Richard A. Bird

Route 131 P. O. Box 157 Tenants Harbor, ME 04860 (207) 372-6296

February 5, 1996

Memorandum to: All Interested Parties in The Pearl Restaurant

Virginia Larsen

Peter & Nadia Larsen

George & Becky Woods

John Flint

Jeff Armstrong

Steve Little

Steve Peterson

Stephen Hanscom

William Atwood

Maynard Prock

Just a little over a year ago after a meeting with Virginia, I decided to try to make a business out of the rubble at the Black Pearl. The city and health inspectors had condemned the place, and I agreed to put together a deal to raise the necessary capital if I could get a decent long term lease. After a couple of months of negotiating we came up with the document which Virginia executed on April 13, and Ed Black (who is no longer associated with me) and I executed it a week or so later. Upon reflection, this document, prepared by Stephen Hanscom (representing Virginia) could be improved upon, but it is what we have and all of us should be bound by it until modified.

From my perspective I expected to have to do some major renovations to bring the property into code compliance, and expected to have at least eight years to recover that investment into a property which I do not own. I did the beginning of that work enabling the restaurant to open on July 5, 1995. I was delayed in getting open mostly because of the denial of funding by the State on the Community Development Loan which had been approved by the city.

From an operating point of view I believe that we had a successful season. The books show that we lost about $10,000 on operating revenues of almost $200,000 for the shortened season. While we had some problems they were mostly of a start-up nature and are recognized and solvable.

I expected to get a credit against my rent for the capital improvements that I made. These improvements were what was required to bring the property into code compliance, and were further defined in the agreement according to the IRS code for capital expenditures.

The document as finally executed does not actually reflect the exact way we negotiated. There is a substantial difference between "half of the cost of improvements apply to future rents" and "all of the costs of improvements apply to half of the future rents". Even though the document as written and executed did not seem to me to require the payment of any rents because of the amount of the capital improvements made (in excess of $35,000 for the year actually expended with $10,000 still payable to Prock), in order to "keep the peace" I paid $12,000 (or one half of the rents due for the year) in early August. I gave a cashier's check to Steve Little with instructions to pay this to the Larsens when we received the subordination agreement from the bank which, along with the option in the lease, guaranteed the term of the lease.

Little delivered that check to Peterson with clear written instructions to that effect, and Peterson held the check for six weeks before finally releasing the check, but without delivering the required subordination agreement (which at this time can never be delivered as the bank has sold the mortgage to William Atwood).

I spoke with Mike Jones of Peoples Heritage Bank in December, and he advises me that he informed the Larsens, after receiving the suggested written agreement in March, 1995, that the bank would not execute the agreement, even though they had earlier verbally agreed to do so. William Atwood, as successor to the Bank, has also refused to execute such an agreement.

What this all means is that I have a month to month lease, at the whim of William Atwood, and no rational person (or lender or investor) would or should invest capital or energy into such a business proposition. The Larsens knowledge that the Bank refused to execute the required agreement constitutes convincing evidence of fraud, and means to me that the whole transaction can be reversed on that ground.

Steve Peterson's release of the check without the required agreement is as clear of a case of escrow violation as one can define, and brings him squarely into the possible lawsuits. His behavior in this matter defines why lawyers are at the butt end of so many jokes. To his credit Stephen Hanscom resigned from representing the Larsens in this issue, and I understand why.

Further complicating this matter is the fact that when I was digging into this after we closed for the season, I got a copy of the cashiers check from Camden National Bank, and the endorsement on the check shows that it was eventually endorsed by Peter and deposited into a bank in Arizona. Virginia Larsen's signature on the check is clearly different from her signature on the lease, and makes me wonder if her best interests are really being served, and if she understands what is happening.

Where do I go from here. All I want is the opportunity to operate the restaurant as agreed upon for a term of eight years. If necessary to accomplish getting this term length, I need a good option to purchase. All of this is necessary to protect potential investors, as I do not have the funds to accomplish this without outside loans or investment.

Either we get this resolved soon or I will have no other option except to start the litigation process. I have been through more of that in my life than I care to mention, and I do not wish to do it again, but if forced I clearly will. Steve Little tells me that Steven Peterson advises him that he has been instructed to begin eviction proceedings, and if they begin, all of the above will come out as the corporation seeks the protection of the Federal Bankruptcy Courts.

I want to operate The Pearl. I believe that the team I assembled did a good job and can do so profitably. Will someone from the other side of this transaction please help me to accomplish this simple goal. I believe that it can and will be a mutually rewarding venture.