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, 1999
Commission file number: 333-67287
AEI INCOME & GROWTH FUND 23 LLC
(Name of Small Business Issuer in its Charter)
State of Delaware 41-1922579
(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 Liability Company 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, 1999 were
$25,872.
As of February 29, 2000, there were 4,174.18 Units of limited
membership 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 $4,174,180.
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 23 LLC (the "LLC" or the
"Registrant") is a limited liability company which was organized
pursuant to the laws of the State of Delaware on October 14,
1998. The registrant is comprised of AEI Fund Management XXI,
Inc. (AFM), as the Managing Member of the LLC, Robert P. Johnson,
the President and sole shareholder of AFM, as the Special
Managing Member, and purchasers of LLC Units as Limited Members.
The LLC offered for sale up to $24,000,000 of limited membership
interests (the "Units") (24,000 Units at $1,000 per Unit)
pursuant to a registration statement effective March 23, 1999.
The LLC commenced operations on September 30, 1999 when minimum
subscriptions of 1,500 Limited Membership Units ($1,500,000) were
accepted. At December 31, 1999, 2,993.818 Units ($2,993,818)
were subscribed and accepted by the LLC. The Managing Members
have contributed capital of $1,000.
The LLC 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. The
properties will be commercial, single tenant buildings leased
under triple net leases. The LLC is continuing to review various
properties for acquisition until available subscription proceeds
are fully committed.
The LLC's properties will be purchased with subscription
proceeds without any indebtedness. The LLC will not finance
properties in the future to obtain proceeds for new property
acquisitions. If it is required to do so, the LLC may incur
short-term indebtedness to finance the day-to-day cash flow
requirements of the LLC (including cash flow necessary to
repurchase Units). The LLC will not incur borrowings while there
is cash available for distributions.
The LLC will hold its properties until the Managing
Members determine that the sale or other disposition of the
properties is advantageous in view of the LLC's investment
objectives. In deciding whether to sell properties, the Managing
Members 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 LLC 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 LLC reserves the right, at the
discretion of the Managing Members, to either distribute proceeds
from the sale of properties to the Members or to reinvest such
proceeds in additional properties, provided that sufficient
proceeds are distributed to the Limited Members to pay federal
and state income taxes related to any taxable gain recognized as
a result of the sale. It is anticipated that the LLC will
commence liquidation through the sale of its remaining properties
eight to ten years after completion of the acquisition phase,
depending upon the then current real estate and money markets,
the economic climate and the income tax consequences to the
Members.
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 LLC may enter into Lease Agreements. The properties
will be leased to various tenants under triple net leases, which
will be 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
LLC to receive additional rent in future years based on stated
rent increases.
ITEM 1. DESCRIPTION OF BUSINESS. (Continued)
The leases may 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 will be either
determined by a formula, or 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 February 25, 2000, the LLC purchased a parcel of land
in Kettering, Ohio for approximately $459,500. The land is
leased to Tumbleweed, Inc. (TWI) under a Lease Agreement with a
primary term of 15 years and annual rental payments of $39,058.
Simultaneously with the purchase of the land, the LLC entered
into a Development Financing Agreement under which the LLC will
advance funds to TWI for the construction of a Tumbleweed
restaurant on the site. The LLC is charging interest on the
advances at a rate of 8.5%. The total purchase price, including
the cost of the land, will be approximately $1,372,000. After
the construction is complete, the Lease Agreement will be amended
to require annual rental payments of approximately $135,500.
Competition
The LLC 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 LLC. At the time the LLC elects to dispose of its
properties, the LLC will be in competition with other persons and
entities to find buyers for its properties.
Employees
The LLC has no direct employees. Management services are
performed for the LLC by AEI Fund Management, Inc., an affiliate
of AFM.
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 LLC. In 1998, AEI completed an assessment of
its computer hardware and software systems and 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 LLC is not aware of any issues related to Year 2000 non
compliance with AEI systems or the systems of the various
tenants.
ITEM 2. DESCRIPTION OF PROPERTIES.
Investment Objectives
The LLC'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 LLC 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 Managing Members attempt to
diversify the type and location of the LLC's properties.
Description of Properties
The LLC's properties 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 LLC will hold an
undivided fee simple interest in the properties.
The LLC'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 LLC
decides to sell the property. At this time, the LLC 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 LLC would be competing with
other real estate owners, who have property vacancies, to attract
a new tenant to lease the property. The LLC'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.
As of December 31, 1999, the LLC does not own any
properties.
For tax purposes, the LLC's properties will be 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 39 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
LLC has tax-exempt Members, the LLC 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 will be the same as the basis for book
depreciation purposes.
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 LLC UNITS AND RELATED
SECURITY HOLDER MATTERS.
As of December 31, 1999, there were 152 holders of record
of the registrant's LLC Units. There is no other class of
security outstanding or authorized. The registrant's Units are
not a traded security in any market. However, beginning in
March, 2002, the LLC may acquire Units from Limited Members who
have tendered their Units to the LLC. Such Units may be acquired
at a discount. The LLC is not obligated to purchase in any year
more than 2% of the total number of Units outstanding at the
beginning of the year. In no event shall the LLC be obligated to
purchase Units if, in the sole discretion of the Managing
Members, such purchase would impair the capital or operation of
the LLC.
Cash distributions of $1,235 were made to the Managing
Members and $39,927 were made to the Limited Members in 1999.
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 year ended December 31, 1999, the LLC earned
$25,872 in investment income from subscription proceeds which
were invested in a short-term money market account. This
investment income constituted 100% of total income for the
period. The percentage of total income represented by investment
income declines as subscription proceeds are invested in
properties.
During the year ended December 31, 1999, the LLC paid
administration expenses to affiliated parties of $58,753. These
administration expenses include initial start-up costs and
expenses associated with processing distributions, reporting
requirements and correspondence to the Limited Members. During
the same period, the LLC incurred administration expenses from
unrelated parties of $905. These expenses represent direct
payments to third parties for legal and filing fees, direct
administrative costs, outside audit and accounting costs, and
other costs.
The LLC 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 LLC may distribute other available cash that
constitutes capital for accounting purposes.
As of December 31, 1999, the LLC's cash distribution rate
was 7.0% on an annualized basis. Pursuant to the Operating
Agreement, distributions of Net Cash Flow were allocated 97% to
the Limited Members and 3% to the Managing Members.
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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
AEI Fund Management, Inc. (AEI) performs all management
services for the LLC. In 1998, AEI completed an assessment of
its computer hardware and software systems and 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 LLC is not aware of any issues related to Year 2000 non
compliance with AEI systems or the systems of the various
tenants.
Liquidity and Capital Resources
The LLC's primary sources of cash will be proceeds from
the sale of Units, investment income, rental income and proceeds
from the sale of property. Its primary uses of cash will be
investment in real properties, payment of expenses involved in
the sale of Units, the organization of the LLC, the management of
properties, the administration of the LLC, and the payment of
distributions.
The Operating 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
Managing Members anticipate that 15% of such proceeds will be
applied to cover organization and offering expenses if only the
minimum proceeds are obtained and that 14% of such proceeds will
be applied to 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 Managing
Members.
Before the acquisition of all such 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 LLC'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 Operating 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 LLC is purchasing properties, cash flow from
investing activities (investment in real property) will remain
negative and will constitute the principal use of the LLC's
available cash flow. Until capital is invested in properties,
the LLC will remain extremely liquid.
On February 25, 2000, the LLC purchased a parcel of land
in Kettering, Ohio for approximately $459,500. The land is
leased to Tumbleweed, Inc. (TWI) under a Lease Agreement with a
primary term of 15 years and annual rental payments of $39,058.
Simultaneously with the purchase of the land, the LLC entered
into a Development Financing Agreement under which the LLC will
advance funds to TWI for the construction of a Tumbleweed
restaurant on the site. The LLC is charging interest on the
advances at a rate of 8.5%. The total purchase price, including
the cost of the land, will be approximately $1,372,000. After
the construction is complete, the Lease Agreement will be amended
to require annual rental payments of approximately $135,500.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
During the offering of Units, the LLC's primary source of
cash flow will be from the sale of LLC Units. The LLC commenced
its offering of LLC Units to the public through a registration
statement which became effective March 23, 1999 and will continue
until March 22, 2000, subject to extension to March 22, 2001 if
all 24,000 LLC Units are not sold before then. From March 23,
1999 to September 30, 1999, the minimum number of LLC Units
(1,500) needed to form the LLC were sold. On September 30, 1999,
a total of 1,868.616 Units ($1,868,616) were transferred into the
LLC. Through December 31, 1999, the LLC raised a total of
$2,993,818 from the sale of 2,993.818 Units. From subscription
proceeds, the LLC paid organization and syndication costs (which
constitute a reduction of capital) of $448,818.
After completion of the acquisition phase, the LLC's
primary use of cash flow is distribution and redemption payments
to Members. The LLC 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 LLC attempts to
maintain a stable distribution rate from quarter to quarter.
Beginning in 2002, the LLC may acquire Units from Limited
Members who have tendered their Units to the LLC. Such Units may
be acquired at a discount. The LLC is not obligated to purchase
in any year more than 2% of the number of Units outstanding at
the beginning of the year. In no event shall the LLC be
obligated to purchase Units if, in the sole discretion of the
Managing Member, such purchase would impair the capital or
operation of the LLC.
Until capital is invested in properties, the LLC will
remain extremely liquid. After completion of property
acquisitions, the LLC 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued)
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 LLC, must be evaluated in the
context of a number of factors that may affect the LLC's
financial condition and results of operations, including the
following:
<BULLET> Market and economic conditions which affect
the value of the properties the LLC 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 Managing Members of
conflicts with which they may be confronted;
<BULLET> the success of the Managing Member 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 LLC operate.
These and other risks to which the LLC 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 23 LLC
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Balance Sheet as of December 31, 1999 and 1998
Statements for the Year Ended December 31, 1999 and for the
Period From Inception (October 14, 1998) to December 31, 1998:
Operations
Cash Flows
Changes in Members' Equity
Notes to Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Members:
AEI Income & Growth Fund 23 LLC
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI Income
& Growth Fund 23 LLC (a Delaware limited liability company) as of
December 31, 1999 and 1998 and the related statements of
operations, cash flows and changes in members' equity for the
year ended December 31, 1999 and for the period from inception
(October 14, 1998) to December 31, 1998. These financial
statements are the responsibility of the LLC'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 23 LLC as of December 31, 1999 and
1998, and the results of its operations and its cash flows for
the year ended December 31, 1999 and for the period from
inception (October 14, 1998) to December 31, 1998 in conformity
with generally accepted accounting principles.
Minneapolis, Minnesota
January 25, 2000 Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
BALANCE SHEET
DECEMBER 31
ASSETS
1999 1998
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,583,998 $ 1,000
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 72,484 $ 0
Distributions Payable 40,462 0
----------- -----------
Total Current Liabilities 112,946 0
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members' Equity (633) 1,000
Limited Members' Equity, $1,000 Unit Value;
24,000 Units authorized; 2,994
Units issued and outstanding in 1999 2,471,685 0
----------- -----------
Total Members' Equity 2,471,052 1,000
----------- -----------
Total Liabilities and Members' Equity $ 2,583,998 $ 1,000
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE
PERIOD FROM INCEPTION (OCTOBER 14, 1998) TO DECEMBER 31, 1998
1999 1998
INCOME:
Investment Income $ 25,872 $ 0
---------- ----------
Total Income 25,872 0
---------- ----------
EXPENSES:
LLC Administration - Affiliates 58,753 0
LLC Administration and Property
Management - Unrelated Parties 905 0
---------- ----------
Total Expenses 59,658 0
---------- ----------
NET LOSS $ (33,786) $ 0
========== ==========
NET LOSS ALLOCATED:
Managing Members $ (338) $ 0
Limited Members (33,448) 0
---------- ----------
$ (33,786) $ 0
========== ==========
NET LOSS PER LIMITED MEMBERSHIP UNIT
(2,289 weighted average Units outstanding) $ (14.61) $ 0
========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE
PERIOD FROM INCEPTION (OCTOBER 14, 1998) TO DECEMBER 31, 1998
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (33,786) $ 0
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Increase in Payable to
AEI Fund Management, Inc. 72,484 0
---------- ----------
Net Cash Provided By
Operating Activities 38,698 0
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Managing Members 0 1,000
Capital Contributions from Limited Members 2,993,818 0
Organization and Syndication Costs (448,818) 0
Increase in Distributions Payable 40,462 0
Distributions to Members (41,162) 0
---------- ----------
Net Cash Provided By
Financing Activities 2,544,300 1,000
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,582,998 1,000
CASH AND CASH EQUIVALENTS, beginning of period 1,000 0
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $2,583,998 $ 1,000
========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE
PERIOD FROM INCEPTION (OCTOBER 14, 1998) TO DECEMBER 31, 1998
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, October 14, 1998 $ 0 $ 0 $ 0 0
Capital Contributions 1,000 0 1,000
-------- ---------- ---------- ----------
BALANCE, December 31, 1998 $ 1,000 $ 0 $ 1,000 0
Capital Contributions 0 2,993,818 2,993,818 2,993.82
Organization and
Syndication Costs (60) (448,758) (448,818)
Distributions (1,235) (39,927) (41,162)
Net Loss (338) (33,448) (33,786)
--------- ----------- ---------- ----------
BALANCE, December 31, 1999 $ (633) $2,471,685 $2,471,052 2,993.82
========= =========== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE>
<PAGE>
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) Organization -
AEI Income & Growth Fund 23 LLC (the LLC), a Limited
Liability Company, was formed on October 14, 1998 to acquire
and lease commercial properties to operating tenants. The
LLC's operations are managed by AEI Fund Management XXI,
Inc. (AFM), the Managing Member. Robert P. Johnson, the
President and sole shareholder of AFM, serves as the Special
Managing Member and an affiliate of AFM, AEI Fund
Management, Inc., performs the administrative and operating
functions for the LLC.
The terms of the offering call for a subscription price of
$1,000 per LLC Unit, payable on acceptance of the offer.
Under the terms of the Operating Agreement, 24,000 LLC Units
are available for subscription which, if fully subscribed,
will result in contributed Limited Members' capital of
$24,000,000. The LLC commenced operations on September 30,
1999 when minimum subscriptions of 1,500 Limited Membership
Units ($1,500,000) were accepted. At December 31, 1999,
2,993.818 Units ($2,993,818) were subscribed and accepted by
the LLC. The Managing Members have contributed capital of
$1,000. The LLC shall continue until December 31, 2048,
unless dissolved, terminated and liquidated prior to that
date.
During operations, any Net Cash Flow, as defined, which the
Managing Members determine to distribute will be distributed
97% to the Limited Members and 3% to the Managing Members.
Distributions to Limited Members will be made pro rata by
Units.
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the Managing Members determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to 7%
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 Members and 10% to the
Managing Members. Distributions to the Limited Members 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 property, will be
allocated first in the same ratio in which, and to the
extent, Net Cash Flow is distributed to the Members 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 Members and 1% to the Managing Members.
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) Organization - (Continued)
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 7% 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
Members and 10% to the Managing Members. Losses will be
allocated 98% to the Limited Members and 2% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the LLC or
withdrawal by a Managing Member, the Managing Members will
contribute to the LLC an amount equal to the lesser of the
deficit balances in their capital accounts or 1.01% of the
total capital contributions of the Limited Members over the
amount previously contributed by the Managing Members.
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the LLC 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.
Cash Concentrations of Credit Risk
At times throughout the year, the LLC's cash deposited in
financial institutions may exceed FDIC insurance limits.
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.
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(2) Summary of Significant Accounting Policies - (Continued)
Income Taxes
The income or loss of the LLC for federal income tax
reporting purposes is includable in the income tax returns
of the Members. Accordingly, no recognition has been
given to income taxes in the accompanying financial
statements.
The tax return, the qualification of the LLC as such for
tax purposes, and the amount of distributable LLC income
or loss are subject to examination by federal and state
taxing authorities. If such an examination results in
changes with respect to the LLC qualification or in
changes to distributable LLC income or loss, the taxable
income of the members would be adjusted accordingly.
Real Estate
All of the properties to be purchased by the LLC will be
leased under long-term triple net leases.
The building and equipment of the LLC will be depreciated
using the straight-line method for financial reporting
purposes based on estimated useful lives of 25 years and 5
years, respectively.
(3) Related Party Transactions -
AEI, AFM and AEI Securities, Inc. (ASI) received the
following compensation and reimbursements for costs and
expenses from the LLC:
Total Incurred by the LLC
for the Year Ended December 31
1999
a.AEI and AFM are reimbursed for all costs
incurred in connection with managing the
LLC's operations, maintaining the
LLC's books and communicating
the results of operations to the Limited
Members. $ 58,753
=========
b.AEI and AFM are reimbursed for all direct
expenses they have paid on the LLC'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. $ 905
=========
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(3) Related Party Transactions - (Continued)
Total Incurred by the LLC
for the Year Ended December 31
1999
c.ASI was the underwriter of the LLC 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 members' capital. $ 299,127
========
d.AEI is reimbursed for all costs incurred in
connection with managing the LLC's
offering and organization. $ 46,632
========
e.AEI is reimbursed for all expenses it has paid
on the LLC's behalf relating to the
offering and organization of the LLC.
These expenses included printing costs, legal
and filing fees, direct administrative costs,
underwriting costs and due diligence fees. $ 103,059
========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b, c, d, and e.
This balance is non-interest bearing and unsecured and is to
be paid in the normal course of business.
(4) Investments in Real Estate -
On February 25, 2000, the LLC purchased a parcel of land in
Kettering, Ohio for approximately $459,500. The land is
leased to Tumbleweed, Inc. (TWI) under a Lease Agreement
with a primary term of 15 years and annual rental payments
of $39,058. Simultaneously with the purchase of the land,
the LLC entered into a Development Financing Agreement under
which the LLC will advance funds to TWI for the construction
of a Tumbleweed restaurant on the site. The LLC is charging
interest on the advances at a rate of 8.5%. The total
purchase price, including the cost of the land, will be
approximately $1,372,000. After the construction is
complete, the Lease Agreement will be amended to require
annual rental payments of approximately $135,500.
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(5) Members' Capital -
Cash distributions of $1,235 were made to the Managing
Members and $39,927 were made to the Limited Members for the
year ended December 31, 1999. The Limited Members'
distributions represent $17.44 per LLC Unit outstanding
using 2,289 weighted average Units in 1999. The
distributions represent $17.34 per Unit of return of
contributed capital in 1999.
Beginning in March, 2002, the LLC may acquire Units from
Limited Members who have tendered their Units to the LLC.
Such Units may be acquired at a discount. The LLC is not
obligated to purchase in any year more than 2% of the number
of Units outstanding at the beginning of the year. In no
event shall the LLC be obligated to purchase Units if, in
the sole discretion of the Managing Members, such purchase
would impair the capital or operation of the LLC.
(6) 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:
1999
Net Loss for Financial
Reporting Purposes $ (33,786)
Capitalized Start-Up Costs
Under Section 195 59,658
----------
Taxable Income to Members $ 25,872
==========
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(6) Income Taxes - (Continued)
The following is a reconciliation of Members' Equity for
financial reporting purposes to Members' Equity reported for
federal income tax purposes for the year ended December 31:
1999
Members' Equity for
Financial Reporting Purposes $2,471,052
Capitalized Start-Up Costs
Under Section 195 59,658
Organization and Syndication Costs
Treated as Reduction of Capital
for Financial Reporting Purposes 448,818
----------
Members' Equity for
Tax Reporting Purposes $2,979,528
==========
(7) 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:
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Money Market Funds $2,583,998 $2,583,998 $ 1,000 $ 1,000
---------- ---------- -------- ---------
Total Cash and
Cash Equivalents $2,583,998 $2,583,998 $ 1,000 $ 1,000
========== ========== ======== =========
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 liability company and has no
officers, directors, or direct employees. The Managing Members
of the registrant are Robert P. Johnson and AFM. The Managing
Members manage and control the LLC's affairs and have general
responsibility and the ultimate authority in all matters
affecting the LLC's business. The director and officers of AFM
are as follows:
Robert P. Johnson, age 55, 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, 2000. 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 fifteen other limited
partnerships.
Mark E. Larson, age 47, 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,
2000. 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 Managing Member 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 LLC to
beneficially own 5% or more of the Units, by each Managing
Member, and by each officer or director of the Managing Member as
of February 29, 2000:
Name and Address Number of Percent
of Beneficial Owner Units Held of Class
AEI Fund Management XXI, Inc. 0 0%
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
The Managing Members 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 Managing Member of the registrant
are governed by, and are conducted in conformity with, the
limitations set forth in the Operating Agreement of the
registrant.
The following table sets forth the forms of compensation,
distributions and cost reimbursements paid by the registrant to
the Managing Members or their Affiliates in connection with the
operation of the Fund and its properties for the period from
inception through December 31, 1999.
Person or Entity Amount Incurred From
Receiving Form and Method Inception (October 14, 1998)
Compensation of Compensation To December 31, 1999
AEI Securities, Inc. Selling Commissions equal to 8% $ 299,127
(formerly AEI of proceeds plus a 2% nonaccountable
Incorporated) expense allowance, most of which was
reallowed to Participating Dealers.
Managing Members Reimbursement at Cost for other $ 149,691
and Affiliates Organization and Offering Costs.
Managing Members Reimbursement at Cost for all $ 0
and Affiliates Acquisition Expenses
Managing Members 3% of Net Cash Flow in any fiscal $ 1,235
year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(Continued)
Person or Entity Amount Incurred From
Receiving Form and Method Inception (October 14, 1998)
Compensation of Compensation To December 31, 1999
Managing Members Reimbursement at Cost for all $ 58,753
and 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, Member
relations and other administrative
functions.
Managing Members 1% of distributions of Net Proceeds $ 0
of Sale until Limited Members have
received an amount equal to (a) their
Adjusted Capital Contributions, plus
(b) an amount equal to 7% 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 Operating Agreement
require that the cumulative reimbursements to the Managing
Members 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, 1999, the cumulative reimbursements to the Managing
Members 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
Liability Company (incorporated by
reference to Exhibit 3.1 of the
registrant's Registration Statement on Form
SB-2 filed with the Commission on March 22,
1999 [File No. 333-67287]).
3.2 Operating 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 November
18, 1999 [File No. 333-67287]).
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 March 22,
1999 [File No. 333-67287]).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K AND 8-K/A. (Continued)
A. Exhibits -
Description
10.2 Development Financing
Agreement dated February 25, 2000, between
AEI Income & Growth Fund 23 LLC and
Tumbleweed, Inc. relating to the property
at 2030 E. Dorothy Lane, Kettering, Ohio.
10.3 Net Lease Agreement dated
February 25, 2000, between AEI Income &
Growth Fund 23 LLC and Tumbleweed, Inc.
relating to the property at 2030 E. Dorothy
Lane, Kettering, Ohio.
27 Financial Data Schedule for
year ended December 31, 1999.
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 23
Limited Liability Company
By: AEI Fund Management XXI, Inc.
Its Managing Member
March 10, 2000 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 10, 2000
Robert P. Johnson and Sole Director of Managing Member
/s/ Mark E. Larson Executive Vice President, Treasurer March 10, 2000
Mark E. Larson and Chief Financial Officer
(Principal Accounting Officer)
DEVELOPMENT FINANCING AGREEMENT
THIS AGREEMENT, made and entered into effective as of this
25 day of February, 2000, by and between Tumbleweed , Inc.
(hereinafter referred to as "Lessee"), whose address is 1900
Mellwood Avenue, Louisville, Kentucky, and AEI Income & Growth
Fund 23 LLC, 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 5,500 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, July 15, 2000,
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 Seventy-Two Thousand Dollars
($1,372,000) 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. "LTIC-CDD" shall mean Lawyers Title Insurance
Corporation, Construction Disbursement Department, the
nationally recognized title insurer, 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 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 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
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 LTIC-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.
18. NOTICE OF COMMENCEMENT\FURNISHING - To provided Lessor prior
to the initial request for a Disbursement, with a copy of the
Notice of Commencement and any amendments thereto prepared in
accordance with Ohio Revised Code Section 1311.04 and to be
recorded with the Franklin County Recorder's Office. Lessee
represents and warrants that a Notice of Commencement has not
been and will not be recorded prior to the recording of the Deed
transferring title to the Leased Premises to Lessor. Lessee
shall post and keep posted the Notice of Commencement and all
amendments thereto in a conspicuous place on the Premises during
the course of construction of the Project. Lessee further
represents and warrants to timely comply with all provisions of
Ohio Revised Code Section 1311.04 and failure to do so shall be
deemed an Event of Default as defined under the Lease. Lessee
shall provide Lessor with a copy of each Notice of Furnishing (as
defined in Ohio Revised Code Section 1311.05) received by Lessee
during the course of construction of any Improvements on the
Leased Premises.
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.
23. NOTICE OF COMMENCEMENT\FURNISHING - To provide Lessor prior
to the initial request for a Disbursement, with a copy of the
Notice of Commencement and any amendments thereto prepared in
accordance with Ohio Statute and to be recorded with the County
Recorder's Office where the Leased Premises are situate
immediately following the recording of the Memorandum of Lease
between the parties hereto. Lessee shall post and keep posted
the Notice of Commencement and all amendments thereto in a
conspicuous place on the Leased Premises during the course of
construction of the Project. Lessee further represents and
warrants to timely comply with all provisions of Ohio Statute
respecting keeping the Leased Premises free of mechanic's liens
and failure to do so shall be deemed an Event of Default as
defined under the Net Lease Agreement and this Agreement. Lessee
shall provide Lessor with a copy of each Notice of Furnishing (as
defined in Ohio Statute) received by Lessee during the course of
construction of any Improvements on the Leased Premises.
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 LTIC-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
dated the date of disbursement of the requested draw 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.
11. AMENDED NOTICE OF COMMENCEMENT - Lessee shall provide Lessor
with any amended Notice of Commencement filed in accordance with
Ohio Statue, and any Notice of Furnishing (as defined in Ohio
Statute) received by Lessee during the course of construction of
any Improvements on the Leased Premises.
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 Project
Architect, Lessee, Contractor, and if required by Lessor, by the
Inspecting Architect. 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. 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 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.
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 LTIC-
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 $3,254.79 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
$3,781.30 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 9.875% 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.
4.
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, Inc., a Delaware Corporation
By: /s/ Gregory A Compton
Its: VP/Secretary
Witnesses:
[Print Name] Dated: , 2000
[Print Name] Dated: , 2000
[Lessor's Signature appears on following page.]
AEI INCOME & GROWTH FUND 23 LLC
By: AEI Fund Management XXI, Inc.
By: /s/ Robert P Johnson
Robert P. Johnson, President
Witnesses:
[Print Name] Dated: , 2000
[Print Name] Dated: , 2000
Exhibit List:
Exhibit A - Description of Leased Premises
Exhibit B - Construction Costs
Exhibit C - Application for Payment
Exhibit D - Draw Request Certificate
Legal Description
Situate in the City of Kettering, County of Montgomery,
State of Ohio, and being Lot 1 Kettering Towne Center
Section 1 as recorded in Plat Book 177, Page 19 of the Plat
Records of Montgomery County, Ohio.
Together with non-exclusive rights of ingress and egress and
parking as set forth in Cross Easement Agreement by and
between Center-Plex Venture and AEI Income & Growth Fund 23
LLC dated January , 2000.
Exhibit B
TUMBLEWEED, INC. KETTERING, OH
PROJECT COST BUDGET OCTOBER 27, 1999
LAND AND HARD COSTS:
Land Acquisition Cost $450,000.00
Building/General Construction 453,000.00
Sitework $175,000.00
Owner Vendors
Landscaping 13,000.00
Dimmer Panels 4,560.00
Wains Coating/Trim 13,185.00
Electrical Panels 6,200.00
Air Balance 1,600.00
Lighting 5,275.00
HVAC 19,500.00
Joists 13,230.00
Construction Contingency-10.0% 78,205.00
SUBTOTAL HARD COSTS $1,232,755.00
SOFT COSTS
Survey 2,500.00
Appraisal 3,500.00
Phase I Environmental 2,500.00
Permits/TAP Fees 9,000.00
Architect/Engineering 20,750.00
Title Insurance & Closing Costs 10,000.00
Development Interest 15,500.00
Attorney's Fees - AEI 10,000.00
(Construction/Sale/Leaseback)
Attorney's Fees-Borrower 2,500.00
AEI Sale/Leaseback Commitment Fee 2% 26,640.00
AEI Credit Report Fees (Promesa) 500.00
AEI State Qualification Fees 1,500.00
AEI Site Inspection Fee 1,500.00
Tumbleweed Parcel Development Fee 12,636.00
AEI 1% Reimbursement 13,320.00
Miscellaneous 4,899.00
SUBTOTAL SOFT COSTS $139,245.00
TOTAL PROJECT COST $1,372,000.00
NET LEASE AGREEMENT
THIS LEASE, made and entered into effective as of the 25 day
of February, 2000, by and among AEI Income & Growth Fund 23 LLC,
a Minnesota limited liability company whose corporate Managing
Member is AEI Fund Management XXI, Inc., a Minnesota corporation
("Fund 23"), 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,
Inc., a Delaware corporation (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 Kettering, Ohio, 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
the effective date hereof ("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 $39,057.50, which amount
shall be payable in advance on the first day of each
month in equal monthly installments of $3,254.79 to
Lessor Fund 23. 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 2000.)
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 managing members, 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, Inc., 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, and Lessee shall pay the reasonable attorney's fees
incurred by Lessor to review such proposed sublet or assignment.
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, and Lessee
shall pay the reasonable attorney's fees incurred by Lessor to
review such proposed sublet or assignment.
(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 34
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 9.875% 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, Inc..
/s/ Christopher J Petri
[Print Name] Christopher J Petri By /s/ Gregory A Compton:
Its:VP/Secretary
/s/ Ron W Nelson
[Print Name] Ron W Nelson
STATE OF KENTUCKY)
)SS.
COUNTY OF JEFFERSON)
The foregoing instrument was acknowledged before me this
11th day of January, 2000, by Gregory A Compton, as VP/Secretary,
of Tumbleweed, Inc. on behalf of said corporation.
/s/ Lisa Wright H
Notary Public
LESSOR:
AEI INCOME & GROWTH FUND 23 LLC
By: AEI Fund Management XXI, Inc.
/s/ Tiffany Lieninger
[Print Name] Tiffany Lieninger
By:/s/ Robert P Johnson
Robert P. Johnson, President
/s/ Michael B Daugherty
[Print Name] Michael B Daugherty
STATE OF MINNESOTA )
)SS.
COUNTY OF RAMSEY )
The foregoing instrument was acknowledged before me the 13th
day of January, 2000, by Robert P. Johnson, the President of AEI
Fund Management XXI, Inc., a Minnesota corporation, corporate
Managing Member of AEI Income & Growth Fund 23 LLC, on behalf of
said limited liability company.
/s/ Barbara J Kochevar
Notary Public
[notary seal]
Legal Description
Situate in the City of Kettering, County of Montgomery, State of
Ohio, and being Lot 1 Kettering Towne Center Section 1 as
recorded in Plat Book 177, Page 19 of the Plat Records of
Montgomery County, Ohio.
Together with non-exclusive rights of ingress and egress and
parking as set forth in Cross Easement Agreement by and between
Center-Plex Venture and AEI Income & Growth Fund 23 LLC dated
January , 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001073363
<NAME> AEI INCOME & GROWTH FUND 23 LLC
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,583,998
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,583,998
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,583,998
<CURRENT-LIABILITIES> 112,946
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,471,052
<TOTAL-LIABILITY-AND-EQUITY> 2,583,998
<SALES> 0
<TOTAL-REVENUES> 25,872
<CGS> 0
<TOTAL-COSTS> 59,658
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (33,786)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,786)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,786)
<EPS-BASIC> (14.61)
<EPS-DILUTED> (14.61)
</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.
