tax Matters Member. Robert Jr.'s Trust shall be designated to receive all notices from the Internal Revenue Service ("IRS") which pertain to the tax affairs of the Company and shall promptly provide copies of all such notices and other correspondence to or from the LRS to the other Members and to the Managers. Robert Jr.'s Trust shall be deemed to be the "Tax Matters" Member pursuant to the Internal Revenue Code. Robert Jr.'s Trust shall not bind the Company with respect to any tax matters without the prior written consent of the Managers. 4.5 Fiscal Year. The fiscal year of the Company shall be the calendar year, unless otherwise provided by the Managers. As used in this Agreement, a fiscal year shall include any partial fiscal year at the beginning and end of the Company term. 4.6 Bank Accounts. No monies of the Company shall be commingled with the funds of any Member and the Members shall not employ, or permit any other person to employ, such funds in any manner except for the benefit of the Company. The bank accounts of the Company shall be maintained in such banking institutions as are approved by the Managers and withdrawals shall be made only in the regular course of Company business and as otherwise authorized in this Agreement on such signature or signatures as the Managers may determine. ARTICLE 5 MANAGEMENT 5 .1 Management by Managers. Notwithstanding anything to the contrary contained in this Agreement, with respect to all matters where this Agreement requires the agreement, approval, consent or determination of the Managers, the HMG Managers, collectively, shall have one vote, and the Trust Managers, collectively, shall have one vote; provided that either of the HMG Managers may act alone on behalf of (and bind) the HMG Managers and either of the Trust Managers may act alone on behalf of (and bind) the Trust Managers. Furthermore, all approvals, consents, determinations, actions and decisions of the Company shall require the joint approval of the Trust Managers on the one hand (evidenced by their one vote), and the HMG Managers on the other hand (evidenced by their one vote). Each Manager shall participate in and lend the experience of such Manager to the Company for all purposes, including (without limitation): (i) negotiating and entering into contracts with respect to the Property; (ii) negotiating and entering into leases and subleases for the Property; or (iii) doing such other acts as may be appropriate or necessary to further the purposes of the Company, all without additional compensation being paid to the Manager performing such services. 5.2 No Remuneration to Managers: None of the Managers shall be paid a salary or other compensation for fulfilling their duties as managers of the Company; however, each of the Managers shall be entitled to be reimbursed for reasonable, actual out-of-pocket costs and expenses (excluding rent, utilities or other overhead office expenses) incurred in the conduct of his duties which expenses are reasonably approved by the Managers. 7 5.3 Insurance. The Managers shall procure and maintain, or cause to be procured and maintained, insurance sufficient to enable the Company to comply with applicable laws, this Agreement, and requirements and as determined desirable by the Managers. ARTICLE 6 TRANSFERS OF INTERESTS; NO PARTITION; BREACH OF MEMBERS' OBLIGATIONS 6. 1 Restrictions on Transfers. (a) Except as provided in this Article 6 below, no Member shall Transfer all or any portion of: (i) such Member's Membership Interest or any rights therein; and/or (ii) except as provided in Section 6.2 below, permit the Transfer of any portion of the legal or beneficial ownership of such Member (the legal or beneficial owner of a Member is, hereafter, a "Beneficial Owner") which would result in a Transfer of more than fifty percent (50%) of the legal or beneficial ownership of such Member as same exists on the date hereof, without the consent of the Managers. Notwithstanding the foregoing, either Trust may transfer all or any portion of its Membership Interest to the other Trust at any time without the consent of the Managers. (b)As of the date hereof the Beneficial Owner of Robert Jr.'s Trust is Robert w. Christoph Jr. (100%). (c) As of the date hereof the Beneficial Owner of Hunter's Trust is Hunter Christoph (100%). (d) As of the date hereof the Beneficial Owner of HMG is its sole member, HMG/Courtland Properties, Inc. (e) Any Transfer or attempted Transfer by any Member in violation of this Article shall be null and void and of no effect. Each Member hereby acknowledges the reasonableness of the restrictions on Transfer imposed by this Agreement in view of the Company purposes and the relationship of the Members. 6.2 Transfer of Beneficial Interests in a Member to Family Members. Notwithstanding the provisions of Section 6. 1 above, a Beneficial Owner may Transfer its legal or beneficial ownership in a Member to: (i) a Beneficial Owner's immediate family (defined, for purposes of this Agreement, as a spouse and/or children); or (ii) a trust for the benefit of such Beneficial Owner's immediate family and the provisions of Section 6. 1 shall not apply to such Transfer provided that: (a) such Beneficial Owner shall, at all times, retain at least fifty-one percent (5 1 %) of the Beneficial Owner's interest in the Member, individually; 8 (b) such Beneficial Owner shall, at all times, individually retain all voting rights and other rights to participate in the management and control of the Member with respect to the legal or beneficial ownership interest to be Transferred; S (c) such Beneficial Owner's legal or beneficial ownership interests shall remain subject to all provisions of this Agreement; (d) the transferee of the Beneficial Owner's legal or beneficial ownership interest shall execute an acknowledgment of the provisions of this Section 6.2, in form and substance reasonably satisfactory to counsel for the Company; and (e) no Beneficial Owner may transfer a legal or beneficial ownership interest pursuant to this Section 6.2 to more than one transferee. 6.3 Waiver of Partition. No Member shall, either directly or indirectly, take any action to require partition or appraisement of the Company or of any of its assets or properties, or cause the sale of any Company property, and notwithstanding any provisions of applicable law to the contrary, each Member (and its legal representatives, successors, or assigns) hereby irrevocably waives any and all rights to maintain any action for partition or to compel any sale with respect to the Member's Membership Interest, or with respect to any assets or properties of the Company, except as expressly provided in this Agreement. 6.4 Consequences of Violation of Covenant. Notwithstanding anything to the contrary in the Act, if a Member or a Beneficial Owner (a "Breaching Member"): (i) is in breach of the Member's (or Beneficial Owner's) obligations or duties hereunder and fails to cure such breach (except as to any unpermitted Transfer, for which no cure period will be provided) within fifteen (1 5) days after receipt of written notice thereof from a non-Breaching Member, which notice shall specify the nature of the breach; or (ii) makes or attempts to make a prohibited Transfer or cause a partition of the Company or its assets, the Company shall, at the option of the non-Breaching Manager(s), either be dissolved and its assets liquidated in accordance with Article 8 below, or continue at the option of the non-Breaching Member(s). 6.5 Right of First Refusal. Notwithstanding the restrictions set forth in Section 6.1, and in addition to the other limitations and restrictions set forth in this Agreement, a Member may Transfer all, but not less than all, of such Member's Membership Interests (the "Offered Interests") in the Company if such Member (the "Seller") first offers to sell the Offered Interest pursuant to the terms of this Section 6.5. For purposes of this Section 6.5, the Trusts shall be required to act at all times as one Member as to the Transfer of their Membership Interests; and in the event either Trust is the Seller under this Section 6.5, the Offered Interests shall include the Membership Interests of both Trusts, and in the event HMG is the Seller, both Trusts shall collectively be deemed the Offeree (defined below). (a) No Transfer may be made under this Section 6.5 unless the Seller has received a bona fide written offer (the "Purchase Offer") from an individual or entity (the "Purchaser") to purchase the Offered Interests for a purchase price denominated and payable in United States dollars at closing or according to specified terms, with or without interest. The 9 Purchase Offer shall be in writing signed by the Purchaser and shall be irrevocable for a period ending no sooner than the day following the end of the "Offer Period" as hereinafter defined. (b) Prior to making any Transfer that is subject to the terms of this Section 6.5, the Seller shall give to the Company, each Manger and each other Member of the Company, written notice (the "Offer Notice") which shall include a copy of the Purchase Offer and an offer (the "Firm Offer") to sell the Offered Interests to the other Member (the "Offered") for a price equal to the price set forth in the Purchase Offer (the "Offer Price"), payable according to the same terms as (or more favorable terms than) those contained in the Purchase Offer. (c) The Firm Offer shall be irrevocable for a period ending at 11 :59 P.M., local time at the Company's principal place of business, on the fifteenth (15th) day following the date of the Firm Offer (the "Offer Period"). (d) The Offeree may accept the Firm Offer as to all, but not less than all, of the Offered Interests by giving written notice of such acceptance to the Seller and the Managers. S Jf the Offeree does not accept the Firm Offer as to all of the Offered Interests during the Offer Period, the Firm Offer shall be deemed to be rejected in its entirety. (e) In the event the Firm Offer is accepted, the closing of the sale of the Offered Interests shall take place within thirty (30) days after the Firm Offer is accepted. (f) If the Firm Offer is not accepted in the manner hereinabove provided, the Seller may sell the Offered Interests to the Purchaser at any time within sixty (60) days after the last day of the Offer Period, provided that such sale shall be made on terms no more favorable to the Purchaser than the terms contained in the Purchase Offer and provided further that such sale complies with all other terms, conditions and restrictions of this Agreement that are applicable to the sale of Membership Interests and are not expressly made inapplicable to sales occurring under this Section 6.5. In the event the Offered Interests are not sold in accordance with the terms of the preceding sentence, the Offered Interests shall again become subject to all of the conditions and restrictions of this Section 6.5. 6.6 Buy-Sell Agreement. Notwithstanding anything to the contrary contained in this Agreement, each Member hereby grants to each of the other Members the right and option (the "Option") to purchase such Member's entire Membership Interest in the Company on the terms and conditions set forth in this Section 6.6. For purposes of this Section 6.6, the Trusts shall be required to act at all times as one Member as to the Transfer of their Membership Interests; and in the event either Trust is the Exercising Member (defined below), the Membership Interests of both Trusts shall be deemed offered for sale to HMG and both Trusts shall collectively be deemed the Exercising Member (defined below), and in the event HMG is the Exercising Member, both Trusts shall collectively be deemed the Other Member (defined below). (a) A Member (the "Exercising Member") may, at its option, elect to initiate the purchase the Membership Interests of the other Member (the "Other Member"), on the terms and conditions described in this Section 6.6 at any time. 10 (b) The Exercising Member shall exercise the Option by delivering written notice of such exercise (the "Exercise Notice") to the Other Member. The Exercise Notice shall set forth with particularity the following information (i) the date, time and location within Miami-Dade County, Florida, on which the Exercising Member is prepared to close such acquisition of the Other Member's Membership Interests, which date shall be not less than sixty (60) nor more than ninety (90) days following the date of the Exercise Notice, and (ii) the name of the appraiser selected by the Exercising Member to determine the fair market value of the Company. (c) The Other Member receiving an Exercise Notice shall, within fifteen (15) days following receipt of the Exercise Notice, select a second appraiser to determine the fair market value of the Company. Each appraiser shall have thirty (30) days to determine the fair market value of the Company and submit such results to all Members. In the event the appraisals differ by no more than ten percent (10%) of the value of the lowest appraisal, then the "Fair Market Value of the Company" shall be deemed to be the average of the two appraisals. In the event the two appraisals differ by more than ten percent (1 0%) of the value of the lowest appraisal, then the two appraisers shall jointly select a third appraiser whose appraisal shall be final and binding on the parties as the "Fair Market Value of the Company." Such third appraiser shall be selected within ten (1 0) days of the date on which the second of the first two appraisals is submitted to all Members, and such third appraisal shall be submitted to all Members within thirty (30) days of the date on which the third appraiser is selected by the first two appraisers. Any dispute between the parties with respect to the appraisal process or selection of the appraisers shall be resolved through arbitration in accordance with the then-current Commercial Rules of the American Arbitration Association, to the extent that such rules do not conflict with the terms of this Agreement. (d) Within fifteen ( I 5) days of the date on which the Fair Market Value of the Company is finally determined and communicated to all Members, the Other Member shall elect by delivery of written notice of such election (the "Election Notice") to the Exercising Member, to either: (i) sell such Other Member's Membership Interest to the Exercising Member at a price equal to the amount that would be received by the Other Member as a liquidating distribution under Section 8.2(c) if all of the assets of the Company were sold for the Fair Market Value of the Company, and otherwise in accordance with the provisions of this Section 6.6; or (ii) purchase the Membership Interest of the Exercising Member at a price equal to the amount that would be received by the Exercising Member as a liquidating distribution under Section 8.2(c) if all of the assets of the Company were sold for the Fair Market Value of the Company, and otherwise in accordance with the provisions of this Section 6.6. Failure of the Other Member to deliver the Election Notice in a timely fashion shall be deemed to be the Other Member's irrevocable election to sell the Other Member's Membership Interest to the Exercising Member in accordance with (i) above. (e) In the event of a sale by the Other Member to the Exercising Member, a closing shall be held at the time and location specified in the Exercise Notice and the following shall occur: (i) the Exercising Member shall cause cash or federal funds in an amount equal to the sum of: (a) the purchase price of the Membership Interests of the Other Member, calculated pursuant to Section 6.6(d) above; and (b) all principal and interest (if any) due the Other Member 11 on account of any Member Loans to the Company made by such Other Member pursuant to this Agreement, to be delivered to such Other Member; (ii) the Exercising Member shall also deliver to the Other Member evidence reasonably satisfactory to the Other Member that the Other Member has been relieved of any and all personal liability for Company borrowings and other obligations, or that such borrowings and other obligations have been or will be satisfied at closing; and (iii) the Other Member shall deliver to the Exercising Member documents of assignment and conveyance of the Other Member's Membership Interest reasonably acceptable S to the Exercising Member, conveying the Other Member's Membership Interests to the Exercising Member or nominee free and clear of all liens, encumbrances and restrictions except as set forth in this Agreement. (g) In the event of a sale by the Exercising Member to the Other Member, a closing shall be held at the time and location specified in the Exercise Notice and the following shall occur: (i) the Other Member shall cause cash or federal funds in an amount equal to the sum of: (a) the purchase price for the Membership Interest of the Exercising Member being purchased, calculated pursuant to Section 6.6(d) above; and (b) all principal and interest (if any) due the Exercising Member on account of any Member Loans to the Company made by the Exercising Member pursuant to this Agreement, to be delivered to the Exercising Member; (ii) the Other Member shall deliver to the Exercising Member evidence reasonably satisfactory to the Exercising Member that the Exercising Member has been relieved of any and all liability for Company borrowings and other obligations, or that such borrowings and other obligations have been or will be satisfied at closing; and (iii) the Exercising Member shall deliver to the Other Member documents of assignment reasonably acceptable to the Other Member conveying the Membership Interests to the Other Member or nominee free and clear of all liens, encumbrances and restrictions except as set forth in this Agreement. 6.7 Compliance with Law. Subject to compliance with the other provisions of Article 6, no Transfer of Membership Interest, whether voluntary, involuntary or by operation of law, shall be valid unless the Company, prior to such Transfer, receives the following: (a) An opinion of counsel or other evidence reasonably satisfactory to the Company and its counsel that such Transfer does not violate any material agreement of the Company or any applicable law, rule, ordinance or regulation. (b) An agreement by the transferee assuming any outstanding obligations with respect to the Membership Interest transferred, and agreeing to be bound by the terms of this Agreement, in form and substance acceptable to the Company and its counsel. S ARTICLE 7 ELECTIONS, APPROVALS, AND AMENDMENTS 7. 1 Elections and Approvals. Any election or any matter that is subject to approval by the Managers shall require the joint election or approval of the HMG Managers (as to one vote) on the one hand and the Trust Managers (as to one vote) on the other hand. 12 7.2 Amendments. This Agreement may be amended from time to time only by the S written agreement of all of the Members. ARTICLE 8 DISSOLUTION AND WINDING UP 8.1 Liquidating Events. The Company shall dissolve and commence winding up and liquidating upon the first to occur of any of the following ("Liquidating Events"): (a) Seventy-Five (75) years after the date of filing of the Articles of Organization of the Company; or (b) The vote at any time, by unanimous written consent of all Members to dissolve, wind up, and liquidate the Company; or (c) The occurrence of any event that terminates the continued membership of a Member, other than the permitted sale of such Member's Membership Interest pursuant to the terms hereof unless, and notwithstanding the occurrence of any of the Liquidating Events, the business of the Company is continued by the consent of all remaining Members or unless extended by an amendment of the Articles of Organization providing for the continued existence of the Company subsequent to a Liquidating Event. The Members hereby agree that, notwithstanding any provision of the Act, the Company shall not dissolve prior to the occurrence of a Liquidating Event. 8.2 Winding Up. Upon the occurrence of a Liquidating Event, the Company shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets, and satisfying the claims of its creditors and Members. No Member shall take any action that is inconsistent with, or not necessary to or appropriate for, winding up the Company's business and affairs. The Managers shall be responsible for overseeing the winding up and liquidation of the Company and shall take full account of the Company's liabilities and Property, and the Property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (to the extent sufficient therefore) shall be applied and distributed in the following order: (a) First, to the payment and discharge of all of the Company's debts and liabilities to creditors other than Members, in the order of priority provided by law; (b) Second, to the payment and discharge of all of the Company's debts and liabilities to Members other than in respect of their Membership Interests; and (c) The balance, if any, to the Members in proportion to their ownership of Membership Interests in accordance with Article 3 above. 13 8.3 Articles of Dissolution. Promptly after the occurrence of any of the events listed in Section 8.2 above which effects the dissolution of the Company, and all debts, obligations and liabilities have been paid or discharged or adequate provision therefore has been made, and all remaining property and assets have been distributed among its Members in accordance with their respective Membership Interests, the Managers of the Company shall execute and deliver Articles of Dissolution to the Florida Department of State. 8.4 Rights of Members. Except as otherwise provided in this Agreement, each Member shall look solely to the assets of the Company for the return of the Member's Capital Contributions and shall have no right or power to demand or receive property other than cash from the Company. No Member shall have priority over any other Member as to the return of the Member's Capital Contributions, distributions, or allocations unless otherwise provided in this Agreement. 8.5 Obligations of Members. Notwithstanding the occurrence of a Liquidating Event, as between the Members, each shall remain responsible for payment of its share (as determined in accordance with this Agreement) of any obligations previously committed to or incurred by the Company with respect to Company activities to the extent that Company funds then on hand are insufficient to satisfy such obligations; provided, however, that nothing contained in this provision is intended to require any Member to be obligated to fund monies related to the acquisition of the title to, or entry into a lease respecting any property, even though same may be under contract to the Company as of the date of the Liquidating Event. ARTICLE 9 LOAN AGREEMENT; INDEMNIFICATION 9. 1 Loans to Company. In the event the Company shall obtain one or more loans (each is, hereafter, a "Loan") approved by the Managers for the conduct of its business and a Member is required to personally guarantee all or any portion of such Loan, each of the Members shall be deemed to have agreed to provide the indemnification set forth in Section 9.2 below with respect to such guaranty. However, no Beneficial Owner of a Member shall be deemed to provide the indemnification described in this Article 9 unless the Beneficial Owner has executed a specific indemnification for same. 9.2 Indemnification for Guaranty. Should the Company, for any reason whatsoever, fail to pay and perform its obligations under a Loan as and when due, each of the Members, shall, on a pro rata basis, based on its then existing respective Membership Interest, defend, indemnify and hold the other Members harmless from and against any and all claims, demands, actions, causes of action, damages, costs, expenses, liabilities and judgments whatsoever arising out of or as a result of such failure (including, without limitation, attorneys' fees at trial and appellate levels and in any bankruptcy proceedings). Notwithstanding anything to the contrary, in no event shall the percentage of any Member's share of the obligation set forth in this Section 9.2 exceed such Member's Membership Interest. S 9.3 Liability of Managers and Members. Each Member's obligations under Section shall in no way be compromised, affected, impaired, discharged, extinguished or reduced by 14 any of the following: (i) the release, compromise, settlement with, discharge or indulgence of any party from or under a Loan, whether such action occurs before or subsequent to any judgment; (ii) the modification or alteration, in any manner or respect, of the terms, provisions, conditions or contents of a Loan, or any agreement concerning any of the foregoing; (iii) any extension of time for payment of sums due in connection with a Loan; (iv) the failure, waiver or inability of a lender to exercise any right or remedy against a Member; (v) the Company or any Member's bankruptcy or insolvency or the discharge of any obligations hereunder or under a Loan; or (vi) any other act or omission of any of the Members with respect to any matter whatsoever. 9.4 Fees and Costs to Enforce Indemnification. Each Member agrees that, in the event a Member initiates action of any kind to collect payment hereunder or to cause any Member to perform any required act or duty hereunder or under a Loan, whether or not suit is brought, each of the Members (subject to the limitations set forth in this Article 9) will pay its pro rata share (based on its respective Membership Interest, as such may be modified hereunder), and reimburse the Member initiating such action with respect to such share, of all attorneys' fees, costs and expenses incurred in connection therewith, including, without limitation, costs of collection, settlement, investigation, prosecution of suit or appeal of judgment thereof. ARTICLE 10 MISCELLANEOUS 10. 1 Notices. Whenever any notice is required or permitted to be given under any provision of this Agreement, such notice shall be in writing, signed by or on behalf of the person giving the notice, delivered by certified or registered mail, return receipt requested, or by courier or overnight delivery to the appropriate address set forth in Exhibit A hereto, or to such other address of which such Member shall have given written notice to the other Members as provided in this Section 10.1, and shall be deemed to have been given on the third (3rd) business day after mailed via certified or registered mail, return receipt requested, or on the business day of the actual delivery if via courier or overnight delivery. 1 0.2 Binding Effect. Except as otherwise provided in this Agreement, every covenant, term, and provision of this Agreement shall be binding upon and inure to the benefit of the Members and their respective heirs, legatees, legal representatives and successors and permitted transferees, and assigns. S 1 0.3 Governing Law. This Agreement and the rights of the Members hereunder shall be governed by and construed in accordance with the laws of the State of Florida, without giving effect to conflicts of law principles. 1 0.4 Headings. Headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof. 10.5 Member Loans. As set forth in Section 2.2(c), any Member may, with the approval of the Managers, lend or advance money to the Company on such terms as are mutually 15 agreeable to the Managers and the lending Member. If any Member shall make any Member Loans to the Company or advance money on its behalf, the amount of such loan or advance shall not be treated as a contribution to the capita! of the Company but shall be a debt due from the Company. The amount of any such loan or advance by a lending Member shall be repayable only out of the Company's Property. None of the Members shall be obligated to make any Member Loans. 10.4 Counterparts. This Agreement may be executed in several counterparts, and all so executed shall constitute one Agreement binding on all of the parties hereto, notwithstanding that all of the parties are not signatories to the original or the same counterpart. 10.5 Waiver. Any waiver by any party hereto of any of its or his rights or remedies under this Agreement or of any breach or violation of or default under this Agreement must be in writing and signed by the party to be charged thereunder and shall not constitute a waiver of any of its or his rights or remedies or of any other or future breach, violation or default hereunder. 10.6 No Third Party Beneficiary. Nothing contained in this Agreement is intended to benefit any third parties not specifically herein enumerated, and no person, firm, corporation, Company of other entity is entitled to any benefits as a third party beneficiary hereunder on account of any obligation of the Members to make capital or other contributions or loans hereunder or to make payments of any nature or to perform any other obligation or for any purpose as required hereunder; it being expressly understood that the benefits, duties and obligations of any of the parties hereto are solely and exclusively the rights and obligations of said parties between each other and are not intended to benefit any third parties unless expressly S stated herein. 10.7 Fees and Costs. In the event that a dispute arises hereunder between any of the parties and/or a party seeks to enforce the terms and provisions of and rights under this Agreement or any right or remedy available to it, the prevailing party shall be entitled to all reasonable costs and expenses incurred by it, in connection therewith including, without limitation, reasonable attorneys' and paralegals' fees and costs incurred before and at any arbitration, trial or proceeding and at all appellate and tribunal levels and whether or not arbitration, suit or any other proceeding is instituted, as well as all other relief granted or awarded in any arbitration, suit or other proceeding. 10.8 Further Assurances. Each of the parties hereto covenants and agrees with the others that each of them shall upon the reasonable request of a Member do, execute and/or deliver and/or cause to be made, done, executed and/or delivered all such further and lawful acts, deeds, things, devices, agreements, instruments, amendments and assurances whatsoever for the better or more perfect and absolute performance of the terms, conditions and provisions of this Agreement 10.9 No Partnership or Joint Venture. In no event shall this Agreement be held or construed to imply the existence of a partnership among the Members with regard to any matters, trades, businesses or enterprises outside the scope of this limited liability company or a general partnership or joint venture with regard to any such matters, trades, businesses or enterprises, and none of the Members shall have any power or authority under this Agreement to act as the 16 partner, agent or representative of any other Member with regard to any matters beyond the scope of this limited liability company. 17 IN WITNESS WHEREOF, the Members have entered into this Agreement as of the day first set forth above. The Christoph Family Trust f/b/o Robert W. Christoph, Jr. under the trust agreement dated March 19, 1997 --------------------------------- ROBERT W. CHRISTOPH, Sr.,Trustee --------------------------------- CARTER N. McDOWELL, Trustee --------------------------------- ROBERT W. CHRISTOPH, JR., Trustee The Christoph Family Trust f/b/o Hunter Christoph under the trust agreement dated March 19, 1997 --------------------------------- ROBERT W. CHRISTOPH, Sr.,Trustee /s/ Carter N. McDowell --------------------------------- CARTER N. McDOWELL, Trustee HMG Bayshore, LLC, a Florida limited liability company By: --------------------------------- Name: --------------------------------- Title: --------------------------------- 18 IN WITNESS WHEREOF, the Members have entered into this Agreement as of the day first set forth above. The Christoph Family Trust f/b/o Robert W. Christoph, Jr. under the trust agreement dated March 19, 1997 /s/ Robert Christoph, Sr. --------------------------------- ROBERT W. CHRISTOPH, SR., Trustee /s/ Carter N. McDowell --------------------------------- CARTER N. McDOWELL, Trustee /s/ Robert Christoph, Jr. --------------------------------- ROBERT W. CHRISTOPH, JR., Trustee The Christoph Family Trust f/b/o Hunter Christoph under the trust agreement dated March 19, 1997 /s/ Robert Christoph, Sr. --------------------------------- ROBERT W. CHRISTOPH, SR., Trustee /s/ Carter N. McDowell --------------------------------- CARTER N. McDOWELL, Trustee HMG Bayshore, LLC, a Florida limited liability company By: --------------------------------- Name: --------------------------------- Title: --------------------------------- 19 EXHIBIT "A" DESCRIPTION OF MEMBERSHIP INTERESTS Names and Initial Capital Addresses Contributions Pursuant Membership of Members to Article 2.1 Interest The Christoph Family Trust f/b/o Robert W. Christoph, Jr. $ 25.00% under Trust Agreement dated --------------- March 19, 1997 - ------------------------------- - ------------------------------- The Christoph Family Trust f/b/o Hunter Christoph $ 25.00% under Trust Agreement dated --------------- March 19, 1997 - ------------------------------- - ------------------------------- HMG Bayshore, LLC $ 50.00% 1870 South Bayshore Drive --------------- Miami, FL 33133 Total: $ 100.00% --------------- 20 EX-10 9 ex37d.txt EXHIBIT 10 (P) Exhibit 10 (p) THIS MANAGEMENT AGREEMENT ("Agreement") is entered into as of this 20th day of August, 2004 ("Effective Date") by and between BAYSHORE RAWBAR, LLC, a Florida limited liability company, whose address is 300 Alton Road, Suite 303, Miami Beach, Florida 33139 ("Owner") and RMI, LLC, a Florida limited liability company, whose address is 120 San Souci Drive, Coral Gables, Florida 33133 ("Operator"). RECITALS A. Bayshore Landing, LLC, an affiliate of Owner ("Landing") is the current holder of a leasehold interest under a lease agreement (the "Master Lease") between City of Miami as landlord, and an affiliate of Owner, as tenant, for certain land located in the City of Miami which is used as a mixed use retail, office, marina, restaurant and bar facility commonly known as "Monty's in the Grove" (the "Project"), and Owner has the right to use the first floor restaurant portion of the Project by virtue of a sublease between Owner and Landing. B. Operator is experienced in the operation and management of a casual seafood and "raw bar" type restaurant commonly known as "Monty's Raw Bar and Restaurant" and Operator will exclusively operate the restaurant portion of the Project for Owner and no other business for ay third party pursuant to the term and conditions set forth herein; and C. Owner desires to employ Operator as its agent to operate the restaurant portion of the Project currently located on the first floor of the Project as a raw bar and casual seafood restaurant pursuant to the term and conditions set forth herein. NOW THEREFORE, in consideration of the covenants and agreements contained herein, Owner and Operator agree as follows: ARTICLE I APPOINTMENT OF MANAGER Section 1.01. Appointment of Manager. Owner hereby appoints and employs Operator to act as Owner's agent for the supervision, direction, operation and management of a casual seafood restaurant and raw bar (the "Restaurant") in that portion of the Project shown cross-hatched on the plot plan attached hereto as Exhibit A (the "Premises"). Owner, or an affiliate of Owner, shall also provide the Operator with approximately 1,950 rentable square feet of office space at the Project ("Office Space") at the rental rate of $ 1,500 per month plus sales tax and electricity charges as set forth in a lease to be entered into between Owner or an affiliate of Owner as Landlord and Operator as Tenant. Landlord shall provide a vanilla box space with standard utilities, walls, ceilings, air conditioning, light fixtures, and sprinkler systems, as required by law ("Vanilla Box Space"). The lease shall contain a clause enabling the Landlord to relocate tenant within the Project at Landlord's expense provided such relocated space is a Vanilla Box Space. Section 1.02. Term. The "Term" of this Agreement shall be for a period of five (5) years. It shall commence as of the Effective Date and continue for five (5) consecutive years; however if the Effective Date is not the first day of any given month, the Term shall run from the Effective Date through the last day of the full sixtieth (60th) month thereafter. ARTICLE II COMPENSATION OF MANAGER Section 2.01 . Management Fee. In consideration for the services rendered by Operator hereunder, Owner agrees to pay Operator a management fee (the "Management Fee") as follows: (a) a basic management fee ("Base Management Fee") equal to the greater of $25,000 per month or 4% of Gross Sales (as defined below), as determined on an annual basis; and (b) an incentive management fee ("Incentive Management Fee") equal to one-third of all Operating Profits (as defined below) over $1, 200,000 per year. Section 2.02 Definitions. In determining the Management Fee the following definitions shall apply: (i) Gross Sales. The term "Gross Sales" as used herein shall mean all sales made at or from the Restaurant and/or revenues derived from or in connection with the operation of the Restaurant, including, without limitation, all sales of food, beverages, merchandise or services at or from the Restaurant. Sales made at less than the stated menu price shall be included in Gross Sales only in the amount paid by the customer and the amount of any discount or promotional allowance shall not be included in Gross Sales. In computing the Management Fee there shall be excluded from Gross Sales (or there shall be deducted from Gross Sales to the extent previously included) the following: (A) Any gratuities or service charges added to a customer's bill or statement in lieu of gratuities, which are payable to Restaurant employees; (B) All sales taxes, excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist taxes or charges; (C) All sums and credits received in settlement of claims for loss or damage to inventory or equipment of the Restaurant, the Restaurant building or improvements located at the Premises; (D) Gains or losses from the sale of any capital assets or furniture, fixtures and equipment used in connection with the operation of the Restaurant; (E) Any compensation payments or insurance proceeds for claims against third parties arising out of or during the course of the operation of the Restaurant (other than proceeds from business interruption insurance); 2 (F) The proceeds of any financing or refinancing of the Restaurant or any improvements, fixtures or equipment used in connection with the Restaurant; (G) Proceeds from any condemnation, sale or other disposition of the assets of the Restaurant; and (H) Employee meals. (ii) Operating Profits. The term "Operating Profits", as used herein, shall mean Gross Sales minus (a) all operating expenses of the Restaurant, including, but not limited to, insurance premiums, lease payments payable to the City of Miami under the Master Lease and valet parking charges; (b) all allocations made for training, marketing, and promotional expenses; (c) common area maintenance charges for the indoor portion of the restaurant (i.e. kitchen, covered loading areas/passageways, and dining/bar area upon completion) and real estate taxes payable under any leases affecting the Restaurant; (d) the Base Management Fee; (e) maintenance and repair costs; and (f) the Replacement Reserve Fund (as defined in Section 5.03), but before any deduction for (1) depreciation, (2) amortization, (3) debt service payments (principal and interest), or (4) capital expenditures. The foregoing items (1) through (4) shall be the responsibility of Owner at Owner's sole cost and expense. Section 2.03. Payment of the Management Fee. On the first of each month commencing on the second full month of the Term, Owner shall pay Operator $25,000 of the Base Management Fee, which shall constitute installment payments of the Base Management Fee, subject to reconciliation at the end of the fiscal year based on the Annual Statement, prepared in accordance with Section 6.03 hereof, to determine the 4% of annual Gross Sales. Any overpayment or underpayment shall be reconciled by payment or refund, as appropriate, within thirty (30) days after Owner's receipt of the Annual Statement. Section 2.04. Upstairs Restaurant. The parties acknowledge that the Owner or an affiliate ("Second Floor Restaurant Owner") is contemplating having an upscale restaurant on the second floor of the Project ("Upstairs Restaurant") and the Second Floor Restaurant Owner may solicit proposals for the Upstairs Restaurant. In the event the Second Floor Restaurant Owner selects the Operator to be the operator for the Upstairs Restaurant, this Agreement shall govern the provision of those services as well, except that the Base Management Fee shall be the greater of: (i) a total of $25,000 per month for the Restaurant and Upstairs Restaurant combined or (ii) 4% of Gross Sales for the Restaurant and the Upstairs Restaurant combined and the Incentive Management Fee payable hereunder shall be changed to one-third of all Operating Profits (as defined above) over $ 1 ,500,000 of annual Operating Profits for the Restaurant and the Upstairs Restaurant, combined. 3 ARTICLE III DUTIES OF THE MANAGER Section 3.01. Standard of Operations. Operator shall manage and operate the Restaurant in good faith and in a manner consistent with its management of its Miami Beach and Key West Monty's Raw Bar Restaurants. Subject to the terms and conditions of this Agreement, Operator shall have commercially reasonable discretion to establish policies for the Restaurant, including, without limitation, menu items, prices, purchasing, design and decor, employment, standards of operation, quality of service, marketing and promotional activities, and other matters affecting customer opinion of the Restaurant and its operation. The Restaurant shall be open for business at least for lunch and dinner seven (7) days per week. Upon Owner's request, Operator shall meet with Owner at a mutually convenient time and place for the purpose of reviewing the operation of the Restaurant. Section 3.02. Personnel. Operator shall be responsible for hiring, supervising, directing the work of, promoting, discharging and determining the compensation and other benefits of, all personnel working in the Restaurant. All personnel of the Restaurant shall be employees of Operator, who shall be paid by Operator through the Payroll Account (defined in Section 5.02), including the full amount of the wages, payroll taxes, insurance, worker's compensation and other benefits. Operator shall not hire any other employees for any other business venture, person or entity and Operator shall not work for any third party during the term of this Agreement. The salaries, other compensation and benefits of such personnel shall be consistent with those that apply at other Monty's locations. The Owner shall have the right to approve the hiring of the head cashier who reconciles all cash receipts ("Cashier"). At all times, Operator shall employ a Cashier who shall work exclusively for the Restaurant. Operator shall be responsible for filing all tax returns and other forms required by law relating to payroll, including for payroll taxes and unemployment taxes, and for withholding and remitting to the IRS the correct amount of federal income taxes relating to payroll. To assist Operator in the performance of its duties under this Agreement, Operator shall also employ a comptroller, purchasing agent, food tracker! accounts payable person, human resources manager, assistant comptroller and clerk as part of the Operator's "Operations Team". All members of the Operations Team shall be paid by Operator as part of the Management Fee and the cost of such employees (including business expenses) shall not be reimbursed by Owner or the Restaurant. It is understood and acknowledged by the parties that the members of the Operations Team will not work full time for the Restaurant but will allocate a reasonable amount of time to the Restaurant in order to fulfill the Operator's obligations under this Agreement. Section 3.03. Training. Operator shall be solely responsible for recruiting and training the staff for the Restaurant in accordance with the standard practices and procedures used by Operator, its affiliates or principals in the Miami Beach and Key West locations and in accordance with all Governing Laws (defined below). Operator shall provide Owner with copies ofall training manuals and materials. Section 3.04. Permits and Licenses. Operator, at Owner's expense, shall be responsible for obtaining, maintaining, and renewing the appropriate liquor license for the Restaurant and obtaining all building permits, occupational licenses and all other licenses and permits that may be required for the operation of the Restaurant, including sign licenses and permits. All such 4 permits shall be in the name of Owner, unless required in connection with the hiring of employees, which permits or licenses shall be in the sole name of Operator. Section 3.05. Contracts. Upon prior written approval of Owner, Operator, as agent of Owner, shall have authority to enter into, on Owner's behalf, such concessionaire, service and other contracts or agreements as are in Operator's reasonable professional judgment necessary for the operation, supply and maintenance of the Restaurant as required by this Agreement. Operator shall be required to obtain the Owner's consent before entering into any agreement involving a total amount payable in excess of $5,000 or any agreement whose term exceeds one (1) year and cannot be terminated without cost to Owner upon less than ninety (90) days notice. Section 3.06. Maintenance and Repair. Operator, at Owner's expense, shall be responsible for maintaining and repairing the Restaurant and the Premises in good condition and repair, including without limitation all necessary repairs and maintenance of the furniture, fixtures and equipment used in connection with the Restaurant; provided that any single repair or maintenance project costing in excess of Five Thousand Dollars ($5,000.00) shall require the Owner's prior approval, except in the case of an emergency where Operator shall use prudent and commercially reasonable judgment in remedying such emergency. Operator shall notify Owner of any emergency situation as soon as reasonably possible after it arises. If Owner fails to either approve or disapprove a non-emergency item of repair or maintenance within ten (10) days after Owner's receipt of a request for its approval, the request shall be deemed denied. Except in the case of an emergency, Operator shall hire one of Owner's maintenance personnel for the Project to perform routine maintenance and/or repair tasks. The Restaurant shall be billed for the actual portion of such maintenance personnel's time spent maintaining and repairing the Restaurant. Section 3.07. Inventory, With the exception of Stone Crabs, Operator shall be responsible for purchasing all inventory for the Restaurant, which shall all be purchased in the name of the Owner and for Owner's account. Stone Crabs may be purchased in bulk by Operator or an affiliate, culled and sorted and then resold to Owner at the same prices the Operator purchased the Stone Crabs. All inventory for the Restaurant shall be maintained in a segregated area and not co-mingled with any inventory for any other restaurant of Operator's, its affiliates or principals. A count of all tracked inventory shall be taken on a daily basis and Operator shall provide Owner with copies of all results upon request. Section 3.08. Alterations to the Restaurant. Operator shall not have the right to make any material alterations, additions or improvements to the Restaurant without the prior written consent of the Owner, which may be withheld in Owner's sole and absolute discretion, unless required by applicable law. Owner anticipates constructing an approximately 5,000 rentable square foot indoor dining area and bar for the Restaurant ("Indoor Area"). The Indoor Area is shown on the attached Exhibit "A". Section 3.09. Compliance with Laws. Operator shall comply with all applicable statutes, ordinances, rules and regulations of federal, state and local governmental bodies having jurisdiction over the Restaurant, its operation and/or the Operator ("Governing Laws"). 5 ARTICLE IV OWNER'S FINANCIAL OBLIGATIONS Section 4.01 . Obligations of Owner. All costs and expenses of renovating, maintaining, repairing and operating the Restaurant, including without limitation the funding of operating deficits and working capital and other obligations and liabilities hereunder ("Owner's Financial Obligations") shall be the sole and exclusive responsibility and obligation of Owner, except where it is expressly and specifically stated that such item shall be at Operator's expense (e.g. hiring employees, preparing financial statements). Section 4.02. Operator Not Obligated to Advance Funds. Operator shall have no obligation to pay for any of Owner's Financial Obligations unless Owner shall have furnished Operator with funds sufficient for the discharge thereof. Operator shall not be obligated to advance any of its own funds to or for the account of Owner or to incur on its own account any liability with respect to the Restaurant. Notwithstanding the foregoing, in the event that Operator shall have advanced any funds in payment of any expenses of the Restaurant, Owner shall reimburse Operator within ten (1 0) days after written demand together with paid receipts and/or invoices therefore. Section 4.03. Annual Operating Budgets. Sixty days prior to the start of each fiscal year, Operator shall provide Owner with an anticipated operating budget for the next fiscal year (each, an "Annual Operating Budget"). Owner shall provide reasonable comments to the same and the parties shall reasonably agree upon the Annual Operating Budget prior to the start of the next fiscal year. The Annual Operating Budget shall be in at least the same detail as the sample attached hereto as Exhibit B. Owner may, from time to time, request that the form be modified or additional information be added to the Annual Operating Budget. Section 4.04. Initial Financial Projections. Owner and Operator hereby approve the following financial projections for the Restaurant: (a) Initial Budget Working Capital. Attached hereto as Exhibit C is a projection of the anticipated budget and Working Capital for the Restaurant (as defined in Section 5.01 hereof). (b) The Initial Operating Pro Forma. Attached hereto as Exhibit D is a pro forma projection of the operating income and expenses of the Restaurant from June 1 , 2004 --December 3 1 , 2004 (the "Initial Operating Pro Forma"). It is understood that the Initial Operating Pro Forma is an estimate or forecast of the income and expenses that Operator, in its professional judgment, believes will be incurred or accrued at the stated Gross Sales levels during the period for which the projection is made. In the absence of fraud or intentional misrepresentation by Operator, Operator shall have no liability to Owner based upon any discrepancy between the actual income and expenses of the Restaurant and the income and expenses that were forecast in the Initial Operating Pro Forma. 6 ARTICLE V ACCOUNTS AND RESERVES Section 5.01 Working Capital Account. Owner shall establish a Working Capital Account in the name of Owner at the Wachovia Bank office in Coconut Grove or such other financial institution acceptable to Owner, and Stephen J. Kneapler shall have signing authority on such account. During the Term of this Agreement Owner shall furnish to Operator sufficient working capital for the ongoing operation o of the Restaurant ("Working Capital"). Working Capital shall consist of the following: (i) an amount that approximates the current average value of the food and beverage inventory of the Restaurant carried at cost, (ii) the cash on hand at the Restaurant, and (iii) an amount determined by Operator to be reasonably adequate for the operation of the Restaurant based upon Operator's estimate of the reasonably foreseeable income and expenses of the Restaurant, the Initial Operating Proforma and the Annual Operating Budget. Owner shall fund any deficit in the Working Capital within three (3) business days after Owner's receipt of written notice from Operator of the need for additional Working Capital; provided that Owner has five (5) business days prior thereto received a standby notice from Operator advising Owner that a deficit is expected and estimating the amount thereof. As used in this Agreement, the term "business days" shall mean any day other than a Saturday, Sunday or a day on which the banks in Miami, Florida are closed for business. Section 5.02 Payroll Account. Operator shall maintain a separate account through which it pays the payroll and all associated taxes and other payments due with respect to the employees of Operator who work at the Restaurant ("Payroll Account"), as set forth in Section 3.02. The Payroll Account shall not be used by Operator to pay any employees of Operator, its affiliates or principals that are not employed at the Restaurant. On every other Thursday (or other day(s) agreed to by the parties) Owner shall deposit sufficient funds into the Payroll Account for the Operator's payroll for the Restaurant that is to be paid that week. Within three (3) business days after Operator's payroll is paid, Operator shall provide Owner with wire transfer receipts, bank statements Or other evidence that the payroll, including all necessary taxes and other payments due in connection therewith, have been timely paid in full. Operator shall provide Owner with copies of bank statements for the Payroll Account upon request, as well as evidence of Operator's compliance with all tax and other laws relating to payroll (i.e. copies of tax returns). Section 5.03. Capital Expenditures. Capital expenditures necessary during the Term for furniture, fixtures, equipment and improvements at the Restaurant shall be paid for by Owner out of a replacement reserve fund (the "Replacement Reserve Fund") accrued for the purpose of purchasing such items for the Restaurant. On a monthly basis 2.5% of the monthly Gross Sales shall be allocated to the Replacement Reserve Fund. Section 5.04. Owner's Account. All Restaurant receipts (including all cash and credit card receipts) shall be deposited on a daily basis (except for weekends or bank holidays where funds shall be deposited on the first available business day) into an account in the name of and under Owner's sole control ("Owner's Account") and shall be confirmed by the Cashier. Most 7 of the daily expenses of the Restaurant shall be paid for from the Working Capital Account; however any rent payments due the City, the State of Florida or any affiliate of Owner for rent; real estate taxes, and capital expenditures shall be paid for from the Owner's Account. Operator shall prepare for Owner's signature all checks for such payments, which payments shall be consistent with the Annual Operating Budget. Operator shall also prepare monthly account reconciliations for the Owner's Account and provide the same to Owner together with the Monthly Statement. The Owner Account reconciliations shall be certified as true and correct by Stephen J. Kneapler on behalf of Operator. Section 5.05 No Commingling of Funds. Operator shall not be permitted to commingle any of its funds or its affiliates' or principals' funds with those of the Restaurant or the Owner. All books, records and accounts for the Restaurant shall be separate and distinct from any other operation or business of the Operator, Stephen J. Kneapler or their respective affiliates. A breach of the terms of this Section of the Agreement shall be cause for immediate termination of this Agreement by the Owner without any right of the Operator to cure. ARTICLE VI ACCOUNTING Section 6.01. Standards. Operator, at Operator's own cost and expense (which expense shall not be reimbursed by Owner), shall maintain books and records of account relating to Operator's operation and management of the Restaurant in accordance with generally accepted accounting principles. Owner and its designees shall have the right, from time to time, to examine said books and records at the Restaurant at any reasonable time during regular business hours. Section 6.02 Monthly Statement. Within fifteen (15) days of the end of each month, Operator shall provide Owner with a balance sheet, profit and loss statement and supporting schedules, as requested by Owner from time to time, showing the Restaurant's operating results and inventory for the preceding fiscal month and fiscal year to date ("Monthly Statement"), which shall be certified as true and correct by Stephen J. Kneapler on behalf of Operator. Section 6.03. Annual Statement. Within forty-five (45) days following the end of each fiscal year, Operator shall provide Owner with a statement showing the Restaurant's operating results for the preceding fiscal year (the "Annual Statement"). The Annual Statement shall contain a balance sheet, profit and loss statement and supporting schedules as requested by Owner, which shall be certified as true and correct by Stephen J. Kneapler on behalf of Operator. Section 6.04. Adjustments. Any adjustment required to make up an underpayment or to refund an overpayment by Owner to Operator shall be made within thirty (30) days after completion of the statement that shows the need for an adjustment. Adjustments based on the Annual Statement shall be made during the first month following completion of the Annual Statement. Section 6.05 Right to Audit. At any time during the Term of this Agreement and for the two (2) year period following the termination of this Agreement, Owner shall have the right, upon five (5) days' prior written notice to Operator, at Owner's own expense, to have an 8 accountant selected by Owner verify the financial information contained in any financial statement, including any Monthly or Annual Statement, or audit Operator's books and records relating to the Restaurant. If there is a discrepancy between such financial statements and the findings of Owner's accountant, or any other dispute between the parties regarding the financial statements, Operator's accountants and Owner's accountant shall attempt to resolve such discrepancy or dispute, and their mutual decision shall be binding upon Owner and Operator. If the accountants for the parties are unable to resolve the discrepancy, the matter shall be referred to an arbitration panel composed of Owner's independent accountant, Operator's independent accountant, and a third independent CPA selected by the parties' independent accountants and the decision of such arbitration panel shall be binding upon Owner and Operator. The cost of conducting an independent audit of the Restaurant's financial statements shall be paid by Owner unless (i) there is a discrepancy of five percent (5%) or more between any line item in the financial statements and the auditor's finding with respect to such line item, (ii) the amount of Gross Sales is misstated by more than three percent (3%) of the actual amount of Gross Sales. In either such case the cost of the audit shall be paid by Operator. The cost of preparing the Monthly and Annual Statements shall be borne by Operator as part of the Management Fee. Section 6.06 Fiscal Year. The fiscal year of the Restaurant shall commence on January first and end on December 31. ARTICLE VII INSURANCE AND INDEMNITY Section 7.01 Required Coverage. The following forms of insurance coverage shall be maintained for the Restaurant: (a) Builder's Risk: All Risk Builders' Risk insurance, with a limit equal to the total cost of construction of the Restaurant (including but not limited to general construction contract cost and Operator-provided items and all equipment for refrigerating, ventilating, cooking and dishwashing), less an allocation for foundation and land-related improvements, such as sidewalks, curbs, parking lots and the like; (b) Property Insurance: Permanent property insurance, secured as soon as the Builder's Risk Insurance ceases. Property Insurance shall insure against any and all risks of direct physical loss to the Restaurant and its furniture, fixtures and equipment, with limits of not less than the full replacement cost thereof, subject to a deductible of not more than Ten Thousand Dollars ($10,000.00), with any deductible to be treated as an operating expense of the Restaurant; (c) Business Interruption: All Risk Business Interruption insurance with a limit sufficient to reimburse Owner for loss of income resulting from Owner's inability to continue operations due to the Restaurant's sustaining a loss from an insured peril. The limit shall also include sufficient insurance to ensure that Owner will be able to meet its monetary obligations to Operator under this Agreement, including the Base Management Fee, with any deductible to be treated as an operating expense of the Restaurant; 9 (d) General Liability: Comprehensive general liability insurance, including product and liquor liability coverage, with excess limits of not less than Three Million Dollars ($3,000,000.00), each occurrence, bodily injury and property damage combined, including dram shop insurance in areas having a Dram Shop Act or similar provisions of law. An umbrella liability policy of not less than $5,000,000 per occurrence shall also be obtained; (e) Employer's Liability: Workers' Compensation and Employer's Liability insurance, as well as other insurance as may be required by law, in such amounts as may be required by applicable statute or rule; provided that the Employer's Liability Insurance shall carry a limit of not less than Five Hundred Thousand Dollars ($500,000.00). Such insurance shall not apply to the members of the Operations Team whose expenses are paid by Operator; (f) Theft. The Manager, Assistant Manager and Cashier for the Restaurant shall be bonded and insured against theft and! or misappropriation of funds. (g) Key Man Insurance. Key man life insurance shall be obtained by the Owner for Stephen J. Kneapler in an amount of no less than $2,000,000. The Owner shall be the beneficiary under such policy. If requested by Owner Stephen J. Kneapler shall arrange for a partial assignment of either or both of the existing life insurance policies on Stephen J. Kneapler: (1) issued by Transamerica Occidental Life Insurance Company under Policy No. 4146225 1 naming Bryan Kneapler as beneficiary which was collaterally assigned to Ocean Bank; or (ii) any other existing life insurance policy insuring Stephen J. Kneapler. (h) Additional Coverage: Such additional coverages and higher policy limits as may reasonably be required from time to time by Owner or any lender of Owner. All such policies shall be written by insurance companies that are: (i) rated by Best as at least A+ and (ii) are authorized to do business where the Restaurant is located. Section 7.02. Responsibility for Obtaining Coverage. The insurance coverage required under Section 7.01 hereof shall be obtained by Owner or Operator based upon a recommendation of a qualified insurance consultant mutually acceptable to the parties. In the event the parties cannot agree upon a consultant, Owner shall be primarily liable for obtaining the coverages required in subparagraphs (a), (b), (c), (1) and (g) and Operator shall be primarily responsible for obtaining the coverages in subparagraphs (d) and (e) The parties and any lender of Owner shall be named as additional insured and/or loss payees, as appropriate. The cost of all insurance premiums shall be an operating expense of the Restaurant. Section 7.03. Evidence of Coverage. No later than thirty (30) days before the Commencement Date, written evidence shall be provided confirming that the foregoing insurance coverage requirements have been complied with. Such evidence shall include a statement by the insurer that the policy or policies will not be cancelled or materially altered without at least ten (1 0) days prior written notice to Owner and any lender of Owner. Each party shall cause certificates of insurance for all insurance policies procured by such party to be submitted promptly to the other party. No insurance obtained hereunder may be cancelled or modified without the other party's prior consent. 10 Section 7.04. Failure to Insure. Should Owner, or Operator, for any reason, fail to procure or maintain any of the insurance required by this Agreement, which failure shall constitute a default hereunder, the other party shall have the right, at its option, to procure such insurance. Section 7.05. Indemnity. Operator agrees to indemnify, defend and hold harmless Owner, any affiliate of Owner and all of Owner's and such affiliates' managers, officers, directors, stockholders, partners, employees, agents, designees, successors and assigns (each an "Indemnified Party") from and against any and all claims, liability, loss or damage (including attorneys' and paralegals' fees before and at trial and at all appellate levels, whether or not suit is instituted, and any amounts expended in the settlement of any claims of liability, loss or damage), incurred by the Indemnified Party by reason of any act performed or omitted to be performed by Operator, its agents, officers, directors or employees in violation of any provision of this Agreement, including without limitation, Operator's obligation to comply with all laws, regulations and ordinances applicable to the Restaurant, including all local, state and federal tax laws. Notwithstanding the foregoing, Operator shall not be obligated to indemnify and hold Owner harmless or to reimburse Owner or to defend Owner from any liability that results from the negligence, fraud or willful misconduct of Owner, its agents, employees, officers or directors, or any action of Owner, its agents, employees, officers or directors in violation of any provision of this Agreement. Section 7.06. Waiver of Subrogation. Each party hereto ("Releasing Party") hereby releases the other ("Released Party") from any liability which the Released Party would, but for this paragraph, have had to the Releasing Party arising out of or in connection with any accident or occurrence or casualty, to the extent of recovery under any other casualty or property damage insurance being carried by the Releasing Party at the time of such accident or occurrence or casualty, which accident or occurrence or casualty may have resulted in whole or in part from any act or neglect of the Released Party, its officers, agents or employees; provided, however, the release hereinabove set forth. shall become inoperative and null and void if the Releasing Party contracts for insurance with an insurance company which (a) takes the position that the existence of such release vitiates or would adversely affect any policy so insuring the Releasing Party in a substantial manner and notice thereof is given to the Released Party, or (b) requires the payment of a higher premium by reason of the existence of such release, unless in the latter case the Released Party within ten (10) days after notice thereof from the Releasing Party pays such increase in premium. ARTICLE VIII DAMAGE AND DESTRUCTION Section 8.01 Owner to Restore. If during the Term of this Agreement all or part of the Restaurant shall be damaged or destroyed by fire or other casualty, then Owner shall, to the extent of insurance proceeds actually received by Owner, repair, restore, or rebuild the Restaurant. The restoration of the Restaurant shall be carried out with due diligence by Owner and Operator. During any period in which the Restaurant is unable to operate due to damage and destruction, Operator shall not be entitled to any Management Fee unless Owner's business interruption insurance reimburses Owner for the Management Fee or a portion thereof. In such instance, the amount actually paid by the insurance company for the Management Fee (or portion 11 thereof) shall be paid to Operator. If the insurance proceeds are insufficient to restore the Restaurant the Owner shall not be obligated to restore the Restaurant and Owner may send Operator a written notice terminating this Agreement, effective as of the date of the casualty and the parties shall be relieved of all further obligations hereunder except those expressly surviving termination hereof. ARTICLE IX EMINENT DOMAIN Section 9.01. Total Condemnation. If the whole of the Project or the Restaurant shall be taken in any eminent domain, condemnation, compulsory acquisition or like proceeding by any competent authority for any public or quasi-public use or purpose, or if such a portion thereof is so taken that it would be infeasible or imprudent, in Owner's reasonable opinion, to use the remaining portion of the operation of the Restaurant, then in either of such events the Term of this Agreement shall end as of the date of such taking, and the parties shall be relieved of all further obligations hereunder except those expressly surviving termination hereof. Any condemnation award shall be payable to Owner. Section 9.02. Partial Condemnation. If only a part of the Premises or the Restaurant shall be taken or condemned and the taking or condemnation of such part does not make it infeasible or imprudent, in Owner's commercially reasonable opinion, to operate the Restaurant in the remaining portion, this Agreement shall not terminate, and Owner shall make such modifications to the Premises and/or the Restaurant as shall be necessary to enable the Restaurant to continue in operation, to the extent of the condemnation proceeds actually received by Owner. Any portion of the condemnation award remaining after restoration shall be. payable to Owner. ARTICLE X REPRESENTATIONS, WARRANTIES AND COVENANTS Section 10.01. Authority of Owner and Operator. Owner and Operator represent and warrant each to the other that each has full right, power and lawful authority to execute and deliver this Agreement and to perform its obligations hereunder in the manner and upon the terms contained herein, with no other person needing to join in the execution of this Agreement, in order for it to be binding upon all persons having an interest in the Premises. The person(s) executing this Agreement on behalf of Owner and Operator represent and warrant that they are the only person(s) required to execute this Agreement in order to bind the Owner and Operator to their respective obligations hereunder. Stephen J. Kneapler owns at least 5 1 % of the ownership interests of the Operator, has voting control of the Operator and has the ability to nominate the number of directors on the board of directors or board of managers, as applicable, of such entity, necessary to bind the Operator. Section 1 0.02. Confidentially. Owner and Operator represent, warrant and covenant each to the other that it shall at all times treat as confidential any proprietary information, trade secrets, knowledge or know-how relating to the Restaurant that either of them may acquire in connection with this Agreement or otherwise, including, without limitation, any financial information relating to the revenues, cost or profits of the Restaurant; personnel policies or 12 procedures; budgets and compensation figures; operating systems and methods; and recipes or training materials (referred to collectively as "Confidential Information"); and that it shall use its best efforts to keep any Confidential Information secret and confidential, both during and after the Term of this Agreement. Section 10.03. Restriction on Other Restaurant Operations. For so long as the Master Lease is in effect (including any amendments or extension thereto), none of Operator, Stephen J. Kneapler or any affiliate or principal of either shall, directly or indirectly: (i) become employed by, consult with, be associated with or assist in any capacity whatsoever (including as an owner, shareholder, employee, officer, director, agent or independent contractor of) any other Monty's Raw Bar or casual seafood type restaurant within a two (2) mile radius of the Restaurant. The provisions of this Section shall survive any termination or cancellation of this Agreement. Operator acknowledges that any breach or violation of this Section 1 0.03 will cause irreparable injury and damage and incalculable harm to the Owner and its affiliates and that it would be very difficult or impossible to measure all of the damages resulting from any such breach or violation. Operator further acknowledges and agrees that the restrictions set forth in this Section 10.03 (including the time period, geographical areas and types of restrictions imposed) are fair and reasonable and are reasonably required for the protection of the business, trade secrets, interests and goodwill of the Owner and its affiliates. In the event that any one of the provisions of, or restrictions in this Section 1 0.03 shall be held to be invalid or unenforceable, and is not reformed by a court of competent jurisdiction, which the parties hereto hereby request the such court to do, the remaining provisions thereof and restrictions therein shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable provisions or restrictions had not been included. In the event that any such provision relating to time period, geographical area and/or type of restriction shall be declared by a court of competent jurisdiction to exceed the maximum or permissible time period, geographical area or type of restriction such court deems reasonable and enforceable, said time period, geographical area and/or type of restriction shall be deemed to become and shall thereafter be the maximum time period, geographical area and/or type of restriction which such court deems reasonable and enforceable. ARTICLE XI DEFAULT, TERMINATION AND REMEDIES Section 11.01. Default, Notice and Cure. If either party hereto shall default in the performance of any of its obligations under this Agreement, or if any representation or warranty made by either party hereto shall be untrue or shall be breached in any material way, and if within ten (1 0) days following notice from the other party of such default, misrepresentation or breach, the party fails to pay such monies, or in the case of non-monetary defaults, fails to commence substantial efforts to cure such default, misrepresentation or breach or thereafter fails within a reasonable time to prosecute such cure to completion with diligence and continuity; then the party who delivered the notice of such default shall have, in addition to its rights at law or in equity, the right to terminate this Agreement and all rights granted hereunder. Section 11.02. Termination by Operator. In addition to the default provision set forth in Section 1 1.01, Owner shall be in default and Operator may, at its option, terminate this Agreement and all rights granted hereunder, upon the occurrence of any of the following events: 13 (a) If owner loses the right to possession of the entire restaurant. (b) If Owner fails to timely reimburse Operator for the expenses of the Restaurant within 1 0 days after a written default notice has been sent to Owner and such expenses were in the Operating Proforma and not reasonably contested by Owner. (c) If Owner transfers its interests in the Restaurant and the Project to an unaffiliated third party and such transaction closes, Operator may terminate this Agreement simultaneously with such closing upon 30 days' prior written notice to Owner. If Operator terminates this Agreement under such circumstances and is not otherwise in default hereunder, Owner shall pay Operator a $75,000 Termination Fee at closing. Section 11.03. Termination by Owner. In addition to the default provision set forth in Section 11.01, Operator shall be in default and Owner may, at its option, terminate this Agreement and all rights granted hereunder, upon the occurrence of any of the following events: (a) If Stephen J. Kneapler fails to: (i) run the day to day operations of the Restaurant; (ii) remain as President/Chief Executive Officer/Manager of Operator; (iii) have the ability to nominate the number of directors on the board of directors or board of managers, as the case may be, as necessary to bind the Operator, or (iv) own 51% of the ownership interests or have voting control of Operator; (b) Immediately, upon the death or physical or mental incapacity of Stephen J. Kneapler; (c) If Operator shall fail to submit to Owner the financial or other information required under this Agreement, and such failure continues beyond the cure period provided for in Section 11.01 above; (d) If, through no fault of Owner, the liquor license for the Restaurant is suspended for thirty (30) days or more, or for any length of time on three (3) occasions within any twelve (12) month period; (e) If, through no fault of Owner, the right to do business at the Restaurant in S full conformity with the operations of a typical "Monty's" restaurant and bar is suspended twice within any twelve (12) month period for violation of sanitation, health or any statutory or other legal requirement or regulation of any local or other authority relative to the operation of the Restaurant (other than liquor license regulations); (f) If Operator fails to obtain the prior written approval or consent of the Owner when it is required to do so by this agreement, and such failure continues beyond. the cure period provided for in Section 11 .01 above; (g) If Operator, in the operation of the Restaurant, violates any material provision of any leases affecting the Premises and such violation continues beyond the cure period provided for in Section 11.01 above or the cure period provided for under such lease; 14 (h) If Operator is adjudicated as bankrupt or files a voluntary petition for bankruptcy, reorganization or arrangement under the bankruptcy laws; (i) If an independent audit of the Restaurant shows a discrepancy of ten percent (1 0%) or more between the amount of Gross Sales or Operating Profit reported by Operator and the actual amounts as disclosed by the audit requested by Owner pursuant to Section6.05; (j) Immediately, upon a violation of section 5.05 of this Agreement; (k) In connection with Owner's sale of the Project, in the event the purchaser of the Project terminates this Agreement after the closing of such purchase, and provided Operator is not otherwise in default hereunder, Owner shall pay Operator a $150,000.00 Termination Fee at Closing. Section 11.04. Termination Based on Restaurant Performance. Commencing as of January 1 , 2005, if the Operating Profits in any three year period are less than $1 ,000,000, per year, and such decline is not a direct result of an Act of God or event of force nature, then Owner shall have the right, but not the obligation, to terminate this Agreement without further obligations on the part of Owner or Operator, upon sixty (60) days' written notice to Operator. In the event the Indoor Area of the Restaurant as described in Section 3.08 is not completed and open for business by January 1, 2005, for the purpose of this Section 1 1.04, the Operating Profits for 2005 shall be calculated using the income and expense figures for the corresponding month(s) in the calendar year 2006 during which the Indoor Area of the Restaurant was not completed and open for business in 2005. For example, if the construction of the indoor portion of the Restaurant is completed and opens for business on March 1 , 2005, income and expense figures for January and February 2006 and March through December 2005 shall be used to calculate Operating Profits for 2005 and income and expenses figures for each month in 2006 shall be used to calculate Operating Profits for 2006. Operator shall open the Indoor Area of the Restaurant immediately upon the issuance of a temporary certificate of occupancy completion. Section 11.05. Transition. In the event this Agreement is terminated as provided herein Operator shall reasonably assist in the transition of the Restaurant operations to another management team or operator. In the event Operator does not reasonably assist, Owner shall have the right to hold back any Management Fee payments not yet paid to Operator and keep the same. ARTICLE XII SUCCESSORS AND ASSIGNS Section 12.01. Assignment by Operation. Provided Operator is not in default under this Agreement, Operator may only assign this Agreement to an entity at least 5 1 % owned by Stephen J. Kneapler and he must at all times have the ability to nominate the number of directors on the board of directors or managers of the board of managers, as applicable, to bind such entity. 15 Section 12.02. Assignment by Owner. Owner may, without Operator's consent, assign, contribute or otherwise transfer its interest in this Agreement or a portion thereof to: (i) an affiliate of Owner, (ii) a third party provided the Owner maintains operating control, (iii) a purchaser of Owner's entire interest in the Project, or (iv) to any lender providing financing to Owner for the Project, provided such assignee assumes Owner's obligations hereunder in writing. Operator shall not be entitled to share in the consideration received by Owner in connection with any sale or assignment of Owner's interest in the Restaurant, this Agreement, the Master Lease or the Project. Section 12.03 Parties Bound. The terms, provisions, covenants, undertakings, agreements, obligations and conditions of this Agreement shall be binding upon and shall inure to the benefit of the successors-in-interest and assigns of the parties hereto with the same effect as if mentioned in each instance where the party hereto is named or referred to, except that no assignment, transfer, pledge, mortgage, lease or sublease made by either Owner or Operator in violation of this Agreement shall vest any rights in the assignee, transferee, mortgagee, pledge, lessee, sub lessee or occupant. Section 12.04 Rights of Mortgagees. If a mortgagee, beneficiary or any other person claiming under a mortgage or deed of trust succeeds to Owner's interest in this Agreement, Operator shall recognize such successor as the Owner under this Agreement, provided that such successor in writing assumes all of the obligations of the Owner under this Agreement. Operator shall have the right to terminate this Agreement if such successor fails to so assume such S obligation within sixty (60) days after request by Operator. If Operator has received written notice of the identity and current mailing address of a mortgagee with respect to the Restaurant, Operator shall give any such mortgagee notice of any defaults by Owner under this Agreement prior to termination of this Agreement for any such default, and such mortgagee shall have the same rights as Owner to cure such default. ARTICLE XIII NOTICES Section 13.01. Notice Addresses. Written communications between Owner and Operator shall be sent to their respective addresses shown on the first page of this Agreement ("Notice Address") together with copies to HMG/Properties, Inc., 1 870 S. Bayshore Drive, Coconut Grove, Florida 33 133 and Suzanne M. Amaducci, Esq., 200 5. Biscayne Blvd., Suite 2500, Miami, Florida 33 13 1 ; provided that Owner or Operator may change its Notice Address by giving written notice of such change to the other party at least thirty (30) days in advance. Copies of all notice sent to Owner shall also be sent to: Copies of all notice sent to Operator shall also be sent to: Fernando S. Aran, 71 0 S. Dixie Highway, Coral Gables, Florida 33146. Section 13.02 Effective Date of Notice. Wherever this Agreement provides for notice, such notice shall be in writing and shall be delivered to a party at its Notice Address, either by hand delivery or by United States mail, certified, with return receipt requested. A hand-delivered notice shall be effective on the date of receipt by the party being served with the notice. A 16 mailed notice shall be effective on the earlier of (i) the date of receipt or refusal of receipt, or (ii) five (5) days after the date of mailing. ARTICLE XIV GENERAL PROVISION Section 14.01. Relationship of the Parties. The provisions of this Agreement relating to the determination and payment of management fees hereunder are included solely for the purpose of providing a method whereby the said fees can be measured and ascertained. Operator and Owner shall not be construed as joint venturers or partners of each other and neither shall have the power to bind or obligate the other except as set forth in this Agreement. Section 14.02. Entire Agreement. This Agreement embodies ~ the entire agreement between Owner and Operator with respect to the subject matter hereof and supersedes all prior agreements and understandings, whether written or oral. Owner and Operator have neither made nor relied upon any promises, representations or warranties in connection with this Agreement that are not expressly set forth in this Agreement. In entering into this Agreement, Owner and Operator have relied on the representations and warranties contained in this Agreement. Section 14.03 Modifications and Waiver. This Agreement may not be modified except by a written agreement signed by the party against whom such modification is sought to be enforced. No waiver of any condition or covenant in this Agreement by either party shall be effective unless made in writing, nor shall any waiver be deemed to imply or constitute a future waiver of the same or any other condition or covenant of this Agreement. Section 14.04. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Florida. Venue for any legal action arising hereunder shall be in the appropriate court in and for Miami-Dade County, Florida. Section 14.05. Construction. Whenever a word appears herein in its singular form, such word shall include the plural; and the masculine gender shall include the feminine and neuter genders. This Agreement shall be construed without reference to the titles of Articles, Sections, Clauses, which are inserted for convenient reference only. This Agreement shall be construed without regard to any presumption or other rule permitting construction, against the party causing this Agreement to be drafted and shall not be construed more strictly in favor of or against either of the parties hereto. Section 14.06. Severability. If any term or provision of this Agreement or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision, to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforceable to the fullest, extent permitted by law. Section 14.07. Consent or Approval. Whenever it is necessary under the terms of this Agreement for either party to obtain the consent or approval of the other party, such consent or approval shall not be unreasonably withheld or delayed. 17 Section 14.08. Estoppel Certificate/Subordination. Owner and Operator shall, within twenty (20) days after receipt of a written request from the other, execute, acknowledge and deliver a statement in writing certifying whether this Agreement is unmodified and in full force and effect (or if modified, whether the same is in full force and effect as so modified), whether any conditions to the full enforceability of this Agreement remain unsatisfied and such other facts, including the nature of any claim of default on the part of the other, as either party may reasonably request. Operator hereby agrees to subordinate its rights hereunder to any mortgagee of Owner, Landing and/or their affiliates relating to any loans secured by the Project. Section 14.09, Excuse for Nonperformance. If either party hereto shall be delayed or prevented from the performance of any act required hereunder by reason of acts of God, strikes, lockouts, labor troubles, plan approval delay, inability to procure materials, restrictive governmental laws or regulations, adverse weather, unusual delay in transportation, delay by the other party hereto or other cause without fault and beyond the control of the party obligated to perform (financial inability excepted), then upon notice to the other party, the performance of such act shall be excused for the period of the delay and the period for the performance of such act shall be extended for a period equal to the period of such delay; provided, however, the party so delayed or prevented from performing shall exercise good faith efforts to remedy any such cause of delay or cause preventing performance, Section l4.10 Attorneys' Fees. If Owner or Operator brings action at law or equity against the other in order to enforce the provisions of this Agreement or as a result of an alleged default under this Agreement, the prevailing party in such action shall be entitled to recover reasonable attorney's fees from the other. S Section 14.11. Off-set Rights. If: (i) any of the representations or warranties of the sellers set forth in the Purchase Agreement are untrue or misleading in any material respect as of the Closing Date under the Purchase Agreement, which results in a loss to the Owner, Landing or their respective affiliates; and/or (ii) if any of Owner, Landing or their respective affiliates is required to pay any trade payables, accounts payable or other expenses of the sellers under the Purchase Agreement after the closing thereunder, the payment for which was not escrowed under the Purchase Agreement, and or (iii) any gift certificates are presented for payment at the Restaurant that have not been issued or authorized by Owner ("Old Gift Certificates") which Old Gift Certificates exceed $1 ,000 in the aggregate; Owner shall have the right to offset the amount it or its affiliates was required to pay to such third party or an equivalent of its loss from any Management Fee payable to Operator hereunder. Section 14.12. Date of Agreement. All references to the "date of this Agreement, " the "date hereof," and the like shall be deemed to be the last date on which this Agreement shall be executed by Owner and by Operator. S Section 14.13 Waiver of Jury Trial. THE PARTIES HERETO EXPRESSLY WAIVE ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN ANY DISPUTE OR OTHER MATTER ARISING HEREUNDER OR IN CONNECTION WITH THE RESTAURANT, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE. 18 IN WITNESS WHEREOF, Owner and Operator do hereby execute this Management Agreement on the dates shown opposite their respective signatures. OWNER: BAYSHORE RAWBAR, LLC, a Florida limited liability company Name: Robert W. Christoph, Jr., Manager By._______________________________ Name: STATE OF FLORIDA ) ) SS: COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 20th day of August, 2004 by Robert W. Christoph, as Manager of BAYSHORE RAWBAR, LLC, a Florida limited liability company, on behalf of the company. He is personally known to me or has produced arrives licensees identification. Notary public Print Name: Serial No. (if any):___________________________ The foregoing instrument was acknowledged before me this 20th day of August, 2004 by Larry Rothstein, as Manager of BAYSHORE RAWBAR, LLC, a Florida limited liability company, on behalf of the company. He is personally known to me or has produced a driver's~ license as identification. Notary Public Print Name: Serial No. (if any):_________________________ OPERATOR I, LLC, a Florida Limited liability company By: Name: Stephen J. Kneapler, Managing Member STATE OF FLORIDA ) ) SS: COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 20th day of August, 2004 by Stephen J. Kneapler, as Manager Member of RMI, LLC, a Florida limited liability company, on behalf of the company. He is personally known to me or has produced a driver's license as identification. Notary Public Print Name: Serial No. (if any):____________________________ 20 EXHIBIT A PLOT PLAN EXHIBIT B SAMPLE ANNUAL OPERATING BUDGET (To be agreed upon) 22 PROJECTION OF ANTICIPATED BUDGET AND WORKING CAPITAL FOR THE RESTAURANT (To be agreed upon) 23 EXHIBIT D INITIAL OPERATING PRO FORMA (To be agreed upon within thirty days of Closing) 24 EX-10 10 ex37e.txt EXHIBIT 10 (Q) Exhibit 10 (q) MANAGEMENT AGREEMENT RECITALS THIS AGREEMENT, made as of August 20th, 2004 between BAYSHORE RAWBAR, LLC, a Florida limited liability company ("RAWBAR") and HMG Advisory Bayshore Inc., a Florida corporation ("the Manager"). RAWBAR is the owner of that certain leasehold restaurant property located in Coconut Grove Florida (the "property')and known as "Montys Rawbar", located on the first floor of the building and the Patio Area (the "Restaurant") defined in the Sublease. Manager desires to be engaged to provide accounting and cash management controls and services to any tenant or operator of any Restaurant owned by Rawbar under the terms and conditions herein contained. ARTICLE I ENGAGEMENT OF MANAGER AND RENTAL RESPONSIBILITY 1.1 Engagement as Manager. Rawbar hereby engages the Manager as an independent contractor to provide the services described herein and Manager hereby accepts such engagement, all on the terms and conditions and subject to the limitations and restrictions hereinafter provided. ARTICLE II DUTIES OF MANAGER 2.1 Manager shall have the following duties and authority pursuant to this Management Agreement. Manager shall consult with any tenant or operator of the Restaurant in areas of maintenance of books and records, statement preparation and implementation of Raw Bar's working capital requirements and controls. In addition, Manager will consult with tenant or operator in matters of payroll and insurance coverage. 2.2 At the request of Rawbar, Manager shall also assist in the implementation of Rawbar's restaurant operations from any tenant or operator to a newly appointed tenant or operator for a reasonable period following such appointment. 2.3 At the request of Rawbar, Manager shall assist any tenant or operator in the screening of qualified personnel to serve as Cashier for the Restaurant provided approval of the Cashier position is a requirement imposed by Rawbar or its owners upon any tenant or operator of the restaurant. ARTICLE III GENERAL PROVISIONS 3.1 Manager's agents and employees shall at all times, while upon the premises of Restaurant and while engaged in the performance of any provisions of this agreement, conduct themselves in a proper and professional manner and refrain from any conduct detrimental to restaurant or subjecting restaurant to criticism. 3.2 Compensation for Management. The compensation that Manager shall be entitled to receive for services performed as Manager under this Agreement shall be a fee computed and payable in arrears on the first day of each month commencing on the effective date of this Agreement, in an amount equal to $2,083.00. S 3.3 Term. This Agreement shall commence as of the date first set forth above and shall thereafter continue for a period equal to the lesser of (i) expiration the Rawbar's lease at the Property ; or (ii) Courtland Bayshore Raw Bar LLC. no longer owns an interest in Raw Bar. Upon a sale of the Restaurant to a third party or the sale of the assets of Raw Bar to a third party, Rawbar may terminate this Agreement by giving the Manager thirty (30) days prior written notice. Upon termination of this Agreement under this Section 3.3, Manager shall be entitled to receive any management fees already accrued and due to manager under this Agreement., but shall not be entitled to any termination fee or other compensation. 3.4 Assignment. Rawbar may assign its rights and obligations to any successor in the title to the Property (i.e., its leasehold interest) and upon such assignment shall be relieved of all liability accruing after the effective date of such and the assignee assumes the obligations of Rawbar under this Agreement. Upon any such assignment by Rawbar, Manager shall have the right to terminate this Agreement after 30 days prior written notice to Rawbar. Manager may not assign its obligations hereunder, without the express prior written consent of Rawbar except to an entity which is controlled by HMG Advisory Bayshore Inc. (with similar accounting experience to Larry Rothstein) and only after written notice of such assignment has been given of the obligations or duties required to be kept or performed by it hereunder and such assignee has assumed the obligations of Manager hereunder. 3.5 Notice. All notices required or permitted by this Agreement shall be in writing and shall be sent by personal delivery or registered or certified mail, return receipt requested, or facsimile addresses in the case of: 2 Rawbar: Bayshore Rawbar, LLC 300 Alton Road Suite 303 Miami Beach, Florida 33139 ATTN: Mr. Robert Christoph, Jr. Facsimile: 305-673-5995 with a copy to: Courtland Bayshore Rawbar LLC 1 870 S. Bayshore Drive Coconut Grove, FL 33133 ATTN: Larry Rothstein Facsimile: 305-856-7342 and a copy to: Bilzin Sumberg Baena Price & Axeirod LLP 200 South Biscayne Boulevard, Suite 2500 Miami, Florida 3313 1-5340 ATTN: Suzanne M. Amaducci, Esq. Facsimile: 305-351-2207 Manager: HMG Advisory Bayshore Inc. 1 870 S. Bayshore Drive Coconut Grove, FL 33133 ATTN: Larry Rothstein Facsimile: 305-856-7342 3.6 Indemnificaticion. (a) Manager hereby indemnifies and agrees to save Rawbar, its successors, assigns, employees, offices, directors, shareholders and attorneys harmless from all liabilities, obligations, damages, penalties, claims, costs, charges, and expenses, including, without limitation, attorney's fees and costs of investigation, which may be imposed upon or incurred by or asserted against Rawbar, its principals or affiliates by third parties resulting from, incidental to, or in connection with (a) the operation, maintenance, or use of Property or Restaurant or arising from any activity at the Property, due to any act or omission which constitutes gross negligence or willful misconduct on the part of Manager or action by Manager which is beyond the scope of Manager's authority under this Agreement and/or any other approval or consent given by Rawbar to Manager. In the event at that any action or proceeding is brought against Rawbar or its principals or affiliates by reason of any such claim, Manager shall, upon notice from Rawbar, and at Manager's sole cost and expense, retain competent legal counsel, which 3 legal counsel shall be subject to approval by Rawbar as a result of actions taken by Manger if Rawbar has given prior written approval of such actions, unless the loss suffered by Rawbar results from the gross negligence or willful misconduct of Rawbar in its performance of such actions. Rawbar shall indemnify and save Manager, its permitted assigns, employees, officers, directors, shareholders and its affiliated corporations and their employees, officers, directors, shareholders and attorneys harmless from all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including, without limitation, attorney's fees and costs of investigation, incurred by Rawbar or claimed against Rawbar, by any governmental agency or third party unless such actions are caused by Manager's gross negligence or willful misconduct. 3.7 Miscellaneous. (a) This Agreement shall constitute the entire agreement between the parties hereto and no modification thereof shall be effective unless made by supplemental agreement in written executed by the parties hereto. Any prior written or verbal agreements and understandings are merged into, and are superseded by, this Agreement. (b) Neither this Agreement nor any part hereof nor any service, relationship, or other matter alluded to herein are intended for the benefit of any third party. (c) If anyone or more or the provisions of this Agreement, or the applicability of any such provision to a specific situation shall be help invalid or unenforceable, such provision shall be modified to the minimum extent necessary to make it or its application valid and enforceable, and the validity and enforceability of all other provisions of this Agreement and all other application of such provisions shall not be affected thereby. (d) Unless the context clearly requires otherwise, the singular number herein shall include the plural, the plural number shall include the singular, any gender shall include all genders. Titles and captions herein shall not affect the construction of this Agreement. (e) This Agreement shall be governed by, and construed under and in accordance with the laws of the State of Florida, and Manager and Rawbar hereby agree that the exclusive forum for any dispute arising under this Agreement shall be a federal or state court situated in Miami Dade County, Florida. (f) In the event of any litigation between the parties under this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and court costs and other reasonable costs at all trial and appellate levels. 3.8 Representations and Warranties. Each of the parties represents to the other that (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and is duly qualified to transact business in the State of Florida, (ii) it has duty executed and delivered this Agreement, (iii) this Agreement is binding on itself and 4 enforceable against itself in accordance with its terms, and (iv) no consent by any third party is required for the execution, delivery and performance of this Agreement by said party. Manager further represents and warrants to Rawbar that Manager, and all employees and agents of Manager, has, and at all time, shall maintain in good standing, all licenses, permits and approvals necessary for Manager's performance under this Agreement. Manager further represents and warrants to Rawbar that, in the performance of its duties, Manager shall comply with all federal, state and local laws, ordinances and regulations applicable to the Property and its operation of the Property pursuant to this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed by their duly authorized representatives on the dates set forth below their respective signature lines, to be effective as of August 20, 2004. MANAGER: HMG Advisory Bayshore, Inc. a Florida corporation By: /s/ Larry Rothstein Larry Rothstein, President OWNER: BAYSIIORE RAWBAR, LLC, a Florida limited liability company By: /s/ Robert W. Christoph, Jr. Robert W. Christoph, Jr., Manager By: /s/ Larry Rothstein Larry Rothstein, Manager STATE OF FLORIDA ) COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 20th day of August, 2004, by Larry Rothstein, President of HMG Advisory Bayshore, Inc, a Florida corporation, on behalf of the corporation. He is personally known to me or who produced a Florida drivers license as identification. /s/ Elizabeth Marchena My Commission Expires: 4-19-07 NOTARY PUBLIC, State of Florida Print Name: Elizabeth Marchena [NOTARY LOGO OMITTED] 5 STATE OF FLORIDA ) COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 20th day of August, 2004, by Robert W. Christoph, Jr., Manager of BAYSHORE RAWBAR, LLC, a Florida limited liability company, on behalf of the company. He is personally known to me or who produced a Michigan drivers license as identification. /s/ Elizabeth Marchena My Commission Expires: 4-19-07 NOTARY PUBLIC, State of Florida Print Name: Elizabeth Marchena [NOTARY LOGO OMITTED] STATE OF FLORIDA ) COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 20th day of August, 2004, by Larry Rothstein, Manager of Bayshore RAWBAR, LLC, a Florida limited liability company, on behalf of the company. He is personally known to me or who produced a Florida driver's license as identification. /s/ Elizabeth Marchena My Commission Expires: 4-19-07 NOTARY PUBLIC, State of Florida Print Name: Elizabeth Marchena [NOTARY LOGO OMITTED] 6 EX-10 11 ex37f.txt EXHIBIT 10 (R) Exhibit 10 (r) MANAGEMENT AND LEASING AGREEMENT between BAYSHORE LANDING, LLC, a Florida Limited Liability Company and RCI BAYSHORE, INC., a Florida Corporation MANAGEMENT AND LEASING AGREEMENT RECITALS THIS AGREEMENT, made as of the August 20, 2004, between BAYSHORE LANDING, LLC, a Florida limited liability company (the "Owner") and RCI BAYSHORE INC., a Florida corporation (the "Manager"). Owner is the owner of that certain property located in Coconut Grove, Florida and known as "BAYSHORE LANDfNG," which includes a Marina ("Docks") and retail facility (exclusive of any restaurants) ("Building") (collectively, the "Property"). Manager desires to be engaged to manage and lease the Property and Owner has agreed to appoint Manager to manage and lease the Property under the terms and conditions herein contained. ARTICLE I ENGAGEMENT OF MANAGER AND RENTAL RESPONSIBILITYS 1.1 Engagement as Manager. Owner hereby engages the Manager as an independent contractor to operate and manage the Property, and the Manager hereby accepts such engagement, all on the terms and conditions and subject to the limitations and restrictions hereinafter provided. As hereinafter set forth, Manager's duties shall also involve construction and other duties related to the development of the Property. 1.2 Engagement as Leasing Agent. Owner hereby grants to Manager the exclusive right to act as Owner's agent in connection with leasing of the Property during the term of this Agreement and Manager agrees to use reasonable efforts to effect the leasing of the Property in a manner consistent with such exclusive engagement. ARTICLE II DUTIES OF MANAGER 2.1 Leasing. Subject to the limitation set forth in the last paragraph of this Section 2. 1 , Manager shall do, accomplish and complete, or cause to be done, accomplished and completed, all services necessary for the leasing of any available space in the Building, the Docks, and/or any other rentable facilities to tenants who are, to the best of Manager's knowledge, creditworthy and responsible, including, but not limited to the following activities: (a) make proposals at appropriate times for the modification of the approved leasing guidelines previously approved by Owner; (b) implement the leasing guidelines approved by Owner and the promotional plan approved by Owner for (i) the procurement of prospective tenants and negotiation of proposed lease with such prospective tenants, and (ii) the advertisement of the Property and the preparation of rental signs, circular matters and such other forms of advertising as are outlined in the promotional plan approved by Owner; (c) negotiate and prepare (or cause to be prepared) all leases, amendments thereto and modifications thereof for the Building (collectively the "Lease Documents") from a standard form approved by Owner, an submit all Lease Documents to Owner for its review. All Lease Documents shall be subject to prior written approval by Owner and no Lease Document shall be binding on or enforceable against Owner unless Owner shall execute the same. In no event shall Manager have authority to execute Lease Documents for the Building on behalf of the Owner; (d) negotiate and prepare (or cause to be prepared) all leases and other agreements for the use and occupancy of the Docks ("Dock Leases") from a standard form approved by Owner. Owner's consent shall not be required for Dock Leases entered into by' Manager on Owner's behalf in the ordinary course of business at rates and on terms approved by Owner; and (e) secure, as fully as reasonably practicable, the compliance of tenants with the terms, covenants, and conditions of their leases, keep tenants informed of all rules and regulations affecting the Property, receive and promptly consider and handle service requests by tenants, and maintain systematic records showing the action taken with respect to each request. Manager shall not have the right, nor the obligation to initiate or maintain any legal or administrative proceedings on behalf of Owner without the prior approval of Owner. 2.2 Employment of Personnel. Manager shall have the duty, subject to the limitations set forth in this Agreement, to investigate to a reasonable extent (except that Manager shall not be obligated to perform more than a limited investigation of employees who earn less than $1 2.00 per hour and do not handle any monies on a regular basis), hire, train, pay, supervise and discharge the personnel necessary to be employed in order to properly manage and operate the Property in accordance with obligations of Manager under this Agreement. The Property will be staffed on-site with the personnel consistent with current levels. Such personnel shall in every instance be deemed employees of Manager and not of Owner. Manager shall be responsible for the compensation (including all benefits of such employees and for all payroll taxes, F.I.C.A. and similar items) with respect to such employees. The compensation (including benefits) paid to employees of Manager shall not exceed the amount ordinarily paid to employees for similar work in the area where the Property is located, or such other amount authorized pursuant to an approved Budget (as defined in Section 4. 1), which Budget must exclude any compensation (including benefits) of any of Manager's officers or employees who do not work full time on the Property as well as any central office overhead or expense. Manager shall obtain, and maintain Worker's Compensation Insurance (including Employer's Liability Insurance) covering all employees of Manager employed in, on or about the Property, and provide statutory benefits as required by applicable state and federal laws with respect to Manager and Manager's employees. 3 Manager shall directly control the time and manner of the work and services to be performed by the employees of Manager, and Manager shall comply with all applicable federal, state and local laws, ordinances and regulations applicable to such employees. Manager shall make all necessary payroll deductions for disability and unemployment insurance, social security, withholding taxes and other applicable taxes, and prepare, maintain and file all necessary reports with respect to such taxes or deductions, and all other necessary statements and reports pertaining to labor employed by Manager on or about the Property. Notwithstanding the fact that personnel (other than Robert Christoph, Jr., Robert Chrsistoph or other staff member of manager located at Miami Beach) employed by Manager shall be considered operating expenses of the Property to the extent the same are included in the Budget approved by Owner or who are otherwise approved by Owner. In addition to the employees mentioned above, Robert Christoph, Jr. shall at all times act as a project manager (compensation to Robert Christoph, Jr. shall not be considered an operating expense of the Property but shall be paid by Manager out of the compensation paid to the Manager under Section 3 . 1 hereof). The on-site manager, dock master, dedicated leasing agent and other "key personnel" who report directly to Robert Christoph, Jr. must be approved by Owner and shall not be relocated by Manager without Owner's prior consent. Said employees shall be dismissed, if so requested by Owner at any time and from time to time. 2.3 Service and construction Contracts. Manager shall negotiate on behalf of Owner contracts for water, electricity, gas, fuel, oil, telephone, vermin extermination, trash removal, and other services deemed by Manager to be necessary or advisable for the operation of the Property and for making of any improvements to the Property authorized by Owner (the latter contracts being referred to herein as "Construction Contracts"). All contracting professionals (including, without limitation, all engineers, consultants, attorneys and accountants), whose services are to be retained in respect of the Property may be designated by Owner at its discretion, and, in any event, shall be subject to Owner's approval before being hired by Manager. Manager shall also place orders in the name of Owner for such equipment, tools, appliances, materials and supplies as are reasonable and necessary to properly maintain the Property, subject to any applicable limitation contained in this Agreement. Manager shall identify any contracts to be entered into or purchase or purchase orders to be placed with any partner, officer, employee, of Affiliate of Management. As used herein, the term "Affiliate" shall mean (x) any entity or person directly or indirectly controlling, controlled by, or under common control with, the Manager or any officer, director, or partner of Manager, (y) any entity or person owning or controlling 1 0% or more of the outstanding voting shares or interest in capital or profits of Manager shall obtain three (3) bids for all construction Contracts in excess of $25,000.00, although Manager shall not be obligated to hire the lowest bidder if Manager has reason for not doing so, and so advises Owner. Manager may execute on Owner's behalf any Construction Contract or other contract which, in either case, has received Owner's approval. Owner's approval with respect to Construction Contracts and other Contracts shall be required as follows: (a) Construction Contracts If a Construction Contract is for less than $100,00.00 and pertains to, or is a component of, a construction job with a total cost of less than $100,000.00 and which is included in the Budget approved by Owner, 4 Owner's approval shall not be required. All other Constructions Contracts must be approved by Owner. (b) Service, supply and other contracts: If a contract is for less than $100,000.00, is included in the Budget approved by Owner and is for a term of less than one (1) year or is terminable with or without cause, upon no more than 30 days' notice. Owner's approval shall not be required. All other contracts shall be subject to Owner's approval. 2.4 Maintenance and Repair of Property. Manager shall maintain the docks, the Building, appurtenances and grounds of the Property and other improvements thereon, in accordance with standards reasonably acceptable to Owner, including within such maintenance without limitation thereof, interior and exterior cleaning, painting, decorating, plumbing, carpentry and such other normal maintenance, and repair work as may be desirable; provided, however, the Manager's obligation and/or duty to maintain the Docks, the Building, appurtenances and grounds of the Property, and other improvements thereon, and the liability of Manager thereof shall be expressly limited hereby to the extent that the Owner provides sufficient funds for the satisfaction or discharge thereof or any expense to be incurred as a result thereof. For any individual item or repair or replacement, the expense must be specifically authorized in advance by Owner unless the item or repair or improvement was included in the Budget approved by the Owner, excepting, however, that emergency repairs immediately necessary for the preservation and safety of the Property or danger of life or property may be made by Manager without the approval of Owner, but Manager shall immediately notify Owner of any such emergency repairs. 2.5 Insurance. Owner shall at its own cost and expense secure and maintain fire and extended coverage and boiler and machinery insurance insuring against physical damage to the Property, provided, however, that Owner may in its sole discretion self-insure the risks of physical damage to any of the Property. Owner shall, at its own cost and expense, secure and maintain comprehensive general liability insurance with limits of not less than $1,000,000.00 combined single limit coverage insuring against loss, damage or injury to persons or property that might arise out of the occupancy, management, or maintenance of the Property, and Manager shall be named as an additional insured on such liability coverage. Owner shall indemnify, defend, save and hold Manager harmless of, from and against any loss, damage, injury, liability, claim demand, cost (including attorneys' fees and expenses and court costs) or expense that arises out of or results from the making or enforcing of contracts and/or purchase orders entered into or placed in accordance with this Agreement or any directions or approvals given by Owner, except to the extent of any claim resulting from or arising out of Manager's gross negligence or willful or intentional misconduct (except for gross negligence or will misconduct undertaken at Owner's written direction). The foregoing shall survive the termination of this agreement. 5 In the event of damage to the Property by fire or other casualty that is covered (or could have been covered) by a fire and extended coverage or other physical damage insurance policy readable available in the jurisdiction in which the Property is located and such fire or casualty is caused in whole or in part by acts or omissions or either party, its agents, servants, or employees, then the other party shall look solely to the proceeds of its own insurance policy (if any) for loss to its own property, and neither party nor any third party shall have any right of recovery against the other party or its agents, servants, or employees by way of subrogation, assignment or otherwise. If this waiver or subrogation provision must be disclosed to either party's insurer, or if such insurer must consent to the inclusion of the provision to enforce its policy with respect to this provision, each party agrees to make such disclosure and to use its best efforts to obtain such consent or endorsement. This provision shall apply with respect to any policies presently maintained or that may hereafter be acquired by either party hereto. In the event that the inclusion of this waiver of subrogation provision causes an increase in premiums for the physical damage insurance coverage for the parties, the increase shall be an operating expense of the Property. Upon the written request of the Owner, Manager shall promptly investigate and make a written report to such insurance companies (as have been previously disclosed in writing to Manager by Owner) and Owner as to all accidents, claims for damage relating to the ownership, operation and maintenance of the Property, any damage or destruction to the Property and the estimated cost of repair thereof, and shall prepare any and all reports for any damage or destruction to the Property and the estimated cost of such insurance company (as has been previously disclosed in writing to Manager by Owner), in connection therewith. All such reports shall be timely filed with such insurance company (as has been previously disclosed in writing to Manager by Owner) as required under the terms of the insurance policy involved. Owner shall settle any and all claims against insurance arising out of any policies, and execute proofs of loss, adjust losses, sign receipts and collect monies, and Manager shall cooperate in connection therewith, as may be requested by Owner. Notwithstanding any other provision of this Agreement, Owner may self-insure any and all risks from physical damage to any of the Property. 2.6 Collection of Monies. Manager shall collect all rents and other charges due from Buildings tenants, users of the Docks and, lessees of other facilities in the Property, and concessionaries of facilities in the Property and all other income derived from the operation and ownership of the Property. Owner authorizes Manager to request, demand and collect, and receive all such rent and other charges and (if and to the extent specifically authorized by owner in each case) to institute legal proceedings (in the name of, and as an expense reimbursable by, Owner) for the collection of such rent and other charges and for the dispossession of tenants and other persons from the Property, and such expense may include the engaging of counsel for any such matter, provided such counsel is approved and/or designated by Owner. All monies collected by Manager shall forthwith and be deposited in the separate bank account referred to in Section 3.6 herein. 6 2.7 Manager Disbursements. (a) Manager shall, from the funds collected and deposited, cause to be disbursed regularly and punctually and otherwise in accordance with the terms of this Agreement (1) Manager's compensation under Article III of this Agreement; (2) the actual, out-of-pocket costs and expenses otherwise reimbursable to Manager under this Agreement; (3) the amounts payable from time to time under any mortgage financing; (4) any amounts directed by Owner to be paid against any indebtedness relating to the Property; (5) the amount of all real estate taxes and other impositions levied by appropriate authorities which, if not escrowed with any lender, shall be paid upon specific written direction of Owner before penalty or interest begins to accrue thereon; (6) amounts otherwise due and payable as operating expenses of the Property authorized to be incurred under the terms of this Agreement; (7) any amounts to be construction costs (as approved by Owner); and (8) amounts required to fund any reserve established by Owner; provided that Manager shall in no event make any disbursement of funds except to the extent such disbursement is provided for under the Budget approved by Owner or otherwise authorized in accordance with this Agreement. To the extent that available funds are insufficient to pay all the foregoing, collected funds shall be used by Manager to pay items (1) and (2), and shall then be used by Manager as directed by Owner. After disbursements as herein specified, any balance remaining at the end of each calendar quarter during the term of this Agreement shall be disbursed or transferred as generally or specifically directed in writing from time to time by Owner. Within (30) days after the end of each calendar year, Manager shall provide to Owner a written reconciliation of all funds collected and disbursed by Manager during the preceding calendar year, on a monthly and quarterly breakdown. (b) Owner agrees to provide sufficient working capital funds to Manager so that all amounts due and owing pursuant to the Budget approved by Owner or amounts otherwise approved by Owner and which are required to be paid by Manager (and for which Manager does not otherwise have available funds) may be promptly paid by Manager. Except in the case of an emergency, Manager shall give Owner at least ten (10) days prior written notice of Manager's need for such funds. As of the first day of each quarter of this Agreement, Manager will project the estimated cash requirements for such quarter. 2.8 Tax Abatements and Condemnation. Manager shall, without extra charge or reimbursement, and upon the written request of Owner, retain, at Owner's expense, experts to perform services and render advice in the negotiation and prosecution of all claims for the abatement and reduction of taxes and assessments affecting the Property and for awards for taking by eminent domain affecting the Property, provided that (i) Manager obtains the prior written approval of all such experts from Owner, and (ii) all condemnation, assessment and 7 taxation matters will be within the sole and exclusive control and direction of Owner. Manager shall, without extra charge or reimbursement, analyze materials and recommendations made by such experts and make recommendations to Owner. 2.9 Coordination of Tenant Finish Work. Throughout the term of this Agreement, Manager shall use its best efforts, not as a general contractor, but in Manager's capacity as manager and operator of the Building, upon a lease being executed by Owner and the applicable tenant (but not before) to supervise, coordinate and expedite the completion of all tenant finish work with respect to each lease of space in the Building. Manager's duties and responsibilities in connection with the foregoing shall include (i) assisting in finalizing space plans and obtaining prices of materials and services related to the tenant finish work, (ii) assisting the tenant in the selection of tenant finish materials and in such other matters as the tenant may reasonably request and customarily performed by a building manager and (iii) coordinating planning and construction activities among the architect, contractor(s) and tenant in order to facilitate the prompt completion of all such activities while minimizing any disruption of normal building operations, as customarily performed by a building manager. 2.10 General Duties. In addition to the duties more particularly described in this Article II, Manager shall be responsible for the implementation of any and all decisions of Owner, upon request in writing, and for initiating and taking such other actions (not inconsistent with this Agreement) in the management and administration of the Property so as to properly and efficiently operate the Property. 2.11 Miscellaneous. (a) Records. Manager shall maintain complete and accurate books, records, and accounts of all costs and expenses incurred and all income and receipts received in connection with the operation of the Property. The books and records regarding the Property shall be kept in such manner and such detail as Owner shall reasonably require. All statements, receipts, invoices, checks, leases, contracts, worksheets, financial statements, books, and records, and all other instruments and documents relating to or arising from the operation or management of the Property shall be delivered by Manager to Owner upon termination of this Agreement for any reason. Manager shall have the right, however, as an expense of the Property, to make one copy of any such material. During the term of this Agreement, all such books and records, as well as all other books and records of Manager that relate to the Property, shall be available for inspection and audit by Owner at its expense at all reasonable times during normal business hours. From time to time, upon request by Owner, Manager shall also prepare and submit to Owner the following: (1) a current inventory of Owner's equipment and personal property at the Property, and (2) a current rent roll of existing leases in the form approved by Owner. In addition, Manager shall furnish to Owner such other reports as Owner shall from time to time 8 reasonably request in connection with the operation and management of the Property, and Manager shall prepare and submit to Owner at least sixty days prior to the commencement of each calendar year a leasing schedule in the form approved by Owner, showing proposed lease rates and concessions proposed to be granted at the Property and the projected leasing activity at the Property for the upcoming calendar year. (b) Monthly Reports. On or before the fifteenth (1 5th) day of each month during the term of this Agreement, Manager shall render to Owner an operating statement and a cash flow statement showing all items of income and expense for the Property (on an accrual basis, unless otherwise requested by Owner) for the preceding calendar month, and making comparison to the applicable Budget approved by Owner, together with tenant's sales information (to the extent available), check ledgers, general ledgers, bank statements and a monthly report of leasing activity of the Building, Docks, and any other rentable facilities (including identification of tenants, amount of space rented; rental rates, tenant improvements, tenant allowances and any other information reasonably deemed relevant by Owner). (c) Annual Report. Within sixty (60) days after the end of each calendar year, Manager shall deliver to Owner a statement of cash flow showing the results of operations for that calendar year or portion thereof during which the provisions of this Agreement were in effect, and any other information that may be necessary to file income tax returns or that may be required by any governmental authority. (d) Employees Returns Required by Law. Manager shall execute and file punctually when due all forms, reports, and returns required by laws relating to the employment ofpersonnel by Manager ofthe Property. (e) Compliance with Legal Requirements. Manager shall comply with the Owner's Directives with respect to the management and operation of the Property by Manager and with any deed of trust or mortgage affecting the Property that has been disclosed by Owner to Manager and with any and all federal, state, county and municipal orders, rules, regulations, statutes, ordinances, requirements, and laws affecting the Property, and orders of the Board of Fire Underwriters or other similar bodies subject to the limitations contained in this Agreement in connection with the making of alterations and repairs; provided, however, that Manager's obligations and/or duties hereunder and the liability of Manager therefore shall be expressly limited hereby to the extent that the Owner provides sufficient funds for the satisfaction or discharge thereof or any expense to be incurred as a result thereof Manager shall not, however, take any such action as long as Owner is contesting (and has so notified Manager in writing), or has affirmed in writing its intention to contest and promptly 9 institute proceedings contesting, any such order or requirement. Manager shall promptly, and in no event later than seventy-two (72) hours from the time of receipt, notify Owner of such orders and notices. ARTICLE III RELATIONSHIP OF MANAGER TO OWNER 3.1 Compensation for Management. The compensation that Manager shall be entitled to receive for services performed as Manager under this Agreement shall be a fee computed and payable monthly in arrears on the first day of each month commencing on the effective date of this Agreement, in an amount equal to 3.0 percent (3.0%) of "Gross Income" (as hereinafter defined) collected by Manager during such month. "Gross Income" shall mean the actual cash proceeds generated and received by Manager from the normal operations of the Property, excluding refundable deposits or advances made by Owner on behalf of tenants, and rental payments delineated in the applicable lease as being attributable to or being reimbursement or repayment for landlord advances and/or tenant improvements proceeds from insurance, condemnation refinancing or sale, or any other extraordinary or non-recurring event. Gross Income shall include tenant payments for common area maintenance costs and any proceeds received by Owner from rental insurance as compensation for lost rentals. Any rental payments made by the Tenant under the Restaurant and Rawbar subleases that is forwarded on to the City for rent due under the Master Lease (i.e. the percentage of Gross Sales due to the City) shall be excluded from Gross Income. 3.2 Leasing Commission. (a) Subject to subsection (b) below, Owner agrees that if a lease of all or any part of the Building or any other commercial or office space at the Property excluding, without limitation, the routine operation of the dock slips is entered into by Owner during the term of this Agreement, Owner shall pay Manager a leasing commission in accordance with Exhibit A attached hereto and made a part hereof for all purposes; provided, however, the form and content of any such lease shall be satisfactory to Owner in its sole and absolute discretion, or the lease must otherwise be permitted under Section 1 of this Agreement. (b) Manager shall not be entitled to any commission in the event of a termination of this Agreement as a result of a default by Manager under this Agreement, excepting such commission otherwise already due and payable or accrued prior to the occurrence of such event of default, which commission shall be payable, upon the same conditions and at the same times, as if this Agreement had not terminated. (c) Manager understands that this Section 3.2 relates to leases only and that Manager shall have no right to recover any commission or other fee 10 hereunder relating to any sale of the Property or any portion thereof without prior written authorization and approval by Owner. 3.3 Construction Supervisor; Additional Compensation. In addition to Manager's duties as set forth in paragraph 2.9 hereinabove, Owner retains Manager, from time to time to serve as construction supervisor, and Manager hereby agrees to serve as construction supervisor. It is expressly understood and agreed by Owner and Manager that Owner may determine, in its sole and absolute discretion, not to retain Manager as construction supervisor. It is further understood and agreed that, when Owner retains Manager to serve as construction supervisor, Manager, at Manager's own cost, may delegate all or part of its duties as construction supervisor to a third party (who shall be subject to Owner's prior approval, which approval shall not be unreasonably withheld or delayed). In consideration for performing services as construction supervisor Manager shall receive a construction supervisor fee ("CS Fee") equal to three percent (3%) of the total "Cost of Construction" (as such term is hereinafter defined). "Cost of Construction" shall be defined as the actual costs to Owner of all portions of the applicable project construed and accepted by deficiencies in the construction of the improvements caused by the errors, conflicts or omissions of Manager and, so long as the contract is not a time and materials contract, the contractor's overhead if shown as a separate line item in the contract). The funding of the improvements (i.e. the City of Miami, Florida or insurance proceeds). The CS Fee shall be payable by Owner to Manager as part of the draw process, and in proportion to the percentage of payments made by Owner for the total cost of the applicable work. 3.4 Expense of Owner. All expenses incurred by Manager in performing its obligations pursuant to Article II shall be considered an operating expense to be borne by Owner, except as otherwise specifically provided in Article II or elsewhere herein and except that Owner shall not be obligated to reimburse Manager for office equipment or office supplies of Manager (unless used at the Property site), for any overhead expense of Manager incurred in its general offices, for any salaries of executive employees of Manager, for any salaries or wages allocable to time spent on projects other than the Property, or for any salaries, wages, and expenses for any personnel other than personnel located on at the Property Site and personnel spending a portion of their working hours (to be charged on a pro rata basis) at the Property site or in specifically performing Manager's management duties hereunder, whether on or off the Property site, except Owner shall pay all reasonable travel and lodging expenses. The on-site manager at the Property and any other persons performing functions substantially similar to those of a resident manager, including but not limited to assistant managers, on-site bookkeepers, and on-site maintenance personnel, shall not be considered executive employees of the Manager. All payments to be made by Manager hereunder shall be reimbursed pursuant to Section 3.6 hereof. Manager shall not be obligated to make any advance to or for the account of Owner or to pay any sums, except out of funds held in any account maintained under Section 3.6, nor shall Manager be obligated to incur any liability or obligation for the account of Owner unless the necessary funds for the discharge thereof are in the Property's operating account or will be provided by Owner on a timely basis. 11 3.5 Use and Maintenance of Premises. Manager agrees that it will not knowingly permit the use of the Property for any purpose that might void any policy of insurance held by Owner or Manager or that might render any loss thereunder uncollectible, or that would be in violation of any governmental restriction. It shall be the duty of Manager at all times during the term of this Agreement to operate and maintain the Property according to the highest standards achievable consistent with the approved plan of Owner. Manager shall use its best efforts to secure full compliance by tenants with the terms and conditions of their respective leases. Manager shall be expected to perform such other acts and deeds as are reasonable, necessary and/or proper in the discharge of its duties under this Agreement. It is expressly agreed that Manager's obligations and duties hereunder and the liability of Manager therefore shall be expressly limited hereby to the extent that Owner shall provide to Manager sufficient funds in a timely manner for the satisfaction or discharge of any such obligation or duties or any expense to be incurred as a result thereof but Manager shall only be discharged from Manager's obligations with respect to specific obligations for which Owner has failed to timely provide Manager with sufficient funds after notification from Manager of such circumstance. 3.6 Separation of Owner's Monies. Manager shall establish and maintain, in bank or savings and loan association of Owner's choice and whose deposits are insured up to One Hundred Thousand Dollars ($100,000.00) by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, and in a manner to indicate the custodial nature thereof, a separate bank account for the deposit of the monies of Owner. Manager shall establish a trust account in the name of Manager and shall cause the account to be an interest bearing account of a type satisfactory to Owner (to the extent available). Manager shall also establish such other special bank accounts in the name of Manager as may be reasonably required by Owner. Funds may be withdrawn from all accounts upon the sole signature of Manager or Owner, except that (unless otherwise approved in writing by Owner) the signature of Owner shall also be required for all checks over Twenty-Five Thousand Dollars ($25,000), other than, so long as Manager is not in default under this Agreement, to purchase fuel, to pay insurance premiums, to pay Manager the monthly management fee due to Manager under this Agreement, and to pay other recurring, customary and usual services and to pay for previously Owner approved contracts or services. 3.7 Term. This Agreement shall commence as of the date first set forth above and shall thereafter continue for a period equal to the Owner's tenure at the site from said commencement date. (a) Upon a sale of the Property by Owner to a third party, or the transfer of the Christoph Family Trust's interest in Owner to an unaffiliated third party or any other member of Owner, Owner or the purchaser of the Property may terminate this Agreement by giving Manager thirty (30) days prior written notice. (b) Upon the occurrence of any of the following: (i) criminal acts, acts or failure to act by Manager which knowingly cause any violation of any environmental law, statute or regulation, (ii) any act of fraud or intentional misrepresentation of a material nature, or intentional misappropriation of 12 funds by Manager, (iii) failure of Manager to act diligently in (aa) representing Owner relative to obtaining permits, approvals and addressing other governmental requirements, or (bb) seeking and securing leases for space in the Building where Manager is acting as leasing agent, or (iv) the breach by Manager of any other material term, covenant or provision of this Agreement, and which in the case of (iii) or (iv) only, is not cured to Owner's reasonable satisfaction within thirty (30) days after written notice from Owner to Manager, or such longer period of time, not to exceed an additional sixty (60) days, as may be reasonably necessary to cure same, provided such additional time shall be available to cure defaults and avoid termination of this Agreement only if the breach or default complained of by Owner is curable, Manager has commenced appropriate curative action during said 30 days period, and Manager diligently and continuously pursues said curative action to completion. Notwithstanding any of the foregoing, there shall be no termination of this Agreement pursuant to items (i) or (ii) if a criminal act or misappropriation of funds is done by an employee who was hired in accordance with the requirements of Section 2.2, and who was properly supervised by Manager. Within thirty (30) days after any termination of this Agreement, Manager shall deliver to Owner the report required by Section 2.11(b) for any period not covered by such report at the time of termination, the statement of cash flow required by Section 2.11(c) for the calendar year or portion thereof ending on the date of termination. Upon termination of this Agreement under this Section 3.7, and except otherwise specified in this Section 3.7, Manager shall be entitled to receive any management fees, lease commissions or construction supervisory fees already accrued and due and payable to Manager under this Agreement to the date of such termination (the foregoing specifically excludes lease commissions and supervisory fees not payable until after Termination ) ("Accrued Fees"). No other compensation or fees shall be payable to Manager unless specifically stated in this Agreement. 3.8 Assignment. Owner may assign its rights and obligations to any successor in title to the Property (i.e., its leasehold interest) and upon such assignment shall be relieved of all liability accruing after the effective date of such and the assignee assumes the obligations of Owner under this Agreement. Upon any such assignment by Owner, Manager shall have the right to terminate this Agreement under written notice to Owner or the successor thereof Manager shall not have the right to assign its rights and obligations hereunder, except to an entity which is controlled by Robert Christoph, Jr. and in which Robert Christoph, Jr. owns at least fifty percent (50%) interest, and only after written notice of such assignment has been given of the obligations or duties required to be kept or performed by it hereunder without the express prior written consent of Owner, except the Manager may delegate it obligations as construction supervisor to a licensed third-party construction supervisor approved by Owner, but Manager 13 shall remain liable to Owner for the performance so delegated (any transfer of more that a fifty percent (50%) ownership interest in Manager, whether as a result of one transfer or a series of transfers, shall be deemed as assignment by Manager of its rights and obligations hereunder). 3.9 Notice. All notices required or permitted by this Agreement shall be in writing and shall be sent by personal delivery or registered or certified mail, return receipt requested, or facsimile addresses: To Owner: Bayshore Landing, LLC 300 Alton Road Suite 303 Miami Beach, Florida 33139 Attn: Mr. Robert Christoph, Jr. Facsimile: 305-673-5995 With a copy to: HMG/Bayshore Landing, LLC 1870 S. Bayshore Dr. Miami,FL 3313 Attn: Larry Rothstein Facsimile: 305-856-7342 To Manager: RCI Bayshore, Inc. 300 Alton Road Suite 303 Miami Beach, Florida 33139 Attn: Robert W. Christoph, Jr. Facsimile: 305-673-5995 Copy to: Suzanne Aniaducci, Esq. Bilzin Sumberg Baena Price & Axelrod LLP 200 South Biscayne Boulevard, Suite 2500 Miami, Florida 33131-5340 Facsimile: 305-351-2207 or to such other address as shall from time to time have been designated by written notice by either party given to the other party as herein provided. 3.10 Security Deposits. Owner agrees to indemnify and hold harmless Manager and Manager's representatives, agents, officers, directors and employees for any loss or liability with 14 respect to any use by Owner of tenants' security deposits that are actual delivered to Owner or disbursed at Owner's direction from any escrow account or other account controlled by Manager. Manager agrees to indemnify and hold harmless Owner and Owner's representatives, agents, officers, directors and employees for any loss or liability with respect to any use by Manager of tenants' security deposits received by Manager and not actually delivered by Manager to owner or disbursed pursuant to Owner's instructions. ARTICLE IV BUDGETS 4.1 Budget. The term "Budget" shall mean a composite of (i) an operation budget, which shall be an estimate or receipts and expenditures for the operation of the Property during a calendar year, including a schedule of expected rentals from immovable property (excluding security deposits) for the period in question, a schedule of expected rentals from movable property for the period in question, and a schedule of expected special repairs and maintenance projects, and (ii) a capital budget, which shall be an estimate of capital replacement, substitutions of, and additions to the Property for a calendar year, including, without limitation, budgets for all its improvements proposed by Owner. 4.2 Approval. Manager shall submit for Owner's approval no later than November 30th of each calendar year during the term of this Agreement, the Budget for the ensuing calendar year. The Budget shall be subject to review and approval in writing by Owner. In the event Owner disapproves the Budget, Owner and Manager shall jointly revise the Budget as soon as may be reasonably practicable. Until a new Budget is approved, Manager shall operate under the Budget approved for the prior calendar year, with the exception of expenses relating to taxes, insurance and utilities which shall be the actual cost thereof. The Budget shall reflect the schedule of monthly rents proposed for the new calendar year, and shall include the other information set forth in Section 4.1. The Budget shall also constitute a major control under which Manager shall operate, and notwithstanding any term, condition, or provision hereof to the contrary, no expenses (other than taxes, insurance and or utilities) may be incurred or commitments made by Manager in connection with the maintenance and operation of the Property that exceed the amounts allocated for the category of any such expense for the period in question in the approved Budget without the prior consent of Owner. 4.3 Variances. In the event there shall be a variance between the results of operations of any month and the estimated results of operations for such months set forth in the Budget, such month a written explanation as to why such variance occurred. If substantial variances have occurred or are anticipated by Manager during the remainder of any calendar year, or if otherwise requested by Owner, Manager shall prepare and submit to Owner for its approval a revised Budget covering the remainder of the calendar year. 15 ARTICLE V GENERAL 5.1 Indemnification. (a) Manager hereby indemnifies and agrees to save Owner, its successors, assigns, employees, officers, directors, shareholders, partners and its affiliated corporations and their employees, officers, directors, shareholders and attorneys harmless from all liabilities, obligations, damages, penalties, claims, costs, charges, and expenses, including, without limitation, attorneys' fees and costs of investigation, which may be imposed upon or incurred by or asserted against Owner or Owner's employees by third parties resulting from, incidental to, or in connection with (a) the operation, maintenance, or use of the Property or arising from any activity at the Property, due to any act or omission which constitutes gross negligence or willful misconduct on the part of Manager or action by Manager which is beyond the scope of Manager's authority under this Agreement and/or any other approval or consent given by Owner to Manager and/or (b) the presence or alleged presence of hazardous or toxic substances or wastes on the Property which, in violation of any applicable law, regulation or ordinance, contaminate or first become present on the Property after the date of this Agreement and which presence or contamination is not a consequence of a condition existing as of the date of this Agreement but is caused by Manager or results from the negligence or intentional acts or omissions of Manager unless such act or omission was at Owner's written direction. In the event that any action or proceeding is brought against Owner by reason of any such claim, Manager shall, upon notice from Owner, and at Manager's sole cost and expense, retain competent legal counsel, which legal counsel shall be subject to approval by Owner in writing, and resist or defend any such action or proceeding. Manager shall not be required to indemnify Owner for any loss suffered by Owner as a result of actions taken by Manager if Owner has given prior written approval of such actions, unless the loss suffered by Owner results from the gross negligence or willful misconduct of Manager in its performance of such actions. Owner shall indemnify and save Manager, its permitted assigns, employees, officers, directors, shareholders and its affiliated corporations and their employees, officers, directors, shareholders and attorneys harmless from all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including, without limitation, attorneys' fees and costs of investigation, incurred by Manager or claimed against Manager, by any governmental agency or third party due to the presence or alleged presence of hazardous wastes or toxic substances or wastes, in violation of any applicable law, regulation or ordinance which presence existed on or before the date of this Agreement or after the date of this Agreement if such presence is the result of any gross negligence or willful misconduct on the part of Owner or any third party acting at Owner's direction. The provisions of this Section 5.1 shall survive any expiration or termination of this Agreement. 5.2 Miscellaneous. (a) This Agreement shall constitute the entire agreement between the parties hereto and no modification thereof shall be effective unless made by supplemental agreement in writing executed by the parties hereto. Any prior written or verbal agreements and understandings are merged into, and are superseded by, this Agreement. 16 (b) Neither this Agreement nor any part hereof nor any service, relationship, or other matter alluded to herein are intended for the benefit of any third party. (c) If anyone or more of the provisions of this Agreement, or the applicability of any such provision to a specific situation shall be held invalid or unenforceable, such provision shall be modified to the minimum extent necessary to make it or its application valid and enforceable, and the validity and enforceability of all other provisions of this Agreement and all other application of such provisions shall not be affected thereby. (d) Unless the context clearly requires otherwise, the singular number herein shall include the plural, the plural number shall include the singular, and any gender shall include all genders. Titles and captions herein shall not affect the construction of this Agreement. (e) This Agreement shall be governed by, and construed under and in accordance with the laws of the State of Florida, and Manager and Owner hereby agree that the exclusive forum for any dispute arising under this Agreement shall be a federal or state court situated in Florida. (f) In the event of any litigation between the parties under this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and court costs at all trial and appellate levels. (g) Time is of the essence under this Agreement. ARTICLE VI OTHER SPECIFIC PROVISIONS 6.1 Representations and Warranties. Each of the parties represents to the other that (i) it is a corporation (or in the case of Owner, limited liability company) duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and is duly qualified to transact business in the State of Florida, (ii) it has duly executed and delivered this Agreement, (iii) this Agreement is binding on itself and enforceable against itself in accordance with its terms, and (iv) no consent by any third party is required for the execution, delivery and performance of this Agreement by said party. Manager further represents and warrants to Owner that Manager, and all employees and agents of Manager, has, and at all times, shall maintain in good standing, all licenses, permits and approvals necessary for Manager's performance under this Agreement. Manager further represents and warrants to Owner that, in the performance of its duties, Manager shall comply with all federal, state and local laws, ordinances and regulations applicable to the Property and its operation of the Property pursuant to this Agreement. 17 ARTICLE VII APPROVAL BY OWNER Whenever Owner's approval is required under section 2.1, 2.3 or 2.4 of this Agreement (except for any lease of more than 10% of the Building), such approval shall be deemed given if Owner does not notify Manager that Owner disapproves within five (5) days after Owner receives two notices from Manager requesting such approval, provided such notices from Manager requesting such approval, provided such notices are (i) given at least seven (7) days, but no more than thirty (30) days, apart, accompanied by information sufficient for Owner to make its determination. A request by Owner for more information made within the time period for notice of disapproval shall be deemed a notice of disapproval from Owner, subject to reconsideration pending receipt by Owner of such additional information. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed by their duly authorized representatives on the dates set forth below their respective signature lines, to be effective as of August 19, 2004. Witnesses: MANAGER: /s/ Marina Luybimova RCI BAYSHORE INC., a Florida corporation - -------------------- By: /s/ Robert W. Christoph, Jr., President Print Name: Marina Luybimova ------------------------------------------- /s/ Elizabeth Marchena - ---------------------- Print Name: Elizabeth Marchena OWNER: BAYSHORE LANDING, LLC, a Florida limited liability company /s/ Marina Luybimova By: /s/ Robert W. Christoph, Jr. - -------------------- -------------------------------- Print Name: Marina Luybimova Robert W. Christoph, Jr., Manager /s/ Elizabeth Marchena By: /s/ Larry Rothstein - ---------------------- ----------------------- Print Name: Elizabeth Marchena Larry Rothstein, Manager /s/ Suzan Amadecci - ------------------ Shanne Amadecci /s/ Marina Luybimova - -------------------- Marina Luybimova 18 STATE OF FLORIDA ) : COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 20th day of August, 2004, by Robert W. Christoph, Jr., President of RCI BAYSHORE INC., a Florida corporation, on behalf of the corporation. He is personally known to me or who produced a Michigan driver's license as identification. My Commission Expires: 4-19-07 /s/ Elizabeth Marchena ---------------------- NOTARY PUBLIC, State of Florida Print Name: Elizabeth Marchena STATE OF FLORIDA ) [NOTARY SEAL OMITTED] : COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 20th day of August, 2004, by Robert W. Christoph, Jr., Manager of BAYSHORE LANDING, LLC, a Florida limited liability company, on behalf of the company. He is personally known to me or who produced a Florida driver's license as identification. My Commission Expires: 4-19-07 /s/ Elizabeth Marchena ---------------------- NOTARY PUBLIC, State of Florida Print Name: Elizabeth Marchena STATE OF FLORIDA ) [NOTARY SEAL OMITTED] : COUNTY OF MIAMI-DADE ) The foregoing instrument was acknowledged before me this 20th day of August, 2004, by Larry Rothstein, Manager of BAYSHORE LANDING, LLC, a Florida limited liability company, on behalf of the company. He is personally known to me or who produced a Florida driver's license as identification. My Commission Expires: 4-19-07 /s/ Elizabeth Marchena ---------------------- NOTARY PUBLIC, State of Florida Print Name: Elizabeth Marchena STATE OF FLORIDA ) [NOTARY SEAL OMITTED] : COUNTY OF MIAMI-DADE ) 19 EXHIBIT "A" SCHEDULE OF LEASE COMMISSION A. LEASES: Commissions shall be payable in accordance with the following payment schedule and rates: 1. Payment schedule of Commission: a) One-third (1/3) upon lease execution by such tenant of the leased premises. b) One-third (1/3) upon the actual occupancy and commencement of the term of the Lease (said payment shall not be due if the Lease terminates prior thereto because of a tenant default). c) One-third (1/3) upon the 12th month anniversary of the Commencement In the event a commission is based on percentage rent, the commission shall be paid annually within forty-five (45) days after percentage rate has been determined and received by Owner for each annual rental period under the applicable Lease, based on the Net Rent for that period. 2. Rates: a) In all leases involving Manager as leasing agent, but not involving third -party brokers, five (5%) percent of the base Net Rent for the fixed term of the lease. b) In all leases involving Manager as leasing agent and also involving third-party brokers (not affiliated with Manager), eight (8%) (ofwhich at least three (3%) percent must be paid to a third party broker) of the base Net Rent for the fixed term of the lease. It is agreed and understood that Manager shall deliver to owner a written release in favor of Owner from said Brokers prior to receiving any commission hereunder. c) Manager shall not be entitled to receive any commission as a result of the existing sublease agreements with Bayshore Raw Bar, LLC or Bayshore Restaurant, LLC; however if either of these subleases are further assigned, transferred or subleased to an unrelated third party arranged by Manager, Manager shall be entitled to a commission. B. TERMS AND CONDITION: The above payment schedule and rates are subject to the following terms and conditions: 20 1. Term of More Than Twenty Years If a lease term (including any and all renewal and extension periods) is in excess of twenty (20) years, then no commission shall be paid for that period following the twentieth (20th) anniversary ofthe lease commencement date. 2. Option(s) to Renew or Extend Lease or Option(s) to Expand Premises: If a lease for which a commission is payable hereunder contains an option(s) to renew or extend, and a lease term(s) is renewed or extended pursuant to such option, and the tenant commences payment of regularly scheduled monthly fixed base rental following the expiration of all rental abatement, then subject to paragraph B.1 above, Owner shall pay a leasing commission, with respect to the term of the extension, but not to exceed a term of twenty (20) years from the date of the extension, at a rate equal to the applicable rate specified in paragraph B.2 above reduced by an amount Owner must pay to any other broker in connection with the extension, and no other sums shall be owed with respect to such lease. If a lease for which a commission is payable hereunder contains an option(s) to expand, and a tenant occupies additional space pursuant to such option(s) and commences payment of regularly scheduled monthly base rental following the expiration of all rental abatement, then subject to paragraph B.1 hereof, Owner shall pay a leasing commission, with respect to the additional space, at a rate equal to the rate specified in paragraph B.2 above in respect of base Net Rent rental with respect to such additional space, less the exclusions referred to in paragraph 3 below. 3. Exclusions in Calculating Net Rent: The following shall be excluded from gross rent under any lease in calculating Net Rent: a. Escalations in excess of the original base rent for each year, as stated in the lease, including without limitation, escalations resulting from increases in ad valorem/real estate taxes, in operating expense pass-throughs and/or in the Consumer Price Index or similar index resulting in a corresponding increase to the base rental (if applicable). b. Additional rentals for special tenant services above and over Owner's customary tenant services, or rental attributable to tenant improvements, repayment of tenant loans, or other advances or expenditures made by owner. c. Cancellation or penalty payments for termination rights. d. Rentals payable upon continuation of a tenancy on a month-to-month or statutory basis or any other tenancy following the expiration or termination of the lease. e. Cash credits, payments deferments or abatements of rent or other concession items. 21 f Security deposits (including any amounts necessary to restore any security deposit after application of same) g. Rent for services or facilities available to tenant at locations other than the demised premises covered by the lease. 4. No leasing commission shall be deemed earned or payable on the cancellable portion of a lease term. A commission shall be payable only on the noncancellable portion of the lease term, and such term shall apply for the purposes of calculating the commission earned and payable. In the event the lease is not cancelled, then an additional leasing commission shall be due for the remaining lease term. The provisions hereof are subject to the terms and provisions of the Management and Leasing Agreement to which this Exhibit A is attached. 22 EX-21 12 ex21.txt EXHIBIT 21 Subsidiaries of the Company: 260 RIVER CORP., a Vermont Corporation BAYSHORE LANDING, LLC, a Florida Limited Liability BAYSHORE RAWBAR, LLC, a Florida Limited Liability BAYSHORE RESTAURANT, LLC, a Florida Limited Liability CII SPA, LLC, a Florida Limited Liability COURTLAND BAYSHORE RAWBAR, LLC, a Florida Limited Liability COURTLAND BAYSHORE RESTAURANT, LLC, a Florida Limited Liability Company COURTLAND INVESTMENTS, INC., a Delaware Corporation COURTLAND KEY WEST, INC., a Florida Corporation GROVE ISLE ASSOCIATES, LTD., a Florida Limited Partnership GROVE ISLE CLUB, INC., a Florida Corporation GROVE ISLE INVESTMENTS, INC., a Florida Corporation GROVE ISLE MARINA, INC., a Florida Corporation GROVE ISLE YACHT CLUB ASSOCIATES, a Florida Joint Venture GROVE SPA, LLC, a Florida Limited Liability HMG BAYSHORE, LLC, a Florida Limited Liability Company HMG HOUSTON GROVE, INC., a Texas Corporation HMG-FIEBER ASSOCIATES, a Connecticut Joint Venture SOUTH BAYSHORE ASSOCIATES, a Florida Joint Venture THE GROVE TOWNE CENTER-TEXAS, LTD. , a Texas Limited Partnership EX-31 13 ex31a.txt EXHIBIT 31A EXHIBIT 31A: CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Maurice Wiener, certify that: 1. I have reviewed this annual report on Form 10-KSB of HMG/Courtland Properties, Inc. 2. Based on my knowledge, this annual report does no contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer(s) and I have: a) designed such disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)), or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: March 30, 2005 /s/ Maurice Wiener Maurice Wiener, Principal Executive Officer EX-31 14 ex31b.txt EXHIBIT 31B EXHIBIT 31B: CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lawrence Rothstein, certify that: 1. I have reviewed this annual report on Form 10-KSB of HMG/Courtland Properties, Inc. 2. Based on my knowledge, this annual report does no contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer(s) and I have: a) designed such disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)), or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: March 30, 2005 /s/ Lawrence Rothstein Lawrence Rothstein, Principal Financial Officer EX-32 15 ex32a.txt EXHIBIT 32A EXHIBIT 32A: CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of HMG/Courtland Properties, Inc. (the "Company") on Form 10-KSB for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Maurice Wiener, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods indicated in the Report. /s/ Maurice Wiener Maurice Wiener, Principal Executive Officer HMG/Courtland Properties, Inc. EX-32 16 ex32b.txt EXHIBIT 32B EXHBIT 32B: CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of HMG/Courtland Properties, Inc. (the "Company") on Form 10-KSB for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lawrence Rothstein, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods indicated in the Report. /s/ Lawrence Rothstein Lawrence Rothstein, Principal Financial Officer HMG/Courtland Properties, Inc. -----END PRIVACY-ENHANCED MESSAGE-----