<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee required]
For the fiscal year ended December 31, 1997
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee required]
For the Transition period from ______________ to ______________
Commission File Number 33-25984
NET 2 L. P.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3497738
- ---------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Lexington Corporate Properties Trust
355 Lexington Avenue
New York, NY 10017
- ---------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 692-7200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 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 such filing
requirements for the past 90 days.
Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
There is no active public market for the units of limited partnership interests
issued by the Registrant.
Not Applicable.
Page 1 of 36
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K into which the document is incorporated: (1) Any annual report
to security holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of
1933. The listed documents should be clearly described for identification
purposes.
None.
2
<PAGE> 3
PART I.
Forward Looking Statements
When used in this Form 10-K Report, the words "believes", "expects", "estimates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially. In particular, among the factors that could
cause actual results to differ materially are continued qualification as a real
estate partnership, general business and economic conditions, competition,
increases in real estate construction costs, interest rates, accessibility of
debt and equity capital markets and other risks inherent in the real estate
business including tenant defaults, potential liability relating to
environmental matters and illiquidity of real estate investments. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Partnership undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
ITEM 1. BUSINESS
The registrant, Net 2 L.P. (the "Partnership"), is a limited partnership formed
on November 9, 1988 under the Uniform Limited Partnership Act of the State of
Delaware for the purpose of investing primarily in existing commercial
properties triple net leased to corporations or other entities. The Partnership
Agreement was restated and amended on June 13, 1994, which enables the
Partnership to make additional real estate investments.
The General Partner of the Partnership is Lepercq Net 2 L.P., a Delaware limited
partnership (the "General Partner"). Lepercq Net 2 Inc. is the general partner
of the General Partner. The directors and executive officers of Lepercq Net 2
Inc. are discussed in PART III, Item 10 (Directors and Executive Officers of the
Registrant). Leased Properties Management, Inc., an affiliate of Lepercq Net 2
Inc., performs certain property management services in connection with the
operation of the Partnership's business.
The Partnership commenced an offering to the public of 500,000 units at $100 per
unit of limited partnership interests (the "Units") on January 10, 1989 pursuant
to a Prospectus. On July 19, 1990, the Partnership held the final admission of
Limited Partners, and the offering was terminated after a total of 477,417 units
had been sold, equaling $47.742 million in capital contributions. As of December
31, 1997, the Partnership had invested approximately $46.7 million of the
proceeds of the offering in the properties, which are described in Item 2 below.
The Partnership invests in net leased real properties (or interests therein)
located throughout the United States, which offer the potential for (i)
preservation and protection of the capital of the limited partners of the
Partnership, (ii) providing increasing cash distributions from operations during
the term of the Partnership, (iii) providing tax benefits so that a portion of
the cash distributions is sheltered from current income taxation, and (iv)
appreciation in value of the Partnership's investments.
3
<PAGE> 4
Investments are made in various types of commercial real properties and
interests therein. Such investments may include, but are not limited to: fitness
centers, warehouses, distribution centers, office buildings, retail stores,
hotels, motels, nursing homes and congregate care facilities. The Partnership
does not invest in restaurant properties. Investments are not restricted as to
specific geographical areas; however, all of the Partnership's investments are
made within the United States. The Partnership acquired its original portfolio
of properties without acquisition financing, but it borrowed an amount through a
closing loan sufficient to pay all or a portion of the Partnership's
organization, offering and acquisition expenses. The closing loan was repaid in
1994. The real estate investments made between 1994 and 1997 were acquired with
a combination of acquisition financing and cash balances.
The Partnership attempts to negotiate provisions in its leases which will
provide that all the risks of such matters as fitness for use or purpose, design
or condition, quality of material or workmanship, latent or patent defects, the
Partnership's title, value, compliance with specifications, location, use,
merchantability, quality, description, durability or operation are borne by the
lessees. However, competitive conditions may require that the Partnership accept
certain risks, in which case it will attempt to arrange adequate insurance, if
available at reasonable cost.
Each of the following properties (as hereinafter defined) accounted for 10% or
more of consolidated rental revenues for the years ended December 31, :
<TABLE>
<CAPTION>
Property 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
Tranzonic (*) 14% 15% 16%
Total Petroleum (**) 14% 16% 21%
Seattle, Washington 19% 20% 19%
NCS (***) 11% 13% 11%
</TABLE>
* These properties consist of two office/warehouse facilities, one in Ohio
and one in Arizona.
** These properties consist of thirteen retail stores.
*** These properties consist of thirteen retail stores.
At December 31, 1997, the Tranzonic Properties accounted for 11%, the Total
Petroleum Properties accounted for 14%, the Seattle, Washington Property
accounted for 12% and the Westland, Michigan Property accounted for 14% of total
assets.
The Partnership attempts to maintain a working capital cash reserve equal to
1.5% of the gross proceeds of the offering, which cash reserve is anticipated to
be sufficient to satisfy liquidity requirements. Liquidity could be adversely
affected by unanticipated costs, particularly costs relating to the vacancy of
properties, tenants experiencing financial difficulties, and greater than
anticipated operating expenses. To the extent that such working capital reserves
are insufficient to satisfy the cash requirements of the Partnership, additional
funds may be obtained through short-term or permanent loans or by reducing
distributions to limited partners.
The Partnership operates in one industry segment, investment in net leased real
property.
4
<PAGE> 5
Competition
The real estate business is highly competitive and the Partnership competes with
numerous established companies having significantly greater resources and
experience. Competition may also come from other partnerships that have been or
may be formed by the General Partner or its affiliates.
Environmental Matters
Under various federal, state and local environmental laws, statutes, ordinances,
rules and regulations, an owner of real property may be liable for the costs of
removal or redemption of certain hazardous or toxic substances at, on, in or
under such property as well as certain other potential costs relating to
hazardous or toxic substances (including government fines and penalties and
damages for injuries to persons and adjacent property). Such laws often impose
liability without regard to whether the owner knew of, or was responsible for,
the presence or disposal of such substances. Although the Partnership's tenants
are responsible for any environmental damage and claims related to the leased
premises, in the event of the bankruptcy or inability of the tenant of such
premises to satisfy any obligations with respect thereto, the Partnership may be
required to satisfy such obligations. In addition, under certain environmental
laws, the Partnership, as the owner of such properties, may be held directly
liable for any such damages or claims irrespective of the provisions of any
lease.
From time to time, in connection with the conduct of the Partnership's business,
and prior to the acquisition of any property from a third party or as required
by the Partnership's financing sources, the Partnership authorizes the
preparation of Phase I environmental reports with respect to its properties.
Based upon such environmental reports and management's ongoing review of its
properties, as of the date of this report, management was not aware of any
environmental condition with respect to any of the Partnership's properties
which management believed would be reasonably likely to have a material adverse
effect on the Partnership. The Partnership does incur costs relating to
environmental investigation and remediation related to the Total Petroleum
properties. If the cost exceeds $10,000 for any one property, the Partnership
applies for reimbursements in excess of $10,000 to the Michigan Underground
Storage Tank Financial Assurance Fund ("MUSTFA"). All claims are subject to
approval by MUSTFA. These costs are not expected to have a material impact on
the financial position or results of operations of the Partnership. The
Partnership has received partial reimbursement of such costs. There can be no
assurance, however, that (i) the discovery of environmental conditions, the
existence or severity of which were previously unknown, (ii) changes in law,
(iii) the conduct of tenants or (iv) activities relating to properties in the
vicinity of the Partnership's Properties will not expose the Partnership to
material liability in the future. Changes in laws increasing the potential
liability for environmental conditions existing on properties or increasing the
restrictions on discharges or other conditions may result in significant
unanticipated expenditures or may otherwise adversely affect the operations of
the Partnership's tenants, which would adversely affect the Partnership's funds
from operations.
5
<PAGE> 6
Employees
The Partnership has no employees. All necessary personnel are provided by the
General Partner or its affiliates or agents. See Part III Item 10, "Directors
and Executive Officers of the Registrant" and Item 13, "Certain Relationships
and Related Transactions."
ITEM 2. PROPERTIES
Following is a detailed schedule of the Partnership's real estate, including
property held for sale, and lease terms at December 31, 1997:
<TABLE>
<CAPTION>
Annualized
Acquisition Base Rent at
Date of Cost 12/31/97 Lease(s) Square
Acquisition Tenant Location ($000's) ($000's) Expires Feet
- ----------- ------------------------- -------------------- ----------- ------------ -------- ------
<C> <S> <C> <C> <C> <C> <C>
02-28-89 Tranzonic Cos. Highland Heights, OH $ 5,823 $ 677 03-09 94,660
02-28-89 Tranzonic Cos. Tempe, AZ 1,547 180 03-09 49,950
1989 Total Petroleum, Inc. Various (13) 9,106 757 05-11 83,600
03-05-90 Everest & Jennings Earth City, MO 4,377 279 05-02 147,000
03-30-90 Art Institute of Seattle Seattle, WA 8,483 1,115 06-05 71,600
06-19-90 Diamond Shamrock Corp. El Paso, TX 474 61 06-10 3,200
06-19-90 National Convenience
Store Various (13) 4,367 492 12-12 33,800
09-14-90 Ameritech Services, Inc. Columbus, OH 2,450 245 08-05 20,000
09-28-90 RCS of Tucson Tucson, AZ 1,681 300 09-10 28,600
06-22-94 Kohl's Dept. Stores Eau Claire, WI 4,187 435 06-14 76,200
12-23-94 A-Copy, Inc. Milford, CT 2,949 351 12-04 27,360
09-21-95 Duracraft Corp. Southborough, MA 4,166 412 09-15 57,700
06-06-97 Wal-Mart Stores, Inc. Westland, MI 7,904 753 01-09 102,800
--------- ------- -------
$ 57,514 $ 6,057 796,470
========= ======= =======
</TABLE>
Minimum future rental payments receivable under the leases during the base terms
for the properties owned by the Partnership at December 31, 1997, follow ($000):
<TABLE>
<CAPTION>
Year Total
---- -----
<S> <C>
1998 $ 6,103
1999 6,186
2000 6,259
2001 6,311
2002 6,233
2003-2007 26,393
2008-2012 14,569
2013-2015 1,836
-------
Total $73,890
=======
</TABLE>
6
<PAGE> 7
ITEM 3. LEGAL PROCEEDINGS
Neither the Partnership nor its properties are subject to any pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 1997 to a vote of Unit holders.
7
<PAGE> 8
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
An established public trading market for the Units does not exist, and it is not
anticipated that such a market will develop in the near future. Further, the
transfer of Units is subject to substantial restrictions. Accordingly,
information as to the market value of a Unit at any given date is not available.
As of December 31, 1997, there were 2,110 investors holding 477,167 limited
partnership units.
The Partnership is a limited partnership and, accordingly, does not pay
dividends. However, the Partnership makes quarterly cash distributions. Cash
distributions paid per Unit of limited partnership interest for each of the
years in the three-year period ended December 31, 1997 were $5.00.
8
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of selected financial data for the
Partnership for the years ended December 31, ($000 except per unit data):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental revenue $ 5,934 $ 5,442 $ 5,146 $ 4,269 $ 4,080
============ ============ ============ ============ ============
Income before extraordinary item $ 2,364 $ 2,308 $ 2,278 $ 1,895 $ 619
============ ============ ============ ============ ============
Income before extraordinary item per Unit
of partnership interest (*) $ 4.20 to $ 4.02 to $ 3.87 to $ 3.10 to $ 0.96to
5.30 5.23 5.23 4.43 1.48
============ ============ ============ ============ ============
Extraordinary item $ -- $ -- $ -- $ 1,913 $ --
============ ============ ============ ============ ============
Extraordinary item per Unit of
partnership interest (*) $ -- $ -- $ -- $ 3.13 to $ --
-- -- -- 4.48 --
============ ============ ============ ============ ============
Net income $ 2,364 $ 2,308 $ 2,278 $ 3,808 $ 619
============ ============ ============ ============ ============
Net income per Unit of
partnership interests (*) $ 4.20 to $ 4.02 to $ 3.87 to $ 6.23 to $ 0.96 to
5.30 5.23 5.23 8.91 1.48
============ ============ ============ ============ ============
Total assets $ 55,001 $ 50,002 $ 47,658 $ 48,234 $ 42,639
============ ============ ============ ============ ============
Mortgage notes payable and closing loan
payable (including accrued interest added
to principal) $ 22,106 $ 17,181 $ 14,721 $ 14,994 $ 10,668
============ ============ ============ ============ ============
Cash distributions per Unit of
partnership interests $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.30
============ ============ ============ ============ ============
</TABLE>
(*) Amounts allocated to and received by unit holders vary depending on the
dates they became unit holders.
The above financial data should be read in conjunction with the Financial
Statements and the related notes appearing elsewhere in this report.
9
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
On January 10, 1989, the Partnership commenced the sale of up to 500,000 Units
of limited partnership interests at $100 per Unit with the option to offer an
additional 500,000 Units. As of July 19, 1990, the Partnership had raised a
total of $47.742 million in capital contributions (477,417 Units) and the
offering was terminated. As of December 31, 1997, the net offering proceeds
consisting of aggregate gross offering proceeds of $47.742 million less related
offering costs of $5.691 million along with the proceeds from the closing loan,
bridge financing and mortgage debt, have been utilized by the Partnership to
invest in triple net leased real estate properties (or interests therein), to
pay for related property acquisition expenses, financing and acquisition fees
and to provide for a working capital reserve.
Pursuant to the Partnership Agreement, limited partnership Units may be
repurchased at 90% of the net asset value 60 days after the offer to repurchase
has been made. No Units have been repurchased since 1990.
The Partnership attempts to maintain a working capital reserve equal to 1.5% of
the gross proceeds of its offering which is anticipated to be sufficient to
satisfy liquidity requirements. Liquidity could be adversely affected by
unanticipated costs, particularly costs relating to the vacancy of properties,
tenants experiencing financial difficulties, and greater than anticipated
operating expenses. To the extent that such working capital reserves are
insufficient to satisfy the cost requirements of the Partnership, additional
funds may be obtained through short-term or permanent loans.
On June 6, 1997, the Partnership acquired a property located in Westland,
Michigan (the "Westland Property") from an unrelated party. The Westland
Property consists of a 102,826 square foot retail department store building
leased to Wal-Mart Stores, Inc. pursuant to a triple net lease.
The lease has a remaining term which expires on January 31, 2009. The lease
provides for annual rental payments of $753,000, or $7.32 per square foot. In
addition to net rent, Wal-Mart is required to pay percentage rent equal to 1% of
gross sales in excess of base gross receipts as defined. The lease does not
provide for any renewal options. Wal-Mart Stores, Inc. has the option to
purchase the Westland Property on January 31, 2009 at a price equal to the
greater of $6.407 million or the fair market value.
The purchase price of $7.050 million and related expenses of approximately
$81,000 were satisfied by a cash payment and by an assumption of an existing
note with a principal balance of $4.712 million. The note bears interest at a
stated rate of 10.5% per annum, with a monthly debt service payment of principal
and interest in the amount of $57,000 to fully amortize the note by September 1,
2009. The purchase of the Westland Property has been recorded in the financial
statements at the total of the cash paid plus the fair value of the mortgage
liability assumed. The fair value of the mortgage was determined, using an
imputed interest rate of 7.5%, to be $5.484 million.
10
<PAGE> 11
On December 29, 1997, the Partnership entered into an agreement to sell one of
the thirteen Total Petroleum Properties for $600,000. The property is located in
Sandusky, Michigan and has a net book value of approximately $600,000 including
rent receivable, as of December 31, 1997.
The unpaid cumulative preferred return at December 31, 1997 totaled $21.331
million ($43.46 to $45.40 per Unit, per close), and was reduced by $596,459
($1.25 per Unit) with the fourth quarter 1997 distribution paid in January 1998.
Except for the debt service requirements under the mortgages, there are no
material restrictions upon the Partnership's present or future ability to make
distributions in accordance with the provisions of its Partnership Agreement.
Impact of Year 2000
The Partnership is evaluating its computer and communication systems that could
be affected by the "Year 2000" issue. The year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Partnership's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculation. The
Partnership presently believes that the year 2000 problem will not pose
operational problems for the Partnership's computer and communication systems
and will not have a material impact on the operations of the Partnership.
Results of Operations ($000)
<TABLE>
<CAPTION>
Increase (Decrease)
--------------------
1997 1996 1995 1997-1996 1996-1995
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues $6,083 5,913 5,630 170 283
------ ------ ------ ------ ------
Total expenses
Interest 1,875 1,568 1,501 307 67
Depreciation 1,074 994 994 80 --
Amortization 136 143 170 (7) (27)
General & administrative 634 900 700 (266) 200
------ ------ ------ ------ ------
3,719 3,605 3,365 114 240
------ ------ ------ ------ ------
Income before gain on sale
of property 2,364 2,308 2,265 56 43
Gain on sale of property -- -- 13 -- (13)
------ ------ ------ ------ ------
Net income $2,364 2,308 2,278 56 30
====== ====== ====== ====== ======
</TABLE>
The changes in results of operations with respect to revenues, interest and
depreciation for the years ended December 31, 1997, 1996 and 1995 are primarily
attributed to the operations of the real property investments acquired in 1995
and 1997 as described in Item 2 and above. Included in total revenues are other
revenues, which has decreased $318 in 1997 compared to 1996 as a result of
MUSTFA reimbursements received and gain from sale of the NCS stocks, both in
1996.
General and administrative expenses decreased in 1997 due to non-recurring
transaction expenses incurred in 1996.
11
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Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income" and SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 130 and 131 are effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods, provided for comparative purposes, is required.
The adoption of SFAS 130 and 131 in 1998 will have no effect on the financial
statements of the Partnership.
12
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NET 2 L.P.
INDEX
Page
----
Independent Auditors' Report 14
Balance Sheets at December 31, 1997 and 1996 15
Statements of Income for the years ended December 31, 1997,
1996 and 1995 16
Statements of Changes in Partners' Capital (Deficit) for the years
ended December 31, 1997, 1996 and 1995 17
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 18
Notes to Financial Statements 19-26
Financial Statement Schedule*
- -----------------------------
Real Estate and Accumulated Depreciation Schedule III 27
- ----------
* All other schedules have been omitted because the required information is
not applicable or the information is shown in the financial statements or
the notes thereto.
13
<PAGE> 14
Independent Auditors' Report
The Partners
Net 2 L. P.:
We have audited the financial statements of Net 2 L.P. as listed in the
accompanying index. In connection with our audits of the financial statements,
we also have audited the financial statement schedule as listed in the
accompanying index. These financial statements and the financial statement
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Net 2 L.P. as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
New York, New York
February 13, 1998
14
<PAGE> 15
NET 2 L. P.
BALANCE SHEETS
($000)
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------- --------
<S> <C> <C>
Real estate, at cost (notes 4 and 5):
Buildings $ 45,636 $ 40,123
Land 11,352 9,487
-------- --------
56,988 49,610
Less: accumulated depreciation 7,266 6,192
-------- --------
49,722 43,418
Property held for sale (note 4) 526 --
Cash and cash equivalents 2,181 4,125
Restricted cash -- 100
Deferred expenses, net of accumulated
amortization of $480 and $448
in 1997 and 1996, respectively 377 513
Rent receivable (note 2) 2,054 1,816
Other assets 141 30
-------- --------
$ 55,001 $ 50,002
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage notes payable (note 5) $ 22,106 $ 17,181
Accrued interest payable (note 5) 135 100
Accounts payable and accrued liabilities 313 203
-------- --------
22,554 17,484
-------- --------
Commitments and contingencies (note 4)
Partners' capital (note 3):
General Partner (365) (363)
Limited Partners ($100 per Unit,
500,000 Units authorized, 477,167
Units issued and outstanding) 32,812 32,881
-------- --------
Total partners' capital 32,447 32,518
-------- --------
$ 55,001 $ 50,002
======== ========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 16
NET 2 L. P.
STATEMENTS OF INCOME
($000 except per unit amounts)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Rental (notes 4 and 6) $ 5,934 5,442 5,146
Interest 142 146 201
Other 7 325 283
--------- --------- ---------
6,083 5,913 5,630
--------- --------- ---------
Expenses:
Interest (note 5) 1,875 1,568 1,501
Depreciation 1,074 994 994
Amortization of deferred expenses 136 143 170
General, administrative and other (note 7) 634 900 700
--------- --------- ---------
3,719 3,605 3,365
--------- --------- ---------
Income before gain from
sale of property 2,364 2,308 2,265
Gain from sale of property -- -- 13
--------- --------- ---------
Net income $ 2,364 2,308 2,278
========= ========= =========
Net income per Unit of limited
partnership interest (*) $ 4.20 to 4.02 to 3.87 to
5.30 5.23 5.23
========= ========= =========
</TABLE>
(*) Amounts allocated to unit holders vary depending on the dates they became
unit holders.
See accompanying notes to financial statements.
16
<PAGE> 17
NET 2 L. P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
($000)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Limited
Total Partner Partners
-------- -------- --------
<S> <C> <C> <C>
Partners' capital (deficit)
at December 31, 1994 $ 32,802 (357) 33,159
Net income 2,278 46 2,232
Cash distributions (2,435) (49) (2,386)
-------- -------- --------
Partners' capital (deficit)
at December 31, 1995 32,645 (360) 33,005
Net income 2,308 46 2,262
Cash distributions (2,435) (49) (2,386)
-------- -------- --------
Partners' capital (deficit)
at December 31, 1996 32,518 (363) 32,881
Net income 2,364 47 2,317
Cash distributions (2,435) (49) (2,386)
-------- -------- --------
Partners' capital (deficit)
at December 31, 1997 $ 32,447 (365) 32,812
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 18
NET 2 L. P.
STATEMENTS OF CASH FLOW
($000)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,364 2,308 2,278
------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,210 1,137 1,165
Increase in rents receivable (238) (280) (406)
Gain on sale of property -- -- (13)
Decrease in security deposits -- -- (187)
(Increase) decrease in other assets (111) 269 (223)
Increase (decrease) in accrued interest payable 35 (6) (2)
Increase in accounts payable and other liabilities 110 16 42
------- ------- -------
Total adjustments 1,006 1,136 376
------- ------- -------
Net cash provided by operating activities 3,370 3,444 2,654
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of properties -- -- 145
Investments in real estate (2,419) -- (4,166)
------- ------- -------
Net cash used in investing activities (2,419) -- (4,021)
------- ------- -------
Cash flows from financing activities:
Proceeds of mortgage notes payable -- 2,800 --
Principal payments on mortgage notes (560) (340) (273)
Increase in deferred expenses -- (66) --
Decrease (increase) in restricted cash 100 (11) 3,104
Cash distributions to partners (2,435) (2,435) (2,435)
------- ------- -------
Net cash (used in) provided by financing activities (2,895) (52) 396
------- ------- -------
Net (decrease) increase in cash and cash equivalents (1,944) 3,392 (971)
Cash and cash equivalents at beginning of year 4,125 733 1,704
------- ------- -------
Cash and cash equivalents at end of year $ 2,181 4,125 733
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,840 1,574 1,503
======= ======= =======
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
On June 6, 1997, in connection with the acquisition of the Westland, Michigan
Property, the Partnership assumed approximately $4.7 million of first mortgage
financing.
See accompanying notes to financial statements.
18
<PAGE> 19
NET 2 L. P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. The Partnership and Basis of Presentation
Net 2 L.P. (the "Partnership") was formed as a limited partnership on
November 9, 1988 under the laws of the State of Delaware to invest in real
estate properties or interests therein net leased to corporations or other
entities.
On January 10, 1989, the Partnership commenced the sale of up to 500,000
Units of limited partnership interests at $100 per Unit with the option to
offer an additional 50,000 Units. On July 19, 1990, the Partnership held
the final admission of Limited Partners. The Partnership raised a total of
$47.742 million (477,417 Units) from 2,396 investors and the offering was
terminated.
Pursuant to the partnership agreement, limited partnership units may be
repurchased, beginning in 1990. On March 5, 1990, the Partnership
repurchased 250 limited partnership units for $25,000. No additional Units
have been repurchased.
As of December 31, 1997, there were 2,110 investors holding 477,167
limited partnership units.
2. Summary of Significant Accounting Policies
The Partnership's financial statements are prepared on the accrual basis
of accounting for financial reporting purposes.
Real estate is carried at cost less accumulated depreciation. Acquisition
fees incurred in connection with the properties acquired have been
capitalized as a cost of the property. Depreciation for financial
reporting purposes is determined by the straight-line method over the
estimated economic useful lives of the properties. The Partnership
depreciates buildings over a 40-year period. Depreciation for tax purposes
is determined in accordance with the Modified Accelerated Cost Recovery
System.
On January 1, 1996, the Partnership adopted the provisions of SFAS No.
121, Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. This Statement requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If an asset is
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the asset exceeds the fair
market value of the asset. Assets to be disposed of are reported at the
lower of the carrying amount or fair market value less costs to sell.
Adoption of this Statement in 1996 and its application in 1997 did not
have any impact on the Partnership's financial position or results of
operations.
(Continued)
19
<PAGE> 20
NET 2 L. P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
2., Continued
The leases relating to the properties are operating leases in accordance
with generally accepted accounting principles. Rental revenue is
recognized on a straight-line basis over the minimum lease terms. At
December 31, 1997 and 1996, rent receivable primarily consists of amounts
for the excess of rental revenues recognized on a straight-line basis over
the rents collectible under the leases.
For purposes of the statement of cash flows, the Partnership considers all
highly liquid instruments to be cash equivalents. The balance sheet
caption cash and cash equivalents includes $2.18 million and $4.098
million of money market instruments at December 31, 1997 and 1996,
respectively.
Deferred expenses are comprised of loan fees which are amortized using the
straight-line method over the term of the loan.
The Partnership uses the accrual basis of accounting for Federal income
tax purposes. No provision for income taxes has been made as the liability
for any such taxes is that of the partners rather than the Partnership.
Income per Unit amounts were calculated by using the weighted average
number of Units outstanding for each period and allocating the income
attributable for that period to the Limited Partners. The weighted average
number of Units outstanding was 477,167 for each of the years ended
December 31, 1997, 1996 and 1995.
Statement of Financial Accounting Standards No. 128 (SFAS 128) "Earnings
per Share" is effective for periods ending December 15, 1997. Application
of SFAS 128 had no effect on the Partnership's net income per unit for
1997, 1996 and 1995.
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 107, Disclosures about Fair Value of Financial
Instruments, defines fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between
willing parties. The Partnership's cash, mortgage notes payable, and
accounts payable and accrued liabilities are considered to be financial
instruments and are carried at cost, which approximates fair value.
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
20
<PAGE> 21
NET 2 L. P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
3. The Partnership Agreement
Pursuant to the terms of the Partnership Agreement, the General Partner is
liable for all general obligations of the Partnership to the extent not
paid by the Partnership. The Limited Partners are and will not be liable
for the debts of the Partnership beyond their contributed capital.
Distributable cash from operations, as defined in the Partnership
Agreement, is generally to be distributed 98% to the Limited Partners and
2% to the General Partner until each limited partner has received total
distributions from operations equal to an 11% cumulative non-compounded
preferred return. Thereafter, such distributions are to be made 90% to the
Limited Partners and 10% to the General Partner.
Distributable cash from capital transactions, as defined, is generally to
be distributed 99% to the Limited Partners and 1% to the General Partner
until each limited partner has received total distributions from capital
transactions equal to an 11% cumulative non-compounded preferred return
plus a return of its capital contribution. Thereafter, such distributions
are to be made 85% to the Limited Partners and 15% to the General Partner.
For financial reporting purposes, all items of income are allocated in the
same proportion as distributions of distributable cash.
Distributable cash attributed to a particular limited partner's Unit is
calculated from the date of admission to the Partnership. The unpaid
cumulative preferred return at December 31, 1997 totaled $21.331 million
($43.46 to $45.40 per Unit, per close). On January 31, 1998, the
cumulative preferred return that was unpaid at December 31, 1997 was
reduced by a cash distribution to the Limited Partners for the quarter
ended December 31, 1997 totaling $596,459 ($1.25 per unit). The General
Partner received a cash distribution of $12,173 on February 11, 1998.
Cash distributions paid per Unit of limited partnership interest for each
of the years in the three-year period ended December 31, 1997 were $5.00.
The Partnership Agreement was restated and amended on June 13, 1994, which
enables the Partnership to make additional real estate investments.
(Continued)
21
<PAGE> 22
NET 2 L. P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
3., Continued
Taxable income, as defined, before depreciation, generally is allocated in
the same proportion as distributions of distributable cash or proceeds
from capital transactions (other than the portion of such proceeds
constituting a return of capital). Depreciation and amortization expense,
to the extent that it does not exceed income before depreciation for such
year, shall be allocated in the same ratio as taxable income. Any excess
of such depreciation deductions shall be allocated 98% to the Limited
Partners and 2% to the General Partner. For financial reporting purposes,
all items of income are allocated in the same proportion as distributions
of distributable cash or proceeds from capital transactions.
4. Investments in Real Estate
Following is a detailed schedule of the Partnership's real estate,
including a property held for sale, and lease terms at December 31, 1997:
<TABLE>
<CAPTION>
Annualized
Acquisition Base Rent at
Date of Cost 12-31-97 Lease(s) Square
Acquisition Tenant Location ($000's) ($000's) Expires Feet
----------- ------------------------ -------------------- ----------- ------------ -------- ------
<C> <S> <C> <C> <C> <C> <C>
02-28-89 Tranzonic Companies Highland Heights, OH $ 5,823 $ 677 03-09 94,660
02-28-89 Tranzonic Companies Tempe, AZ 1,547 180 03-09 49,950
1989 Total Petroleum, Inc. Various (13) 9,106 757 05-11 83,600
03-05-90 Everest & Jennings Earth City, MO 4,377 279 05-02 147,000
03-30-90 Art Institute of Seattle Seattle, WA 8,483 1,115 06-05 71,600
06-19-90 Diamond Shamrock Corp. El Paso, TX 474 61 06-10 3,200
06-19-90 National Convenience
Store Various (13) 4,367 492 12-12 33,800
09-14-90 Ameritech Services Inc. Columbus, OH 2,450 245 08-05 20,000
09-28-90 RCS of Tucson Tucson, AZ 1,681 300 09-10 28,600
06-22-94 Kohl's Dept. Stores Eau Claire, WI 4,187 435 06-14 76,200
12-23-94 A-Copy, Inc. Milford, CT 2,949 351 12-04 27,360
09-21-95 Duracraft Corp. Southborough, MA 4,166 412 09-15 57,700
06-06-97 Wal-Mart Stores, Inc. Westland, MI 7,904 753 01-09 102,800
-------- ------- -------
$ 57,514 $ 6,057 796,470
======== ======= =======
</TABLE>
On December 29, 1997, the Partnership entered into an agreement to sell one
of the thirteen Total Petroleum Properties for $600,000. The property is
located in Sandusky, Michigan and has a net book value of approximately
$600,000, including rent receivable, as of December 31, 1997.
(Continued)
22
<PAGE> 23
NET 2 L. P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
4., Continued
The following unaudited pro forma operating information for the years
ended December 31, 1997 and 1996, were prepared as if the acquisition of
the Westland, Michigan Property had been consummated as of January 1, 1996
and was carried forward through December 31, 1996 and 1997. The
information provided does not purport to be indicative of what the
operating results of the Partnership would have been had the acquisition
been consummated on the date assumed. The pro forma amounts ($000) follow:
<TABLE>
<CAPTION>
Unaudited Pro Forma Unaudited Pro Forma
Year ended Year ended
December 31, 1997 December 31, 1996
------------------- -------------------
<S> <C> <C>
Revenues $ 6,407 $ 6,666
Net income $ 2,486 $ 2,504
Net income per Unit of
partnership interest $4.42 to $5.58 $4.36 to $5.68
============== ==============
</TABLE>
The Partnership has been incurring costs relating to environmental
investigation and remediation related to the Total Petroleum properties.
If the cost exceeds $10,000 for any one property, the Partnership applies
for reimbursements in excess of $10,000 to the Michigan Underground
Storage Tank Financial Assurance Fund ("MUSTFA"). All claims are subject
to approval by MUSTFA. These costs are not expected to have a material
impact on the financial position or results of operations of the
Partnership. The Partnership has received partial reimbursement of such
costs.
5. Mortgage Notes Payable
In 1994, the Partnership obtained financing secured by a $12 million
mortgage note with interest payable at the London Interbank Offered Rate
(the "LIBOR Rate") plus 4.5% per annum, as published in the Wall Street
Journal, in effect on the first business day of each month. The interest
rate at December 31, 1997 was 10.47%. Principal payments due monthly over
the 5-year primary term are based on a 20-year, 9.5% amortization
schedule. The note matures on May 30, 1999, at which time the Partnership
has the option to extend the term pursuant to certain conditions in the
mortgage note.
The mortgage note is secured by mortgages on thirty-three of the
thirty-six properties and by a negative declaration by the Partnership
that the Properties owned will not be mortgaged to secure any other
indebtedness. If the appraised value of the collateral falls below certain
specified levels, the Partnership will be required to provide additional
security or to prepay a portion of the loan. The mortgage note is recourse
to the Partnership but not to its Limited or General Partners. The loan
may be prepaid, subject to certain prepayment penalties, as defined.
(Continued)
23
<PAGE> 24
NET 2 L. P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
5., Continued
In 1994, the Partnership acquired a retail facility located in Eau Claire,
Wisconsin with part of the purchase price being financed by a first
mortgage loan in the amount of $3.12 million. The loan has a 20-year term
with an interest rate of 8% per annum. Monthly payments of principal and
interest, which are sufficient to fully amortize the loan by maturity, are
required.
On April 2, 1996, the Partnership received financing secured by a $2.8
million mortgage note on the Southborough, Massachusetts Property. The
note has a 232-month term with an interest rate of 7.5 % per annum.
Monthly payments of principal and interest in the amount of $23,000,
sufficient to fully amortize the loan by maturity, are due on the first
day of each month commencing on June 1, 1996. The note may be prepaid at
any time subject to certain prepayment penalties, as defined.
On June 6, 1997, the Partnership acquired the Westland, Michigan Property
for approximately $7.12 million by a cash payment and by an assumption of
an existing note with a principal balance of $4.712 million. The note
bears interest at a stated rate of 10.5% per annum, with a monthly debt
service payment of principal and interest in the amount of $57,000 to
fully amortize the note by September 1, 2009. The purchase of the Westland
Property has been recorded in the financial statements at the total of the
cash paid plus the fair value of the mortgage liability assumed. The fair
value of the mortgage loan was determined, using an imputed interest rate
of 7.5%, to be $5.484 million.
Principal paydowns of the mortgage notes payable for the succeeding five
years are as follows ($000):
<TABLE>
<CAPTION>
Year ending December 31 Amounts
----------------------- -------
<S> <C>
1998 $ 729
1999 11,454
2000 531
2001 573
2002 618
=======
</TABLE>
24
<PAGE> 25
NET 2 L. P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
6. Leases
Minimum future rental payments receivable under noncancelable operating
leases for the properties as of December 31, 1997, are as follows ($000):
<TABLE>
<CAPTION>
Year Ending December 31 Amounts
----------------------- -------
<S> <C>
1998 $ 6,103
1999 6,186
2000 6,259
2001 6,311
2002 6,233
2003-2007 26,393
2008-2012 14,569
2013-2015 1,836
--------
$ 73,890
========
</TABLE>
The leases are net leases requiring the lessees to pay all taxes,
insurance, maintenance, and all other similar charges and expenses relating
to the properties and their use and occupancy.
Each of the following properties accounted for 10% or more of consolidated
rental revenues for the years ended December 31,:
<TABLE>
<CAPTION>
Property 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
Tranzonic (*) 14% 15% 16%
Total Petroleum (**) 14% 16% 21%
Seattle, Washington 19% 20% 19%
NCS (***) 11% 13% 11%
</TABLE>
* These properties consist of two office/warehouse facilities, one in Ohio
and one in Arizona.
** These properties consist of thirteen retail stores.
*** These properties consist of thirteen retail stores.
At December 31, 1997, the Tranzonic Properties accounted for 11%, the Total
Petroleum Properties accounted for 14%, the Seattle, Washington Property
accounted for 12% and the Westland, Michigan Property accounted for 14% of
total assets.
25
<PAGE> 26
NET 2 L. P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
7. Related Parties
Leased Properties Management, Inc., an affiliate of the General Partner,
is entitled to receive a fee for managing the Partnership's properties in
the amount of 1% of gross annual rental receipts (or a greater amount in
certain circumstances). For the years ended December 31, 1997, 1996 and
1995, management fees totaled $57,000, $52,000 and $47,000, respectively.
Two officers of affiliates of the General Partner received acquisition
fees totaling $70,500 for the year ended December 31, 1997 and $41,000 for
the year ended December 31, 1995.
Beginning in October 1996, Lexington Corporate Properties Trust has been
reimbursed by the Partnership for various administrative services
performed. For the years ended December 31, 1997 and 1996, such
reimbursements totaled $170,000 and $109,000, respectively.
26
<PAGE> 27
Schedule III
NET 2 L. P.
Real Estate and Accumulated Depreciation
December 31, 1997, 1996, and 1995
Initial cost to Partnership and gross amount at which carried
at end of period (A)
($000)
<TABLE>
<CAPTION>
Building & Accumulated Date
Description Encumbrances Land Improvements Total (C) Depreciation (D) Acquired
- ----------- ------------ ---- ------------ --------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Office/Industrial (E)(F) $ 2,006 (B) 732 6,638 7,370 1,473 February, June
& July 1989
Retail, Michigan (G) 2,479 (B) 2,017 6,563 8,580 1,451 August 1989
Industrial, Earth City, Missouri 1,192 (B) 652 3,725 4,377 923 March 5, 1990
Office/School, Seattle, Washington 2,310 (B) 8,483 8,483 1,652 March 30, 1990
Retail stores, Texas (H) 1,318 (B) 3,199 1,642 4,841 411 June 19, 1990
Industrial, Columbus, Ohio 667 (B) 505 1,945 2,450 355 September 14, 1990
Office, Tucson, Arizona 458 (B) 402 1,279 1,681 233 September 28, 1990
Retail, Eau Claire, WI 2,865 815 3,372 4,187 297 June 22, 1994
Office, Milford, CT 803 (B) 630 2,319 2,949 175 December 23, 1994
Office, Southborough, MA 2,685 400 3,766 4,166 216 September 21, 1995
Retail, Westland, Michigan 5,323 2,000 5,904 7,904 80 June 6, 1997
----------- ------ ------ ------ -----
$ 22,106 11,352 45,636 56,988 7,266
=========== ====== ====== ====== =====
<CAPTION>
Life on which
depreciation
in latest income
Date statements
Description Constructed is computed
- ----------- ----------- -----------
<S> <C> <C>
Office/Industrial (E)(F) (F) 40 years
Retail, Michigan (G) various 40 years
Industrial, Earth City, Missouri 1985 40 years
Office/School, Seattle, Washington 1985 40 years
Retail stores, Texas (H) various 40 years
Industrial, Columbus, Ohio 1989 40 years
Office, Tucson, Arizona 1988 40 years
Retail, Eau Claire, WI 1993 & 1994 40 years
Office, Milford, CT 1994 40 years
Office, Southborough, MA 1984 40 years
Retail, Westland, Michigan 1987 40 years
</TABLE>
- ----------
(A) The initial cost includes the purchase price paid by the Partnership and
acquisition fees and expenses. The total cost basis of the Partnership's
properties at December 31, 1997 for Federal income tax purposes was
$51,278.
(B) The mortgage note is allocated based on the cost of the real estate.
<TABLE>
<CAPTION>
(C) Reconciliation of real estate owned:
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $ 49,610 $ 49,893 $ 45,727
Additions during year 7,904 -- 4,166
Property held for sale (526) -- --
Write-off of fully depreciated property -- (283) --
-------- -------- --------
Balance at end of year $ 56,988 $ 49,610 $ 49,893
======== ======== ========
(D) Reconciliation of accumulated depreciation:
Balance at beginning of year $ 6,192 $ 5,481 $ 4,487
Write-off of accumulated depreciation -- (283) --
Depreciation expense 1,074 994 994
-------- -------- --------
Balance at end of year $ 7,266 $ 6,192 $ 5,481
======== ======== ========
</TABLE>
(E) These properties consist of two office/warehouse facilities, one in Ohio
and one in Arizona.
(F) The Ohio property was constructed in 1968, the Arizona property in 1981.
(G) These properties consist of 13 retail stores.
(H) These properties consist of 13 retail stores.
27
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE> 29
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership and has no directors or officers.
The General Partner of the Partnership is Lepercq Net 2 L.P., a Delaware limited
partnership. Lepercq Net 2 Inc., a Delaware corporation, is the general partner
of the General Partner. The directors and executive officers of Lepercq Net 2
Inc. are discussed below. The directors and executive officers of Lepercq Net 2
Inc. are responsible for the management of the Partnership's business including,
but not limited to, the acquisition of, sale of, financing or refinancing of,
making certain major capital improvements to, or leasing of, Partnership
properties.
The LCP Group, L. P. ("LCP") has granted Lexington Corporate Properties Trust,
whose chairman is chairman of the General Partner, an option to acquire the
general partnership interest currently owned by LCP in the Partnership. The
option is exercisable at any time.
The directors and executive officers of Lepercq Net 2 Inc. are as follows:
Name Position
---- --------
E. Robert Roskind President and Secretary
Denise E. DeBaun Vice President
David J. Walsh Vice President and Treasurer
Dianne R. Smith Assistant Secretary
Certain biographical information relating to the directors and executive
officers of Lepercq Net 2 Inc. is set forth below.
E. Robert Roskind, age 53, has been associated with LCP since 1973 and has been
Chairman of LCP since September 1976. He also serves as Chairman of the Board
and Co-Chief Executive Officer of Lexington Corporate Properties Trust, a Real
Estate Investment Trust traded on the New York Stock Exchange. Mr. Roskind is a
graduate of the University of Pennsylvania and Columbia Law School, and has been
a member of the New York Bar since 1970. Mr. Roskind is a director of Berkshire
Realty Company, Inc., Krupp Government Income Trust I and Krupp Government
Income Trust II.
Denise E. DeBaun, age 47, has been associated with LCP since 1981. She was a
member of the marketing department from 1986 to 1990. She also serves as an
Administrative Assistant of Lexington Corporate Properties Trust, a Real Estate
Investment Trust traded on the New York Stock Exchange. Ms. DeBaun is a graduate
of Hunter College of the City University of New York.
29
<PAGE> 30
David J. Walsh, age 31, has been associated with LCP since 1993. He has served
as Senior Vice President of LCP since January 1997 and as Director of
Acquisitions since June 1993. Prior to joining LCP, Mr. Wash was associated with
Glaxo Inc., a Fortune 500 pharmaceutical company, as a Pharmaceutical Sales
Representative. Mr. Walsh received his bachelor's degree from Western New
England College in 1989.
Dianne R. Smith, age 51, has been associated with LCP since 1988 as their
Paralegal. Ms. Smith also serves as the Paralegal to Lexington Corporate
Properties Trust, a Real Estate Investment Trust traded in the New York Stock
Exchange. Ms. Smith is a graduate of New York University where she received her
Paralegal degree.
ITEM 11. EXECUTIVE COMPENSATION
The General Partner is entitled to receive a share of cash distributions when
and as cash distributions are made to the Limited Partners, and a share of
taxable income or loss. Cash distributions of $49,000 were made to the General
Partner in 1997.
The directors and executive officers of Lepercq Net 2 Inc. received no
remuneration from the Partnership.
The General Partner and its affiliates were paid certain fees and commissions
and reimbursed for certain expenses.
Information concerning the cash distributions to the General Partner, and fees,
commissions and reimbursements paid to it or its affiliates, is contained in the
Statements of Changes in Partners' Capital (Deficit) and in Notes 3 and 7 of
Notes to Financial Statements in Item 8 above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person is known to the Partnership to be the beneficial owner of more
than 5% of the Units.
(b) None of the directors and executive officers of Lepercq Net 2 Inc. owns
any Units as of December 31, 1997.
(c) Lexington Corporate Properties Trust, an affiliate of the General Partner,
owns 3,343 units as of December 31, 1997.
30
<PAGE> 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership reimburses the General Partner or its affiliates for expenses
incurred and may pay interest on loans made in connection with acquisitions.
Leased Properties Management, Inc., an affiliate of the General Partner, is
entitled to receive a fee for managing the Partnership's Properties in the
amount of 1% of gross annual rental receipts (or a greater amount in certain
circumstances). Such fees totaled $57,000, $52,000 and $47,000, in 1997, 1996
and 1995, respectively.
Two officers of affiliates of the General Partner received acquisition fees
totaling $70,500 for the year ended December 31, 1997 and $41,000 for the year
ended December 31, 1995.
Beginning in October 1996, Lexington Corporate Properties Trust has been
reimbursed by the Partnership for various administrative services performed. For
the years ended December 31, 1997 and 1996, such reimbursements totaled $170,000
and $109,000, respectively.
Additional information with respect to the directors and officers and
compensation of the General Partner and affiliates is contained in Items 8, 10
and 11 above.
31
<PAGE> 32
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
1. Financial Statements (see index to Financial Statements filed as
part of Item 8 of this Annual Report).
2. Financial Statement Schedule (see Index to Financial Statements
filed as part of Item 8 of this Annual Report).
3. Exhibits
(3) Amended and Restated Agreement of Limited Partnership dated as
of November 9, 1988 set forth as Exhibit A to the Prospectus
included in Registration Statement Number 33-25984 is
incorporated herein by reference.
Second Amended and Restated Agreement of Limited Partnership
dated as of June 13, 1994 is incorporated herein by reference.
(10) Material contracts.
(i) Lease Agreements for the Tranzonic Properties dated
February 27, 1989.(1)
(ii) Sale-Purchase Agreement and Assignment of Purchase
Agreement for the Tranzonic Property (Arizona Property)
dated February 8, 1989 and February 28, 1989,
respectively.(2)
(iii) Sale-Purchase Agreement for the Tranzonic Property
(Ohio Property) dated February 27, 1989.(2)
(iv) Closing Loan Agreement with Dollar Dry Dock Savings
Bank.(2)
(v) Sale-Purchase Agreement for the Initial Michigan
Properties dated June 29, 1989.(3)
(vi) Sale-Purchase Agreement for the Additional Michigan
Properties dated July 31, 1989.(3)
(vii) Sale-Purchase Agreement for the Final Michigan
Properties dated August 31, 1989.(3)
(viii) Lease agreements for the Initial Michigan Properties
dated June 29, 1989.(3)
a. Genessee, Store #44.
b. Mount Pleasant, Store #54.
c. Sandusky, Store #56.
32
<PAGE> 33
(ix) Lease agreements for the Additional Michigan Properties
dated July 31, 1989.(3)
a. Adrian, Store #38.
b. Bay City, Store #35.
c. Saginaw, Store #19.
(x) Lease agreements for the Final Michigan Properties
dated August 31, 1989.(3)
a. Auburn, Store #48.
b. Benton Harbor, Store #53.
c. Flint, Store #5.
d. Grand Blanc, Store #46.
e. Owosso, Store #15.
f. Saginaw, Store #49.
g. Swartz Creek, Store #33.
(xi) Sale-Purchase agreement for the Oregon Property dated
November 16, 1989.(3)
(xii) Lease agreement for the Oregon Property dated November
16, 1989.(3)
(xiii) Lease Agreement for the Missouri Property dated March
5, 1990.(4)
(xiv) Purchase Agreement for the Missouri Property dated
March 5, 1990.(4)
(xv) Lease Agreement for the Washington Property dated March
30, 1990.(4)
(xvi) Agreement of Sale for the Washington Property dated
March 30, 1990.(4)
(xvii) Lease Agreements for the Texas Properties dated June
19, 1990.(4)
a. Irving, Store #311.
b. El Paso, Store #1120.
c. San Antonio, Store #2115.
d. San Antonio, Store #3200.
e. San Antonio, Store #3201.
f. San Antonio, Store #3207.
g. San Antonio, Store #3213.
h. San Antonio, Store #3225.
i. San Antonio, Store #3234.
j. San Antonio, Store #3235.
k. San Antonio, Store #3244.
l. San Antonio, Store #3245.
m. San Antonio, Store #3250.
n. San Antonio, Store #3253.
o. San Antonio, Store #3255.
p. San Antonio, Store #3277.
(xviii) Agreement of Sale and Purchase for the Texas
Properties dated May 16, 1990.(4)
(xix) Lease for the Ohio Property dated February 20, 1990.(4)
33
<PAGE> 34
(xx) Purchase Agreement for the Ohio Property dated July
31, 1990.(4)
(xxi) Lease Agreement for the Arizona Property dated
September 28, 1990.(4)
(xxii) Purchase Agreement for the Arizona Property dated
September 28, 1990.(4)
(xxiii) Loan Modification Agreement with Dollar Dry Dock
Savings Bank dated September 28, 1990.(4)
(xxiv) Lease Agreement with Total Petroleum, Inc. for the
Michigan Properties dated June 1, 1991.(5)
a. Adrian, Action Auto Store #38.
b. Auburn, Action Auto Store #48.
c. Bay City, Action Auto Store #35.
d. Benton Harbor, Action Auto Store #53.
e. Flint, Action Auto Store #5.
f. Genessee, Action Auto Store #44.
g. Grand Blanc, Action Auto Store #46.
h. Mount Pleasant, Action Auto Store #54.
i. Owosso, Action Auto Store #15.
j. Saginaw, Action Auto Store #19.
k. Saginaw, Action Auto Store #49.
l. Sandusky, Action Auto Store #56.
m. Swartz Creek, Action Auto Store #33.
(xxv) Lease Agreement with Everest & Jennings, Inc. for the
Missouri Property dated March 19, 1993.(6)
(xxvi) Purchase Agreement for Westland, Michigan Property
dated April 21, 1997.
(28) Additional exhibits.
(i) Appraisals for the Tranzonic Properties dated February
2, 1989 (Ohio Property) and December 23, 1988 (Arizona
Property).
(ii) Appraisals for the Michigan Properties.
a. Adrian, Action Auto Store #38.
b. Auburn, Action Auto Store #48.
c. Bay City, Action Auto Store #35.
d. Benton Harbor, Action Auto Store #53.
e. Flint, Action Auto Store #5.
f. Genessee, Action Auto Store #44.
g. Grand Blanc, Action Auto Store #46.
h. Mount Pleasant, Action Auto Store #54.
i. Owosso, Action Auto Store #15.
j. Saginaw, Action Auto Store #19.
k. Saginaw, Action Auto Store #49.
l. Sandusky, Action Auto Store #56.
m. Swartz Creek, Action Auto Store #33.
34
<PAGE> 35
(iii) Appraisal for the Oregon Property dated June 5, 1989.
(iv) Appraisal for the Missouri Property dated February 14,
1990.
(v) Appraisal for the Washington Property dated May 26,
1986.
(vi) Appraisals for the Texas Properties dated June 15,
1990.
(vii) Appraisals for the Ohio Property dated June 19, 1990.
(viii) Appraisal for the Arizona Property dated November 1
1989.
(b) Reports on Form 8-K filed in the fourth quarter of 1997.
None
(c) Exhibits. See (a)3 above.
Exhibit No. 27 Financial Data Schedule.
(d) Financial Statement schedules excluded from the Annual Report to Unit
holders.
None.
- ----------
(1) Filed with the Partnership's Form 10-Q for the quarter ended March 31,
1989. These documents are incorporated herein by reference.
(2) Filed with the Partnership's Form 10-Q for the quarter ended June 30,
1989. These documents are incorporated herein by reference.
(3) Filed with the Partnership's Form 10-Q for the quarter ended September 30,
1989. These documents are incorporated herein by reference.
(4) Filed with the Partnership's Form 10-K for the year ended December 31,
1990. These documents are incorporated herein by reference.
(5) Filed with Partnership's Form 10-K for the year ended December 31, 1991.
These documents are incorporated herein by reference.
(6) Filed with Partnership's Form 10-K for the year ended December 31, 1993.
These documents are incorporated herein by reference.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NET 2 L. P.
By: Lepercq Net 2 L. P.,
its general partner
By: Lepercq Net 2 Inc.,
its general partner
By: /s/ E. Robert Roskind By: /s/ E. Robert Roskind
---------------------------- ----------------------------------------
President Principal Financial & Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this annual report
has been signed below by the following persons on behalf of the Partnership and
in the capacities and on the date indicated.
Signature Title
--------- -----
/s/ E. Robert Roskind
- ------------------------------- President and Secretary
E. Robert Roskind
/s/ Denise E. DeBaun
- ------------------------------- Vice President
Denise E. DeBaun
/s/ David J. Walsh
- ------------------------------- Vice President and Treasurer
David J. Walsh
/s/ Dianne R. Smith
- ------------------------------- Assistant Secretary
Dianne R. Smith
Date: March 24, 1998
36
<PAGE> 1
AGREEMNT OF SALE
THIS AGREEMENT OF SALE (the "Agreement") is made this 21 day of April,
1997 by and between NANKIN ASSOCIATES, a New Jersey limited partnership, having
an office at 24 River Road, P. 0. Box 408, Bogota, New Jersey 07603 (the
"Seller") and NET 2 L.P., a Delaware limited partnership, or its assignee having
an office at 355 Lexington Avenue, New York, New York 10017 (the "Buyer") .
W I T N E S S E T H
ARTICLE 1. RECITALS
1.01. The Property. Seller is the owner of certain real property
consisting of approximately 9.7 acres of land and the buildings and improvements
constructed thereon, situated in the City of Westland, County of Wayne, State of
Michigan, as more particularly described in Exhibit "A" attached hereto and made
a part hereof. The aforesaid real property, buildings and improvements, together
with the fixtures and mechanical and utility systems thereon, are hereinafter
collectively called the "Property". The Property is subject to a lease with
Wal-Mart Stores, Inc. ("Wal-Mart") pursuant to the terms of the following
documents and agreements which are hereinafter collectively called the "Lease":
a. Free Standing Lease dated April 18, 1988 between Commerce Associates
#1160 Limited Partnership, as landlord and Pace Membership
Warehouse, Inc., as tenant;
b. Memorandum of Lease dated April 18, 1988 between landlord and
tenant, filed for record April 21, 1988 in Liber 23692, page 912 in
the Recorder's Office of Wayne, County, Michigan.
1
<PAGE> 2
c Lease Assignment and Assumption Agreement dated August 30, 1989 from
landlord to Seller filed for record September 5, 1989 in Liber 2419,
page 772 in the aforesaid records.
d. Assignment and Assumption of Lease dated to be effective on January
10, 1994 from tenant to Wal-Mart Stores, Inc. ("Wal-Mart") .
e. First Amendment to Lease Agreement dated January 10, 1994 between
Seller and Wal-Mart.
On the date hereof, the Property is subject to a Mortgage and Security
Agreement dated September 7, 1989 between Seller, as mortgagor, and Metropolitan
Life Insurance Company ("Mortgagee") , as mortgagee, recorded September 8, 1989
in Liber 24325, Page 212 of the aforesaid records and a Collateral Assignment of
Rents and Leases between Mortgagee and Seller dated September 7, 1989 and
recorded in the aforesaid records at Liber 24325, page 946 on September 8, 1989
(the "Loan Documents") ;
The Loan Documents secure a note of even date therewith in the original
principal amount of $5,700,000 (the "Note") .
The Note and Loan Documents are hereinafter referred to as the
"Obligations".
Photocopies of all of the documents constituting the Lease and the
Obligations have been delivered by Seller to Buyer.
1.02. Purpose. Seller desires to sell or cause the Property to be sold to
Buyer and Buyer desires to purchase the same, subject to the Lease and the
Obligations.
NOW, THEREFORE, in consideration of the Property and of the mutual
covenants and agreements contained herein, and other good
2
<PAGE> 3
and valuable consideration, the mutual receipt and legal sufficiency of which is
hereby acknowledged, Buyer and Seller hereby covenant and agree as follows:
ARTICLE 2. SALE AND PURCHASE
2.01. Sale and Purchase. Seller agrees to sell and convey and Buyer agrees
to purchase all of Seller's right, title and interest in and to the Property
together with (i) all right, title and interest in and to the Lease, (ii) all
right, title and interest, if any, in and to any land lying in the bed of any
street, road, or avenue, open or proposed, in front of or adjoining the
Property, to the centerline thereof, (iii) rights of way or passageways
appurtenant to or benefiting the Property, (iv) any award made or to be made on
account of any taking of any portion of the Property by any public purpose
organization or entity and any award made for damages to the Property or any
part thereof by reason of change of grade or the closing of any street, road or
avenue, (v) all strips and gores, if any, abutting or adjoining the Property,
and (vi) all other rights, benefits and privileges appurtenant to or benefiting
the Property. Seller shall execute, acknowledge and deliver to Buyer, at Closing
as hereinafter defined, all proper instruments for the assignment and collection
of any award covered by (iv) above.
2.02. Purchase Price. The purchase price for the Property shall be equal
to the sum of SEVEN MILLION FIFTY THOUSAND and 00/100 DOLLARS ($7,050,000.00)
(the "Purchase Price") which price
3
<PAGE> 4
includes the outstanding principal balance of, and accrued interest on, the
Obligations which at may 1, 1997 shall not exceed $4,743,207. The parties agree
that the actual principal balance of, and accrued interest on, the Obligations
shall be used on the Closing Date in calculating the cash portion of the
Purchase Price. The Purchase Price shall be paid to Seller by Buyer in the
following manner:
a) The Deposit. A ONE HUNDRED THOUSAND DOLLAR ($100,000.00) earnest
money deposit will be delivered by Buyer to Commonwealth Land Title Insurance
Company, 8 Penn Center, Philadelphia, Pennsylvania 19103, Attention: Gary
Sternick (the "Escrow Agent") or to such other Escrow Agent mutually agreed upon
by Buyer, and Seller, upon the execution of this Agreement, to be held in an
interest bearing account pending the Closing, which deposit shall be
non-refundable except as hereinafter described (the "Deposit") .
(i) The Escrow Agent shall hold the deposit in directobligations of
the United States of America or any instrumentalityor agency of the United
States of America, or obligationsguaranteed as to the payment of principal and
interest by theUnited States of America, or interest bearing certificates of
deposit or money market deposit account insured as to the payment of principal
and interest by the FDIC. The Deposit shall be distributed as follows:
(aa) In the event the purchase and sale of the Property closes
as contemplated by this Agreement, the Escrow Agent shall
4
<PAGE> 5
pay the Deposit plus any accrued interest to Seller at Closing and the entire
sum shall be credited against the Purchase Price.
(bb) In the event that (i) Seller has performed all of its
obligations hereunder and all of the preconditions to Closing have been
satisfied or waived (including but not limited to those set forth in Article 3)
and the Closing does not occur because Buyer violates or fails to perform any of
the terms or conditions of this Agreement, or (ii) in the event Buyer willfully
violates or fails to perform its obligations hereunder, then, after not less
than five- (5) business days notice to Buyer, the Deposit plus any accrued
interest shall be paid to and retained by Seller as liquidated damages, which
shall be the sole remedy of Seller for such breach, and this Agreement shall be
null and void and neither party shall have any further obligation to the other
hereunder.
(cc) If Seller shall be unable to sell and convey the Property
in accordance with the terms, covenants and conditions of this Agreement for any
reason whatsoever (other than the exercise by Wal-Mart of its Preferential Right
to Purchase pursuant to Section 20 of the Lease and other than Seller's willful
refusal to convey title to the Property) , then the Deposit plus any accrued
interest shall be returned to Buyer together with an amount equal to Buyer's
third party due diligence and legal expenses, not to exceed $5,000.00 in the
aggregate and thereafter neither party shall have any further obligations
hereunder, other than those, if any, which specifically survive the termination
of this Agreement.
5
<PAGE> 6
(dd) If Seller shall be unable to sell and convey the Property
in accordance with the terms, covenants and conditions of this Agreement because
of the exercise by Wal-Mart of its Preferential Right to Purchase pursuant to
Section 20 of the Lease, then the Deposit plus any accrued interest shall be
returned to Buyer together with an amount equal to Buyer's third party due
diligence and legal expenses, not to exceed $15,000.00 in the aggregate and
thereafter neither party shall have any further obligations hereunder, other
than those, if any, which specifically survive the termination of this
Agreement.
(ee) In the event that Seller willfully refuses to convey
title (as distinguished from its inability to satisfy conditions for which it is
responsible) , Buyer shall have the right to either (i) require the Deposit plus
any accrued interest to be returned to it together with an amount equal to
Buyer's third party due diligence and legal expenses not to exceed $5,000.00 in
the aggregate or (i i) pursue its remedies in law and equity, including without
limitation, a suit for specific performance and/or monetary damages.
b) The Cash Purchase Price or the remainder of the Purchase Price,
as the case may be, shall be paid by cash, wire transfer or any other
immediately available funds at Closing.
ARTICLE 3. CONDITIONS PRECEDENT TO CLOSE
The obligation of the parties hereto to each other and to otherwise
perform their respective obligations hereunder shall be
6
<PAGE> 7
subject to the following being completed at or prior to Closing or within such
time frame as is specifically designated below:
3.01. Limited Partner Consent. Buyer acknowledges that it understands that
Seller is a limited partnership and that under its Partnership Agreement, the
general partner is required to obtain the consent of a majority-in-interest of
the limited partners of Seller for the Partnership to proceed with the
transaction contemplated by this Agreement. Therefore, all of Seller's
obligations under this Agreement are entirely subject to its obtaining the
consent of a majority-in-interest of the limited partners of Nankin Associates.
Seller shall use its best efforts to obtain such consent within twenty-one (21)
days of the full execution and delivery of this Agreement. If Seller is unable
to obtain such consent this Agreement shall be deemed canceled in which event
the provisions of Section 2.02(a) (i) (cc) shall apply and this Agreement shall
be null and void and neither party shall have any further obligations to the
other hereunder.
3.02. Wal-Mart Waiver. The obligations of Buyer to buy and of Seller to
sell the Property are subject to Wal-Mart's Preferential Right to Purchase
Option contained in Section 20 of the Lease. Immediately upon execution and
delivery of this Agreement to Seller, Wal-Mart's waiver of this right will be
sought by delivery to Wal-Mart of the letter attached hereto as Exhibit C. In
the event Wal-Mart exercises its Preferential Right to Purchase Option, then
this Agreement shall be null and void, of no further
7
<PAGE> 8
force and effect, the provisions of Section 2.02 (a) (i) (dd) shall apply and
all obligations of the parties hereto to each other shall cease.
3.03. Mortgage Consent. Seller shall deliver to Buyer a writing in
recordable form which, to the satisfaction of Buyer, indicates (a) that the
Mortgagee consents to this transfer; (b) that all references to Seller and its
affiliates shall be deemed deleted from the Mortgage and Buyer or its Assignee
shall be substituted in its place; (c) the outstanding principal balance due
under the Note; (d) that there are no events of default outstanding with respect
to the respective Obligations and no event which with the passage of time or
giving of notice or both would constitute an event of default under any of the
Obligations; and (e) that upon the Closing, Seller shall assign to Buyer or its
Assignee and, Buyer or its Assignee shall assume, all of Seller's rights, duties
and obligations under the obligations as modified pursuant to this section with
respect to the Property from and after the Closing. The foregoing instrument is
hereinafter referred to as the Consent and Assignment and Assumption Agreement
or "Mortgage Agreement" in substantially the form attached hereto as Exhibit F.
Any fees or expenses related to obtaining the Mortgage Agreement from Mortgagee
or otherwise incurred in obtaining the consent of the Mortgagee shall be borne
by Seller. If Seller is unable to obtain a Mortgage Agreement from Mortgagee,
the provisions of Section 2.02(a) (i) (cc)
8
<PAGE> 9
shall apply, this Agreement shall be null and void and neither party shall have
any further obligation to the other hereunder.
3.04. Title. Title to the Property shall be (a) good and marketable and
free of all liens, encumbrances, restrictions, easements and rights of others of
record but shall be subject to the permitted title exceptions, shown of record
and approved by Buyer, none of which shall inhibit or prohibit the use and
operation of the Property as it is being used and operated on the Closing Date
(collectively the "Permitted Encumbrances,') , and (b) insurable as aforesaid at
regular standard rates pursuant to a 1992 .Form B ALTA Owner's Title Insurance
Policy with extended coverage in an amount equal to the Purchase Price.
If title to the Property cannot be conveyed to Buyer at the time of
Closing in accordance with the requirements of this Agreement, then Buyer shall
have the option:
a) of taking such title as Seller can cause to be conveyed and/or
waiving the unfulfilled condition, without abatement of the Purchase Price
(except that any existing encumbrance on the Property securing a monetary
obligation created or incurred by Seller or Tenant shall be required to be
removed forthwith by the payment of the precise amount due and owing, not
including any premium, and discharged by Seller from the proceeds of the
Purchase Price) , whereupon the parties hereto shall consummate the transaction
as contemplated and the provisions
9
<PAGE> 10
relating to the condition of title shall be deemed waived by Buyer; or
b) of terminating this Agreement by written notice to Seller,
whereupon this Agreement shall be deemed terminated as of the date of such
notice, the provisions of Section 2.02(a) (i) (cc) shall apply, and neither
Seller nor Buyer shall be further obligated to the other.
3.05. Survey. Seller shall deliver to Buyer an ALTA survey of the Property
dated after the effective date of this Agreement, certified to Buyer and Escrow
Agent showing metes and bounds of the Property and describing and locating the
Permitted Encumbrances.
3.06. Environmental-Compliance. Seller shall provide Buyer with evidence,
in the form of a Phase I Environmental Assessment dated after the date hereof
and made for Buyer's direct benefit, that the Property is not subject to the
presence of any hazardous substance, material or waste which would render the
Property environmentally de4Lec-@-ive. In the event the Phase I Environmental
Assessment is not satisfactory to Buyer, Buyer shall have the right, at its sole
cost and expense to order a Phase II Environmental Assessment. In the event
Buyer determines that the Phase II Environmental Assessment is unsatisfactory,
Buyer shall immediately notify Seller, whereupon this Agreement shall be
terminated, the Deposit and any interest earned thereon shall be returned to
Buyer and neither party shall be further obligated to the other.
10
<PAGE> 11
3.07. Deed. The deed conveying the Property to Buyer shall be a limited
warranty deed in proper form for recording in the State of Michigan and shall be
duly executed and acknowledged so as to convey to Buyer fee simple title to the
Property subject only to the Permitted Encumbrances (the "Deed") .
3.8. Contingency Date. Seller shall deliver to Buyer the Wal-Mart Waiver,
Mortgage Agreement, Title Commitment (which shall include complete and legible
copies of all recorded and unrecorded documents referenced therein) , Survey,
Environmental Assessment and notice of -receipt of the limited partner's consent
in accordance with Sections 3.01, 3.02, 3.03, 3.04, 3.05 and 3.06 hereof. if
Buyer shall consider any of such items as unsatisfactory, then Buyer must notify
Seller of its specific objection within seven (7) days of receipt thereof
provided that with respect to title, it shall be seven (7) days after Buyer's
receipt of the later of the Survey or the Title Commitment. Seller shall then
have fifteen (15) days to cure such objection to the reasonable satisfaction of
Buyer, unless Seller notifies Buyer that it will -require additional time to
cure the objection, which additional time cannot exceed fifteen (15) days,
unless otherwise agreed by the parties, at the end of which period the specific
condition precedent will be satisfied, unless waived without any adjustment to
the Purchase Price or deemed unsatisfied by Buyer. In the event any condition is
unsatisfied, the provisions of section 2.02(a) (i) (cc) shall apply, this
Agreement shall be null and void and neither party
11
<PAGE> 12
shall have any further obligations to the other hereunder. The date by which all
such items listed above shall be delivered to Buyer shall be hereinafter
referred to as the "Contingency Date" which the parties hereto agree shall be on
or before thirty (30) days after the Execution Date.
ARTICLF 4.. CLOSING AND ESCROW.
4.01. Escrow Instructions. This Agreement, together with any "General
Provisions" on Escrow Agent's standard preprinted form of escrow instructions,
shall serve as the instructions to Escrow Agent for consummation of the purchase
and sale contemplated hereby. In the event Escrow Agent fails to timely execute
and deliver counterparts of this Agreement and any supplemental instructions in
a timely manner, either Buyer or Seller may substitute as Escrow Agent hereunder
any other title or escrow company. reasonably acceptable to the other which is
willing to so execute and deliver this Agreement. Seller and Buyer agree to
execute such additional and supplemental escrow instructions as may be
appropriate to enable the Escrow Agent to comply with the terms of this
Agreement; provided, however, that in the event of any conflict between the
provisions of this Agreement and any supplemental escrow instructions, including
such General Provisions, the terms of this Agreement shall control, unless the
parties hereto specifically state that the same is meant to modify this
Agreement. The date that Escrow Agent accepts this Agreement shall be deemed the
date of "Opening of Escrow".
12
<PAGE> 13
4 .02. Closing. The Closing shall occur by mail through the Escrow Agent
or at such offices and in such manner as the parties may mutually agree. The
Closing shall occur on the later to occur of (a) sixteen (16) days after the
Contingency Date, and (b) two (2) business days after the delivery by Mortgagee
of the executed Mortgage Agreement. In the event the Mortgage Agreement is not
received by Seller on or before fourteen (14) days after the Contingency Date,
then Seller shall have the option to adjourn or postpone the Closing for up to
sixty (60) days after the Contingency Date. If the Mortgage Agreement is not
received by Seller on or before the date designated by Seller, from time to
time, as the final Closing Date (which date shall not extend beyond sixty (60)
days after the Contingency Date) then, Section 2.02(a) (i) (cc) shall apply for
all purposes. The words "Close", "Closing Date" or "Closing" shall mean the time
of recordation of the Deed, Lease Assignment and Assumption Agreement and
Mortgage Agreement.
ARTICLL 5. PRORATIONS AND.APPORTIONMENTS.
5.01. Any rents paid or payable under the Lease and interest on the
Obligations paid by Seller shall be prorated or adjusted as of the date of
Closing. Notwithstanding the foregoing, Buyer and Seller agree that the entire
percentage rent due to Seller for the Wal-Mart fiscal year ending January 31,
1998 (or if the fiscal year of Wal-Mart under the Lease is from May 1st to April
30th, then for the Wal-Mart fiscal year under the Lease ending April 30, 1998)
shall be paid to Buyer. This Article 5.01 shall survive Closing.
13
<PAGE> 14
5.02. Seller shall pay for all transfer and deed taxes, recording charges,
documentary stamps, survey preparation, Phase I Environmental Assessment, title
search and examination fees, premium for an ALTA-B owner's title insurance
policy with an amount of insurance equal to the Purchase Price of the Property,
including the Obligations assumed, and any transfer fees due Mortgagee. Buyer
and Seller shall each pay its own legal fees.
ARTICLE 6. DELIVERY OF DOCUMENTS
6.01. Additional Documents to be Delivered by Seller. Seller shall deliver
the following documents to Buyer at or prior to Closing as a condition of
Buyer's obligation to complete Closing hereunder:
a) Estoppel Letters;
i) An Estoppel Letter dated no earlier than thirty (30) days
prior to Closing and Waiver of Preferential Right to Purchase from Wal-Mart
signed by an authorized officer, substantially in the form attached hereto as
Exhibits "B" and "C".
ii) Estoppel Letter dated no earlier than thirty (30) days
prior to Closing and Consents from Mortgagee signed by authorized officers,
substantially in the form attached hereto as Exhibit "D".
b) Plans and Specifications; Any set of plans and/or working
drawings pertaining to the construction of the building and improvements which
are in possession of Seller.
14
<PAGE> 15
c) Title Policy; A 1992 ALTA owner's policy of title insurance with
extended coverage in the amount of the Purchase Price dated the Closing Date
issued by the Escrow Agent, showing title to be as described in Section 3.04
above.
d) Cash, Deed, Assignment and Assumption of Lease and Mortgage
Agreements; At Closing, Buyer shall wire transfer the Cash Purchase Price or the
remainder of the Purchase Price, as the case may be, to Escrow Agent. At that
time, Seller shall cause Escrow Agent to record and deliver to Buyer (i) the
Deed; (ii) the Lease Assignment and Assumption Agreement; and (iii) the Mortgage
Agreement. Upon recordation of the aforesaid documents, Escrow Agent shall be
authorized and directed to release the Cash Purchase Price, as adjusted, to or
at the direction of Seller and in accordance with the provisions of this
Agreement.
e) Warranties and Guarantees; An assignment (subject to any rights
of Wal-Mart therein) by Seller to Buyer of any remaining warranties or
guarantees of any general contractors, subcontractors, materialmen and equipment
suppliers performing any work on, or supplying any material to, the Property,
together with the original, executed copies of any such warranties and
guarantees in possession of Seller.
f) Licenses and Permits; An assignment of all transferable licenses,
permits, certificates and approvals, if any, existing in connection with the
Property, to the extent that any
15
<PAGE> 16
such items have not already been assigned to Wal-Mart pursuant to the Lease.
g) Environmental Compliance; Evidence in the form of a Phase I
Environmental Assessment dated after the date hereof and made for Buyer's direct
benefit that the Property is not subject to the storage, disposition or presence
of any hazardous substance, material or waste which would render the Property
environmentally defective.
h) Lease; The original executed documents, or if unavailable,
certified copies constituting the Lease, together with a Lease Assignment and
Assumption Agreement substantially in the form attached hereto as Exhibit "E".
i) Mortgage; True and correct copies of all of the executed
documents constituting the obligations, together with the Mortgage Agreement.
j) FIRPTA Certificate; An executed FIRPTA Certificate.
k) Tenant- Notice; Seller will deliver an executed notice to
Wal-Mart of the completion of the sale and directing Wal-Mart to pay all rent
and other payments thereafter due under the Lease at the direction of Buyer,
including percentage rents due under the Lease in 1998.
6.02. Documents to be Delivered by Buyer. Buyer shall deliver to Seller at
closing:
a) An executed Lease Assignment and Assumption Agreement
substantially in the form attached Exhibit "E".
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<PAGE> 17
b) Executed Mortgage Agreement.
c) Such other documents as the Holders may reasonably require.
ARTICLE 7. REPRESENTATIONS.
7.01. Seller's warranties. Seller warrants, covenants and represents to
Buyer as follows, all of which warranties, covenants and representations are and
shall be true and correct as of the date of this Agreement and shall be true and
correct as of the Closing:
a) Seller is a limited partnership duly organized and existing under
and by virtue of the laws of the State of New Jersey, and has full power and
authority to enter into this Agreement and to perform its obligations hereunder.
The limited partnership agreement of Seller provides the general partner, DVL,
Inc., with authority to execute any and all documents necessary for this
transaction assuming limited partner consent in accordance with Section 3.01
hereof is obtained. DVL, Inc. is a corporation duly organized, existing and in
good standing under and by virtue of the laws of the State of Delaware and has
full power and authority to enter into this Agreement as general partner of
Seller and to perform its obligations hereunder.
b) (i) Except for those documents constituting the Lease, there are
no other agreements, understandings or promises, oral or written, between Seller
and Wal-Mart relating to the Property, and no outstanding contracts or leases
entered into by
17
<PAGE> 18
Seller relating to the use, occupancy, maintenance or otherwise relating to the
Property.
(ii) The copy of the Lease delivered by Seller to Buyer is a
true, accurate and complete copy of the Lease and has not been further modified
or amended. Seller will not modify the Lease after the date of this Agreement
without the prior written consent of Buyer. The Lease is in full force and
effect. Other than Wal-Mart, there are no tenants, occupants or other parties
having any right or option to occupy the Property or any portion thereof.
(iii) There has been no default by Wal-Mart in the payment of
rent or any other sum of money under the Lease, nor to the knowledge of Seller
has there been any default by Wal-Mart in the performance of any other covenant,
agreement or condition contained in the Lease. There are no sums to be credited
to Wal-Mart or any setoffs against rent which may be claimed by Wal-Mart by
reason of any alterations, rental allowances, repairs, free rent or otherwise,
and Wal-Mart has not paid Seller any deposit or sum as security under the Lease.
Wal-Mart has no renewal options, purchase options or rights of first refusal
with respect to the Property except as shown in the Lease. No rents under the
Lease have been prepaid other than for the current month and Seller will not
accept any prepayment of rent, other than for the then current month, after the
date hereof. Except for the Obligations, neither the Lease nor the rents payable
thereunder have been assigned, pledged or otherwise encumbered that will not be
removed prior to
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<PAGE> 19
the Closing. No broker or other intermediary is entitled to receive any leasing,
brokerage or other compensation out of, or with respect to, rents under the
Lease.
iv) All obligations of Seller as lessor under the Lease which
shall have accrued at or prior to the Closing will have been performed at or
prior to the Closing. Seller has taken no action which would constitute a
default under the Lease or which, with notice or passage of time or both, would
constitute a default under the Lease.
c) (i) The copies of the obligations delivered by Seller to Buyer
are true, correct and complete copies thereof and have not been further modified
or amended. Seller will not modify or amend the obligations after the date of
this Agreement without the prior written consent of Buyer.
(ii) Seller has taken no action which would constitute a default
under the Obligations, or which, with notice or passage of time or both, would
constitute a default under the obligations. Seller shall, between the date
hereof and the date of closing, fully comply with all of the terms and
conditions to be performed under the Obligations. All duties, responsibilities
and agreements of Seller under the Obligations which shall have accrued at or
prior to the Closing shall have been performed at or prior to the Closing. To
the best of Seller's knowledge, there has occurred no default by the Mortgagee
in the performance of any of their respective Obligations.
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<PAGE> 20
d) No assessments for public improvements have been made against the
Property which remain unpaid and Seller has no knowledge and has received no
notice of any proposed assessment for public improvements.
e) Seller has no knowledge of any action, suit or proceeding
pending, threatened against or affecting the Property or any portion thereof
(including but not limited to a pending or threatened, or contemplated
condemnation of the Property) , or relating to or arising out of, the ownership,
management or operation of the Property.
f) There are no outstanding, uncured notices issued by any municipal
or other governmental authority, or by any insurance carrier which has issued a
policy with respect to the Property, requiring or calling attention to the need
for any work, repairs, construction or installation on, about, or in connection
with the Property.
g) The Property is properly zoned (or any variances required have
been properly obtained) for the operation of the building and improvements
presently being operated thereon, and all necessary governmental consents,
permits and approvals for such use and operation have been obtained. Neither the
execution of this Agreement nor the conveyance to be made pursuant hereto
constitute a subdivision or require any consent, approval or permit of any
governmental authority.
h) To the best of Seller's knowledge without conducting any
independent investigation, the building and improvements
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<PAGE> 21
constructed on the Property are presently in good order and repair, the roof is
free from leaks and there currently are no maintenance or repair contracts
pending or in progress relating to the Property.
i) Buyer (as to the Property) and the Property will be free of any
employment, management, equipment, supply or maintenance contracts which in any
way affect the Property and Buyer shall be under no obligations to hire, or
recognize any responsibility to, any person, persons or companies employed by
Seller in connection with the operation of the Property. Notwithstanding the
aforesaid, Seller makes no representation or warranty with respect to any
contracts made by Wal-Mart.
j) At the Closing, there will be no debts, liabilities or
obligations of Seller arising from the ownership and operation of the Property,
including, but not limited to, salaries, taxes, rates, levies and assessments
which may entitle any third party to file any lien(s) or charge(s) against the
Property.
k) To the best of Seller's knowledge, without any independent
investigation, all water, sewer, gas, electric, telephone and drainage
facilities, and all other utilities required by law or by the normal operation
of the Property are installed to the Property lines and connected to the
Property with valid permits and are adequate to service the Property so as to
permit full compliance with all existing requirements of law and normal usage of
the improvements. To the best of Seller's knowledge, without any independent
investigation, all electrical, mechanical, plumbing
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<PAGE> 22
and similar systems on the Property are in good repair and working order.
1) The Closing contemplated by this Agreement will not constitute or
result in any default or event that with notice or lapse of time, or both, would
be a default, breach or violation of any lease, mortgage, deed of trust,
covenant or other agreement, instrument or arrangement by which Seller or the
Property is bound. Seller is not in default under any notice, evidence of
indebtedness, lease, contract, license, undertaking or other agreement where the
liability thereunder might adversely affect Seller's liability to perform its
obligations under this Agreement.
m) Seller will pay all bills and claims in connection with the
construction or any repair of any improvements for work done prior to Closing.
Seller shall have the right to contest the same, but shall not allow any lien
foreclosure to be consummated on the Property or any part thereof or interest
therein with respect to any such bill or claim. If any claim is contested,
Seller shall deposit cash, bond, or letter of credit with the Title Company,
sufficient to satisfy such lien and to cause the Title Company to affirmatively
insure against collection thereon, and the closing will proceed as though the
lien(s) was (were) satisfied.
n) To the best of Seller's knowledge without conducting any
independent investigation, Seller has all of the necessary licenses, permits,
easements and rights-of-way for the conduct and operation of the Property for
the purposes for which they will be conducted and operated pursuant to the
Lease.
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<PAGE> 23
o) If prior to Closing, Seller becomes aware of any fact or
circumstance which would change a representation or warranty, then Seller will
immediately give notice of such changed fact or circumstance to Buyer, but such
notice shall not relieve Seller of its liabilities or obligations with respect
thereto. At Closing, Seller shall be deemed to state that all of the
representations and warranties contained in this Section 7.01 are true and
correct as of the Closing, except as to facts, if any, concerning which Buyer
was notified.
ARTICLE 8. MT
8.01- Brokers. Seller and Buyer each warrant and represent to the other
that the only broker they have dealt with in connection with this transaction is
Progressive Properties, Inc., 487 Woodmen Road, Suite 105, Colorado Springs, CO
80-919, ATTN: Richard M. Terzian (the "Broker") A total commission of $80,000
shall be paid to the Broker by Seller at Closing. In the event that any other
claim is asserted by any other person, firm or corporation, whether a broker or
otherwise, claiming a commission and/or finder's fee in respect to this
transaction resulting from any act, representation or promise of Buyer or
Seller, as the case may be, the party making such representation or promise or
committing such act shall indemnify and save harmless the other from all loss,
costs or expenses caused by any such claim.
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<PAGE> 24
8.02. Damage or Destruction, Between the date hereof and Closing, Seller
assumes the full risk for any damage or destruction to the Property by fire or
the elements. The cost of the work of restoring, rebuilding, repairing and
replacing shall be borne by Seller, at its sole cost and expense, prior to the
Closing. Seller shall have an affirmative obligation to repair or cause the
repair of the damage or destruction referred to herein, but, in the event that
any damage or destruction to the Property cannot be repaired by the Closing,
Buyer may, at its election: a) consummate the purchase contemplated hereunder by
paying the Purchase Price herein set forth less only the amount of any
deductible under Seller's policy of insurance, with Buyer either (i) receiving
the proceeds of any insurance paid in connection with such damage or (ii)
receiving the affirmative undertaking of Wal-Mart that it is repairing and
restoring the Property at its sole cost and expense; or b) cancel this Agreement
by written notice to Seller, in which case the Deposit plus any accrued interest
shall be immediately returned to Buyer without offset and neither of the parties
hereto shall have any further liability or obligation hereunder.
8.03. Condemnation. If, prior to Closing, all or any part of the Property
shall be condemned by governmental or other lawful authority, then this
Agreement shall be null and void, the deposit and interest accrued thereon shall
be returned to Buyer, and neither party shall have any further liability
hereunder.
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<PAGE> 25
If prior to Closing, all or any part of the Property shall be subject to a
threat of condemnation by governmental or other lawful authority, then Buyer
may, at its election, cancel this Agreement, in which event the Deposit plus any
accrued interest shall be returned to Buyer without offset and neither party
shall have any further liability hereunder.
8.04. Notices. All notices, demands or other communications which are
required or permitted to be given hereunder shall be in writing and shall be
personally delivered or sent by registered or certified mail, postage prepaid,
return receipt requested, or by telecopy or Federal Express or similar delivery
service, addressed to the respective parties as follows:
If to Seller:
Nankin Associates
24 River Road
P. 0. Box 408
Bogota, New jersey 07603
Attention: Peter Gray
with a copy to:
c/o DVL, Inc.
24 River Road
P. 0. Box 408
Bogota, New Jersey 07603
Attention: Daniel Baldwin, Esq.
If to Buyer:
Net 2 L.P.
c/o The LCP Group
355 Lexington Avenue
New York, NY 10017
Attention: Richard Rouse, President
25
<PAGE> 26
with a copy to:
Paul, Hastings, Jenofsky & Walker
399 Park Avenue.
31st Floor
New York, NY 10022
Attention: Richard C. Hamlin, Esq.
or to such other address as either party may from time to time designate by
notice to the other given in accordance with this section. Notice shall be
deemed to have been given upon the receipt thereof in the case of personal
delivery, or upon deposit in the U.S. mail in the case of mailing, or upon
delivery to the delivery service in the case thereof.
8.05. Right to Assignment. Buyer shall assign its rights under this
Agreement to a single purpose entity which may be a subsidiary of Buyer or
Lexington Corporate Properties, The LCP Group, East Wells Corporation or Net 1
L.P. without the consent of Seller. The term "Buyer" as used herein shall be
deemed to include any assignee of Buyer..
8.06. Exculpation. This Agreement is executed by the authorized
representatives of Buyer and Seller, not individually. All persons dealing with
Buyer or Seller must look solely to the assets of Buyer or of Seller for the
enforcement of any claim against it. The obligations hereunder are not binding
upon, nor shall resort be had to, the private property of any of the partners,
directors, officers, advisors, employees or agents of Buyer or Seller.
8.07. Interpretation. This Agreement shall be governed by the laws of the
State of Michigan. The captions of articles, sections and subsections used in
this Agreement are for
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<PAGE> 27
convenience only. The singular. shall include the plural, and the masculine,
feminine and neuter genders shall include the others. The provisions hereof
shall be binding upon and inure to the benefit of the successors and assigns of
Seller and Buyer. In the event any portion of this Agreement shall be declared
by any court of competent jurisdiction to be invalid, illegal or unenforceable,
such portion shall be deemed severed from this Agreement, and the remaining
parts hereof shall remain in full force and effect, as fully as though such
invalid, illegal or unenforceable portion had never been part of this Agreement.
8.08. Additional Documents. From time to time prior to and at the Closing,
each party shall execute and deliver such instruments of transfer and other
documents as may be reasonably requested by the other party to carry out the
purpose and intent of this Agreement. Any amendments to this Agreement must be
in writing signed by all parties hereto. Any waivers provided for in this
Agreement must be made in writing by the party to be bound thereby.
8.09. No Recording. This Agreement shall not be lodged for record in any
place or office of public record. If Buyer records this Agreement, Seller, at
its option, may cancel this Agreement and retain the deposit as liquidated
damages; provided, however, the filing or recording of this Agreement as part of
any proceedings instituted in any court of proper jurisdiction to enforce the
provisions of this Agreement shall not be deemed a breach of this Section 8.09.
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<PAGE> 28
8.10. Property Sold "As Is". Except as otherwise provided herein, Buyer is
purchasing the Property "as is, where is, with all faults".
8.11. Binding Effect. This Agreement shall be binding upon and shall
benefit the parties hereto and their respective heirs, successors and assigns.
8.12. Attorney's Fees. In the event the Closing fails to occur and either
Seller or Buyer shall commence legal proceedings for the purpose of enforcing
Section 2.02(a) and/or Section 8.01, then the successful party in such
proceeding shall be entitled to reasonable attorney's fees and costs as
determined by the court. In the event the Closing occurs and either Seller or
Buyer shall commence legal proceedings with respect to a breach of any term or
provision of Article 7 or Section 8.01, then the successful party in such
proceeding shall be entitled to reasonable attorney's fees and costs as
determined by the court.
8.13. Dependency and Survival of Provisions. The respective warranties,
representations, covenants, agreements, obligations and undertakings of Seller
and Buyer hereunder shall be construed as dependent upon and given in
consideration of those of the other party, and shall survive the Closing and the
delivery of the Deed.
8.14. Publicity. Prior to Closing, Buyer and Seller agree that no press
release or other public disclosure shall be made by it or any of its agents
concerning this transaction without the prior written consent of the other
party. This provision shall not be deemed to prohibit governmentally required
disclosures.
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<PAGE> 29
8.15. Entire Agreement. This Agreement, including the Exhibits annexed
hereto, represents the entire agreement between the parties with respect to the
Property, and may not be modified or terminated except by agreement, in writing,
signed by the parties. There are no representations, agreements, arrangements,
or understandings, oral or written, relating to the subject matter which are not
fully expressed herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Sale the day and year first above written.
SELLER:
NANKIN ASSOCIATES
By: DVL, Inc.,
general partner
Witness:
________________________________ By:____________________________
(Corporate Seal) Joyce K. Helman
Asst. Vice President
BUYER:
NET 2 L.P.
By: Lepercq Net 2 L.P.
By: Lepercq Net 2 Inc.
ATTEST:
________________________________ By:____________________________
(Corporate Seal) Name: Antonia G. Trigiani
Title: Vice President
29
<PAGE> 30
STATE OF NEW JERSEY )
) ss.:
COUNTY OF BERGEN )
Before me, a Notary Public, in and for said State and County, personally
appeared Joyce K. Helman, known to me to be the person, who, as the Asst. Vice
President of DVL, INC., general partner of NANKIN ASSOCIATES, the corporation
which executed the foregoing instrument, signed the same, and acknowledged to me
that.she signed said instrument in the name and upon behalf of said corporation,
as her free act and deed; that4le was duly authorized by the board of directors
of said corporation.
In witness whereof, I have subscribed my name this 21st day of April,
1997.
_____________________________________
Notary Public
(Seal)
My commission expires:_______________
JODY L. WINSICK-SOWRI
Notary Public, State of Now Jersey
No. 2193991
Qualified in Bergen County
Commission Expires September 25. 2001
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
Before me, a Notary Public, in and for said State and County, personally
appeared Antonia G. Trigiani, known to me to be the person who as Vice President
of Lepercq Net 2 Inc., the corporation which executed the foregoing instrument,
signed her name, and acknowledged to me that she signed said instrument in the
name and on behalf of said corporation, as her free act and deed, that she was
duly authorized by the board of directors of said corporation.
In witness whereof, I have subscribed my name this 18th day of April,
1997.
_____________________________________
Notary Public
(Seal)
My commission expires:_______________
DAWN M. SCHOENIG
Notary Public, State of New York
No. 52-4900811
Qualified in Suffolk County
Commission Expires August 3. 1997
30
<PAGE> 31
EXHIBITS
A. Legal Description
B. Tenant Estoppel
C. Tenant Waiver
D. Mortgagee Estoppel
E. Assignment and Assumption of Lease
F. Mortgage Agreement
31
<PAGE> 32
EXHIBIT A
A parcel of land in the Southwest one quarter of Section 4 and in the Southeast
one-quarter of Section 5, Town 2 South, Range 9 East, City of Westland, Wayne
County, Michigan, described as follows:
Commencing at the West one-quarter corner of Section 4, Town 2 South, Range 9
East, (Also being the East one-quarter corner of Section 5, Town 2 South, Range
9 East) and proceeding thence along the West line of Section 4, South 1 degree
28 minutes 00 seconds East, 342.75 feet to the point of beginning of the parcel
herin described, said point being on the South line of Nankin Boulevard (86 feet
wide) ; thence along the East line of Section 5, South 1 degree 28 minutes 00
seconds East, 295.83 feet; thence South 78 degrees 24 minutes 45 seconds West,
78.58 feet; thence South 11 degrees 35 minutes 15 seconds East 440.22 feet to a
point on the East line of Section 5 and the West line of Section 4; thence
continuing into the Southwest one-quarter of Section 4, South 11 degrees 35
minutes 15 seconds East, 59.78 feet to a point on the North line of Cowan Road
(93 feet wide) ; thence along said North line of Cowan Road South 78 degrees 24
minutes 45 seconds West, 10.67 feet to a point on the West line of Section 4 and
the East line of Section 5; thence continuing into the Southeast one-quarter of
Section 5 along said North line of Cowan Road, South 78 degrees 24 minutes 45
seconds West, 6.33 feet; thence South 76 degrees 54 minutes 00 seconds West
340.60 feet and South 74 degrees 30 minutes 15 seconds West 144.86 feet along
said North line of Cowan Road; thence North 11 degrees 35 minutes 15 seconds
West of 687.39 feet; thence along the Southerly line of Nankin Boulevard on the
following three courses: North 49 degrees 29 minutes 30 seconds East, 199.60
feet; thence along the arc of a curve concave to the South 538.63 feet, (radius
712.44 feet, central angle 43 degrees 19 minutes 03 seconds, chord North 71
degrees 09 minutes 02 seconds East, 525.89 feet) thence South 87 degrees 11
minutes 27 seconds East, 6.42 feet to the point of beginning.
TAX ID NO: 56 020 99 0007 007
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<PAGE> 33
[LETTERHEAD OF WAL*MART]
EXHIBIT B
Subject: Sam's Club #6666
Westland, Michigan
Estoppel Certificate
Gentlemen:
Wal-Mart Stores, Inc. is a tenant of Nankin Associates LP by virtue of a lease
dated April 18, 1988, as amended January 10, 1994, with respect to certain real
property located in Westland, Michigan (the "Property") .
We understand this letter and the information contained herein is a necessity to
your determination of whether or not you will acquire the Property.
Except as noted herein below, Wal-Mart certifies and affirms to the best of
knowledge that:
a. The Lease has not been modified and is in full force and effect as
written.
b. The Leased Premises at 35400 Central City Parkway, Westland,
Michigan have been accepted for possession by Wal-Ma--t on or about
January 10, 1994 by virtue of an Assignment of-Lease from Pace
Membership Warehouses, Inc.
C. The Annual Base Rent due and payable under the Lease is the sum of
$752,776.79 due and payable on or before the first day of each and
every month in the amount of $62,731.40.
d. Wal-Mart has no charge, lien, claim or off-set under the Lease, or
otherwise, against the rents required thereunder.
e. No rentals required under the Lease have been paid for more than 30
days in advance of their due date.
The following requirements, representations, conditions and obligations of
Nankin Associates LP and, pursuant to the terms of the Lease, have been
satisfied and complied with to the satisfaction of Wal-Mart:
1. Any lien or claim against the property which is of record:
a. To the best of our knowledge, none at this time.
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<PAGE> 34
Page 2
Estoppel Certificate
Sam's Club #6666
2. Maintenance required to repair the following items:
a. To the best of our knowledge, none at this time.
The information provided and the representations made herein are intended only
for the use of DVL, Inc. other parties having information and knowledge to the
contrary should not rely on representations made herein as a waiver of any
rights, warranties, or credits of Wal-Mart Stores, Inc.
Wal-Mart Stores, Inc. requires written notification of any change of address
necessitated by the above contemplated change of ownership. The representations
made herein are hereby made specifically contingent upon receipt by Wal-Mart of
copy of the document evidencing change of ownership, the assignment of lease,
along with a cover letter from the Lessor or previous Lessor acknowledging the
changes. Wal-Mart will not be responsible for untimely payment of rent that
results from the failure of the parties to follow the procedures.
_______________________________
Property Management
Attest: Wal-Mart Stores, Inc.
________________________ _______________________________
Name:
Title:
STATE OF
COUNTY OF
On the ___ day of 1997, before me personally came _________________ to me known,
who, being by me duly sworn, did depose and say that he is _____________________
of Wal Mart Stores Inc., the corporation described in which executed the
foregoing instrument and that he signed his name thereto by order of the board
of directors.
_____________________________________
Notary Public
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<PAGE> 35
EXHIBIT C
NANKIN ASSOCIATES LP
Wal-Mart Stores, Inc.
ATTN: Property Manager
702 S.W. Eighth St.
P.0. Box 116
Bentonville, AR 72712
Re: Sam's Club #6666 Westland, Michigan
Dear Sir/Madam:
Nankin Associates LP, Landlord of the above referenced store, has received
a bona fide third party offer to purchase the store pursuant to the terms of the
Agreement of Sale annexed hereto.
Pursuant to Section 27 of the Lease dated April 18, 1988 covering the
Premises, Wal-Mart has the right to purchase the store at the terms described in
said annexed Agreement. Please sign the enclosed copy of this letter indicating
your intentions to waive or exercise this option and return it to the
undersigned by fax to 201-487-2029 and by mail in the enclosed envelope.
Very truly yours,
NANKIN ASSOCIATES LP
By: DVL, Inc., general partner
By: _________________________
Name:
Title:
Wal-Mart Stores, Inc. hereby chooses to
waive its First Refusal to Purchase Option
_______________________________________
Name:
Title:
Wal-Mart Stores, Inc. hereby chooses to
exercise its First Refusal to Purchase Option
_______________________________________
Name:
Title:
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<PAGE> 36
EXHIBIT D
ESTOPPEL CERTIFICATE
Nankin Associates LP
24 River Road
P.O. Box 408
Bogota, NJ 07603
NET 2 L.P.
355 Lexington Avenue
New York, NY 10017
MORTGAGEE: Metropolitan Life Insurance Company
2001 Spring Road, Suite 400
Oakbrook, IL 60521-1813
Loan #700227
MORTGAGOR: Nankin Associates LP
SECURED PREMISES: 35400 Cowan Road
Westland, Michigan 48185
The undersigned, Mortgagee, hereby warrants and represents that:
1. The loan is evidenced by a Note dated September 7, 1989 in the original
principal amount of $5,700,000 and secured by a Mortgage of even date
therewith recorded with the Register of Deeds, Wayne County, Michigan, in
Liber 24325, page 212 (the "Mortgage") .
2. The total monthly payments of $56,908 required under the Note, including
interest of 10-1/2 percent, have been paid to ____________________. The
Mortgage has a current outstanding balance of $___________.
3. The obligation is in full force and effect and Mortgagee has no knowledge
of any event of default under the Mortgage or any other document
evidencing or securing the Note.
4. The undersigned is a duly authorized officer of Mortgagee and is empowered
to execute this Estoppel letter.
5. This Estoppel Letter is made to and for the benefit of Net 2 L.P. or its
assigns in connection with its acquisition of the above referenced Secured
Premises. Mortgagee understands and acknowledges that Net 2 L.P. will rely
upon the representations made herein in consummating such acquisition.
36
<PAGE> 37
ATTEST: METROPOLITAN LIFE INSURANCE COMPANY
By: _____________________ By: _______________________
Name: Name:
Title: Title:
37
<PAGE> 38
EXHIBIT "E"
LEASE ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS LEASE ASSIGNMENT AND ASSUMPTION AGREEMENT made this _________ day of
_________ 1993 by and between NANKIN ASSOCIATES LP, having an address at
24 River Road, Bogota, New Jersey 07603 (the "Assignor") and
______________. having an address at (the "Assignee") .
W I T N E S S E T H
Contemporaneously with the execution and delivery hereof, the Assignor has
sold to the Assignee certain land and the buildings and improvements thereon,
located in the State of Michigan, County of Wayne, and described in Exhibit "All
attached hereto and made a part hereof (the "Property") . In connection with the
sale of the Property, the Assignor has agreed to assign all leases affecting the
Property to the Assignee.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the sufficiency and receipt of which, prior to the
execution hereof, is hereby acknowledged, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. The Assignor hereby conveys, assigns, transfers and sets over to the
Assignee all of its right, title and interest in, under and to the following
agreements, which are hereinafter collectively called the "Lease":
a. Free Standing Lease: Tenant Build-to-Suit Lease dated April 18, 1988
between Commerce Associates #1160 Limited Partnership ("Commerce")
and Pace Membership Warehouse, Inc. ("Pace") ;
b. Memorandum of Lease dated April 18, 1988 between Pace and Commerce,
recorded in the Recorder's office of Wayne County, Michigan in Liber
23692, Page 912 on April 21, 1988; and
c. Lease Assignment and Assumption Agreement dated August 30, 1989
between Commerce and Seller recorded as aforesaid in Liber 2419,
page 772 on September 5, 1989.
d. Assignment and Assumption of Lease effective on January 10, 1994
from Pace to Wal-Mart Stores, Inc. ("Wal-Mart") -
e. First Amendment to Lease Agreement dated January 10, 1994 between
Seller and Wal-Mart.
2. Assignee hereby accepts the conveyance, transfer and assignment of the
Lease and assumes, from and after the date hereof, the obligations of the
Assignor under the Lease.
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<PAGE> 39
3. All of the documents constituting the Lease have been delivered to the
Assignee simultaneously with the execution hereof. The Assignor represents and
warrants that the Lease has not been modified, altered or amended and that other
than the Lease, there are no contracts or agreements with tenants or occupants
affecting any portion of the Property.
IN WITNESS WHEREOF, the parties have executed and delivered this
Lease Assignment and Assumption Agreement as of the day and year first above
written.
ASSIGNOR:
ATTEST: NANKIN ASSOCIATES LP
By: DVL, INC.
general partner
___________________________ By:_________________________________
Name:
Title:
(Corporate Seal)
ASSIGNEE:
ATTEST:
___________________________ By:_________________________________
Name:
Title:
39
<PAGE> 40
STATE OF NEW JERSEY )
) Ss.:
COUNTY OF BERGEN )
On the ______ day of ____________ 1997, before me personally came
______________________, to me known, who, being by me duly sworn, did depose and
say that he is of DVL, INC., general partner of Nankin Associates LP, the
corporation described in and which executed the foregoing instrument, that he
signed his name thereto by order of the board of directors of said corporation.
_____________________________
Notary Public
STATE OF )
) Ss.:
COUNTY OF )
On the ________ day of ____________ 1997, before me came
___________________ to me known, who being by me duly sworn, did depose and say
that he is the __________________ of which executed the foregoing instrument,
that he signed his name thereto as a duly authorized representative of said
group.
_____________________________
Notary Public
Prepared by:
_________________________
40
<PAGE> 41
EXHIBIT A
A parcel of land in the Southwest one-quarter of Section 4 and in the Southeast
one-quarter of Section 5, Town 2 South, Range 9 East, City of Westland, Wayne
County, Michigan, described as follows:
Commencing at the West one-quarter corner of Section 4, Town 2 South, Range 9
East, (Also being the East one-quarter corner of Section 5, Town 2 South, Range
9 East) and proceeding thence along the West line of Section 4, South 1 degree
28 minutes 00 seconds East, 342.75 feet to the point of beginning of the parcel
herein described, said point being on the South line of Nankin Boulevard (86
feet wide) ; thence along the East line of Section 5, South 1 degree 28 minutes
00 seconds East, 295.83 feet; thence South 78 degrees 24 minutes 45 seconds
West, 78.58 feet; thence South 11 degrees 35 minutes 15 seconds East 440.22 feet
to a point on the East line of Section 5 and the West line of Section 4, thence
continuing into the Southwest one-quarter of Section 4, South 11 degrees 35
minutes 15 seconds East, 59.78 feet to a point on the North line of Cowan Road
(93 feet wide) ; thence along said North line of Cowan Road South 78 degrees 24
minutes 45 seconds West, 10.67 feet to a point on the West line of Section 4 and
the East line of Section 5, thence continuing into the Southeast one-quarter of
Section 5 along said North line of Cowan Road, South 78 degrees 24 minutes 45
seconds West, 6.33 feet; thence South 76 degrees 54 minutes 00 seconds West
340.60 feet and South 74 degrees 30 minutes 15 seconds West 144.86 feet along
said North line of Cowan Road; thence 11 degrees 35 minutes 15 seconds West,
687.39 feet; thence along the Southerly line of Nankin Boulevard on the
following three courses: North 49 degrees 29 minutes 30 seconds East, 119.60
feet; thence along the arc of a curve concave to the South 538.63 feet, (radius
712.44 feet, central angle 43 degrees 19 minutes 03 seconds, chord North 71
degrees 09 minutes 02 seconds East, 525.89 feet) thence South 87 degrees 11
minutes 27 seconds East, 6.42 feet to the point of beginning.
TAX ID NO: 56 020 99 0007 007
41
<PAGE> 42
EXHIBIT F
Record and Return To:
Richard C. Hamlin Esq.
Paul, Hastings, Janofsky & Walker
399 Park Avenue
New York, NY 10022
MORTGAGE AND SECURITY AGREEMENT
MODIFICATION, CONSENT AND
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT MODIFICATION, CONSENT AND ASSIGNMENT
AND ASSUMPTION AGREEMENT is made as of the ______ day of _____ 1997 by and among
METROPOLITAN LIFE INSURANCE COMPANY ("Lender") , NANKIN ASSOCIATES LP
("Seller"), and NET 2 L.P. (""Buyer")
W I T N E S S E T H:
WHEREAS, Lender is the owner and holder of a certain Note Secured by
Mortgage dated September 7, 1989 in the original principal amount of
$5,700,000.00 made by Seller (the "Note") ;
WHEREAS, the Note is secured by a certain Mortgage and Security Agreement
dated September 7, 1989 (the "Mortgage") recorded in Liber 24325 Page 212 in the
records of Wayne County, Michigan which Mortgage encumbers certain real property
in Wayne County, Michigan more particularly described in Exhibit "A" annexed
hereto and incorporated herein by reference (the "Property") ;
WHEREAS, the Note is also secured by a Collateral Assignment of Leases and
Rents dated September 7, 1989 (the "Assignment") recorded in Liber 24325, page
946, in the Records of the aforesaid office; and
WHEREAS, Lender is willing to consent to the conveyance of title to the
Property by Seller to Buyer, the assignment by Seller and assumption by Buyer of
Seller's obligations under the Note, the Mortgage and the Assignment
(collectively the "Loan Documents") and the modification and amendment of the
Mortgage and the other Loan Documents subject to and in accordance with the
terms and conditions hereinafter set forth.
42
<PAGE> 43
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements of the parties hereinafter set forth, the parties agree as
follows:
1. Consent. Lender hereby consents to the conveyance and transfer of title
to the Property by Seller to Buyer and the assumption by Buyer of Seller's
obligations under the Loan Documents.
2. Assignment. Seller hereby assigns to Buyer all of Seller's right, title
and interest in and to the Note, the Mortgage and the Assignment, and all other
documents securing the Note, to have and to hold the same unto Buyer, its
successors and assigns, provided however, Seller shall remain liable for any and
all obligations under the Loan Documents (other than the principal amount due
under the Note) arising or accruing prior to the date hereof and which have not
been performed or discharged by Seller as of the date hereof.
3. Assumption. Buyer hereby accepts the assignment of Seller's interest in
the Loan Documents and, from and after the date hereof, hereby assumes and
agrees to be bound by the provisions of the Loan Documents, as herein modified
and amended, including, but not limited to, the obligation to make all payments
due under the Note and to perform and observe all of the covenants and
agreements under the Loan Documents in accordance with their terms and
conditions as herein modified and amended.
4. Status of Loan Documents.
(a) As of ___________ 1997, the outstanding principal balance due under
the Note is $ ___________.
(b) As of the date hereof, Seller represents and warrants, and Lender
represents and warrants to the best of its knowledge without inquiry, there are
no events of default outstanding under any of the Loan Documents and there is no
event which with the giving of notice or the passage of time or both would
constitute an event of default under any of the Loan Documents.
5. Modification and Amendment.
(a) As of the date hereof, all references to the Seller and
43
<PAGE> 44
its affiliates, (including but not limited to, Kenbee Management, Inc.) set
forth in the Note, the Mortgage and the Assignment are hereby deleted and Buyer
and its affiliates are substituted in their place.
(b) For purposes of Paragraph 3.04 of the Mortgage, Borrower's address is:
Net 2 L.P.
355 Lexington Avenue
New York, NY 10017
Attention: Richard J. Rouse
6. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original regardless of date of execution or delivery
and together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date and year first above written.
LENDER:
ATTEST: METROPOLITAN LIFE INSURANCE COMPANY
__________________________ ___________________________________
Name:
Title:
SELLER:
ATTEST: NANKIN ASSOCIATES LP
By: DVL, INC., General Partner
__________________________ By:________________________________
Name:
Title:
BUYER:
ATTEST: NET 2 L.P.
By:___________________ General Partner
__________________________ By:________________________________
Name:
Title:
44
<PAGE> 45
STATE OF )
) ss.:
COUNTY OF )
On the ____________ day of _______________ 1997, before me came
________________ to me known, who being by me duly sworn, did depose and say
that (s) he is the ______________________ of Metropolitan Life Insurance
Company, which executed the foregoing instrument, that he/she signed his/her
name thereto as a duly authorized representative of said group.
______________________________________
Notary Public
(Seal)
My commission expires:________________
STATE OF NEW JERSEY )
) ss.:
COUNTY OF BERGEN )
On the __________ day of ___________ 1997, before me, a Notary Public, in
and for said State and County, personally appeared, ___________________ known to
me to be the person, who as _____________ of DVL, Inc., general partner of
Nankin Associates LP, the corporation which executed the foregoing instrument,
signed the same, and acknowledged to me that he signed said instrument in the
name and upon behalf of said corporation, as his free act and deed; that he was
duly authorized by the board of directors of said corporation.
By:
______________________________________
Notary Public
(Seal)
My commission expires:________________
45
<PAGE> 46
STATE OF )
) ss.:
COUNTY OF )
Before me, a Notary Public, in and for said State and County, personally
appeared __________________, known to me to be the person, who as
_________________ of NET 2 L.P., which executed the foregoing instrument, signed
the same, and acknowledged to me that he signed said instrument as his free act
and deed.
By:
______________________________________
Notary Public
(Seal)
My commission expires:________________
46
<PAGE> 47
EXHIBIT A
A parcel of land in the Southwest one-quarter of Section 4 and in the Southeast
one-quarter of Section 5, Town 2 South, Range 9 East, City of Westland, Wayne
County, Michigan, described as follows:
Commencing at the West one-quarter corner of Section 4, Town 2 South, Range 9
East, (Also being the East one-quarter corner of Section 5, Town 2 South, Range
9 East) and proceeding thence along the West line of Section 4, South 31 degree
28 minutes 00 seconds East, 342.75 feet to the point of beginning of the parcel
herein described, said point being on the South line of Nankin Boulevard (86
feet wide) ; thence along the East line of Section 5, South 1 degree 28 minutes
00 seconds East, 295.83 feet; thence South 78 degrees 24 minutes 45 seconds
West, 78.58 feet; thence South 11 degrees 35 minutes 15 seconds East 440.22 feet
to a point on the East line of Section 5 and the West line of Section 4; thence
continuing into the Southwest one-quarter of Section 4, South 11 degrees 35
minutes 15 seconds East, 59.78 feet to a point on the North line of Cowan Road
(93 feet wide) ; thence along said North line of Cowan Road South 78 degrees 24
minutes 45 seconds West, 10.67 feet to a point on the West line of Section 4 and
the East line of Section 5; thence continuing into the Southeast one-quarter of
Section 5 along said North line of Cowan Road, South 78 degrees of 24 minutes 45
seconds West, 6.33 feet; thence South 76 degrees 54 minutes 00 seconds West
340.60 feet and South 74 degrees 30 minutes 15 seconds West 144.86 feet along
said North line of Cowan Road; thence North 11 degrees 35 minutes 15 seconds
West, 687.39 feet; thence along the Southerly line of Nankin Boulevard on the
following three courses: North 49 degrees 29 minutes 30 seconds East, 119.609
feet; thence along the arc of a curve concave to the South 538.63 feet, (radius
712.44 feet, central angle 43 degrees 19 minutes 03 seconds, chord North 71
degrees 09 minutes 02 seconds East, 525.89 feet) thence South 87 degrees 11
minutes 27 seconds East, 6.42 feet to the point of beginning.
TAX ID NO: 56 020 99 0007 007
47
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE BALANCE SHEET
AS OF DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,180,826
<SECURITIES> 0
<RECEIVABLES> 2,053,748
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 56,987,063
<DEPRECIATION> (7,265,796)
<TOTAL-ASSETS> 55,001,015
<CURRENT-LIABILITIES> 0
<BONDS> 22,105,807
0
0
<COMMON> 0
<OTHER-SE> 32,447,334
<TOTAL-LIABILITY-AND-EQUITY> 55,001,015
<SALES> 0
<TOTAL-REVENUES> 5,933,938
<CGS> 0
<TOTAL-COSTS> 1,073,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,875,412
<INCOME-PRETAX> 2,364,129
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,364,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,364,129
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
