SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d)
Of The Securities Exchange Act Of 1934
For the Fiscal Year Ended: December 31, 1998
Commission file number: 24003
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
(Name of Small Business Issuer in its Charter)
State of Minnesota 41-1848181
(State or other Jurisdiction of (I.R.S. Employer)
Incorporation or Organization) Identification No.)
1300 Minnesota World Trade Center, St. Paul, Minnesota 55101
(Address of Principal Executive Offices)
(651) 227-7333
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No
Check if disclosure of delinquent filers in response to Rule 405
of Regulation S-B is not contained in this Form, and no
disclosure will be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Issuer's revenues for year ended December 31, 1998 were
$545,711.
As of February 28, 1999, there were 16,895.222 Units of limited
partnership interest in the registrant outstanding and owned by
nonaffiliates of the registrant, which Units had an aggregate
market value (based solely on the price at which they were sold
since there is no ready market for such Units) of $16,895,222.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has not incorporated any documents by reference
into this report.
Transitional Small Business Disclosure Format:
Yes No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
AEI Income & Growth Fund XXII Limited Partnership (the
"Partnership" or the "Registrant") is a limited partnership which
was organized pursuant to the laws of the State of Minnesota on
July 31, 1996. The registrant is comprised of AEI Fund
Management XXI, Inc. (AFM) as Managing General Partner, Robert P.
Johnson as the Individual General Partner, and purchasers of
partnership units as Limited Partners. The Partnership offered
for sale up to $24,000,000 of limited partnership interests (the
"Units") (24,000 Units at $1,000 per Unit) pursuant to a
registration statement effective January 10, 1997. The
Partnership commenced operations on May 1, 1997 when minimum
subscriptions of 1,500 Limited Partnership Units ($1,500,000)
were accepted. The Partnership's offering terminated January 9,
1999 when the extended offering period expired. The Partnership
received subscriptions for 16,917.222 Limited Partnership Units
($16,917,222).
The Partnership was organized to acquire existing and
newly constructed commercial properties located in the United
States, to lease such properties to tenants under triple net
leases, to hold such properties and to eventually sell such
properties. As of December 31, 1998, the Partnership had
purchased four properties, including partial interests in two
properties, at a total cost of $2,259,871. The properties are
all commercial, single tenant buildings leased under triple net
leases. The Partnership is continuing to review various
properties for acquisition until available subscription proceeds
are fully committed.
The Partnership's properties will be purchased with
subscription proceeds without any indebtedness. The Partnership
will not finance properties in the future to obtain proceeds for
new property acquisitions. If it is required to do so, the
Partnership may incur short-term indebtedness, which may be
secured by a portion of the Partnership's properties, to finance
the day-to-day cash flow requirements of the Partnership
(including cash flow necessary to repurchase Units). The amount
of borrowings that may be secured by the Partnership's properties
is limited in the aggregate to 10% of the purchase price of all
Partnership properties. The Partnership will not incur
borrowings prior to application of the proceeds from sale of the
Units, will not incur borrowings to pay distributions, and will
not incur borrowings while there is cash available for
distributions.
The Partnership will hold its properties until the General
Partners determine that the sale or other disposition of the
properties is advantageous in view of the Partnership's
investment objectives. In deciding whether to sell properties,
the General Partners will consider factors such as potential
appreciation, net cash flow and income tax considerations. In
addition, certain lessees may be granted options to purchase
properties after a specified portion of the lease term has
elapsed. The Partnership expects to sell some or all of its
properties prior to its final liquidation and to reinvest the
proceeds from such sales in additional properties. The
Partnership reserves the right, at the discretion of the General
Partners, to either distribute proceeds from the sale of
properties to the Partners or to reinvest such proceeds in
additional properties, provided that sufficient proceeds are
distributed to the Limited Partners to pay federal and state
income taxes related to any taxable gain recognized as a result
of the sale. It is anticipated that the Partnership will
commence liquidation through the sale of its remaining properties
twelve to fifteen years after its formation, although final
liquidation may be delayed by a number of circumstances,
including market conditions and seller financing of properties.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
Leases
Although there will be variations in the specific terms of
the leases, the following is a summary of the general terms in
which the Partnership may enter into Lease Agreements. The
properties are or will be leased to various tenants under triple
net leases, which are classified as operating leases. Under a
triple net lease, the lessee is responsible for all real estate
taxes, insurance, maintenance, repairs and operating expenses for
the property. The initial lease terms will be for 15 to 20
years. The leases provide for base annual rental payments,
payable in monthly installments, and contain rent clauses which
entitle the Partnership to receive additional rent in future
years based on stated rent increases.
The leases provide the lessees with renewal options
subject to the same terms and conditions as the initial lease.
Certain lessees may be granted options to purchase the property.
Depending on the lease, the purchase price is either determined
by a formula, or is the greater of the fair market value of the
property or the amount determined by a formula. In all cases, if
the option were to be exercised by the lessee, the purchase price
would be greater than the original cost of the property.
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg, Pennsylvania
for $668,144. The property is leased to Ohio Valley Bistros,
Inc. under a Lease Agreement with a primary term of 15 years and
annual rental payments of $67,650. The remaining interest in the
property was purchased by AEI Real Estate Fund XVII Limited
Partnership, an affiliate of the Partnership.
On June 29, 1998, the Partnership purchased a parcel of
land in Centerville, Ohio for $1,850,988. On August 28, 1998,
the Partnership assigned, for diversification purposes, 77% of
its interest in the property to three affiliated partnerships.
The land is leased to Americana Dining Corporation (ADC) under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $29,801. Simultaneously with the purchase of the
land, the Partnership entered into a Development Financing
Agreement under which the Partnership will advance funds to ADC
for the construction of a Champps Americana restaurant on the
site. Through December 31, 1998, the Partnership had advanced
$265,893 for the construction of the property and was charging
interest on the advances at a rate of 7.0%. Effective December
25, 1998, the interest rate was increased to 10.5%. On January
27, 1999, after the development was completed, the Lease
Agreement was amended to require annual rental payments of
$93,256. The Partnership's share of total acquisition costs,
including the cost of the land, was approximately $906,000. The
remaining interests in the property are owned by AEI Real Estate
Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited
Partnership and AEI Income & Growth Fund XXI Limited Partnership,
affiliates of the Partnership.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
On November 20, 1998, the Partnership purchased a parcel
of land in Homewood, Alabama for $696,000. The land is leased to
RTM Alabama, Inc. (RTM) under a Lease Agreement with a primary
term of 20 years and annual rental payments of $46,980.
Simultaneously with the purchase of the land, the Partnership
entered into a Development Financing Agreement under which the
Partnership will advance funds to RTM for the construction of an
Arby's restaurant on the site. Through December 31, 1998, the
Partnership had advanced $38,647 for the construction of the
property and was charging interest on the advances at a rate of
6.75%. The total purchase price, including the cost of the land,
will be approximately $1,424,500. After the construction is
complete, the Lease Agreement will be amended to require annual
rental payments of approximately $93,000.
On November 25, 1998, the Partnership purchased a parcel
of land in Ft. Wayne, Indiana for $470,000. The land is leased
to Tumbleweed, Inc. (TWI) under a Lease Agreement with a primary
term of 15 years and annual rental payments of $39,950.
Simultaneously with the purchase of the land, the Partnership
entered into a Development Financing Agreement under which the
Partnership will advance funds to TWI for the construction of a
Tumbleweed restaurant on the site. Through December 31, 1998,
the Partnership had advanced $36,080 for the construction of the
property and was charging interest on the advances at a rate of
8.5%. The total purchase price, including the cost of the land,
will be approximately $1,312,250. After the construction is
complete, the Lease Agreement will be amended to require annual
rental payments of approximately $134,500.
On January 26, 1999, the Partnership purchased a Hollywood
Video store in Saraland, Alabama for approximately $1,332,000.
The property is leased to Hollywood Entertainment Corp. under a
Lease Agreement with a primary term of 15 years and annual rental
payments of approximately $129,600.
Major Tenants
During 1998, two of the Partnership's lessees each
contributed more than ten percent of the Partnership's total
rental revenue. The major tenants in aggregate contributed 91%
of the Partnership's total rental revenue in 1998. Because the
Partnership has not completed its acquisition of properties, it
is not possible to determine which tenants will contribute more
than ten percent of the Partnership's rental income in 1999 and
future years. In the event that certain tenants contribute more
than ten percent of the Partnership's rental income in future
years, any failure of these major tenants could materially affect
the Partnership's net income and cash distributions.
Competition
The Partnership is a minor factor in the commercial real
estate business. There are numerous entities engaged in the
commercial real estate business which have greater financial
resources than the Partnership. At the time the Partnership
elects to dispose of its properties, the Partnership will be in
competition with other persons and entities to find buyers for
its properties.
Employees
The Partnership has no direct employees. Management
services are performed for the Partnership by AEI Fund
Management, Inc., an affiliate of AFM.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
Year 2000 Compliance
The Year 2000 issue is the result of computer systems that
use two digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. In 1998, AEI completed an
assessment of its computer hardware and software systems and has
replaced or upgraded certain computer hardware and software using
the assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.
The Partnership intends to monitor and communicate with
tenants regarding Year 2000 compliance, although there can be no
assurance that the systems of the various tenants will be Year
2000 compliant.
ITEM 2. DESCRIPTION OF PROPERTIES.
Investment Objectives
The Partnership's investment objectives are to acquire
existing or newly-developed commercial properties throughout the
United States that offer the potential for (i) regular cash
distributions of lease income; (ii) growth in lease income
through rent escalation provisions; (iii) preservation of capital
through all-cash transactions; (iv) capital growth through
appreciation in the value of properties; and (v) stable property
performance through long-term lease contracts. The Partnership
does not have a policy, and there is no limitation, as to the
amount or percentage of assets that may be invested in any one
property. However, to the extent possible, the General Partners
attempt to diversify the type and location of the Partnership's
properties.
Description of Properties
The Partnership's properties are or will be commercial,
single tenant buildings. The properties will be acquired on a
debt-free basis and leased to various tenants under triple net
leases, which will be classified as operating leases. The
Partnership will hold an undivided fee simple interest in the
properties.
The Partnership's properties will be subject to the
general competitive conditions incident to the ownership of
single tenant investment real estate. Since each property will
be leased under a long-term lease, there is little competition
until the Partnership decides to sell the property. At this
time, the Partnership will be competing with other real estate
owners, on both a national and local level, in attempting to find
buyers for the properties. In the event of a tenant default, the
Partnership would be competing with other real estate owners, who
have property vacancies, to attract a new tenant to lease the
property. The Partnership's tenants operate in industries that
are very competitive and can be affected by factors such as
changes in regional or local economies, seasonality and changes
in consumer preference.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
The following table is a summary of the property that the
Partnership acquired and owned as of December 31, 1998.
<TABLE>
<CAPTION>
Total Property Annual Annual
Purchase Acquisition Lease Rent
Property Date Costs Lessee Payment Per Sq. Ft.
<S> <C> <C> <C> <C> <C>
TGI Friday's Restaurant
Greensburg, PA Ohio Valley
(40.0%) 12/10/97 $ 668,144 Bistros, Inc. $ 67,650 $37.50
Champps Americana
Restaurant
Centerville, OH
(23.0%) Americana
(land only) (1) 6/29/98 $ 425,727 Dining Corp. $ 29,801 $13.83
Arby's Restaurant
Homewood, AL RTM
(land only) (1) 11/20/98 $ 696,000 Alabama, Inc. $ 46,980 $14.43
Tumbleweed Restaurant
Ft. Wayne, IN
(land only) (1) 11/25/98 $ 470,000 Tumbleweed, Inc. $ 39,950 $ 7.01
<FN>
(1) Restaurant was under construction as of December 31, 1998.
</FN>
</TABLE>
The properties listed above with a partial ownership
percentage are owned with affiliates of the Partnership. The
remaining interest in the TGI Friday's restaurant is owned by AEI
Real Estate Fund XVII Limited Partnership. The remaining
interests in the Champps Americana restaurant are owned by AEI
Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund
XVIII Limited Partnership and AEI Income & Growth Fund XXI
Limited Partnership.
Each Partnership owns a separate, undivided interest in
the property. No specific agreement or commitment exists between
the Partnerships as to the management of their respective
interests in the property, and the Partnership that holds more
than a 50% interest does not control decisions over the other
Partnership's interest.
The initial Lease terms are for 15 years, except the
Champps restaurant and the Arby's restaurant, which have Lease
terms of 20 years. The Leases have renewal options which may
extend the Lease term an additional 10 years, except the Champps
restaurant which has a renewal option which may extend the Lease
term an additional 15 years.
Pursuant to the Lease Agreement, the tenant is required to
provide proof of adequate insurance coverage on the property.
The General Partners believe the property is adequately covered
by insurance and consider the property to be well-maintained and
sufficient for the Partnership's operations.
ITEM 2. DESCRIPTION OF PROPERTIES. (Continued)
For tax purposes, the Partnership's properties are
depreciated under the Modified Accelerated Cost Recovery System
(MACRS). The largest depreciable component of a property is the
building which is depreciated, using the straight-line method,
over 40 years. The remaining depreciable components of a
property are personal property and land improvements which are
depreciated, using an accelerated method, over 5 and 15 years,
respectively. Since the Partnership has tax-exempt Partners, the
Partnership is subject to the rules of Section 168(h)(6) of the
Internal Revenue Code which requires a percentage of the
properties' depreciable components to be depreciated over longer
lives using the straight-line method. In general the federal tax
basis of the properties for tax depreciation purposes is the same
as the basis for book depreciation purposes.
Through December 31, 1998, the completed properties are
100% percent occupied by the lessee.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND
RELATED SECURITY HOLDER MATTERS.
As of December 31, 1998, there were 702 holders of record
of the registrant's Limited Partnership Units. There is no other
class of security outstanding or authorized. The registrant's
Units are not a traded security in any market. However, the
Partnership may purchase Units from Limited Partners who have
tendered their Units to the Partnership. Such Units may be
acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the total number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership. As of
December 31, 1998, the Partnership has not acquired any Units
from Limited Partners.
Cash distributions of $25,063 and $5,331 were made to the
General Partners and $810,404 and $172,361 were made to the
Limited Partners in 1998 and 1997, respectively. The
distributions were made on a quarterly basis and represent Net
Cash Flow, as defined, and a partial return of contributed
capital. These distributions should not be compared with
dividends paid on capital stock by corporations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Results of Operations
For the years ended December 31, 1998 and 1997, the
Partnership recognized rental income of $108,451 and $4,001,
respectively. During the same periods, the Partnership also
earned $437,260 and $112,806, respectively, in investment income
from subscription proceeds which were invested in short-term
money market accounts. This investment income constituted 80%
and 97%, respectively, of total income. The percentage of total
income represented by investment income declines as subscription
proceeds are invested in properties.
During the years ended December 31, 1998 and 1997, the
Partnership paid Partnership administration expenses to
affiliated parties of $219,705 and $137,699, respectively. These
administration expenses include initial start-up costs and
expenses associated with processing distributions, reporting
requirements and correspondence to the Limited Partners. The
administrative expenses decrease after completion of the offering
and acquisition phases of the Partnership's operations. During
the same periods, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $13,367 and $640, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, insurance and other property costs.
The Partnership distributes all of its net income during
the offering and acquisition phases, and if net income after
deductions for depreciation is not sufficient to fund the
distributions, the Partnership may distribute other available
cash that constitutes capital for accounting purposes.
As of December 31, 1998, the Partnership's cash
distribution rate was 7.0% on an annualized basis. Pursuant to
the Partnership Agreement, distributions of Net Cash Flow were
allocated 97% to the Limited Partners and 3% to the General
Partners.
Since the Partnership has only recently purchased its real
estate, inflation has had a minimal effect on income from
operations. The Leases may contain cost of living increases
which will result in an increase in rental income over the term
of the Leases. Inflation also may cause the Partnership's real
estate to appreciate in value. However, inflation and changing
prices may also have an adverse impact on the operating margins
of the properties' tenants which could impair their ability to
pay rent and subsequently reduce the Partnership's Net Cash Flow
available for distributions.
The Year 2000 issue is the result of computer systems that
use two digits rather than four to define the applicable year,
which may prevent such systems from accurately processing dates
ending in the Year 2000 and beyond. This could result in
computer system failures or disruption of operations, including,
but not limited to, an inability to process transactions, to send
or receive electronic data, or to engage in routine business
activities.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. In 1998, AEI completed an
assessment of its computer hardware and software systems and has
replaced or upgraded certain computer hardware and software using
the assistance of outside vendors. AEI has received written
assurance from the equipment and software manufacturers as to
Year 2000 compliance. The costs associated with Year 2000
compliance have not been, and are not expected to be, material.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership intends to monitor and communicate with
tenants regarding Year 2000 compliance, although there can be no
assurance that the systems of the various tenants will be Year
2000 compliant.
Liquidity and Capital Resources
The Partnership's primary sources of cash are from
proceeds from the sale of Units, investment income, rental income
and proceeds from the sale of property. Its primary uses of cash
are investment in real properties, payment of expenses involved
in the sale of units, the organization of the Partnership, the
acquisition of properties, the management of properties, the
administration of the Partnership, and the payment of
distributions.
The Partnership Agreement requires that no more than 15%
of the proceeds from the sale of Units be applied to expenses
involved in the sale of Units (including Commissions) and that
such expenses, together with acquisition expenses, not exceed 20%
of the proceeds from the sale of Units. As set forth under the
caption "Estimated Use of Proceeds" of the Prospectus, the
General Partners anticipate that 14% of such proceeds will be
applied to cover such expenses if the maximum proceeds are
obtained. To the extent organization and offering expenses
actually incurred exceed 15% of proceeds, they are borne by the
General Partners.
During the offering of Units, the Partnership's primary
source of cash flow will be from the sale of Limited Partnership
Units. The Partnership offered for sale up to $24,000,000 of
limited partnership interests (the "Units") (24,000 Units at
$1,000 per Unit) pursuant to a registration statement effective
January 10, 1997. From January 10, 1997 to May 1, 1997, the
minimum number of Limited Partnership Units (1,500) needed to
form the Partnership were sold and on May 1, 1997, a total of
1,629.201 Units ($1,629,201) were transferred into the
Partnership. Through December 31, 1998, the Partnership raised a
total of $15,945,163 from the sale of 15,945.163 Units. The
Partnership's offering terminated January 9, 1999 when the
extended offering period expired. The Partnership received
subscriptions for 16,917.222 Limited Partnership Units
($16,917,222). From subscription proceeds, the Partnership paid
organization and syndication costs (which constitute a reduction
of capital) of $2,310,908.
Before the acquisition of properties, cash flow from
operating activities is not significant. Net income, after
adjustment for depreciation, is lower during the first few years
of operations as administrative expenses remain high and a large
amount of the Partnership's assets remain invested on a short-
term basis in lower-yielding cash equivalents. Net income will
become the largest component of cash flow from operating
activities and the largest component of cash flow after the
completion of the acquisition phase.
The Partnership Agreement requires that all proceeds from
the sale of Units be invested or committed to investment in
properties by the later of two years after the date of the
Prospectus or six months after termination of the offer and sale
of Units. While the Partnership is purchasing properties, cash
flow from investing activities (investment in real property) will
remain negative and will constitute the principal use of the
Partnership's available cash flow.
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg, Pennsylvania
for $668,144. The property is leased to Ohio Valley Bistros,
Inc. under a Lease Agreement with a primary term of 15 years and
annual rental payments of $67,650. The remaining interest in the
property was purchased by AEI Real Estate Fund XVII Limited
Partnership, an affiliate of the Partnership.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
On June 29, 1998, the Partnership purchased a parcel of
land in Centerville, Ohio for $1,850,988. On August 28, 1998,
the Partnership assigned, for diversification purposes, 77% of
its interest in the property to three affiliated partnerships.
The land is leased to Americana Dining Corporation (ADC) under a
Lease Agreement with a primary term of 20 years and annual rental
payments of $29,801. Simultaneously with the purchase of the
land, the Partnership entered into a Development Financing
Agreement under which the Partnership will advance funds to ADC
for the construction of a Champps Americana restaurant on the
site. Through December 31, 1998, the Partnership had advanced
$265,893 for the construction of the property and was charging
interest on the advances at a rate of 7.0%. Effective December
25, 1998, the interest rate was increased to 10.5%. On January
27, 1999, after the development was completed, the Lease
Agreement was amended to require annual rental payments of
$93,256. The Partnership's share of total acquisition costs,
including the cost of the land, was approximately $906,000. The
remaining interests in the property are owned by AEI Real Estate
Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited
Partnership and AEI Income & Growth Fund XXI Limited Partnership,
affiliates of the Partnership.
On November 20, 1998, the Partnership purchased a parcel
of land in Homewood, Alabama for $696,000. The land is leased to
RTM Alabama, Inc. (RTM) under a Lease Agreement with a primary
term of 20 years and annual rental payments of $46,980.
Simultaneously with the purchase of the land, the Partnership
entered into a Development Financing Agreement under which the
Partnership will advance funds to RTM for the construction of an
Arby's restaurant on the site. Through December 31, 1998, the
Partnership had advanced $38,647 for the construction of the
property and was charging interest on the advances at a rate of
6.75%. The total purchase price, including the cost of the land,
will be approximately $1,424,500. After the construction is
complete, the Lease Agreement will be amended to require annual
rental payments of approximately $93,000.
On November 25, 1998, the Partnership purchased a parcel
of land in Ft. Wayne, Indiana for $470,000. The land is leased
to Tumbleweed, Inc. (TWI) under a Lease Agreement with a primary
term of 15 years and annual rental payments of $39,950.
Simultaneously with the purchase of the land, the Partnership
entered into a Development Financing Agreement under which the
Partnership will advance funds to TWI for the construction of a
Tumbleweed restaurant on the site. Through December 31, 1998,
the Partnership had advanced $36,080 for the construction of the
property and was charging interest on the advances at a rate of
8.5%. The total purchase price, including the cost of the land,
will be approximately $1,312,250. After the construction is
complete, the Lease Agreement will be amended to require annual
rental payments of approximately $134,500.
On January 26, 1999, the Partnership purchased a Hollywood
Video store in Saraland, Alabama for approximately $1,332,000.
The property is leased to Hollywood Entertainment Corp. under a
Lease Agreement with a primary term of 15 years and annual rental
payments of approximately $129,600.
After completion of the acquisition phase, the
Partnership's primary use of cash flow is distribution and
redemption payments to Partners. The Partnership declares its
regular quarterly distributions before the end of each quarter
and pays the distribution in the first week after the end of each
quarter. The Partnership attempts to maintain a stable
distribution rate from quarter to quarter.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
The Partnership may acquire Units from Limited Partners
who have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated to
purchase in any year more than 5% of the number of Units
outstanding at the beginning of the year. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership. As of
December 31, 1998, the Partnership has not acquired any Units
from Limited Partners.
Until capital is invested in properties, the Partnership
will remain extremely liquid. At December 31, 1998, $10,253,076
or 77% of the Partnership's assets were in cash or cash
equivalents (including accrued interest receivable). After
completion of property acquisitions, the Partnership will attempt
to maintain a cash reserve of only approximately 1% of
subscription proceeds. Because properties are purchased for cash
and leased under triple-net leases, this is considered adequate
to satisfy most contingencies.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws which represent management's
expectations or beliefs concerning future events, including
statements regarding anticipated application of cash, expected
returns from rental income, growth in revenue, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must be evaluated in
the context of a number of factors that may affect the
Partnership's financial condition and results of operations,
including the following:
<BULLET> Market and economic conditions which affect
the value of the properties the Partnership owns and
the cash from rental income such properties generate;
<BULLET> the federal income tax consequences of rental
income, deductions, gain on sales and other
items and the affects of these consequences for
investors;
<BULLET> resolution by the General Partners of
conflicts with which they may be confronted;
<BULLET> the success of the General Partners of
locating properties with favorable risk return
characteristics;
<BULLET> the effect of tenant defaults; and
<BULLET> the condition of the industries in which the
tenants of properties owned by the Partnership
operate.
These and other risks to which the Partnership may be subject are
discussed in more detail in Exhibit 99 to this Form 10-KSB.
ITEM 7. FINANCIAL STATEMENTS.
See accompanying index to financial statements.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Balance Sheet as of December 31, 1998 and 1997
Statements for the Years Ended December 31, 1998 and 1997:
Operations
Cash Flows
Changes in Partners' Capital
Notes to Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Partners:
AEI Income & Growth Fund XXII Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI INCOME
& GROWTH FUND XXII LIMITED PARTNERSHIP (a Minnesota limited
partnership) as of December 31, 1998 and 1997 and the related
statements of operations, cash flows and changes in partners'
capital for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the 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 AEI Income & Growth Fund XXII Limited Partnership as of
December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Minneapolis, Minnesota /s/ BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P.
January 27, 1999 Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $10,206,442 $ 5,808,792
Receivables 46,634 0
----------- -----------
Total Current Assets 10,253,076 5,808,792
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 1,886,747 295,020
Buildings and Equipment 373,124 373,124
Construction in Progress 340,620 0
Property Acquisition Costs 460,047 93,860
Accumulated Depreciation (16,693) (668)
----------- -----------
Net Investments in Real Estate 3,043,845 761,336
----------- -----------
Total Assets $13,296,921 $ 6,570,128
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 144,805 $ 161,446
Distributions Payable 255,963 100,335
----------- -----------
Total Current Liabilities 400,768 261,781
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (21,135) (4,970)
Limited Partners, $1,000 Unit Value;
24,000 Units authorized; 15,945 and
7,656 Units issued and outstanding in 1998
and 1997, respectively 12,917,288 6,313,317
----------- -----------
Total Partners' Capital 12,896,153 6,308,347
----------- -----------
Total Liabilities and Partners' Capital $13,296,921 $ 6,570,128
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
1998 1997
INCOME:
Rent $ 108,451 $ 4,001
Investment Income 437,260 112,806
----------- -----------
Total Income 545,711 116,807
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 219,705 137,699
Partnership Administration and Property
Management - Unrelated Parties 13,367 640
Depreciation 16,025 668
----------- -----------
Total Expenses 249,097 139,007
----------- -----------
NET INCOME (LOSS) $ 296,614 $ (22,200)
=========== ===========
NET INCOME (LOSS) ALLOCATED:
General Partners $ 8,898 $ (222)
Limited Partners 287,716 (21,978)
----------- -----------
$ 296,614 $ (22,200)
=========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT
(11,627 and 3,736 weighted average Units
outstanding in 1998 and 1997, respectively) $ 24.75 $ (5.88)
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 296,614 $ (22,200)
Adjustments To Reconcile Net Income (Loss)
To Net Cash Provided By Operating Activities:
Depreciation 16,025 668
Increase in Receivables (46,634) 0
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (16,641) 161,146
----------- -----------
Total Adjustments (47,250) 161,814
------------ -----------
Net Cash Provided By
Operating Activities 249,364 139,614
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (2,298,534) (762,004)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Partners 8,289,167 7,655,996
Organization and Syndication Costs (1,162,508) (1,148,400)
Increase in Distributions Payable 155,628 100,335
Distributions to Partners (835,467) (177,692)
----------- -----------
Net Cash Provided By
Financing Activities 6,446,820 6,430,239
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,397,650 5,807,849
CASH AND CASH EQUIVALENTS, beginning of period 5,808,792 943
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $10,206,442 $ 5,808,792
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1996 $ 643 $ 0 $ 643 0
Capital Contributions 0 7,655,996 7,655,996 7,656.00
Organization &
Syndication Costs (60) (1,148,340) (1,148,400)
Distributions (5,331) (172,361) (177,692)
Net Loss (222) (21,978) (22,200)
--------- ----------- ----------- ----------
BALANCE, December 31, 1997 (4,970) 6,313,317 6,308,347 7,656.00
Capital Contributions 0 8,289,167 8,289,167 8,289.16
Organization &
Syndication Costs 0 (1,162,508) (1,162,508)
Distributions (25,063) (810,404) (835,467)
Net Income 8,898 287,716 296,614
--------- ----------- ----------- ----------
BALANCE, December 31, 1998 $ (21,135) $12,917,288 $12,896,153 15,945.16
========= =========== =========== ==========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) Organization -
AEI Income & Growth Fund XXII Limited Partnership
(Partnership) was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
(AFM), the Managing General Partner of the Partnership.
Robert P. Johnson, the President and sole shareholder of
AFM, serves as the Individual General Partner of the
Partnership. An affiliate of AFM, AEI Fund Management, Inc.
(AEI), performs the administrative and operating functions
for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. Under the terms of the
Restated Limited Partnership Agreement, 24,000 Limited
Partnership Units are available for subscription which, if
fully subscribed, will result in contributed Limited
Partners' capital of $24,000,000. The Partnership commenced
operations on May 1, 1997 when minimum subscriptions of
1,500 Limited Partnership Units ($1,500,000) were accepted.
Through December 31, 1998, the Partnership raised a total of
$15,945,163 from the sale of 15,945.163 Units. The
Partnership's offering terminated January 9, 1999 when the
extended offering period expired. The Partnership received
subscriptions for 16,917.222 Limited Partnership Units
($16,917,222). The General Partners have contributed
capital of $1,000.
During the operation of the Partnership, any Net Cash Flow,
as defined, which the General Partners determine to
distribute will be distributed 97% to the Limited Partners
and 3% to the General Partners. Distributions to Limited
Partners will be made pro rata by Units.
Any Net Proceeds of Sale, as defined, from the sale or
financing of the Partnership's properties which the General
Partners determine to distribute will, after provisions for
debts and reserves, be paid in the following manner: (i)
first, 99% to the Limited Partners and 1% to the General
Partners until the Limited Partners receive an amount equal
to: (a) their Adjusted Capital Contribution plus (b) an
amount equal to 9% of their Adjusted Capital Contribution
per annum, cumulative but not compounded, to the extent not
previously distributed from Net Cash Flow; (ii) any
remaining balance will be distributed 90% to the Limited
Partners and 10% to the General Partners. Distributions to
the Limited Partners will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of the Partnership's
property, will be allocated first in the same ratio in
which, and to the extent, Net Cash Flow is distributed to
the Partners for such year. Any additional profits will be
allocated in the same ratio as the last dollar of Net Cash
Flow is distributed. Net losses from operations will be
allocated 99% to the Limited Partners and 1% to the General
Partners.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) Organization - (Continued)
For tax purposes, profits arising from the sale, financing,
or other disposition of the Partnership's property will be
allocated in accordance with the Partnership Agreement as
follows: (i) first, to those partners with deficit balances
in their capital accounts in an amount equal to the sum of
such deficit balances; (ii) second, 99% to the Limited
Partners and 1% to the General Partners until the aggregate
balance in the Limited Partners' capital accounts equals the
sum of the Limited Partners' Adjusted Capital Contributions
plus an amount equal to 9% of their Adjusted Capital
Contributions per annum, cumulative but not compounded, to
the extent not previously allocated; (iii) third, the
balance of any remaining gain will then be allocated 90% to
the Limited Partners and 10% to the General Partners.
Losses will be allocated 98% to the Limited Partners and 2%
to the General Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the Partnership are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
The Partnership regularly assesses whether market events
and conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate.
Cash Concentrations of Credit Risk
At times throughout the year, the Partnership's cash
deposited in financial institutions may exceed FDIC
insurance limits.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(2) Summary of Significant Accounting Policies - (Continued)
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents may include cash in checking, cash invested
in money market accounts, certificates of deposit,
federal agency notes and commercial paper with a term of
three months or less.
Income Taxes
The income or loss of the Partnership for federal income
tax reporting purposes is includable in the income tax
returns of the partners. Accordingly, no recognition has
been given to income taxes in the accompanying financial
statements.
The tax return, the qualification of the Partnership as
such for tax purposes, and the amount of distributable
Partnership income or loss are subject to examination by
federal and state taxing authorities. If such an
examination results in changes with respect to the
Partnership qualification or in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly.
Real Estate
The Partnership's real estate is or will be leased under
long-term triple net leases classified as operating
leases. The Partnership recognizes rental revenue on the
accrual basis according to the terms of the individual
leases. For leases which contain rental increases based
on cost of living increases, the increases are recognized
in the year in which they are effective.
Real estate is recorded at the lower of cost or estimated
net realizable value. The Partnership compares the
carrying amount of its properties to the estimated future
cash flows expected to result from the property and its
eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the
property, the Partnership recognizes an impairment loss
by the amount by which the carrying amount of the
property exceeds the fair value of the property.
The Partnership has capitalized as Investments in Real
Estate certain costs incurred in the review and
acquisition of the properties. The costs will be
allocated to the land, buildings and equipment.
The buildings and equipment of the Partnership are
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 25
years and 5 years, respectively.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(3) Related Party Transactions -
The Partnership owns a 40.0% interest in a TGI Friday's
restaurant in Greensburg, Pennsylvania. The remaining
interest in the property is owned by AEI Real Estate Fund
XVII Limited Partnership, an affiliate of the Partnership.
The Partnership owns a 23.0% interest in a Champps Americana
restaurant in Centerville, Ohio. The remaining interests in
the property are owned by AEI Real Estate Fund XVII Limited
Partnership, AEI Real Estate Fund XVIII Limited Partnership
and AEI Income & Growth Fund XXI Limited Partnership,
affiliates of the Partnership.
Each Partnership owns a separate, undivided interest in the
property. No specific agreement or commitment exists
between the Partnerships as to the management of their
respective interests in the property, and the Partnership
that holds more than a 50% interest does not control
decisions over the other Partnership's interest. The
financial statements reflect only this Partnership's
percentage share of the property's land, building and
equipment, liabilities, revenues and expenses.
AEI, AFM and AEI Securities, Inc. (ASI) (formerly AEI
Incorporated) received the following compensation and
reimbursements for costs and expenses from the Partnership:
Total Incurred by the Partnership
for the Years Ended December 31
1998 1997
a.AEI and AFM are reimbursed for all costs
incurred in connection with managing the
Partnership's operations, maintaining the
Partnership's books and communicating
the results of operations to the Limited
Partners. $ 219,705 $ 137,699
========= =========
b.AEI and AFM are reimbursed for all direct
expenses they have paid on the Partnership's
behalf to third parties. These expenses included
printing costs, legal and filing fees, direct
administrative costs, outside audit and accounting
costs, insurance and other property costs. $ 13,367 $ 640
========= =========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(3) Related Party Transactions - (Continued)
Total Incurred by the Partnership
for the Years Ended December 31
1998 1997
c.AEI is reimbursed for all property acquisition
costs incurred by it in acquiring properties on
behalf of the Partnership. The amounts are net
of financing and commitment fees and expense
reimbursements received by the Partnership from
the lessees in the amount of $69,323 and $11,414
for 1998 and 1997, respectively. $ 366,187 $ 102,004
========= =========
d.ASI was the underwriter of the Partnership offering.
Robert P. Johnson is the sole stockholder of ASI,
which is a member of the National Association of
Securities Dealers, Inc. ASI received, as
underwriting commissions 8% for sale of certain
subscription Units ($80 per unit sold, of which it
re-allowed up to $80 per unit to other participating
broker/dealers). ASI also received a 2%
non-accountable expense allowance for all Units
it sold through broker/dealers. These costs
are treated as a reduction of partners' capital. $ 828,917 $ 765,600
======== ========
e.AEI is reimbursed for all costs incurred in
connection with managing the Partnership's
offering and organization. $ 96,901 $ 153,495
======== ========
f.AEI is reimbursed for all expenses it has paid
on the Partnership's behalf relating to the
offering and organization of the Partnership.
These expenses included printing costs, legal
and filing fees, direct administrative costs,
underwriting costs and due diligence fees. $ 236,690 $ 229,305
======== ========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b, c, e and f.
This balance is non-interest bearing and unsecured and is to
be paid in the normal course of business.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
through triple net leases, which are classified as operating
leases. Under a triple net lease, the lessee is responsible
for all real estate taxes, insurance, maintenance, repairs
and operating expenses of the property. The initial Lease
terms are for 15 years, except the Champps restaurant and
the Arby's restaurant which have Lease terms of 20 years.
The Leases have renewal options which may extend the Lease
term an additional 10 years, except the Champps restaurant
which has a renewal option which may extend the Lease term
an additional 15 years. The Leases have rent clauses which
entitle the Partnership to receive additional rent in future
years based on stated rent increases.
The Partnership's properties are all commercial, single-
tenant buildings and were constructed and acquired in 1997
and 1998. There have been no costs capitalized as
improvements subsequent to the acquisition.
The cost of the property and related accumulated
depreciation at December 31, 1998 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
TGI Friday's, Greensburg, PA $ 295,020 $ 373,124 $ 668,144 $ 16,693
Champps Americana
Centerville, OH 425,727 0 425,727 0
Arby's, Homewood, AL 696,000 0 696,000 0
Tumbleweed, Ft. Wayne, IN 470,000 0 470,000 0
---------- ---------- ----------- ---------
$1,886,747 $ 373,124 $ 2,259,871 $ 16,693
========== ========== =========== =========
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg,
Pennsylvania for $668,144. The property is leased to Ohio
Valley Bistros, Inc. under a Lease Agreement with a primary
term of 15 years and annual rental payments of $67,650.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(4) Investments in Real Estate - (Continued)
On June 29, 1998, the Partnership purchased a parcel of land
in Centerville, Ohio for $1,850,988. On August 28, 1998,
the Partnership assigned, for diversification purposes, 77%
of its interest in the property to three affiliated
partnerships. The land is leased to Americana Dining
Corporation (ADC) under a Lease Agreement with a primary
term of 20 years and annual rental payments of $29,801.
Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement
under which the Partnership will advance funds to ADC for
the construction of a Champps Americana restaurant on the
site. Through December 31, 1998, the Partnership had
advanced $265,893 for the construction of the property and
was charging interest on the advances at a rate of 7.0%.
Effective December 25, 1998, the interest rate was increased
to 10.5%. On January 27, 1999, after the development was
completed, the Lease Agreement was amended to require annual
rental payments of $93,256. The Partnership's share of
total acquisition costs, including the cost of the land, was
approximately $906,000.
On November 20, 1998, the Partnership purchased a parcel of
land in Homewood, Alabama for $696,000. The land is leased
to RTM Alabama, Inc. (RTM) under a Lease Agreement with a
primary term of 20 years and annual rental payments of
$46,980. Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement
under which the Partnership will advance funds to RTM for
the construction of an Arby's restaurant on the site.
Through December 31, 1998, the Partnership had advanced
$38,647 for the construction of the property and was
charging interest on the advances at a rate of 6.75%. The
total purchase price, including the cost of the land, will
be approximately $1,424,500. After the construction is
complete, the Lease Agreement will be amended to require
annual rental payments of approximately $93,000.
On November 25, 1998, the Partnership purchased a parcel of
land in Ft. Wayne, Indiana for $470,000. The land is leased
to Tumbleweed, Inc. (TWI) under a Lease Agreement with a
primary term of 15 years and annual rental payments of
$39,950. Simultaneously with the purchase of the land, the
Partnership entered into a Development Financing Agreement
under which the Partnership will advance funds to TWI for
the construction of a Tumbleweed restaurant on the site.
Through December 31, 1998, the Partnership had advanced
$36,080 for the construction of the property and was
charging interest on the advances at a rate of 8.5%. The
total purchase price, including the cost of the land, will
be approximately $1,312,250. After the construction is
complete, the Lease Agreement will be amended to require
annual rental payments of approximately $134,500.
On January 26, 1999, the Partnership purchased a Hollywood
Video store in Saraland, Alabama for approximately
$1,332,000. The property is leased to Hollywood
Entertainment Corp. under a Lease Agreement with a primary
term of 15 years and annual rental payments of approximately
$129,600.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(4) Investments in Real Estate - (Continued)
The Partnership has incurred net costs of $468,191 relating
to the review of potential property acquisitions. Of these
costs, $8,144 have been capitalized and allocated to land,
building and equipment. The remaining costs of $460,047
have been capitalized and will be allocated to properties
acquired subsequent to December 31, 1998.
The minimum future rentals on the Lease for years subsequent
to December 31, 1998 are as follows:
1999 $ 200,045
2000 200,818
2001 201,600
2002 202,391
2003 203,191
Thereafter 2,426,671
-----------
$ 3,434,716
===========
There were no contingent rents recognized in 1998 or 1997.
(5) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Partnership's total
rent revenue for the years ended December 31:
1998 1997
Tenants Industry
Ohio Valley Bistros, Inc. Restaurant $ 67,650 $ 4,001
Americana Dining Corp. Restaurant 31,456 N/A
--------- ---------
Aggregate rent revenue of major tenants $ 99,106 $ 4,001
========= =========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 91% 100%
========= =========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(6) Partners' Capital -
Cash distributions of $25,063 and $5,331 were made to the
General Partners and $810,404 and $172,361 were made to the
Limited Partners for the years ended December 31, 1998 and
1997, respectively. The Limited Partners' distributions
represent $69.70 and $46.14 per Limited Partnership Unit
outstanding using 11,627 and 3,736 weighted average Units in
1998 and 1997, respectively. The distributions represent
$24.75 and $-0- per Unit of Net Income and $44.95 and $46.14
per Unit of return of contributed capital in 1998 and 1997,
respectively.
The Partnership may acquire Units from Limited Partners who
have tendered their Units to the Partnership. Such Units may
be acquired at a discount. The Partnership is not obligated
to purchase in any year more than 5% of the number of Units
outstanding at the beginning of the year. In no event shall
the Partnership be obligated to purchase Units if, in the
sole discretion of the Managing General Partner, such
purchase would impair the capital or operation of the
Partnership. As of December 31, 1998, the Partnership has
not acquired any Units from Limited Partners.
(7) Income Taxes -
The following is a reconciliation of net income for
financial reporting purposes to income reported for federal
income tax purposes for the years ended December 31:
1998 1997
Net Income (Loss) for Financial
Reporting Purposes $ 296,614 $ (22,200)
Depreciation for Tax Purposes
(Over) Under Depreciation for Financial
Reporting Purposes 2,236 (388)
Capitalized Start-Up Costs
Under Section 195 208,386 137,668
Amortization of Start-Up and
Organization Costs (6,319) (167)
----------- -----------
Taxable Income to Partners $ 500,917 $ 114,913
=========== ===========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(7) Income Taxes - (Continued)
The following is a reconciliation of Partners' capital for
financial reporting purposes to Partners' capital reported
for federal income tax purposes for the years ended December
31:
1998 1997
Partners' Capital for
Financial Reporting Purposes $ 12,896,153 $ 6,308,347
Depreciation for Tax Purposes
(Over) Under Depreciation for Financial
Reporting Purposes 1,848 (388)
Capitalized Start-Up Costs
Under Section 195 346,410 138,024
Amortization of Start-Up and
Organization Costs (6,486) (167)
Organization and Syndication Costs
Treated as Reduction of Capital
for Financial Reporting Purposes 2,281,032 1,148,400
----------- -----------
Partners' Capital for
Tax Reporting Purposes $15,518,957 $ 7,594,216
=========== ===========
(8) Fair Value of Financial Instruments -
The estimated fair values of the financial instruments, none
of which are held for trading purposes, for the years ended
December 31:
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash $ 188 $ 188 $ 307 $ 307
Money Market Funds 10,206,254 10,206,254 5,808,485 5,808,485
----------- ----------- ----------- -----------
Total Cash and
Cash Equivalents $10,206,442 $10,206,442 $ 5,808,792 $ 5,808,792
=========== =========== =========== ===========
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The registrant is a limited partnership and has no
officers, directors, or direct employees. The General Partners
of the registrant are Robert P. Johnson and AFM. The General
Partners manage and control the Partnership's affairs and have
general responsibility and the ultimate authority in all matters
affecting the Partnership's business. The director and officers
of AFM are as follows:
Robert P. Johnson, age 54, is Chief Executive Officer,
President and Director and has held these positions since the
formation of AFM in August, 1994, and has been elected to
continue in these positions until December, 1999. From 1970 to
the present, he had been employed exclusively in the investment
industry, specializing in tax-advantaged limited partnership
investments. In that capacity, he has been involved in the
development, analysis, marketing and management of public and
private investment programs investing in net lease properties as
well as public and private investment programs investing in
energy development. Since 1971, Mr. Johnson has been the
president, a director and a registered principal of AEI
Securities, Inc. (formerly AEI Incorporated), which is registered
with the Securities and Exchange Commission as a securities
broker-dealer, is a member of the National Association of
Securities Dealers, Inc. (NASD) and is a member of the Security
Investors Protection Corporation (SIPC). Mr. Johnson has been
president, a director and the principal shareholder of AEI Fund
Management, Inc., a real estate management company founded by
him, since 1978. Mr. Johnson is currently a general partner or
principal of the general partner in seventeen other limited
partnerships.
Mark E. Larson, age 46, is Executive Vice President,
Secretary, Treasurer and Chief Financial Officer and has held
these positions since the formation of AFM in August, 1994, and
has been elected to continue in these positions until December,
1999. Mr. Larson has been employed by AEI Fund Management, Inc.
and affiliated entities since 1985. From 1979 to 1985, Mr.
Larson was with Apache Corporation as manager of Program
Accounting responsible for the accounting and reports for
approximately 46 public partnerships. Mr. Larson is responsible
for supervising the accounting functions of AFM and the
registrant.
ITEM 10. EXECUTIVE COMPENSATION.
The General Partner and affiliates are reimbursed at cost
for all services performed on behalf of the registrant and for
all third party expenses paid on behalf of the registrant. The
cost for services performed on behalf of the registrant is actual
time spent performing such services plus an overhead burden.
These services include organizing the registrant and arranging
for the offer and sale of Units, reviewing properties for
acquisition and rendering administrative and management services.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information pertaining to
the ownership of the Units by each person known by the
Partnership to beneficially own 5% or more of the Units, by each
General Partner, and by each officer or director of the Managing
General Partner as of February 28, 1999:
Name and Address Number of Percent
of Beneficial Owner Units Held of Class
AEI Fund Management XXI, Inc. 22 *
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Robert P. Johnson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
Mark E. Larson 0 0%
1300 Minnesota World Trade Center
30 East 7th Street, St. Paul, Minnesota 55101
* Less than 1%
The persons set forth in the preceding table hold sole voting
power and power of disposition with respect to all of the Units
set forth opposite their names. The General Partners know of no
holders of more than 5% of the outstanding Units.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The registrant, AFM and its affiliates have common
management and utilize the same facilities. As a result, certain
administrative expenses are allocated among these related
entities. All of such activities and any other transactions
involving the affiliates of the General Partner of the registrant
are governed by, and are conducted in conformity with, the
limitations set forth in the Limited Partnership Agreement of the
registrant.
The following table sets forth the forms of compensation,
distributions and cost reimbursements paid by the registrant to
the General Partners or their Affiliates in connection with the
operation of the Fund and its properties for the period from
inception through December 31, 1998.
Person or Entity Amount Incurred From
Receiving Form and Method Inception (July 31, 1996)
Compensation of Compensation To December 31, 1998
AEI Securities, Inc. Selling Commissions equal to 8% of $1,594,517
(formerly AEI proceeds plus a 2% nonaccountable
Incorporated) expense allowance, most of which was
reallowed to Participating Dealers.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (Continued)
Person or Entity Amount Incurred From
Receiving Form and Method Inception (July 31, 1996)
Compensation of Compensation To December 31, 1998
General Partners and Reimbursement at Cost for other $ 716,391
Affiliates Organization and Offering Costs.
General Partners and Reimbursement at Cost for all $ 468,191
Affiliates Acquisition Expenses
General Partners 3% of Net Cash Flow in any fiscal $ 30,394
year.
General Partners and Reimbursement at Cost for all $ 357,404
Affiliates Administrative Expenses attributable
to the Fund, including all expenses
related to management and disposition
of the Fund's properties and all other
transfer agency, reporting, partner
relations and other administrative
functions.
General Partners 1% of distributions of Net Proceeds of $ 0
Sale until Limited Partners have received
an amount equal to (a) their Adjusted
Capital Contributions, plus (b) an
amount equal to 9% of their Adjusted Capital
Contributions per annum, cumulative but not
compounded, to the extent not previously
distributed. 10% of distributions of Net
Proceeds of Sale thereafter.
The limitations included in the Partnership Agreement
require that the cumulative reimbursements to the General
Partners and their affiliates for administrative expenses not
allowed under the NASAA Guidelines ("Guidelines") will not exceed
the sum of (i) the front-end fees allowed by the Guidelines less
the front-end fees paid, (ii) the cumulative property management
fees allowed but not paid, (iii) any real estate commission
allowed under the Guidelines, and (iv) 10% of Net Cash Flow less
the Net Cash Flow actually distributed. The reimbursements not
allowed under the guidelines include a controlling person's
salary and fringe benefits, rent and depreciation. As of
December 31, 1998, the cumulative reimbursements to the General
Partners and their affiliates did not exceed these amounts.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A.
A. Exhibits -
Description
3.1 Certificate of Limited
Partnership (incorporated by reference to
Exhibit 3.1 of the registrant's
Registration Statement on Form SB-2 filed
with the Commission on September 13, 1996
[File No. 333-5604]).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)
A. Exhibits -
Description
3.2 Restated Limited Partnership
Agreement to the Prospectus (incorporated
by reference to Exhibit A of Amendment No.
2 of the registrant's Registration
Statement on Form SB-2 filed with the
Commission on August 21, 1997 [File No. 333-
5604]).
10.1 Form of Impoundment
Agreement with Fidelity Bank (incorporated
by reference to Exhibit 10 of the
registrant's Registration Statement on Form
SB-2 filed with the Commission on September
13, 1996 [File No. 333-5604]).
10.2 Sale and Leaseback Financing
Commitment dated May 13, 1997 between AEI
Fund Management, Inc. and Ohio Valley
Bistros, Inc. relating to the sale and
leaseback of a TGI Friday's restaurant at
#1507, Rural Route #6, Greensburg,
Pennsylvania (incorporated by reference to
Exhibit 10.1 of Form 10-QSB filed with the
Commission on November 7, 1997).
10.3 Assignment of Sale and
Leaseback Financing Commitment dated
November 14, 1997, between the Partnership
and AEI Fund Management, Inc. relating to
the sale and leaseback of a TGI Friday's
restaurant at #1507, Rural Route #6,
Greensburg, Pennsylvania (incorporated by
reference to Exhibit 10.2 of Form 10-QSB
filed with the Commission on November 7,
1997).
10.4 Net Lease Agreement dated
December 10, 1997 between the Partnership,
and AEI Real Estate Fund XVII Limited
Partnership and Ohio Valley Bistros, Inc.
relating to the property at #1507, Rural
Route #6, Greensburg, Pennsylvania
(incorporated by reference to Exhibit 10.1
of Form 8-K filed with the Commission on
December 18, 1997).
10.5 Development Financing Agreement dated
June 29, 1998 between the Partnership and
Americana Dining Corp. relating to the
property at 7880 Washington Village Drive,
Centerville, Ohio (incorporated by
reference to Exhibit 10.1 of Form 10-QSB
filed with the Commission on July 31,
1998).
10.6 Net Lease Agreement dated June 29,
1998 between the Partnership and Americana
Dining Corp. relating to the property at
7880 Washington Village Drive, Centerville,
Ohio (incorporated by reference to Exhibit
10.2 of Form 10-QSB filed with the
Commission on July 31, 1998).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)
A. Exhibits -
Description
10.7 Assignment of the Development
Financing Agreement and Net Lease Agreement
dated August 27, 1998 between the
Partnership, AEI Real Estate Fund XVII
Limited Partnership, AEI Real Estate Fund
XVIII Limited Partnership, AEI Income &
Growth Fund XXI Limited Partnership, and
Americana Dining Corp. relating to the
property at 7880 Washington Village Drive,
Centerville, Ohio (incorporated by
reference to Exhibit 10.1 of Form 10-QSB
filed with the Commission on November 9,
1998).
10.8 Purchase Agreement dated October 8,
1998 between AEI Fund Management and
Centurion Video, Ltd. relating to the
property at 1097 Industrial Parkway,
Saraland, Alabama (incorporated by
reference to Exhibit 10.2 of Form 10-QSB
filed with the Commission on November 9,
1998).
10.9 Assignment of Purchase Agreement dated
November 2, 1998 between the Partnership
and AEI Fund Management relating to the
property at 1097 Industrial Parkway,
Saraland, Alabama (incorporated by
reference to Exhibit 10.3 of Form 10-QSB
filed with the Commission on November 9,
1998).
10.10 Development Financing Agreement
dated November 20, 1998 between the
Partnership and RTM Alabama, Inc. relating
to the property at 159 State Farm Parkway,
Homewood, Alabama.
10.11 Net Lease Agreement dated
November 20, 1998 between the Partnership
and RTM Alabama, Inc. relating to the
property at 159 State Farm Parkway,
Homewood, Alabama.
10.12 Development Financing Agreement
dated November 25, 1998 between the
Partnership and Tumbleweed, Inc. relating
to the property at 6040 Lima Road, Ft.
Wayne, Indiana.
10.13 Net Lease Agreement dated
November 25, 1998 between the Partnership
and Tumbleweed, Inc. relating to the
property at 6040 Lima Road, Ft. Wayne,
Indiana.
10.14 Assignment of Lease Agreement
dated January 12, 1999 between the
Partnership and Centurion Video, Ltd.
relating to the property at 1097 Industrial
Parkway, Saraland, Alabama.
10.15 First Amendment to Net Lease
Agreement dated January 27, 1999 between
the Partnership, AEI Real Estate Fund XVII
Limited Partnership, AEI Real Estate Fund
XVIII Limited Partnership, AEI Income &
Growth Fund XXI Limited Partnership and
Americana Dining Corp. relating to the
property at 7880 Washington Drive,
Centerville, Ohio.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)
A. Exhibits -
Description
27 Financial Data Schedule for
year ended December 31, 1998.
99 Forward Looking Statements -
Cautionary Statement
B. Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AEI INCOME & GROWTH FUND XXII
Limited Partnership
By: AEI Fund Management XXI, Inc.
Its Managing General Partner
March 12, 1999 By: /s/ Robert P. Johnson
Robert P. Johnson, President and
Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ Robert P. Johnson President (Principal Executive Officer) March 12, 1999
Robert P. Johnson and Sole Director of Managing General
Partner
/s/ Mark E. Larson Executive Vice President, Treasurer March 12, 1999
Mark E. Larson and Chief Financial Officer
(Principal Accounting Officer)
DEVELOPMENT FINANCING AGREEMENT
THIS AGREEMENT, made and entered into effective as of this
20th day of November, 1998, by and between RTM Alabama, Inc.
("Lessee"), whose address is 5995 Barfield Road, Atlanta, Georgia
30328, and AEI Income & Growth Fund XXII Limited Partnership
(together, "Lessor"), whose address is Suite 1300, World Trade
Center, Saint Paul, Minnesota 55102.
W I T N E S E T H, that:
WHEREAS, Lessee is contemplating building on the premises
described in Exhibit "A" attached hereto the following
Improvements :
Construction of a building and improvements to be used as a
Arby's Restaurant.
WHEREAS, Lessee has made application to Lessor for
development financing to defray the costs of constructing such
Improvements;
WHEREAS, Lessor's Assignor has issued to Lessee its
Development Financing and Leasing Commitment to advance funds in
the amount hereinafter specified, subject to compliance with the
terms and conditions of this Development Financing Agreement and
the Net Lease Agreement (the "Lease") of even date herewith;
NOW, THEREFORE, in consideration of entering into the Lease
and other good and valuable consideration, the receipt of which
is hereby acknowledged by the parties hereto, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall
have the following meanings:
1. "Application" shall mean Lessee's application to the
Lessor for the Development Financing the terms and conditions of
which are incorporated herein by reference.
2. "Architect's Contract" shall mean Lessee's contract
with the Project Architect for the modification of the prototype
Plans and Specifications to meet jurisdictional requirements, but
shall not include the requirement of interim inspections of the
Project by such Architect.
3. "Commitment" shall mean Lessor's Commitment to Lessee
agreeing to provide the Development Financing. (The "Development
Financing and Leasing Commitment" dated November 20th , 1998.)
4. "Completion Date" shall mean the earlier of 60 days
after the issuance of the Certificate of Occupancy for
contemplated Improvements on the Leased Premises or midnight, May
15, 1999, subject to Force Majeure, as defined herein.
5. "Construction Costs" shall mean land costs, all costs
paid to construct and complete the Improvements, as specified on
the Budget shown on Exhibit "B" attached hereto and made a part
hereof.
6. "Construction Contracts" shall mean the contracts
between Lessee and Contractors for the furnishing of labor,
services or materials to the Leased Premises in connection with
the construction of the Improvements.
7. "Contractors" shall mean those firms directly engaged
by Lessee to construct the Improvements, whether one or more.
8. "Contract Documents" shall mean the Project Architect's
Contract, Plans and Specifications and the contract with the
Contractor.
9. "Development Financing" shall mean the funds to be made
available pursuant to the Commitment and not to exceed the
lesser of the Construction Costs or the maximum loan amount of
One Million Four Hundred Forty Two Thousand Dollars ($1,442,000)
as specified in the Commitment.
10. "Development Financing and Carrying Charges" shall mean
all fees, taxes and charges incurred under the Development
Financing and in the construction of the Improvements including,
but not limited to, non-refundable commitment fees; interest
charges, service and inspection fees, Lessee's attorney's fees,
title insurance fees and charges, recording fees and insurance
premiums.
11. "Development Financing Documents" shall mean this
Agreement, the Lease, Assignment of Architects and Construction
Contracts, Guarantees, and such other documents given to the
Lessor as security for the Development Financing.
12. "LTIC-CDD" shall mean Lawyers Title Insurance
Corporation, Construction Disbursement Department, or other
nationally recognized title insurer approved by Lessor in its
reasonable discretion, to be LTIC-CDD under the Development
Financing Disbursement Agreement executed by and between the
parties of even date herewith.
13. "Final Disbursement Date" shall mean the date of the
final disbursement of the Development Financing provided
hereunder.
14. "Improvements" shall mean the structures and other
improvements to be constructed on the Leased Premises in
accordance with the Plans and Specifications.
15. "Initial Disbursed Funds" shall mean those funds
disbursed on the Closing Date for land acquisition and related
soft costs upon Lessor's acquisition of the Leased Premises.
16. "Inspecting Architect" shall mean the architect, if any,
hired by Lessor to perform inspections of the premises. An
Inspecting Architect may only be engaged by Lessor in the event
of a default relating to construction of the Improvements under
the Development Financing Documents.
17. "Leased Premises" shall mean the real property
described in the Exhibit "A" attached to this Agreement, together
with all Improvements, equipment and fixtures thereon.
18. "Lessee Equity" shall mean the final Construction Costs
less the amount of the Development Financing.
19. "Plans and Specifications" shall mean the plans and
specifications prepared by the Project Architect who shall be
licensed in the jurisdiction of the Leased Premises and selected
by Lessee.
20. "Project" shall mean the construction of the
Improvements on the Leased Premises.
21. "Project Architect" shall mean the architect retained by
Lessee to conform to applicable jurisdictional requirements the
prototype Plans and Specifications for the construction of the
Improvements.
22. "Sub-Contractors" shall mean those persons furnishing
labor or materials for the Project pursuant to the Sub-Contracts.
23. "Sub-Contracts" shall mean the contracts between the
Contractor and its materialmen and mechanics in the furnishing of
labor or materials for the Project.
24. "Title" shall mean the title company issuing the
Lessor's fee owner's title insurance policy.
ARTICLE II
THE DEVELOPMENT FINANCING
Subject to compliance with the provisions of this Agreement,
Lessor agrees to advance to Lessee, and Lessee agrees to request
from Lessor, the Development Financing. The Development
Financing shall be advanced in stages by Lessor to LTIC-CDD and
disbursed by LTIC-CDD pursuant to the provisions of Article VIII
hereof. The Development Financing, or so much thereof as has
been advanced hereunder, shall bear interest at the rate and
shall be repaid in accordance with the terms hereof and the
Lease. The proceeds of the Development Financing shall be used
exclusively for the purposes of defraying Construction Costs.
ARTICLE III
N/A
ARTICLE IV
CONSTRUCTION OF IMPROVEMENTS
After commencement of construction of any Improvements,
Lessee agrees to diligently pursue said construction to
completion, and to supply such moneys and to perform such duties
as may be necessary to complete the construction of said
Improvements pursuant to the Plans and Specifications and in full
compliance with all terms and conditions of this Agreement and
the Development Financing Documents, all of which shall be
accomplished on or before the Completion Date, subject to Force
Majeure and without liens, claims or assessments (actual or
contingent) asserted against the Leased Premises for any
material, labor or other items furnished in connection therewith,
subject to Lessee's right to contest such liens, claims, or
assessments provided the same are removed as a lien upon the
Leased Premises prior to foreclosure of such lien, and all in
full compliance with all construction, use, building, zoning and
other similar requirements of any pertinent governmental
jurisdiction. Lessee will provide to Lessor, upon request,
evidence of satisfactory compliance with all the above
requirements.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE LESSEE
Lessee hereby represents and warrants to the Lessor, which
representations and warranties shall be deemed to be restated by
Lessee each time Lessor makes an advance of the Development
Financing, that:
1. VALIDITY OF DEVELOPMENT FINANCING DOCUMENTS - The
Development Financing Documents are in all respects legal, valid
and binding according to their terms.
2. NO PRIOR LIEN ON FIXTURES - No mortgage, bill of sale,
security agreement, financing statement, or other title retention
agreement (except those executed in favor of Lessor) has been, or
will be, executed with respect to any fixture (except Lessee's
trade fixtures not financed with this Development Financing) used
in conjunction with the construction, operation or maintenance of
the improvements.
3. CONFLICTING TRANSACTION OF LESSEE - The consummation of the
transactions hereby contemplated and the performance of the
obligations of Lessee under and by virtue of the Development
Financing Documents will not result in any breach of, or
constitute a default under, any mortgage, lease, bank loan or
credit agreement, corporate charter, by-laws, partnership
agreement, or other instrument to which Lessee is a party or by
which it may be bound or affected, the breach of which would
materially affect Lessee's ability to perform its obligations
hereunder.
4. PENDING LITIGATION - There are no actions, suits or
proceedings pending, or to the knowledge of Lessee threatened,
against or affecting it or the Leased Premises, or involving the
validity or enforce ability of any of the Development Financing
Documents, at law or in equity, or before or by any governmental
authority, except actions, suits and proceedings that are fully
covered by insurance or which, if adversely determined would not
substantially impair the ability of Lessee to perform each and
every one of its obligations under and by virtue of the
Development Financing Documents; and to the Lessee's knowledge it
is not in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.
5. VIOLATIONS OF GOVERNMENTAL LAW, ORDINANCES OR REGULATIONS -
To the best knowledge of Lessee, there are no violations or
notices of violations of any federal or state law or municipal
ordinance or order or requirement of the State in which the
Leased Premises are located or any municipal department or other
governmental authority having jurisdiction affecting the Leased
Premises, which violations in any way have a material adverse
affect on the Leased Premises and which remain uncured after
notice by such governmental authority or department (if notice is
required) and the expiration of the time within which Lessee may
cure such violation, or if no time limitation is specified,
within a reasonable time after notice to cure such violation .
6. COMPLIANCE WITH ZONING ORDINANCES AND SIMILAR LAWS - To the
best knowledge of Lessee, the Plans and Specifications and
construction pursuant thereto and the use of the Leased Premises
contemplated thereby comply and will comply with all present
governmental laws and regulations and requirements, zoning
ordinances, standards, and regulations of all governmental bodies
exercising jurisdiction over the Leased Premises. Lessee agrees
to provide the Project Architect's certification to such effect
prior to the funding of the first disbursement under the
Development Financing.
7. LESSEE'S STATUS AND AUTHORITY - If the Lessee be a
corporation, limited liability company, trust or a partnership,
Lessee warrants and represents that (I) it is duly organized,
existing and in good standing under the laws of the state in
which it is incorporated or created; (ii) it is duly qualified to
do business and is in good standing in the state in which the
Leased Premises are located; (iii) it has the corporate or other
power, authority and legal right to carry on the business now
being conducted by it and to engage in the transactions
contemplated by this Agreement and the Development Financing
Documents; and (iv) the execution and delivery of this Agreement
and the Development Financing Documents and the performance and
observance of the provisions hereof and thereof have been (or
future acts will be) duly authorized by all necessary trust,
partnership, or corporate actions of Lessee. Lessee will furnish
such resolutions, affidavits and opinions of counsel to such
effect as Lessor may reasonably require.
8. AVAILABILITY OF UTILITIES - All utility services necessary
for the construction of the Improvements will be available prior
to the commencement of construction, and all utility services
necessary for the proper operation of the Improvements for their
intended purposes are available at the Leased Premises or will be
available at the Leased Premises prior to the Final Disbursement
Date, at commercially comparable utility rates and hook-up
charges for the vicinity, including water supply, storm and
sanitary sewer facilities, gas, electricity and telephone
facilities. Lessee shall furnish evidence of such availability
of utilities from time to time at Lessor's request.
9. BUILDING PERMITS - All building permits required for the
construction of the Improvements will have been obtained prior to
the commencement of the construction of the Improvements and
copies of same will be delivered to Lessor.
10. CONDITION OF LEASED PREMISES - The Leased Premises are not
now damaged or injured as a result of any fire, explosion,
accident, flood or other casualty, nor to the best of Lessee's
knowledge, subject to any action in eminent domain.
APPROVAL OF PLANS AND SPECIFICATIONS - To the best knowledge of
Lessee in reliance upon the Project Architect's certification to
such effect, the Plans and Specifications conform to the
requirements and conditions set out by applicable law or any
effective restrictive covenant, to all governmental authorities
which exercise jurisdiction over the Leased Premises or the
construction thereon, and no construction will be commenced upon
the Leased Premises until said Plans and Specifications shall
have been approved by Lessor, which consent shall not be
unreasonably withheld or delayed and shall be given or withheld
within ten business days after written request therefor. Subject
to Article VI, paragraph 14, no material changes are to be made
in the Plans and Specifications as approved without Lessor's
prior consent, which consent shall not be unreasonably withheld
or delayed and shall be given or withheld within ten business
days after written request therefor. After prior written notice
to Lessor, provided the Development Financing shall remain in
balance as set forth in Article VII, paragraph 3 herein, Lessor
shall consent to reallocation among line items, or use of the
Construction Contingency in the aggregate of not more than the
amount budgeted as set forth on Exhibit B for Construction
Contingency. Otherwise, Lessee shall demonstrate to Lessor's
reasonable satisfaction the application of or Lessee's reasonable
access to sufficient Owner Equity in the amount of such excess
over the budgeted amount.
12. CONSTRUCTION CONTRACTS - Lessee has entered into contracts
with the Contractors or separate contracts with materialmen and
laborers providing for the construction of the Improvements. If
Lessee shall be in default hereunder, after written notice from
Lessor, Lessee will cause the Contractors to promptly furnish
Lessor with the complete list of all Sub-contractors or entities
as and when under contract, which Contractors propose to engage
to furnish labor and/or materials in constructing the
Improvements (such list containing the names, addresses, and
amounts of such sub-contracts as written in excess individually
of $5,000, and prior to disbursement of funds to or for the
benefit of such Subcontractors, affidavits of authorized
signatory and other documents commercially reasonably required by
Title to insure that the Leased Premises remain lien free) and
will from time to time furnish Lessor or Title with true copies
of all Contracts entered into by Lessee and with the terms of all
verbal agreements therefor, if any, (and if Lessee shall be in
default hereunder, upon written request by Lessor, as to
subcontractors, letters signed by sub-contractors whose contracts
are in excess of $5,000 setting forth the present amount of their
contract and the amounts remaining to be paid under that
contract, if the same information is not stated on a lien waiver
reflecting the most currently requested payment to such
subcontractor.)
13. BROKERAGE COMMISSIONS - No brokerage commissions are due in
connection with the transaction contemplated hereby or if there
are commissions due or payable the same will be paid by Lessee.
Lessee agrees to and shall indemnify Lessor from any liability,
claims or losses arising by reason of any such brokerage
commissions. This provision shall survive the repayment of the
Development Financing and shall continue in full force and effect
so long as the possibility of such liability, claims or losses
exists.
14. NO PRIOR WORK - Except as may have been permitted by Lessor,
no work or construction has been commenced or will be commenced
by or on behalf of Lessee on the Leased Premises, nor has Lessee
entered into any contracts or agreements for such work or
construction which could result in the imposition of a mechanic's
or materialmen's lien on the Leased Premises or the Improvements
prior to or on parity with the interest of Lessor.
15. ENVIRONMENTAL IMPACT STATEMENT - All required environmental
impact statements as required by any governmental authority
having jurisdiction over the Leased Premises or the construction
of the Improvements have been duly filed and approved.
16. ACCESS - The Leased Premises front on a publicly maintained
road or street or have access to such a road or street under an
easement or private way, which is not subject to a reversion in
favor of any party.
17. FINANCIAL INFORMATION - Any financial statements heretofore
delivered to Lessor are true and correct in all respects, have
been prepared in accordance with generally accepted accounting
practice, and fairly present the respective financial conditions
of the subject thereof as of the respective dates thereof and no
materially adverse change has occurred in the financial
conditions reflected therein since the respective dates thereof.
ARTICLE VI
COVENANTS OF LESSEE
Lessee hereby covenants and agrees with Lessor as follows:
1. SURVEYS - Prior to execution of any Development Financing
Documents and prior to the initial request for a Disbursement (as
defined in ARTICLE VIII hereof), Lessee has furnished to Lessor
three copies of a current perimeter land survey, in form and
substance satisfactory to Lessor, certified to Lessor, giving a
description of the Leased Premises and showing all encroachments
onto or from the Leased Premises, currently certified by a
registered surveyor and bearing his registry number and showing
access rights, easements, or utilities, rights of way, all
setback requirements upon the Leased Premises, improvements,
matters affecting title and such other items as Lessor may
reasonably request.
2. TITLE INSURANCE - Prior to the initial request for
Disbursement the Lessee has furnished Lessor with an ALTA policy
of title insurance, and prior to any subsequent request for
Disbursement such ALTA policy of title insurance shall be brought
down to the date of Disbursement by endorsement, all in form and
substance satisfactory to Lessor issued at the Lessee's expense
and written by Title insuring the Leased Premises to be
marketable, free from exceptions for mechanic's and materialmen's
liens and free from other exceptions not previously approved by
the Lessor, naming Lessor as fee owner insured to the extent of
advances made hereunder subject only to such exceptions as may be
reasonably approved by Lessor.
3. RESTRICTIONS ON CONVEYANCE OR SECONDARY FINANCING - Lessee
will not transfer, sell, convey or encumber the Leased Premises
or subject the Leased Premises to any secondary financing in any
way without the written consent of the Lessor, except as
permitted in Article V, paragraph 2 relating to trade fixture
financing sources or suppliers.
4. INSURANCE - To obtain or cause Contractor to obtain and
maintain such insurance or evidence of insurance as Lessor may
reasonably require, including but not limited to the following:
(a) BUILDER'S RISK INSURANCE - Builder's Risk Insurance
written on the so-called "Builder's Risk-Completed Value Basis"
in an amount equal to the full replacement cost of the
Improvements at the date of completion with coverage available on
the so-called multiple peril form of policy, including coverage
against collapse and water damage, naming Lessor as additional
named insured, such insurance to be in such amounts and form and
written by such companies as shall be reasonably approved by
Lessor, and the originals of such policies (together with
appropriate endorsement thereto, evidence of payment of premiums
thereon and written agreements by the insurer or insurers therein
to give Lessor ten (10) days' prior written notice of any
intention to cancel) shall be promptly delivered to Lessor, said
insurance coverage to be kept in full force and effect at all
times until the completion of construction of the Improvements.
(b) HAZARD INSURANCE - Fire and Extended Coverage
Insurance, and such other hazard insurance as Lessor may require
and as called for in the Lease in an amount equal to the full
replacement cost of the Improvements naming Lessor as an
additional named insured, such insurance to be in such amounts
and form and written by such companies as shall be reasonably
approved by Lessor, and the originals of such policies (together
with appropriate endorsements thereto, evidence of payment of
premiums thereon and written agreement by the insurer or insurers
therein to give Lessor ten (10) days' prior written notice of any
intention to cancel) shall be promptly obtained and delivered to
Lessor immediately upon completion of the construction of the
Improvements and before any portion is occupied by Lessee or any
tenant of Lessee with such insurance to be kept in full force and
effect at all times thereafter.
(c) PUBLIC LIABILITY - Comprehensive public liability
insurance (including operations, contingent liability operations,
operations of sub- contractors, completed operations and
contractual liability insurance) in limits of coverage as set
forth in the Lease.
(d) WORKMEN'S COMPENSATION INSURANCE - Evidence of
compliance with the required coverage under statutory workmen's
compensation requirements.
5. COLLECTION OF INSURANCE PROCEEDS - To cooperate with Lessor
in obtaining for Lessor the benefits of any insurance or other
proceeds lawfully or equitably payable to it in connection with
the transaction contemplated hereby and the collection of any
indebtedness or obligation of the Lessee to Lessor incurred
hereunder (including the payment by Lessee of the expense of an
independent appraisal on behalf of Lessor in case of a fire or
other casualty affecting the Leased Premises).
6. APPLICATION OF DEVELOPMENT FINANCING PROCEEDS - To use the
proceeds of the Development Financing solely for the purpose of
paying for Construction Costs and such incidental costs relative
to the construction as may be reasonably approved from time to
time in writing by Lessor, and in no event to use any of the
Development Financing proceeds for personal, corporate or other
purposes.
7. EXPENSES - To pay all costs of closing the Development
Financing and all expenses of Lessor with respect thereto,
including, but not limited to, (if Lessee shall default
hereunder, legal fees by Lessor's counsel and all other
reasonable attorney's fees incurred in connection with
enforcement of the terms hereof (limited as set forth in the
Commitment)), costs of title insurance, transfer taxes, license
and permit fees, recording expenses, surveys, intangible taxes,
appraisal fees, Inspecting Architect fees, expenses of retaking
possession upon default by Lessee hereunder or other costs of
enforcement (including reasonable attorney's fees) and similar
items.
8. LAWS, ORDINANCES AND ETC. - To comply promptly with any law,
ordinance, order, rule or regulation of all authorities
exercising jurisdiction over the Leased Premises or the
construction thereon, including appropriate supervising boards of
fire underwriters and similar agencies and the requirements of
any insurer issuing coverage on the Project.
9. RIGHT OF LESSOR TO INSPECT LEASED PREMISES - Upon 48 hours
notice, except in cases which Lessor reasonably deems to be an
emergency, in which event upon reasonable notice under the
circumstances, to permit Lessor and Title and their
representatives and agents to enter upon the Leased Premises and
to inspect the Improvements and all materials to be used in
construction thereof and to cooperate and cause Contractor to
cooperate with Lessor or Title and their representatives and
agents during such inspections, provided that such is
accomplished without interrupting the construction process.
Provided, further, however, that this provision shall not be
deemed to impose upon Lessor or Title any duty or obligation
whatsoever to undertake such inspections, to correct any defects
in the Improvements or to notify any person with respect thereto.
10. BOOKS AND RECORDS - To set up and maintain accurate and
complete books, accounts and records pertaining to the Project
including the working drawings in a manner reasonably acceptable
to Lessor. The Lessor, Title and Inspecting Architect shall have
the right at all reasonable times and upon reasonable prior
notice to inspect, examine and copy all books and records of
Lessee relating to the Project, and to enter and have free access
to the Leased Premises and Improvements and to inspect all work
done, labor performed and material furnished in or about the
Project, provided that such is accomplished without interrupting
the construction process. Notwithstanding the foregoing, Lessee
shall be responsible for making inspections as to the
Improvements during the course of construction and shall
determine to its own satisfaction that the work done or materials
supplied by the Contractors and all Subcontractors has been
properly supplied or done in accordance with the applicable
contracts. Lessee will hold Lessor and Title harmless from and
Lessor and Title shall have and have no liability or obligation
of any kind to Lessee or creditors of Lessee in connection with
any defective, improper or inadequate workmanship or materials
brought in or related to the Improvements or the Leased Premises,
or any mechanic's liens arising as a result of such workmanship
or materials. Upon Lessor's request, Lessee shall replace or
cause to be replaced any such work or material found to be
materially deficient by the Independent Architect. Lessor shall
cooperate with Lessee in obtaining any rights under any
applicable warranties to accomplish such work. Any inspections
made by Inspecting Architect, Title or Lessor are for the sole
benefit of Lessor and neither Lessee nor any creditor, tenant or
vendee of Lessee shall be entitled to rely on such inspection.
Lessee shall obtain for Lessor coincident rights to rely upon any
warranties obtain by Lessee from its Contractors or
subcontractors.
11. CORRECTION OF DEFECTS - To promptly correct any structural
defects in the Improvements or any material departure from the
Plans and Specifications not previously approved by Lessor. The
advance of any Development Financing proceeds shall not
constitute a waiver of Lessor's right to require compliance with
this covenant.
12. SIGN REGARDING DEVELOPMENT FINANCING - To allow Lessor to
erect and maintain at a suitable site on the Leased Premises, at
a location to be chosen by Lessee in its reasonable discretion, a
sign indicating that Development Financing is being provided by
Lessor, to the extent permitted by law or private covenant,
condition, or agreement affecting the Project.
13. ADDITIONAL DOCUMENTS - To furnish to Lessor all instruments,
documents, initial surveys, footing or foundation surveys, if
conducted, certificates, plans and specifications, appraisals,
financial statements, title and other insurance reports and
agreements and each and every other document and instrument
required to be furnished by the terms hereof, all at Lessee's
expense; to assign and deliver to Lessor such documents,
instruments, assignments and other writings, and to do such other
acts necessary or desirable to preserve and protect the Leased
Premises, as Lessor may require; and to do and execute all and
such further lawful and reasonable acts, conveyances and
assurances for the carrying out of the intents and purposes of
this Agreement, the Lease, or the Commitment, as Lessor shall
reasonably require from time to time.
14. ARCHITECTS AND CONSTRUCTION CONTRACTS - To commit no default
nor knowingly permit a default under the terms of the Architects
or Construction Contracts; To waive none nor knowingly permit a
waiver of the obligations of the parties thereunder; To do no act
which would relieve such parties from their obligations
thereunder; To make no amendments to such contracts, without the
prior written consent of Lessor; To enter into no change orders
or extras that cause a reallocation among budgeted line items, or
that in the aggregate or singularly result in a net increase in
excess of 10% of the original contract amount without Lessor's
prior written consent, which consent shall not be unreasonably
withheld or delayed; provided, however, Lessor shall be given
written notice and copies of all change orders; provided,
further, however, with written notice to Lessor prior to any
request for funds subsequent to any such change order or
reallocation, the Lessee shall be allowed to enter into any
change order or extra which is accounted for by use of any
reallocation among line items or any remaining budgeted
Contingency line item, or if the same has been exhausted, Lessee
shall be allowed increases in the original contract amount
without Lessor's consent if Lessee has, upon the execution of
said change order, deposited with Lessor the amount by which such
change order increases the total Construction Cost; To allow all
such contracts to be subject to the approval of Lessor for its
loan purposes; To allow Lessor to take advantage of all the
rights and benefits of the contracts upon any default by Lessee;
and to submit evidence to Lessor that both the Architect and the
Contractors will permit Lessor to acquire Lessee's interest under
their respective contracts and the Contract Documents without
additional charge or fee should an event of default occur
hereunder, which default is not cured within applicable notice
and cure periods.
ENFORCE PERFORMANCE OF SUB-CONTRACTS - To enforce, or cause to be
enforced, the prompt performance of the Sub-Contracts in
accordance with their terms and not to approve any changes in the
same that in the aggregate or singularly result in a net increase
in excess of 10% of the original General Contractor's contract
amount without Lessor's prior written consent, which consent
shall not be unreasonably withheld or delayed, provided Lessee's
right to enter into any such change order shall be on the same
terms set forth in Section 14 above.
16. COMPLIANCE WITH RULES - To comply with, and to require the
Contractors to comply with, all rules, regulations, ordinances
and laws bearing on the conduct of the work on the Improvements,
including the requirements of any insurer issuing coverage on the
Project and the requirements of any applicable supervising boards
of fire underwriters.
17. OPINIONS OF COUNSEL - To furnish such opinions of counsel as
may be reasonably requested of the Lessee in connection with the
matters contemplated by this Agreement.
18. SOIL TESTS - To provide the Lessor with a soil report
prepared by an acceptable engineer certifying as to the status of
the soil conditions on the Leased Premises, the need or lack of
need for special pilings and foundations and that either any
pilings and foundation necessary to support the Improvements have
been placed in a manner and quantity sufficient to provide the
required support or that no such pilings and foundations are
necessary for the support and construction of the Improvements.
19. MARKETABLE TITLE - To execute and deliver or cause to be
executed and delivered such instruments as may be required by the
Lessor and Title to provide Lessor with a marketable, valid title
to the Leased Premises subject only to such exceptions to title
as may be reasonably approved by Lessor.
20. VIOLATIONS OF GOVERNMENTAL LAW, ORDINANCES OR REGULATIONS -
Lessee will permit no violations nor commit the same, of any
federal or state law or municipal ordinance or order or
requirement of the State in which the Leased Premises are located
or any municipal department or other governmental authority
having jurisdiction affecting the Leased Premises, which
violations in any way have a material adverse affect on the
Leased Premises and which remain uncured after notice by such
governmental authority or department (if notice is required) and
the expiration of the time within which Lessee may cure such
violation, or if no time limitation is specified, within a
reasonable time after notice to cure such violation .
21. COMPLIANCE WITH ZONING ORDINANCES AND SIMILAR LAWS - The
Plans and Specifications and construction pursuant thereto and
the use of the Leased Premises contemplated thereby will comply
with all governmental laws and regulations and requirements,
zoning ordinances, standards, and regulations of all governmental
bodies exercising jurisdiction over the Leased Premises,
including environmental protection and equal employment
regulations, and appropriate supervising boards of fire
underwriters and similar agencies.
22. APPROVAL OF PLANS AND SPECIFICATIONS - The Plans and
Specifications will conform to the requirements and conditions
set out by applicable law or any effective restrictive covenant,
and to all governmental authorities which exercise jurisdiction
over the Leased Premises or the construction thereon.
ARTICLE VII
CONDITIONS PRECEDENT TO A DISBURSEMENT
It shall be a condition precedent to each Disbursement under this
Development Financing Agreement that:
1. DEVELOPMENT FINANCING DOCUMENTS - The Development Financing
Documents shall have been duly executed and delivered to Lessor
and shall be in full force and effect.
2. LESSEE EQUITY - Lessee shall have paid all of the Lessee
Equity funds, if any shall then be required or known to be
required prior to the First Disbursement, into the Project before
the first Disbursement (or any subsequent Disbursement if
additional Lessee Equity should be required) and Lessee shall
deliver evidence reasonably satisfactory to Lessor of the
availability of funds to make such payment.
3. DEVELOPMENT FINANCING BALANCE - As of the date immediately
prior to any Disbursement, Lessee's acceptance of such
Disbursement shall be deemed to be certification that the total
amount of unadvanced proceeds of the Development Financing shall
be sufficient to complete the Improvements free of liens. To the
extent the total of the unadvanced proceeds of the Development
Financing shall be insufficient, at any time, in the commercially
reasonable opinion of Lessor (the opinion of Lessor being based
upon affidavit of the General Contractor, the Inspecting
Architect (if applicable), or other reliable licensed third party
contractor) to complete the Improvements, or be less than the
total Construction Costs not yet paid for or not yet incurred
(including interest accruing for the remainder of the term or
extensions thereof, if any), the Lessee shall demonstrate to
Lessor's reasonable satisfaction the application of or Lessee's
reasonable access to sufficient Owner Equity in the amount of
such excess over the budgeted amount..
NO DEFAULT - No event of default, which remains uncured after the
expiration of applicable cure periods, shall exist under this
Agreement or the Development Financing Documents.
5. REPRESENTATIONS AND WARRANTIES - The representations and
warranties in Article V hereof shall be true and correct on and
as of the date of each Disbursement.
6. COVENANTS - Lessee shall have complied with all of the
covenants made by it in Article VI hereof.
7. SWORN CONSTRUCTION STATEMENT - Prior to the initial
disbursement hereunder, the Lessee shall have submitted to Lessor
and Title a Construction Cost Statement or the Construction
Contract (if such information is contained therein) sworn to by
Lessee and Contractors reflecting all major Sub-Contractors or
materialmen who shall then be engaged in furnishing labor,
materials or supplies for the Improvements. The list should show
the name of each and every Contractor, (and with respect to
further disbursements, if Lessee be in default hereunder, upon
written request by Lessor, Lessee shall provide a list of Sub-
Contractors and materialman (or at least such entities or
individuals whose contract is in excess of $5,000)), its address
and an estimate of the dollar value of the work, labor and
materials to be done or supplied and a general statement of the
nature of the work to be done or materials to be supplied by each
Contractor. Thereafter, if such list should change or new
Contractors shall execute contracts not reflected on the above
list, the Lessee shall furnish to the Lessor any amendments or
additions to the original statement as so submitted.
8. APPLICATION FOR PAYMENT - Lessor shall have received an
Application for Payment pursuant to Article VIII hereof.
9. TITLE - Title shall issue its endorsement to the title
policy insuring the Lessor as fee owner under the policy in the
aggregate amounts of all prior Disbursements and the requested
Disbursement.
10. WORK IN PLACE - All work or materials for which a
Disbursement is requested shall be in place and incorporated into
the Improvements.
ARTICLE VIII
METHODS OF DISBURSEMENTS OF DEVELOPMENT FINANCING PROCEEDS
The Development Financing shall be disbursed (a "Disbursement")
as follows:
1. PROCEDURE - Not more often than monthly, Lessee may submit
an Application for Payment in the form attached hereto as Exhibit
"C" requesting the Disbursement of proceeds under the Development
Financing, which request shall be submitted to Lessor and to LTIC-
CDD at least five (5) business days prior to the date on which a
Disbursement is requested. Provided the conditions of this
Development Financing Agreement are met on the date requested for
such advance, Lessor shall advance to LTIC-CDD amounts certified
to be currently payable by Lessee (excluding the retainage
hereinafter specified) for the then incurred portion of Total
Construction Costs pursuant to the Application for Payment. All
costs shall have been approved in writing by the Lessee,
Contractor, and if required by Lessor, by the Inspecting
Architect, if any. All interest accruing need not be disbursed
to LTIC-CDD, but may be immediately and automatically credited by
Lessor to the Development Financing account. LTIC-CDD shall
disburse all funds advanced to it by Lessor in accordance with
the terms and provisions of this Agreement and any special escrow
requirements imposed by LTIC-CDD as a condition to its acting as
the disbursing agent hereunder. The disbursed proceeds of the
Development Financing shall bear interest from and including the
date of disbursement to LTIC-CDD or the date of credit by Lessor
provided that in the event LTIC-CDD shall fail to disburse any
advances within five (5) business days after the date set for an
advance, LTIC-CDD shall return said advance to Lessor and
interest on such advance shall abate from and after the date of
such return. Any amounts disbursed to LTIC-CDD and returned by
LTIC-CDD to the Lessor shall not be deemed to be advanced under
the Development Financing Documents. Each Application for
Payment shall clearly set forth the amounts due to Lessee and to
each Contractor out of the requested Development Financing and
shall be accompanied by the following:
a. An Application for Payment in the form attached hereto
as Exhibit "C" certifying that each contractor or materialman for
which payment is requested in the relevant Application for
Payment has satisfactorily completed the work or furnished the
materials for which payment is requested in accordance with the
applicable contract; that all work for which an Application for
Payment is made substantially conforms to the Contract Documents
and any approved changes, and is in place; and that sufficient
funds remain of the undisbursed Development Financing proceeds to
complete the Project and that all funds previously disbursed have
been applied as per the previous Application for Payment.
b. Waivers of Mechanics' Liens and Materialmen's Liens
executed by all Contractors for all work done and all materials
furnished to the Leased Premises and included in such current
Application for Payment, or evidence or indemnification from
Lessee reasonably required by Title to insure over the same by
special specific endorsement, or such other releases or lien
pursuant to bonding or otherwise to prevent such liens from
attaching to the Leased Premises.
c. If Lessee shall be in default hereunder, upon written
request by Lessor, Waivers of Mechanics' Liens and Materialmen's
Liens executed by all Sub-Contractors and workmen and materialmen
for all work done and all materials furnished to the Leased
Premises and included in the immediately preceding Application
for Payment, or evidence reasonably required by Title to insure
over the same by special specific endorsement, or such other
releases or lien pursuant to bonding or otherwise to prevent such
liens from attaching to the Leased Premises.
Such other supporting evidence, including invoices and receipts
as may be requested by Lessor or LTIC-CDD to substantiate all
payments which are to be made out of the Disbursement or to
substantiate all payments then made in respect to the Project.
Title shall have issued an endorsement bringing the date of the
Policy forward to the date of such disbursement and increasing
the amount of coverage to acknowledge the Policy liability has
increased to the full amount disbursed to that date.
2. INTEREST ADVANCE - If interest has accrued on the
Development Financing and is unpaid or fees are payable to the
Lessor hereunder, Lessor shall be, and hereby is, authorized at
any time to advance to itself from the proceeds of the
Development Financing the total amount of such accrued interest
and fees, whether or not an Application for Payment has been
submitted by the Lessee and the same shall be deemed to be an
advance of the proceeds of the Development Financing under this
Agreement in the same manner and with the same effect as if
advanced under the provisions above. It is understood Lessor may
establish an automatic interest reserve whereby Lessor may
withdraw from the Development Financing account on a regular
basis the accrued interest on the Development Financing and
credit the Development Financing balance with the same.
3. ASSESSMENT AND TAX ADVANCE - As taxes and assessments become
due on the Leased Premises, Lessor shall be, and hereby is,
authorized to advance to itself automatically from the proceeds
of the Development Financing, the total amount of such taxes and
assessments and the same shall be deemed to be an advance of the
proceeds of the Development Financing under this Agreement in the
same manner and with the same effect as if advances under the
provisions above, if not previously paid before due pursuant to
Lessee's obligations under the Lease.
4. DISBURSE UNDER DEVELOPMENT FINANCING DOCUMENT - All sums
advanced and disbursed hereunder shall be disbursed under and
shall be secured by the Development Financing Documents.
5. PAYMENTS TO SUBCONTRACTORS - If Lessee shall be in default
hereunder, LTIC-CDD in its reasonable discretion may make
payments directly to any subcontractor or materialman.
6. RETAINAGE - Each Disbursement shall be limited to an amount
equal to ninety percent (90%) of the value, exclusive of
Contractor's profit and overhead, of the materials and labor
furnished to the Leased Premises and the balance (herein called
the Retainage) shall be retained by Lessor, provided that thirty
(30) days after completion by each subcontractor or materialman
of his subcontract Lessor will disburse to such party, or to the
Contractor on behalf of such party the Retainage withheld from
said party, provided that as a condition to such disbursement the
Lessee and the Inspecting Architect (if applicable) shall certify
to Lessor the date that such Party's subcontract has been fully
and satisfactorily completed and the subcontractor or materialmen
shall have supplied Title with satisfactory final lien waivers,
including final lien waivers for any of its submaterialmen or sub-
contractors and the requirements of any bonding company issuing
the Bonds shall have been fulfilled or LTIC-CDD shall have
received the indemnification of Lessee LTIC-CDD shall reasonably
require. Any Retainage due the Contractor for work performed or
materials furnished by the Contractor and the final balance of
Contractor's profit and overhead shall be disbursed on the Final
Disbursement Date pursuant to Article IX hereof. Contractor's
profit and overhead shall be disbursed based upon and in
proportion to the percentage of completion of the Project, or
amounts payable under the Construction Contract for work actually
performed, whichever is less, as certified by the Lessor.
ARTICLE IX
FINAL DEVELOPMENT FINANCING BALANCE
Unless and until Lessor and Lessee have entered into a mutually
satisfactory escrow holdback and undertaking agreement to, inter
alia, complete the Improvements and otherwise satisfy the
requirements of this Article IX, at no time and in no event shall
Lessor be obligated to disburse the balance of the proceeds of
the Development Financing, including any Retainage until the date
the following have been satisfied (the "Final Disbursement
Date"):
1. Lessor shall have received reasonably satisfactory evidence
of the final completion of the Improvements in substantial
accordance with the Contract Documents and the Certificate of
Final Completion from the Contractor and Lessee.
2. Lessor shall have received satisfactory as-built surveys
reflecting the final location of the Improvements as fully
completed on the Leased Premises in accordance with the Contract
Documents, said survey to be prepared by a registered or licensed
surveyor bearing his registry number, certifying to Lessor as to
the legal description of the Leased Premises and showing all
Improvements located on the Leased Premises and indicating the
street address of the Improvements, absence of any encroachments
on the Leased Premises or from the Leased Premises onto adjacent
land, showing all access points, and showing conformance to all
set back requirements and delineating all utility easements that
are specifically legally described, rights of way and other
matters affecting the Leased Premises, and certifying as to the
total acreage of the land, the exterior dimensions of the
Improvements, and the number of parking spaces, if any, and such
other matters as Lessor may reasonably request.
3. Lessor shall have received a requisite affidavit of the
Lessee and Contractor, and approved by the Inspecting Architect
(if applicable) certifying as to the final cost of the
Improvements.
4. Title shall have been furnished with such final lien waivers
or with an indemnification agreement satisfactory to Title
sufficient in the opinion of the Title to either dissolve any
possible Mechanic's and Materialman's Liens affecting title to
the Leased Premises or sufficient to allow Title to afford Lessor
such coverages without such waivers or Lessee shall have provided
a bond or other security sufficient to remove the lien as an
encumbrance upon title to the Leased Premises and Title shall
have issued its final bring down endorsement to the title policy
increasing the insured coverage to the full amount of all sums
disbursed under this Development Financing Agreement and bringing
the date of the Policy forward to the date of the Final
Disbursement..
5. Lessor shall have received evidence that all of the terms,
provisions and conditions on the part of the Lessee to be
performed or caused to be performed hereunder and under the
Lease, including but not limited to obtaining casualty insurance
for the full insurable value of the Improvements, have been
fulfilled to the satisfaction of Lessor.
6. Lessor shall have received a Final Certificate of Occupancy
issued by the appropriate governmental authority covering the
Improvements and a Certificate of Substantial Completion from the
Lessee and Contractor indicating that the Improvements as built
comply with all building codes and zoning ordinances, including
any plat requirements or requirements of recorded operating
covenants or agreements affecting the Leased Premises.
7. All remaining uncompleted "punch list" items shall have been
satisfactorily completed.
8. The requirements of all bonding companies, if any, with
respect to release of retainage shall have been met.
9. An amendment (the "First Lease Amendment") to the Lease
shall be executed by Lessee and Lessor setting forth the date the
first Lease Year and the initial term of the Lease shall end and
the Rent for the balance of the first Lease Year, and evidencing
the satisfaction and termination of this Agreement. The Rent
shall be adjusted to Six and One-Half Percent of the Total
Project Costs for the First full Lease Year after the date of the
First Lease Amendment and to Nine Percent of the Total Project
Costs for the Second Lease Year, and increase thereafter as set
forth in the Lease.
ARTICLE X
EVENTS OF DEFAULT
An "event of default" shall be deemed to have occurred hereunder
and under the Lease, if:
1. DEFAULT UNDER DEVELOPMENT FINANCING DOCUMENTS - Any default
or event of default occurs (which remains uncured after the
expiration of any applicable cure period as may be set forth in
any Development Financing Document) under any of the Development
Financing Documents as defined therein; or
2. FAILURE TO COMPLETE CONSTRUCTION - Lessee shall fail for any
reason, except Lessor's wrongful refusal to fund the Development
Financing pursuant to the terms hereof, to substantially complete
the construction of the Improvements by the Completion Date; or
3. BREACH OF AGREEMENT - Lessee breaches or fails to perform,
observe or meet any covenant or condition of this Agreement,
provided, however, with respect to monetary defaults hereunder
Lessee shall have five (5) days after notice from Lessor to cure
such monetary defaults, and with respect to non-monetary defaults
hereunder, Lessee shall have twenty days after notice from Lessor
to cure such non-monetary default, or if such default (but for
the payment of monies) cannot be cured within twenty days, such
longer time as may be reasonably necessary to effect a cure if
Lessee is diligently pursuing a course of conduct reasonably
designed to cure the default.; or
4. BREACH OF WARRANTY - Any warranties made or agreed to be
made in any of the Development Financing Documents or this
Agreement shall be breached by Lessee or shall prove to be false
or misleading, and the same shall not be cured or made to be true
and correct within the applicable cure periods; or
5. FILING OF LIENS AGAINST THE LEASED PREMISES - Any lien for
labor, material, taxes or otherwise shall be filed against the
Leased Premises and such lien shall not be promptly paid,
released, contested in an appropriate forum, or bonded over to
Lessor's reasonable satisfaction before the lien shall materially
adversely affect Lessor's interest in the Premises; or
6. LITIGATION AGAINST LESSEE - Any suit shall be filed against
Lessee, and is not resolved within 120 days and, which if
adversely determined, could substantially impair the ability of
Lessee to perform each and every one of its obligations under and
by virtue of the Development Financing Documents; or
7. LEVY UPON THE LEASED PREMISES - A levy be made under any
process on the Leased Premises and such levy shall not be
promptly Bonded over prior to the execution of such levy; or
8. TRANSFER OF LEASED PREMISES - Lessee shall without the prior
written consent of Lessor, voluntarily or by operation of law,
sell, transfer, convey or encumber all or any part of its
interest in the Leased Premises or in any of the personalty owned
by Lessor located thereon; or
9. ABANDONMENT - Lessee abandons the project or delays or
ceases work thereon for a period of fifteen consecutive (l5)
days, or delays construction or suffers construction to be
delayed for any period of time for any reason whatsoever so that
completion of Improvements cannot be accomplished in the judgment
of Lessor on or before the Completion Date, subject to force
majeure; or
10. BANKRUPTCY - Lessee shall make an assignment for the benefit
of its creditors or shall admit in writing its inability to pay
its debts as they become due or shall file a petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent or
shall file a petition seeking any reorganization, dissolution,
liquidation, arrangement, composition, readjustment, or similar
relief under any present or future bankruptcy or insolvency
statute, law or regulation, or shall file an answer admitting to
or not contesting the material allegations of a petition filed
against it in any such proceedings, or shall not have the same
dismissed or vacated, or shall seek or consent or acquiesce in
the appointment of any trustee, receiver or liquidator of a
material part of its properties, or shall not after the
appointment without the consent or acquiescence of it of a
trustee, receiver, or liquidator of any material part of its
properties have such receiver, liquidator or appointment vacated;
or
11. EXECUTION LEVY - Execution shall have been levied against
the Leased Premises or any lien creditors commence suit to
enforce a judgment lien against the Leased Premises or such
action or suit shall have been brought and shall not be
immediately bonded over and shall continue unstayed and in effect
for a period of more than 120 consecutive days; or
12. ATTACHMENT - Any part of the Lessor's commitment to make the
advances hereunder shall at any time be subject or liable to
attachment or levy at the suit of any creditor of the Lessee or
at the suit of any subcontractor or creditor of the Contractor
and shall remain unstayed prior to the time Lessor shall be
obligated to comply with the same;
ARTICLE XI
REMEDIES OF LESSOR
Lessee hereby agrees that the occurrence of any one or more of
the events of default set out in Article X hereof, shall also
constitute an event of default under each of the Development
Financing documents, thereby entitling Lessor, after the
expiration of any applicable cure period, at its option, to
proceed to exercise any or all of the following remedies:
1. EXERCISE OF REMEDIES - To exercise any of the various
remedies provided in any of the Development Financing Documents,
including the acceleration of the Put described in Articles XIV
hereof;
2. CUMULATIVE RIGHTS - Cumulatively to exercise all other
rights, options and privileges provided by law;
3. CEASE MAKING ADVANCES - To refrain from making any advances
under this Agreement but Lessor may make advances after the
happening of any such event without thereby waiving the right to
refrain from making other further advances or to exercise any of
the other rights Lessor may have.
4. RIGHTS TO ENTER - To require Lessee to vacate the Leased
Premises and permit Lessor (whether prior to the exercise of the
Put or during any period prior to the closing of the sale
pursuant to the Put);
(a) To enter into possession;
(b) To perform or cause to be performed any and all work
and labor necessary to complete the Improvements in accordance
with the Plans and Specifications;
(c) To employ security watchmen to protect the Leased
Premises; and
(d) To disburse that portion of the Development Financing
Proceeds not previously disbursed (including any Retainage) to
the extent necessary to complete the construction of the
Improvements in accordance with the Contract Documents and if the
completion requires a larger sum than the remaining undisbursed
portion of the Development Financing, to disburse such additional
funds, all of which funds so disbursed by Lessor shall be deemed
to have been disbursed to Lessee. For this purpose, Lessee
hereby consents upon an uncured default by Lessee after the
expiration of any applicable notice and cure period, to the
Lessor taking the following actions, or not, in Lessor's
reasonable discretion: to complete the construction of the
Improvements in the name of the Lessee, and hereby empowers
Lessor to take all actions necessary in connection therewith
including but not limited to using any funds of Lessee including
any balance which may be held in escrow and any funds which may
remain unadvanced hereunder for the purpose of completing the
said portion of the Improvements in the manner called for by the
Contract Documents; to make such additions and changes and
corrections in the Contract Documents which shall be necessary or
desirable to complete the said portion of the Improvements in
substantially the manner contemplated by the Contract Documents;
to employ such contractors, subcontractors, agents, architects,
and inspectors as shall be required for said purposes; to pay,
settle or compromise all existing or future bills and claims
which are or may be liens against said Leased Premises, or may be
necessary or desirable for the completion of the said portion of
the Improvements or the clearance of title to the Leased
Premises; to execute all applications and certificates in the
name of Lessee which may be required by any construction contract
and to do any and every act with respect to the construction of
the said portion of the Improvements which Lessee may do in its
own behalf. Lessor shall also have power to prosecute and defend
all actions and proceedings in connection with the construction
of the said portion of the Improvements and to take such action
and require such performance as it deems necessary. In
accordance therewith, Lessee hereby assigns and quitclaims unto
Lessor all sums to be advanced hereunder including Retainage.
Any funds so disbursed or fees or charges so incurred shall be
included in any amount necessary for the Lessee to pay pursuant
to the Put.
(e) To discontinue making advances hereunder to the Lessee
and to terminate Lessor's obligations under this Agreement.
5. RIGHTS NON CUMULATIVE - No right or remedy by this Agreement
or by any Development Financing Document or instrument delivered
by the Lessee pursuant hereto, conferred upon or reserved to the
Lessor shall be or is intended to be exclusive of any other right
or remedy and each and every right and remedy shall be cumulative
and in addition to any other right or remedy or now or hereafter
arising at a law or in equity or by statute. Except as Lessor
may hereafter otherwise agree in writing, no waiver by Lessor or
any breach by or default of Lessee of any of its obligations,
agreements, or covenants under this Agreement shall be deemed to
be a waiver of any subsequent breach of the same or any other
obligation, agreement or covenant, nor shall any forbearance by
Lessor to seek a remedy for such breach be deemed a waiver of its
rights and remedies with respect to such a breach, nor shall
Lessor be deemed to have waived any of its rights and remedies
unless it be in writing and executed with the same formality as
this Agreement.
6. EXPENSES - The Development Financing and this Agreement and
the performance by the Lessor or Lessee of their obligations
hereunder shall be without cost and expense to the Lessor, except
as otherwise set forth herein or in the Commitment, all of which
costs and expenses the Lessee agrees to pay and hold Lessor
harmless of and payment of which shall be secured by the
Development Financing Documents. Specifically, Lessee agrees to
pay all title charges, surveyor's fees, and costs and the like
incurred in connection with this Agreement, and Lessor's
attorney's fees and costs incurred in connection with the
enforcement hereof, if necessary.
ARTICLE XII
GENERAL CONDITIONS AND MISCELLANEOUS
The following conditions shall be applicable throughout the term
of this Agreement:
1. RIGHTS OF THIRD PARTIES - All conditions of the obligations
of Lessor hereunder, including the obligation to make
disbursements are imposed solely and exclusively for the benefit
of Lessee, and no other person shall have standing to require
satisfaction of such conditions in accordance with their terms or
be entitled to assume that Lessor will refuse to make advances in
the absence of strict compliance with any or all thereof, and no
other person shall, under any circumstances, be deemed to be a
beneficiary of such conditions, any and all of which may be
freely waived in whole or in part by Lessor at any time if in its
sole discretion it deems it desirable to do so. In particular,
Lessor makes no representations and assumes no duties or
obligations as to third parties concerning the quality of the
construction of the Improvements or the absence therefrom of
defects. In this connection, Lessee agrees to and shall
indemnify Lessor from any liability, claims or losses resulting
from the disbursement of the Development Financing proceeds or
from the condition of the Leased Premises whether related to the
quality of construction or otherwise and whether arising during
or after the term of the Development Financing made by Lessor to
Lessee in connection therewith, except for Lessor's gross
negligence or willful misconduct. This provision shall survive
the termination of this Agreement and shall continue in full
force and effect so long as the possibility of any such
liability, claims or losses exists.
2. EVIDENCE OF SATISFACTION OF CONDITIONS - Any condition of
this Agreement which requires the submission of evidence of the
existence or non- existence of a specified fact or facts implies
as a condition the existence or non- existence, as the case may
be, of such fact or facts, and Lessor shall, at all times, be
free independently to establish to its reasonable satisfaction
such existence or non-existence.
3. ASSIGNMENT - Lessee may not assign this Development
Financing Agreement or any of its rights or obligations hereunder
without the prior written consent of Lessor.
4. SUCCESSORS AND ASSIGNS - Whenever in this Agreement one of
the parties hereto is named or referred to, the heirs, legal
representatives, successors and assigns of such parties shall be
included and all covenants and agreements contained in this
Agreement by or on behalf of the Lessee or by or on behalf of the
Lessor shall bind and inure to the benefit of their respective
heirs, legal representatives, successors and assigns, whether so
expressed or not.
5. HEADINGS - The headings of the sections, paragraphs and
subdivisions of this Agreement are for the convenience of
reference only, and are not to be considered a part hereof and
shall not limit or otherwise affect any of the terms hereof.
6. INVALID PROVISIONS TO AFFECT NO OTHERS - If fulfillment of
any provision hereof, or any transaction related thereto at the
time performance of any such provision shall be due, shall
involve transcending the limit of validity prescribed by law,
then, ipso facto, the obligation to be fulfilled shall be reduced
to the limit of such validity; and such clause or provision shall
be deemed invalid as though not herein contained, and the
remainder of this Agreement shall remain operative in full force
and effect.
7. NUMBER AND GENDER - Whenever the singular or plural number,
masculine or feminine or neuter gender is used herein, it shall
equally include the other.
8. AMENDMENTS - Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is
sought.
9. NOTICES - Any notice which any party hereto may desire or
may be required to give to any of the parties shall be in writing
and the mailing thereof by certified mail, or equivalent, to the
respective parties' addresses set forth hereinabove or to such
other place such party may by notice in writing designate as its
address shall constitute service of notice hereunder.
10. GOVERNING LAW - This Development Financing Agreement is made
and executed pursuant to and is intended to be governed by the
laws of the State where the Leased Premises are located.
11. FORCE MAJEURE - Anything in this Agreement to the contrary
notwithstanding, Lessee shall not be deemed in default with
respect to the performance of any of the terms, provisions,
covenants, and conditions of this Agreement (except for the
payment of all other monetary sums payable hereunder, to which
the provisions of this Section shall not apply), if the same
shall be due to any strike, lockout, civil commotion, warlike
operations, invasion, rebellion, hostilities, sabotage,
governmental regulations or controls, impracticability of
obtaining any materials or labor (except due to the payment of
monies), shortage or unavailability of a source of energy or
utility service, Act of God, casualty, adverse weather
conditions, or any cause beyond the reasonable control of Lessee
(except due to the payment of monies). Provided, however, in
order to invoke the extension of the Completion Date afforded by
this section, Lessee shall notify Lessor in writing within five
days of the occurrence of such force majeure, and in any event
the Completion Date shall be extended as a result of such
occurrence no more than reasonably necessary and in no event no
more than 90 days.
12. BROKERAGE COMMISSIONS - Lessor represents to Lessee that on
account of or through Lessor no brokerage commissions are due in
connection with the transaction contemplated hereby or if there
are such commissions due or payable on account of or through
Lessor the same will be paid by Lessor. Lessor agrees to and
shall indemnify Lessee from any liability, claims or losses
arising by reason of any such brokerage commissions. This
provision shall survive the repayment of the Development
Financing and shall continue in full force and effect so long as
the possibility of such liability, claims or losses exists
ARTICLE XIII
DAMAGE, DESTRUCTION, CONDEMNATION, USE OF INSURANCE PROCEEDS
1. DAMAGE OR DESTRUCTION OF THE LEASED PREMISES. Lessee
will give the Lessor prompt notice of any damage to or
destruction of the Leased Premises and in case of loss covered by
policies of insurance the Lessor (whether before or after the
exercise of the Put if Lessee be in default hereof) is hereby
authorized at its option to settle and adjust any claim arising
out of such policies and collect and receipt for the proceeds
payable therefrom, provided, that the Lessee may itself adjust
and collect for any losses arising out of a single occurrence
aggregating not in excess of $50,000.00. Any expense incurred by
the Lessor in the adjustment and collection of insurance proceeds
(including the cost of any independent appraisal of the loss or
damage on behalf of Lessor) shall be reimbursed to the Lessor
first out of any proceeds. The proceeds or any part thereof
shall be applied to reduction of the Put Price, which Put may
then be exercised by Lessor, without the application of any
prepayment premium, or to the restoration or repair of the Leased
Premises, the choice of application to be solely at the
discretion of Lessor.
2. CONDEMNATION. Lessee will give the Lessor prompt notice
of any action, actual or threatened, in condemnation or eminent
domain affecting the Leased Premises and hereby assigns,
transfers, and sets over to the Lessor the entire proceeds of any
award or claim for damages for all or any part of the Leased
Premises taken or damaged under the power of eminent domain or
condemnation, the Lessor being hereby authorized to intervene in
any such action and to collect and receive from the condemning
authorities and give proper receipts and acquittances for such
proceeds. Lessee will not enter into any agreements with the
condemning authority permitting or consenting to the taking of
the Leased Premises unless prior written consent of Lessor is
obtained. Any expenses incurred by the Lessor in intervening in
such action or collecting such proceeds shall be reimbursed to
the Lessor first out of the proceeds. The proceeds or any part
thereof shall be applied to reduction of the Put Price, which Put
may then be exercised by Lessor, without the application of any
prepayment premium, or to the restoration or repair of the Leased
Premises, the choice of application to be solely at the
discretion of Lessor.
3. DISBURSEMENT OF INSURANCE AND CONDEMNATION PROCEEDS.
Any restoration or repair shall be done under the supervision of
an architect acceptable to Lessor and pursuant to plans and
specifications approved by the Lessor. Subject to paragraph 4
below, in any case where Lessor may elect to apply the proceeds
to repair or restoration or permit the Lessee to so apply the
proceeds they shall be held by Lessor for such purposes and will
from time to time be disbursed by Lessor to defray the costs of
such restoration or repair under such safeguards and controls as
Lessor may reasonably require to assure completion in accordance
with the approved plans and specifications and free of liens or
claims. Lessee shall on demand deposit with Lessor any sums
necessary to make up any deficits between the actual cost of the
work and the proceeds and provide such lien waivers and
completion bonds as Lessor may reasonably require. Any surplus
which may remain after payment of all costs of restoration or
repair shall be applied against the rent then most remotely to be
paid, whether due or not, without application of any prepayment
premium or credit.
4. LESSOR TO MAKE PROCEEDS AVAILABLE. In the event of
insured damage to the improvements or in the event of a taking by
condemnation of only a portion of the improvements or land area
of the Leased Premises, and provided, the portion remaining can
with restoration or repair continue to be operated for the
purposes utilized immediately prior to such damage or taking, and
if the appraised value of the Leased Premises after such
restoration or repair shall not have been reduced, and provided
further, no event of default exists under this Agreement after
the expiration of any applicable cure periods and Lessee is
diligently pursuing a course of conduct reasonably designed to
cure such default, and the Lessee certified to Lessor their
intention to remain in possession of the Leased Premises without
any abatement or adjustment of rental payments, the Lessor agrees
to make the proceeds available to the restoration or repair of
the improvements on the Leased Premises in accordance with the
provisions of paragraph 3 hereof.
ARTICLE XIV
MANDATORY PUT UPON DEFAULT
Should Lessee commit an event of Default under this
Agreement or any Development Financing Document (after the
expiration of any applicable notice and cure period) ("Uncured
Default"), Lessor shall have the following rights:
Upon an Uncured Default, or damage or destruction or
condemnation of the Leased Premises not addressed by paragraph
XIII (4), if Lessor elects to exercise the following option,
Lessee shall purchase the Leased Premises from Lessor subject to
the following terms and conditions:
A. The purchase price at which Lessor shall sell the
Leased Premises to Lessee, shall be the total amount of Initial
Disbursed Funds disbursed by Lessor to acquire the Leased
Premises at the Closing Date (as defined in the Commitment), plus
the total amount of funds disbursed pursuant to this Agreement,
plus all accrued interest and incurred expenses of Lessor
fundable pursuant to this Agreement, plus all reasonable costs of
collection and enforcement of the terms hereof.
B. At such time as Lessor shall elect to sell the Leased
Premises, Lessor shall give Lessee written notice of its intent
to exercise its option to sell the Leased Premises to Lessee,
including in such notice Lessor's calculation of the Purchase
Price through the actual closing of the sale of the Leased
Premises to Lessee pursuant to the terms hereof (the "Sale
Date"), which shall be sixty days from such notice by Lessor.
Lessee shall on or before the Sale Date deliver the purchase
price as set forth in subparagraph (A) of this Article to Lessor.
Upon such delivery, which shall be preceded by ten (10) days
notice to Lessor, Lessor shall deliver to Lessee a warranty deed
and appropriate affidavits evidencing that Lessor transfers the
Leased Premises to Lessee subject to restrictions, easements or
other encumbrances upon title existing as of the date of
delivery, if any, except to the extent, if any, placed of record
or caused by Lessor. The purchase price to be paid to Lessor
shall be a net amount. All expenses in connection with the
transfer of the Leased Premises, including, but not limited to
appraisal fees, title insurance, recording fees, documentary
stamps, conveyance tax, title evidence, and all other closing
costs, shall be paid by the Lessee. The purchase price shall be
paid by Lessee in cash to Lessor concurrently with the conveyance
of the Leased Premises by the Lessor to the Lessee. If Lessor
elects to sell the Leased Premises to Lessee pursuant to the
terms hereof, the Leased Premises shall be conveyed by the Lessor
to the Lessee "As Is".
If Lessee shall fail to pay the Purchase Price on or before
the Sale Date, Lessor may terminate the Lease, and sell the
Leased Premises to any third party purchaser. Lessor may then
send Lessee notice of the shortfall (the "Deficiency"), if any,
between the amount of the net proceeds received by Lessor in such
sale, and the total amount of Initial Disbursed Funds disbursed
by Lessor to acquire the Parcel at the Closing Date (as defined
in the Commitment), plus the total amount of funds disbursed
pursuant to this Agreement, plus all accrued interest and
incurred expenses of Lessor fundable pursuant to this Agreement,
plus all reasonable costs of collection and enforcement of the
terms hereof. Lessee shall immediately upon receipt of such
notice of Deficiency remit the amount of the Deficiency in good
funds to Lessor.
Lessor's rights under this Put shall expire on the Final
Disbursement Date when the amendment to the Lease has been
executed by all parties as set forth in Article IX hereof.
ARTICLE XV
RENT, INTEREST, AND FINAL DISBURSEMENT
1. Rent shall be payable by Lessee and calculated as follows,
on the funds advanced by Lessor on the Closing Date for the
purchase of the land and related closing costs (the "Initial
Disbursed Funds"): Rent shall accrue in the amount of $3,915 per
month absent an uncured Default by Lessee; absent an uncured
Default, accrued Rent during the period of construction of the
Improvements shall not be payable until the Final Disbursement
Date. Upon the occurrence of an uncured Default, all accrued
rent shall be immediately due and payable.
On March 15, 1999, if not otherwise in default hereunder, Lessee
shall begin paying Rent of $3,915 per month out of pocket ("Out
of Pocket Rent") on or before the first of each month (prorata
for the balance of March, payable with the first such Out of
Pocket Rent payable on the first day of April). On the Final
Disbursement Date, absent an Uncured Default, Rent shall be
adjusted and documented by the lease amendment contemplated in
ARTICLE IX hereof.
2. Disbursed proceeds of the Development Financing (excluding
the Initial Disbursed Funds) shall accrue interest at a rate of
Six and 75/100 percent (6.75%) per annum, which interest accruing
through March 15, 1999 shall accrue unpaid until the Final
Disbursement Date unless advanced by Lessor to itself, or Lessee
shall default hereunder, which default shall remain uncured after
the expiration of any applicable notice and cure period. Lessee
shall begin making monthly payments of interest accruing on and
after March 16, 1999 at the rate of 6.75% per annum out of
pocket ("Out of Pocket Invoiced Interest") within 5 days after
invoice from Lessor.
3. Upon the occurrence of an event of default which
remains uncured after the expiration of applicable notice and
cure periods, or the Completion Date, disbursed proceeds of the
Development Financing shall accrue interest at a rate of Fifteen
Percent (15.0%) per annum, or the highest rate allowed by law,
whichever is less, and the rental rate on the Initial Disbursed
funds shall increase to Fifteen Percent (15.0%) per annum, or the
highest rental rate allowed by law, whichever is less.
4. On the Final Disbursement Date, Lessee shall be
entitled to receive the Parcel Development Fee of $12,615.
ARTICLE XVI
COUNTERPART EXECUTION
Counterpart Execution. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original
and all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessee and Lessor have hereunto caused
these presents to be executed on the date first above written.
RTM Alabama, Inc., an Alabama corporation
By:/s/ D. T Collins
Its:Vice President
By:/s/ Robert S Stallings
Its:V.P. Asst. Secretary
[Lessor's Signature appears on following page.]
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
By: AEI Fund Management XXI, Inc.
By: /s/ Robert P Johnson
Robert P. Johnson, President
Development Financing Agreement
Homewood, Alabama Arby's
EXHIBIT A
Description of Leased Premises
Lot 1, Arby's Addition to Wildwood Centre, as recorded in Map
Book 193, Page 58, in the Probate Office of Jefferson County,
Alabama.
EXHIBIT B
RTM ALABAMA, INC.
BIRMINGHAM, AL
PROJECT COST BUDGET
OCTOBER 28, 1998
Land and Hard Costs:
Land Acquisition Cost $ 689,900.00
Building/General Construction 445,000.00
Fixtures 46,500.00
Owner Supplied Vendors 66,000.00
Construction Contingency 10.0% 55,000.00
Soft Costs:
Landscaping 20,000.00
Impact/Tap Fees 9,500.00
Permits 1,500.00
Site Engineering 5,000.00
Title Insurance & Closing Costs (Construction and S/L) 5,000.00
Survey 5,500.00
RTM Legal 7,000.00
RTM Builders Risk Insurance 500.00
Architect/Engineer 6,300.00
Geotechnical/Phase I 4,750.00
Construction Consultant 1,000.00
AEI Sale/Leaseback Commitment Fee 1.75% 24,500.00
Construction Interest 13,500.00
AEI Reimbursment 1.25% 17,500.00
RTM Parcel Development Fee 12,615.00
Miscellaneous 5,435.00
------------
TOTAL PROJECT COST $1,442,000.00
NET LEASE AGREEMENT
THIS LEASE, made and entered into effective as of this 20th
day of November, 1998, by and between AEI INCOME & GROWTH FUND
XXII LIMITED PARTNERSHIP ("Fund XXII"), a Minnesota limited
partnership whose corporate general partner is AEI Fund
Management XXI, Inc., a Minnesota corporation, whose address is
1300 Minnesota World Trade Center, 30 East Seventh Street, St.
Paul, Minnesota 55101 ("Lessor"), and RTM Alabama, Inc., an
Alabama corporation, whose address is 5995 Barfield Road,
Atlanta, Georgia 30328 ("Lessee");
WITNESSETH:
WHEREAS, Lessor is the fee owner of a certain parcel of real
property and improvements located at Homewood, Alabama, and
legally described in Exhibit "A", which is attached hereto and
incorporated herein by reference; and
WHEREAS, Lessee constructed the building and improvements
(together the "Building") on the real property described in
Exhibit "A", which Building is described in the plans and
specifications heretofore submitted to Lessor; and
WHEREAS, Lessee desires to lease said real property and
Building (said real property and Building hereinafter referred to
as the "Leased Premises"), from Lessor upon the terms and
conditions hereinafter provided;
NOW, THEREFORE, in consideration of the Rents, terms,
covenants, conditions, and agreements hereinafter described to be
paid, kept, and performed by Lessee, Lessor does hereby grant,
demise, lease, and let unto Lessee, and Lessee does hereby take
and hire from Lessor and does hereby covenant, promise, and agree
as follows:
ARTICLE 1.LEASED PREMISES
Lessor hereby leases to Lessee, and Lessee leases and takes
from Lessor, the Leased Premises subject to the conditions of
this Lease.
ARTICLE 2. TERM
(A) The Term of this Lease shall commence on November
20th, 1998 ("Occupancy Date"), and shall include the period from
the Occupancy Date until the date of the First Lease Amendment
contemplated under the Development Financing Agreement between
Lessor and Lessee of even date herewith as further set forth in
Article 35 hereof. Thereafter, the Lease shall continue for a
period of Twenty consecutive Lease Years, as hereinafter defined.
(B) If the date the First Lease Amendment is executed shall
not be the first day of a calendar month, the first full "Lease
Year" shall be the period from the date the First Lease Amendment
is fully executed to the end of the calendar month in which the
First Lease Amendment is fully executed, plus the following
twelve (l2) calendar months. Each Lease Year after the first
Lease Year shall be each successive period of twelve (l2)
calendar months thereafter.
(C) The parties agree that upon the request of either
party, a short form or memorandum of this Lease (prepared and
recorded at the expense of the requesting party) will be executed
for recording purposes. That short form or memorandum of this
Lease will be amended as of the date of the First Lease Amendment
to set forth the termination dates of the Term and optional
Renewal Terms, as defined in Article 28 hereof, and the existence
of any option to purchase or right of first refusal, and that
said option or right of first refusal shall terminate when the
Lessee shall lose right to possession or this Lease is
terminated, whichever occurs first.
ARTICLE 3. CONSTRUCTION OF IMPROVEMENTS
(A) Lessee warrants and agrees that the Building will be
constructed on the Leased Premises, and all other improvements to
the land, including the parking lot, approaches, and service
areas, will be constructed in all material respects by Lessee
substantially in accordance with the plot, plans, and
specifications heretofore submitted to Lessor.
(B) Lessee warrants that the Building and all other
improvements to the land contemplated shall comply with the laws,
ordinances, rules, and regulations of all state and local
governments.
(C) Lessee agrees to pay, if not already paid in full, for
all architectural fees and actual construction costs relating to
the Building and other related improvements on the Leased
Premises, in the past, present or future, which shall include,
but not be limited to, plans and specifications, general
construction, carpentry, electrical, plumbing, heating,
ventilating, air conditioning, decorating, equipment
installation, outside lighting, curbing, landscaping,
blacktopping, electrical sign hookup, conduit and wiring from
building, fencing, and parking curbs, and builder's risk
insurance (naming Lessor, Lessee, and contractor as co-insured),
for improvements made by or at the direction of Lessee.
(D) Opening for business in the Leased Premises by Lessee
shall constitute an acceptance of the Leased Premises and an
acknowledgment by Lessee that the Leased Premises are in the
condition described under this Lease.
ARTICLE 4. RENT PAYMENTS
(A) Annual Rent Payable from the Occupancy Date until execution
of the First Lease Amendment (wherein the Lease shall be amended
as contemplated under the Development Financing Agreement as
defined in Article 35 hereof): Rent until this provision shall be
superceded by the First Lease Amendment shall accrue in the
amount of $3,915 per month until March 15, 1999. If the first day
of the Lease Term is not the first day of a calendar month, then
the monthly Rent payable for that partial month shall be a
prorated portion of the equal monthly installment of Base Rent.
After and including March 16th, 1999, (unless this provision
shall be superceded by the First Lease Amendment) Rent shall be
payable out of pocket by Lessee (prorata for the period of March
16th through March 31, 1999) and be payable in advance on the
first day of the month to Fund XXII.
(B) Rent for the first full Lease Year after the execution
of the First Lease Amendment (which includes any stub period from
the end of the calendar month in which the First Lease Amendment
is executed) shall be Six and One-Half Percent of the Total
Project Cost, and beginning in the Second Lease Year, Rent
shall increase to Nine Percent of the Total Project Cost, as
defined in the Development Financing Agreement of even date
herewith between Lessor and Lessee, to be set forth pursuant to
the First Lease Amendment, and shall remain at such level until
the beginning of the Third Lease Year.
(C) Annual Rent Payable beginning with the Third and
subsequent Lease Years:
The annual Base Rent due and payable shall increase in each
of the Lease Years beginning with the Third Lease Year by an
amount equal to One and One-Eighth Percent (1.125%) of the Base
Rent payable for the prior Lease Year. Such increased Base Rent
shall be payable in advance of the first day of each month in
equal monthly installments.
(D) Overdue Payments.
Lessee shall pay interest on all overdue payments of Rent or
other monetary amounts due hereunder at lesser of the rate of
fifteen percent (15%) per annum or the highest rate allowed by
law accruing after the expiration of any applicable cure period.
ARTICLE 5. INSURANCE AND INDEMNITY
(A) Lessee shall, throughout the Term or Renewal Terms, if
any, of this Lease, at its own cost and expense, procure and
maintain insurance which covers the Leased Premises and
improvements against fire, wind, and storm damage (including
flood insurance if the Leased Premises is in a federally
designated flood prone area) and such other risks as may be
included in the broadest form of extended coverage insurance as
may, from time to time, be available in amounts sufficient to
prevent Lessor or Lessee from becoming a co-insurer within the
terms of the applicable policies. In any event, the insurance
shall not be less than one hundred percent (100%) of the then
insurable value, with such commercially reasonable deductibles as
Lessor may reasonably require from time to time. Additionally,
replacement cost endorsements, inflation guard endorsements,
vandalism endorsement, malicious mischief endorsement, waiver of
subrogation endorsement, waiver of co-insurance or agreed amount
endorsement (if available), and Building Ordinance Compliance
endorsement. Business Interruption Insurance endorsement (for a
period covering at least three months of interruption) must be
obtained.
(B) Lessee agrees to place and maintain throughout the Term
or Renewal Terms, if any, of this Lease, at Lessee's own expense,
public liability insurance with respect to Lessee's use and
occupancy of said Leased Premises, with initial limits of at
least $1,000,000 per occurrence/$3,000,000 general aggregate, or
such additional amounts as Lessor shall reasonably require from
time to time with limits in amounts acceptable to Lessor.
(C) N/A
(D) Lessee agrees to notify Lessor in writing if Lessee is
unable to procure all or some part of the aforesaid insurance.
In the event Lessee fails to provide all insurance required under
this Lease, Lessor shall have the right, but not the obligation,
to procure such insurance on Lessee's behalf, following five (5)
business days written notice to Lessee of Lessor's intent to do
so (unless insurance then in place would during such period, or
already has, lapsed, in which case no notice need be given) and
Lessee may obtain such insurance during said five day period and
not then be in default hereunder. If Lessor shall obtain such
insurance, Lessee will then, within five (5) business days from
receiving written notice, either provide proof that such
coverages are in full force and effect or pay Lessor the amount
of the premiums due or paid, together with interest thereon at
the lesser of 15% per annum or the highest rate allowable by law,
which amount shall be considered Rent payable by Lessee in
addition to the Rent defined at Article 4 hereof.
(E) All policies of insurance provided for or contemplated
by this Article can be under Lessee's blanket insurance coverage
and shall cover Lessor(s), AEI Fund Management XXI, Inc., and
Robert P. Johnson, as the general partners of Lessor, as
additional insured and loss payee, as their respective interests
(as landlord and lessee, respectively) may appear, and Lessee as
insured. The policies shall provide that the policies cannot be
canceled, terminated, changed, or modified without thirty (30)
days written notice to the insured and additional insured
parties. In addition, all of such policies shall contain
endorsements by the respective insurance companies waiving all
rights of subrogation, if any, against Lessor. All insurance
companies providing coverages must be rated "A" or better by
Best's Key Rating Guide (the most current edition), or similar
quality under a successor guide if Best's Key Rating shall cease
to be published. Lessee shall provide Lessor certificates of
insurance on or before the Occupancy Date. No less than fifteen
(15) business days prior to expiration of such policies, Lessee
shall provide Lessor with legible copies of any and all renewal
Certificates of Insurance. Lessee agrees that it will not settle
any property insurance claims affecting the Leased Premises
(exclusive of any claims by Lessee for damages to Personalty or
Lessee=s loss or interruption of business) in excess of $50,000
without Lessor's prior written consent, such consent not to be
unreasonably withheld or delayed. Lessor shall consent to any
settlement of an insurance claim wherein Lessee shall confirm in
writing with evidence reasonably satisfactory to Lessor that
Lessee has sufficient funds available to complete the rebuilding
of the Leased Premises. Any insurance proceeds for the
Personalty or Trade Fixtures of Lessee or its equipment lessors
or lenders shall be paid to the Lessee and shall not be
considered part of the insurance for the building and
improvements to the Leased Premises.
(F) Lessee shall defend, indemnify, and hold Lessor
harmless against any and all claims, damages, and lawsuits
arising after the Occupancy Date of this Lease and any orders,
decrees or judgments which may be entered therein, brought for
damages or alleged damages resulting from any injury to person or
property or from loss of life sustained in or about the Leased
Premises, unless such damage or injury results from the
intentional misconduct or the gross negligence of Lessor and
Lessee agrees to save Lessor harmless from, and indemnify Lessor
against, any and all injury, loss, or damage, of whatever nature,
to any person or property caused by, or resulting from any act,
omission, or negligence of Lessee or any employee or agent of
Lessee. In addition, Lessee hereby releases Lessor from any and
all liability for any loss or damage caused by fire or any of the
extended coverage casualties, except if such fire or other
casualty shall be brought about by the intentional misconduct or
gross negligence of Lessor. In the event of any loss, damage, or
injury caused by the joint negligence or willful misconduct of
Lessor and Lessee, they shall be liable therefor in accordance
with their respective degrees of fault.
(G) Lessor hereby waives any and all rights that it may
have to recover from Lessee damages for any loss occurring to the
Leased Premises by reason of any act or omission of Lessee;
provided, however, that this waiver is limited to those losses
for which Lessor is compensated by its insurers, if the insurance
required by this Lease is maintained. Lessee hereby waives any
and all right that it may have to recover from Lessor damages for
any loss occurring to the Leased Premises by reason of any act or
omission of Lessor; provided, however, that this waiver is
limited to those losses for which Lessee is, or should be if the
insurance required herein is maintained, compensated by its
insurers.
ARTICLE 6. TAXES, ASSESSMENTS AND UTILITIES
(A) Lessee shall be liable and agrees to pay the charges
for all public utility services rendered or furnished to the
Leased Premises, including heat, water, gas, electricity, sewer,
sewage treatment facilities and the like, all personal property
taxes, real estate taxes, special assessments, and municipal or
government charges, general, ordinary and extraordinary, of every
kind and nature whatsoever, which may be levied, imposed, or
assessed against the Leased Premises, or upon any improvements
thereon, at any time after the Occupancy Date of this Lease and
prior to the expiration of the term hereof, or any Renewal Term.
(B) Lessee shall pay all real estate taxes, assessments for
public improvements or benefits, and other governmental
impositions, duties, and charges of every kind and nature
whatsoever which shall or may, during the term of this Lease, be
charged, laid, levied, assessed, or imposed upon, or become a
lien or liens upon the Leased Premises or any part thereof or
upon the Rents payable hereunder. Such payments shall be
considered as Rent paid by Lessee in addition to the Rent defined
at Article 4 hereof. If due to a change in the method of
taxation, a franchise tax, Rent tax, or income or profit tax
shall be levied against Lessor in substitution for or in lieu of
any tax which would otherwise constitute a real estate tax, such
tax shall be deemed a real estate tax for the purposes herein and
shall be paid by Lessee; otherwise Lessee shall not be liable for
any such tax levied against Lessor. In no event shall Lessee be
liable for any payment required of Lessor to qualify to do
business in the state where the Leased Premises are situate.
(C) All real estate taxes, assessments for public
improvements or benefits, water rates and charges, sewer rents,
and other governmental impositions, duties, and charges which
shall become payable for the first and last tax years of the term
hereof shall be apportioned pro rata between Lessor and Lessee in
accordance with the respective number of months during which each
party shall be in possession of the Leased Premises (or through
the expiration of the term hereof, if longer) in said respective
tax years. For the purposes of this provision, all personal
property taxes, real estate taxes and special assessments shall
be deemed to have been assessed in the year that the first
payment or any installment thereof is due (presumed to be paid in
arrears for purposes of such proration).
(D) Lessee shall have the right to contest or review by
legal proceedings or in such other manner as may be legal (which,
if instituted, shall be conducted solely at Lessee's own expense)
any tax, assessment for public improvements or benefits, or other
governmental imposition aforementioned, upon condition that,
before instituting such proceeding Lessee shall pay (under
protest) such tax or assessments for public improvements or
benefits, or other governmental imposition, duties and charges
aforementioned, unless such payment would act as a bar to such
contest or interfere materially with the prosecution thereof and
in such event Lessee shall post with Lessor alternative security
satisfactory to Lessor. All such proceedings shall be begun as
soon as reasonably possible after the imposition or assessment
of any contested items and shall be prosecuted to final
adjudication with reasonable dispatch. In the event of any
reduction, cancellation, or discharge, Lessee shall pay the
amount that shall be finally levied or assessed against the
Leased Premises or adjudicated to be due and payable, and, if
there shall be any refund payable by the governmental authority
with respect thereto, Lessee shall be entitled to receive and
retain the same, subject, however, to apportionment as provided
during the first and last years of the term of this Lease.
(E) Lessor, within sixty (60) days after notice to Lessee
if Lessee fails to commence such proceedings, may, but shall not
be obligated to, contest or review by legal proceedings, or in
such other manner as may be legal, and at Lessor's own expense,
any tax, assessments for public improvements and benefits, or
other governmental imposition aforementioned, which shall not be
contested or reviewed, as aforesaid, by Lessee, and unless Lessee
shall promptly join with Lessor in such contest or review, Lessor
shall be entitled to receive and retain any refund payable by the
governmental authority with respect thereto.
(F) Lessor shall not be required to join in any proceeding
referred to in this Article, unless in Lessee's reasonable
opinion, the provisions of any law, rule, or regulation at the
time in effect shall require that such a proceeding be brought by
and/or in the name of Lessor, in which event Lessor shall upon
written request, join in such proceedings or permit the same to
be brought in its name.
(G) Within thirty (30) days after Lessor notifies Lessee in
writing that Lessor has paid such amount, Lessee shall also pay
to Lessor, as additional Rent, the amount of any sales tax
imposed on Rent by the then current sales tax law, where the
Leased Premises are located. At Lessor's option, Lessee shall
deposit with Lessor on the first day of each and every month
during the term hereof, an amount equal to one-twelfth (1/12) of
any sales tax payable to the State in which the property is
situated for Rent received by Lessor hereunder ("Deposit"). From
time to time out of such Deposit Lessor will pay the sales tax to
the State in which the property is situated as required by law.
In the event the Deposit on hand shall not be sufficient to pay
said tax when the same shall become due from time to time, or the
prior payments shall be less than the current estimated monthly
amounts, then Lessee shall pay to Lessor on demand any amount
necessary to make up the deficiency. The excess of any such
Deposit shall be credited to subsequent payments to be made for
such items. If a default or an event of default shall occur
under the terms of this Lease, Lessor may, at its option, without
being required so to do, apply any Deposit on hand to cure such
default, in such order and manner as Lessor may elect. Lessee
shall be entitled upon written request to copies of sales tax
returns of Lessor showing such tax was paid.
ARTICLE 7.PROHIBITION ON ASSIGNMENTS AND SUBLETTING; TAKE-BACK
RIGHTS
(A) Lessee, without the consent of Lessor, but after prior
written notice to Lessor, and at any time during the term of this
Lease, or any renewal or extension hereof, shall have the right
to assign this Lease, or its rights hereunder, and/or to sublet
all or any part of the Leased Premises to RTM, Inc, or any RTM
subsidiary or affiliate or any other licensed and approved Arby's
or Arby's\Mrs. Winner's (dual concept) operator, or Lee=s Famous
Recipe operator. Lessee and Guarantor(s), if any, will remain
liable for Rent, performance of the terms, covenants, and
conditions of Lessee hereunder, and shall sign a consent and
estoppel evidencing their continued liability in form and
substance satisfactory to Lessor, concurrent with the effective
date of any such assignment or sublet. Any other assignment or
sublease to an entity other than those set forth in the preceding
sentence shall require the prior written consent of Lessor, which
consent is conditioned upon Lessee and any guarantor signing a
consent and estoppel evidencing their continued liability in form
and substance satisfactory to Lessor, concurrent with the
effective date of any such assignment or sublet, and Lessor's
approval, which approval shall not be unreasonably withheld or
delayed.
(B) Except as otherwise expressly provided in this Article,
Lessee shall not, without obtaining the prior written consent of
Lessor, which consent shall not be unreasonably withheld or
delayed, in each instance:
1.assign or otherwise transfer this Lease, or any part of
Lessee's right, title or interest therein;
2.sublet all or any part of the Leased Premises or allow all
or any part of the Leased Premises to be used or occupied by any
other Persons (herein defined as a Party other than Lessee, be it
a corporation, a partnership, an individual or other entity); or
3.mortgage, pledge or otherwise encumber this Lease, or the
Leased Premises.
(C) For the purposes of this Article:
1.an agreement by any other Person, directly or indirectly,
to assume Lessee's obligations under this Lease shall be deemed
an assignment;
2.any Person to whom Lessee's interest under this Lease
passes by operation of law, or otherwise, shall be bound by the
provisions of this Article;
3.each modification, amendment or extension or any sublease
to which Lessor has previously consented shall be deemed a new
sublease; and
4.Lessee shall present the signed consent to such assignment
and/or subletting from any guarantors of this Lease, such consent
to be in form and substance satisfactory to Lessor.
Lessee agrees to furnish to Lessor upon demand at any time
such information and assurances as Lessor may reasonably request
that neither Lessee, nor any previously permitted sublessee, has
violated the provisions of this Article.
(D) Except as set forth in subparagraph (A) above, if
Lessee agrees to assign this Lease or to sublet all or any
portion of the Leased Premises, Lessee shall, prior to the
effective date thereof (the "Effective Date"), deliver to Lessor
executed counterparts of any such agreement and of all ancillary
agreements with the proposed assignee or sublessee, as
applicable.
(E) If Lessee shall fail to comply with the terms of
subparagraph (A) or (B) above, Lessor shall then have all of the
following rights, any of which Lessor may exercise by written
notice to Lessee given within thirty (30) days after Lessor
receives the aforementioned documents:
1. With respect to a proposed assignment of this Lease,
the right to terminate this Lease on the Effective Date as if it
were the Expiration Date of this Lease;
2. With respect to a proposed subletting of the entire
Leased Premises, the right to terminate this Lease on the
Effective Date as if it were the Expiration Date; or
3. With respect to a proposed subletting of less than the
entire Leased Premises, the right to terminate this Lease as to
the portion of the Leased Premises affected by such subletting on
the Effective Date, as if it were the Expiration Date, in which
case Lessee shall promptly execute and deliver to Lessor an
appropriate modification of this Lease in form satisfactory to
Lessor in all respects.
(F) If Lessor exercises any of its options under Article
7(E) above, Lessor may then lease the Leased Premises or any
portion thereof to Lessee's proposed assignee or sublessee, as
the case may be, without liability whatsoever to Lessee.
(G) Notwithstanding anything above to the contrary, the
Lessee's interest herein shall not be assignable in any manner in
accordance with the terms hereof unless and until the termination
of the Development Financing Agreement as set forth in Article 35
hereof.
ARTICLE 8. REPAIRS AND MAINTENANCE
(A) Lessee covenants and agrees to keep and maintain in
good order, condition and repair the interior and exterior of the
Leased Premises during the term of the Lease, or any renewal
terms, and further agrees that Lessor shall be under no
obligation to make any repairs or perform any maintenance to the
Leased Premises. Lessee covenants and agrees that it shall be
responsible for all repairs, alterations, replacements, or
maintenance of, including but without limitation to or of:
interior and exterior portions of all doors; door checks and
operators; windows; plate glass; plumbing; water and sewage
facilities; fixtures; electrical equipment; interior walls;
ceilings; signs; roof; structure; interior building appliances
and similar equipment; heating and air conditioning equipment;
and further agrees to replace any of said equipment when
necessary. Lessee further agrees to be responsible for, at its
own expense, snow removal, lawn maintenance, landscaping,
maintenance of the parking lot (including parking lines, seal
coating, and blacktop surfacing), and other similar items.
(B) If Lessee refuses or neglects to commence or complete
repairs promptly and adequately, after receipt of five (5 ) days
prior written notice (except in cases of emergency to prevent
waste or preserve the safety and integrity of the Leased
Premises, in which case no notice need be given), Lessor may
cause such repairs to be made, but shall not be required to do
so, and Lessee shall pay the cost thereof to Lessor within five
(5) business days following receipt of written demand. It is
understood that Lessee shall pay all expenses and maintenance and
repair during the term of this Lease. If Lessee is not then in
default hereunder, Lessee shall have the right to make repairs
and improvements to the Leased Premises without the consent of
Lessor if such repairs and improvements do not exceed Fifty
Thousand Dollars ($50,000.00), provided such repairs or
improvements do not affect the structural integrity of the Leased
Premises. Any repairs or improvements in excess of Fifty
Thousand Dollars ($50,000.00) or affecting the structural
integrity of the Leased Premises may be done only with the prior
written consent of Lessor, such consent not to be unreasonably
withheld or delayed. All alterations and additions to the Leased
Premises shall be made in accordance with all applicable laws and
shall remain for the benefit of Lessor, except for Lessee's
moveable Trade Fixtures. The term ATrade Fixtures" shall not
include oven hoods, Walk-in coolers or freezers, or the Leased
Premises exterior lighting, which shall be owned by Lessor and
leased from Lessor by Lessee according to the terms hereof, but
the term shall otherwise mean all other Trade Fixtures,
equipment, supplies, books, records, or other personalty,
including but not limited to those items set forth on Exhibit C
attached hereto (hereinafter referred to as ATrade Fixtures@ or
APersonalty@) placed on the Leased Premises by Lessee. Lessor
shall execute any instrument that any lien holder or party with a
security interest in Lessee=s Trade Fixtures may request
acknowledging that (a) the Lessee has a right to install such
Personalty on the Leased Premises; (b) the lien holder or secured
party may maintain an interest in the Personalty superior to any
interest in the same by Lessor; and (c) such lien holder or
secured party shall have the right to remove any and all such
Personalty in the event of a default in any instrument
establishing such lien or security interest, subject to 10 days
advance notice to Lessor and making reasonable repairs to the
Leased Premises for any injury caused to the Leased Premises
caused by the removal of the Personalty, except diminution in
value caused by the absence of the Personalty, nor shall the lien
holder or secured party have to replace the Personalty. In the
event of making such alterations as herein provided, Lessee
further agrees to indemnify and save harmless Lessor from all
expense, liens, claims or damages to either persons or property
or the Leased Premises which may arise out of or result from the
undertaking or making of said repairs, improvements, alterations
or additions, or Lessee's failure to make said repairs,
improvements, alterations or additions.
ARTICLE 9. COMPLIANCE WITH LAWS AND REGULATIONS
Lessee will comply with all statutes, ordinances, rules,
orders, regulations and requirements of all federal, state, city
and local governments, and with all rules, orders and
regulations of the applicable Board of Fire Underwriters which
affect the use of the improvements. Lessee will comply with all
easements, restrictions, and covenants of record against or
affecting the Leased Premises or required for operation of the
Leased Premises in accordance with Article 14 hereof.
ARTICLE l0. SIGNS
Lessee shall have the right to install and maintain a sign
or signs advertising Lessee's business, provided that the signs
conform to law, and further provided that the sign or signs
conform specifically to the written requirements of the
appropriate governmental authorities.
ARTICLE ll. SUBORDINATION
(A) Lessor reserves the right and privilege to subject and
subordinate this Lease at all times to the lien of any mortgage
or mortgages now or hereafter placed upon Lessor's interest in
the Leased Premises and on the land and buildings of which said
Leased Premises are a part, or upon any buildings hereafter
placed upon the land of which the Leased Premises are a part,
provided such mortgagee shall execute its standard form,
commercially reasonable subordination, attornment and non-
disturbance agreement. Lessor also reserves the right and
privilege to subject and subordinate this Lease at all times to
any and all advances to be made under such mortgages, and all
renewals, modifications, extensions, consolidations, and
replacements thereof; provided, however, that such mortgagee
shall execute an appropriate subordination, attornment and non-
disturbance agreement respecting Lessee's rights to possession
under this Lease if Lessee shall not be in default hereunder.
(B) Lessee covenants and agrees to execute and deliver,
upon demand, such further instrument or instruments subordinating
this Lease on the foregoing basis to the lien of any such
mortgage or mortgages as shall be desired by Lessor and any
proposed mortgagee or proposed mortgagees, provided such
mortgagee shall execute its standard form, commercially
reasonable subordination, attornment and non-disturbance
agreement.
ARTICLE l2. CONDEMNATION OR EMINENT DOMAIN
(A) If the whole of the Leased Premises are taken by any
public authority under the power of eminent domain, or by private
purchase in lieu thereof, then this Lease shall automatically
terminate upon the date possession is surrendered, and Rent shall
be paid up to that day. Any such termination of this Lease shall
not preclude or restrict Lessee=s rights to any claim or award
for claims it may have as set forth in Article 12, paragraph (C)
below. If any part of the Leased Premises shall be so taken as
to render the remainder thereof materially unusable for the
purposes for which the Leased Premises were leased, then Lessor
and Lessee shall each have the right to terminate this Lease on
thirty (30) days notice to the other given within ninety (90)
days after the date of such taking. In the event that this
Lease shall terminate or be terminated, the Rent shall, if and as
necessary, be paid up to the day that possession was surrendered.
(B) If any part of the Leased Premises shall be so taken
such that it does not interfere with the business of Lessee, then
Lessee shall, at Lessor=s cost and expense (and Lessor hereby
covenants to make condemnation proceeds available to Lessee
consistent with the terms hereof), restore the remaining portion
of the Leased Premises to the extent necessary to render it
reasonably suitable for the purposes for which it was leased.
Lessee shall make all repairs to the building in which the Leased
Premises is located to the extent necessary to constitute the
building a complete architectural unit. Provided, however, that
such work shall not exceed the scope of the work required to be
done by Lessee in originally constructing such building..
Provided, further, the cost thereof to Lessor shall not exceed
the proceeds of its condemnation award, all to be done without
any adjustments in Rent to be paid by Lessee. This lease shall
be deemed amended to reflect the taking in the legal description
of the Leased Premises.
(C) All compensation awarded or paid upon such total or
partial taking of the Leased Premises (expressly excluding any
Lessee's Award as hereinafter defined) shall belong to and be the
property of Lessor without any participation by Lessee, whether
such damages shall be awarded as compensation for diminution in
value to the leasehold or to the fee of the Leased Premises
herein leased. Nothing contained herein shall be construed to
preclude Lessee from prosecuting any claim directly against the
condemning authority in such proceedings for: Loss of business
and or destruction of its business; damage to or loss of value or
cost of removal of inventory, Trade Fixtures, furniture,
Personalty, and other personal property belonging to Lessee (any
and all such award collectively referred to supra and hereinafter
as "Lessee's Award"); provided, however, that no such claim shall
diminish or otherwise adversely affect Lessor's award or the
award of any fee mortgagee. Lessor and Lessee agree to cooperate
to maximize the amount of any such claim or award and agree to
minimize the interference with the other party=s prosecution of
its claims.
ARTICLE l3. RIGHT TO INSPECT
Lessor reserves the right to enter the Leased Premises on a
non emergency basis and to inspect and examine the Leased
Premises after reasonable 48 hours written notice to Lessee at
any time during business hours. and Lessee agrees to allow Lessor
free access to the Leased Premises to show the Leased Premises
upon an uncured event of default by Lessee. At any time within
Ninety (90) days of the expiration or termination of the Lease,
Lessee agrees to allow Lessor to then place "For Sale" or "For
Rent" signs on the Leased Premises and to show the Leased
Premises after reasonable 48 hours written notice to Lessee at
any time during non peak business hours, and Lessor agrees to
cause minimal disruption to Lessee=s business during such
showings of the Leased Premises.
ARTICLE l4. EXCLUSIVE USE
(A) After the Occupancy Date, Lessee expressly agrees and
warrants that the Leased Premises will be used exclusively as a
restaurant and other ancillary uses. Lessee acknowledges and
agrees that any other use without the prior written consent of
Lessor will constitute a default under and a violation and breach
of this Lease. Lessee agrees to conduct its business in a
first class and reputable manner consistent with its operation of
other restaurants in the same market area. If Lessee closes the
Leased Premises and it remains closed for ninety days, Lessor may
terminate this Lease and release Lessee and Guarantor of all
liability. However, so long as the Lessor does not terminate the
Lease, Lessee must continue to pay rent and perform all covenants
under the Lease.
ARTICLE l5. DESTRUCTION OF PREMISES
(A) If, during the term of this Lease, the Leased Premises
are totally or partially destroyed by fire or the elements, so as
to render the Leased Premises wholly unfit for occupancy, or make
it impossible to conduct the business of Lessee thereon, and if
in the opinion of a third party arbitrator reasonably acceptable
to Lessee and Lessor the Leased Premises cannot be repaired
within one hundred eighty (l80) days from the date of the
damage, then Lessor or Lessee in the last two years of the Lease
Term shall have the right to terminate this Lease from the date
of such damage or destruction by giving Lessee written notice.
Lessor's option to so terminate shall not apply if Lessee, within
30 days after receipt of the notice of termination, exercises any
remaining Option to Renew the Lease Term. Upon the giving of
such termination notice by Lessor, if Lessee shall not so extend
the term hereof, Lessee shall immediately surrender the Leased
Premises and all interest therein to Lessor, and in case of any
such termination, Lessor may re-enter and repossess the Leased
Premises and may dispossess all parties then in possession
thereof. Otherwise, the Leased Premises shall be repaired,
restored, and rebuilt by Lessee out of any insurance proceeds
received, within one hundred eighty (180) days from the date of
destruction. The insurance proceeds designated for building and
improvements or the items of personalty owned by the Lessor and
leased to Lessee hereunder under shall be used to reimburse
Lessee for the cost of rebuilding or restoration of the Leased
Premises and replacement of such personalty leased to Lessee from
Lessor. Insurance proceeds designated for the loss or damage of
Lessee's Personalty or Trade Fixtures shall not belong to the
Lessor. Rents payable by Lessee shall not be abated during the
period of repair and restoration. Except as otherwise provided
herein, Lessee shall be required to repair, rebuild and restore
the Leased Premises, but Lessor shall only be obligated to
contribute the net proceeds of monies received from insurance
policy or policies covering such loss or damages. Lessee shall
repair the Leased Premises with all reasonable speed. If the
insurance proceeds are less than Fifty Thousand Dollars
($50,000), they shall be paid to Lessee for such repair and
restoration. If the insurance proceeds are greater than or equal
to Fifty Thousand Dollars ($50,000), they shall be deposited by
Lessee and Lessor into a customary construction escrow at a
nationally recognized title insurance company, or at Lessee's
option, with Lessor ("Escrowee") and shall be made available from
time to time to Lessee for such repair and restoration. Such
proceeds shall be disbursed in conformity with the terms and
conditions of a commercially reasonable construction loan
agreement. Lessee shall, in either instance, deliver to Lessor
or Escrowee (as the case may be) satisfactory evidence of the
estimated cost of completion together with such architect's
certificates, waivers of lien, contractor's sworn statements and
other evidence of cost and of payments as the Lessor or Escrowee
may reasonably require and approve. If the estimated cost of the
work exceeds One Hundred Thousand Dollars ($100,000), all plans
and specifications for such rebuilding or restoration shall be
subject to the reasonable approval of Lessor. Notwithstanding
anything above to the contrary, except in the last year of the
Lease Term as aforesaid, whether in the event of a partial or
total destruction of the Leased Premises, Lessor shall make
insurance proceeds available to Lessee to rebuild the Leased
Premises, provided Lessee shall, either through Business
Interruption Insurance or otherwise, continue to pay Rent during
the period of repair and restoration, and Lessee and any
guarantor confirm in writing their continued liability for the
obligations of Lessee hereunder.
(B) If the damage does not render the Leased Premises unfit
for occupancy, then Lessor and Lessee agree that the damage shall
be repaired by Lessee as soon as practicable out of insurance
proceeds when received. All Rents payable by Lessee shall not be
abated during the period of restoration and repair. All repairs
shall be paid for by Lessor out of any insurance proceeds
received, but if the insurance proceeds are insufficient to
rebuild or repair the Leased Premises according to the original
plans and specifications, whether repair or restoration is
commenced pursuant to Article 15(A) or (B) hereof, then Lessee
agrees to pay all additional amounts that are required to rebuild
the building in accordance with the original plans and
specifications. If the proceeds from the insurance are
insufficient, after review of the bids for completion of such
improvements, or should become insufficient during the course of
construction, to pay for the total cost of repair or restoration,
Lessee shall, prior to commencement of work, demonstrate to
Escrowee and Lessor's reasonable satisfaction, the availability
of such funds necessary to completion construction and Lessee
shall deposit the same with Escrowee for disbursement under the
construction escrow agreement. All improvements or betterments
placed by Lessee on the demised Leased Premises shall, however,
in any event, be repaired and replaced by Lessee at its own
expense and not at the expense of Lessor. The purpose of this
Article is to require Lessee to carry insurance coverage on the
Leased Premises sufficient to rebuild the improvements in the
event of damage or destruction. Lessor shall be under no
obligation to make insurance proceeds available during the last
year of the Lease Term, and this Lease shall terminate upon
notice of Lessor=s intent to not make insurance proceeds
available, unless Lessee shall, within 30 days of notice of
Lessor's intent not to make insurance proceeds available in the
last year of the Lease Term, exercise any remaining Option to
Renew the Lease Term.
ARTICLE l6. ACTS OF DEFAULT
(A) Each of the following shall be deemed a default by
Lessee and a breach of this Lease:
1.Failure to pay the Rent or any monetary obligation herein
reserved, or any part thereof when the same shall be due and
payable and which failure continues for a period of five business
days after Lessee has received written notice of said failure.
Interest and late charges for failure to pay Rent when due shall
accrue from the date after the expiration of the five day cure
period.
2.Failure to do, observe, keep and perform any of the terms,
covenants, conditions, agreements and provisions in this Lease to
be done, observed, kept and performed by Lessee and which failure
continues for a period of thirty (30) days after Lessee has
received said notice of failure, or if such default is incapable
of cure within 30 days (except for the payment of monies, which
shall not excuse failure to cure within the 30 day period), and
Lessee is diligently pursuing a course of conduct reasonably
designed to cure the default, then Lessee shall have up to 120
days after receipt of said notice to cure said default.
3.The adjudication of Lessee as a bankrupt, the making by
Lessee of a general assignment for the benefit of creditors, the
taking by Lessee of the benefit of any insolvency act or law,
the appointment of a permanent receiver or trustee in bankruptcy
for Lessee property, or the appointment of a temporary receiver
which is not vacated or set aside within sixty (60) days from
the date of such appointment.
ARTICLE l7. TERMINATION FOR DEFAULT
In the event of any uncured default by Lessee and at any
time thereafter, Lessor may serve a written notice upon Lessee
that Lessor elects to terminate this Lease upon a specified date
not less than thirty (30) days after the date of serving such
notice of termination, and this Lease shall then terminate on the
date so specified as if that date had been originally fixed as
the expiration date of the term herein granted, provided,
however, that Lessee shall have continuing liability for future
rents for the remainder of the original term and any exercised
renewal term as set forth in Article 19, notwithstanding any
earlier termination of the Lease hereunder, preserving unto
Lessor the benefit of its bargained-for rental payments. Lessor
shall undertake reasonable efforts to mitigate Lessee's damages,
but the parties agree that Lessor shall be under no obligation to
expend its own funds for refurbishing or remodeling in connection
with any attempts to relet the Leased Premises.
ARTICLE l8. LESSOR'S RIGHT OF RE-ENTRY
In the event that this Lease shall be terminated as
hereinbefore provided, or if possession of the Leased Premises
shall be obtained by Lessor by summary proceedings or otherwise,
or in the event of an uncured default hereunder by Lessee, or in
the event that the Leased Premises or any part thereof, shall be
abandoned by Lessee, then Lessor or its agents, servants or
representatives, may immediately or at any time thereafter, re-
enter and resume possession of the Leased Premises or any part
thereof, and remove all persons and property therefrom, either by
summary dispossess proceedings or by a suitable action or
proceeding at law, or by force or otherwise without being liable
for any damages therefor.
ARTICLE l9. LESSEE'S CONTINUING LIABILITY
A) Should Lessor elect to re-enter as provided in this
Lease or should it take possession pursuant to legal proceedings
or pursuant to any notice provided for by law (including but not
limited to the statutory 10 day notice of termination for breach
under Alabama Code Section 35-9-6, or its successor statute, if
any, if such remedies are sought by Lessor), it may either (i)
terminate this Lease or (ii) it may from time to time (but shall
be under not obligation to do so), without terminating the
contractual obligation of Lessee to pay Rent under this Lease,
terminate Lessee's rights to possession, make such alterations
and repairs as may be necessary to relet the Leased Premises or
any part thereof for such Term or Renewal Terms, at such Rent or
Rents, and upon such other terms and conditions as Lessor in its
sole discretion may deem advisable.
(B) Upon each such reletting, without termination of the
contractual obligation of Lessee to pay Rent under this Lease,
all Rents received by Lessor shall be applied as follows:
1.First, to the payment of any indebtedness other than Rent
due hereunder from Lessee to Lessor;
2.Second, to the payment of any costs and expenses of such
reletting, including brokerage fees and attorney's fees and of
costs of such alterations and repairs;
3.Third, to the payment of Rent and other monetary
obligations due and unpaid hereunder;
4.Finally, the residue, if any, shall be held by Lessor and
applied in payment of future Rent as the same may become due and
payable hereunder.
If such Rents received from such reletting during any month
are less than that to be paid during that month by Lessee
hereunder, Lessee shall pay any such deficiency to Lessor. Such
deficiency shall be calculated and paid monthly. No such re-
entry or taking possession of such Leased Premises by Lessor
shall be construed as an election on its part to terminate
Lessee's continuing contractual obligation to pay rent under this
Lease unless a written notice of such intention be given to
Lessee.
(C) Notwithstanding any such reletting without termination,
Lessor may at any time thereafter elect to terminate this Lease
for any breach.
(D) If Lessee, after the expiration of any applicable
notice and cure period, is in default under a monetary obligation
under this Lease, then and only then may Lessor, in addition to
any other remedies Lessor may have with this Article 19, recover
from Lessee all damages it may incur by reason of any breach,
including: The cost of recovering and reletting the Leased
Premises; reasonable attorney's fees; and, the present value
(discounted at a rate of 8% per annum) of the excess of the
amount of Rent and charges equivalent to Rent reserved in this
Lease for the remainder of the Term over the then reasonable Rent
value of the Leased Premises (or the actual Rents receivable by
Lessor, if relet) for the remainder of the Term, all of which
amounts shall be immediately due and payable from Lessee to
Lessor in full. In the event that the Rent obtained from such
alternative or substitute tenant is more than the Rent which
Lessee is obligated to pay under this Lease, then such excess
shall be paid to Lessor provided that Lessor shall credit such
excess against the outstanding obligations of Lessee due pursuant
hereto, if any.
(E) It is the object and purpose of this Article 19 that
Lessor shall be kept whole and shall suffer no damage by way of
non-payment of Rent or by way of diminution in Rent. Lessee
waives and will waive all rights to trial by jury in any summary
proceedings or in any action brought to recover Rent herein which
may hereafter be instituted by Lessor against Lessee in respect
to the Leased Premises. Lessee hereby waives any rights of re-
entry it may have or any rights of redemption or rights to redeem
this Lease upon a termination of this Lease.
ARTICLE 20. PERSONALTY, FIXTURES AND EQUIPMENT
(A) All building fixtures, building machinery, and building
equipment used in connection with the operation of the Leased
Premises including, but not limited to, heating, electrical
wiring, lighting, ventilating, plumbing, and air conditioning
systems shall be the property of Lessor. All Trade Fixtures and
Personalty (as defined in Article 8(B) above) owned by Lessee
shall remain the property of Lessee, including but not limited to
those items set forth on Exhibit C attached hereto.
(B) Lessee shall furnish and pay for any and all
Personalty, except for such items, if any, described in Article
8(B) above, as owned by Lessor. Lessor acknowledges that it does
not have a lien on all Lessee's equipment, furniture, Trade
Fixtures, furnishings, and agrees to sign an equipment lien
waiver subject to the rights of any bona-fide third party
security interest in such property in a form substantially
similar to Exhibit D attached hereto or its commercially
reasonable equivalent. Provided Lessee is not in default
hereunder, Lessor will agree that its interest, if any, in the
personal property of Lessee will be subordinated to financing
which may exist or which Lessee may cause to exist in the future
on that same personal property.
(C) At the end of the term of this Lease, the property
described at Article 20(B) above, after written notice to Lessor
given at least ten (10) days prior thereto, may be removed from
the Leased Premises by Lessee regardless of whether or not such
property is attached to the Leased Premises so as to constitute a
"fixture" within the meaning of the law; however, all damages and
repairs to the Leased Premises which may be caused by the removal
of such property shall be paid for by Lessee.
ARTICLE 2l. LIENS
Lessee shall not do or cause anything to be done whereby the
Leased Premises may be encumbered by any mechanic's or other
liens. Whenever and as often as any mechanic's or other lien is
filed against said Leased Premises purporting to be for labor or
materials furnished or to be furnished to Lessee, Lessee shall
remove the lien of record by payment or by bonding with a surety
company authorized to do business in the state in which the
property is located, within twenty (20) days from the date of the
filing of said mechanic's or other lien and delivery of notice
thereof to Lessee of Lessee's obligation under this Lease.
Should Lessee fail to take the foregoing steps within said twenty
(20) day period, Lessor shall have the right, among other things,
to pay said lien without inquiring into the validity thereof, and
Lessee shall forthwith reimburse Lessor for the total expense
incurred by it in discharging said lien as additional Rent
hereunder.
ARTICLE 22. NO WAIVER BY LESSOR EXCEPT IN WRITING
No agreement to accept a surrender of the Leased Premises or
termination of this Lease shall be valid unless in writing signed
by Lessor. The delivery of keys to any employee of Lessor or
Lessor's agents shall not operate as a termination of the Lease
or a surrender of the Leased Premises. The failure of Lessor to
seek redress for violation of any rule or regulation, shall not
prevent a subsequent act, which would have originally constituted
a violation, from having all the force and effect of an original
violation. Neither payment by Lessee or receipt by Lessor of a
lesser amount than the Rent herein stipulated shall be deemed to
be other than on account of the earliest stipulated Rent. Nor
shall any endorsement or statement on any check nor any letter
accompanying any check or payment as Rent be deemed an accord and
satisfaction. Lessor may accept such check or payment without
prejudice to Lessor's right to recover the balance of such Rent
or pursue any other remedy provided in this Lease. This Lease
contains the entire agreement between the parties, and any
executory agreement hereafter made shall be ineffective to change
it, modify it or discharge it, in whole or in part, unless such
executory agreement is in writing and signed by the party against
whom enforcement of the change, modification or discharge is
sought.
ARTICLE 23. QUIET ENJOYMENT
Lessor covenants that Lessee, upon paying the Rent set forth
in Article 4 and all other sums herein reserved as Rent and upon
the due performance of all the terms, covenants, conditions and
agreements herein contained on Lessee's part to be kept and
performed, shall have, hold and enjoy the Leased Premises free
from molestation, eviction, or disturbance by Lessor, or by any
other person or persons lawfully claiming the same, and that
Lessor has good right to make this Lease for the full term
granted, including renewal periods.
ARTICLE 24.BREACH - PAYMENT OF COSTS AND ATTORNEYS' FEES
Each party agrees to pay and discharge all reasonable
costs, and actual attorneys' fees, including but not limited to
attorney's fees incurred at the trial level and in any appellate
or bankruptcy proceeding, and expenses that shall be incurred by
the prevailing party in enforcing the covenants, conditions and
terms of this Lease or defending against an alleged breach,
including the costs of reletting. Such costs, attorneys fees,
and expenses if incurred by Lessor shall be considered as Rent as
due and owing in addition to any Rent defined in Article 4
hereof.
ARTICLE 25. ESTOPPEL CERTIFICATES
Either party to this Lease will, at any time, upon not less
than ten (l0) days after receipt of written request by the other
party, execute, acknowledge and deliver to the requesting party a
statement in writing, executed by an executive officer of such
party, certifying that: (a) this Lease is unmodified (or if
modified then disclosure of such modification shall be made); (b)
this Lease is in full force and effect; (c) the date to which the
Rent and other charges have been paid; and (d) to the knowledge
of the signer of such certificate that the other party is not in
default in the performance of any covenant, agreement or
condition contained in this Lease, or if a default does exist,
specifying each such default of which the signer may have
knowledge. It is intended that any such statement delivered
pursuant to this Article may be relied upon by any prospective
purchaser or mortgagee of the Leased Premises or any assignee of
such mortgagee or a purchaser of the leasehold estate.
ARTICLE 26. FINANCIAL STATEMENTS
During the term of this Lease, Lessee will, within one
hundred twenty (120) days after the end of Lessee's fiscal year,
furnish to Lessor its financial statements including a profit and
loss statement and a store level operating profit and loss
statement for the Leased Premises. Lessee shall furnish to the
Lessor throughout the term of the Lease, including any option
periods, its balance sheet upon the reasonable request of Lessor
but in no event not more than twice during any Lease Year.
Lessee shall within forty-five (45) days after the end of each
fiscal quarter and within one hundred twenty (120) days after the
end of Lessee=s fiscal year, furnish financial statements
including a balance sheet, profit and loss statement, statement
of changes in financial conditions and all other related
schedules of the Guarantor. All financial statements shall be
prepared in accordance with generally accepted accounting
principles consistently applied from period to period. Financial
statements submitted by Lessee, on behalf of Lessee, shall be
certified to be true and correct and complete by Lessee or
Lessee=s Treasurer, or other appropriate officer, and if audited
by an independent certified public accountant. Financial
statements submitted by Lessee on behalf of Guarantor shall be
certified to be true and correct and complete by Guarantor or
guarantor's Treasurer, or other appropriate officer, and if
audited by an independent certified public accountant.
ARTICLE 27. MORTGAGE
Lessee does hereby agree to make reasonable modifications of
this Lease requested by any Mortgagee of record from time to time
provided such modifications are not substantial and do not
increase any of the Rents or substantially modify any of the
business elements of this Lease.
ARTICLE 28. OPTION TO RENEW
If this Lease is not previously canceled or terminated and
if Lessee is not in uncured default under any of the covenants
and conditions in this Lease, then Lessee shall have the option
to renew this Lease upon the same conditions and covenants
contained in this Lease for Two (2) consecutive periods of Five
(5) years each (singularly "Renewal Term"). Rent during the
Renewal Term shall be as set forth in Article 4 hereof. Lessee
must give one hundred eighty (l80) days written notice to Lessor
of its intent to exercise this option prior to the expiration of
the original Term of this Lease or any Renewal Term, as the case
may be.
ARTICLE 29. MISCELLANEOUS PROVISIONS
(A) All written notices shall be given to Lessor by
certified mail. Notices to either party shall be addressed to
the person and address given on the first page hereof. Lessor
and Lessee may, from time to time, change these addresses by
notifying each other of this change in writing. Notices of
overdue Rent may be sent to Lessee by nationally recognized
overnight mail. Notice shall be deemed received upon actual
signed receipt or rejection of the said notice.
(B) The terms, conditions and covenants contained in this
Lease and any riders and plans attached hereto shall bind and
inure to the benefit of Lessor and Lessee and their respective
successors, heirs, legal representatives, and assigns.
(C) This Lease shall be governed by and construed under the
laws of the State in which the Leased Premises are located.
(D) In the event that any provision of this Lease shall be
held invalid or unenforceable, no other provisions of this Lease
shall be affected by such holding, and all of the remaining
provisions of this Lease shall continue in full force and effect
pursuant to the terms hereof.
(E) The Article captions are inserted only for convenience
and reference, and are not intended, in any way, to define,
limit, describe the scope, intent, and language of this Lease or
its provisions.
(F) In the event Lessee remains in possession of the Leased
Premises herein leased after the expiration of this Lease and
without the execution of a new lease, it shall be deemed to be
occupying said Leased Premises as a tenant from month-to-month,
subject to all the conditions, provisions, and obligations of
this Lease insofar as the same can be applicable to a
month-to-month tenancy except that the monthly installment of
Rent shall be increased 200% from the amount due on the last
month prior to such expiration.
(G) If any installment of Rent (whether lump sum, monthly
installments, or any other monetary amounts required by this
Lease to be paid by Lessee and deemed to constitute Rent
hereunder) shall not be paid when due, Lessor shall have the
right to charge Lessee a late charge of $250.00 per month for
unpaid Rent for each month that any amount of Rent installment
remains unpaid. Said late charge shall commence after the
expiration of any applicable cure period and continue until said
installment, interest and all accrued late charges are paid in
full.
(H) Any part of the Leased Premises may be conveyed by
Lessor for private easement purposes at any time, provided such
easement does not interfere with the business of Lessee. In such
event Lessor shall, at its own cost and expense, restore the
remaining portion of the Leased Premises to the extent necessary
to render it reasonably suitable for the purposes for which it
was leased, all to be done without adjustments in Rent to be paid
by Lessee. All proceeds from any conveyance of a private
easement shall belong solely to Lessor.
(I) For the purpose of this Lease, the term "Rent" shall be
defined as Rent under Article 4, and any other monetary amounts
required by this Lease to be paid by Lessee.
ARTICLE 30. REMEDIES\NON-EXCLUSIVITY.
Notwithstanding anything contained herein it is the intent
of the parties that the rights and remedies contained herein
shall not be exclusive but rather shall be cumulative along with
all of the rights and remedies of the parties which they may have
at law or equity.
ARTICLE 31. HAZARDOUS MATERIALS INDEMNITY
Lessee covenants, represents and warrants to Lessor, its
successors and assigns, (i) that it has not used or permitted and
will not use or permit the Leased Premises to be used, whether
directly or through contractors, agents or tenants, and to the
best of Lessee's knowledge and except as disclosed to Lessor in
writing, the Leased Premises has not at any time been used for
the generating, transporting, treating, storage, manufacture,
emission of, or disposal of any dangerous, toxic or hazardous
pollutants, chemicals, wastes or substances as defined in the
Federal Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), the Federal Resource
Conservation and Recovery Act of 1976 ("RCRA"), or any other
federal, state or local environmental laws, statutes,
regulations, requirements and ordinances ("Hazardous Materials");
(ii) that there have been no investigations or reports involving
Lessee, or to the best of Lessee's knowledge, the Leased Premises
by any governmental authority which in any way pertain to
Hazardous Materials (iii) that to the best of Lessee's knowledge,
the operation of the Leased Premises has not violated and is not
currently violating any federal, state or local law, regulation,
ordinance or requirement governing Hazardous Materials; (iv) that
the Leased Premises is not listed in the United States
Environmental Protection Agency's National Priorities List of
Hazardous Waste Sites nor any other list, schedule, log,
inventory or record of Hazardous Materials or hazardous waste
sites, whether maintained by the United States Government or any
state or local agency; and (v) that the Leased Premises will not
contain any formaldehyde, urea or asbestos, except as may have
been disclosed in writing to Lessor by Lessee at the time of
execution and delivery of this Lease. Lessee agrees to indemnify
and reimburse Lessor, its successors and assigns, for:
(a)any breach of these representations and warranties, and
(b)any loss, damage, expense or cost arising out of or
incurred by Lessor which is the result of a breach of,
misstatement of or misrepresentation of the above covenants,
representations and warranties, and
(c)any and all liability of any kind whatsoever which Lessor
may, for any cause and at any time, sustain or incur by reason of
Hazardous Materials on the Leased Premises, if such liability
shall arise during Lessee's occupancy of the Leased Premises or
as a result of a release of Hazardous Materials on the Leased
Premises during Lessee's occupancy of the Leased Premises. Lessor
agrees to assign to Lessor and to subrogate Lessor=s claims
against any and all third parties for damages, costs, expenses,
or liability incurred by Lessor for which Lessee is required to
indemnify Lessor. Lessee=s liability hereunder shall expire five
years after the termination of this Lease.
together with all attorneys' fees, costs and disbursements
incurred in connection with the defense of any action against
Lessor arising out of the above. These covenants,
representations and warranties shall be deemed continuing
covenants, representations and warranties for the benefit of
Lessor, and any successors and assigns of Lessor and shall
survive expiration or sooner termination of this Lease. The
amount of all such indemnified loss, damage, expense or cost,
shall bear interest thereon at the highest rate of interest
allowed by law and shall become immediately due and payable in
full on demand of Lessor, its successors and assigns.
ARTICLE 32. ESCROWS
Upon written request of Lessor, after two or more
occurrences during any Lease Year, of a monetary or other
material event of default, cured or uncured, Lessee shall deposit
with Lessor on the first day of each and every month, an amount
equal to one-twelfth (1/12th) of the estimated annual real estate
taxes, assessments and insurance ("Charges") due on the Leased
Premises, or such higher amounts reasonably determined by Lessor
as necessary to accumulate such amounts to enable Lessor to pay
all charges due and owing at least thirty (30) days prior to the
date such amounts are due and payable. From time to time out of
such deposits Lessor will, upon the presentation to Lessor by
Lessee of the bills therefor, pay the Charges or will upon
presentation of receipted bills therefor, reimburse Lessee for
such payments made by Lessee. In the event the deposits on hand
shall not be sufficient to pay all of the estimated Charges when
the same shall become due from time to time or the prior payments
shall be less than the currently estimated monthly amounts, then
Lessee shall pay to Lessor on demand any amount necessary to make
up the deficiency. The excess of any such deposits shall be
credited to subsequent payments to be made for such items. If a
default or an event of default shall occur under the terms of
this Lease, Lessor may, at its option, without being required so
to do, apply any Deposit on hand to cure the default, in such
order and manner as Lessor may elect.
ARTICLE 33. NET LEASE
Notwithstanding anything contained herein to the contrary it
is the intent of the parties hereto that this Lease shall be a
net lease and that the Rent defined pursuant to Article 4 should
be a net Rent paid to Lessor. Any and all other expenses
including but not limited to, maintenance, repair, insurance,
taxes, and assessments, shall be paid by Lessee.
ARTICLE 34. RIGHT OF FIRST REFUSAL
Lessor, for itself, its successors and assigns, hereby gives
and grants to Lessee a right of first refusal (the "Right of
First Refusal") to purchase the Leased Premises, subject to the
following terms and conditions:
(A) DURATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal and all rights and privileges of Lessee hereunder shall
be in force for the term of this Lease until the expiration of
Lessee's right to possession.
(B) MANNER OF EXERCISING RIGHT OF FIRST REFUSAL. If Lessor
("Selling Lessor") shall desire to sell all or any portion of its
interest in the Leased Premises (subject to the terms of this
Lease), Selling Lessor shall give Lessee written notice of
Selling Lessor's intention to sell Selling Lessor's interest
(partial or whole) in the Leased Premises to a bona fide third
party purchaser. Such notice ("Lessor's Notice") shall give
Selling Lessor's name and address and state a price at which
Selling Lessor intends to sell and will sell a specified portion
or all of its interest in the fee simple to the Leased Premises
to a bona fide third party purchaser. If Lessee shall fail to
exercise its Right of First Refusal as set forth herein, the
terms of Article 34(E) shall apply. For twenty (20) business
days following the giving of such notice, Lessee shall have the
option to purchase such portion of the fee interest of the
Selling Lessor as set forth in Lessor's Notice at the price in
cash stated in the Lessor's Notice. A written notice in
substantially the following form, addressed to Selling Lessor and
signed by Lessee and given, in accordance with the provisions of
Article 29(A) hereof, within the period for exercising the Right
of First Refusal, submitted with a bank cashier's check or money
order payable to the order of Selling Lessor in the amount of
$5,000.00 (the "Earnest Money") shall be an effective exercise of
Lessee's Right of First Refusal, to wit:
(date)
"We hereby exercise the Right of First Refusal to purchase such
portion of the fee interest of the Selling Lessor (as set forth
in Lessor's Notice) in the property commonly known as Arby=s,
Homewood, Alabama, pursuant to the Right of First Refusal
contained in that certain Net Lease Agreement between us
pertaining to said Leased Premises."
(C) TERMS OF SALE IF RIGHT OF FIRST REFUSAL EXERCISED.
Upon Lessee's exercise of the Right of First Refusal in
accordance with the provisions of subparagraph (B) hereof,
Selling Lessor shall be obligated to sell and convey by
recordable general warranty deed, good and indefeasible title to
its interest in the Leased Premises (or such portion thereof as
set forth in Lessor's Notice) subject only to the matters
affecting title which were of record at the time Selling Lessor
came into title to the Leased Premises and those matters which
Lessee created, suffered or permitted to accrue during the term
hereof, and Lessee shall be obligated to purchase such Lessor's
interest upon the following terms and conditions:
(i) PRICE. The price "Purchase Price" at which Selling
Lessor shall sell and Lessee shall purchase the Leased Premises
shall be the price stated in Lessor's Notice.
(ii) CLOSING. Closing shall be sixty (60) days after the
expiration of the twenty days within which Lessee may exercise
its Right of First Refusal, unless the parties mutually agree
otherwise. The Purchase Price less credit for the Earnest Money
and any other credits to which Lessee is entitled hereunder shall
be tendered in cash or other certified funds by Lessee at
Closing.
(iii) EVIDENCE OF TITLE. Not less than ten (10) days
prior to closing, Selling Lessor shall obtain a commitment for an
ALTA owner's policy of title insurance dated within thirty (30)
days of the closing date, issued by a nationally recognized title
insurance company selected by Selling Lessor (the "Title
Company") in the amount of the Purchase Price determined pursuant
to subparagraph (C)(i) above, naming Lessee as the proposed
insured, and covering the fee simple title to the Leased
Premises, and showing Selling Lessor vested with good title to
portion of the Leased Premises being sold, subject only to the
matters affecting title which were of record at the time Selling
Lessor came into title to the Leased Premises and those matters
which Lessee created, suffered or permitted to accrue during the
term hereof. Such title commitment shall be conclusive evidence
of good title. If Lessee shall make objection to the
marketability of title, Selling Lessor shall have no obligation
to make title marketable, but may withdraw Lessor's notice of
intent to market the Leased Premises.
(iv) PRORATIONS. Selling Lessor shall pay the cost of the
aforesaid title policy and any and all state and municipal taxes
imposed by law on the transfer of the title to the Leased
Premises, or the transaction pursuant to which such transfer
occurs. Water, sewer and other utility charges, if any, which
are not metered, driveway permit charges, if any, general real
estate taxes, and other similar items, shall be adjusted ratably
as of the Closing, except to the extent otherwise settled between
the parties pursuant to other provisions of this Lease. A
prorated portion of the Rent prepaid by Lessee for the month of
closing shall be credited toward the Purchase Price and Lessee
shall be given a credit for rent prepaid for any period after the
month in which the Closing occurs. Otherwise, Lessee shall not
receive a credit against the Purchase Price for Rent paid
hereunder.
(v) ESCROW CLOSING. At the election of Selling Lessor or
Lessee upon notice to the other party not less than five (5) days
prior to the Closing, this sale shall be closed through an escrow
with the Title Company, in accordance with the general provisions
of the usual form of Deed and Money Escrow Agreement then is use
by said company, with such special provisions inserted in the
escrow agreement as may be required to conform with this
agreement. Upon the creation of such an escrow, anything herein
to the contrary notwithstanding, paying of the purchase price and
delivery of the deed shall be made through the escrow. The cost
of the escrow shall be divided equally between the Selling Lessor
and Lessee. If for any reason other than Lessee's default, the
transaction fails to close, the Earnest Money shall be returned
to Lessee forthwith.
(vi) REMEDIES ON DEFAULT. If Lessee defaults under the
provisions of this subparagraph 34(C), Selling Lessor shall have
the right to annul the provisions of this paragraph 34 by giving
Lessee notice of such election, provided that Selling Lessor has
first notified Lessee of such default and Lessee has failed to
cure the same within ten (10) days after such notice. Upon
Selling Lessor's notice of annulment in accordance herewith, the
Earnest Money shall be forfeited and paid to Selling Lessor as
liquidated damages, which shall be Selling Lessor's sole and
exclusive remedy. If Selling Lessor defaults under the
provisions of this subparagraph 34(C) and fails to cure such
default within ten (10) days after being notified of the same by
Lessee, then in such event, (i) the Earnest Money at Lessee's
election and immediately upon its demand shall be returned to
Lessee, which return shall not, however, in any way release or
absolve Selling Lessor from its obligations hereunder and (ii)
Lessee shall be entitled to all remedies (both legal and
equitable) the law (both statutory and decisional) of the state
in which the Leased Premises are situated provides without first
having to tender the balance of the purchase price as a condition
precedent thereof and without having to make any election of such
remedies.
(D) EFFECT OF RIGHT OF FIRST REFUSAL ON LEASE. If the
Right of First Refusal is exercised by Lessee and is exercisable
in Lessor's Notice as to the entire fee simple, this Lease shall
continue in full force and effect until the Closing herein above
specified. If the Right of First Refusal is exercised only as to
all of an undivided portion of the fee simple to the Leased
Premises, the Lease shall remain in full force and effect without
merger or termination of this Lease because of such purchase. If
for any reason such Closing fails to occur, this Lease shall
continue in full force and effect, except that if the provisions
of this paragraph 34 are annulled by Selling Lessor, in
accordance with subparagraph 34(C)(vi), by reason of a default by
Lessee, this Lease shall continue but without the provisions of
this paragraph 34 being a part hereof.
(E) If Lessee fails to exercise its Right of First Refusal,
Selling Lessor shall be free to sell all or any portion of its
interest in the Leased Premises to bona fide third party
purchasers for six months following the expiration of the twenty
days within which Lessee may exercise its Right of First Refusal,
provided that the Selling Lessor giving such Lessor's Notice
shall sell its interest (or a portion thereof) for a price equal
to or greater than the price (or the pro-rata portion thereof if
a portion of the Selling Lessor's interest in the Leased Premises
is sold) set forth in Lessor's Notice. This Right of First
Refusal shall survive any sale of the Leased Premises and shall
apply to any subsequent sale or potential sale by Lessor or its
successors and assigns.
Nothing herein shall give Lessee the right of first refusal over
transfers between affiliates of Lessor at Lessor=s cost.
ARTICLE 35. DEVELOPMENT FINANCING AGREEMENT
The parties hereto hereby acknowledge that the terms hereof
are subject to and shall in the event of conflicts be controlled
by that certain Development Financing Agreement of even date
herewith, until such Agreement is terminated in accordance with
its terms.
ARTICLE 36. COUNTERPART EXECUTION
This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have respectively
signed and sealed this Lease as of the day and year first above
written.
LESSEE: RTM ALABAMA, INC.
By: /s/ D T Collins
Its:Vice President
By: /s/ Robert S Stallings
Its:V.P. Asst. Secretary
STATE OF GEORGIA}
}
COUNTY OF DEKALB}
I, the undersigned authority, a Notary Public in and for
said County in said State, hereby certify that Daniel T Collins
and Robert S Stallings, whose name as V.P. and V.P. Asst Secy,
respectively, of RTM ALABAMA, Inc., are signed to the foregoing
instrument, and who are known to me, acknowledged before me on
this day that being informed of the contents of said instrument,
they as such officers and with full authority executed the same
voluntarily for and as the V.P. and V.P. Asst Secy of said
corporation.
Given under my hand and official seal this 18 day of
November, 1998.
Notary Public /s/ Jacqueline M Stubbs
My Commission expires:02-10-02
[notary seal]
LESSOR: AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP,
a Minnesota limited partnership
By: AEI FUND MANAGEMENT XXI, INC., a
Minnesota corporation
By: /s/ Robert P Johnson
Robert P. Johnson, President
STATE OF MINNESOTA}
}
COUNTY OF RAMSEY}
I, the undersigned authority, a Notary Public in and for
said County in said State, hereby certify that Robert P. Johnson,
whose name as President of AEI Fund Management XXI, Inc., as
corporate general partner of AEI Income & Growth Fund XXII
Limited Partnership is signed to the foregoing instrument, and
who is known to me, acknowledged before me on this day that being
informed of the contents of said instrument, he as such officer
and with full authority executed the same voluntarily for and as
the President of AEI Fund Management XXI, Inc., for and as the
corporate general partner of AEI Income & Growth Fund XXII
Limited Partnership.
Given under my hand and official seal this 20th day of
November, 1998.
Notary Public /s/ Barbara J Kochevar
My Commission expires:1/31/2000
[notary seal]
EXHIBIT A
Description of Leased Premises
Lot 1, Arby's Addition to Wildwood Centre, as recorded in Map
Book 193, Page 58, in the Probate Office of Jefferson County,
Alabama.
DEVELOPMENT FINANCING AGREEMENT
THIS AGREEMENT, made and entered into effective as of
this 25th day of November, 1998, by and between Tumbleweed ,
LLC (hereinafter referred to as "Lessee"), whose address is
1900 Mellwood Avenue, Louisville, Kentucky, and AEI Income
& Growth Fund XXII Limited Partnership, whose principal
business address is 1300 Minnesota World Trade Center, 30
East Seventh Street, St. Paul, Minnesota 55101 (hereinafter
referred to as "Lessor") .
W I T N E S S E T H, that:
WHEREAS, Lessee is contemplating building the following
Improvements on the premises described in Exhibit "A"
attached hereto :
Construction of an approximately square foot building
and improvements to be used as a Tumbleweed Restaurant.
WHEREAS, Lessee has made application to Lessor for
development financing to defray the costs of constructing
such Improvements;
WHEREAS, Lessor's Assignor has issued to Lessee its
Development Financing and Leasing Commitment to advance
funds in the amount hereinafter specified, subject to
compliance with the terms and conditions of this Development
Financing Agreement and the Net Lease Agreement (the
"Lease") of even date herewith;
NOW, THEREFORE, in consideration of entering into the
Lease and other good and valuable consideration, the receipt
of which is hereby acknowledged by the parties hereto, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall
have the following meanings:
1. "Application" shall mean Lessee's application to
the Lessor for the Development Financing the terms and
conditions of which are incorporated herein by reference.
2. "Architect's Contract" shall mean Lessee's contract
with the Project Architect.
3. "Commitment" shall mean Lessor's Commitment to
Lessee agreeing to provide the Development Financing.
(The "Development Financing and Leasing Commitment"
dated of even date herewith.)
4. "Completion Date" shall mean midnight, May 31, 1999,
subject to Force Majeure, as defined herein.
5. "Construction Costs" shall mean land costs, all
costs paid to construct and complete the Improvements,
as specified on Exhibit "B" attached hereto and made a
part hereof.
6. "Construction Contracts" shall mean the contracts
between Lessee and Contractors for the furnishing of
labor, services or materials to the Leased Premises in
connection with the construction of the Improvements.
7. "Contractors" shall mean those firms directly engaged
by Lessee to construct the Improvements, whether one
or more.
8. "Contract Documents" shall mean the Project Architect's
Contract, Plans and Specifications and the contract with the
Contractor.
9. "Development Financing" shall mean the funds to be made
available pursuant to the Commitment and not to exceed the
lesser of the Construction Costs or the maximum loan amount
of One Million Three Hundred Twenty Five Thousand Dollars
($1,325,000) as specified in the Commitment.
10. "Development Financing and Carrying Charges" shall
mean all fees, taxes and charges incurred under the
Development Financing and in the construction of the
Improvements including, but not limited to, non-refundable
commitment fees; interest charges, service and inspection
fees, attorney's fees, title insurance fees and charges,
recording fees and insurance premiums.
11. "Development Financing Documents" shall mean this
Agreement,the Lease,Assignment of Architects and Construction
Contracts, Guarantees, and such other documents given to the
Lessor as security for the Development Financing.
12. "CLTIC-CDD" shall mean Commonwealth Land Title
Insurance Corporation, Construction Disbursement Department,
the nationally recognized title insurer, to be CLTIC-CDD
under the Development Financing Disbursement Agreement
executed by and between the parties of even date herewith.
13. "Final Disbursement Date" shall mean the date of the
final disbursement of the Development Financing provided
hereunder.
14. "Improvements" shall mean the structures and other
improvements to be constructed on the Leased Premises in
accordance with the Plans and Specifications.
15. "Initial Disbursed Funds" shall mean those funds
disbursed on the Closing Date for land acquisition and
related soft costs upon Lessor's acquisition of the Leased
Premises.
16. "Inspecting Architect" shall mean the architect, if any,
hired by Lessor to perform inspections of the premises.
An Inspecting Architect may only be engaged by Lessor in the
event of a default relating to construction of the Improvements
under the Development Financing Documents.
17. "Leased Premises" shall mean the real property described
in the Exhibit "A" attached to this Agreement, together with all
Improvements, equipment and fixtures thereon.
18. "Lessee Equity" shall mean the final Construction Costs
less the amount of the Development Financing.
19. "Plans and Specifications" shall mean the plans and
specifications prepared by the Project Architect who shall be
licensed in the jurisdiction of the Leased Premises and selected
by Lessee.
20. "Project" shall mean the construction of the Improvements
on the Leased Premises.
21. "Project Architect" shall mean the architect retained by
Lessee to design and supervise construction of the Improvements.
22. "Rental Modification Date" shall mean a date one hundred and
twenty days (120) from the date hereof.
23. "Sub-Contractors" shall mean those persons furnishing labor
or materials for the Project pursuant to the Sub-Contracts.
24. "Sub-Contracts" shall mean the contracts between the
Contractor and its materialmen and mechanics in the furnishing
of labor or materials for the Project.
25. "Title" shall mean Lawyers Title Insurance Corporation
issuing the Lessor's fee owner's title insurance policy.
ARTICLE II
THE DEVELOPMENT FINANCING
Subject to compliance with the provisions of this Agreement,
Lessor agrees to advance to Lessee, and Lessee agrees to
request from Lessor, the Development Financing. The
Development Financing shall be advanced in stages by Lessor
to CLTIC-CDD and disbursed by CLTIC-CDD pursuant to the
provisions of Article VIII hereof. The Development
Financing, or so much thereof as has been advanced
hereunder, shall bear interest at the rate and shall be
repaid in accordance with the terms hereof and the Lease.
The proceeds of the Development Financing shall be used
exclusively for the purposes of defraying Construction
Costs.
ARTICLE III
N/A
ARTICLE IV
CONSTRUCTION OF IMPROVEMENTS
Lessee agrees to commence construction of the Improvements
within thirty (30) days from the date of this Agreement.
After commencement of construction of any Improvements,
Lessee agrees to diligently pursue said construction to
completion, and to supply such moneys and to perform such
duties as may be necessary to complete the construction of
said Improvements pursuant to the Plans and Specifications
and in full compliance with all terms and conditions of this
Agreement and the Development Financing Documents, all of
which shall be accomplished on or before the Completion
Date, subject to Force Majeure and without liens, claims or
assessments (actual or contingent) asserted against the
Leased Premises for any material, labor or other items
furnished in connection therewith, subject to Lessee's right
to contest such liens, claims, or assessments provided the
same are removed as a lien upon the Leased Premises prior to
foreclosure of such lien, and all in full compliance with
all construction, use, building, zoning and other similar
requirements of any pertinent governmental jurisdiction.
Lessee will provide to Lessor, upon request, evidence of
satisfactory compliance with all the above requirements.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE LESSEE
Lessee hereby represents and warrants to the Lessor, which
representations and warranties shall be deemed to be
restated by Lessee each time Lessor makes an advance of the
Development Financing, that:
1. VALIDITY OF DEVELOPMENT FINANCING DOCUMENTS - The
Development Financing Documents are in all respects legal,
valid and binding according to their terms.
2. NO PRIOR LIEN ON FIXTURES - No mortgage, bill of sale,
security agreement, financing statement, or other title
retention agreement (except those executed in favor of
Lessor) has been, or will be, executed with respect to any
fixture (except Lessee's trade fixtures not financed with
this Development Financing) used in conjunction with the
construction, operation or maintenance of the improvements.
3. CONFLICTING TRANSACTION OF LESSEE - The consummation of the
transactions hereby contemplated and the performance of the
obligations of Lessee under and by virtue of the Development
Financing Documents will not result in any breach of, or
constitute a default under, any mortgage, lease, bank loan
or credit agreement, corporate charter, by-laws, partnership
agreement, or other instrument to which Lessee is a party or
by which it may be bound or affected, the breach of which
would materially affect Lessee's ability to perform its
obligations hereunder.
4. PENDING LITIGATION - There are no actions, suits or
proceedings pending, or to the knowledge of Lessee
threatened, against or affecting it or the Leased Premises,
or involving the validity or enforceability of any of the
Development Financing Documents, at law or in equity, or
before or by any governmental authority, except actions,
suits and proceedings that are fully covered by insurance or
which, if adversely determined would not substantially
impair the ability of Lessee to perform each and every one
of its obligations under and by virtue of the Development
Financing Documents; and to the Lessee's knowledge it is not
in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.
5. VIOLATIONS OF GOVERNMENTAL LAW, ORDINANCES OR REGULATIONS -
To the best knowledge of Lessee, there are no violations or
notices of violations of any federal or state law or
municipal ordinance or order or requirement of the State in
which the Leased Premises are located or any municipal
department or other governmental authority having
jurisdiction affecting the Leased Premises, which violations
in any way have a material adverse affect on the Leased
Premises and which remain uncured after notice by such
governmental authority or department (if notice is required)
and the expiration of the time within which Lessee may cure
such violation, or if no time limitation is specified,
within a reasonable time after notice to cure such violation
.
6. COMPLIANCE WITH ZONING ORDINANCES AND SIMILAR LAWS - To the
best knowledge of Lessee, the Plans and Specifications and
construction pursuant thereto and the use of the Leased
Premises contemplated thereby comply and will comply with
all present governmental laws and regulations and
requirements, zoning ordinances, standards, and regulations
of all governmental bodies exercising jurisdiction over the
Leased Premises. Lessee agrees to provide the Project
Architect's certification to such effect prior to the
funding of the first disbursement under the Development
Financing.
7. LESSEE'S STATUS AND AUTHORITY - If the Lessee be a
corporation, limited liability company, trust or a
partnership, Lessee warrants and represents that (i) it is
duly organized, existing and in good standing under the laws
of the state in which it is incorporated or created; (ii) it
is duly qualified to do business and is in good standing in
the state in which the Leased Premises are located; (iii) it
has the corporate or other power, authority and legal right
to carry on the business now being conducted by it and to
engage in the transactions contemplated by this Agreement
and the Development Financing Documents; and (iv) the
execution and delivery of this Agreement and the Development
Financing Documents and the performance and observance of
the provisions hereof and thereof have been (or future acts
will be) duly authorized by all necessary trust,
partnership, or corporate actions of Lessee. Lessee will
furnish such resolutions, affidavits and opinions of counsel
to such effect as Lessor may reasonably require.
8. AVAILABILITY OF UTILITIES - All utility services necessary
for the construction of the Improvements will be available
prior to the commencement of construction, and all utility
services necessary for the proper operation of the
Improvements for their intended purposes are available at
the Leased Premises or will be available at the Leased
Premises prior to the Final Disbursement Date, at
commercially comparable utility rates and hook-up charges
for the vicinity, including water supply, storm and sanitary
sewer facilities, gas, electricity and telephone facilities.
Lessee shall furnish evidence of such availability of
utilities from time to time at Lessor's request.
9. BUILDING PERMITS - All building permits required for the
construction of the Improvements have been obtained prior to
the commencement of the construction of the Improvements and
copies of same will be delivered to Lessor.
10.CONDITION OF LEASED PREMISES - The Leased Premises are not
now damaged or injured as a result of any fire, explosion,
accident, flood or other casualty, nor to the best of
Lessee's knowledge, subject to any action in eminent domain.
11.APPROVAL OF PLANS AND SPECIFICATIONS - To the best knowledge
of Lessee in reliance upon the Project Architect's
certification to such effect, the Plans and Specifications
conform to the requirements and conditions set out by
applicable law or any effective restrictive covenant, to all
governmental authorities which exercise jurisdiction over
the Leased Premises or the construction thereon, and no
construction will be commenced upon the Leased Premises
until said Plans and Specifications shall have been approved
by Lessor, which consent shall not be unreasonably withheld
or delayed and shall be given or withheld within ten
business days after written request therefor. Subject to
Article VI, paragraph 14, no material changes are to be made
in the Plans and Specifications as approved without Lessor's
prior consent, which consent shall not be unreasonably
withheld or delayed and shall be given or withheld within
ten business days after written request therefor; except,
after prior written notice to Lessor, provided the
Development Financing shall remain in balance as set forth
in Article VII, paragraph 3 herein, Lessor shall consent to
reallocation among line items or use of the Construction
Contingency in the aggregate of not more than the amount
budgeted as set forth on Exhibit B for Construction
Contingency, unless Lessee shall deposit Owner Equity with
CLTIC-CDD in the amount of such excess over the budgeted
amount.
12.CONSTRUCTION CONTRACTS - Lessee has entered into contracts
with the Contractors or separate contracts with materialmen
and laborers providing for the construction of the
Improvements. Lessee will cause the Contractors to promptly
furnish Lessor with the complete list of all Sub-contractors
or entities as and when under contract, which Contractors
propose to engage to furnish labor and/or materials in
constructing the Improvements (such list containing the
names, addresses, and amounts of such sub-contracts as
written in excess individually of $5,000, and prior to
disbursement of funds to or for the benefit of such
Subcontractors, affidavits of authorized signatory and other
documents commercially reasonably required by Title to
insure that the Leased Premises remain lien free) and will
from time to time furnish Lessor or Title with true copies
of all Contracts entered into by Lessee and with the terms
of all verbal agreements therefor, if any, and as to
subcontractors, letters signed by sub-contractors whose
contracts are in excess of $5,000 setting forth the present
amount of their contract and the amounts remaining to be
paid under that contract, if the same information is not
stated on a lien waiver reflecting the most currently
requested payment to such subcontractor.
13.BROKERAGE COMMISSIONS - No brokerage commissions are due in
connection with the transaction contemplated hereby or if
there are commissions due or payable the same will be paid
by Lessee. Lessee agrees to and shall indemnify Lessor from
any liability, claims or losses arising by reason of any
such brokerage commissions. This provision shall survive
the repayment of the Development Financing and shall
continue in full force and effect so long as the possibility
of such liability, claims or losses exists.
14.NO PRIOR WORK - Except as may have been permitted by Lessor,
no work or construction has been commenced or will be
commenced by or on behalf of Lessee on the Leased Premises,
nor has Lessee entered into any contracts or agreements for
such work or construction which could result in the
imposition of a mechanic's or materialmen's lien on the
Leased Premises or the Improvements prior to or on parity
with the interest of Lessor.
15.ENVIRONMENTAL IMPACT STATEMENT - All required environmental
impact statements as required by any governmental authority
having jurisdiction over the Leased Premises or the
construction of the Improvements have been duly filed and
approved.
16.ACCESS - The Leased Premises front on a publicly maintained
road or street or have access to such a road or street under
an easement or private way, which is not subject to a
reversion in favor of any party.
17.FINANCIAL INFORMATION - Any financial statements heretofore
delivered to Lessor are true and correct in all respects,
have been prepared in accordance with generally accepted
accounting practice, and fairly present the respective
financial conditions of the subject thereof as of the
respective dates thereof and no materially adverse change
has occurred in the financial conditions reflected therein
since the respective dates thereof.
ARTICLE VI
COVENANTS OF LESSEE
Lessee hereby covenants and agrees with Lessor as follows:
1. SURVEYS - Prior to execution of any Development Financing
Documents and prior to the initial request for a
Disbursement (as defined in Article VIII hereof), Lessee has
furnished to Lessor three copies of a current perimeter land
survey, in form and substance satisfactory to Lessor,
certified to Lessor, giving a description of the Leased
Premises and showing all encroachments onto or from the
Leased Premises, currently certified by a registered
surveyor and bearing his registry number and showing access
rights, easements, or utilities, rights of way, all setback
requirements upon the Leased Premises, improvements, matters
affecting title and such other items as Lessor may
reasonably request.
2. TITLE INSURANCE - Prior to the initial request for
Disbursement the Lessee has furnished Lessor with an ALTA
policy of title insurance, and prior to any subsequent
request for Disbursement such ALTA policy of title insurance
shall be brought down to the date of Disbursement by
endorsement, all in form and substance satisfactory to
Lessor issued at the Lessee's expense and written by Title
insuring the Leased Premises to be marketable, free from
exceptions for mechanic's and materialmen's liens and free
from other exceptions not previously approved by the Lessor,
naming Lessor as fee owner insured to the extent of advances
made hereunder subject only to such exceptions as may be
reasonably approved by Lessor.
3. RESTRICTIONS ON CONVEYANCE OR SECONDARY FINANCING - Lessee
will not transfer, sell, convey or encumber the Leased
Premises or subject the Leased Premises to any secondary
financing in any way without the written consent of the
Lessor, except as permitted in Article V, paragraph 2
relating to trade fixture financing sources or suppliers.
4. INSURANCE - To obtain or cause Contractor to obtain and
maintain such insurance or evidence of insurance as Lessor
may reasonably require, including but not limited to the
following:
(a) BUILDER'S RISK INSURANCE -
Builder's Risk Insurance written on the so-called "Builder's
Risk-Completed Value Basis" in an amount equal to the full
replacement cost of the Improvements at the date of
completion with coverage available on the so-called multiple
peril form of policy, including coverage against collapse
and water damage, naming Lessor as additional named insured,
such insurance to be in such amounts and form and written by
such companies as shall be reasonably approved by Lessor,
and the originals of such policies (together with
appropriate endorsement thereto, evidence of payment of
premiums thereon and written agreements by the insurer or
insurers therein to give Lessor ten (10) days' prior written
notice of any intention to cancel) shall be promptly
delivered to Lessor, said insurance coverage to be kept in
full force and effect at all times until the completion of
construction of the Improvements.
(b) HAZARD INSURANCE - Fire and
Extended Coverage Insurance, and such other hazard insurance
as Lessor may require and as called for in the Lease in an
amount equal to the full replacement cost of the
Improvements naming Lessor as an additional named insured,
such insurance to be in such amounts and form and written by
such companies as shall be reasonably approved by Lessor,
and the originals of such policies (together with
appropriate endorsements thereto, evidence of payment of
premiums thereon and written agreement by the insurer or
insurers therein to give Lessor ten (10) days' prior written
notice of any intention to cancel) shall be promptly
obtained and delivered to Lessor immediately upon completion
of the construction of the Improvements and before any
portion is occupied by Lessee or any tenant of Lessee with
such insurance to be kept in full force and effect at all
times thereafter.
(c) PUBLIC LIABILITY - Comprehensive
public liability insurance (including operations, contingent
liability operations, operations of sub- contractors,
completed operations and contractual liability insurance) in
limits of coverage as set forth in the Lease.
(d) WORKMEN'S COMPENSATION INSURANCE -
Evidence of compliance with the required coverage under
statutory workmen's compensation requirements.
5. COLLECTION OF INSURANCE PROCEEDS - To cooperate with Lessor
in obtaining for Lessor the benefits of any insurance or
other proceeds lawfully or equitably payable to it in
connection with the transaction contemplated hereby and the
collection of any indebtedness or obligation of the Lessee
to Lessor incurred hereunder (including the payment by
Lessee of the expense of an independent appraisal on behalf
of Lessor in case of a fire or other casualty affecting the
Leased Premises).
6. APPLICATION OF DEVELOPMENT FINANCING PROCEEDS - To use the
proceeds of the Development Financing solely for the purpose
of paying for Construction Costs and such incidental costs
relative to the construction as may be reasonably approved
from time to time in writing by Lessor, and in no event to
use any of the Development Financing proceeds for personal,
corporate or other purposes.
7. EXPENSES - To pay all costs of closing the Development
Financing and all expenses of Lessor with respect thereto,
including, but not limited to, legal fees by Lessor's
counsel and all other reasonable attorney's fees (limited as
set forth in the Commitment), costs of title insurance,
transfer taxes, license and permit fees, recording expenses,
surveys, intangible taxes, appraisal fees, Inspecting
Architect fees, expenses of retaking possession upon default
by Lessee hereunder or other costs of enforcement (including
reasonable attorney's fees) and similar items.
8. LAWS, ORDINANCES AND ETC. - To comply promptly with any law,
ordinance, order, rule or regulation of all authorities
exercising jurisdiction over the Leased Premises or the
construction thereon, including appropriate supervising
boards of fire underwriters and similar agencies and the
requirements of any insurer issuing coverage on the Project.
9. RIGHT OF LESSOR TO INSPECT LEASED PREMISES - Upon 48 hours
notice, except in cases which Lessor reasonably deems to be
an emergency, in which event upon reasonable notice under
the circumstances, to permit Lessor and Title and their
representatives and agents to enter upon the Leased Premises
and to inspect the Improvements and all materials to be used
in construction thereof and to cooperate and cause
Contractor to cooperate with Lessor or Title and their
representatives and agents during such inspections, provided
that such is accomplished without interrupting the
construction process. Provided, further, however, that this
provision shall not be deemed to impose upon Lessor or Title
any duty or obligation whatsoever to undertake such
inspections, to correct any defects in the Improvements or
to notify any person with respect thereto.
10. BOOKS AND RECORDS - To set up and maintain accurate and
complete books, accounts and records pertaining to the
Project including the working drawings in a manner
reasonably acceptable to Lessor. The Lessor, Title and
Inspecting Architect shall have the right at all reasonable
times and upon reasonable prior notice to inspect, examine
and copy all books and records of Lessee relating to the
Project, and to enter and have free access to the Leased
Premises and Improvements and to inspect all work done,
labor performed and material furnished in or about the
Project, provided that such is accomplished without
interrupting the construction process. Notwithstanding the
foregoing, Lessee shall be responsible for making
inspections as to the Improvements during the course of
construction and shall determine to its own satisfaction
that the work done or materials supplied by the Contractors
and all Subcontractors has been properly supplied or done in
accordance with the applicable contracts. Lessee will hold
Lessor and Title harmless from and Lessor and Title shall
have and have no liability or obligation of any kind to
Lessee or creditors of Lessee in connection with any
defective, improper or inadequate workmanship or materials
brought in or related to the Improvements or the Leased
Premises, or any mechanic's liens arising as a result of
such workmanship or materials. Upon Lessor's request,
Lessee shall replace or cause to be replaced any such work
or material found to be materially deficient by the Project
Architect or Independent Architect. Lessor shall cooperate
with Lessee in obtaining any rights under any applicable
warranties to accomplish such work. Any inspections made by
Inspecting Architect, Title or Lessor are for the sole
benefit of Lessor and neither Lessee nor any creditor,
tenant or vendee of Lessee shall be entitled to rely on such
inspection. Lessee shall obtain for Lessor coincident
rights to rely upon any warranties obtain by Lessee from its
Contractors or subcontractors.
11.CORRECTION OF DEFECTS - To promptly correct any structural
defects in the Improvements or any material departure from
the Plans and Specifications not previously approved by
Lessor. The advance of any Development Financing proceeds
shall not constitute a waiver of Lessor's right to require
compliance with this covenant.
12.SIGN REGARDING DEVELOPMENT FINANCING - To allow Lessor to
erect and maintain at a suitable site on the Leased
Premises, at a location to be chosen by Lessee in its
reasonable discretion, a sign indicating that Development
Financing is being provided by Lessor, to the extent
permitted by law or private covenant, condition, or
agreement affecting the Project.
13.ADDITIONAL DOCUMENTS - To furnish to Lessor all instruments,
documents, initial surveys, footing or foundation surveys,
if conducted, certificates, plans and specifications,
appraisals, financial statements, title and other insurance
reports and agreements and each and every other document and
instrument required to be furnished by the terms hereof, all
at Lessee's expense; to assign and deliver to Lessor such
documents, instruments, assignments and other writings, and
to do such other acts necessary or desirable to preserve and
protect the Leased Premises, as Lessor may require; and to
do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the carrying out of the
intents and purposes of this Agreement, the Lease, or the
Commitment, as Lessor shall reasonably require from time to
time.
14.ARCHITECTS AND CONSTRUCTION CONTRACTS - To commit no default
nor knowingly permit a default under the terms of the
Architects or Construction Contracts; To waive none nor
knowingly permit a waiver of the obligations of the parties
thereunder; To do no act which would relieve such parties
from their obligations thereunder; To make no amendments to
such contracts, without the prior written consent of Lessor;
To enter into no change orders or extras that cause a
reallocation among budgeted line items, or that in the
aggregate or singularly result in a net increase in excess
of 10% of the original contract amount without Lessor's
prior written consent, which consent shall not be
unreasonably withheld or delayed; provided, however, Lessor
shall be given written notice and copies of all change
orders; provided, further, however, with written notice to
Lessor prior to any request for funds subsequent to any such
change order or reallocation, the Lessee shall be allowed to
enter into any change order or extra which is accounted for
by use of any reallocation among line items or any remaining
budgeted Contingency line item, or if the same has been
exhausted, Lessee shall be allowed increases in the original
contract amount without Lessor's consent if Lessee has, upon
the execution of said change order, deposited with Lessor
the amount by which such change order increases the total
Construction Cost; To allow all such contracts to be subject
to the approval of Lessor for its loan purposes; To allow
Lessor to take advantage of all the rights and benefits of
the contracts upon any default by Lessee; and to submit
evidence to Lessor that both the Architect and the
Contractors will permit Lessor to acquire Lessee's interest
under their respective contracts and the Contract Documents
without additional charge or fee should an event of default
occur hereunder, which default is not cured within
applicable notice and cure periods.
15.ENFORCE PERFORMANCE OF SUB-CONTRACTS - To enforce, or cause
to be enforced, the prompt performance of the Sub-Contracts
in accordance with their terms and not to approve any
changes in the same that in the aggregate or singularly
result in a net increase in excess of 10% of the original
General Contractor's contract amount without Lessor's prior
written consent, which consent shall not be unreasonably
withheld or delayed, provided Lessee's right to enter into
any such change order shall be on the same terms set forth
in Section 14 above.
16.COMPLIANCE WITH RULES - To comply with, and to require the
Contractors to comply with, all rules, regulations,
ordinances and laws bearing on the conduct of the work on
the Improvements, including the requirements of any insurer
issuing coverage on the Project and the requirements of any
applicable supervising boards of fire underwriters.
17.OPINIONS OF COUNSEL - To furnish such opinions of counsel as
may be reasonably requested of the Lessee in connection with
the matters contemplated by this Agreement.
18.SOIL TESTS - To provide the Lessor with a soil report
prepared by an acceptable engineer certifying as to the
status of the soil conditions on the Leased Premises, the
need or lack of need for special pilings and foundations and
that either any pilings and foundation necessary to support
the Improvements have been placed in a manner and quantity
sufficient to provide the required support or that no such
pilings and foundations are necessary for the support and
construction of the Improvements.
19.MARKETABLE TITLE - To execute and deliver or cause to be
executed and delivered such instruments as may be required
by the Lessor and Title to provide Lessor with a marketable,
valid title to the Leased Premises subject only to such
exceptions to title as may be reasonably approved by Lessor.
20.VIOLATIONS OF GOVERNMENTAL LAW, ORDINANCES OR REGULATIONS -
Lessee will permit no violations nor commit the same, of any
federal or state law or municipal ordinance or order or
requirement of the State in which the Leased Premises are
located or any municipal department or other governmental
authority having jurisdiction affecting the Leased Premises,
which violations in any way have a material adverse affect
on the Leased Premises and which remain uncured after notice
by such governmental authority or department (if notice is
required) and the expiration of the time within which Lessee
may cure such violation, or if no time limitation is
specified, within a reasonable time after notice to cure
such violation .
21.COMPLIANCE WITH ZONING ORDINANCES AND SIMILAR LAWS - The
Plans and Specifications and construction pursuant thereto
and the use of the Leased Premises contemplated thereby will
comply with all governmental laws and regulations and
requirements, zoning ordinances, standards, and regulations
of all governmental bodies exercising jurisdiction over the
Leased Premises, including environmental protection and
equal employment regulations, and appropriate supervising
boards of fire underwriters and similar agencies.
22.APPROVAL OF PLANS AND SPECIFICATIONS - The Plans and
Specifications will conform to the requirements and
conditions set out by applicable law or any effective
restrictive covenant, and to all governmental authorities
which exercise jurisdiction over the Leased Premises or the
construction thereon.
ARTICLE VII
CONDITIONS PRECEDENT TO A DISBURSEMENT
It shall be a condition precedent to each Disbursement under
this Development Financing Agreement that:
1. DEVELOPMENT FINANCING DOCUMENTS - The Development Financing
Documents shall have been duly executed and delivered to
Lessor and shall be in full force and effect.
2. LESSEE EQUITY - Lessee shall have paid all of the Lessee
Equity funds into the Project before the first Disbursement
(or any subsequent Disbursement if additional Lessee Equity
should be required) and Lessee shall deliver evidence of
such payment reasonably satisfactory to Lessor.
3. DEVELOPMENT FINANCING BALANCE - As of the date immediately
prior to any Disbursement, the total amount of unadvanced
proceeds of the Development Financing shall be sufficient,
in the commercially reasonable opinion of Lessor (the
opinion of Lessor being based upon affidavit of the General
Contractor, the Project Architect, the Inspecting Architect,
or other reliable licensed third party contractor) to
complete the Improvements free of liens. To the extent the
total of the unadvanced proceeds of the Development
Financing shall be insufficient, at any time, in Lessor's
reasonable opinion, (based upon the affidavit as set forth
above) to complete the Improvements, or be less than the
total Construction Costs not yet paid for or not yet
incurred (including interest accruing for the remainder of
the term or extensions thereof, if any), the Lessee shall
immediately deposit with the Lessor or with Title, as
additional Lessee Equity funds, an amount equal to such
deficiency and such additional Lessee Equity funds shall be
disbursed by CLTIC-CDD prior to the Disbursement of any
further advance or advances under this Agreement.
4. NO DEFAULT - No event of default, which remains uncured
after the expiration of applicable cure periods, shall exist
under this Agreement or the Development Financing Documents.
5. REPRESENTATIONS AND WARRANTIES - The representations and
warranties in Article V hereof shall be true and correct on
and as of the date of each Disbursement.
6. COVENANTS - Lessee shall have complied with all of the
covenants made by it in Article VI hereof.
7. SWORN CONSTRUCTION STATEMENT - Prior to the initial
disbursement hereunder, the Lessee shall have submitted to
Lessor and Title a Construction Cost Statement or the
Construction Contract (if such information is contained
therein) sworn to by Lessee and Contractors reflecting all
major Sub-Contractors or materialmen who shall then be
engaged in furnishing labor, materials or supplies for the
Improvements. The list should show the name of each and
every Contractor, Sub-Contractor and materialman (or at
least such entities or individuals whose contract is in
excess of $5,000), its address and an estimate of the dollar
value of the work, labor and materials to be done or
supplied and a general statement of the nature of the work
to be done or materials to be supplied by each Contractor.
Thereafter, if such list should change or new subcontractors
shall execute contracts not reflected on the above list, the
Lessee shall furnish to the Lessor any amendments or
additions to the original statement as so submitted.
8. APPLICATION FOR PAYMENT - Lessor shall have received an
Application for Payment pursuant to Article VIII hereof.
9. TITLE - Title shall issue its endorsement to the title
policy insuring the Lessor as fee owner under the policy in
the aggregate amounts of all prior Disbursements and the
requested Disbursement.
10.WORK IN PLACE - All work or materials for which a
Disbursement is requested shall be in place and incorporated
into the Improvements.
ARTICLE VIII
METHODS OF DISBURSEMENTS OF DEVELOPMENT FINANCING PROCEEDS
The Development Financing shall be disbursed (a "Disbursement")
as follows:
1. PROCEDURE - Not more often than monthly, Lessee may submit
an Application for Payment in the form attached hereto as
Exhibit "C" requesting the Disbursement of proceeds under
the Development Financing, which request shall be submitted
to Lessor and to CLTIC-CDD at least five (5) business days
prior to the date on which a Disbursement is requested.
Provided the conditions of this Development Financing
Agreement are met on the date requested for such advance,
Lessor shall advance to CLTIC-CDD amounts certified to be
currently payable by Lessee (excluding the retainage
hereinafter specified) for the then incurred portion of
Total Construction Costs pursuant to the Application for
Payment. All costs shall have been approved in writing by
the Project Architect, Lessee, Contractor, and if required
by Lessor, by the Inspecting Architect. All interest
accruing need not be disbursed to CLTIC-CDD, but may be
immediately and automatically credited by Lessor to the
Development Financing account. CLTIC-CDD shall disburse all
funds advanced to it by Lessor in accordance with the terms
and provisions of this Agreement and any special escrow
requirements imposed by CLTIC-CDD as a condition to its
acting as the disbursing agent hereunder. The disbursed
proceeds of the Development Financing shall bear interest
from and including the date of disbursement to CLTIC-CDD or
the date of credit by Lessor provided that in the event
CLTIC-CDD shall fail to disburse any advances within five
(5) business days after the date set for an advance, CLTIC-
CDD shall return said advance to Lessor and interest on such
advance shall abate from and after the date of such return.
Any amounts disbursed to CLTIC-CDD and returned by CLTIC-CDD
to the Lessor shall not be deemed to be advanced under the
Development Financing Documents. Each Application for
Payment shall clearly set forth the amounts due to Lessee
and to each Contractor out of the requested Development
Financing and shall be accompanied by the following:
a. A Draw Request Certificate in the
form attached hereto as Exhibit "D" certifying that each
contractor or materialman for which payment is requested in
the relevant Application for Payment has satisfactorily
completed the work or furnished the materials for which
payment is requested in accordance with the applicable
contract; that all work for which an Application for Payment
is made substantially conforms to the Contract Documents and
any approved changes, and is in place; and that sufficient
funds remain of the undisbursed Development Financing
proceeds to complete the Project and that all funds
previously disbursed have been applied as per the previous
Application for Payment.
b. Waivers of Mechanics' Liens and
Materialmen's Liens executed by all Contractors for all work
done and all materials furnished to the Leased Premises and
included in such current Application for Payment, or
evidence reasonably required by Title to insure over the
same by special specific endorsement, or such other releases
of lien pursuant to bonding or otherwise to prevent such
liens from attaching to the Leased Premises.
c. Waivers of Mechanics' Liens and
Materialmen's Liens executed by all Sub-Contractors and
workmen and materialmen for all work done and all materials
furnished to the Leased Premises and included in the
immediately preceding Application for Payment, or evidence
reasonably required by Title to insure over the same by
special specific endorsement, or such other releases or lien
pursuant to bonding or otherwise to prevent such liens from
attaching to the Leased Premises.
d. Such other supporting evidence,
including invoices and receipts as may be requested by
Lessor or CLTIC-CDD to substantiate all payments which are
to be made out of the Disbursement or to substantiate all
payments then made in respect to the Project.
2. INTEREST ADVANCE - If interest has accrued on the
Development Financing and is unpaid or fees are payable to
the Lessor hereunder, Lessor shall be, and hereby is,
authorized at any time to advance to itself from the
proceeds of the Development Financing the total amount of
such accrued interest and fees, whether or not an
Application for Payment has been submitted by the Lessee and
the same shall be deemed to be an advance of the proceeds of
the Development Financing under this Agreement in the same
manner and with the same effect as if advanced under the
provisions above. It is understood Lessor may establish an
automatic interest reserve whereby Lessor may withdraw from
the Development Financing account on a regular basis the
accrued interest on the Development Financing and credit the
Development Financing balance with the same.
3. ASSESSMENT AND TAX ADVANCE - As taxes and assessments become
due on the Leased Premises, Lessor shall be, and hereby is,
authorized to advance to itself automatically from the
proceeds of the Development Financing, the total amount of
such taxes and assessments and the same shall be deemed to
be an advance of the proceeds of the Development Financing
under this Agreement in the same manner and with the same
effect as if advances under the provisions above, if not
previously paid before due pursuant to Lessee's obligations
under the Lease.
4. DISBURSE UNDER DEVELOPMENT FINANCING DOCUMENT - All sums
advanced and disbursed hereunder shall be disbursed under
and shall be secured by the Development Financing Documents.
5. PAYMENTS TO SUBCONTRACTORS - In its reasonable discretion
CLTIC-CDD may make payments directly to any subcontractor or
materialman.
6. RETAINAGE - Each Disbursement shall be limited to an amount
equal to ninety percent (90%) of the value, exclusive of
Contractor's profit and overhead, of the materials and labor
furnished to the Leased Premises and the balance (herein
called the Retainage) shall be retained by Lessor, provided
that thirty (30) days after completion by each subcontractor
or materialman of his subcontract Lessor will disburse to
such party, or to the Contractor on behalf of such party the
Retainage withheld from said party, provided that as a
condition to such disbursement the Lessee and Project
Architect and the Inspecting Architect shall certify to
Lessor the date that such Party's subcontract has been fully
and satisfactorily completed and the subcontractor or
materialmen shall have supplied Title with satisfactory
final lien waivers, including final lien waivers for any of
its submaterialmen or sub- contractors and the requirements
of any bonding company issuing the Bonds shall have been
fulfilled. Any Retainage due the Contractor for work
performed or materials furnished by the Contractor and the
final balance of Contractor's profit and overhead shall be
disbursed on the Final Disbursement Date pursuant to Article
IX hereof. Contractor's profit and overhead shall be
disbursed based upon and in proportion to the percentage of
completion of the Project, or amounts payable under the
Construction Contract for work actually performed, whichever
is less, as certified by the Project Architect.
ARTICLE IX
FINAL DEVELOPMENT FINANCING BALANCE
Unless and until Lessor and Lessee have entered into a mutually
satisfactory escrow holdback and undertaking agreement to,
inter alia, complete the Improvements and otherwise satisfy
the requirements of this Article IX, at no time and in no
event shall Lessor be obligated to disburse the balance of
the proceeds of the Development Financing, including any
Retainage until the date the following have been satisfied
(the "Final Disbursement Date"):
1. Lessor shall have received reasonably satisfactory evidence
of the final completion of the Improvements in substantial
accordance with the Contract Documents and the Certificate
of Final Completion from the Project Architect accepted by
the Contractor and Lessee.
2. Lessor shall have received satisfactory as-built surveys
reflecting the final location of the Improvements as fully
completed on the Leased Premises in accordance with the
Contract Documents, said survey to be prepared by a
registered or licensed surveyor bearing his registry number,
certifying to Lessor as to the legal description of the
Leased Premises and showing all Improvements located on the
Leased Premises and indicating the street address of the
Improvements, absence of any encroachments on the Leased
Premises or from the Leased Premises onto adjacent land,
showing all access points, and showing conformance to all
set back requirements and delineating all utility easements
that are specifically legally described, rights of way and
other matters affecting the Leased Premises, and certifying
as to the total acreage of the land, the exterior dimensions
of the Improvements, and the number of parking spaces, if
any, and such other matters as Lessor may reasonably
request.
3. Lessor shall have received a requisite affidavit of the
Lessee, Contractor and Project Architect, and approved by
the Inspecting Architect certifying as to the final cost of
the Improvements.
4. Title shall have been furnished with such final lien waivers
sufficient in the opinion of Title to dissolve any possible
Mechanic's and Materialman's Liens affecting title to the
Leased Premises or Lessee shall have provided a bond or
other security sufficient to remove the lien as an
encumbrance upon title to the Leased Premises and Title
shall have issued its endorsements to the title policy
increasing the insured coverage to the full amount of all
sums disbursed under this Development Financing Agreement.
5. Lessor shall have received evidence that all of the terms,
provisions and conditions on the part of the Lessee to be
performed or caused to be performed hereunder and under the
Lease, including but not limited to obtaining casualty
insurance for the full insurable value of the Improvements,
have been fulfilled to the satisfaction of Lessor.
6. Lessor shall have received a Final Certificate of Occupancy
issued by the appropriate governmental authority covering
the Improvements and a Certificate of Substantial Completion
from the Project Architect indicating that the Improvements
as built comply with all building codes and zoning
ordinances, including any plat requirements or requirements
of recorded operating covenants or agreements affecting the
Leased Premises.
7. All remaining uncompleted "punch list" items shall have been
satisfactorily completed.
8. The requirements of all bonding companies, if any, with
respect to release of retainage shall have been met.
9. An amendment to the Lease shall be executed by Lessee and
Lessor setting forth the date the first Lease Year shall end
and the Rent for the balance of the first Lease Year, and
evidencing the satisfaction and termination of this
Agreement.
ARTICLE X
EVENTS OF DEFAULT
An "event of default" shall be deemed to have occurred
hereunder and under the Lease, if:
1. DEFAULT UNDER DEVELOPMENT FINANCING DOCUMENTS - Any default
or event of default occurs (which remains uncured after the
expiration of any applicable cure period as may be set forth
in any Development Financing Document) under any of the
Development Financing Documents as defined therein; or
2. FAILURE TO COMPLETE CONSTRUCTION - Lessee shall fail for any
reason, except Lessor's wrongful refusal to fund the
Development Financing pursuant to the terms hereof, to
substantially complete the construction of the Improvements
by the Completion Date; or
3. BREACH OF AGREEMENT - Lessee breaches or fails to perform,
observe or meet any covenant or condition of this Agreement,
provided, however, with respect to non-monetary defaults
hereunder, Lessee shall have twenty days after notice from
Lessor to cure such non-monetary default, or if such default
(but for the payment of monies) cannot be cured within
twenty days, such longer time as may be reasonably necessary
to effect a cure if Lessee is diligently pursuing a course
of conduct reasonably designed to cure the default.; or
4. BREACH OF WARRANTY - Any warranties made or agreed to be
made in any of the Development Financing Documents or this
Agreement shall be breached by Lessee or shall prove to be
false or misleading, and the same shall not be cured or made
to be true and correct within the applicable cure periods;
or
5. FILING OF LIENS AGAINST THE LEASED PREMISES - Any lien for
labor, material, taxes or otherwise shall be filed against
the Leased Premises and such lien shall not be promptly
paid, released, contested in an appropriate forum, or bonded
over to Lessor's reasonable satisfaction before the lien
shall materially adversely affect Lessor's interest in the
Premises; or
6. LITIGATION AGAINST LESSEE - Any suit shall be filed against
Lessee, and is not resolved within 120 days and, which if
adversely determined, could substantially impair the ability
of Lessee to perform each and every one of its obligations
under and by virtue of the Development Financing Documents;
or
7. LEVY UPON THE LEASED PREMISES - A levy be made under any
process on the Leased Premises and such levy shall not be
promptly Bonded over prior to the execution of such levy; or
8. TRANSFER OF LEASED PREMISES - Lessee shall without the prior
written consent of Lessor, voluntarily or by operation of
law, sell, transfer, convey or encumber all or any part of
its interest in the Leased Premises or in any of the
personalty located thereon, or used or intended to be used
in connection therewith; or
9. ABANDONMENT - Lessee abandons the project or delays or
ceases work thereon for a period of fifteen consecutive (l5)
days, or delays construction or suffers construction to be
delayed for any period of time for any reason whatsoever so
that completion of Improvements cannot be accomplished in
the judgment of Lessor on or before the Completion Date,
subject to force majeure; or
10.BANKRUPTCY - Lessee shall make an assignment for the benefit
of its creditors or shall admit in writing its inability to
pay its debts as they become due or shall file a petition in
bankruptcy or shall be adjudicated a bankrupt or insolvent
or shall file a petition seeking any reorganization,
dissolution, liquidation, arrangement, composition,
readjustment, or similar relief under any present or future
bankruptcy or insolvency statute, law or regulation, or
shall file an answer admitting to or not contesting the
material allegations of a petition filed against it in any
such proceedings, or shall not have the same dismissed or
vacated, or shall seek or consent or acquiesce in the
appointment of any trustee, receiver or liquidator of a
material part of its properties, or shall not after the
appointment without the consent or acquiescence of it of a
trustee, receiver, or liquidator of any material part of its
properties have such receiver, liquidator or appointment
vacated; or
11.EXECUTION LEVY - Execution shall have been levied against
the Leased Premises or any lien creditors commence suit to
enforce a judgment lien against the Leased Premises or such
action or suit shall have been brought and shall not be
immediately bonded over and shall continue unstayed and in
effect for a period of more than 120 consecutive days; or
12.ATTACHMENT - Any part of the Lessor's commitment to make the
advances hereunder shall at any time be subject or liable to
attachment or levy at the suit of any creditor of the Lessee
or at the suit of any subcontractor or creditor of the
Contractor and shall remain unstayed prior to the time
Lessor shall be obligated to comply with the same.
ARTICLE XI
REMEDIES OF LESSOR
Lessee hereby agrees that the occurrence of any one or more of
the events of default set out in Article X hereof, shall
also constitute an event of default under each of the
Development Financing documents, thereby entitling Lessor,
after the expiration of any applicable cure period, at its
option, to proceed to exercise any or all of the following
remedies:
1. EXERCISE OF REMEDIES - To exercise any of the various
remedies provided in any of the Development Financing
Documents, including the acceleration of the Put described
in Articles XIV hereof;
2. CUMULATIVE RIGHTS - Cumulatively to exercise all other
rights, options and privileges provided by law;
3. CEASE MAKING ADVANCES - To refrain from making any advances
under this Agreement but Lessor may make advances after the
happening of any such event without thereby waiving the
right to refrain from making other further advances or to
exercise any of the other rights Lessor may have.
4. RIGHTS TO ENTER - To require Lessee to vacate the Leased
Premises and permit Lessor (whether prior to the exercise of
the Put or during any period prior to the closing of the
sale pursuant to the Put;
(a) To enter into possession;
(b) To perform or cause to be
performed any and all work and labor necessary to complete
the Improvements in accordance with the Plans and
Specifications;
(c) To employ security watchmen to protect the Leased
Premises; and
(d) To disburse that portion of the
Development Financing Proceeds not previously disbursed
(including any Retainage) to the extent necessary to
complete the construction of the Improvements in accordance
with the Contract Documents and if the completion requires a
larger sum than the remaining undisbursed portion of the
Development Financing, to disburse such additional funds,
all of which funds so disbursed by Lessor shall be deemed to
have been disbursed to Lessee. For this purpose, Lessee
hereby consents upon an uncured default by Lessee after the
expiration of any applicable notice and cure period, to the
Lessor taking the following actions, or not, in Lessor's
reasonable discretion: to complete the construction of the
Improvements in the name of the Lessee, and hereby empowers
Lessor to take all actions necessary in connection therewith
including but not limited to using any funds of Lessee
including any balance which may be held in escrow and any
funds which may remain unadvanced hereunder for the purpose
of completing the said portion of the Improvements in the
manner called for by the Contract Documents; to make such
additions and changes and corrections in the Contract
Documents which shall be necessary or desirable to complete
the said portion of the Improvements in substantially the
manner contemplated by the Contract Documents; to employ
such contractors, subcontractors, agents, architects, and
inspectors as shall be required for said purposes; to pay,
settle or compromise all existing or future bills and claims
which are or may be liens against said Leased Premises, or
may be necessary or desirable for the completion of the said
portion of the Improvements or the clearance of title to the
Leased Premises; to execute all applications and
certificates in the name of Lessee which may be required by
any construction contract and to do any and every act with
respect to the construction of the said portion of the
Improvements which Lessee may do in its own behalf. Lessor
shall also have power to prosecute and defend all actions
and proceedings in connection with the construction of the
said portion of the Improvements and to take such action and
require such performance as it deems necessary. In
accordance therewith, Lessee hereby assigns and quitclaims
unto Lessor all sums to be advanced hereunder including
Retainage. Any funds so disbursed or fees or charges so
incurred shall be included in any amount necessary for the
Lessee to pay pursuant to the Put.
(e) To discontinue making advances
hereunder to the Lessee and to terminate Lessor's
obligations under this Agreement.
5. RIGHTS NON CUMULATIVE - No right or remedy by this Agreement
or by any Development Financing Document or instrument
delivered by the Lessee pursuant hereto, conferred upon or
reserved to the Lessor shall be or is intended to be
exclusive of any other right or remedy and each and every
right and remedy shall be cumulative and in addition to any
other right or remedy or now or hereafter arising at a law
or in equity or by statute. Except as Lessor may hereafter
otherwise agree in writing, no waiver by Lessor or any
breach by or default of Lessee of any of its obligations,
agreements, or covenants under this Agreement shall be
deemed to be a waiver of any subsequent breach of the same
or any other obligation, agreement or covenant, nor shall
any forbearance by Lessor to seek a remedy for such breach
be deemed a waiver of its rights and remedies with respect
to such a breach, nor shall Lessor be deemed to have waived
any of its rights and remedies unless it be in writing and
executed with the same formality as this Agreement.
6. EXPENSES - The Development Financing and this Agreement and
the performance by the Lessor or Lessee of their obligations
hereunder shall be without cost and expense to the Lessor,
all of which costs and expenses the Lessee agrees to pay and
hold Lessor harmless of and payment of which shall be
secured by the Development Financing Documents.
Specifically, Lessee agrees to pay all title charges,
surveyor's fees, appraisals, loan fees and attorney's fees
and costs and the like incurred in connection with this
Agreement.
ARTICLE XII
GENERAL CONDITIONS AND MISCELLANEOUS
The following conditions shall be applicable throughout the
term of this Agreement:
1. RIGHTS OF THIRD PARTIES - All conditions of the obligations
of Lessor hereunder, including the obligation to make
disbursements are imposed solely and exclusively for the
benefit of Lessee, and no other person shall have standing
to require satisfaction of such conditions in accordance
with their terms or be entitled to assume that Lessor will
refuse to make advances in the absence of strict compliance
with any or all thereof, and no other person shall, under
any circumstances, be deemed to be a beneficiary of such
conditions, any and all of which may be freely waived in
whole or in part by Lessor at any time if in its sole
discretion it deems it desirable to do so. In particular,
Lessor makes no representations and assumes no duties or
obligations as to third parties concerning the quality of
the construction of the Improvements or the absence
therefrom of defects. In this connection, Lessee agrees to
and shall indemnify Lessor from any liability, claims or
losses resulting from the disbursement of the Development
Financing proceeds or from the condition of the Leased
Premises whether related to the quality of construction or
otherwise and whether arising during or after the term of
the Development Financing made by Lessor to Lessee in
connection therewith, except for Lessor's gross negligence
or willful misconduct. This provision shall survive the
termination of this Agreement and shall continue in full
force and effect so long as the possibility of any such
liability, claims or losses exists.
2. EVIDENCE OF SATISFACTION OF CONDITIONS - Any condition of
this Agreement which requires the submission of evidence of
the existence or non- existence of a specified fact or facts
implies as a condition the existence or non- existence, as
the case may be, of such fact or facts, and Lessor shall, at
all times, be free independently to establish to its
reasonable satisfaction such existence or non-existence.
3. ASSIGNMENT - Lessee may not assign this Development
Financing Agreement or any of its rights or obligations
hereunder without the prior written consent of Lessor.
4. SUCCESSORS AND ASSIGNS - Whenever in this Agreement one of
the parties hereto is named or referred to, the heirs, legal
representatives, successors and assigns of such parties
shall be included and all covenants and agreements contained
in this Agreement by or on behalf of the Lessee or by or on
behalf of the Lessor shall bind and inure to the benefit of
their respective heirs, legal representatives, successors
and assigns, whether so expressed or not.
5. HEADINGS - The headings of the sections, paragraphs and
subdivisions of this Agreement are for the convenience of
reference only, and are not to be considered a part hereof
and shall not limit or otherwise affect any of the terms
hereof.
6. INVALID PROVISIONS TO AFFECT NO OTHERS - If fulfillment of
any provision hereof, or any transaction related thereto at
the time performance of any such provision shall be due,
shall involve transcending the limit of validity prescribed
by law, then, ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity; and such
clause or provision shall be deemed invalid as though not
herein contained, and the remainder of this Agreement shall
remain operative in full force and effect.
7. NUMBER AND GENDER - Whenever the singular or plural number,
masculine or feminine or neuter gender is used herein, it
shall equally include the other.
8. AMENDMENTS - Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge or
termination is sought.
9. NOTICES - Any notice which any party hereto may desire or
may be required to give to any of the parties shall be in
writing and the mailing thereof by certified mail, or
equivalent, to the respective parties' addresses set forth
hereinabove or to such other place such party may by notice
in writing designate as its address shall constitute service
of notice hereunder.
10.GOVERNING LAW - This Development Financing Agreement is made
and executed pursuant to and is intended to be governed by
the laws of the State where the Leased Premises are located.
11. FORCE MAJEURE - Anything in this Agreement to the contrary
notwithstanding, Lessee shall not be deemed in default with
respect to the performance of any of the terms, provisions,
covenants, and conditions of this Agreement (except for the
payment of all other monetary sums payable hereunder, to
which the provisions of this Section shall not apply), if
the same shall be due to any strike, lockout, civil
commotion, warlike operations, invasion, rebellion,
hostilities, sabotage, governmental regulations or controls,
impracticability of obtaining any materials or labor (except
due to the payment of monies), shortage or unavailability of
a source of energy or utility service, Act of God, casualty,
adverse weather conditions, or any cause beyond the
reasonable control of Lessee (except due to the payment of
monies). Provided, however, in order to invoke the
extension of the Completion Date afforded by this section,
Lessee shall notify Lessor in writing within five days of
the occurrence of such force majeure, and in any event the
Completion Date shall be extended as a result of such
occurrence no more than reasonably necessary and in no event
no more than 90 days.
ARTICLE XIII
DAMAGE, DESTRUCTION, CONDEMNATION, USE OF INSURANCE PROCEEDS
1. DAMAGE OR DESTRUCTION OF THE LEASED PREMISES. Lessee
will give the Lessor prompt notice of any damage to or
destruction of the Leased Premises and in case of loss
covered by policies of insurance the Lessor (whether before
or after the exercise of the Put if Lessee be in default
hereof) is hereby authorized at its option to settle and
adjust any claim arising out of such policies and collect
and receipt for the proceeds payable therefrom, provided,
that the Lessee may itself adjust and collect for any losses
arising out of a single occurrence aggregating not in excess
of $50,000.00. Any expense incurred by the Lessor in the
adjustment and collection of insurance proceeds (including
the cost of any independent appraisal of the loss or damage
on behalf of Lessor) shall be reimbursed to the Lessor first
out of any proceeds. The proceeds or any part thereof shall
be applied to reduction of the Put Price, which Put may then
be exercised by Lessor, without the application of any
prepayment premium, or to the restoration or repair of the
Leased Premises, the choice of application to be solely at
the discretion of Lessor.
2. CONDEMNATION. Lessee will give the Lessor prompt notice
of any action, actual or threatened, in condemnation or
eminent domain affecting the Leased Premises and hereby
assigns, transfers, and sets over to the Lessor the entire
proceeds of any award or claim for damages for all or any
part of the Leased Premises taken or damaged under the power
of eminent domain or condemnation, the Lessor being hereby
authorized to intervene in any such action and to collect
and receive from the condemning authorities and give proper
receipts and acquittances for such proceeds. Lessee will
not enter into any agreements with the condemning authority
permitting or consenting to the taking of the Leased
Premises unless prior written consent of Lessor is obtained.
Any expenses incurred by the Lessor in intervening in such
action or collecting such proceeds shall be reimbursed to
the Lessor first out of the proceeds. The proceeds or any
part thereof shall be applied to reduction of the Put Price,
which Put may then be exercised by Lessor, without the
application of any prepayment premium, or to the restoration
or repair of the Leased Premises, the choice of application
to be solely at the discretion of Lessor.
3. DISBURSEMENT OF INSURANCE AND CONDEMNATION PROCEEDS.
Any restoration or repair shall be done under the
supervision of an architect acceptable to Lessor and
pursuant to plans and specifications approved by the Lessor.
Subject to paragraph 4 below, in any case where Lessor may
elect to apply the proceeds to repair or restoration or
permit the Lessee to so apply the proceeds they shall be
held by Lessor for such purposes and will from time to time
be disbursed by Lessor to defray the costs of such
restoration or repair under such safeguards and controls as
Lessor may reasonably require to assure completion in
accordance with the approved plans and specifications and
free of liens or claims. Lessee shall on demand deposit
with Lessor any sums necessary to make up any deficits
between the actual cost of the work and the proceeds and
provide such lien waivers and completion bonds as Lessor may
reasonably require. Any surplus which may remain after
payment of all costs of restoration or repair shall be
applied against the rent then most remotely to be paid,
whether due or not, without application of any prepayment
premium or credit.
4. LESSOR TO MAKE PROCEEDS AVAILABLE. In the event of
insured damage to the improvements or in the event of a
taking by condemnation of only a portion of the improvements
or land area of the Leased Premises, and provided, the
portion remaining can with restoration or repair continue to
be operated for the purposes utilized immediately prior to
such damage or taking, and if the appraised value of the
Leased Premises after such restoration or repair shall not
have been reduced, and provided further, no event of default
exists under this Agreement after the expiration of any
applicable cure periods and Lessee is diligently pursuing a
course of conduct reasonably designed to cure such default,
and the Lessee certified to Lessor their intention to remain
in possession of the Leased Premises without any abatement
or adjustment of rental payments, the Lessor agrees to make
the proceeds available to the restoration or repair of the
improvements on the Leased Premises in accordance with the
provisions of paragraph 3 hereof.
ARTICLE XIV
MANDATORY PUT UPON DEFAULT
Should Lessee commit an event of Default under this
Agreement or any Development Financing Document (after the
expiration of any applicable notice and cure period)
("Uncured Default"), Lessor shall have the following rights:
Upon an Uncured Default, or damage or destruction or
condemnation of the Leased Premises not addressed by
paragraph XIII (4), if Lessor elects to exercise the
following option, Lessee shall purchase the Leased Premises
from Lessor subject to the following terms and conditions:
A. The purchase price at which
Lessor shall sell the Leased Premises to Lessee, shall
be the total amount of Initial Disbursed Funds
disbursed by Lessor to acquire the Leased Premises at
the Closing Date (as defined in the Commitment), plus
the total amount of funds disbursed pursuant to this
Agreement, plus all accrued interest and incurred
expenses of Lessor fundable pursuant to this Agreement,
plus all reasonable costs of collection and enforcement
of the terms hereof.
B. At such time as Lessor shall
elect to sell the Leased Premises, Lessor shall give
Lessee written notice of its intent to exercise its
option to sell the Leased Premises to Lessee, including
in such notice Lessor's calculation of the Purchase
Price through the actual closing of the sale of the
Leased Premises to Lessee pursuant to the terms hereof
(the "Sale Date"), which shall be sixty days from such
notice by Lessor. Lessee shall on or before the Sale
Date deliver the purchase price as set forth in
subparagraph (A) of this Article to Lessor. Upon such
delivery, which shall be preceded by ten (10) days
notice to Lessor, Lessor shall deliver to Lessee a
warranty deed and appropriate affidavits evidencing
that Lessor transfers the Leased Premises to Lessee
subject to restrictions, easements or other
encumbrances upon title existing as of the date of
delivery, if any, except to the extent, if any, placed
of record or caused by Lessor. The purchase price to
be paid to Lessor shall be a net amount. All expenses
in connection with the transfer of the Leased Premises,
including, but not limited to appraisal fees, title
insurance, recording fees, documentary stamps,
conveyance tax, title evidence, and all other closing
costs, shall be paid by the Lessee. The purchase price
shall be paid by Lessee in cash to Lessor concurrently
with the conveyance of the Leased Premises by the
Lessor to the Lessee. If Lessor elects to sell the
Leased Premises to Lessee pursuant to the terms hereof,
the Leased Premises shall be conveyed by the Lessor to
the Lessee "As Is".
If Lessee shall fail to pay the Purchase Price on or before
the Sale Date, Lessor may terminate the Lease, and sell the
Leased Premises to any third party purchaser. Lessor may
then send Lessee notice of the shortfall (the "Deficiency"),
if any, between the amount of the net proceeds received by
Lessor in such sale, and the total amount of Initial
Disbursed Funds disbursed by Lessor to acquire the Parcel at
the Closing Date (as defined in the Commitment), plus the
total amount of funds disbursed pursuant to this Agreement,
plus all accrued interest and incurred expenses of Lessor
fundable pursuant to this Agreement, plus all reasonable
costs of collection and enforcement of the terms hereof.
Lessee shall immediately upon receipt of such notice of
Deficiency remit the amount of the Deficiency in good funds
to Lessor.
Lessor's rights under this Mandatory Put shall expire on the
Final Disbursement Date when the amendment to the Lease has
been executed by all parties as set forth in Article IX
hereof.
ARTICLE XV
RENT, INTEREST, AND RENTAL MODIFICATION DATE
1. Rent shall be payable by Lessee and calculated as follows,
on the funds advanced by Lessor on the Closing Date for the
purchase of the land and related closing costs (the "Initial
Disbursed Funds"): Rent shall accrue in the amount of
$3,329.17 per month absent an uncured Default by Lessee;
absent an uncured Default, accrued rent during the period of
construction of the Improvements prior to the Rental
Modification Date shall not be payable until the Final
Disbursement Date. Upon the occurrence of an uncured
Default, all accrued rent shall be immediately due and
payable.
On the Rental Modification Date, if not otherwise in default
hereunder, Lessee shall begin paying Rent by the first of
each month (prorata for the balance of any partial month in
which the Rental Modification Date occurs, payable with the
first such adjusted Rent payable on the first day of the
first full month following the Rental Modification Date) in
the amount of $ 4,014.58 per month out of pocket. On the
Final Disbursement Date, absent an Uncured Default, Rent
shall be adjusted and documented by the lease amendment
contemplated in Article IX hereof and paid to Lessor as
described in Article F. of the Commitment.
2. Disbursed proceeds of the Development Financing shall
accrue interest at a rate of Eight and one-half percent
(8.5%) per annum, which interest shall accrue unpaid unless
advanced by Lessor to itself, or Lessee shall default
hereunder, which default shall remain uncured after the
expiration of any applicable notice and cure period.
However, one hundred and twenty days (120) from the date
hereof, (the "Rental Modification Date"), Lessee shall begin
making monthly payments of subsequently accruing interest at
the rate of 10.25% per annum out of pocket ("Out of Pocket
Invoiced Interest") within 5 days after invoice from Lessor.
3. Upon the occurrence of an event of default which
remains uncured after the expiration of applicable notice
and cure periods, disbursed proceeds of the Development
Financing shall accrue interest at a rate of Fifteen Percent
(15.0%) per annum, or the highest rate allowed by law,
whichever is less, and the rental rate on the Initial
Disbursed funds shall increase to Fifteen Percent (15.0%)
per annum, or the highest rental rate allowed by law,
whichever is less.
ARTICLE XVI
COUNTERPART EXECUTION
Counterpart Execution. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an
original and all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Lessee and Lessor have hereunto caused
these presents to be executed on the date first above
written.
Tumbleweed, LLC, a Kentucky
Limited Liability Company
By: /s/ James Mulrooney
Its: Exec VP & CFO
By:
Its:
[Lessor's Signature appears on following page.]
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
By: AEI Fund Management XXI, Inc.
By: /s/ Robert P Johnson
Robert P. Johnson, President
EXHIBIT A -LEGAL DESCRIPTION
A tract of land located in the Southeast Quarter of Section 15,
Township 31 North, Range 12 East, in Allen County, the State
of Indiana, more fully described as follows:
COMMENCING at an iron pipe situated in the Northeast corner of
Lot Number 86 in Ludwig Park Addition as recorded in Allen
County Plat Book 23, page 49; thence South 02 degrees 05
minutes 14 seconds East (assumed basis of bearings), a
distance of 187.33 feet along the East line of said Lot
Number 86 to a rebar stake with cap (Tazian) in the
Southeast corner thereof; thence North 88 degrees 54 minutes
40 seconds East, a distance of 4.44 feet along the South
line of said Ludwig Park to rebar stake in the Northwest
corner of Lot Number 14 in Rodenbecks' 5th Addition; thence
South 01 degrees 43 minutes 38 seconds East, a distance of
306.89 feet along the West line of said Rodenbeck's Addition
to a rebar stake with cap (D.A. Brown RLS #S0337), the True
Point of Beginning; thence south 01 degrees 43 minutes 38
seconds East, a distance of 218.58 feet along said West line
to a rebar stake with cap (D.A. Brown RLS #S0337); thence
South 80 degrees 54 minutes 08 seconds West, a distance of
269.90 feet to a rebar stake with cap (D.A. Brown RLS
#S0337); thence North 09 degrees 05 minutes 52 seconds West
a distance of 216.78 feet along the East right-of-way line
of State Road #3 to a rebar stake with cap (D.A. Brown RLS
#S0337); thence North 80 degrees 54 minutes 08 seconds East,
a distance of 297.94 feet to the Point of Beginning; said
tract containing 1.41 acres, more or less.
END OF EXHIBIT A
Exhibit B
TUMBLEWEED, LLC
FT. WAYNE, IN
PROJECT COST BUDGET
October 15, 1998
LAND AND HARD COSTS:
Land Acquisition Cost $ 460,000.00
Building/General Construction 565,816.00
Owner Vendors:
Landscaping 15,000.00
Dimmer Panesl 4,375.00
Wains Coating/Trim 12,500.00
Electrical Panels 7,500.00
Air Balance 1,995.00
Lighting 10,800.00
HVAC 21,690.00
Joists 13,900.00
Construction Contingency-10.0% 65,000.00
SOFT COSTS:
Survey 3,000.00
Appraisal 4,000.00
Phase I Environmental 2,900.00
TAP Fees 6,750.00
Design Fee-Architect 2,500.00
Architect/Engineering 28,000.00
Title Insurance & Closing Costs (Construction and S/L) 10,000.00
Development Interest 20,600.00
Attorney's Fees-Borrower (ConstructionSale/Leaseback) 2,500.00
Attorney's Fees - AEI (Construction/Sale/Leaseback) 10,000.00
AEI Sale/Leaseback Commitment Fee 2% 25,500.00
AEI Credit Report Fees (Promesa) 300.00
AEI State Qualification Fees 1,500.00
AEI Site Inspection Fee 1,500.00
Tumbleweed Parcel Development Fee 9,695.00
AEI 1% Reimbursement 12,750.00
Miscellaneous 4,929.00
____________
TOTAL PROJECT COST
$1,325,000.00
NET LEASE AGREEMENT
THIS LEASE, made and entered into effective as of the
25th day of November, 1998, by and among AEI Income & Growth
Fund XXII Limited Partnership, a Minnesota limited
partnership whose corporate general partner is AEI Fund
Management XXI, Inc., a Minnesota corporation ("Fund XXII"),
whose principal business address is 1300 Minnesota World
Trade Center, 30 East Seventh Street, St. Paul, Minnesota
55101 (hereinafter referred to as "Lessor"), and Tumbleweed,
LLC., a Kentucky limited liability company (hereinafter
referred to as "Lessee"), whose principal business address
is 1900 Mellwood Avenue, Louisville, Kentucky;
WITNESSETH:
WHEREAS, Lessor is the fee owner of a certain parcel of
real property and improvements located at Fort Wayne,
Indiana, and legally described in Exhibit "A", which is
attached hereto and incorporated herein by reference; and
WHEREAS, Lessee will be constructing the building and
improvements (together the "Building") on the real property
described in Exhibit "A", which Building is described in the
plans and specifications heretofore submitted to Lessor; and
WHEREAS, Lessee desires to lease said real property and
Building (said real property and Building hereinafter
referred to as the "Leased Premises"), from Lessor upon the
terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the Rents, terms,
covenants, conditions, and agreements hereinafter described
to be paid, kept, and performed by Lessee, Lessor does
hereby grant, demise, lease, and let unto Lessee, and Lessee
does hereby take and hire from Lessor and does hereby
covenant, promise, and agree as follows:
ARTICLE 1. LEASED PREMISES
Lessor hereby leases to Lessee, and Lessee leases and
takes from Lessor, the Leased Premises subject to the
conditions of this Lease.
ARTICLE 2. TERM
(A) The term of this Lease ("Term") shall be Fifteen
(15) consecutive "Lease Years", as hereinafter defined,
commencing on November 25th, 1998 ("Occupancy Date"), plus
the period between the date hereof and the end of the month
in which the First Amendment hereto is executed as
contemplated under the Development Financing Agreement
described in Article 34 hereof .
(B) The first "Lease Year" of the Term shall be for a
period of twelve (l2) consecutive calendar months from the
Occupancy Date, plus the period between the date hereof and
the end of the month in which the First Amendment hereto is
executed as contemplated under the Development Financing
Agreement described in Article 34 hereof . Each Lease Year
after the first Lease Year shall be a successive period of
twelve (l2) calendar months.
(C) The parties agree that once the Occupancy Date has
been established, upon the request of either party, a short
form or memorandum of this Lease will be executed for
recording purposes. That short form or memorandum of this
Lease will set forth the actual occupancy and termination
dates of the Term and optional Renewal Terms, as defined in
Article 28 hereof, and the existence of any right of
renewal, and that said right shall terminate when the Lessee
shall lose right to possession or this Lease is terminated,
whichever occurs first.
ARTICLE 3. CONSTRUCTION OF IMPROVEMENTS
(A) Lessee warrants and agrees that the Building will
be constructed on the Leased Premises, and all other
improvements to the land, including the parking lot,
approaches, and service areas, will be constructed in all
material respects by Lessee substantially in accordance with
the plot, plans, and specifications heretofore submitted to
Lessor.
(B) Lessee warrants that the Building and all other
improvements to the land contemplated do comply with the
laws, ordinances, rules, and regulations of all state and
local governments.
(C) Lessee agrees to pay, if not already paid in full,
for all architectural fees and actual construction costs
relating to the Building and other related improvements on
the Leased Premises, in the past, present or future, which
shall include, but not be limited to, plans and
specifications, general construction, carpentry, electrical,
plumbing, heating, ventilating, air conditioning,
decorating, equipment installation, outside lighting,
curbing, landscaping, blacktopping, electrical sign hookup,
conduit and wiring from building, fencing, and parking
curbs, builder's risk insurance (naming Lessor, Lessee, and
contractor as co-insured), and all construction bonds for
improvements made by or at the direction of Lessee.
(D) Opening for business in the Leased Premises by
Lessee shall constitute an acceptance of the Leased Premises
and an acknowledgment by Lessee that the premises are in the
condition described under this Lease.
ARTICLE 4. RENT PAYMENTS
(A) Annual Rent Payable for the part of the first
Lease Year until execution of the First Amendment hereto or
adjusted as contemplated under the Development Financing
Agreement: Lessee shall pay to Lessor an annual Base Rent
of $39,950, which amount shall be payable in advance on the
first day of each month in equal monthly installments of
$3,329.17 to Lessor Fund XXII. If the first day of the
Lease Term is not the first day of a calendar month, then
the monthly Rent payable for that partial month shall be a
prorated portion of the equal monthly installment of Base
Rent.
(B) Annual Rent Payable beginning in the
second and each Lease Year thereafter:
1. In the second and each Lease
Year thereafter, the annual Base Rent due and
payable shall increase by an amount equal to
the lesser of: a) Two Percent (2%) of the
Base Rent payable for the immediately prior
Lease Year, or b) A percentage equal to two
times the "CPI-U Percentage Increase" of the
Base Rent payable for the prior Lease Year.
"CPI-U" shall mean the
Consumer Price Index for All Urban Consumers,
(all items), published by the United States
Department of Labor, Bureau of Labor
Statistics (BLS) (1982-84 equal 100), U.S.
Cities Average, or, in the event said index
ceases to be published, by any successor
index recommended as a substitute therefor by
the United States Government or a comparable,
nonpartisan substitute reasonably designated
by Lessor. If the BLS changes the base
reference period for the Price Index from
1982-84=100, the CPI-U Percentage Increase
shall be determined with the use of such
conversion formula or table as may be
published by the BLS.
The term "CPI-U Percentage
Increase" shall mean the percentage increase
in the CPI-U determined by reference to the
increase, if any, in the latest monthly CPI-U
issued prior to the first day of the Lease
Year for which Base Rent is being increased,
over the CPI-U issued for the same month in
the year prior (e.g., the January CPI-U for
the year 2000 over the January CPI-U for the
year 1999.) Said month's CPI-U shall be used
even though that CPI-U will not be for the
month in which the renewal term commences.
In no event shall the CPI-U Percentage
Increase be less than zero.
(C) Overdue Payments.
Lessee shall pay interest on all overdue payments of
Rent or other monetary amounts due hereunder at the rate of
fifteen percent (15%) per annum or the highest rate allowed
by law, whichever is less, accruing from the expiration of
the applicable notice and cure period after the date such
Rent or other monetary amounts were properly due and
payable.
ARTICLE 5. INSURANCE AND INDEMNITY
(A) Lessee shall, throughout the Term or Renewal
Terms, if any, of this Lease, at its own cost and expense,
procure and maintain insurance which covers the Leased
Premises and improvements against fire, wind, and storm
damage (including flood insurance if the Leased Premises is
in a federally designated flood prone area) and such other
risks (including earthquake insurance, if the Leased
Premises is located in a federally designated earthquake
zone or in an ISO high risk earthquake zone) as may be
included in the broadest form of all risk, extended coverage
insurance as may, from time to time, be available in amounts
sufficient to prevent Lessor or Lessee from becoming a co-
insurer within the terms of the applicable policies. In any
event, the insurance shall not be less than one hundred
percent (100%) of the then insurable value, with such
commercially reasonable deductibles as Lessor may reasonably
require from time to time. Additionally, replacement cost
endorsements, vandalism endorsement, malicious mischief
endorsement, waiver of subrogation endorsement, waiver of co-
insurance or agreed amount endorsement (if available), and
Building Ordinance Compliance endorsement and Rent loss
endorsements (for a period of twelve months) must be
obtained.
(B) Lessee agrees to place and maintain throughout the
Term or Renewal Terms, if any, of this Lease, at Lessee's
own expense, public liability insurance with respect to
Lessee's use and occupancy of said premises, including "Dram
Shop" or liquor liability insurance, if the same shall be or
become available in the State of Indiana, with initial
limits of at least $2,000,000 per occurrence/$5,000,000
general aggregate (inclusive of umbrella coverage), or such
additional amounts as Lessor shall reasonably require from
time to time.
(C) Lessee agrees to notify Lessor in writing if
Lessee is unable to procure all or some part of the
aforesaid insurance. In the event Lessee fails to provide
all insurance required under this Lease, Lessor shall have
the right, but not the obligation, to procure such insurance
on Lessee's behalf, following five (5) business days written
notice to Lessee of Lessor's intent to do so (unless
insurance then in place would during such period, or already
has, lapsed, in which case no notice need be given) and
Lessee may obtain such insurance during said five day period
and not then be in default hereunder. If Lessor shall obtain
such insurance, Lessee will then, within five (5) business
days from receiving written notice, pay Lessor the amount of
the premiums due or paid, together with interest thereon at
the lesser of 15% per annum or the highest rate allowable by
law, which amount shall be considered Rent payable by Lessee
in addition to the Rent defined at Article 4 hereof.
(D) All policies of insurance provided for or
contemplated by this Article can be under Lessee's blanket
insurance coverage and shall name Lessor, Lessor's corporate
general partners, and Robert P. Johnson, and Lessee as
additional insured and loss payee, as their respective
interests (as landlord and lessee, respectively) may appear,
and shall provide that the policies cannot be canceled,
terminated, changed, or modified without thirty (30) days
written notice to the parties. In addition, all of such
policies shall be in place on or before the Occupancy Date
and contain endorsements by the respective insurance
companies waiving all rights of subrogation, if any, against
Lessor. All insurance companies providing coverages must be
rated "A" or better by Best's Key Rating Guide (the most
current edition), or similar quality under a successor guide
if Best's Key Rating shall cease to be published. Lessee
shall maintain legible copies of any and all policies and
endorsements required herein, to be made available for
Lessor's review and photocopy upon Lessor's reasonable
request from time to time. On the Occupancy Date and no
less than fifteen (15) business days prior to expiration of
such policies, Lessee shall provide Lessor with legible
copies of any and all renewal Certificates of Insurance
reflecting the above terms of the Policies (including
endorsements). Lessee agrees that it will not settle any
property insurance claims affecting the Leased Premises in
excess of $25,000 without Lessor's prior written consent,
such consent not to be unreasonably withheld or delayed.
Lessor shall consent to any settlement of an insurance claim
wherein Lessee shall confirm in writing with evidence
reasonably satisfactory to Lessor that Lessee has sufficient
funds available to complete the rebuilding of the Premises.
(E) Lessee shall defend, indemnify, and hold Lessor
harmless against any and all claims, damages, and lawsuits
arising after the Occupancy Date of this Lease and any
orders, decrees or judgments which may be entered therein,
brought for damages or alleged damages resulting from any
injury to person or property or from loss of life sustained
in or about the Leased Premises, unless such damage or
injury results from the intentional misconduct or the gross
negligence of Lessor and Lessee agrees to save Lessor
harmless from, and indemnify Lessor against, any and all
injury, loss, or damage, of whatever nature, to any person
or property caused by, or resulting from any act, omission,
or negligence of Lessee or any employee or agent of Lessee
acting in such capacity. In addition, Lessee hereby
releases Lessor from any and all liability for any loss or
damage caused by fire or any of the extended coverage
casualties, unless such fire or other casualty shall be
brought about by the intentional misconduct or gross
negligence of Lessor. In the event of any loss, damage, or
injury caused by the joint negligence or willful misconduct
of Lessor and Lessee, they shall be liable therefor in
accordance with their respective degrees of fault.
(F) Lessor hereby waives any and all rights that it
may have to recover from Lessee damages for any loss
occurring to the Leased Premises by reason of any act or
omission of Lessee; provided, however, that this waiver is
limited to those losses for which Lessor is compensated by
its insurers, if the insurance required by this Lease is
maintained. Lessee hereby waives any and all right that it
may have to recover from Lessor damages for any loss
occurring to the Leased Premises by reason of any act or
omission of Lessor; provided, however, that this waiver is
limited to those losses for which Lessee is, or should be if
the insurance required herein is maintained, compensated by
its insurers.
ARTICLE 6. TAXES, ASSESSMENTS AND UTILITIES
(A) Lessee shall be liable and agrees to pay the
charges for all public utility services rendered or
furnished to the Leased Premises, including heat, water,
gas, electricity, sewer, sewage treatment facilities and the
like, all personal property taxes, real estate taxes,
special assessments, and municipal or government charges,
general, ordinary and extraordinary, of every kind and
nature whatsoever, which may be levied, imposed, or assessed
against the Leased Premises, or upon any improvements
thereon, at any time after the Occupancy Date of this Lease
for the period prior to the expiration of the term hereof,
or any Renewal Term, if exercised.
(B) Lessee shall pay all real estate taxes,
assessments for public improvements or benefits, and other
governmental impositions, duties, and charges of every kind
and nature whatsoever which shall or may, during the term of
this Lease, be charged, laid, levied, assessed, or imposed
upon, or become a lien or liens upon the Leased Premises or
any part thereof. Such payments shall be considered as Rent
paid by Lessee in addition to the Rent defined at Article 4
hereof. If due to a change in the method of taxation, a
franchise tax, Rent tax, or income or profit tax shall be
levied against Lessor in substitution for or in lieu of any
tax which would otherwise constitute a real estate tax, such
tax shall be deemed a real estate tax for the purposes
herein and shall be paid by Lessee; otherwise Lessee shall
not be liable for any such tax levied against Lessor.
(C) All real estate taxes, assessments for public
improvements or benefits, water rates and charges, sewer
rents, and other governmental impositions, duties, and
charges which shall become payable for the first and last
tax years of the term hereof shall be apportioned pro rata
between Lessor and Lessee in accordance with the respective
number of months during which each party shall be in
possession of the Leased Premises (or through the expiration
of the term hereof, if longer) in said respective tax years.
Lessee shall pay within 60 days of the expiration of the
term hereof Lessor's reasonable estimate of Lessee's pro-
rata share of real estate taxes for the last tax year of the
term hereof, based upon the last available tax bill. Lessor
shall give Lessee notice of such estimated pro-rata real
estate taxes no later than 75 days from the end of the term
hereof. Upon receipt of the actual statement of real estate
taxes for such prorated period, Lessor shall either refund
to Lessee any over payment of the pro-rata Lessee
obligation, or shall assess and Lessee shall pay promptly
upon notice any remaining portion of the Lessee's pro-rata
obligation for such real estate taxes.
(D) Lessee shall have the right to contest or review
by legal proceedings or in such other manner as may be legal
(which, if instituted, shall be conducted solely at Lessee's
own expense) any tax, assessment for public improvements or
benefits, or other governmental imposition aforementioned,
upon condition that, before instituting such proceeding
Lessee shall pay (under protest) such tax or assessments for
public improvements or benefits, or other governmental
imposition, duties and charges aforementioned, unless such
payment would act as a bar to such contest or interfere
materially with the prosecution thereof and in such event
Lessee shall post with Lessor alternative security
reasonably satisfactory to Lessor. All such proceedings
shall be begun as soon as reasonably possible after the
imposition or assessment of any contested items and shall
be prosecuted to final adjudication with reasonable
dispatch. In the event of any reduction, cancellation, or
discharge, Lessee shall pay the amount that shall be finally
levied or assessed against the Leased Premises or
adjudicated to be due and payable, and, if there shall be
any refund payable by the governmental authority with
respect thereto, if Lessee has paid the expense of Lessor in
such proceedings, Lessee shall be entitled to receive and
retain the refund, subject, however, to apportionment as
provided during the first and last years of the term of this
Lease.
(E) Lessor, within sixty (60) days after notice to
Lessee if Lessee fails to commence such proceedings, may,
but shall not be obligated to, contest or review by legal
proceedings, or in such other manner as may be legal, and at
Lessor's own expense, any tax, assessments for public
improvements and benefits, or other governmental imposition
aforementioned, which shall not be contested or reviewed, as
aforesaid, by Lessee, and unless Lessee shall promptly join
with Lessor in such contest or review, Lessor shall be
entitled to receive and retain any refund payable by the
governmental authority with respect thereto.
(F) Lessor shall not be required to join in any
proceeding referred to in this Article, unless in Lessee's
reasonable opinion, the provisions of any law, rule, or
regulation at the time in effect shall require that such a
proceeding be brought by and/or in the name of Lessor, in
which event Lessor shall upon written request, join in such
proceedings or permit the same to be brought in its name,
all at no cost or expense to Lessor.
(G) Within thirty (30) days after Lessor notifies
Lessee in writing that Lessor has paid such amount, Lessee
shall also pay to Lessor, as additional Rent, the amount of
any sales tax, franchise tax, excise tax, on Rents imposed
by the State where the Leased Premises are located. At
Lessor's option, Lessee shall deposit with Lessor on the
first day of each and every month during the term hereof, an
amount equal to one-twelfth (1/12) of any estimated sales
tax payable to the State in which the property is situated
for Rent received by Lessor hereunder ("Deposit"). From
time to time out of such Deposit Lessor will pay the sales
tax to the State in which the property is situated as
required by law. In the event the Deposit on hand shall not
be sufficient to pay said tax when the same shall become due
from time to time, or the prior payments shall be less than
the current estimated monthly amounts, then Lessee shall pay
to Lessor on demand any amount necessary to make up the
deficiency. The excess of any such Deposit shall be
credited to subsequent payments to be made for such items.
If a default or an event of default shall occur under the
terms of this Lease, Lessor may, at its option, without
being required so to do, apply any Deposit on hand to cure
such default, in such order and manner as Lessor may elect.
ARTICLE 7. PROHIBITION ON ASSIGNMENTS AND SUBLETTING;
TAKE-BACK RIGHTS
(A) Except as otherwise expressly provided in this
Article, Lessee shall not, without obtaining the prior
written consent of Lessor, in each instance:
1. assign or otherwise transfer
this Lease, or any part of Lessee's right,
title or interest therein, except in the
event the Lease is assigned by Tumbleweed to
its successor entity in the event of either
an Initial Public Offering or Direct Public
Offering of Lessee or to any other entity
controlled by or under common control with
Lessee or such successor of Lessee; or
2. sublet all or any part of the
Leased Premises or allow all or any part of
the Leased Premises to be used or occupied by
any other Persons (herein defined as a Party
other than Lessee, be it a corporation, a
partnership, an individual or other entity);
or
3. mortgage, pledge or otherwise
encumber this Lease, or the Leased Premises.
(B) For the purposes of this Article:
1. the transfer of voting control
of any class of capital stock of any
corporate Lessee or sublessee, or the
transfer of voting control of the total
interest in any other person which is a
Lessee or sublessee, however accomplished,
whether in a single transaction or in a
series of related or unrelated transactions,
shall be deemed an assignment of this Lease,
or of such sublease, as the case may be;
2. an agreement by any other
Person, directly or indirectly, to assume
Lessee's obligations under this Lease shall
be deemed an assignment;
3. any Person to whom Lessee's
interest under this Lease passes by operation
of law, or otherwise, shall be bound by the
provisions of this Article;
4. each material modification,
amendment or extension or any sublease to
which Lessor has previously consented shall
be deemed a new sublease;
Lessee agrees to furnish to Lessor within five (5)
business days following demand at any time such information
and assurances as Lessor may reasonably request that neither
Lessee, nor any previously permitted sublessee or assignee,
has violated the provisions of this Article.
(C) Except as permitted under Section (A)(1) above, if
Lessee agrees to assign this Lease or to sublet all or any
portion of the Leased Premises, Lessee shall, prior to the
effective date thereof (the "Effective Date"), deliver to
Lessor executed counterparts of any such agreement and of
all ancillary agreements with the proposed assignee or
sublessee, as applicable. If Lessee shall fail to do so,
and shall have surrendered possession of the Leased Premises
in violation of its duty of prior notice and failed to
obtain Lessor's prior consent (if and where required
herein), and, if in such event, Lessor in its sole
discretion (except as otherwise specifically limited herein)
shall not consent to a proposed sublease or assignment,
Lessor shall then have all of the following rights (in
addition to any rights Lessor may possess occasioned by
Lessee's default hereunder), any of which Lessor may
exercise by written notice to Lessee given within thirty
(30) days after Lessor receives the aforementioned
documents:
1. with respect to a proposed
assignment of this Lease, the right to
terminate this Lease on the Effective Date as
if it were the Expiration Date of this Lease;
2. with respect to a proposed
subletting of the entire Leased Premises, the
right to terminate this Lease on the
Effective Date as if it were the Expiration
Date; or
3. with respect to a proposed
subletting of less than the entire Leased
Premises, the right to terminate this Lease
as to the portion of the Leased Premises
affected by such subletting on the Effective
Date, as if it were the Expiration Date, in
which case Lessee shall promptly execute and
deliver to Lessor an appropriate modification
of this Lease in form satisfactory to Lessor
in all respects.
4. with respect to a proposed
subletting or proposed assignment of this
Lease, impose such conditions upon Lessor's
consent as Lessor shall determine in its sole
discretion.
(D) If Lessor exercises any of its options under
Article 7(C) above, (and if Lessor shall impose conditions
upon its consent and Lessee shall fail to meet any
conditions Lessor may impose upon its consent), Lessor may
then lease the Leased Premises or any portion thereof to
Lessee's proposed assignee or sublessee, as the case may be,
without liability whatsoever to Lessee.
(E) Notwithstanding anything above to the contrary,
Lessor agrees to consent to any assignment or sublease all
or any portion of the Lessee's interests herein to a
franchisee or licensee in good standing of Tumbleweed, LLC,
for the Tumbleweed restaurant concept, provided Lessor is
given prior written notice of such sublease or assignment,
accompanied by a copy of such sublease or assignment, and
the consents of Lessee (such consent to be in form and
substance satisfactory to Lessor) to such assignment or
sublet, affirming their continued liability hereunder.
Lessor agrees that its consent to any other proposed
assignment or sublet shall not be unreasonably withheld or
delayed, provided Lessor is given prior written notice of
such sublease or assignment, accompanied by a copy of such
sublease or assignment, and the consents of Lessee (such
consent to be in form and substance satisfactory to Lessor)
to such assignment or sublet, affirming their continued
liability hereunder.
(F) Notwithstanding anything above to the contrary,
the Lessee's interest herein shall not be assignable in any
manner in accordance with the terms hereof unless and until
the termination of the Development Financing Agreement as
set forth in Article 35 hereof.
ARTICLE 8. REPAIRS AND MAINTENANCE
(A) Lessee covenants and agrees to keep and maintain
in good order, condition and repair the interior and
exterior of the Leased Premises during the term of the
Lease, or any renewal terms, and further agrees that Lessor
shall be under no obligation to make any repairs or perform
any maintenance to the Leased Premises. Lessee covenants
and agrees that it shall be responsible for all repairs,
alterations, replacements, or maintenance of, including but
without limitation to or of: The interior and exterior
portions of all doors; door checks and operators; windows;
plate glass; plumbing; water and sewage facilities;
fixtures; electrical equipment; interior walls; ceilings;
signs; roof; structure; interior building appliances and
similar equipment; heating and air conditioning equipment;
and any equipment owned by Lessor and leased to Lessee
hereunder, as itemized on Exhibit B attached hereto (if any)
and incorporated herein by reference; and further agrees to
replace any of said equipment when necessary. Lessee
further agrees to be responsible for, at its own expense,
snow removal, lawn maintenance, landscaping, maintenance of
the parking lot (including parking lines, seal coating, and
blacktop surfacing), and other similar items.
(B) If Lessee refuses or neglects to commence or
complete repairs promptly and adequately, after prior
written notice as required under Article 16(B) (except in
cases of emergency to prevent waste or preserve the safety
and integrity of the Leased Premises, in which case no
notice need be given), Lessor may cause such repairs to be
made, but shall not be required to do so, and Lessee shall
pay the cost thereof to Lessor within five (5) business days
following demand. It is understood that Lessee shall pay
all expenses and maintenance and repair during the term of
this Lease. If Lessee is not then in default hereunder,
Lessee shall have the right to make repairs and improvements
to the Leased Premises without the consent of Lessor if such
repairs and improvements do not exceed Fifty Thousand
Dollars ($50,000.00), provided such repairs or improvements
do not affect the structural integrity of the Leased
Premises. Any repairs or improvements in excess of Fifty
Thousand Dollars ($50,000.00) or affecting the structural
integrity of the Leased Premises may be done only with the
prior written consent of Lessor, such consent not to be
unreasonably withheld or delayed. All alterations and
additions to the Leased Premises shall be made in accordance
with all applicable laws and shall remain for the benefit of
Lessor, except for Lessee's moveable trade fixtures. In the
event of making such alterations as herein provided, Lessee
further agrees to indemnify and save harmless Lessor from
all expense, liens, claims or damages to either persons or
property or the Leased Premises which may arise out of or
result from the undertaking or making of said repairs,
improvements, alterations or additions, or Lessee's failure
to make said repairs, improvements, alterations or
additions.
ARTICLE 9. COMPLIANCE WITH LAWS AND REGULATIONS
Lessee will comply with all statutes, ordinances,
rules, orders, regulations and requirements of all federal,
state, city and local governments, and with all rules,
orders and regulations of the applicable Board of Fire
Underwriters which affect the use of the improvements.
Lessee will comply with all easements, restrictions, and
covenants of record against or affecting the Leased Premises
and any franchise or license agreements required for
operation of the Leased Premises in accordance with Article
14 hereof.
ARTICLE 10. SIGNS
Lessee shall have the right to install and maintain a
sign or signs advertising Lessee's business, provided that
the signs conform to law, and further provided that the sign
or signs conform specifically to the written requirements of
the appropriate governmental authorities.
ARTICLE 11. SUBORDINATION
(A) Lessor reserves the right and privilege to subject
and subordinate this Lease at all times to the lien of any
mortgage or mortgages now or hereafter placed upon Lessor's
interest in the Leased Premises and on the land and
buildings of which said premises are a part, or upon any
buildings hereafter placed upon the land of which the Leased
Premises are a part, provided such mortgagee shall execute
its standard form, commercially reasonable subordination,
attornment and non-disturbance agreement. Lessor also
reserves the right and privilege to subject and subordinate
this Lease at all times to any and all advances to be made
under such mortgages, and all renewals, modifications,
extensions, consolidations, and replacements thereof,
provided such mortgagee shall execute its standard form,
commercially reasonable subordination, attornment and non-
disturbance agreement.
(B) Lessee covenants and agrees to execute and
deliver, upon demand, such further instrument or instruments
subordinating this Lease on the foregoing basis to the lien
of any such mortgage or mortgages as shall be desired by
Lessor and any proposed mortgagee or proposed mortgagees,
provided such mortgagee shall execute its standard form,
commercially reasonable subordination, attornment and non-
disturbance agreement.
ARTICLE l2. CONDEMNATION OR EMINENT DOMAIN
(A) If the whole of the Leased Premises are taken by
any public authority under the power of eminent domain, or
by private purchase in lieu thereof, then this Lease shall
automatically terminate upon the date possession is
surrendered, and Rent shall be paid up to that day. If any
part of the Leased Premises shall be so taken as to render
the remainder thereof materially unusable in the opinion of
a licensed third party arbitrator reasonably approved by
Lessor and Lessee, for the purposes for which the Leased
Premises were leased, then Lessor and Lessee shall each have
the right to terminate this Lease on thirty (30) days notice
to the other given within ninety (90) days after the date of
such taking. In the event that this Lease shall terminate
or be terminated, the Rent shall, if and as necessary, be
paid up to the day that possession was surrendered.
(B) If any part of the Leased Premises shall be so
taken such that it does not materially interfere with the
business of Lessee, then Lessee shall, with the use of the
condemnation proceeds to be made available by Lessor, but
otherwise at Lessee's own cost and expense, restore the
remaining portion of the Leased Premises to the extent
necessary to render it reasonably suitable for the purposes
for which it was leased. Lessee shall make all repairs to
the building in which the Leased Premises is located to the
extent necessary to constitute the building a complete
architectural unit. Provided, however, that such work shall
not exceed the scope of the work required to be done by
Lessee in originally constructing such building unless
Lessee shall demonstrate to Lessor's reasonable satisfaction
the availability of funds to complete such work. Provided,
further, the cost thereof to Lessor shall not exceed the
proceeds of its condemnation award, all to be done without
any adjustments in Rent to be paid by Lessee. This lease
shall be deemed amended to reflect the taking in the legal
description of the Leased Premises.
(C) All compensation awarded or paid upon such total
or partial taking of the Leased Premises shall belong to and
be the property of Lessor without any participation by
Lessee, whether such damages shall be awarded as
compensation for diminution in value to the leasehold or to
the fee of the premises herein leased. Nothing contained
herein shall be construed to preclude Lessee from
prosecuting any claim directly against the condemning
authority in such proceedings for: Loss of business; damage
to or loss of value or cost of removal of inventory, trade
fixtures, furniture, and other personal property belonging
to Lessee; provided, however, that no such claim shall
diminish or otherwise adversely affect Lessor's award or the
award of any fee mortgagee.
ARTICLE 13. RIGHT TO INSPECT
Lessor reserves the right to enter upon, inspect and
examine the Leased Premises at any time during business
hours, after reasonable notice to Lessee, and Lessee agrees
to allow Lessor free access to the Leased Premises to show
the premises. Upon default by Lessee or at any time within
ninety (90) days of the expiration or termination of the
Lease, Lessee agrees to allow Lessor to then place "For
Sale" or "For Rent" signs on the Leased Premises. Lessor
and Lessor's representatives shall at all times while upon
or about the Leased Premises observe and comply with
Lessee's reasonable health and safety rules, regulations,
policies and procedures. Lessor agrees to indemnify and
hold Lessee, its successors, assigns, agents and employees
from and against any liability, claims, demands, cause of
action, suits and other litigation or judgements of every
kind and character, including injury to or death of any
person or persons, or trespass to, or damage to, or loss or
destruction of, any property, whether real or personal, to
the extent resulting from the negligence or willful
misconduct or Lessor or Lessor's representatives while upon
or about the Leased Premises.
ARTICLE 14. EXCLUSIVE USE
(A) After the Occupancy Date, Lessee expressly agrees
and warrants that the Leased Premises will be used
exclusively as a Tumbleweed Restaurant or other casual
dining sit-down restaurant. In any other such case, after
obtaining Lessor's prior written consent, such consent not
to be unreasonably withheld or delayed, Lessee may conduct
any lawful business from the Leased Premises. Lessee
acknowledges and agrees that any other use without the prior
written consent of Lessor will constitute a default under
and a violation and breach of this Lease. Lessee agrees:
To open for business within a reasonable period of time
after completion of construction of the contemplated
Improvements; to operate all of the Leased Premises during
the Term or Renewal Terms during regular and customary hours
for businesses similar to the permitted exclusive use stated
herein, unless prevented from doing so by causes beyond
Lessee's control or due to remodeling; and to conduct its
business in a professional and reputable manner.
(B) If the Leased Premises are not operated as a
Tumbleweed Restaurant or other casual dining sit-down
restaurant or other permitted use hereunder, or remain
closed for thirty (30) consecutive days (unless such closure
results from reasons beyond Lessee's reasonable control) and
in the event Lessee fails to pay Rent when due or fulfill
any other obligation hereunder, then Lessee shall be in
default hereunder and Lessor may, at its option, cancel this
Lease by giving written notice to Lessee or exercise any
other right or remedy that Lessor may have; provided,
however, that closings shall be reasonably permitted for
replacement of trade fixtures or during periods of repair
after destruction or due to remodeling.
ARTICLE 15. DESTRUCTION OF PREMISES
If, during the term of this Lease, the Leased Premises
are totally or partially destroyed by fire or other
elements, within a reasonable time (but in no event longer
than one hundred eighty (180) days and subject to the
provisions herein below), Lessee shall repair and restore
the improvements so damaged or destroyed as nearly as may be
practical to their condition immediately prior to such
casualty. All rents payable by Lessee shall be abated
during the period of repair and restoration to the extent
that Lessor shall be compensated by the proceeds of the rent
loss insurance required to be maintained by Lessee
hereunder.
Provided Lessee is not in default hereunder (and
retains according to the terms hereof the right to rebuild)
with the Lessor's prior written consent, which consent shall
not be unreasonably withheld or delayed, Lessee shall have
the right to promptly and in good faith settle and adjust
any claim under such insurance policies with the insurance
company or companies on the amounts to be paid upon the
loss. The insurance proceeds shall be used to reimburse
Lessee for the cost of rebuilding or restoration of the
Leased Premises. Risk that the insurance company shall be
insolvent or shall refuse to make insurance proceeds
available shall be with Lessee. The Leased Premises shall be
so restored or rebuilt so as to be of at least equal value
and substantially the same character as prior to such damage
or destruction. If the insurance proceeds are less than
Fifty Thousand Dollars ($50,000), they shall be paid to
Lessee for such repair and restoration. If the insurance
proceeds are greater than or equal to Fifty Thousand Dollars
($50,000), they shall be deposited by Lessee and Lessor into
a customary construction escrow at a nationally recognized
title insurance company, or at Lessee's option, with Lessor
("Escrowee") and shall be made available from time to time
to Lessee for such repair and restoration. Such proceeds
shall be disbursed in conformity with the terms and
conditions of a commercially reasonable construction loan
agreement. Lessee shall, in either instance, deliver to
Lessor or Escrowee (as the case may be) satisfactory
evidence of the estimated cost of completion together with
such architect's certificates, waivers of lien, contractor's
sworn statements and other evidence of cost and of payments
as the Lessor or Escrowee may reasonably require and
approve. If the estimated cost of the work exceeds One
Hundred Thousand Dollars ($100,000), all plans and
specifications for such rebuilding or restoration shall be
subject to the reasonable approval of Lessor.
Any insurance proceeds remaining with Escrowee after
the completion of the repair or restoration shall be paid to
Lessor to reduce the sum of monies expended by Lessor to
acquire its interest in the Leased Premises and rent
hereunder shall be reduced by 10.25% of such amount.
If the proceeds from the insurance are insufficient,
after review of the bids for completion of such
improvements, or should become insufficient during the
course of construction, to pay for the total cost of repair
or restoration, Lessee shall, prior to commencement of work,
demonstrate to Escrowee and Lessor's reasonable
satisfaction, the availability of such funds necessary to
completion construction and Lessee shall deposit the same
with Escrowee for disbursement under the construction escrow
agreement.
Provided, further, that should the Leased Premises be
damaged or destroyed to the extent of fifty (50%) percent of
its value or such that Lessee cannot carry on business as a
casual dining restaurant without (in the opinion of a
licensed third party architect reasonably approved by Lessor
and Lessee) being closed for more than sixty (60) days
(which duration of closure may be established by Lessee by
the affidavit of the approved independent third party
architect as to the estimated time of repair) during the
last two (2) years of the remaining term of this Lease or
any of the option terms of this Lease, if any further
options to renew remain, Lessee may elect within 30 days of
such damage, to then exercise at least one (1) option to
renew this Lease so that the remaining term of the Lease is
not less than five (5) years in order to be entitled to such
insurance proceeds for restoration or rebuilding. Absent
such election, this Lease shall terminate upon Lessor's
receipt of insurance proceeds (and the deductible
thereunder) payable under policies maintained pursuant to
this Lease.
ARTICLE 16. ACTS OF DEFAULT
Each of the following shall be deemed a default by
Lessee and a breach of this Lease:
(A) Failure to pay the Rent or any
monetary obligation herein reserved, or any
part thereof when the same shall be due and
payable, provided, however, Lessee shall have
five (5) business days after written notice
from Lessor within which to cure the failure
to pay the Rent or any monetary obligation
herein reserved.
(B) Failure to do, observe, keep
and perform any of the other terms,
covenants, conditions, agreements and
provisions in this Lease to be done,
observed, kept and performed by Lessee;
provided, however, that Lessee shall have
Thirty (30) days after written notice from
Lessor within which to cure such default, or
such longer time as may be reasonably
necessary if such default cannot reasonably
be cured within Thirty (30) days, if Lessee
is diligently pursuing a course of conduct
that in Lessor's reasonable opinion is
capable of curing such default, but in any
event such longer time shall not exceed 120
days after written notice from Lessor of the
default hereunder.
(C) The abandonment of the
premises by Lessee, the adjudication of
Lessee as a bankrupt, the making by Lessee of
a general assignment for the benefit of
creditors, the taking by Lessee of the
benefit of any insolvency act or law, the
appointment of a permanent receiver or
trustee in bankruptcy for Lessee property, or
the appointment of a temporary receiver which
is not vacated or set aside within sixty
(60) days from the date of such appointment;
provided, however, that the foregoing shall
not constitute events of default so long as
Lessee continues to otherwise satisfy its
obligations (including but not limited to the
payment of Rent) hereunder.
ARTICLE 17. TERMINATION FOR DEFAULT
In the event of any uncured default by Lessee and at
any time thereafter, Lessor may serve a written notice upon
Lessee that Lessor elects to terminate this Lease. This
Lease shall then terminate on the date so specified as if
that date had been originally fixed as the expiration date
of the term herein granted, provided, however, that Lessee
shall have continuing liability for future rents for the
remainder of the original term and any exercised renewal
term as set forth in Article 19, notwithstanding any earlier
termination of the Lease hereunder (except where Lessee has
exercised a right to terminate where granted herein),
preserving unto Lessor the benefit of its bargained-for
rental payments.
ARTICLE 18. LESSOR'S RIGHT OF RE-ENTRY
In the event that this Lease shall be terminated as
hereinbefore provided, or by summary proceedings or
otherwise, or in the event of an uncured default hereunder
by Lessee, or in the event that the premises or any part
thereof, shall be abandoned by Lessee and Rent shall not be
paid or other obligations (including but not limited to
repair and maintenance obligations) of Lessee hereunder
shall not be met, then Lessor or its agents, servants or
representatives, may immediately or at any time thereafter,
re-enter and resume possession of the premises or any part
thereof, and remove all persons and property therefrom,
either by summary dispossess proceedings or by a suitable
action or proceeding at law, or by force or otherwise
without being liable for any damages therefor, except for
damages resulting from Lessor's negligence or willful
misconduct. Notwithstanding anything above to the contrary,
if Lessee is still in possession of the Leased Premises,
Lessor agrees to use such legal proceedings (summary or
otherwise) prescribed by law to regain possession of the
Leased Premises.
ARTICLE 19. LESSEE'S CONTINUING LIABILITY
(A) Should Lessor elect to re-enter as provided in
this Lease or should it take possession pursuant to legal
proceedings or pursuant to any notice provided for by law,
Lessor shall undertake commercially reasonable efforts to
mitigate Lessee's continuing liability hereunder as such
efforts may be prescribed by law or statute (which shall
include listing the Leased Premises with a licensed
commercial real estate broker and securing the property
against waste, but shall not otherwise include the
expenditure of Lessor's funds, unless the same be required
by law or statute and cannot be waived as provided for
herein), and in addition, Lessor may either (i) terminate
this Lease or (ii) it may from time to time, without
terminating the contractual obligation of Lessee to pay Rent
under this Lease, make such alterations and repairs as may
be necessary to relet the Leased Premises or any part
thereof for the remainder of the original Term or any
exercised Renewal Terms, at such Rent or Rents, and upon
such other terms and conditions as Lessor in its sole
discretion may deem advisable. Termination of Lessee's
right to possession by Court Order shall be sufficient
evidence of the termination of Lessee's possessory rights
under this Lease, and the filing of such an Order shall be
notice of the termination of Lessee's renewal rights as set
forth in any Memorandum of Lease of record.
(B) Upon each such reletting, without termination of
the contractual obligation of Lessee to pay Rent under this
Lease, all Rents received by Lessor shall be applied as
follows:
1. First, to the payment of any
indebtedness other than Rent due hereunder
from Lessee to Lessor;
2. Second, to the payment of any
costs and expenses of such reletting,
including brokerage fees and attorney's fees
and of costs of such alterations and repairs;
3. Third, to the payment of Rent
and other monetary obligations due and unpaid
hereunder;
4. Finally, the residue, if any,
shall be held by Lessor and applied in
payment of future Rent as the same may become
due and payable hereunder.
If such Rents received from such reletting during any month
are less than that to be paid during that month by Lessee
hereunder, Lessee shall pay any such deficiency to Lessor.
Such deficiency shall be calculated and paid monthly. No
such re-entry or taking possession of such Leased Premises
by Lessor shall be construed as an election on its part to
terminate Lessee's contractual obligations under this Lease
respecting the payment of rent and obligations for the costs
of repair and maintenance unless a written notice of such
intention be given to Lessee.
(C) Notwithstanding any such reletting without
termination, Lessor may at any time thereafter elect to
terminate this Lease for any uncured breach.
(D) In addition to any other remedies Lessor may have
with this Article 19, Lessor may recover from Lessee all
damages it may incur by reason of any uncured breach,
including: The cost of recovering and reletting the Leased
Premises; reasonable attorney's fees; and, the present value
(discounted at a rate of 8% per annum) of the excess of the
amount of Rent and charges equivalent to Rent reserved in
this Lease for the remainder of the Term over the then
reasonable Rent value of the Leased Premises (or the actual
Rents receivable by Lessor, if relet), (the Lessee bearing
the burden of proof to demonstrate the amount of rental loss
for the same period, that through reasonable efforts to
mitigate damages, could have been avoided) for the remainder
of the Term, all of which amounts shall be immediately due
and payable from Lessee to Lessor in full. In the event
that the Rent obtained from such alternative or substitute
tenant is more than the Rent which Lessee is obligated to
pay under this Lease, then such excess shall be paid to
Lessor provided that Lessor shall credit such excess against
the outstanding obligations of Lessee due pursuant hereto,
if any.
(E) It is the object and purpose of this Article 19
that Lessor shall be kept whole and shall suffer no damage
by way of non-payment of Rent or by way of diminution in
Rent. Lessee waives and will waive all rights to trial by
jury in any summary proceedings or in any action brought to
recover Rent herein which may hereafter be instituted by
Lessor against Lessee in respect to the Leased Premises.
Lessee hereby waives any rights of re-entry it may have or
any rights of redemption or rights to redeem this Lease upon
a termination of this Lease.
ARTICLE 20. PERSONALTY, FIXTURES AND EQUIPMENT
(A) All building fixtures, building machinery, and
building equipment used in connection with the operation of
the Leased Premises including, but not limited to, heating,
electrical wiring, lighting, ventilating, plumbing, walk-in
refrigerators/coolers, walk-in freezers, air conditioning
systems, and the equipment owned by Lessor and leased to
Lessee hereunder as specifically set forth on Exhibit B
attached hereto, if any, and incorporated herein by
reference shall be the property of Lessor. All other trade
fixtures and all other articles of personal property owned
by Lessee shall remain the property of Lessee.
(B) Lessee shall furnish and pay for any and all
equipment, furniture, trade fixtures, and signs, except for
such items, if any, described in Article 20(A) above, as
owned by Lessor. Lessee agrees that Lessor shall have a
lien on all Lessee's equipment, furniture, trade fixtures,
furnishings, and signs as security for the performance of
and compliance with this Lease, subject to the rights of any
bona fide third party's security interest in such property.
Provided Lessee is not in default hereunder, Lessor will
agree that its interest in the personal property of Lessee
will be subordinated to financing which may exist or which
Lessee may cause to exist in the future on that same
personal property.
(C) At the end of the term of this Lease, the property
described at Article 20(B) above, after written notice to
Lessor given at least ten (10) business days prior to any
proposed removal, may be removed from the Leased Premises by
Lessee regardless of whether or not such property is
attached to the Leased Premises so as to constitute a
"fixture" within the meaning of the law; however, all
damages and repairs to the Leased Premises which may be
caused by the removal of such property shall be paid for by
Lessee.
ARTICLE 21. LIENS
Lessee shall not do or cause anything to be done
whereby the Leased Premises may be encumbered by any
mechanic's or other liens. Whenever and as often as any
mechanic's or other lien is filed against said Leased
Premises purporting to be for labor or materials furnished
or to be furnished to Lessee, Lessee shall remove the lien
of record by payment or by bonding with a surety company
authorized to do business in the state in which the property
is located, within forty-five (45) days from the date of the
filing of said mechanic's or other lien and delivery of
notice thereof to Lessee. Should Lessee fail to take the
foregoing steps within said forty-five (45) day period (or
in any event, prior to the expiration of the time within
which Lessee may bond over such lien to remove it as a lien
upon the Leased Premises), Lessor shall have the right,
among other things, to pay said lien without inquiring into
the validity thereof, and Lessee shall forthwith reimburse
Lessor for the total expense incurred by it in discharging
said lien as additional Rent hereunder.
ARTICLE 22. NO WAIVER BY LESSOR EXCEPT IN WRITING
No agreement to accept a surrender of the Leased
Premises or termination of this Lease shall be valid unless
in writing signed by Lessor. The delivery of keys to any
employee of Lessor or Lessor's agents shall not operate as a
termination of the Lease or a surrender of the premises.
The failure of Lessor to seek redress for violation of any
rule or regulation, shall not prevent a subsequent act,
which would have originally constituted a violation, from
having all the force and effect of an original violation.
Neither payment by Lessee or receipt by Lessor of a lesser
amount than the Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated Rent. Nor
shall any endorsement or statement on any check nor any
letter accompanying any check or payment as Rent be deemed
an accord and satisfaction. Lessor may accept such check or
payment without prejudice to Lessor's right to recover the
balance of such Rent or pursue any other remedy provided in
this Lease. This Lease contains the entire agreement
between the parties, and any executory agreement hereafter
made shall be ineffective to change it, modify it or
discharge it, in whole or in part, unless such executory
agreement is in writing and signed by the party against whom
enforcement of the change, modification or discharge is
sought.
ARTICLE 23. QUIET ENJOYMENT
Lessor covenants that Lessee, upon paying the Rent set
forth in Article 4 and all other sums herein reserved as
Rent and upon the due performance of all the terms,
covenants, conditions and agreements herein contained on
Lessee's part to be kept and performed, shall have, hold and
enjoy the Leased Premises free from molestation, eviction,
or disturbance by Lessor, or by any other person or persons
lawfully claiming the same, and that Lessor has good right
to make this Lease for the full term granted, including
renewal periods.
ARTICLE 24. BREACH - PAYMENT OF COSTS AND ATTORNEYS' FEES
Each party agrees to pay and discharge all reasonable
costs, and actual attorneys' fees, including but not limited
to attorney's fees incurred at the trial level and in any
appellate or bankruptcy proceeding, and expenses that shall
be incurred by the prevailing party in enforcing the
covenants, conditions and terms of this Lease or defending
against an alleged breach, including the costs of reletting.
Such costs, attorneys fees, and expenses if incurred by
Lessor shall be considered as Rent as due and owing in
addition to any Rent defined in Article 4 hereof.
ARTICLE 25. ESTOPPEL CERTIFICATES
Either party to this Lease will, at any time, upon not
less than ten (10) business days prior request by the other
party, execute, acknowledge and deliver to the requesting
party a statement in writing, executed by an executive
officer of such party, certifying that: (a) this Lease is
unmodified (or if modified then disclosure of such
modification shall be made); (b) this Lease is in full force
and effect; (c) the date to which the Rent and other charges
have been paid; and (d) to the knowledge of the signer of
such certificate that the other party is not in default in
the performance of any covenant, agreement or condition
contained in this Lease, or if a default does exist,
specifying each such default of which the signer may have
knowledge. It is intended that any such statement delivered
pursuant to this Article may be relied upon by any
prospective purchaser or mortgagee of the Leased Premises
or any assignee of such mortgagee or a purchaser of the
leasehold estate.
ARTICLE 26. FINANCIAL STATEMENTS
During the term of this Lease, Lessee will, within
ninety (90) days after the end of Lessee's fiscal year,
furnish Lessor with Lessee's financial statements (in SEC
Form 10-K, if available). The financial statements shall
be audited, at the Lessee's expense, by a nationally
recognized independent certified public accounting firm
reasonably acceptable to Lessor and shall be prepared in
conformity with generally accepted accounting principles
(GAAP). Lessee shall also provide Lessor with financial
statements for the Leased Premises within 90 days after the
end of each Lease Year. The financial statements for the
Leased Premises do not need to be prepared by an independent
certified public accountant, but shall be certified as true
and correct by the chief financial officer or other
authorized officer of Lessee. Additionally, during the term
of the Lease, Lessee will within forty-five (45) days from
the end of each quarter of each fiscal year, furnish Lessor
with Lessee's financial statements (in SEC Form 10-Q if
available)and financial statements of the Leased Premises
for such quarter. Lessor shall have the right to require
such financial statements for the Lessee and the Leased
Premises on a monthly basis after the occurrence of a
default in any Lease Year. Provided, however, if Lessee
shall not commit a default for twelve consecutive months,
Lessor's right to require such monthly financial statements
shall terminate until Lessee shall again commit a default in
any given Lease Year. Said quarterly (or monthly, if
required by Lessor) financial statements do not need to be
prepared by an independent certified public accountant, but
shall be certified as true and correct by the chief
financial officer or other authorized officer of Lessee.
The financial statements shall conform to GAAP, and include
a balance sheet and related statements of operations,
statement of cash flows, statement of changes in
shareholder's equity, and related notes to financial
statements, if any.
ARTICLE 27. MORTGAGE
Lessee does hereby agree to make reasonable
modifications of this Lease requested by any Mortgagee of
record from time to time, provided such modifications are
not substantial and do not increase any of the Rents or
obligations of Lessee under this Lease or substantially
modify any of the business elements of this Lease.
ARTICLE 28. OPTION TO RENEW
If this Lease is not previously canceled or terminated
and if Lessee has materially complied with and performed all
of the covenants and conditions in this Lease after
applicable cure periods and is not currently in default,
then Lessee shall have the option to renew this Lease upon
the same conditions and covenants contained in this Lease
for Two (2) consecutive periods of Five (5) years each
(singularly "Renewal Term"). Rent during the Renewal Term
shall increase each Lease Year by the lesser of Two Percent
(2%) of the Rent payable for the preceding Lease Year, or
the CPI-U Percentage Increase, as defined in Article 4
hereof.
The first Renewal Term will commence on the day
following the date the original Term expires and successive
Renewal Terms would commence on the day following the last
day of the then expiring Renewal Term. Except as otherwise
provided in Article 15 hereof, Lessee must give ninety (90)
days written notice to Lessor of its intent to exercise this
option prior to the expiration of the original Term of this
Lease or any Renewal Term, as the case may be.
ARTICLE 29. MISCELLANEOUS PROVISIONS
(A) All written notices shall be given to Lessor or
Lessee by certified mail or nationally recognized overnight
mail. Notices to either party shall be addressed to the
person and address given on the first page hereof. Lessor
and Lessee may, from time to time, change these addresses by
notifying each other of this change in writing. Notices of
overdue Rent may be sent to Lessee by regular, special
delivery, or nationally recognized overnight mail.
(B) The terms, conditions and covenants contained in
this Lease and any riders and plans attached hereto shall
bind and inure to the benefit of Lessor and Lessee and their
respective successors, heirs, legal representatives, and
assigns.
(C) This Lease shall be governed by and construed
under the laws of the State where the Leased Premises are
situate.
(D) In the event that any provision of this Lease
shall be held invalid or unenforceable, no other provisions
of this Lease shall be affected by such holding, and all of
the remaining provisions of this Lease shall continue in
full force and effect pursuant to the terms hereof.
(E) The Article captions are inserted only for
convenience and reference, and are not intended, in any way,
to define, limit, describe the scope, intent, and language
of this Lease or its provisions.
(F) In the event Lessee remains in possession of the
premises herein leased after the expiration of this Lease
and without the execution of a new lease and without
Lessor's written permission, Lessee shall be deemed to be
occupying said premises as a tenant from month-to-month,
subject to all the conditions, provisions, and obligations
of this Lease insofar as the same can be applicable to a
month-to-month tenancy except that the monthly installment
of Rent shall be One Hundred Fifty percent (150%) the amount
due on the last month prior to such expiration.
(G) If any installment of Rent (whether lump sum,
monthly installments, or any other monetary amounts required
by this Lease to be paid by Lessee and deemed to constitute
Rent hereunder) shall not be paid when due, or non-monetary
default shall remain uncured after the expiration of any
applicable cure period, Lessor shall have the right to
charge Lessee a late charge of $250.00 per month for each
month that any amount of Rent installment remains unpaid or
non-monetary default shall go uncured after the first such
occurrence in any 12 month period. Said late charge shall
commence after such installment is due or non-monetary
default goes uncured after the expiration of any applicable
cure period and continue until said installment, interest
and all accrued late charges are paid in full or such non-
monetary default is cured.
(H) Any part of the Leased Premises may be conveyed by
Lessor for private or public non-exclusive easement purposes
at any time, provided such easement does not interfere with
the access to the Leased Premises, visibility, or operations
of the business of Lessee. In such event Lessor shall, at
its own cost and expense, restore the remaining portion of
the Leased Premises to the extent necessary to render it
reasonably suitable for the purposes for which it was
leased, all to be done without adjustments in Rent to be
paid by Lessee. All proceeds from any conveyance of an
easement shall belong solely to Lessor.
(I) For the purpose of this Lease, the term "Rent"
shall be defined as Rent under Article 4, and any other
monetary amounts required by this Lease to be paid by
Lessee.
(J) Lessee agrees to cooperate with Lessor to allow
Lessor to obtain and use at Lessor's expense promotional
photographs of the Leased Premises, to the extent permitted
by Lessee's franchisor or licensor.
ARTICLE 30. REMEDIES
NON-EXCLUSIVITY. Notwithstanding anything contained
herein it is the intent of the parties that the rights and
remedies contained herein shall not be exclusive but rather
shall be cumulative along with all of the rights and
remedies of the parties which they may have at law or
equity. In the event of a breach by Lessor, Lessee shall be
entitled to all remedies at law or equity, to be
cumulatively enforced.
ARTICLE 31. HAZARDOUS MATERIALS INDEMNITY
Lessee covenants, represents and warrants to Lessor,
its successors and assigns, (i) that it has not used or
permitted and will not use or permit the Leased Premises to
be used, whether directly or through contractors, agents or
tenants, and to the best of Lessee's knowledge and except as
disclosed to Lessor in writing, the Leased Premises has not
at any time been used for the generating, transporting,
treating, storage, manufacture, emission of, or disposal of
any dangerous, toxic or hazardous pollutants, chemicals,
wastes or substances as defined in the Federal Comprehensive
Environmental Response Compensation and Liability Act of
1980 ("CERCLA"), the Federal Resource Conservation and
Recovery Act of 1976 ("RCRA"), or any other federal, state
or local environmental laws, statutes, regulations,
requirements and ordinances ("Hazardous Materials"); (ii)
that there have been no investigations or reports involving
Lessee, or the Leased Premises by any governmental authority
which in any way pertain to Hazardous Materials (iii) that
the operation of the Leased Premises has not violated and is
not currently violating any federal, state or local law,
regulation, ordinance or requirement governing Hazardous
Materials; (iv) that the Leased Premises is not listed in
the United States Environmental Protection Agency's National
Priorities List of Hazardous Waste Sites nor any other list,
schedule, log, inventory or record of Hazardous Materials or
hazardous waste sites, whether maintained by the United
States Government or any state or local agency; and (v) that
the Leased Premises will not contain any formaldehyde, urea
or asbestos, except as may have been disclosed in writing to
Lessor by Lessee at the time of execution and delivery of
this Lease. Lessee agrees to indemnify and reimburse
Lessor, its successors and assigns, for:
(a) any breach of these representations and
warranties, and
(b) any loss, damage, expense or cost
arising out of or incurred by Lessor which is the
result of a breach of, misstatement of or
misrepresentation of the above covenants,
representations and warranties, and
(c) any and all liability of any kind
whatsoever which Lessor may, for any cause and at
any time, sustain or incur by reason of Hazardous
Materials discovered on the Leased Premises during
the term hereof or placed or released on the
Leased Premises by Lessee;
together with all attorneys' fees, costs and disbursements
incurred in connection with the defense of any action
against Lessor arising out of the above. These covenants,
representations and warranties shall be deemed continuing
covenants, representations and warranties for the benefit of
Lessor, and any successors and assigns of Lessor and shall
survive expiration or sooner termination of this Lease. The
amount of all such indemnified loss, damage, expense or
cost, shall bear interest thereon at the lesser of 15% or
the highest rate of interest allowed by law and shall become
immediately due and payable in full on demand of Lessor, its
successors and assigns.
ARTICLE 32. ESCROWS
Upon a default by Lessee which is uncured after the
expiration of any applicable notice and cure period, or upon
the request of Lessor's Mortgagee, if any, Lessee shall
deposit with Lessor on the first day of each and every
month, an amount equal to one-twelfth (1/12th) of the
estimated annual real estate taxes, assessments and
insurance (if the insurance is to be purchased by Lessor)
("Charges") due on the Leased Premises, or such higher
amounts reasonably determined by Lessor as necessary to
accumulate such amounts to enable Lessor to pay all charges
due and owing at least thirty (30) days prior to the date
such amounts are due and payable. From time to time out of
such deposits Lessor will, upon the presentation to Lessor
by Lessee of the bills therefor, pay the Charges or at
Lessee's option, will upon presentation of receipted bills
therefor, reimburse Lessee for such payments made by Lessee.
In the event the deposits on hand shall not be sufficient to
pay all of the estimated Charges when the same shall become
due from time to time or the prior payments shall be less
than the currently estimated monthly amounts, then Lessee
shall pay to Lessor on demand any amount necessary to make
up the deficiency. The excess of any such deposits shall be
credited to subsequent payments to be made for such items.
If a default or an event of default shall occur under the
terms of this Lease, Lessor may, at its option, without
being required so to do, apply any Deposit on hand to cure
the default, in such order and manner as Lessor may elect.
ARTICLE 33. NET LEASE
Notwithstanding anything contained herein to the
contrary it is the intent of the parties hereto that this
Lease shall be a net lease and that the Rent defined
pursuant to Article 4 should be a net Rent paid to Lessor.
Any and all other expenses including but not limited to,
maintenance, repair, insurance, taxes, and assessments,
shall be paid by Lessee.
ARTICLE 34. DEVELOPMENT FINANCING AGREEMENT
The parties hereto hereby acknowledge that the terms
hereof are subject to and shall in the event of conflicts be
controlled by that certain Development Financing Agreement
of even date herewith, until such Agreement is terminated in
accordance with its terms.
ARTICLE 35. COUNTERPART EXECUTION
This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and
all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have respectively
signed and sealed this Lease as of the day and year first
above written.
LESSEE: Tumbleweed, LLC.
By: /s/ James Mulrooney
Its: Exec VP & CFO
By:
Its:
STATE OF KENTUCKY)
)SS.
COUNTY OF JEFFERSON)
The foregoing instrument was acknowledged before me
this 23rd day of November, 1998, by James Mulrooney and N/A,
as Exec VP & CFO and N/A , respectively, of Tumbleweed, LLC.
on behalf of said limited liability company.
/s/ Donna Sanders
Notary Public
LESSOR:
AEI INCOME & GROWTH FUND XXII
LIMITED PARTNERSHIP
By: AEI Fund Management XXI, Inc.
By:/s/ Robert P Johnson
Robert P. Johnson, President
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the
25th day of November, 1998, by Robert P. Johnson, the
President of AEI Fund Management XXI, Inc., a Minnesota
corporation, corporate general partner of AEI Income &
Growth Fund XXII Limited Partnership, on behalf of said
limited partnership.
/s/ Barbara J Kochevar
Notary Public
[notary seal]
EXHIBIT A LEGAL DESCRIPTION
A tract of land located in the Southeast Quarter of Section 15,
Township 31 North, Range 12 East, in Allen County, the State
of Indiana, more fully described as follows:
COMMENCING at an iron pipe situated in the Northeast corner of
Lot Number 86 in Ludwig Park Addition as recorded in Allen
County Plat Book 23, page 49; thence South 02 degrees 05
minutes 14 seconds East (assumed basis of bearings), a
distance of 187.33 feet along the East line of said Lot
Number 86 to a rebar stake with cap (Tazian) in the
Southeast corner thereof; thence North 88 degrees 54 minutes
40 seconds East, a distance of 4.44 feet along the South
line of said Ludwig Park to rebar stake in the Northwest
corner of Lot Number 14 in Rodenbecks' 5th Addition; thence
South 01 degrees 43 minutes 38 seconds East, a distance of
306.89 feet along the West line of said Rodenbeck's Addition
to a rebar stake with cap (D.A. Brown RLS #S0337), the True
Point of Beginning; thence south 01 degrees 43 minutes 38
seconds East, a distance of 218.58 feet along said West line
to a rebar stake with cap (D.A. Brown RLS #S0337); thence
South 80 degrees 54 minutes 08 seconds West, a distance of
269.90 feet to a rebar stake with cap (D.A. Brown RLS
#S0337); thence North 09 degrees 05 minutes 52 seconds West
a distance of 216.78 feet along the East right-of-way line
of State Road #3 to a rebar stake with cap (D.A. Brown RLS
#S0337); thence North 80 degrees 54 minutes 08 seconds East,
a distance of 297.94 feet to the Point of Beginning; said
tract containing 1.41 acres, more or less.
END OF EXHIBIT A
ASSIGNMENT OF LEASE AGREEMENT;
ACCEPTANCE OF ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT
WHEREAS CENTURION VIDEO, LTD., a Texas limited partnership
("Centurion", "Assignor") and AEI INCOME & GROWTH FUND XXII
LIMITED PARTNERSHIP. ("AEI", "Assignee"), have entered into
that certain purchase and sale agreement (the "Purchase and
Sale Agreement") dated October 8, 1998 for that certain real
property (the "Property") described in Exhibit A attached
hereto and made a part hereof.
WHEREAS Hollywood Entertainment Corporation, an Oregon
corporation, has entered into a lease agreement dated
September 27, 1997 with Centurion Video, Ltd. (the "Lease");
NOW THEREFORE Centurion hereby sells, assigns, transfers and
sets over to AEI all of its right, title and interest in and
to the Lease as General Partner of Landlord under the Lease
subject to the terms and conditions set forth in the
Purchase and Sale Agreement (the "Assignment") and subject
to the indemnification set forth in the Assignment of
Warranties and Indemnification for Landlord Warranty"
(executed simultaneously herewith) by Centurion for the one
year warranty period contained in paragraph 6.4 of the
Lease.
Except as otherwise noted, Assignee hereby assumes all of
Assignor's obligations under the Lease which are preferable
on or after the Effective Date hereof. Assignor agrees to
defend, indemnify and hold harmless Assignee from and
against all claims, fines, judgments, settlements, damages,
losses, costs, expenses and attorney's fees arising out of,
resulting from or related in any way whatsoever to the
obligations of the Lease occurring prior to the Effective
Date hereof and not assigned or assumed by Assignee.
Assignee agrees to defend, indemnify and hold harmless
Assignor from and against all claims, fines, judgments,
settlements, damages, losses, costs, expenses and attorney's
fees arising out of, resulting from or related in any way
whatsoever to the obligations under the Lease assumed by
Assignor.
Assignor represents and warrants that it is now the absolute
owner of said Lease with full right and title to assign the
same and the Rents; that said Lease is valid, in full force
and effect and has not been modified or amended except as
disclosed to Assignee; that there are no outstanding
assignments or pledges thereof that will not be released as
of Closing; that there are no existing defaults under the
provisions thereof on the part of any party to the Lease;
that no rents have been waived, anticipated, discounted,
compromised or released; and that Tenant has no defense,
setoffs, or counterclaims against Assignor.
ASSIGNOR: ASSIGNEE:
CENTURION VIDEO, LTD. AEI INCOME & GROWTH FUND XXII
A TEXAS LIMITED PARTNERSHIP LIMITED PARTNERSHIP, A MINNESOTA
LIMITED PARTNERSHIP
By: CENTURION DEVELOPMENT By: AEI FUND MANAGEMENT XXII, INC.
CORPORATION, A NORTH CAROLINA
CORPORATION, ITS GENERAL PARTNER
By: /s/ Jeffrey R Wakeman By: /s/ Robert P Johnson
Jeffrey R Wakeman Robert P Johnson
Title: President Title: President
Dated: Dated: 1/12/99
EXHIBIT A
Lot 1 Wal*Mart Square as recorded in Map Book 70, Page 25 of
the Records of the Judge of Probate, Mobile County, Alabama
FIRST AMENDMENT TO NET LEASE AGREEMENT
THIS AMENDMENT TO NET LEASE AGREEMENT, made and entered
into effective as of the 27th day of January, 1999, by and
between AEI Income & Growth Fund XXII Limited Partnership, a
Minnesota limited partnership whose corporate general partner is
AEI Fund Management XXI, Inc., a Minnesota corporation (AFund
XXII@); AEI Income & Growth Fund XXI Limited Partnership, a
Minnesota limited partnership whose corporate general partner is
AEI Fund Management XXI, Inc., a Minnesota corporation ("Fund
XXI"); AEI Real Estate Fund XVIII Limited Partnership, a
Minnesota limited partnership whose corporate general partner is
AEI Fund Management XVIII, Inc., a Minnesota corporation ("Fund
XVIII"); and AEI Real Estate Fund XVII Limited Partnership, a
Minnesota limited partnership whose corporate general partner is
AEI Fund Management XVII, Inc., a Minnesota corporation ("Fund
XVII"), all of whose principal business address is 1300 Minnesota
World Trade Center, 30 East Seventh Street, St. Paul, Minnesota
55101 (hereinafter collectively referred to as "Lessor"), and
Americana Dining Corp. (hereinafter referred to as "Lessee"),
whose principal business address is One Corporate Place, 55
Ferncroft Road, Danvers, MA 01923;
WITNESSETH:
WHEREAS, Lessor is the fee owner of a certain parcel of real
property and improvements located at Washington Village Drive,
Dayton, Ohio, and legally described in Exhibit "A", which is
attached hereto and incorporated herein by reference; and
WHEREAS, Lessee has constructed the building and
improvements (together the "Building") on the real property
described in Exhibit "A", which Building is described in the
plans and specifications heretofore submitted to Lessor; and
WHEREAS, Lessee and Lessor Fund XXII have entered into that
certain Net Lease Agreement dated June 29, 1998 (the ALease@)
providing for the lease of said real property and Building (said
real property and Building hereinafter referred to as the "Leased
Premises"), from Lessor upon the terms and conditions therein
provided in the Lease;
Whereas, effective as of August 27, 1998, Lessor Fund XXII
transferred for good value: a 25% undivided interest as tenant in
common in the Leased Premises and the Lease to Fund XXI; a 38%
undivided interest as tenant in common in the Leased Premises
and the Lease to Fund XVIII; and a 14% undivided interest as
tenant in common in the Leased Premises and the Lease to Fund
XVII.
NOW, THEREFORE, in consideration of the Rents, terms,
covenants, conditions, and agreements hereinafter described to be
paid, kept, and performed by Lessee, including the completion of
the Building and other improvements constituting the Leased
Premises, Lessee and Lessor do hereby agree to amend the Lease as
follows:
1. Article 2(A) and (B) of the Lease shall henceforth read as
follows:
ARTICLE 2. TERM
(A) The term of this Lease ("Term") shall be Twenty (20)
consecutive "Lease Years", as hereinafter defined, commencing
January 27th, 1999, plus the period commencing June 29, 1998
("Occupancy Date") through January 31, 1999 with the contemplated
initial term hereof ending on January 31, 2019.
(B) The first full Lease Year shall commence on the date of
this First Amendment and continue through January 31, 2000.
2. Article 4(A) of the Lease shall henceforth read as follows:
ARTICLE 4. RENT PAYMENTS
(A) Annual Rent Payable for the first and second Lease
Years: Lessee shall pay to Lessor an annual Base Rent of
$405,460.65, which amount shall be payable in advance on the
first day of each month in equal monthly installments of
$7,771.33 to Fund XXII, $8,447.10 to Fund XXI, $12,839.59 to Fund
XVIII, and $ 4,730.37 to Fund XVII. If the first day of the
first full Lease Year of the Lease Term is not the first day of a
calendar month, then the monthly Rent payable for that partial
month shall be a prorated portion of the equal monthly
installment of Base Rent.
Article 35 is hereby deleted in its entirety; Lessor and Lessee
agree that the referenced Development Financing Agreement is
terminated in accordance with its terms. All other terms and
conditions of the Lease shall remain in full force and effect.
Lessee has accepted delivery of the Leased Premises and has
entered into occupancy thereof.
Lessee has fully inspected the Premises and found the same to be
as required by the Lease, in good order and repair, and all
conditions under the Lease to be performed by the Lessor have
been satisfied.
As of this date, the Lessor is not in default under any of the
terms, conditions, provisions or agreements of the Lease and the
undersigned has no offsets, claims or defenses against the Lessor
with respect to the Lease.
This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have respectively signed
and sealed this Lease as of the day and year first above written.
LESSEE: Americana Dining Corp.,
By: /s/ Donna Depoian
Its: Secretary
Attest
/s/ Muriel Smith
Muriel Smith
Print Name
Attest
/s/ Cheryl N. Carver
Cheryl N Carver
Print Name
STATE OF MASSACHUSETTS)
)SS.
COUNTY OF ESSEX)
The foregoing instrument was acknowledged before me this
25th day of January 1999, by Donna Depoian, as Sectray of
Americana Dining Corp. on behalf of said company.
/S/ Donna M Luciano
Notary Public [notary seal]
[Remainder of page intentionally left blank]
LESSOR: AEI INCOME & GROWTH FUND XXII
LIMITED PARTNERSHIP
By: AEI Fund Management XXI, Inc.
Attest
/s/ Rick J Vitale By: /s/ Robert P Johnson
Rick J Vitale Robert P. Johnson, President
Print Name
Attest
/s/ Stacey R.E. Jones
Stacey R.E. Jones
Print Name
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 26th
day of January, 1999, by Robert P Johnson , the President of AEI
Fund Management XXI, Inc., a Minnesota corporation, corporate
general partner of AEI Income & Growth Fund XXII Limited
Partnership, on behalf of said limited partnership.
/s/ Barbara J Kochevar
Notary Public
[notary seal]
[Remainder of page intentionally left blank]
AEI INCOME & GROWTH FUND XXI
LIMITED PARTNERSHIP
By: AEI Fund Management XXI, Inc.
Attest
/s/ Rick J Vitale By: /s/ Robert P Johnson
Rick J Vitale Robert P. Johnson, President
Print Name
Attest
/s/ Stacey R.E. Jones
Stacey R.E. Jones
Print Name
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 26th
day of January, 1999, by Robert P Johnson , the President of AEI
Fund Management XXI, Inc., a Minnesota corporation, corporate
general partner of AEI Income & Growth Fund XXI Limited
Partnership, on behalf of said limited partnership.
[Remainder of page intentionally left blank]
AEI REAL ESTATE FUND XVIII
LIMITED PARTNERSHIP
By: AEI Fund Management XVIII, Inc.
Attest
/s/ Rick J Vitale By: /s/Robert P Johnson
Rick J Vitale Robert P. Johnson, President
Print Name
Attest
/s/ Stacey R.E. Jones
Stacey R.E. Jones
Print Name
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 26th
day of January, 1999, by Robert P Johnson , the President of AEI
Fund Management XVIII, Inc., a Minnesota corporation, corporate
general partner of AEI Real Estate Fund XVIII Limited
Partnership, on behalf of said limited partnership.
/s/ Barbars J Kochevar
Notary Public
[Remainder of page intentionally left blank]
AEI REAL ESTATE FUND XVII
LIMITED PARTNERSHIP
By: AEI Fund Management XVII, Inc.
Attest
/s/ Rick J Vitale By: /s/ Robert P Johnson
Rick J Vitale Robert P. Johnson, President
Print Name
Attest
/s/ Stacey R.E. Jones
Stacey R.E. Jones
Print Name
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 26th
day of January, 1999, by Robert P Johnson , the President of AEI
Fund Management XVII, Inc., a Minnesota corporation, corporate
general partner of AEI Real Estate Fund XVII Limited Partnership,
on behalf of said limited partnership.
/s/ Barbara J Kochevar
Notary Public
[Remainder of page intentionally left blank]
LAWYERS TITLE INSURANCE CORPORATION
EXHIBIT A 2507DC
MF 94-676-303
Situate in the Township of Washington, County of Montgomery and
State of Ohio and being Lot Numbered Twelve (12) Washington
Village Park, Section 12, as recorded in Plat Book 155, page 50
of the plat records of Montgomery County, Ohio ("Lot 12").
Together with a perpetual, nonexclusive easement for vehicular
ingress and egress on, over and across a certain 1.061 acre area,
more or less known as Lot Numbered Thirteen (13) Washington
Village Pare, Section Twelve, as recorded in Plat Book 156, Page
50 of the Plat Records of Montgomery County, Ohio ("Lot 13"), a
private roadway presently known as Jdrexel Park Lane ("Roadway
Easement Area"), to provde ingress and egress between the
Premises and the public roadways presently know as Washington
Village Drive and Lyons Road.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001023458
<NAME> AEI INCOME & GROWTH FUND XXII LTD PARTHNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 10,206,442
<SECURITIES> 0
<RECEIVABLES> 46,634
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,253,076
<PP&E> 3,060,538
<DEPRECIATION> (16,693)
<TOTAL-ASSETS> 13,296,921
<CURRENT-LIABILITIES> 400,768
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,896,153
<TOTAL-LIABILITY-AND-EQUITY> 13,296,921
<SALES> 0
<TOTAL-REVENUES> 545,711
<CGS> 0
<TOTAL-COSTS> 249,097
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 296,614
<INCOME-TAX> 0
<INCOME-CONTINUING> 296,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 296,614
<EPS-PRIMARY> 24.75
<EPS-DILUTED> 24.75
</TABLE>
EXHIBIT 99
FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT
Statements regarding the future prospects of the Partnership
must be evaluated in the context of a number of factors that may
materially affect its financial condition and results of
operations. Disclosure of these factors is intended to permit
the Partnership to take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Most of
these factors have been discussed in prior filings by the Company
with the Securities and Exchange Commission. Although the
Partnership has attempted to list the factors that it is
currently aware may have an impact on its operations, other
factors may in the future prove to be important and the following
list should not necessarily be considered comprehensive.
General
Purchase of Unspecified Properties. Although the cash
available to the Partnership will be used to acquire non-
residential commercial properties (including single-tenant
properties in the restaurant and retail industry) that are
subject to long-term triple net leases, the Partnership may not
have identified all of the properties for acquisition. Whenever
a reasonable probability arises that the Partnership will invest
in any other property, the property will be identified in the
next quarterly filing by the Partnership with the SEC, or if the
property is very material to the Partnership, in a current
filing. Investors will not have an opportunity to evaluate the
relevant economic, financial and other factors regarding the
properties in which cash will be invested. Investors must rely
upon the ability of the General Partners with respect to the
investment of such cash and management of the properties. No
assurance can be given that the Partnership will be successful in
obtaining suitable investments or that the objectives of the
Partnership will be achieved.
Conflicts of Interest. The General Partners and their
Affiliates provide substantially all of the management services
to the Partnership and have an interest in the Partnership. In
addition, the General Partners manage a number of other
Partnerships engaged in investment in net leased real estate,
some of which may have purchased, or may purchase in the future,
joint interests in the properties the Partnership acquires. The
operation of the Partnership involves various conflicts of
interest for the General Partners.
Reliance On Management. Except for certain voting rights
afforded Limited Partners by the Limited Partnership Agreement,
the Limited Partners have no control over the management of the
Partnership or its properties, but must rely almost exclusively
upon the General Partners.
Financial Position of General Partners. The Managing
General Partner, was formed in 1994 to serve as general partner
of AEI Income and Growth Fund XXI Limited Partnership, an
affiliated limited partnership with substantially the same
structure and investment objectives as the Partnership. The
Managing General Partner does not have substantial net worth.
The Individual General Partner, Robert P. Johnson, who represents
that he has a net worth in excess of $2,400,000, has been
involved as a general partner in public and private net lease
real estate partnerships and energy partnerships for more than
twenty years. Mr. Johnson could become subject to claims of
creditors for liabilities unrelated to the Partnership's business
in an amount that could adversely affect the Partnership. A
substantial portion of the assets of the Individual General
Partner consist of illiquid investments that were valued using
valuation formulae established by, and which are believed
reasonable by, the Individual General Partner. There can be no
assurance that such assets could be sold at their estimated
value.
Death or Withdrawal of General Partners. In the event of
the death, removal, bankruptcy or withdrawal of both of the
General Partners, the Partnership will be dissolved. While the
Limited Partners may elect, under such circumstances, to continue
the Partnership and its business with a new general partner, the
Limited Partners may not be able to find, or agree upon, a person
willing to act as general partner. In such event, the
Partnership would be liquidated. Sale of properties under such
circumstances might not produce an advantageous price and the
investors might suffer adverse tax and economic consequences.
The Partnership will not have the benefit of insurance on the
life of the Individual General Partner.
Indemnification of General Partners. Under the Limited
Partnership Agreement, the General Partners are not liable to the
Partnership or to the Limited Partners for any act or omission
that they determine in good faith is in the best interest of the
Partnership, except for acts of negligence or misconduct, and
under certain circumstances the General Partners will be entitled
to indemnification from the Partnership for certain losses.
Not a Real Estate Investment Trust or Investment Company.
The Partnership is not a mutual fund or a real estate investment
trust and it will not operate in a manner as to be classified as
an "investment company" for purposes of the Investment Company
Act of 1940. The management and the investment practices and
policies of the Partnership are not supervised or regulated by
any federal or state authority.
Representation by Attorneys and Accountants. The
Partnership, its Limited Partners and the General Partners are
not represented by separate counsel. The legal counsel and
accountants for the Partnership have not been retained, and will
not be available, to provide legal counseling or tax advice to
investors. Therefore, investors should retain their own legal
and tax advisors.
No Market for Units/Restrictions on Transfer. There is no
public market for the Units. In addition, under section 9.1 of
the Partnership Agreement, Units may not be assigned without
notice to and approval by the Managing General Partner. Although
such approval is required when the assignment or transfer is not
in violation of the Partnership Agreement, the Partnership
Agreement places substantial restrictions on the form and number
of transfers that may be made in order to retain the treatment of
the Partnership as a partnership for income tax purposes under
Internal Revenue Service definitions of "Publicly Traded
Partnerships."
Limited Liability. Although investors are limited partners
in a limited partnership, certain events under the Uniform
Limited Partnership Act can result in general liability being
imposed upon them. For example, if a Limited Partner takes part
in control of the business of the Partnership, he or she may
become liable as a general partner. Also, it is possible that a
failure on the part of the Partnership to file certain documents
in some jurisdictions in which it operates may jeopardize their
limited liability. Under the Minnesota Revised Uniform Limited
Partnership Act, however, an investor generally will be liable to
a Partnership or its creditors only for any difference between
such investor's contributions to the capital of the Partnership
and the amount of such contribution the investor has committed in
writing to make, for amounts or property wrongfully distributed
to such investor by the Partnership, and for any return of such
investor's contributions to the capital of the Partnership, plus
interest, to the extent that a creditor extended credit or had a
claim against the Partnership prior to such return.
Repurchase of Units. The Partnership Agreement provides
that Partners may tender Units to the Partnership for repurchase
by it commencing in 1998. In 1998 and 1999, the repurchase price
will be equal to 80% of the Limited PartnerOs Adjusted Capital
Contribution. In each year thereafter the repurchase price will
be calculated by the General Partners twice a year based on the
value of the PartnershipOs assets. The Partnership is not
required, however, to repurchase Units in excess of five percent
of the Units outstanding in any year and is not required to
repurchase Units if such repurchase would impair the
Partnership's ability to continue operations. The repurchase
price for any Units must be paid out of either (i) Partnership
revenues otherwise distributable to Limited Partners or (ii)
Partnership borrowings. Accordingly, to the extent that the
Partnership repurchases Units, distributions to remaining Limited
Partners may initially be reduced. Moreover, there may be
circumstances under which Partnership revenues and borrowings
will be insufficient to fully fund such repurchases.
Distributions of Capital. During the acquisition phase of
the Partnership's operations, the General Partners intend to
distribute all interest income earned on proceeds that are
temporarily invested. To the extent that net operating revenues
are not sufficient to fund all such distributions, they may
constitute a return of capital.
Temporarily Invested Proceeds. Pending investment in
properties, the offering proceeds will be invested in short-term
government securities or in insured deposits with a financial
institution and will earn interest at short-term deposit rates.
The amount invested in insured accounts may periodically exceed
insurance limits and there can be no assurance that the
Partnership would recover the full amount of the account if the
financial institution in which they are deposited were placed in
receivership. No such funds, however, will be invested in the
accounts of an institution with less than $100 million in assets
or capital of less than seven percent of assets.
Risks Involved in Real Estate Transactions
Risks of Real Estate Ownership. The Partnership's
investment in non-residential commercial properties will be
subject to the risks generally incident to the ownership of real
property, including risks related to national economic
conditions, changes in the investment climate for real estate,
changes in local market conditions, changes in interest rates,
changes in real estate tax rates, other operating expenses,
governmental rules and fiscal policies, uninsured losses, the
financial condition of tenants, and other factors beyond the
control of the General Partners. The Partnership's properties
are subject to the risk of the inability to retain tenants or of
the default by tenants (and the inability to lease properties to
new tenants thereafter), which could result from adverse changes
in local real estate markets or other factors. The General
Partners believe that because the Partnership will be investing
in triple net lease properties on an all-cash basis, some of the
general risks associated with investments in real property will
be reduced.
No Assurance of Property Appreciation or Partnership
Profits. There is no assurance that the properties to be
acquired by the Partnership will operate at a profit, will
appreciate in value, or will be sold at a profit. The
marketability and value of each property will depend upon many
factors beyond the control of the General Partners. Since
investments in real property are generally illiquid, there is no
assurance that there will be a market for any property.
Adequacy of Reserves. Because the Partnership's properties
will be subject to triple net leases, the General Partners will
retain only a small working capital reserve. There can be no
assurance that adequate reserves will be available.
Tenant Default. The financial failure of a tenant of the
Partnership may cause a reduction in the Net Cash Flow of the
Partnership and a decline in the value of the property leased to
such tenant. In the event of such default, there is no assurance
that the Partnership would be able to find a new tenant for the
property at the same rental, or to sell the property without
incurring a loss. Like most entities that invest in real estate,
prior Partnerships sponsored by Affiliates of the General
Partners have purchased properties that have been leased to
tenants who have defaulted on lease obligations. In the event of
the bankruptcy of a tenant, there can be no assurance that the
Partnership could rapidly recover leased property from a trustee
in bankruptcy proceedings or that the Partnership would receive
rent in such proceedings sufficient to cover its expenses, if
any, with respect to such property. Bankruptcies have caused
several months' interruption in rental payments from lessees of
properties in some prior partnerships.
Net Leases. Net leases frequently give the tenant greater
discretion in the use of the property than do ordinary property
leases (e.g., with respect to rights to sublease, to make
alterations in the leased premises and to terminate the lease in
certain circumstances). Although the value of such properties
might be adversely affected by the failure of tenants to renew
such leases, the General Partners will attempt to reduce this
risk by entering into long-term leases of 10 or more years.
Single Use Properties. The properties which the Partnership
purchases may be designed or built primarily for a particular
tenant such as a specific restaurant franchisee. If the
Partnership holds such a property upon termination of the lease
and the tenant elects not to renew its lease, or if such a tenant
otherwise defaults on its lease obligations, the property may not
be readily marketable to a new tenant without substantial capital
improvements or remodeling. Such improvements might require
expenditure of funds otherwise available for distribution or the
sale of the property at a lower price.
The Restaurant and Retail Industry. It is anticipated that
many of the properties acquired or to be acquired will be leased
to operators in the restaurant industry or in the retail
industry. Both of these industries are highly competitive and
can be affected by factors such as changes in regional or local
economies, seasonality and changes in consumer preference.
Although the General Partners will attempt to limit these risks
by emphasizing acquisition of properties for cash that are leased
to established national and regional companies, there can be no
assurance that a downturn affecting such industries would not
have an adverse effect on the Partnership.
Construction Lending. The Partnership may advance funds to
certain seller/lessees prior to acquisition to assist in
financing the construction of such properties. Although all of
such advances will be secured by the property and all
improvements thereon, and although none of the ten public funds
previously sponsored by the General Partners have ever
experienced a default on a construction loan, construction
lending is subject to a number of risks. Risks incurred by
owners during construction, including cost overruns,
nonperforming contractors, changes in construction codes and
changes in cost, can cause financial difficulty and increase the
likelihood of default on a construction loan. If a borrower
defaults on an advance during construction, the Partnership's
primary recourse is to foreclose on the property. Such
foreclosure is normally subject to a period of redemption,
depending upon the applicable laws of the jurisdiction in which
the property is located, of up to one year during which time the
Partnership would not be able to dispose of the property and
during which time the property would not produce income. In
addition, if the Partnership acquired title to a property through
foreclosure, there can be no assurance that the property could be
resold at a price equal to the principal amount of the loan. If,
as is likely, the property were only partially complete at the
time of foreclosure, the Partnership might be required to expend
capital to complete the property to enhance its sale. Although
in many cases it is anticipated that the Partnership may have
recourse against an individual guarantor in the event of a
default, there can be no assurances that the ability of the
guarantor to satisfy the default would not be impaired by the
same financial circumstances that caused the default.
Sale of Properties and Reinvestment of Proceeds. The
General Partners may, from time to time, sell properties and
reinvest the proceeds therefrom in additional net lease
properties. Limited Partners will not have the right to receive
cash upon sale of the properties other than cash representing a
majority of the gain, and must rely on the ability of the General
Partners to find appropriate properties in which to reinvest such
proceeds. Upon the final sale of all Partnership properties, if
the Partnership provides financing to purchasers, the liquidation
of the Partnership could be delayed until such financing is fully
collected.
Uninsured Losses. The General Partners will arrange for
comprehensive insurance coverage on the properties. However,
certain types of losses (generally of a catastrophic nature) may
be either uninsurable or not economically insurable. Should such
a disaster occur, the Partnership could suffer a complete loss of
capital invested in, and any profits expected from, the affected
properties.
Federal Income Tax Risks
Audits. A ruling from the Internal Revenue Service (the
"Service") has not been obtained with respect to any tax aspect
of an investment in the Partnership. Availability of certain tax
consequences intended to be realized by Limited Partners may be
challenged upon audit by the Service. Any adjustment resulting
from an audit by the Service also could result in adjustments to
the tax returns of the Limited Partners and may lead to an
examination of other items unrelated to the Partnership or an
examination of prior tax returns. Moreover, Limited Partners
could incur substantial legal and accounting costs in connection
with any challenge by the Service of the position taken by the
Partnership on its tax returns regardless of the outcome of such
a challenge.
Partnership Allocations. The Partnership Agreement
allocates to each Partner his or her distributive share of
Partnership tax items. Whether such allocations will be
respected for federal income tax purposes is governed by Section
704(b) of the Code and regulations promulgated thereunder.
Section704(b) generally requires that Partnership allocations
must have substantial economic effect. The allocations contained
in the Partnership Agreement appear to satisfy the requirements
of regulations under Section 704(b) as to allocations that do not
cause or increase a deficit balance in a Partner's capital
account. Counsel for the Partnership has concluded, therefore,
as of the date of this Prospectus, that it is more likely than
not that the allocations under the Partnership Agreement will be
recognized for federal income tax purposes under Section 704(b)
of the Code so long as such conditions are satisfied. Compliance
with the regulations depends, in certain cases, on the individual
tax situations of the Partners, and counsel's opinion does not
extend to such situations.
New Tax Legislation--Changes in Federal Tax Laws,
Regulations and Interpretations Thereof. Investors should not
rely unduly on the prospect that tax consequences provided by
existing law will continue to be afforded or that changes in the
interpretation of applicable income tax laws will not be made by
administrative or judicial action that will adversely affect the
tax consequences of an investment in the Partnership. Tax
benefits of an investment in the Partnership could be reduced or
tax liabilities could be incurred by reason of changes in the tax
law. Any legislative, administrative or judicial changes may or
may not be retroactive with respect to transactions entered into
prior to the effective date of such changes.
Partnership Income. For any year in which the Partnership
has taxable net income or any gain on sale of properties,
individual Partners will be required to report their allocable
share of such income or gain, whether or not net cash in a
corresponding amount is distributed to them, on their federal and
state tax returns and will be liable for the payment of taxes
thereon. Such taxes could be greater than cash distributions
received by a Partner from the Partnership for the year,
particularly in years in which the Partnership sells properties
and reinvests the proceeds therefrom or uses distributable Net
Cash Flow to repurchase Units. Partners participating in a
Distribution Reinvestment Plan will be required to report the net
income from the Partnership that might otherwise have been
covered by distributions that are reinvested even though they
will not receive any cash from such distributions.
Tax Liability Upon Sale or Disposition of Property or Units.
A sale or other disposition of a property or a disposition of
Units by a Limited Partner may result in substantial tax
liability to such Limited Partner. Furthermore, under certain
circumstances, the taxes payable by a Limited Partner resulting
from the sale of a property or from the disposition of Units by
such Limited Partner could exceed the cash available to such
Limited Partner from such sale or the proceeds from such
disposition of Units.
