FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1998
Commission File Number 333-62775
NE RESTAURANT COMPANY, INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1311266
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
80A TURNPIKE ROAD, WESTBOROUGH, MASSACHUSETTS 01581
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 870-9200
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filled by Section 13 or 15(d) of the Securities Exchange Act of the 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
Yes___________ No_____X_______
On October 31, 1998, 2,975,598 shares of the registrant's Common Stock were
outstanding.
<PAGE>
NE RESTAURANT COMPANY, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements:
1) Consolidated Condensed Balance Sheets
September 30, 1998 and December 31, 1997 4
2) Consolidated Condensed Statements of Operations
For the Three and Nine Months Ended September 30, 1998
and September 30, 1997 6
3) Consolidated Condensed Statements of Shareholders'
Equity For the Nine Months Ended September 30, 1998 7
4) Consolidated Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 1998
and September 30, 1997 8
5) Notes to Consolidated Condensed Financial Statements 9
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11
PART II: OTHER INFORMATION 20
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 22
<PAGE>
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NE RESTAURANT COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
ASSETS (UNAUDITED)
Current Assets:
<S> <C> <C>
Cash $ 217,176 247,675
Credit card receivables 627,920 297,221
Inventories 1,861,227 592,143
Prepaid expenses and other current assets 800,301 184,494
Prepaid and current deferred income taxes 1,138,189 111,504
Pre-opening costs, net of
accumulated amortization 1,208,063 159,728
--------- ---------
Total current assets 5,852,876 1,592,765
--------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Land and land rights 7,694,536 3,792,524
Buildings 12,970,074 4,216,126
Leasehold improvements 74,189,763 16,623,160
Furniture and equipment 40,174,406 15,155,666
------------ -----------
135,028,779 39,787,476
Less accumulated depreciation (14,626,607) (9,992,744)
------------ -----------
120,402,172 29,794,732
Construction work in process 9,992,690 1,157,813
------------ -----------
Net property and equipment 130,394,862 30,952,545
GOODWILL, NET 22,098,304 -
DEFERRED FINANCE COSTS, NET 8,557,646 1,415,402
LIQUOR LICENSES 3,099,489 1,195,887
RESTRICTED INVESTMENTS 1,061,118 931,676
OTHER ASSETS, NET 4,086,743 1,248,551
----------- -----------
$ 175,151,038 $ 37,336,826
================ =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Current portion of mortgage loan
and bonds payable $ 657,538 $ 632,538
Accounts payable 5,173,801 3,987,794
Accrued expenses 22,849,700 5,298,000
Capital lease obligation-
current portion 72,647 79,997
---------- ----------
Total current liabilities 28,753,686 9,998,329
LINE OF CREDIT LOANS 1,100,000 13,500,000
CAPITAL LEASE OBLIGATION, NET OF
CURRENT PORTION 173,352 232,490
MORTGAGE LOANS PAYABLE, NET OF
CURRENT PORTION 24,968,187 23,463,313
BONDS PAYABLE, NET OF
CURRENT PORTION 100,000,000 -
DEFERRED RENT AND OTHER
LONG-TERM LIABILITIES 3,987,185 3,249,548
----------- -----------
Total liabilities 158,982,410 50,443,680
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock $.01 par value:
8,000,000 shares 36,649 20,060
authorized and 3,664,942 shares
issued at 9/30/98; 4,000,000 shares
authorized and 2,006,000 shares issued
at 12/31/97
Less treasury stock-689,344
shares at cost (8,017,070) (8,017,070)
Additional paid in capital 29,053,920 22,440
(Accumulated deficit) retained
earnings (4,904,871) (5,132,284)
----------- -----------
Total stockholders'
equity (deficit) 16,168,628 (13,106,854)
----------- ------------
$ 175,151,038 $ 37,336,826
============== =============
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------- -------------- ------------- -------------
1998 1997 1998 1997
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 54,253,416 $ 21,007,772 $ 99,302,468 $ 59,880,140
--------------- -------------- ------------- -------------
Cost of Sales and Expenses
Cost of sales 14,644,067 5,961,145 27,365,935 17,295,204
Operating expenses 29,183,569 10,534,399 51,811,239 29,978,430
General and administrative expenses 2,582,115 1,029,966 4,880,412 3,042,970
Deferred rent, depreciation and
amortization 3,565,982 971,352 5,555,295 3,026,827
Taxes other than income 2,504,891 958,152 4,636,932 2,847,945
---------- ---------- ---------- ----------
Total cost of sales and expenses 52,480,624 19,455,014 94,249,813 56,191,376
---------- ---------- ---------- ----------
Income from operations 1,772,792 1,552,758 5,052,655 3,688,764
Interest Expense, net 2,894,657 397,605 4,758,594 1,004,397
Income (loss) before income tax (1,121,865) 1,155,153 294,061 2,684,367
expense (benefit)
Income Tax Expense (Benefit) (406,393) 418,179 66,648 961,187
---------- ---------- --------- ---------
Net Income (Loss) $(715,472) $736,974 $227,413 $1,723,180
========== ========== ========= ==========
Basic and Diluted Earnings (Loss) per Share $(0.28) $0.47 $0.13 $0.93
Weighted Average Shares Outstanding 2,595,557 1,575,788 1,745,255 1,858,596
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
NE RESTAURANT COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
COMMON STOCK Treasury Stock
---------------------------------------------------
NUMBER .01 per Number Amount Additional (Accumulated Total
OF SHARES Share of Shares Paid In Deficit) Retained Stockholders'
Capital Earnings (Deficit) Equity
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 2,006,000 $ 20,060 (689,344) $(8,017,070) $ 22,440 $ (5,132,284) $ (13,106,854)
Net Income 227,413 227,413
Issuance of Common Stock 1,658,942 16,589 $ 29,031,480 29,048,069
-----------------------------------------------------------------------------------------------------
Balance September 30, 1998 3,664,942 $ 36,649 (689,344) $(8,017,070)$ 29,053,920 $ (4,904,871) $ 16,168,628
=====================================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<TABLE>
<CAPTION>
NE RESTAURANT COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------------------------------
1998 1997
------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 227,413 $ 1,723,180
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and deferred rent 5,555,295 3,026,827
Deferred taxes - 94,023
Changes in operating assets and liabilities
Inventories (65,150) 117,036
Prepaid expenses, receivables and other 3,294 (526,551)
Accrued expenses 7,870,719 (576,118)
Accounts payable (2,433,803) 739,007
Other operating assets and liabilities (4,045,599) 435,278
----------- ---------
Total adjustments 6,884,756 2,874,224
----------- ---------
Net cash provided by (used in) operating activities 7,112,169 4,597,404
CASH FLOWS FROM INVESTING ACTIVITIES
Business acquired, net of cash acquired (90,002,596) -
Additions to property and equipment (13,678,668) (2,425,919)
Development and franchise fees paid - (280,000)
Acquisition of liquor licenses (25,324) (8,979)
Additions to preopening costs (1,440,790) (190,079)
------------- -----------
Net cash provided by investing activities (105,147,378) (2,904,977)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of mortgage loans 1,859,867 24,250,000
Repayments of mortgage loans (318,611) -
Financing costs (6,618,127) (1,439,402)
Cash dividend paid - (12,221,927)
Return of capital - (4,447,933)
Issuance of common shares - 22,500
Repurchase of treasury shares - (8,332,069)
Principal payments under capital lease obligations (66,488) (44,803)
Net (payments) borrowings under lines of credit (25,900,000) (325,000)
Borrowings of bonds payable 100,000,000 -
Issuance of common shares 20,048,069 -
------------ -----------
Net cash provided by (used in) financing activities 98,004,710 (2,538,634)
------------ -----------
Net Decrease in Cash (30,499) (846,207)
Cash, beginning of period 247,675 410,929
----------------------- ----------------------
Cash, end of period $ 217,176 $ (435,278)
----------------------- ----------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest, net amounts capitalized $ 1,437,315 $ 1,845,682
----------------------- ----------------------
Cash paid for income taxes $ 810,000 $ 3,234,000
----------------------- ----------------------
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
NE RESTAURANT COMPANY, INC.
Notes To Consolidated Condensed Financial Statements
(Unaudited)
1. The unaudited condensed consolidated financial statements (the
"Unaudited Financial Statements") presented herein have been prepared
by NE Restaurant Co., Inc. and include all of its subsidiaries
(collectively, the "Company") after elimination of intercompany
accounts and transactions, without audit, and, in the opinion of
management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of the interim periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles ("GAAP") have been omitted, although the Company
believes that the disclosures included are adequate to make the
information presented not misleading. It is suggested that the
Unaudited Financial Statements be read in conjunction with the
financial statements and notes included in the Company's Registration
Statement on Form S-4, No. 333-62775, which was declared effective by
the Securities and Exchange Commission on November 12, 1998.
2. On July 21, 1998 the Company completed its acquisition of Bertucci's,
Inc. ("Bertucci's") pursuant to the terms of an Agreement and Plan of
Merger dated as of May 13, 1998 (the "Acquisition"). The Company
purchased all of the issued and outstanding shares of the Bertucci's
common stock at a price of $10.50 per share. The total purchase price
was approximately $98 million.
3. In connection with the acquisition of Bertucci's, the Company sold
$100,000,000 principal amount of its 10 3/4% Senior Notes due July 15,
2008. The net proceeds were used to consummate the Acquisition, repay
certain outstanding indebtedness of the Company and Bertucci's and pay
fees and expenses incurred in connection with the financing and the
Acquisition.
4. The Acquisition is accounted for as a purchase and, accordingly, has
been included in the Company's consolidated results of operations since
the consummation of the Acquisition on July 21, 1998. The purchase
price allocation is preliminary and subject to refinement when all
pertinent information regarding the Acquisition has been obtained.
5. In April 1988, the AICPA issued its Statement of Position 98-5 ("SOP
98-5"), REPORTING ON THE COSTS OF START-UP ACTIVITIES. SOP 98-5
requires that costs incurred during start-up activities, including
organization costs, be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15,
1998, although early application is encouraged. Initial application of
SOP 98-5 should be as of the beginning of the fiscal year in which it
is first adopted and should be reported as a cumulative effect of a
change in accounting principle.
The Company currently intends to adopt SOP 98-5 on January 1, 1999.
Upon adoption, the Company estimates it will incur a cumulative effect
of a change in accounting principle that will range from $750,000 to
$1.5 million. This estimate primarily includes unamortized preopening
costs which were previously amortized over the 12-month period
subsequent to a restaurant opening.
6. The following presents the unaudited pro forma consolidated statements
of income of the Company for the three months and nine months ended
September 30, 1998 and 1997. In computing pro forma earnings, earnings
have been reduced by the interest expense on indebtedness incurred in
connection with the Acquisition. In addition, earnings have been
reduced by amortization of goodwill and deferred finance costs. The pro
forma information presented does not purport to be indicative of the
results which would have been reported if these transactions had
occurred at the beginning of the respective period, or which may be
reported in the future.
<PAGE>
<TABLE>
<CAPTION>
Note 6 (continued)
PRO FORMA CONSOLIDATED STATEMENT OF INCOME OF THE COMPANY
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------------------------------------
1998 1997
------------------------------------- --------------------------
<S> <C> <C>
Net Sales $ 58,382 $ 53,671
Cost of Sales and Expenses
Cost of sales 15,759 14,091
Operating expenses 31,522 27,787
General and administrative expenses 3,078 3,022
Deferred rent, depreciation and amortization 3,468 3,279
Taxes other than income 2,711 2,588
------------------------ ------------------
Total cost of sales and expenses 56,538 50,767
------------------------ ------------------
Income from operations 1,844 2,904
Interest Expense, net 3,543 3,464
------------------------ ------------------
Income (loss) before income tax expense (benefit) (1,699) (560)
Income Tax Expense (Benefit) (612) (176)
------------------------ -----------------
Net Income (Loss) $ (1,087) $ (384)
======================== =================
Earnings (loss) per share $ (.37) $ (.13)
EBITDA(a) $ 5,507 $ 6,404
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------------------------------
1998 1997
-------------------------------- ----------------------------
Net Sales $ 181,911 $ 164,524
Cost of Sales and Expenses
Cost of sales 47,969 43,372
Operating expenses 95,216 85,007
General and administrative expenses 10,690 9,367
Deferred rent, depreciation and amortization 11,422 10,788
Taxes other than income 8,946 8,301
----------------------- --------------------
Total cost of sales and expenses 174,243 156,835
----------------------- --------------------
Income from operations 7,668 7,689
Interest Expense, net 11,622 10,425
----------------------- --------------------
Income (loss) before income tax expense (benefit) (3,954) (2,736)
Income Tax Expense (Benefit) (1,441) (914)
----------------------- ---------------------
Net Income (Loss) $ (2,513) $ (1,822)
======================= =====================
Earnings (loss) per share $ (.84) $ (.61)
EBITDA(a) $ 19,751 $ 19,248
- - --------
a) "EBIDTA" is defined as income from operations before deferred
rent, depreciation and amortization. EBITDA is not a measure
of performance defined by GAAP. EBITDA should not be
considered in isolation or as a substitute for net income or
the statement of cash flows which have been prepared in
accordance with GAAP. The Company believes EBITDA provides
useful information regarding the Company's ability to service
its debt and the Company understands that such information is
considered by certain investors to be an additional basis for
evaluating a company's ability to pay interest and repay debt.
The EBITDA measures presented herein may not be comparable to
similarly titled measures of other companies.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto included
herein.
GENERAL
NE Restaurant Company, Inc. (together with its subsidiaries, the
"Company") is a leading operator of full-service, casual dining restaurants in
New England. The Company develops and operates two distinct restaurant
franchises, Chili's Grill & Bar(R) ("Chili's") and On The Border Mexican Cafe(R)
("On The Border") restaurants, under franchise agreements with Brinker
International, Inc., a publicly-owned company ("Brinker" or the "Franchisor"),
together with a proprietary restaurant concept under the name Bertucci's Brick
Oven Pizzeria(R) ("Bertucci's"). As of September 30, 1998, the Company operated
33 Chili's and three On The Border restaurants in five New England states, and
owned and operated 89 Bertucci's restaurants located primarily in the
northeastern and Mid-Atlantic United States and one Sal and Vinnie's Sicilian
Steakhouse ("Sal and Vinnie's") restaurant located in Massachusetts.
The Company has entered into franchise and development agreements with
Brinker to operate the 36 Chili's and On The Border restaurants and to
exclusively develop additional restaurants in New England and Westchester County
and additionally, in the case of On The Border, upstate New York. The Company
acquired the Bertucci's and Sal and Vinnie's concepts pursuant to the terms of
an Agreement and Plan of Merger dated as of May 13, 1998, whereby the Company
(through a wholly-owned subsidiary) acquired on July 21, 1998 all of the issued
and outstanding shares of common stock of Bertucci's, Inc. for an aggregate
purchase price of approximately $98.0 million (the "Acquisition").
For all the Company's restaurants, net sales consist of food, beverage
and alcohol sales. Cost of sales consists of food, beverage and alcohol costs.
Total operating expenses consist of five primary categories: (i) labor expenses;
(ii) restaurant operations; (iii) facility costs; (iv) office expenses; and
(v) non-controllable expenses, which include such items as Brinker's royalty
and advertising fees, rent, insurance, and real estate and personal property
taxes. General and administrative expenses include costs associated with those
departments of the Company that assist in restaurant operations and management
of the business, including accounting, management information systems, training,
executive management, purchasing and construction.
<PAGE>
RESULTS OF OPERATIONS
The results of operations for the three- and nine-month periods ended
September 30, 1998 include the results of operations of the Bertucci's concepts
from their July 21, 1998 acquisition date.
The following table sets forth the percentage relationship to net
sales, unless otherwise indicated, of certain items included in the Company's
income statement, as well as certain operating data, for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales and Expenses:
Cost of sales 27.0% 28.4% 27.6% 28.9%
Operating expenses 53.8% 50.1% 52.2% 50.1%
General and administrative expenses 4.8% 4.9% 4.9% 5.1%
Deferred rent, depreciation and amortization 6.6% 4.6% 5.6% 5.1%
Taxes other than income 4.6% 4.6% 4.7% 4.8%
Total cost of sales and expenses 96.8% 92.6% 95.0% 94.0%
--------------------------------- ----------------------------
Income from operations 3.2% 7.4% 5.0% 6.0%
Interest Expense, net 5.3% 1.9% 4.8% 1.7%
--------------------------------- ----------------------------
Income before income tax expense (benefit) (2.1)% 5.5% 0.2% 4.3%
Income Tax Expense (Benefit) (0.7)% 2.0% 0.1% 1.6%
---------------------------------- ---------------------------
Net Income (Loss) (1.4)% 3.5% 0.1% 2.7%
================================== ===========================
RESTAURANT OPERATING DATA (DOLLARS IN
THOUSANDS):
Average annual sales per restaurant-Brinker $ 2,804 $ 2,626 $ 2,774 $2,556
concepts (a)
Average annual sales per restaurant- $ 1,670 $ 1,731 $ 1,682 $1,674
Bertucci's concepts (a)
Comparable restaurant sales-Brinker 2.2% 3.0% 5.4% 1.9%
concepts
Comparable restaurant sales-Bertucci's (3.7)% 7.4% 0.5% 2.7%
concepts
Number of restaurants:
Restaurants open at beginning of period 121 112 117 110
Restaurants opened 4 2 8 4
Restaurants closed 0 0 0 0
------------ ------------ ------------ ---------
Total restaurants open at end of period 125 114 125 114
============ ============ ============ =========
- - ------------------
(a) Average sales per restaurant for the fiscal three and nine month
periods have been annualized to reflect a full year of operations, but
are not necessarily indicative of results for a full year.
</TABLE>
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1997
NET SALES. Net sales increased $33.2 million, or 158.0%, to $54.2
million during the third fiscal quarter 1998 from $21.0 million during the third
fiscal quarter 1997. The increase in net sales primarily was due to the
inclusion of the results of operations of the Bertucci's restaurants since the
Acquisition. In addition, $3.6 million of the increase in net sales was
attributable to the opening of one Chili's, one On The Border and two Bertucci's
restaurants during the third fiscal quarter 1998. Comparable restaurant sales
increased by 2.2% for the Chili's and On The Border restaurants operated by the
Company (I.E., its Brinker concept restaurants) in the third fiscal quarter 1998
as compared to the third fiscal quarter 1997, with the majority of such increase
resulting from an increase in guest counts by 1.6% during the third fiscal
quarter 1998 as compared to the third fiscal quarter 1997. Comparable restaurant
sales for the Bertucci's restaurants decreased by 3.7% in the third fiscal
quarter 1998 as compared to the comparable period in 1997, with the majority of
such decrease resulting from a reduction in planned advertising for the
Bertucci's restaurants which has adversely affected sales in certain markets.
COST OF SALES. Cost of sales increased by $8.7 million, or 145.7%, to
$14.6 million during the third fiscal quarter 1998 from $5.9 million during the
third fiscal quarter 1997. The dollar increase in cost of sales primarily was
due to the inclusion of the results of operations of Bertucci's restaurants
since the Acquisition. Expressed as a percentage of net sales, overall cost of
sales decreased to 26.7% during the third fiscal quarter 1998 from 27.7% during
the third fiscal quarter 1997. The percentage decrease was attributable to
reduced pricing from a new broadline food supplier for the Company's Brinker
concept restaurants and to a more efficient, automated ordering system
implemented during the fourth fiscal quarter 1997. However, this overall
decrease was partially offset by cost of sales for the Bertucci's restaurants
which, expressed as a percentage of net sales for the Bertucci's restaurants,
increased to 26.9% during the third fiscal quarter 1998 from 25.9% during the
comparable period in 1997, primarily as a result of changing broadline suppliers
for the Bertucci's restaurants during July 1998 combined with increases in
cheese commodity costs during the first three fiscal quarters of 1998.
OPERATING EXPENSES. Operating expenses increased by $18.7 million, or
177.0%, to $29.2 million during the third fiscal quarter 1998 from $10.5 million
during the third fiscal quarter 1997. Expressed as a percentage of net sales,
operating expenses increased to 53.8% in the third fiscal quarter 1998 from
50.1% during the third fiscal quarter 1997. The dollar increase in operating
expenses primarily was due to the inclusion of the results of operations of the
Bertucci's restaurants since the Acquisition. The percentage increase primarily
was attributable to increased hourly labor costs driven by a tight labor market
as a result of low unemployment and mandated Federal and state minimum wage
increases, as well as to increased labor costs arising from increased staffing
of restaurant-level management implemented to strengthen restaurant operations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $1.6 million, or 150.7%, to $2.6 million during the third
fiscal quarter 1998 from $1.0 million during the third fiscal quarter 1997. The
dollar increase in general and administrative expenses primarily was due to the
inclusion of the results of operations of Bertucci's restaurants since the
Acquisition. Expressed as a percentage of net sales, general and administrative
costs decreased to 4.8% during the third fiscal quarter 1998 from 4.9% during
the third fiscal quarter 1997. The decrease was attributable to an increase in
sales for the Company's Brinker concept restaurants, combined with relatively
flat general and administrative expenses for such restaurants, during the third
fiscal quarter 1998 as compared to the third fiscal quarter 1997 and to reduced
executive salaries for the Bertucci's restaurants, which, however, were
partially offset by increased manager-in-training costs for such restaurants,
during the third fiscal quarter 1998.
<PAGE>
DEFERRED RENT, DEPRECIATION AND AMORTIZATION. Deferred rent,
depreciation and amortization expenses increased by $2.6 million, or 260%, to
$3.6 million during the third fiscal quarter 1998 from $1.0 million during the
third fiscal quarter 1997. The increase was primarily due to the inclusion of
the results of the operations of the Bertucci's restaurants since the
Acquisition and to the amortization of approximately $22.0 million of goodwill
associated with the Acquisition.
TAXES OTHER THAN INCOME TAXES. Taxes, other than income taxes,
increased by $1.5 million, or 161.4%, to $2.5 million during the third fiscal
quarter 1998 from $1.0 million during the third fiscal quarter 1997. Expressed
as a percentage of net sales, taxes, other than income taxes, remained constant
at 4.6% during each of the third fiscal quarter 1998 and the third fiscal
quarter 1997. The overall dollar increase in taxes, other than income taxes, was
due to the inclusion of the results of operations of the Bertucci's restaurants
since the Acquisition.
INTEREST EXPENSE. Interest expense increased by $2.5 million to $2.9
million during the third fiscal quarter 1998 from $0.4 million during the third
fiscal quarter 1997. This increase was attributable to the sale by the Company
in July 1998 of $100.0 million aggregate principal amount of its 10-3/4% Senior
Notes due 2008 (the "Senior Notes"), and to the approximately $24.3 million
aggregate principal amount of mortgage loan financing provided, since August
1997, to the Company by FFCA Acquisition Corporation (the "FFCA Loans").
Interest was approximately $2.3 million on the Senior Notes, and $0.6 million on
the FFCA Loans, during the third fiscal quarter 1998.
INCOME TAXES. The effective income tax rate remained constant at 36%
during each of the third fiscal quarter 1998 and the third fiscal quarter 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1997
NET SALES. Net sales increased by $39.4 million, or 65.8%, to $99.3
million during the nine months ended September 30, 1998 (the "first fiscal nine
months 1998") from $59.9 million during the nine months ended September 30, 1997
(the "first fiscal nine months 1997"). The increase in net sales primarily was
due to the inclusion of the results of operations of the Bertucci's restaurants
since the Acquisition, as well as to an increase in net sales for the Company's
Brinker concept restaurants which increased by $8.9 million, or 14.8%, to $68.8
million during the first fiscal nine months 1998 from $59.9 million during the
first fiscal nine months 1997, primarily due to the opening of one Chili's
restaurant and two On The Border restaurants during the first fiscal nine months
1998. Comparable restaurant sales increased by 5.4% during the first fiscal nine
months 1998, with the majority of such increase resulting from an increase in
guest counts by 4.4% for the Company's Brinker concept restaurants in the first
fiscal nine months 1998 as compared to the first fiscal nine months 1997.
COST OF SALES. Cost of sales increased by $10.1 million, or 58.2%, to
$27.4 million during the first fiscal nine months 1998 from $17.3 million during
the first fiscal nine months 1997. Expressed as a percentage of net sales, cost
of sales decreased to 27.6% during the first fiscal nine months 1998 from 28.9%
during the first fiscal nine months 1997. The dollar increase in cost of sales
primarily was due to the inclusion of the results of operations of the
Bertucci's restaurants since the Acquisition. In addition, cost of sales for the
Company's Brinker concept restaurants increased by $2.2 million to $19.5 million
from $17.3 million, but decreased as a percentage of net sales to 28.3% from
28.9%, during the first fiscal nine months 1998 as compared to the first fiscal
nine months 1997. In each case, the decrease was attributable to reduced pricing
from a new broadline food supplier for the Company's Brinker concept restaurants
and to a more efficient automated ordering system implemented during the fourth
fiscal quarter 1997.
OPERATING EXPENSES. Operating expenses increased by $21.8 million, or
72.8%, to $51.8 million during the first fiscal nine months 1998 from $30.0
million during the first fiscal nine months 1997. Expressed as a percentage of
net sales, operating expenses increased to 52.2% during the first fiscal nine
months 1998 from 50.1% during the first fiscal nine months 1997. The dollar
increase in operating expenses primarily was due to the inclusion of the results
of operations of the Bertucci's restaurants since the Acquisition. The
percentage increase primarily was attributable to increased hourly labor costs
driven by a tight labor market as a result of low unemployment and mandated
Federal and state minimum wage increases, as well as to increased labor costs
arising from increased staffing of restaurant-level management implemented to
strengthen restaurant operations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $1.8 million, or 60.4%, to $4.9 million during the first
fiscal nine months 1998 from $3.1 million during the first fiscal nine months
1997. The dollar increase in general and administrative expenses primarily was
due to the inclusion of the results of operations of Bertucci's restaurants
since the Acquisition. Expressed as a percentage of net sales, general and
administrative expenses decreased to 4.9% during the first fiscal nine months
1998 from 5.1% during the first fiscal nine months 1997. The decrease was
attributable to an increase in sales for the Company's Brinker concept
restaurants, combined with relatively flat general and administrative expenses
for such restaurants, during the first fiscal nine months 1998 compared to the
first fiscal nine months 1997 and to reduced executive salaries for the
Bertucci's restaurants, which, however, were partially offset by increased
manager-in-training costs for such restaurants, during the third fiscal quarter
1998.
DEFERRED RENT, DEPRECIATION AND AMORTIZATION. Deferred rent,
depreciation and amortization expenses increased by $2.6 million, or 54.5%, to
$5.6 million for the first fiscal nine months 1998 from $3.0 million during the
first fiscal nine months 1997. The increase was due to the inclusion of the
results of operations of the Bertucci's restaurants since the Acquisition.
Expressed as a percentage of net sales, deferred rent, depreciation and
amortization expenses increased to 5.6% during the first fiscal nine months 1998
from 5.1% during the first fiscal nine months 1997. This increase was due to the
opening of one Chili's and two On The Border restaurants during the first fiscal
nine months 1998 and two Bertucci's restaurants since the Acquisition, and to
the amortization of approximately $22.0 million of goodwill associated with the
Acquisition.
TAXES OTHER THAN INCOME TAXES. Taxes, other than income taxes,
increased by $1.8 million, or 62.8%, to $4.6 million during the first fiscal
nine months 1998 from $2.8 million during the first fiscal nine months 1997.
Expressed as a percentage of net sales, taxes, other than income taxes,
decreased to 4.7% during the first fiscal nine months 1998 from 4.8% during the
first fiscal nine months 1997. The overall dollar and percentage increases in
taxes, other than income taxes, were due to the inclusion of the results of
operations of the Bertucci's restaurants since the Acquisition.
INTEREST EXPENSE. Interest expense increased by $3.8 million, or
473.8%, to $4.8 million during the first fiscal nine months 1998 from $1.0
million during the first fiscal nine months 1997. This increase was attributable
to the sale of the Senior Notes in July 1998 and to the FFCA Loans entered into
since August 1997. Interest was approximately $2.3 million on the Senior Notes
and $2.5 million on the FFCA Loans during the first fiscal nine months 1998.
<PAGE>
INCOME TAXES. The effective income tax rate remained constant at 36%
during each of the first fiscal nine months 1998 and the first fiscal nine
months 1997.
IMPACT OF ACQUISITION ON RESULTS OF OPERATIONS
As a result of the Acquisition, operations going forward will be
impacted by amortization of approximately $22.1 million of goodwill and
additional interest expense associated with the Senior Notes. On a pro forma
basis, during the first fiscal nine months 1998, amortization of goodwill was
approximately $1.1 million and additional interest expense in connection with
the Senior Notes was approximately $8.1 million. The additional interest expense
will have a resulting tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its capital expenditures and working
capital needs through a combination of operating cash flow, borrowings under the
FFCA Loans and borrowing under the Company's revolving credit facility, which
provides for borrowings of up to $20.0 million, with BankBoston, N.A. acting as
administrative agent and Chase Bank of Texas, N.A. acting as documentation agent
(the "Senior Bank Facility").
Net cash flows from operating activities were $7.1 million for the
first fiscal nine months 1998 as compared to $4.6 million for the first fiscal
nine months 1997. This increase was primarily due to changes in working capital,
in particular increases in accrued expenses and accounts payable, due to the
inclusion of the results of operations of the Bertucci's restaurants since the
Acquisition.
The Company's capital expenditures increased by $11.3 million to $13.7
million for the first fiscal nine months 1998. The increase in capital
expenditures was primarily due to the opening of five Bertucci's restaurants,
one Chili's restaurant, and two On The Border restaurants during the first
fiscal nine months 1998. Under its area development agreements with the
Franchisor, the Company is required to open at least two Chili's and two On The
Border restaurants in each of 1998 and 1999 to meet its minimum development
requirements. The Company currently expects to exceed these minimum requirements
by opening a total of two Chili's and three On The Border restaurants in fiscal
1998, requiring capital expenditures of approximately $10.0 million, and four
Chili's and three On The Border restaurants in fiscal 1999, requiring capital
expenditures of approximately $13.4 million. In addition, the Company expects to
open one new Bertucci's restaurant during the fourth fiscal quarter 1998,
requiring capital expenditures of approximately $1.3 million. As described
below, the Company believes that it will have sufficient working capital and
bank borrowing availability to finance its expansion and other plans through
2003.
The Company incurred a significant amount of indebtedness in connection
with the Acquisition. As of September 30, 1998, the Company had approximately
$127.0 million in consolidated indebtedness, including $100.0 million of
indebtedness pursuant to the Senior Notes, $25.5 million of borrowings under the
FFCA Loans, $1.1 million outstanding under the Senior Bank Facility and $0.4
million of capital lease obligations. Significant liquidity demands will arise
from debt service on the Senior Notes, the FFCA Loans and borrowings under the
Senior Bank Facility. In addition to its debt service obligations, the Company
estimates that it will incur $15.6 million for capital expenditures, $0.1
million for lease obligations and $0.7 million for general working capital needs
in 1998 and $31.2 million, $0.1 million and $(0.4) million, respectively, for
such expenditures and obligations in 1999.
<PAGE>
The Company believes that the cash flow generated from its operations,
together with available borrowings under the Senior Bank Facility and under the
FFCA Loans and similar secured indebtedness, should be sufficient to fund its
debt service requirements, lease obligations, working capital needs, current
expected capital expenditures and other operating expenses through 2003. The
Senior Bank Facility provides the Company with available borrowing up to an
aggregate amount of $20.0 million. As of September 30, 1998, approximately $18.9
million of borrowings were available under the Senior Bank Facility. The
Company's future operating performance and ability to service or refinance the
Senior Notes, the FFCA Loans, and the Senior Bank Facility will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the Company's control.
SEASONALITY
The Company's quarterly results of operations have fluctuated and are
expected to continue to fluctuate depending on a variety of factors, including
the timing of new restaurant openings and related pre-opening and other startup
expenses, net sales contributed by new restaurants, increases or decreases in
comparable restaurant sales, competition and overall economic conditions. The
Company's business is also subject to seasonal influences of consumer spending,
dining out patterns and weather. As is the case with many restaurant companies,
the Company typically experiences lower net sales and net income during the
first and fourth fiscal quarters. Because of these fluctuations in net sales and
net income (loss), the results of operations of any quarter are not necessarily
indicative of the results that may be achieved for a full year or any future
quarter.
YEAR 2000 IMPACT
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. As a
result, within the next two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
The Company is currently assessing the potential impact of Year 2000 on the
processing of date-sensitive information by the Company's automated information
and point-of-sale systems and by the computerized information systems for its
Bertucci's operations. While there can be no assurance that Year 2000 matters
will be satisfactorily identified and resolved, the Company currently believes,
based on preliminary discussions with its information systems vendors, that Year
2000 issues will not have a materially adverse affect on the Company.
The Company's comprehensive Year 2000 initiative is being managed by a
team of internal staff and is designed to ensure that there are no adverse
affects on the Company's ability to conduct business at the restaurant level and
to process and support restaurant activity at the corporate level. The
initiative covers restaurant point-of-sale systems, back office software,
including labor, menu and inventory management software, ordering systems, the
corporate office network and financial systems, payroll processing, corporate
computers and telephone systems. In addition, the project includes a review of
the Year 2000 compliance effects of the Company's key suppliers and other
principal business partners and, as appropriate, the development of joint
business support and continuity plans for Year 2000 issues. The Year 2000
project is divided into the following phases: inventory, assessment,
remediation, testing, deployment and monitoring. As of September 30, 1998, the
inventory and assessment phases are substantially completed, and the
remediation, testing, deployment and monitoring phases are in progress. As part
of its testing phase, the Company intends to conduct independent verification
testing of selected network component upgrades received from suppliers. In
addition, selected Year 2000 upgrades are slated to undergo testing in a
controlled environment that replicates the current network and is equipped to
simulate the turn of the century and leap year dates.
Under its current Year 2000 plan, the Company has brought a number of
its systems into Year 2000 compliance, and has established a target date of
March 1, 1999 for remediation of most of those systems which are not yet
compliant, subject to additional Year 2000 testing and responsive actions. The
Company's accounts receivable system is expected to be compliant by June 1999
and the point-of-sale systems in seven remaining Chili's restaurants are
expected to be compliant by September 1999. The Company's ability to meet the
target dates is dependent upon the timely provision of necessary upgrades and
modifications by its suppliers and contractors. In some instances, third party
upgrades or modifications are not expected to be available until late 1998 or
early 1999; accordingly, the Company's testing and redeployment of affected
items may be delayed into mid-1999. The Company has established a supplier
compliance program, and is working with its key suppliers and the Franchisor to
minimize such risks. Based upon information obtained from the Company's two
principal vendors of restaurant supplies and products (which together account
for approximately 75% to 80% of its supplies), the Company believes that the
vendors' systems that could affect the Company's business are Year 2000
compliant. While the Company believes that its relationships with its smaller
suppliers and the Franchisor, as such relationships relate to Year 2000 issues,
are less significant, it is continuing to assess these relationships and to
develop contingency plans with such suppliers and expects that such efforts will
be completed by June 1, 1999. The Company currently estimates that it will incur
expenses of approximately $230,000 through 1999 in connection with its
anticipated Year 2000 efforts. The timing and amount of the Company's expenses
may vary and are not necessarily indicative of readiness efforts or progress to
date.
As part of its Year 2000 initiative, the Company is evaluating
scenarios that may occur as a result of the century change and is in the process
of developing a contingency and business continuity plan tailored for Year
2000-related occurrences. The Company believes that most of its significant
hardware and software systems are already Year 2000 compliant. However, for
those systems which are not yet compliant, the Company is currently in the
process of evaluating alternative vendors from whom it may obtain upgrades in
the event that the vendors who are expected to deliver such upgrades do not meet
the anticipated delivery dates. The Company believes that the most reasonably
likely worst case scenario of failure by the Company or its suppliers to
adequately resolve Year 2000 issues would arise from a complete failure of its
point-of-sale and ordering systems. Such a failure would require the Company to
resort to "non-computerized" means to undertake such restaurant functions as
placing customer orders, preparing customer checks, accounting of restaurant
receipts, recording and ordering restaurant inventory and supplies, evaluating
menu mix and analyzing other operating statistics. While the Company believes
that it is equipped to operate in such "non-computerized" mode to address such a
failure, there can be no assurance that the Company would not suffer, as a
result of such or any other unanticipated Year 2000 failure, from lost revenues,
increased operating costs, loss of customers or other business interruptions of
a material nature.
The above information is based on the Company's current best estimates,
which were derived using numerous assumptions of future events, including the
availability and future costs of certain technologies and other resources, third
party modification actions and other factors. Given the complexity of these
issues and possible unidentified risks, actual results may vary from those
anticipated and discussed above. Specific factors that might cause such
differences include, among others, the availability and cost of personnel
trained in this area, the ability to locate and correct all affected computer
code, the timing and success of remedial efforts of the Company's third party
suppliers and similar uncertainties.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in
this Quarterly Report on Form 10-Q, including, without limitation, statements
set forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" regarding the Company's future financial position,
business strategy, budgets, projected costs and plans and objectives of
management for future operations, are forward-looking statements. In addition,
forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate" or "believe" or the negative thereof or variations
thereon or similar terminology. Although the Company believes that the
expectations reflected in such forward-looking statements will prove to have
been correct, it can give no assurance that such expectations will prove to have
been correct. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
<PAGE>
PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings from time to time
incidental to the conduct of its business. In the opinion of management, any
ultimate liability arising out of such proceedings will not have a material
adverse effect on the financial condition or results of operations of the
Company.
Management is not aware of any litigation to which the Company is a
party (other than lawsuits filed from time to time against the Company in the
ordinary course of its business) which is likely to have a material adverse
effect on the Company.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On July 15, 1998, the Company issued and sold 1,644,775 shares of
its common stock in a private placement to existing stockholders, including
certain members of management, and to certain affiliates of Jacobson Partners,
for an aggregate purchase price of approximately $28.8 million (the "Equity
Investment"). The Company used the net proceeds of the sale, together with the
approximately $96.0 million proceeds of the sale of the 10-3/4% Senior Notes due
2008 (the "Private Notes") and approximately $3.7 million of cash on hand, to
pay amounts due in connection with the Acquisition and certain related
transactions, and to pay fees and expenses related to the Acquisition and such
related transactions. The foregoing shares were sold without registration in a
transaction qualifying for exemption from registration afforded by Section 4(2)
of the Securities Act of 1933, as amended. Fees and expenses for the Equity
Investment, the sale of the Private Notes and the Acquisition were approximately
$9.0 million.
(b) The Company filed a Registration Statement on Form S-4, Commission
File No. 333- 62775, which became effective on November 12, 1998, to allow
holders of the Private Notes to exchange such notes for notes (the "Exchange
Notes") which, among other things, will not bear legends restricting the
transfer thereof. The Company will not receive any cash proceeds from the
issuance of the Exchange Notes.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Form of Real Estate Contract of Sale dated as of
November 6, 1998 by and between Berestco, Inc. and Pinnacle
Properties Management, Inc.
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
NE RESTAURANT COMPANY, INC.
--------------------------------------
(Registrant)
Date: November 16, 1998 BY: /S/ DENNIS PEDRA
-------------------------------------
Dennis Pedra
President and Chief
Executive Officer
Date: November 16, 1998 BY: /S/ PAUL HOAGLAND
-------------------------------------
Paul Hoagland
Chief Financial Officer and
Executive Vice President
EXHIBIT 10.1
FORM OF REAL ESTATE CONTRACT OF SALE
THIS CONTRACT is made and entered into as of the execution date hereof
by and between BERESTCO, INC., a Massachusetts corporation ("Seller") and
PINNACLE PROPERTIES MANAGEMENT, INC., a Delaware corporation, or assigns
("Buyer").
WITNESSETH:
WHEREAS, Seller is the owner of certain real property and improvements
located in Wakefield, Massachusetts commonly known as 14 Audubon Road; and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller the property hereinafter described on the terms and conditions
hereinafter more fully set out:
NOW, THEREFORE, in consideration of the agreements herein contained
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, Seller and Buyer agree as follows:
ARTICLE I
THE PROPERTY
1.1 PROPERTY CONVEYED. Subject to the terms and provisions of this
Contract, Seller agrees to sell to Buyer, and Buyer agrees to purchase from
Seller, all of the following described property (sometimes referred to herein in
the aggregate as the "Property"):
(a) the land described on EXHIBIT "A" "Land");
(b) all buildings, structures and improvements on the Land,
including without limitation, all mechanical systems, fixtures and
equipment; electrical systems, fixtures and equipment; heating,
air-conditioning and ventilation fixtures, systems and equipment and
plumbing fixtures, systems and equipment, but excluding all furniture,
removable fixtures (including kitchen equipment) in the office area,
warehouse area and "Test Kitchen" area; to be removed by Seller prior
to Closing ("Improvements"); provided, however that Seller shall not
remove any fixture related to the plumbing, heating and ventilating,
electrical, mechanical, structural or other integral components or
systems of the Building. Seller shall repair all damage caused by such
removal;
(c) all Seller's interest, if any, in carpets and other
furnishings; and personal property of every kind and character, and
all accessories and additions used in connection with the Land or
Improvements or the operations thereon, including limited to the
built-in receptionist desk and those items to be set forth on EXHIBIT
"B" to be completed by Buyer and Seller and attached hereto
(collectively "Personalty"); and, at Buyer's option, all of Seller's
interest as lessee under lease or rental agreements covering any
personal property which is attached to, located upon or used in
connection with the Property;
(d) all of Seller's interest in the leases (the "Tenant Leases")
with all tenants of the Property ("Tenant"), and all prepaid rentals
(to the extent applicable to a period beyond the Closing Date) and
security and other deposits, under the Tenant Leases;
(e) to the extent assignable, and to the extent Buyer notifies
Seller of its election to assume same (but not otherwise) prior to the
expiration of the Investigation Period (hereafter defined) all of
Seller's interest in all service contracts, warranties and guaranties
relating to any portion of the Property;
(f) to the extent the same are actually in Seller's possession,
but without any representations or warranties whatsoever, express,
implied or arising by operation of law, as to the accuracy,
completeness, applicability or usefulness thereof, all site plans,
surveys, soil and substrata studies, architectural renderings, plans
and specifications, engineering plans and studies, floor plans,
landscape plans and other plans, diagrams or studies of any kind, if
any, in Seller's possession which relate to the Land, the Improvements
or the Personalty, if any (the "Related Documents"); and
(g) all rights which Seller may have to use the name 14 Audubon
Road; all telephone exchanges, if any, related to the operation and
management of the Property; all keys to locks on the Property; and
(h) all other rights and privileges appurtenant to the Land and
Improvements owned by Seller.
ARTICLE II
PURCHASE PRICE
2.1 PURCHASE PRICE. The total purchase price for the Property shall be
an amount equal to $3,600,000 ("Purchase Price"), to be paid or evidenced at the
Closing in the following manner:
(a) Prior to the date hereof, Buyer has deposited the sum of
$50,000 with the Title Company ("Earnest Money") to be held in an
interest-bearing account at the direction of Buyer (as to type of
account) and disbursed in accordance with Article IX hereof. Interest
shall be credited to the Buyer unless the Earnest Money is paid to
Seller pursuant to Section 9.3.
(b) Upon execution hereof, Buyer shall deposit the additional sum
of $50,000 with the Title Company (also referred to as "Earnest
Money") to be held in an interest-bearing account at the collective
direction of Buyer and Seller and disbursed in accordance with Article
IX hereof. Interest shall be credited to the Buyer unless the Earnest
Money is paid to Seller pursuant to Section 9.3.
(c) The sum of $3,600,000 (less Earnest Money delivered to
Seller) shall be paid to Seller at the Closing, subject to prorations
and other credits provided for in this Contract.
ARTICLE III
BUYER DUE DILIGENCE
3.1 PROPERTY DOCUMENTS. Within ten (10) days of execution of this
Contract, Seller shall furnish to Buyer all written documentation pertaining to
the "Condition of the Property", as hereafter defined, in Seller's possession
INCLUDING, WITHOUT LIMITATION, those delineated below (the "Property Documents")
excluding attorney-client communications involving legal advice or other
attorney's work product. The Property Documents are furnished without
representation or warranty of any kind as to their accuracy or completeness, and
Buyer is specifically not entitled to rely thereon. The following shall be
included in the Property Documents:
(a) The Tenant Leases;
(b) The most recent ad valorem tax statements from all taxing
authorities having jurisdiction over the Property.
(c) An inventory of the Personalty, if any, together with a list
of all personal property attached to, located upon or used in
connection with the Property and which is not owned by Seller but
which Seller has the right to use under lease, rental or other
agreements, accompanies by true and legible copies of such agreements.
(d) Copies of all contracts of employment, management,
maintenance, service, supply or rental outstanding which affect any
portion of the Property or its operation.
(e) Site plans, surveys, soil and substrata studies,
architectural renderings, plans and specifications, engineering plans
and studies, floor plans, landscape plans and other plans, diagrams or
studies of any kind, if any, in Seller's possession, which relate to
the Land, the Improvements or the Personalty, together with all
documents relating or pertaining to all warranties and guaranties of
construction.
(f) Copies of all documents and records and any other information
in Seller's possession concerning any investigation, study, report,
inquiry, lawsuit or proceeding pertaining to the existence of
Hazardous Materials affecting the Property or affecting properties
adjacent to the Property. Such documents, records and information
include without limitation, environmental audits, environmental risk
assessments or site assessments, documentation regarding off-site
disposal of Hazardous Materials, spill control plans, and
environmental agency and third-party reports and investigations,
claims, citations, pleadings, correspondence or other communications
excluding correspondence which may contain matters subject to
attorney-client privilege. Seller shall have an ongoing obligation to
provide to Buyer copies of any such additional documents which come
into the possession of Seller subsequent to the date hereof within ten
(10) days of any such document, record or information coming into the
Seller's possession.
3.2 CONFIDENTIAL NATURE.
(a) Buyer agrees that all Property Documents obtained by Buyer
from Seller during the term of this Contract with respect to the
Property shall be held in confidence by Buyer and Buyer shall use
reasonable efforts to ensure that such Property Documents are not
disclosed to any third party except as provided in this subsection.
Buyer further agrees that all information obtained by Buyer with
respect to the Property, other than from Seller, shall be held in
confidence and shall not be disclosed to any third party except as
provided in this Section. All such Property Documents and other
written materials and information shall be held in confidence and
shall not be disclosed to any third party except (i) in connection
only with the transactions specifically contemplated by this Contract
(and then only to the extent necessary to accomplish the transactions
set forth herein), to Buyer's employees, agents, lawyers, lenders,
contractors, subcontractors, consultants and other representatives, in
which event Buyer shall direct each such recipient of such information
to use reasonable efforts to maintain the confidentiality of such
information, or (ii) as required by law or court order or (iii) are
the subject of a legitimate discovery request in any judicial
proceeding. Notwithstanding the foregoing, Buyer shall not have any
obligation under this subsection to maintain the confidentiality of
any materials or information which either (a) are publicly known or
are a matter of public record at the time such materials are made
available to or information is disclosed to Buyer, or (b) are already
otherwise known to Buyer at the time such materials are made available
to or information is disclosed to Buyer, or (c) become public during
the term of this Contract other than by means of or as a result of a
breach of this provision by Buyer.
(b) In the event the need arises to notify under applicable laws
any federal, state or local public agencies of any environmental
conditions at the Property, as a result of Buyer's Investigation, as
described below, Buyer shall immediately notify Seller and agrees that
Seller, not Buyer or Buyer's employees, agents, contractors,
subcontractors, consultants or other representatives, shall make such
disclosure as Seller deems appropriate, unless such disclosure is
required by law to be made by Buyer or Buyer's employees, agents,
contractors, subcontractors, consultants or other representatives, in
which instance Buyer or such employee, agents, contractor,
subcontractor, consultant or other representative may make such
disclosure and Buyer shall immediately notify Seller thereof.
3.3 RETURN OF PROPERTY DOCUMENTS. If for any reason (other than a
Seller default) the Closing does not occur, Buyer shall (i) return to Seller all
materials and other information regarding the Property that Seller has provided
to Buyer and all photocopies thereof, and (ii) upon payment of Buyer's costs in
connection therewith, deliver immediately to Seller copies of all written
studies, analysis, reports and assessments (both final and interim versions)
relating to any of Buyer's Investigations (to the extent to which such delivery
would not constitute a violation of a contract between Buyer and the consultant
which prepared such study, analysis, report or assessment). Seller acknowledges
that Buyer makes no representation or warranty as to the accuracy or
completeness of any materials delivered to Seller pursuant to clause (ii) of the
preceding sentence. For purposes of this Contract, Buyer may provide a verified
certificate to Seller certifying to its compliance with this subsection 3.3, and
such verified certificate shall be PRIMA FACIE evidence (subject to rebuttal by
Seller) of Buyer's compliance with the provisions of this subsection 3.3.
3.4 BUYER'S INVESTIGATIONS.
(a) Subject to the provisions of this Contract, Buyer shall, at
its own expense, have the right to conduct or cause to be conducted
during the period commencing on the date of this Contract and ending
sixty (60) days thereafter ("Investigation Period"), at Buyer's sole
cost and expense, such investigations, inspections and studies of the
Property, including, without limitation, "Buyer's Site Assessment" (as
hereafter defined), and such reviews of plans, contracts, permits, and
other documents, as Buyer deems necessary or desirable (collectively,
"Buyer's Investigations ").
(b) All Buyer's Investigations which are permitted under this
Contract and which require access to the Property shall be done at
reasonable times on Business Days and after twenty-four (24) hours'
prior written notice (which may be given by facsimile transmission) to
R. Edward Buice, Esquire (Fax Number ((781) 246-7458) or such other
person as is designated by Seller to Buyer from time to time
(collectively, "Seller's Representatives"). Seller may impose
reasonable restrictions on the timing of all Buyer's Investigations
which required access to the Property, but such restrictions shall not
unreasonably delay the performance of Buyer's Investigations. If
Seller desires to have a Seller's Representative accompany Buyer, or
its employees, agents, contractors, subcontractors, consultants or
other representatives onto the Property during the performance of
Buyer's Investigations. Seller shall make one or more of Seller's
Representatives available at the Property. Buyer, its employees,
agents, contractors, subcontractors, consultants and other
representatives shall take all reasonable precautions to minimize the
impact on the Property of all Buyer's Investigations. If Buyer, its
employees, agents, contractors, subcontractors, consultants or other
representatives take any sample from the Property in connection with
any environmental testing as part of Buyer's Site Assessment, then
upon Seller's request, Buyer shall provide to Seller's Representative
a portion of such sample being tested to allow Seller, if it so
chooses, to perform its own testing. Buyer shall, immediately after
the conclusion of Buyer's Investigations, at its sole cost, restore
the Property to as near the condition which existed immediately prior
thereto as is reasonably possible, including replacing paving and
landscaping (if any). Except as expressly stated in this Contract, in
no event shall Buyer contact any of Seller's agents, employees,
contractors or other representatives, (other than Seller's counsel and
Seller's Representatives), without the prior written consent of
Seller, not to be unreasonably withheld, delayed or conditioned.
(c) Buyer hereby assumes all risks associated with conducting
Buyer's Investigations and agrees to protect, defend, indemnify and
hold harmless Seller and its officers, directors, employees and agents
of, from and against any and all losses, claims, demands, damages,
liabilities, expenses and other obligations (including, without
limitation, attorneys' fees and court costs, but excluding the cost to
remediate any Hazardous Materials discovered arising from, out of or
in connection with or otherwise relating to, the entry by and the
activities, studies and tests performed by Buyer or any one or more of
its employees, agents, contractors, subcontractors, consultants or
other representatives in or upon the Property, except as may be caused
by the negligent or willful act or omission of Seller or its
employees, agents, contractors, subcontractors, consultants or other
representatives. Buyer agrees to provide Seller, and to cause each of
its agents, contractors, subcontractors, consultants and other
representatives who enter upon the Property to provide to Seller,
prior to any such entry, evidence of insurance in at least the amounts
shown on SCHEDULE 3.4(C) attached hereto and incorporated herein and
with companies reasonably acceptable to Seller and naming Seller as an
additional insured, covering the activities to be conducted by Buyer
and its employees, agents, contractors, subcontractors, consultants
and other representatives.
(d) SURVIVAL. The foregoing restoration and indemnity obligations
of Buyer contained in this Section shall survive the Closing or the
termination of this Contract.
3.5 TITLE AND SURVEY.
(a) TITLE, EXAMINATION PRIOR TO CLOSING., WAIVER BY BUYER. During
the Investigation Period, Buyer may, at its cost and expense, (i) have
the title to the Property examined, (ii) have a survey made of the
Property, and (iii) obtain a commitment ("Buyer's Commitment") for an
owner's policy of title insurance from a nationally recognized title
insurer (the "Title Company") at standard rates. Buyer shall give
written notice to Seller not later than 5:00 p.m. eastern standard
time ON THE DATE THE INVESTIGATION PERIOD EXPIRES; if Buyer's
Commitment or Buyer's Survey discloses any title defect or
encroachment upon the Property or other condition which is
objectionable to Buyer (collectively, the "Title Matters"). Such
notice of Title Matters is hereinafter referred to as a "Title
Objection Notice". Any matter noted on Buyer's Title Commitment as of
the effective date of Buyer's title examination, or matter in
existence which appeared on a survey performed and prepared in
accordance with the current ALTA/ACSM standard, which is not the
subject of a Title Objection Notice shall be conclusively deemed
waived by Buyer and shall constitute a "Permitted Exception".
(b) CURING AND REMOVAL OF TITLE OBJECTIONS. If Buyer gives a
Title Objection Notice to Seller in accordance with the provisions of
Section 3.5(a), then:
(i) MONETARY ENCUMBRANCES. With respect to any Title Matter
which is a mortgage or similar encumbrance created voluntarily by
Seller or Seller's predecessors in title which secures solely the
payment of a stated indebtedness (each a "Monetary Encumbrance"),
Seller shall notify Buyer within twenty (20) days after receipt
of such Title Objection Notice, either (i) that Seller has paid
the amount necessary to remove the same from the record title to
the Property and will, on or prior to the Closing Date, obtain
recordable instruments or other documentation sufficient to cause
the Title Company, for no additional premium, either to delete
such matters from an owner's title insurance policy to be issued
to Buyer at standard rates or to affirmatively insure Buyer in
such owner's title insurance policy (in form and substance
acceptable to Buyer) against loss arising out of the enforcement
or attempted enforcement of such Monetary Encumbrances, or (ii)
that Seller agrees to pay on the Closing Date the sum required to
remove the same from the record title out of the Purchase Price
to be received at Closing, pursuant to arrangements reasonably
acceptable to Seller and Buyer, and will on the Closing date
obtain recordable instruments or other documentation sufficient
to cause the Title Company, for no additional premium, either to
delete such matters from an owner's title insurance policy
against loss arising out of the enforcement or attempted
enforcement of such Monetary Encumbrances; or
(ii) NONMONETARY ENCUMBRANCES. If and to the extent to which
a Title Matter both (a) is not a Monetary Encumbrance, and (b) is
of such a nature that if it is not cured, it would prevent Seller
from conveying a good, record and marketable title to the
Property (such a Title Matter being hereinafter referred to as a
"Nonmonetary Encumbrance", which term shall not include easements
and other restrictions of record which do not interfere with the
current use of the Property as an office and warehouse facility.
Such easements and restrictions, although not a Nonmonetary
Encumbrance, may nevertheless be the subject of a Title Objection
Notice as provided in (iii) below.) Seller shall use diligent,
good faith efforts to remove or cure all Nonmonetary
Encumbrances, provided that:
(A) Seller shall not be required to incur
more than $100,000 in costs and expenses (including
without limitation, fees and expenses of attorneys,
engineers and Licensed Site Professionals) in the
aggregate in performing the following (collectively,
"Seller's Cure Obligations"): (1) curing all
Nonmonetary Encumbrances and (2) reviewing any
Hazardous Materials Notice, investigating any
Response Action Requirement, and completing all
Recommended Response Actions pursuant to Section
3.6.2; and
(B) nor shall Seller be obligated to make
any effort to remove or cure the same the aggregate
cost of Seller's Cure Obligations is reasonably
expected to exceed $100,000.
If within twenty (20) days after Seller's receipt of a Title
Objection Notice, Seller is not able, to remove or cure the
Nonmonetary Encumbrances, Seller shall so notify Buyer in
writing and Buyer shall, as its sole and exclusive remedy, on
or before the twentieth (20th) day after Buyer's receipt of
Seller's notice, give notice to Seller, that Buyer either:
(C) PROCEED WITH CLOSING. Elects to proceed
with the Closing, in which event all Nonmonetary
Encumbrances identified in the Title Objection Notice
which Seller has not cured or removed shall be
conclusively presumed thereafter to constitute
Permitted Exceptions, and the Closing shall occur
without any credit against or abatement of the
Purchase Price on account thereof; or
(D) TERMINATE CONTRACT. Elects to terminate
this Contract, in which event Buyer shall be entitled
to the immediate return of the Deposit, together with
all accrued interest thereon, and, except as
expressly provided, otherwise in this Contract, this
Contract shall be deemed terminated, null and void
and of no further force and effect, and the parties
shall have no further rights, obligations or
liabilities hereunder. Unless Buyer gives notice to
Seller within such twenty (20) day period that Buyer
has elected to terminate this Contract pursuant to
this Section (C), Buyer shall be conclusively
presumed to have elected to proceed to Closing
pursuant to Section (A), and the uncured Nonmonetary
Encumbrances shall be deemed waived by Buyer and
shall thereupon be deemed to be Permitted Exceptions.
(iii) OTHER OBJECTIONS. With respect to any Title Matters
neither a Monetary Encumbrance nor a Nonmonetary Encumbrance, but
nevertheless objectionable to Buyer, Buyer shall give Seller
written notice thereof. Seller may, within the twenty (20) day
period set forth in Section 3.5(b)(ii) above, either elect to
attempt to remove such Title Matters from the record, or elect
not to do so and notify Buyer in writing. If the Seller elects to
do so, Seller shall use good faith, diligent efforts to do so,
but shall not be required to expend a sum in excess of Seller's
Cure Obligations. If Seller elects not to do so, Buyer may either
proceed with the closing or terminate the Contract as set forth
in Section 3.5(C) or Section 3.5(D) above by providing written
notice to Seller within twenty (20) days from receipt of Seller's
election notice as provided in this subsection (iii). If Seller
fails to respond within said twenty (20) day period, Seller shall
be deemed to have elected not to cure. If Seller fails to provide
written notice as aforesaid, and Seller therefore elects not to
cure, and Buyer fails to notify Seller of its election to
terminate or proceed with the Contract, Buyer shall be deemed to
have elected to terminate the Contract.
If and to the extent necessary, the Closing Date shall be extended to
such period of time as necessary to give Seller and Buyer the benefit of the
time periods stated in this Section 3.5.
Provided that Seller has complied with its obligations under this
Contract in response to a Title Objection Notice, in no event shall Buyer be
entitled to specific performance for Seller's failure to remove or cure any
Title Matter. Notwithstanding anything to the contrary contained in this
Contract, Seller shall have no obligation to cure or remove any Title Matter
which is neither a Monetary Encumbrance nor a Nonmonetary Encumbrance.
3.6 ENVIRONMENTAL STATUS.
3.6.1 BUYER'S SITE ASSESSMENT. Subject to the provisions of this
Contract, and in compliance with the provisions of Section 3.4 hereof, Buyer
may, during the Investigation Period, perform such due diligence ("Buyer's Site
Assessment") relating to the possible presence of oil, solid waste or hazardous
materials on the Property (including, without limitation, reviewing existing
site assessment reports and site cleanup documentation, obtaining soil and water
samples and analyzing the same, and obtaining opinions from Licensed Site
Professionals) as Buyer deems necessary to determine the condition of the
Property or the status thereof under any applicable federal, state or local law,
code, ordinance, rule, regulation, or restriction relating to oil, solid waste
or hazardous materials (collectively, "Hazardous Materials Laws"). Not later
than 5:00 p.m. eastern standard time the date the Investigation Period expires,
Buyer shall make its determination as to whether it accepts the then-current
environmental condition of the Property without requiring any further
investigation under any Hazardous Materials Laws or the issuance by any federal,
state or local governmental authority of any approval, permit, consent, license
or other determination pursuant to any Hazardous Materials Laws. If Buyer shall
request that any environmental consultant who has performed work on the Land and
Improvements provide a so-called "reliance letter" or other document in favor of
Buyer, Seller agrees to cooperate with Buyer, at no expense to Seller, to permit
Buyer to obtain such reliance letter.
3.6.2 HAZARDOUS MATERIALS NOTICE. Buyer may give written notice to
Seller (the "Hazardous Materials Notice") not later than 5:00 p.m. eastern
standard time on the date the Investigation Period expires with respect to any
condition of the Property for which its Licensed Site Professional reasonably
believes response action is required under the Hazardous Materials Laws (each a
"Response Action Requirement"). Buyer shall include with the Hazardous Materials
Notice a copy of all reports, analyses, studies and other information (including
all boring logs and laboratory reports) to the extent in Buyer's possession,
upon which Buyer's Licensed Site Professional bases its conclusion that a
Response Action Requirement exists. Seller shall promptly review the Hazardous
Materials Notice and accompanying materials provided by Buyer and shall, if
necessary, retain a Licensed Site Professional of its choosing to review the
materials so provided by Buyer and issue a written determination (not a formal
opinion) to Seller and Buyer stating whether such Licensed Site Professional
concurs with Buyer's Licensed Site Professional that the Response Action
Requirement identified in the Hazardous Materials Notice exists (together with a
reasonably detailed statement of the basis for such conclusion), and if Buyer's
Licensed Site Professional so concurs, stating such Licensed Site Professional's
recommendations as to the measures (if any) by which to address the Response
Action Requirement in compliance with the Hazardous Materials Laws (the
"Recommended Response Actions"), together with estimates of the cost of such
Recommended Response Actions. If Buyer gives the Hazardous Materials Notice to
Seller on or before the expiration of the Investigation Period, Seller (or its
Licensed Site Professional) will respond to Buyer by ninety (90) days from the
date hereof as to whether Seller's Licensed Site Professional concurs with
Buyer's Licensed Site Professional that the Response Action Requirement
identified in the Hazardous Materials Notice exists (together with a reasonably
detailed statement of the basis for such conclusion).
Seller shall use diligent, good faith efforts to complete the
Recommended Response Actions on or before forty-five (45) days prior to the
Closing Date, provided that:
(a) Seller shall not be required to incur more than $100,000 in
costs and expenses (including, without limitation, fees and expenses
of attorneys, engineers and Licensed Site Professional) in the
aggregate in the performance of Seller's Cure Obligations,
(b) nor shall Seller be obligated to make any effort to undertake
or complete any Recommended Response Actions if Seller reasonably
determines that the aggregate cost (including, without limitation,
fees and expenses of attorneys, engineers and Licensed Site
Professionals) of Seller's Cure Obligations will exceed $100,000,
unless Buyer agrees to perform this Contract notwithstanding that the
cost to complete Seller Cure Obligations will exceed $100,000 and
agrees affirmatively to complete any Recommended Response Action with
reasonable diligence at its own expense.
(c) nor shall Seller be obligated to impose any Activity and Use
Limitation (as defined in 310 CMR 40 ET SEQ.) or other restriction on
the use of any portion of the Property (although Seller may do so,
with the written consent of Buyer);
Upon completion of the Recommended Response Action, Seller's Licensed
Site Professional shall provide an opinion or certification (as is appropriate)
addressed to Seller and Buyer to the effect that the Recommended Response Action
has been completed in accordance with the requirements of applicable Hazardous
Materials Laws.
If Seller determines that it will be unable to complete the
Recommended Response Actions by forty-five (45) days prior to the Closing Date,
Seller shall so notify Buyer in writing, and Buyer shall, as its sole and
exclusive remedy, on or before the twentieth (20) day after Buyer's receipt of
Seller's notice, give notice to Seller that Buyer either:
(d) PROCEED WITH CLOSING. Elects to proceed with the Closing, in
which event the Response Action Requirements identified in the
Hazardous Materials Notice which Seller has not agreed to address
shall be conclusively presumed thereafter to be accepted and assumed
by Buyer and the Closing shall occur without any credit against or
abatement of the Purchase Price on account thereof; or
(e) EXTENSION OF CLOSING DATE. Elects to extend the Closing Date
for a period not to exceed ninety (90) days as set forth in Buyer's
notice to Seller, which extension shall be subject to all of the terms
and conditions hereof, and during which extension Seller shall
continue good faith efforts to complete the Response Action
Requirements; or
(f) TERMINATE CONTRACT. Elects to terminate this Contract, in
which event Buyer shall be entitled to the immediate return of the
entire Deposit, together with all Accrued Interest thereon, and,
except as expressly provided otherwise in this Contract, this Contract
shall be deemed terminated, null and void and of no further force and
effect and the parties shall have no further rights, obligations or
liabilities hereunder.
Unless Buyer gives notice to Seller within such twenty (20) day period
that Buyer has elected either to extend the Closing Date pursuant to the
foregoing Section (b) or to terminate the Contract pursuant to the foregoing
Section (c), Buyer shall be conclusively presumed to have elected to proceed to
Closing pursuant to Section (d) and the Response Action Requirements set forth
in the Hazardous Materials Notice shall be deemed waived by Buyer. If Buyer
elects to extend the Closing Date pursuant to the foregoing Section (e) and the
Seller determines that it will be unable to complete the Recommended Response
Actions by the extended Closing Date. Seller shall so notify Buyer, and Buyer
shall, as its sole and exclusive remedy, on or before the twentieth (20) day
after Buyer's receipt of Seller's notice, give notice to Seller that Buyer
elects to proceed pursuant to either Section (d) or Section (f) above (and
Buyer's failure so to give such notice shall be deemed an election by Buyer to
proceed pursuant to the foregoing Section (d)).
If and to the extent necessary, the Closing Date shall be extended for
such period of time as necessary to give Seller and Buyer the benefit of the
time periods stated in this Section 3.6.2.
Provided that Seller has complied with its obligations under this
Contract in response to a Hazardous Materials Notice, in no event shall Buyer be
entitled to specific performance for Seller's failure to undertake or to
complete any recommended Response Actions. Notwithstanding anything to the
contrary contained in this Contract, Seller shall have no obligation to
undertake response actions, remediate or otherwise deal with any oil, solid
waste or hazardous materials which may be present upon the Property except as
specifically provided in this Section 3.6.2.
3.7 ENGINEERING/MECHANICAL. Buyer may, within the Investigation
Period, conduct such examination of the physical, structural, mechanical,
electrical, plumbing and other components of the Building and Improvements as
Buyer deems appropriate. If Buyer is not satisfied with any aspect of this
investigation, Buyer may, by written notice to Seller given on or before the
expiration of the Investigation Period, terminate this Contract.
3.8 BUYER'S RIGHT TO TERMINATE.
(a) BUYER'S TERMINATION NOTICE. If the result of Buyer's
Investigations are not satisfactory to Buyer, in its sole and absolute
discretion, Buyer may, as its sole and exclusive remedy, terminate
this Contract by giving to Seller written notice of Buyer's election
to terminate ("Buyer's Termination Notice") not later than 5:00 p.m.
eastern standard time on or before the expiration of the Investigation
Period.
(b) PAYMENT OF DEPOSIT UPON TERMINATION. If Buyer terminates this
Contract pursuant to this Section 3.8, then Buyer shall be entitled to
the immediate return of all but $5,000 of the Deposit. After Buyer
complies with Buyer's obligations hereunder respecting the return and
delivery of due diligence materials pursuant to Section 3.8. Buyer
shall be entitled to immediate return of the balance of the Deposit,
together with all Accrued interest thereon. In such event, except as
expressly provided otherwise herein, this Contract shall be deemed
terminated, null and void and of no further force an effect, and the
parties shall have no further rights, obligations or liabilities
thereunder.
(c) WAIVER. If Buyer does not give Buyer's Termination Notice to
Seller by 5:00 p.m. eastern standard time on or before the expiration
of the Investigation Period, Buyer shall be conclusively presumed to
have waived its right to terminate contained in this Section 3.8.
3.9 CONDITION OF THE PROPERTY.
(a) The term "CONDITION OF THE PROPERTY" means and includes all
current and former facts and circumstances about the Property,
including, without limitation:
(i) the quality, nature, and adequacy of the physical
condition of the Property, including, without limitation, the
quality of the design, labor, and materials used to construct the
Improvements; the condition of structural elements, foundations,
roofs, glass, mechanical, plumbing, electrical, HVAC, sewage, and
utility components and systems; the capacity or availability of
sewer, water, or other utilities; the geology, flora, fauna,
soils, subsurface conditions, groundwater, landscaping, and
irrigation of or with respect to the Land; the location of the
Property in or near any special taxing district, flood hazard
zone, wetlands area, protected habitat, geological fault or
subsidence zone, hazardous waste disposal or clean-up site, or
other special area, the existence, location, or condition of
ingress, egress, access, and parking; the condition of the
Personalty and any fixtures; and the presence of any asbestos or
other hazardous, dangerous, or toxic substance, material, or
waste;
(ii) the development potential, economic feasibility, cash
flow, and expenses of the Property; the habitability,
merchantability, fitness, suitability, and adequacy of the
Property for any particular use or purpose;
(iii) the compliance or non-compliance of Seller or any
other person or entity or the Property or the operation of the
Property or any part thereof in accordance with, and the contents
of (a) all codes, laws, ordinances, regulations, agreements,
licenses, permits, approvals, and applications of or with any
governmental authorities asserting jurisdiction over the
Property, including, without limitation, those relating to
zoning, building, public works, parking, fire and police access,
handicap access, life safety, subdivision and subdivision sales,
and hazardous, dangerous, and toxic substances, materials,
conditions, or waste; and (b) all agreements, covenants,
conditions, restrictions (public or private), condominium plans,
development agreements, site plans, building permits, building
rules, and other instruments and documents governing the use,
management, and operation of the Property;
(iv) those referred to in, or discoverable from, any of the
Property Documents delivered to Buyer.
(v) the availability, cost, terms, and coverage of
liability, hazard, comprehensive, and any other insurance of or
with respect to the Property;
(vi) the condition of title to the Property, including,
without limitation, vesting, legal description, matters affecting
title, title defects, liens, encumbrances, boundaries,
encroachments, mineral rights, options, easements, and access;
violations of restrictive covenants, zoning ordinances, setback
lines, or development agreements; the availability, cost, and
coverage of title insurance; leases, rental agreements, occupancy
agreements, rights of parties in possession of, using, or
occupying any of the Property; and standby fees, taxes, bonds,
and assessments.
(b) Seller hereby notifies Buyer that Seller acquired the
Property in connection with the acquisition of the Stock of a parent
of Seller during July of 1998, and that, except as specifically
provided herein, Seller makes no representations or warranties
whatsoever, express, implied, or arising by operation of law, with
respect to the Property or the Condition of the Property. Buyer hereby
represents and warrants to Seller that Buyer has not entered into this
Contract based upon any representation, warranty, agreement,
statement, or expression of opinion by Seller or Broker (hereafter
defined), or any other person or entity acting or allegedly acting for
or on behalf of Seller with respect to Seller, the Property, or the
Condition of the Property, except as specifically provided herein.
Buyer agrees that the Property will be sold and conveyed to (and
accepted by) Buyer at the Closing in the then condition of the
Property, AS IS, WHERE IS, WITH ALL FAULTS, AND WITHOUT ANY WRITTEN OR
ORAL REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS, IMPLIED, OR
ARISING BY OPERATION OF LAW, other than the limited warranty of title
in the Deed and as otherwise specifically set forth herein. Without
limiting the generality of the foregoing, except for the limited
warranty of title in the Deed and except as specifically set forth
herein, the transaction contemplated by this Contract is without any
statutory, express, or implied warranty, representation, agreements,
statement, or expression of opinion of or with respect to the
Condition of the Property or any aspect thereof. Further, Buyer
represents and warrants to Seller that Buyer has knowledge and
expertise in financial and business matters that enable Buyer to
evaluate the merits and risks of the transaction contemplated by this
Contract and that Buyer is not in a significantly disparate bargaining
position.
Except as specifically provided in this Contract with regard to
Seller's representations and warranties, and any covenants which, by their terms
are to survive the Closing, as of the Closing Date, by accepting the Deed, Buyer
releases and discharges Seller from all liability and waives all claims against
Seller for, and Buyer hereby assumes the risk with respect to, the Condition of
the Property, including, without limitation, all patent and latent defects,
hazards, and dangerous conditions on or about the Property, whether or not
discoverable prior to the Closing Date, including without limitation, matters
related to Hazardous Materials.
ARTICLE IV
TITLE TO BE CONVEYED
4.1 TITLE TO BE CONVEYED. Seller shall convey to Buyer a good and
clear record and marketable title to the Property, free from all encumbrances
but subject, however, to the following:
(a) All Permitted Exceptions;
(b) Zoning regulations, and municipal building restrictions, and
all other laws, ordinances, regulations and restrictions of any duly
constituted public authority enacted prior to Closing Date; and
(c) Real estate taxes and betterment assessments levied or
assessed on the Property not yet due and payable.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants as of the date hereof and as of the Closing Date that:
(a) There are no leases or other rights of occupancy affecting
the Property except the Tenant Leases with respect to the Tenant
Leases: (i) Seller is the sole owner of the lessor's interest in the
Tenant Leases and all of the Tenant Leases is in full force and effect
without current default by either Seller or the respective Tenant;
(ii) The Tenant Leases have not been modified subsequent to delivery
of full copies of the same to Buyer pursuant to Section 5.1 hereof;
(iii) All obligations of the lessor under the Tenant Leases with
respect to the performance of work or the installation of equipment or
materials required to have been performed at or prior to the date
hereof have been fully observed and performed, and there are no
agreements with any Tenant for the performance of any work in the
future by lessor other than ordinary repairs and maintenance; (iv) The
Tenant is not entitled to any concession, rebate, allowance or free
rent for any period subsequent to the Closing; (v) The Tenant has no
purchase option or other interest (other than its leasehold tenancy
for a specified term, as stated in its Tenant Leases) in the Land,
Improvements, or the Personalty; (vi) Seller has not received any
notices that there are pending claims asserted by any Tenant for
offsets against rent or any other monetary claim made against Seller
as landlord; (vii) Seller has delivered a true and correct copy of the
Tenant Leases to Buyer and there exists no agreements with the Tenant
except as set forth in the Tenant Leases; and (viii) Seller is not
obligated under the Tenant Leases to pay any renewal or other lease
commissions subsequent to the date hereof.
(b) To the best of Seller's Knowledge (as hereinafter defined),
there is no pending condemnation or similar proceeding affecting the
Land, Improvements or any portion thereof, and Seller has not received
any written notice, and has no knowledge, that any such proceeding is
contemplated. The term "Seller's Knowledge" as related to this
Contract shall mean the personal and present knowledge of R. Edward
Buice, Esquire, Vice President and General Counsel, Mario DeAngelis,
Director -- Construction, respectively, of Seller's parent company
(collectively, "Seller's Representatives") with no duty on the part of
either to conduct any independent investigation or examination. Seller
represents that Seller's Representatives are the persons with the most
knowledge regarding the Property (provided, however, that Buice has
been employed by Seller since 1995, and DeAngelis since ____________
and have limited knowledge regarding the Property) and the
representations and warranties made in this Contract.
(c) Other than as disclosed in the Property Documents, there are
no contracts of employment, management, maintenance, service, supply
or rental outstanding which affect any portion of the Property or its
operation that shall continue beyond Closing.
(d) To the best of Seller's Knowledge, the continued ownership,
operation, use and occupancy of the Land or the Improvements in the
manner now used thereon does not violate any zoning, building, health,
flood control, fire or other law, ordinance, order or regulation or
any restrictive covenant. To Seller's Knowledge (but with no duty to
conduct any independent investigation), there are no violations of any
federal, state, county or municipal law, ordinance, order, regulation
or requirements, affecting any portion of the Land, the Improvements
or the Personalty, and no written notice of any such violation has
been issued by any governmental authority.
(e) Seller has not received any notice, claiming any violation of
any of the applicable laws, regulations, insurance requirements,
contracts, leases, permits, licenses, ordinances, restrictions,
building set back lines, zoning regulations, covenants, reservations
and easements, or requesting or requiring the performance of any
repairs, alterations or other work in order to so comply; all required
certificates of occupancy have been duly issued and remain outstanding
and in effect with regard to the Property.
(f) No work has been performed or is in progress by Seller at and
no materials have been furnished to the Land or Improvements or any
portion thereof, which might give rise to mechanic's, materialmen's or
other liens against the Land, Improvements or Personalty or any
portion thereof.
(g) No part of the Property presently, or at any time in the past
during Seller's period of ownership has been used as a dump or other
waste disposal site. Buyer acknowledges that Seller has advised Buyer
that the Land and Improvements have, in the past, been affected by
Hazardous Materials and that prior owners and operators have, at
various times, violated applicable Environmental Laws. Seller shall
deliver Property Documents which disclose the full extent of the
Seller's Knowledge regarding the environmental Condition of the
Property.
(h) Seller is not prohibited from consummating the transactions
contemplated in this Contract, by any law, regulation, agreement,
instrument, restriction, order or judgment.
(i) Seller is duly organized, validly existing and in good
standing under the laws of the state of its origin. Seller has full
right, title, authority and capacity to execute and perform this
Contract and to consummate all of the transactions contemplated
herein, and the individual of the Seller who executes and delivers
this Contract and all documents to be delivered to Buyer hereunder is
and shall be duly authorized to do so.
(j) There are no adverse parties in possession of the Property or
of any party thereof and no parties in possession thereof except
Seller or the Tenant and no party has been granted any license, lease,
or other right relating to the use or possession of the Property
except the Tenant.
(k) There are no attachments, executions, assignments, for the
benefit of creditors, receiverships, conservatorships or voluntary or
involuntary proceedings in bankruptcy or pursuant to any other debtor
relief laws contemplated or filed by Seller or pending against Seller
or the Property.
(l) There are no contracts or other obligations outstanding for
the sale, exchange or transfer of the Property or any portion thereof
or the business operated thereon.
(m) Seller is not a foreign person selling property as described
in the Foreign Investment in Real Property Tax Act ("FIRPTA") and
agrees to deliver an affidavit at Closing reflecting that Seller is
not such a foreign person and provide Seller's tax identification
number ("Tax Affidavit").
(n) There are no actions, suits, claims, proceedings or causes of
action which are pending or to the best of Seller's Knowledge have
been threatened or asserted against, or are affecting, Seller or the
Property or any part thereof in any court or before any arbitrator,
board or governmental or administrative agency or other person or
entity which might have an adverse effect on the Property or any
portion thereof or on Buyer's ability to operate the Property as an
office building from and after the date hereof.
(o) All of the bills, costs, expenses and other liabilities
whatsoever attributable to the Property or to its ownership, operation
or maintenance accrued or assessable to the date hereof have been paid
in full, or if not yet due and payable, then all unpaid amounts
accrued or assessable be paid as of the date of the Closing hereunder;
and in the case of any, such taxes, excises and other assessments, all
returns for periods through the date hereof have been or will be filed
before the same become delinquent; and Seller agrees to indemnify and
hold harmless Buyer from and against each of the matters described in
the is subsection and all costs, expenses and liabilities incident
thereto.
(p) Seller's Representatives have made available to Buyer all
written and documentary information of which they are aware related to
the Condition of the Property. Seller's Representatives know of no
other written or documentary information containing material
information which has not been delivered or otherwise made available
to Buyer.
(q) This Contract and each and every document and instrument to
be executed and delivered by all intended signatories thereof, shall
constitute the valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, subject to
general equitable principles and applicable provisions of law related
to bankruptcy, insolvency and creditors' rights generally.
(r) Seller possesses the financial resources to perform all of
its covenants and obligations contained in this Contract and to be
contained in the documents and instruments to be executed and
delivered pursuant to this Contract, and the performance of said
covenants and obligations will not render Seller insolvent; and
(s) Seller has not received service of process in any action,
suit, or proceeding of any kind against or affecting Seller in any
court of law or in equity or before or by any governmental department,
commission, board, bureau, agency, or other instrumentality which
might materially adversely affect the ability of Seller to timely
perform its obligations under this Contract, nor, to the best of
Seller's actual knowledge, is any action, suit, or proceeding of any
kind pending or threatened against or affecting Seller in any court of
law or in equity or before or by any governmental department,
commission, board, bureau, agency, or other instrumentality which
might materially adverse affect the ability of Seller to timely
perform its obligations under this Contract.
All of Seller's warranties and representations shall survive any inspection or
investigation made by or on behalf of Buyer and shall not merge with delivery of
the Quitclaim Deed specified in Section 7.2(a) but shall survive delivery of
said deed for a period of eighteen (18) months.
5.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to Seller that each of the following is true and correct as of the
date of this Contract and shall be true and correct on the Closing Date:
(a) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of Delaware, and has full right, power
and authority to execute and deliver this Contract and to perform its
covenants and obligations under this Contract;
(b) All internal corporate approvals of Buyer are required for
the execution of this Contract and the consummation of the transaction
herein contemplated in accordance with the terms of this Contract have
been obtained;
(c) Buyer's federal tax identification number is 04-3396199.
(d) This Contract has been duly and validly executed and
delivered on behalf of Buyer;
(e) This Contract and each and every document and instrument to
be executed and delivered by all intended signatories thereof, shall
constitute the valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, subject to
general equitable principles and applicable provisions of law related
to bankruptcy, insolvency and creditors' rights generally;
(f) Buyer possesses the financial resources to perform all of its
covenants and obligations contained in this Contract and to be
contained in the documents and instruments to be executed and
delivered pursuant to this Contract, and the performance of said
covenants and obligations will not render Buyer insolvent; and
(g) Buyer has not received service of process in any action,
suit, or proceeding of any kind against or affecting Buyer in any
court of law or in equity or before or by any governmental department,
commission, board, bureau, agency, or other instrumentality which
might materially adversely affect the ability of Buyer to timely
perform its obligations under this Contract, nor, to the best of
Buyer's actual knowledge, is any action, suit, or proceeding of any
kind pending or threatened against or affecting Buyer in any court of
law or in equity or before or by any governmental department,
commission, board, bureau, agency, or other instrumentality which
might materially adverse affect the ability of Buyer to timely perform
its obligations under this Contract.
All of Buyer's warranties and representations shall not merge with delivery of
the Quitclaim Deed but shall survive delivery of such deed for a period of
eighteen (18) months.
ARTICLE VI
CONDITIONS PRECEDENT TO
BUYER'S OBLIGATION TO CLOSE
6.1 CONDITIONS PRECEDENT. Buyer's obligation to consummate the
transactions contemplated hereunder is conditioned upon satisfaction of each of
the following conditions at or prior to the Closing (or such earlier date as is
specified with respect to a particular condition):
(a) The Condition of the Property shall meet the approval of
Buyer, in Buyer's sole judgment and discretion, upon on-site
inspections of the Property to be made by Buyer or Buyer's
representatives within the Investigation Period. If Buyer determines,
in its sole and absolute discretion, that the Property does not meet
the standards desired by Buyer, then Buyer may notify Seller of
Buyer's decision to terminate this Contract. If canceled, the Earnest
Money shall immediately be returned to Buyer in full and neither
party, shall have any further obligation to the other hereunder. If
Buyer fails to notify Seller of Buyer's disapproval prior to the
expiration of the Investigation Period, this condition shall be deemed
satisfied.
(b) None of the representations and warranties of Seller set
forth in Article V hereof shall be untrue or inaccurate in any
material respect.
(c) Seller shall not have failed to perform or comply with any of
its agreements or obligations contained in this Contract in a material
manner and within the periods provided herein.
(d) Seller shall have delivered to Buyer Tenant Estoppel Letters
from each of the Tenants in form substantially similar to that to be
agreed upon by Buyer and Seller and attached hereto as EXHIBIT "C" and
incorporated herein, or, in the alternative, Seller shall have
indemnified Buyer as to the matters set forth in such Estoppel Letter,
in form and substance satisfactory to Buyer.
(e) Except as provided below, there shall have been no material
change in the Condition of the Property between the expiration of the
Investigation Period until the Closing:
(i) If the Property is damaged by fire or casualty between
the end of the Investigation Period and the Closing Date, Seller
shall promptly notify Buyer in writing. If (i) the cost to
complete repairs is less than $150,000, and (ii) the damage
occurs more than thirty days prior to the Closing Date, Seller
shall, at the written direction of Buyer given within seven (7)
business days of receipt of Seller's notice, either cause the
damage to be repaired and restored to its condition immediately
prior to such fire or casualty, or place the insurance proceeds
plus the amount of the deductible and any other amount necessary
to complete restorations, less reasonable expenses to clean and
secure the site, in an escrow account to be delivered to Buyer at
Closing. If Buyer fails to so direct Seller, Buyer shall be
deemed to have directed Seller to restore the Property. If the
cost to restore the Property, (iii) exceeds $150,000, or (iv)
occurs within thirty (30) days of the Closing Date and exceeds
$50,000 to repair/restore, Seller shall notify Buyer as aforesaid
and Buyer may either (v) direct Seller to repair/restore, in
which event the Closing Date shall be extended for a reasonable
time to permit repairs to be completed, (vi) direct Seller not to
repair but to deliver to Buyer at the Closing the insurance
proceeds plus the applicable deductible and any other amount
necessary to complete restorations, less reasonable expenses to
clean and secure the site, or (vii) terminate this Contract; or
(ii) If any mechanical, electrical, HVAC, plumbing or
structural component of the Building, shall fail or fall into
disrepair between the expiration of the Investigation Period and
the Closing Date, and the cost to repair or replace such element
shall exceed a sum equal to $150,000 minus amounts already
expended or to be expended by Seller with regard to Seller's Cure
Obligations (such amount being "Seller's Capital Expense
Obligation"), or, in the event of a change in any applicable law,
rule or regulation affecting the Building and Improvements,
requiring a capital expenditure in excess of Seller's Capital
Expense Obligation, Seller shall notify Buyer of such failure and
offer Buyer the opportunity to absorb costs and expenses in
excess of Seller's Capital Expense Obligation. Unless Buyer
agrees to absorb all costs in excess of Seller's Capital Expense
Obligation associated with such replacements and improvements,
Seller or Buyer may, by written notice to the other, terminate
this Contract. If Buyer agrees to absorb such costs and expenses,
Seller shall, at Buyer's discretion, either complete the required
repairs or replacements and receive an appropriate increase in
the Purchase Price, or not perform the improvements and reduce
the Purchase Price by Seller's Capital Expense Obligation. In no
event shall Seller be required to expend in excess of Seller's
Capital Expense Obligation in the aggregate to comply with any
changed law, rule or regulation and/or to replace any failed
component of the Building.
In the event that all of the above conditions are not satisfied at or prior to
the Closing (or such earlier date as is specified with respect to a particular
condition), Buyer may terminate this Contract by notice to Seller and in such
event the Earnest Money shall be immediately returned to Buyer.
ARTICLE VII
CLOSING
7.1 TIME AND PLACE OF CLOSING. Provided that all of the conditions of
this Contract shall have been satisfied prior to or on the Closing Date (herein
so called), the Closing (herein so called) of this transaction shall take place
at the Title Company on a date mutually agreed upon by Buyer and Seller, which
date in shall in no event be earlier than one hundred twenty (120) days from the
date hereof nor later than two hundred ten (210) days from the date hereof. In
the event the parties do not agree to an earlier Closing Date, the Closing Date
shall be established as that date which is two hundred ten (210) days after the
date of this Contract.
7.2 EVENTS AT CLOSING. At the Closing:
(a) Seller shall deliver to Buyer the following:
(i) A Quitclaim Deed in form acceptable to Buyer duly
executed and acknowledged by Seller, conveying to Buyer the Land
and Improvements indefeasible fee simply free and clear of any
lien, encumbrance or exception other than the Permitted
Exceptions.
(ii) An assignment of Seller's interest as Landlord in and
to all Tenant Leases in form acceptable to Buyer duly executed
and acknowledged by Seller, free and clear of any lien,
encumbrance or exception other than the Permitted Exceptions,
which assignment shall contain as an exhibit an updated Rent
Roll.
(iii) The Related Documents.
(iv) All keys to the Property and possession of the Property
(subject only to the Tenant Leases).
(v) Signed original of the Tenant Leases and all other
agreements affecting the Property.
(vi) A document evidencing and reflecting, in form and
substance satisfactory to Buyer and its counsel, the
authorization of the transactions herein by Seller and the
authority of the Seller to execute and deliver this Contract and
the documents provided for hereunder.
(vii) Such other evidence of the authority and capacity of
Seller and its representatives as Buyer or the Title Company may
reasonably require.
(viii) Original executed Tenant Estoppel Letters or the
indemnification of Seller.
(ix) Mechanic lien affidavits of Seller.
(x) the Tax Affidavit.
(b) Buyer shall deliver to Seller the following:
(i) The consideration required pursuant to Article II above,
in cash or by Buyer's certified or cashier's check in U.S. funds
available immediately to Seller.
(ii) Such evidence of the authority and capacity of Buyer
and its representatives as Seller or the Title Company may
reasonably require.
7.3 PRORATIONS. Rental income (based on actual rents collected), real
and personal property ad valorem taxes, installments of current year special
assessments, utility charges and other operating income or expenses shall be
prorated to the Closing, based upon actual days involved. Seller shall be
responsible for all ad valorem taxes or installments of special assessments for
any period prior to the Closing. All maintenance and service contracts (whether
or not service is continued by Buyer) and utility charges shall be determined as
of the Date of Closing and paid by Seller. To the extent that the amounts of
such charges, expenses, and income referred to in this Section are unavailable
at the Closing Date or in the event of prorations made on the basis of erroneous
information or clerical errors, a readjustment of these items shall be made
within thirty (30) days after the Closing Date or as soon as practical after
discovery of any erroneous information or clerical error. Both expense items and
income items shall be prorated as of the Closing Date, with Buyer receiving all
income for the Closing Date and bearing all expenses for the Closing Date.
Seller reserves all rights to collect any delinquent rents after the Closing;
provided, however, Seller shall have no right to evict any Tenant. In connection
with the proration of both real and personal property ad valorem taxes, if
actual tax figures for the year of Closing are not available at the Closing
Date, an estimated, tentative proration of taxes shall be made using tax figures
from the preceding year; however, when actual taxes for the year of Closing are
available, a corrected proration of taxes shall be made. If such taxes for the
year of Closing increase over those for the preceding year Seller shall pay to
Buyer a pro rata portion of such increase, computed to the Closing Date, and
conversely, if such taxes for the year of Closing decrease from those of the
preceding year Buyer shall pay to Seller a pro rata portion of such decrease,
computed to the Closing Date, any such payment to be made with ten (10) days
after notification by either party that such adjustment is necessary. All
percentage or additional rentals or expense pass-through charges to Tenant shall
be prorated (based on actual sums collected) as of the Closing Date in relation
to the period for which such payment relates. Either party receiving such
payment from any Tenant shall immediately upon receipt thereof pay the
appropriate amount together with written explanation of the proration
calculation. Seller shall, on or before the Closing Date, furnish to Buyer and
the Title Company all information necessary to compute the prorations provided
for in this Section.
7.4 SELLER'S RIGHT TO OCCUPY POST CLOSING. Buyer acknowledges that
Seller is currently seeking a facility to which to relocate Seller's business
presently carried on at the Property. Seller may, by written notice to Buyer as
provided below ("Seller Holdover Notices") occupy the Property for up to three
(3) additional periods of thirty (30) days each (each a "Holdover Period"), not
to exceed ninety (90) days in total. To exercise Seller's rights hereunder,
Seller must provide written notice to Buyer not later than forty-five (45) days
prior to the original Closing Date or to the expiration of the first or second
thirty (30) day Holdover Term, such that Buyer receives at least forty-five (45)
days notice of each Holdover Term.
The Holdover Terms shall, at Buyer's Option, be achieved either by a
Lease after the closing as scheduled, or by postponing the closing such that
Seller retains title to the Property during the Holdover Period(s).
Within ten (10) days after receipt by Buyer of Seller's Holdover
Notice, Buyer shall advise Seller in writing as to whether the scheduled closing
will take place and a lease executed (the "Lease Option"), or whether the
closing shall be delayed (the "Postpone Closing Option"). If Buyer elects the
Lease Option, then Buyer and Seller agree to negotiate the Lease in good faith,
and the leased premises shall consist of the approximately 20,000 square feet of
office space and up to 10,000 square feet of the warehouse space. The Lease
shall be in form and substance reasonably acceptable to both parties, and shall
be an absolute net lease whereby Seller shall be obligated to pay 100% of all
expenses whatsoever related to or associated with the use, operation and
management of the Property during the term of the Lease and Buyer shall have no
obligation to provide any services, perform any acts or pay any expenses,
charges or costs of any kind whatsoever associated with or in any way related to
the Property. If Buyer and Seller fail to agree on the form and substance of the
Lease within ten (10) days after Buyer's election of the Lease Option, then the
parties agree that the Postpone Closing Option shall be implemented and Buyer
shall be entitled to a reduction in the purchase price as set forth herein.
Pursuant to the Lease Option, Seller shall pay rent at the
commencement of each Holdover Term, without demand, offset, counterclaim or
deduction, as follows:
HOLDOVER TERM Rent Per Month
Month 1 $31,000
Month 2 $38,000
Month 3 $45,000
If Buyer elects or it shall be deemed that Buyer elects the Postpone
Closing Option, Buyer shall receive a credit against the purchase price in the
amount of the stated rent as set forth above, prorated until the Closing Date.
ARTICLE VIII
CONDEMNATION
8.1 CONDEMNATION. Seller agrees to give Buyer prompt notice of any
actual or threatened taking or condemnation of all or any portion of the Land or
Improvements for which Seller obtains notice. If prior to the Closing there
shall occur the taking or condemnation of all or any portion of the Land and
Improvements, then in any such event Buyer may at its option terminate this
Contract by notice to Seller within twenty (20) days after Buyer has received
the notice referred to above or at the Closing, whichever is earlier. If Buyer
does not so elect to terminate this Contract, then the Closing shall take place
as provided herein without abatement of the purchase price, and there shall be
assigned to Buyer at the Closing all of Seller's interest in and to any
condemnation award.
ARTICLE IX
TERMINATION, DEFAULT AND REMEDIES
9.1 PERMITTED TERMINATION. If this Contract is terminated by either
party pursuant to a right expressly given it to do so hereunder ("Permitted
Termination"), the Earnest Money shall immediately be returned to Buyer and
neither party shall have any further rights or obligations hereunder.
9.2 DEFAULT BY SELLER. Seller shall be in default hereunder upon the
occurrence of any one or more of the following events:
(a) any of Seller's warranties or representations set forth
herein are untrue or inaccurate in any material respect; or
(b) Seller shall fail to meet, comply with or perform any
material covenant, agreement, or obligation on its part required,
within the time limits and in the manner required in this Contract,
for any reason other than a Permitted Termination.
If Seller defaults hereunder, Buyer may, at Buyer's option, do any of
the following:
(i) terminate this Contract by written notice delivered to
Seller at or prior to the Closing, whereupon the Buyer's Earnest
Money deposit shall immediately be returned to Buyer;
(ii) enforce specific performance of this Contract against
Seller; or
(iii) seek recovery of Buyer's actual direct damages not to
exceed the lesser of (X) $200,000, or (Y) $100,000 plus Buyer's
direct out of pocket expenses for engineers, lawyer's
consultants, commitment fees and all other actual third party
expenses associated with or related to the transactions
contemplated by this Contract.
9.3 DEFAULT BY BUYER. Buyer shall be in default hereunder if any of
Buyer's warranties or representations set forth herein are untrue or inaccurate
in any material respect. If Buyer defaults hereunder, Seller, at Seller's sole
and exclusive remedy for such default, shall be entitled to terminate this
Contract by notice to Buyer within ten (10) days after discovery of such default
and retain Buyer's Earnest Money, it being agreed between Buyer and Seller that
such sum shall be liquidated damages for a default of Buyer hereunder because of
the difficulty, inconvenience, and the uncertainty of ascertaining actual
damages for such default.
9.4 ATTORNEY'S FEES. If it shall be necessary for either Buyer or
Seller to employ an attorney to enforce its rights pursuant to this Contact
because of the default of the other party, the defaulting party shall reimburse
the non-defaulting party for reasonable attorney's fees.
ARTICLE X
INTERIM RESPONSIBILITIES OF SELLER
10.1 MANAGEMENT OF PROPERTY. Seller agrees that during the period
between the date of this Contract and the Closing Date:
(a) Seller will manage or cause to be managed the Property in
accordance with the practices of a prudent real estate operator and
shall continue to offer services and amenities in accordance with past
practices.
(b) Seller will permit no change or modification in presently
existing rental policies or rental agreements with tenants occupying
the Property without, in each instance, the prior written approval of
the Buyer, and no space comprising a portion of the Property shall be
leased at a rate lower than is presently being charged.
(c) All Improvements and Personalty to be purchased by Buyer
hereunder will be maintained in as good condition and state of repair
as that existing on the date of this Contract, reasonable wear and
tear excluded, and subject, however, to fire or casualty governed by
Section 6.1(d).
(d) Seller will enter into no agreement with respect to the
operation or maintenance of any portion of the Property with a term
extending beyond the Closing Date, without the prior written consent
of Buyer.
(e) Subject to the prorations prescribed in Section 7.4 above,
Seller will cause to be paid all trade accounts and costs and expenses
of operation and maintenance of the Property incurred or attributable
to a period prior to the Closing, and Seller agrees to indemnify and
hold Buyer harmless from all such costs and expenses.
(f) Seller will not, without the prior written consent of the
Buyer: (i) permit any structural modification is or additions to the
Property (except in an emergency); or (ii) sell or permit to be sold
or otherwise dispose of any item or group of items constituting a
portion of the Property. Seller will remove all furniture, kitchen
equipment, other equipment, office equipment, as provided in Section
1.1.(b) and repair all damage done by such removal prior to Closing.
(g) Seller will maintain Seller's existing insurance coverage
with respect to the Property from the date hereof through the Date of
Closing or earlier termination of this Contract.
(h) Seller will not further encumber the Property in any manner.
All risk of loss shall be borne by Seller until acceptance by Buyer of delivery
of Seller's deed at the Closing.
ARTICLE XI
BROKERAGE COMMISSION, CLOSING EXPENSE
11.1 BROKERAGE COMMISSION. Buyer and Seller represent to each other
than it dealt with no real estate broker or agent in connection with this
transaction for which a commission or fee could be paid other than Peter Elliot,
LLC. Upon the Closing of this transaction, Seller shall pay all real estate
commissions to Peter Elliot, LLC or their nominees. Seller agrees to indemnify
Buyer and hold Buyer harmless from any loss, liability, damage, cost or expense
(including, without limitation, reasonable attorney's fees) paid or incurred by
Buyer by reason of any claim to any broker's, finder's or other fee in
connection with this transaction by any party claiming by, through or under
Seller. Buyer agrees to indemnify Seller and hold Seller harmless from any loss,
liability, lost or expense (including, without limitation, reasonable attorney's
fees) paid or incurred by Seller by reason of any claim to any broker's,
finder's or other fee in connection with this transaction by any party claiming
by, through or under Buyer.
11.2 COSTS AND EXPENSES OF CLOSING. Seller shall pay the costs
associated with documentary or revenue tax stamps and the recording of all
documents necessary to clear title, as well as costs and expenses associated
with Seller's Counsel and Seller's Environmental Consultant, and any other fees
and costs customarily born by a seller of commercial real estate in
Massachusetts. Buyer shall pay the costs associated with Buyer's Investigations,
Buyer's Environmental Consultants, the recording of the deed and any survey or
plan, any title insurance policy, and all other costs customarily born by a
buyer of commercial real estate in Massachusetts.
ARTICLE XII
MISCELLANEOUS
12.1 NO ASSUMPTION OF SELLER'S LIABILITIES. Buyer is acquiring only
the Property from Seller and is not the successor of Seller. Buyer does not
assume or agree to pay, or indemnify Seller or any other person or entity
against, any liability, obligation or expense of Seller or relating to the
Property in any way except only to the extent, if any, herein expressly and
specifically provided.
12.2 NOTICES. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing, and shall be deemed
delivered on the earlier of (i) posting of registered or certified mail or
deposited with a nationally recognized overnight courier and addressed to the
addressee at its address set forth below or at such other address as such party
may have specified theretofore by notice delivered in accordance with this
Section or (ii) actual receipt by the addressee:
If to Seller: If to Buyer:
R. Edward Buice, Esquire Mr. Frederick D. Keefe
Berestco, Inc. Pinnacle Properties Management, Inc.
14 Audubon Road 56 Roland Street
Wakefield, Massachusetts 01880 Boston, Massachusetts 02129
(Telephone No. (781) 246-7878, X130) (Telephone No. (617) 912-1033)
(Telecopy No. (781) 246-7458) (Telecopy No. (617) 912-1039)
With a copy to: With a copy to:
Paul L. Baccari, Esquire Mr. Mark C. Demetree
Masterman, Culbert & Tully LLP 3740 Beach Boulevard, Suite 306
One Lewis Wharf Jacksonville, Florida 32207
Boston, Massachusetts 02110 (Telephone No. (904) 306-2002)
(Telephone No. (617) 227-8010) (Telecopy No. (904) 306-2001)
(Telecopy No. (617) 227-2630)
With a copy to:
Polsinelli, White, Vardeman &
Shalton, P.C.
7500 College Boulevard, Suite 750
Overland Park, Kansas 66210
Attention: Frank P. Brady, Esquire
(Telephone No. (913) 451-8788)
(Telecopy No. (913) 451-6205)
12.3 SURVIVAL. All warranties and representations contained herein or
arising out of the sale of the Property by either party to the other shall
survive delivery of Seller's Quitclaim Deed and the Closing hereof for a period
of eighteen months. With respect to Interim Obligations Of Seller set forth in
ARTICLE X ("Seller's Interim Obligations"), all of such covenants shall merge
into the Deed and shall not survive the Closing EXCEPT that with regard to any
condition not reasonably discernible to the naked eye prior to closing, (for
example, claims related to the condition of the structural, mechanical,
electrical and heating, ventilating and air conditioning systems) Buyer may
bring a claim against Seller for breach of Seller's Interim Obligations after
the Closing provided that such claim is delivered in writing on or before the
30th day after the Closing accompanied by a copy of reports related to the
condition in question prepared during Buyer's Investigation Period (to the
extent available), and a report regarding the condition in question prepared by
a licensed professional in the discipline in question as of the Closing Date.
All claims regarding Seller's Interim Obligations not made by the 30th day
following the Closing shall be deemed waived in full by Buyer.
12.4 GOVERNING LAW; VENUE. The laws of the Commonwealth of
Massachusetts shall govern the validity, enforcement, and interpretation of this
Contract. Any dispute or cause of action under this Contract shall be resolved
in a court of competent subject matter jurisdiction in Massachusetts.
12.5 INTEGRATION; MODIFICATION; WAIVER. This Contract constitutes the
complete and final expression of the agreement of the parties relating to the
Property, and supersedes all previous contracts, agreements, and understandings
of the parties, either oral or written, relating to the Property. This Contract
cannot be modified, or any of the terms hereof waived, except by an instrument
in writing (referring specifically to this Contract) executed by the party
against whom enforcement of the modification or waiver is sought.
12.6 COUNTERPART EXECUTION. This Contract may be executed in several
counterparts, each of which shall be fully effective as an original and all of
which together shall constitute one and the same instrument.
12.7 CONSTRUCTION. If the last day of any time period stated herein
shall fall on a Saturday, Sunday or legal holiday, then the duration of such
time period shall be extended so that it shall end on the next succeeding day
which is not a Saturday, Sunday or legal holiday.
12.8 BINDING EFFECT. This Contract shall be binding upon and inure to
the benefit of Seller and Buyer, and their respective heirs, personal
representatives, successors and assigns. Buyer may assign its rights under this
Contract without the consent of Seller. Upon acceptance of any assignment by the
assignee and the assumption of Buyer's obligations hereunder, Buyer shall be
relieved of all duties and obligations hereunder. Except as expressly provided
herein, nothing in this Contract is intended to confer on any person, other than
the parties hereto and their respective heirs, personal representatives,
successors and assigns, any rights or remedies under or by reason of this
Contract.
12.9 FURTHER ACTS. In addition to the acts recited in this Contract to
be performed by Seller and Buyer, Seller and Buyer agree to perform or cause to
be performed at the Closing or after the Closing any and all such further acts
as may be reasonably necessary to consummate the transactions contemplated
hereby.
12.10 DATE OF CONTRACT. The date of this Contract shall for all
purposes be the date of the signature of the last party to sign this Contract.
12.11 INDEMNITY AS TO LAWSUITS. Seller agrees to indemnify and hold
Buyer harmless of and from any and all liability, loss, damage or expense
(including attorneys' fees) as a result of any action, suit, proceeding or claim
affecting the Land, Improvements or Personalty or any portion thereof, or any
contracts and/or services related thereto, in relation to which the facts which
give rise to such action, suits or proceedings arose or occurred prior to the
Closing Date, including but not limited to claims brought pursuant to Sections
10.1(d) and (e). Buyer agrees to indemnity and hold Seller harmless of and from
any and all liability, loss, damage or expense (including attorneys' fees) as a
result of any action, suite, proceeding or claim affecting the Land,
Improvements, Personalty or any portion thereof, or any contracts and/or
services related thereto, in relation to which the facts which give rise to such
action, suit or proceeding arose, or occurred on or subsequent to the Closing
Date.
Here ends page 29
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Contract to be
executed on the dates set forth below.
SELLER:
BERESTCO, INC., a Massachusetts corporation
By: __________________________________
Name: __________________________________
Title: __________________________________
Executed by Seller on
November 4, 1998
BUYER:
PINNACLE PROPERTIES MANAGEMENT,
INC., a Delaware corporation
By: ___________________________________
Name: ___________________________________
Title ___________________________________
Executed by Buyer on
November 6, 1998
<PAGE>
TABLE OF CONTENTS
PAGES
ARTICLE I
The Property
1.1 Property Conveyed..................................................1
ARTICLE II
Purchase Price
2.1 Purchase Price.....................................................2
ARTICLE III
Buyer Due Diligence
3.1 Property Documents.................................................3
3.2 Confidential Nature................................................4
3.3 Return of Property Documents.......................................4
3.4 Buyer's Investigations.............................................5
3.5 Title and Survey...................................................6
3.6 Environmental Status...............................................9
3.6.1 Buyer's Site Assessment.....................................9
3.6.2 Hazardous Materials Notice..................................9
3.7 Engineering/Mechanical............................................11
3.8 Buyer's Right to Terminate........................................11
3.9 Condition of the Property.........................................12
ARTICLE IV
Title to be Conveyed
4.1 Title to be Conveyed..............................................14
ARTICLE V
Representations and Warranties
5.1 Representations and Warranties of Seller..........................14
5.2 Representations and Warranties of Buyer...........................17
ARTICLE VI
Conditions Precedent to Buyer's Obligation to Close
6.1 Conditions Precedent..............................................19
ARTICLE VII
Closing
7.1 Time and Place of Closing.........................................20
7.2 Events at Closing.................................................21
7.3 Prorations........................................................22
7.4 Seller's Right to Occupy Post Closing.............................22
ARTICLE VIII
Condemnation
8.1 Condemnation......................................................23
ARTICLE IX
Termination, Default and Remedies
9.1 Permitted Termination.............................................24
9.2 Default by Seller.................................................24
9.3 Default by Buyer..................................................24
9.4 Attorney's Fees...................................................25
ARTICLE X
Interim Responsibilities of Seller
10.1 Management of Property............................................25
ARTICLE XI
Brokerage Commission, Closing Expense
11.1 Brokerage Commission..............................................26
11.2 Costs and Expenses of Closing.....................................26
ARTICLE XII
Miscellaneous
12.1 No Assumption of Seller's Liabilities.............................26
12.2 Notices...........................................................26
12.3 Survival..........................................................27
12.4 Governing Law; Venue..............................................28
12.5 Integration; Modification; Waiver.................................28
12.6 Counterpart Execution.............................................28
12.7 Construction......................................................28
12.8 Binding Effect....................................................28
12.9 Further Acts......................................................28
12.10 Date of Contract..................................................28
12.11 Indemnity as to Lawsuits..........................................28
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