-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D4Ba8fKqH3TqvbJ19w16JwFnE+mGlQegdTfr54ee2VP2HoIv86yjfwOuGcH7rWhw O3GUeeLNgOwJTVj5YSaaiw== /in/edgar/work/20000810/0000950131-00-004791/0000950131-00-004791.txt : 20000921 0000950131-00-004791.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950131-00-004791 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000626 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHART HOUSE ENTERPRISES INC CENTRAL INDEX KEY: 0000820757 STANDARD INDUSTRIAL CLASSIFICATION: [5812 ] IRS NUMBER: 330147725 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09684 FILM NUMBER: 691608 BUSINESS ADDRESS: STREET 1: 640 NORTH LASALLE ST STREET 2: SUITE 295 CITY: CHICAGO STATE: IL ZIP: 606103783 BUSINESS PHONE: 6197558281 MAIL ADDRESS: STREET 1: 640 N. LASALLE ST STREET 2: SUITE 295 CITY: CHICAGO STATE: IL ZIP: 606103783 10-Q 1 0001.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 26, 2000 ---------------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- ----------- Commission File Number 1-9684 ----------------- CHART HOUSE ENTERPRISES, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 33-0147725 - -------------------------------------------------------------------------------- (State of other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 640 North LaSalle, Suite 295, Chicago, IL, 60610 - -------------------------------------------------------------------------------- (Address of principal executive offices, including zip code) (312) 266-1100 - -------------------------------------------------------------------------------- (registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ------ ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 4, 2000: Common Stock ($.01 par value) - 11,787,720 ------------ PART I - FINANCIAL INFORMATION Item 1. Financial Statements. CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
June 26, December 27, ASSETS 2000 1999 ------------ ------------ (Unaudited) Current Assets: Cash and Equivalents $ 376 $ 424 Accounts Receivable 2,732 2,969 Inventories 1,957 2,282 Prepaid Expenses and Other Current Assets 740 530 Current Portion of Deferred Tax Asset 288 288 -------- -------- Total Current Assets 6,093 6,493 Property and Equipment, at Cost: Land - 3,904 Buildings - 15,384 Equipment 33,940 33,115 Leasehold Interests & Improvements 61,161 53,854 Construction in Progress 4,074 3,380 -------- -------- 99,175 109,637 Less: Accumulated Depreciation and Amortization 38,880 42,621 -------- -------- Net Property & Equipment 60,295 67,016 Leased Property under Capital Leases, Less Accumulated Amortization of $2,416 in 2000 and $2,329 in 1999 2,427 2,514 Non-current Portion of Deferred Tax Asset 5,092 5,092 Other Assets and Goodwill, Less Accumulated Amortization of $3,711 in 2000 and $3,897 in 2000 16,657 18,374 -------- -------- $ 90,564 $ 99,489 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. -1- CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
June 26, December 27, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 ----------- ----------- (Unaudited) Current Liabilities: Current Portion of Long-Term Obligations $ 3,216 $ 2,435 Accounts Payable 2,593 4,577 Accrued Liabilities 13,570 13,775 -------- -------- Total Current Liabilities 19,379 20,787 Deferred Payments on Acquisition 626 1,000 Long-Term Debt 12,000 17,700 Long-Term Obligations under Capital Leases 3,583 3,713 Stockholders' Equity: Preferred Stock, $1.00 par value, 10,000,000 authorized shares; none outstanding - - Common Stock, $.01 par value, 30,000,000 authorized shares; 11,787,720 and 11,762,561 shares outstanding in 2000 and 1999, respectively 118 118 Additional Paid-In Capital 61,178 61,178 Accumulated Deficit (6,320) (5,007) -------- -------- Total Stockholders' Equity 54,976 56,289 -------- -------- $ 90,564 $ 99,489 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. -2- CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited)
Thirteen Weeks Thirteen Weeks Twenty-Six Weeks Twenty-Six Weeks Ended June 26, Ended June 28, Ended June 26, Ended June 28, 2000 1999 2000 1999 -------- -------- -------- -------- Revenues $ 35,792 $ 37,329 $ 68,672 $ 71,960 -------- -------- -------- -------- Costs and Expenses: Cost of Sales 12,034 11,810 22,774 22,909 Restaurant Labor 9,712 11,056 19,222 21,462 Other Operating Costs 8,004 8,155 15,179 16,059 Preopening Costs 1,593 - 1,829 - Selling, General and Administrative Expenses 2,929 3,142 6,168 6,128 Depreciation and Amortization 1,612 2,034 3,282 3,871 Write Down of Assets and Restructuring and Unusual Charges 460 - 460 - Gain on Sales of Assets (141) (742) (141) (742) Interest Expense 667 328 1,212 603 -------- -------- -------- -------- Total Costs and Expenses 36,870 35,783 69,985 70,290 -------- -------- -------- -------- (Loss) Income Before Income Taxes (1,078) 1,546 (1,313) 1,670 Provision for Income Taxes - - - - -------- -------- -------- -------- Net (Loss) Income $ (1,078) $ 1,546 $ (1,313) $ 1,670 ======== ======== ======== ======== Net (Loss) Income Per Common Share $ (.09) $ .13 $ (.11) $ .14 ======== ======== ======== ======== - Basic and Diluted Weighted Average Shares Outstanding 11,786 11,763 11,781 11,763 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. -3- CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Twenty-Six Weeks Twenty-Six Weeks Ended June 26, Ended June 28, 2000 1999 ---------------- --------------- Cash Flows from Operating Activities: Net (Loss) Income $ (1,313) $ 1,670 Adjustments to Reconcile Net (Loss) Income to Cash Flows from Operating Activities: Depreciation and Amortization 3,282 3,871 Amortization of Debt Issuance Costs 66 - Gain on Retirement and Disposition of Assets (141) (742) Change in Net Current Liabilities (Excluding Net Current Liabilities Acquired) (2,976) (2,461) -------- -------- Cash (Used in) Provided by Operating Activities (1,082) 2,338 Cash Flows from Investing Activities: Expenditures for Property and Equipment (10,729) (8,325) Expenditures for Acquisitions (Net of Cash Acquired) - (10,383) Additions of Other Assets (169) (740) Proceeds from Disposition of Assets 17,381 3,688 -------- -------- Cash Provided by (Used in) Investing Activities 6,483 (15,760) Cash Flows from Financing Activities: Principal Payments on Obligations under Capital Leases (100) (416) Debt Issuance Costs (25) (475) Payments under Deferred Acquisition Agreement (374) - Net Payments under Revolving Credit Agreement (4,950) (581) Proceeds from Issuance of Long-Term Debt - 15,000 -------- -------- Cash (Used in) Provided by Financing Activities (5,449) 13,528 -------- -------- (Decrease) Increase in Cash (48) 106 Cash, Beginning of Period 424 266 -------- -------- Cash, End of Period $ 376 $ 372 ======== ========
The accompanying notes are an integral part of these consolidated statements. -4- CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (In Thousands) (Unaudited)
Twenty-Six Weeks Twenty-Six Weeks Ended June 26, Ended June 28, 2000 1999 --------------- --------------- The Change in Net Current Liabilities (Excluding Net Current Liabilities Acquired) is Comprised of the Following: Decrease (Increase) in Accounts Receivable $ 237 $ (313) Decrease in Inventories 325 407 (Increase) Decrease in Prepaid Expenses and Other Current Assets (210) 85 Decrease in Accounts Payable (1,984) (1,143) Decrease in Accrued Liabilities (1,344) (1,497) ------- ------- Change in Net Current Liabilities (Excluding Net Current Liabilities Acquired) $(2,976) $(2,461) ======= ======= Supplemental Cash Flow Disclosures: Cash Paid During the Period for: Interest (Net of Amount Capitalized) $ 412 $ 335 Income Taxes (Net of Refunds) $ 7 $ (142)
The accompanying notes are an integral part of these consolidated statements. -5- CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 26, 2000 (Unaudited) (1) BASIS OF PRESENTATION The accompanying consolidated financial statements of Chart House Enterprises, Inc. and subsidiaries (the "Company") for the quarterly and six month periods ended June 26, 2000 and June 28, 1999 have been prepared in accordance with generally accepted accounting principles, and with the instructions to Form 10-Q. These financial statements have not been audited by independent public accountants, but include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial condition, results of operations and cash flows for such periods. However, these results are not necessarily indicative of results for any other interim period or for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to requirements of the Securities and Exchange Commission. Management believes that the disclosures included in the accompanying interim financial statements and footnotes are adequate to make the information not misleading, but should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10- K for the year ended December 27, 1999. Certain items previously reported in specific financial statement captions have been reclassified to conform to the 2000 presentation. (2) INCOME TAXES No provision for income taxes has been recorded as of June 26, 2000 as the Company expects to offset any 2000 income tax expense with income tax benefits associated with net operating losses and tax credits. -6- (3) RESTRUCTURING ACTIONS AND SPECIAL CHARGES In 1999, the Company recorded a restructuring charge and write-down of assets totaling $4,890,000 in preparation for an expansion plan requiring disposal of eleven Chart House restaurants whose operating results and economics were not conducive to the long-term success of the Company. The charges included: Write-down of assets to be disposed $ 4,286,000 Severance and other exit costs $ 604,000 Seven of the eleven restaurants were closed within the first six weeks of 2000. Three more locations were closed in June 2000. The Company anticipates operating the remaining restaurant (located in Hawaii) until disposal of the restaurant can be achieved through a sale agreement consistent with the Company's existing lease terms. Of the ten closed restaurants, five restaurant properties have been sold. The other five restaurants' assets remain for sale. It is management's intention to sell these remaining assets during 2000. The table below reflects the proportion of the Company's results of operations contributed by the eleven restaurants identified for disposal:
Q2 2000 Year to Date 2000 Q2 1999 Year to Date 1999 in thousands in thousands ------------- ------------ Revenue: $ 1,690 $ 4,629 $ 5,174 $ 10,172 Net Income: ($ 101) $ 161 $ 156 $ 248
Negotiations for sales of the remaining six restaurant properties continue. Due to changes in the real estate market since 1999, management has changed its estimates of fair value less costs to sell. The losses recorded in 1999, when the decision was made to dispose of the assets, were recorded as writedowns in net book value in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The carrying value of the remaining assets held for disposal at June 26, 2000 was approximately $1,346,000, which reflects a write up in net book value of these fixed assets of $282,000. This write up results from a revision in estimate of fair value, less costs to sell, from the original estimate made during the decision to dispose of the assets. The write up of $282,000 was recorded in the Write Down of Assets and Restructuring and Unusual Charges on the accompanying Consolidated Statement of Operations. -7- The table below reflects the charges to the liability for severance and other exit costs (included in Accrued Liabilities) for the period to date:
Liability as of December 27, 1999 $ 604,000 Payments made for severance and other exit costs ($ 1,238,000) Additional Restructuring charge $ 742,000 ------------ Liability as of June 26, 2000 $ 108,000
The write up of $282,000 and the additional restructuring charge of $742,000 results in a net impact of $460,000 on the Consolidated Statement of Operations. The number of employees terminated through second quarter 2000 as a result of the restaurant closures was 232. The liability remaining at June 26, 2000 will absorb the exit costs and severance payments due 16 restaurant employees working in the restaurant held for disposal. The restructuring charge taken in the second quarter 2000 reflects exit costs incurred or expected to be incurred for the remaining properties to be disposed. Exit costs primarily include rent payments and disposal of perishable inventory items. The liability as of June 26, 2000 reflects management's best estimate of future expenses and losses on the restaurant closings and disposals. (4) PRE-OPENING COSTS The Company expenses pre-opening costs as incurred. Pre-opening costs, or start-up costs, are one-time activities related to opening a new restaurant. Pre-opening costs of approximately $1,593,000 and $1,829,000 for the second quarter and twenty-six weeks ended June 26, 2000 primarily represent salary- related expenses and training costs for new employees. The Company has opened two of eight restaurants scheduled to open in 2000. (5) DEBT COMPLIANCE The Company is in compliance with all debt covenants as of June 26, 2000. (6) CONTINGENCIES The Company is contingently liable, in certain circumstances, for lease obligations of properties subleased to third parties. Certain properties, previously occupied and operated by the Company, have been subleased where the Company is liable for lease payments should the sublessee default. The Company is not aware of any monetary or material default under its sublessee arrangements. (7) SEASONALITY Historically, the Company's business is seasonal in nature with revenues and net income for the second and third quarters being greater than in the first and fourth quarters. -8- (8) FIXED ASSET DISPOSALS During the second quarter 2000, the Company executed a sale-leaseback agreement for the land and buildings of five restaurant properties. The cash proceeds for the transaction was $15 million. The net book value of the property sold was $12.6 million. The Company wrote off the related goodwill of $1.3 million for these restaurant properties. In accordance with Statement of Financial Accounting Standards No. 28, "Accounting for Sales with Leasebacks," the profit of approximately $1.1 million, less expenses related to the sale of approximately $631,000, resulting in a gain of $469,000, was deferred and is being amortized over the life of the new Master Lease. The Company sold one restaurant property during the quarter that was not a part of the 1999 restructuring plan. The Company received proceeds of $325,000 and realized a gain of $141,000 on the sale. (9) RECENTLY ISSUED ACCOUNTING STANDARDS In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation: An Interpretation of APB Opinion No. 25" ("the FASB Interpretation"). The FASB Interpretation, among other things, requires the application of Opinion 25 to stock compensation granted to a nonemployee member of the grantor's board of directors for services provided as a director, if the nonemployee director was elected by the grantor's shareholders. The FASB Interpretation was issued to eliminate diversity in practice and has no impact on the Company's financial statements as the Company's current practice is to follow APB Opinion No. 25 for stock compensation granted to nonemployee directors. In March 2000, the Emerging Issues Task Force issued Abstract No. 00-2: Accounting for Web Site Development Costs, ("EITF No. 00-2"). EITF No. 00-2 provides guidance for accounting for costs incurred to develop a web site. The guidance provides for separating costs into stages and requiring expense or capital treatment in accordance with the provisions. The Company is currently in compliance with this EITF. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations The following is a comparative discussion of the results of operations for the quarterly and six-month periods ended June 26, 2000 and June 28, 1999. The results of operations for the first six months of 2000 are not necessarily indicative of the results to be expected for the fiscal year ending December 25, 2000. The dollar amounts in the table below are in thousands.
Thirteen Weeks Thirteen Weeks Twenty-Six Weeks Twenty- Six Weeks Ended June 26, Ended June 28, Ended June 26, Ended June 28, 2000 1999 2000 1999 --------------------- --------------------- --------------------- --------------------- Dollars Percent Dollars Percent Dollars Percent Dollars Percent --------- --------- --------- --------- --------- --------- --------- --------- (Unaudited) (Unaudited) Revenues 35,792 100.0 37,329 100.0 68,672 100.0 71,960 100.0 Costs and Expenses: Cost of Sales 12,034 33.6 11,810 31.6 22,774 33.1 22,909 31.8 Restaurant Labor 9,712 27.1 11,056 29.6 19,222 28.0 21,462 29.8 Other Operating Costs 8,004 22.4 8,155 21.9 15,179 22.1 16,059 22.3 Pre-opening Costs 1,593 4.5 - - 1,829 2.6 - - Selling, General and Administrative Expenses 2,929 8.2 3,142 8.4 6,168 9.0 6,128 8.5 Depreciation and Amortization 1,612 4.5 2,034 5.4 3,282 4.8 3,871 5.4 Write Down of Assets and Restructuring and Unusal Charges 460 1.3 - - 460 0.7 - - Gain on Sales of Assets (141) (0.4) (742) (2.0) (141) (0.2) (742) (1.0) Interest Expense 667 1.8 328 0.9 1,212 1.8 603 0.9 ------- ----- ------- ----- ------- ----- ------- ----- Total Costs and Expenses 36,870 103.0 35,783 95.8 69,985 101.9 70,290 97.7 ------- ----- ------- ----- ------- ----- ------- ----- (Loss) Income Before Income Taxes (1,078) (3.0) 1,546 4.2 (1,313) (1.9) 1,670 2.3 Provision for Income Taxes - - - - - - - - ------- ----- ------- ----- ------- ----- ------- ----- Net (Loss) Income (1,078) (3.0) 1,546 4.2 (1,313) (1.9) 1,670 2.3 ======= ===== ======= ===== ======= ===== ======= =====
-9- Management believes that the most meaningful approach to analyzing results of operations is through comparable restaurant sales and margin analysis, which requires critically reviewing the relationships that certain costs and expenses bear to revenues. Accordingly, the discussion below follows this approach. The table below reflects the impact on total revenues resulting from strategic decisions implemented over the past two years (in thousands): -10-
Q2 YTD --------- -------- Continuing Restaurants $ 2,192 $ 3,918 New Restaurant Openings 908 793 Angelo and Maxie's (acquired in Q2 1999) 844 3,403 Restaurant Held for Disposal (107) (146) Permanent Closure of Restaurants (5,374) (11,256) -------- -------- Total $ (1,537) $ (3,288)
At June 26, 2000, the Company operated 41 Chart House restaurants (including the Peohe's restaurant) and one Angelo and Maxie's Steakhouse ("Angelo and Maxie's"), which was acquired in the second quarter 1999. Of these restaurants, one restaurant has been designated for closure in conjunction with the 1999 restructuring. Management estimates that this restaurant will be closed in 2000. Comparable restaurant revenue growth for the continuing 38 Chart House restaurants was 8.0% and 3.8% for the second quarter 2000 and second quarter 1999, respectively, and 7.4% and 2.3% for the first half of 2000 and 1999, respectively. Revenue growth at comparable restaurants is attributed to the renewed interest in many locations following remodeling and the introduction of a new menu. Restaurant-level operating margins have changed since 1999 primarily due to the acquisition of Angelo and Maxie's as well as the disposal of under- performing Chart House restaurants. Cost of sales as a percentage of revenues will be higher in 2000, as the ratio of Angelo and Maxie's restaurants to total restaurants continues to increase. The menu at Angelo and Maxie's contains significantly more beef items and larger portion sizes. This results in higher food costs than have typically been realized at the Chart House restaurants. Chart House restaurants sell larger volumes of seafood, which generally result in a lower cost of sales percentage. Restaurant labor expense as a percentage of sales has decreased between the 2000 and 1999 periods, both in hourly wages and in manager compensation, due to the sales leverage on the fixed portion of compensation. The decision made in 1999 to dispose of eleven Chart House restaurants during 2000 was based, in part, on the deterioration of operating margins. The second quarter 2000 and year to date 2000 results reflect the elimination of higher costs from closed restaurants. The remodeling of most of the Chart House restaurants in 1999 and 2000 has relieved the Company of significant repair and maintenance expense, which, in turn has been offset by marketing and promotion expenditures. The Company has incurred approximately $1,593,000 and $1,829,000 in expenditures during the second quarter and twenty-six weeks ended June 26, 2000 respectively, relating to the opening of new restaurants. These costs primarily reflect salaries and benefits and training costs for new employees. The Company has opened two Chart House restaurants in the second quarter, one Angelo and Maxie's to date in the third quarter and plans to open five additional Angelo and Maxie's before the end of 2000. Selling, general and administrative expenses have remained consistent year to date 2000 with year to date 1999. The decrease in selling, general and administrative expenses from second quarter 1999 reflects Company initiatives in 2000 to expand its restaurant base. Significant administrative costs, -11- primarily legal fees relating to the execution of new restaurant openings, are reflected in pre-opening costs in the accompanying financial statements, whereas these regular administrative costs were reflected in selling, general and administrative expense in 1999. Depreciation and amortization has decreased from 1999 due to the fewer number of restaurants currently under operation. The Company incurred a net $460,000 restructuring charge in the second quarter 2000 reflecting exit costs incurred and expected to be incurred for eleven restaurants identified for disposal. The net restructuring charge includes a write up of assets of $282,000 and an additional restrucuturing charge of $742,000. See below for further details. The Company recognized a gain of $141,000 on the sale of restaurant assets at one location versus 1999 which included gains on sales of restaurant assets at two locations. Interest expense has risen in both the second quarter and the twenty-six weeks ended June 26, 2000 versus 1999. The increase primarily reflects debt service on a $15 million term loan received in April 1999. No provision for income taxes has been recorded as of June 26, 2000, as the Company expects to offset any 2000 income tax expense with income tax benefits associated with net operating losses and tax credits reflected in deferred tax assets. As a result of the foregoing, net income decreased by $2,624,000 from $1,546,000 for the second quarter of 1999 to a loss of ($1,078,000) for the second quarter of 2000. Net income for the first half of 2000 decreased by $2,983,000 from $1,670,000 in 1999 to a loss of ($1,313,000) in 2000. Restructuring Charges and Impaired Assets In 1999, the Company recorded a restructuring charge and write-down of assets totaling $4,890,000 in preparation for an expansion plan requiring disposal of eleven Chart House restaurants whose operating results and economics were not conducive to the long-term success of the Company. The charges included: Write-down of assets to be disposed $ 4,286,000 Severance and other exit costs $ 604,000 Seven of the eleven restaurants were closed within the first six weeks of 2000. Three more locations were closed in June 2000. The Company anticipates operating the remaining restaurant (located in Hawaii) until disposal of the restaurant can be achieved through a sale agreement consistent with the Company's existing lease terms. Of the ten closed restaurants, five restaurant properties have been sold. The other five restaurants' assets remain for sale. It is management's intention to sell these remaining assets during 2000. The table below reflects the proportion of the Company's results of operations contributed by the eleven restaurants identified for disposal:
Q2 2000 Year to Date 2000 Q2 1999 Year to Date 1999 in thousands in thousands ------------- ------------ Revenue: $1,690 $4,629 $5,174 $10,172 Net Income: ($101) $ 161 $ 156 $ 248
-12- Negotiations for sales of the remaining six restaurant properties continue. Due to changes in the real estate market since 1999, management has changed its estimates of fair value less costs to sell. The losses recorded in 1999, when the decision was made to dispose of the assets, were recorded as writedowns in net book value in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The carrying value of the remaining assets held for disposal at June 26, 2000 was approximately $1,346,000, which reflects a write up in net book value of these fixed assets of $282,000. This write up results from a revision in estimate of fair value, less costs to sell, from the original estimate made during the decision to dispose of the assets. The write up of $282,000 was recorded in the Write Down of Assets and Restructuring and Unusual Charges on the accompanying Consolidated Statement of Operations. -13- The table below reflects the charges to the liability for severance and other exit costs (included in Accrued Liabilities) for the period to date:
Liability as of December 27, 1999 $ 604,000 Payments made for severance and other exit costs ($1,238,000) Additional restructuring charge $ 742,000 ---------- Liability as of June 26, 2000 $ 108,000
The write up of $282,000 and the additional restructuring charge of $742,000 results in a net impact of $460,000 on the Consolidated Statement of Operations. The number of employees terminated through second quarter 2000 as a result of the restaurant closures was 232. The liability remaining at June 26, 2000 will absorb the exit costs and severance payments due 16 restaurant employees working in the restaurant held for disposal. The restructuring charge taken in the second quarter 2000 reflects exit costs incurred or expected to be incurred for the remaining properties to be disposed. Exit costs primarily include rent payments and disposal of perishable inventory items. The liability as of June 26, 2000 reflects management's best estimate of future expenses and losses on the restaurant closings and disposals. -14- Liquidity and Capital Resources
Second Quarter Second Quarter 2000 1999 (in `000s) (in `000s) Cash (used in) provided by Operating Activities ($ 1,082) $ 2,338 Expenditures for Property and Equipment (10,729) (8,325) Expenditures for Acquisitions (Net of Cash Acquired) - (10,383) Proceeds from Disposition of Assets 17,381 3,688 Cash used in other Investing Activities (169) (740) Cash (used in) provided by Financing Activities (5,449) 13,528 -------- -------- Change in cash ($ 48) $ 106 ======== ========
The working capital deficit increased by approximately $1.8 million from $11.5 million in the second quarter of 1999 to $13.3 million in the second quarter of 2000. The majority of this increase is represented by the principal payments of long-term debt becoming current, offset by a decrease in the amount of accounts payable in 2000. Long-term debt consists of borrowings under the Company's Revolving Credit and Term Loan Agreement ("Agreement"). The proceeds of the term loan were received in second quarter 1999. Quarterly principal payments of $750,000 under the term loan portion of the Agreement will commence with the first payment due June 30, 2000 and will continue through September 30, 2001. Quarterly principal payments of $1,000,000 will commence with payment due December 31, 2001 and will continue through September 30, 2003. Quarterly principal payments of $1,250,000 will commence with payment due December 31, 2003 and will end with a final principal payment on March 31, 2004. During the second quarter of 2000, the Company decreased its borrowings under the revolving credit portion of the Agreement by $7,900,000. At June 26, 2000, the Company had outstanding borrowings of $15,000,000 under the Agreement and approximately $25,000,000 in available credit. The reduction of the revolving credit balance was funded primarily by the proceeds from the sale- leaseback transaction completed in the second quarter. The Company was in compliance with all covenants of the agreement through June 26, 2000. Capital expenditures for the second quarter of 2000 were primarily for the remodeling and enhancements of several Chart House restaurants and the construction of seven new Angelo and Maxie's restaurants scheduled to open throughout the remainder of 2000 and 2001. Capital expenditures for each -15- of the remaining two quarters of 2000 are expected to increase with expansion of the Angelo and Maxie's concept. In conjunction with the 1999 restructuring, the Company intends to dispose of the six remaining restaurant properties during fiscal year 2000. Cash proceeds upon the sale of all properties are estimated at $1.3 million. Management is actively pursuing reasonable offers on each property; however, no assurance can be given as to the likelihood or timing of such sales or that estimated proceeds will be realized. In the opinion of management, cash flows from operations, availability under the Agreement, and proceeds from the sale of certain assets will be sufficient to fund working capital and regular capital expenditure commitments for the next twelve months. The Company currently projects total 2000 capital expenditures to be approximately $15 million, however, this amount may vary depending on several factors. These factors include, but are not limited to, the timing of construction activities and compliance with financial covenants under the Agreement. In order to fully implement the remodeling and expansion program, the Company may require alternative sources of long-term financing. However, no assurance can be given that such financing will be available or available on terms satisfactory to the Company. Seasonality Historically, the Company's business is seasonal in nature with revenues and net income for the second and third quarters being greater than in the first and fourth quarters. Other Information Certain of the statements contained in this report may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include financial projections, estimates and statements regarding plans, objectives and expectations of the Company and its management. Examples of certain forward-looking statements are the Company's intentions and abilities to dispose of assets, remodel assets, or acquire assets, the intentions and abilities to increase or decrease outstanding borrowings, the intentions and abilities to control or mitigate changes in any operating costs, and the intentions and abilities to maintain current levels of comparable restaurant revenues or operating results. Although the Company believes that the expectations reflected in all such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Some of the known and unknown risks, uncertainties and other factors referred to above include, but are not limited to, the following: changes in customer demand due to economic factors, competitive factors, pricing pressures, availability of employees, changes in demographic trends, the ability to open new restaurants successfully and to successfully integrate any acquired businesses, litigation involving employment, liability and other issues, weather and other acts of God. -16- PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Stockholders of Chart House Enterprises, Inc. was held on May 15, 2000. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and Regulation 14A thereunder for purposes of: (i) electing directors; (ii) approving an amendment to the option to purchase 100,000 shares previously granted to F. Philip Handy; (iii) approving the 2000 Nonemployee Director Equity Compensation Plan; and (iv) transacting such other business as may properly come before the meeting. There was no solicitation in opposition to management's nominees for directors. At the meeting, seven directors were elected. The tables below summarize the results of the stockholder vote:
Number Percentage ---------- ----------- Shares Outstanding and Entitled to Vote 11,787,720 100.0% Shares Represented in Person or by Proxy at Meeting 11,325,553 96.1% Shares Not Voted at Meeting 462,167 3.9%
Votes Votes For Against ---------- ---------- Proposal I (Election of Directors): Breakdown of votes cast for each nominee: Barbara R. Allen 11,312,748 12,805 Linda Walker Bynoe 11,311,298 14,255 William M. Diefenderfer III 11,281,068 44,485 Robert A. McCormack 11,313,598 11,955 Stephen Ottmann 11,313,448 12,105 Thomas J. Walters 11,313,148 12,405 Samuel Zell 11,294,283 31,270
Proposal II (Approval of an amendment to the option to purchase 100,000 shares of common stock previously granted F. Philip Handy): Votes For Votes Against Votes Abstained - --------- ------------- --------------- 10,465,260 752,198 108,095 -17- Proposal III (Approval of the 2000 Nonemployee Director Equity Compensation Plan): Votes For Votes Against Votes Abstained - --------- ------------- --------------- 11,083,821 106,421 81,311 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit No. 27 Financial Data Schedule (required for electronic filing only). Exhibit No. 10.9.1 2000 Nonemployee Director Equity Compensation Plan (1) Exhibit No. 10-18 Sale-Leaseback Agreement dated June 23, 2000 between CH Restaurant Property, LLC, and Chart House, Inc. Exhibit No. 10-19 Master Lease Agreement dated June 23, 2000 between CH Restaurant Property, LLC, and Chart House, Inc. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter of which this report is filed. ---------------------------------------------------------------------- (1) Filed as Exhibit A in the Notice of Annual Meeting of Stockholders to be held May 15, 2000. -18- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHART HOUSE ENTERPRISES, INC. (Registrant) Date: August 10, 2000 By: /S/ THOMAS J. WALTERS ---------------------------------------- Thomas J. Walters President and Chief Executive Officer By: /S/ WILLIAM M. SULLIVAN ---------------------------------------- William M. Sullivan Executive Vice President and Chief Financial Officer -19- EX-10.18 2 0002.txt SALE-LEASEBACK AGREEMENT EXHIBIT 10.18 SALE-LEASEBACK AGREEMENT THIS SALE-LEASEBACK AGREEMENT (this "Agreement") is made as of June 23, 2000, by and between CH RESTAURANT PROPERTY, LLC, a Delaware limited liability company ("Buyer"), whose address is c/o U.S. Realty Advisors, LLC, 1370 Avenue of the Americas, New York, New York 10019, and CHART HOUSE, INC., a Delaware corporation ("Seller"), whose address is 640 North LaSalle Street, Suite 295, Chicago, Illinois 60610. PRELIMINARY STATEMENT: Unless otherwise expressly provided herein, all defined terms used in this Agreement shall have the meanings set forth in Section 1. Seller owns the Properties (provided that Seller is the owner of a leasehold interest in the Patio Portion). Buyer desires to purchase the Properties (including Seller's leasehold interest in the Patio Portion) pursuant to this Agreement and lease the Properties to Seller pursuant to the Lease. AGREEMENT: In consideration of the mutual covenants and provisions of this Agreement, the parties agree as follows: 1. Definitions. The following terms shall have the following meanings for all purposes of this Agreement: "Acknowledgement" means the acknowledgement of master lease assignment and nondisturbance dated as of the date of this Agreement to be executed by Lender, Seller, Buyer, and HC Remainder, LLC. A duplicate original Acknowledgement will be executed and recorded in the applicable real property records for each Property. Each Acknowledgement will contain exhibits with the addresses and store identification numbers for all of the Properties and the legal description for the applicable Property. "Affiliate" means any person or entity which directly or indirectly controls, is under common control with, or is controlled by any other person or entity. For purposes of this definition, "controls", "under common control with" and "controlled by" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person or entity, whether through ownership of voting securities or otherwise. "Closing" shall have the meaning set forth in Section 5. "Closing Date" shall have the meaning set forth in Section 5. "Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended. "Commitment" means that certain commitment letter dated May 18, 2000, among U.S. Realty Advisors, LLC and Guarantor, and any amendments or supplements thereto. "Counsel" means one or more legal counsel to Seller and Guarantor licensed in (or expert in the laws of) the states in which (i) the Properties are located, (ii) Seller and Guarantor are incorporated or formed and (iii) Seller and Guarantor maintain their chief executive offices, as selected by Seller and Guarantor and approved by Buyer. "De Minimis Amounts" shall mean, with respect to any given level of Hazardous Materials, that level or quantity of Hazardous Materials in any form or combination of forms, the use, storage or release of which does not constitute a violation of, or require regulation or remediation under, any Environmental Laws and is customarily employed in the ordinary course of, or associated with, similar businesses located in the states in which the Properties are located. "Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding any of the Properties, whether or not yet discovered, which could or does result in any damage, loss, cost, expense, claim, demand, order or liability to or against Seller, Buyer or Lender by any third party (including, without limitation, any Governmental Authority), including, without limitation, any condition resulting from the operation of Seller's business and/or the operation of the business of any other property owner or operator in the vicinity of any of the Properties and/or any activity or operation formerly conducted by any person or entity on or off any of the Properties. "Environmental Insurer" means American International Specialty Lines Insurance Company or such other insurer providing Environmental Policies reasonably acceptable to Buyer. "Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to Hazardous Materials and/or the protection of human health or the environment, by reason of a Release or a Threatened Release of Hazardous Materials or relating to liability for or costs of Remediation or prevention of Releases. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations, rulings, orders or decrees promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a 2 Governmental Authority of the environmental condition of the property; requiring notification or disclosure of Releases or other environmental condition of any of the Properties to any Governmental Authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements relating to Hazardous Materials in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to Hazardous Materials; and relating to wrongful death, personal injury, or property or other damage in connection with the physical condition or use of any of the Properties by reason of the presence of Hazardous Materials in, on, under or above any of the Properties. "Environmental Policies" means the environmental insurance policy or policies, as applicable, issued by Environmental Insurer to Buyer with respect to the Properties, which Environmental Policies shall be in form and substance satisfactory to Buyer in its sole discretion. "Event of Default" has the meaning set forth in Section 12. "Fee" means an expense deposit made to cover certain of Buyer's costs and expenses associated with the transactions contemplated hereby equal to $150,000.00, which amount has been paid prior to the execution of this Agreement. "Franchise Finance" means Franchise Finance Corporation of America, a Maryland corporation, and its successors. "Governmental Authority" means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi- governmental authority of the United States, the states in which the Properties are located or any political subdivision thereof. "Guarantor" means Chart House Enterprises, Inc., a Delaware corporation. "Guaranty" means that certain unconditional guaranty of payment and performance dated as of the date of this Agreement to be executed by Guarantor for the benefit of Buyer, as the same may be amended from time to time. "Hazardous Materials" means (i) any toxic substance or hazardous waste; (ii) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (iii) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," "hazardous wastes," "regulated substances" or words of similar import under any Environmental Laws; and (iv) any other chemical, material, gas or substance the exposure to or release of which is or may be prohibited, limited or regulated by any Governmental Authority that asserts or may assert jurisdiction over any of the Properties or the operations or activity at any of the Properties, or any chemical, material, gas or substance that 3 does or may pose a hazard to the health and/or safety of the occupants of any of the Properties or the owners and/or occupants of property adjacent to or surrounding any of the Properties. "Indemnified Parties" has the meaning set forth in Section 14. "Lease" means the master lease agreement dated as of the date of this Agreement to be executed by Buyer, as lessor, and Seller, as lessee, with respect to the Properties, as the same may be amended from time to time. "Lender" means FFCA Acquisition Corporation, a Delaware corporation. "Letter of Credit" shall have the meaning set forth in the Put Agreement. "Loan Agreement" means the Loan Agreement dated as of the date of this Agreement in effect between Buyer and Lender, as such agreement may be amended from time to time and any and all replacements or substitutions thereof. "Memorandum" means the memorandum of master lease dated as of the date of this Agreement to be executed by Buyer, as lessor, and Seller, as lessee, with respect to the Properties. A duplicate original Memorandum will be executed and recorded in the applicable real property records for each Property. Each Memorandum will contain exhibits with the addresses and store identification numbers for all of the Properties and the legal description for the applicable Property. "Non-Foreign Seller Certificate" means the non-foreign seller certificate to be executed and delivered by Seller to Buyer prior to or on the Closing Date. "Other Agreements" means, collectively, all agreements and instruments now or hereafter entered into between, among or by (1) any of the Seller Entities, and, or for the benefit of, (2) Buyer; provided, however, the term Other Agreements shall not include this Agreement and the other Sale-Leaseback Documents. "Patio Lease" means the Lease Agreement dated as of June 18, 1979 between Patio Lessor and Seller (as successor to Paragon Restaurant Group, Inc. (formerly Vicorp Specialty Restaurants, Inc.). "Patio Lessor" means McCormick Ranch Property Owners Association. "Patio Portion" means the portion of the Property located at 7255 McCormick Parkway, Scottsdale, Arizona which is subject to the Patio Lease. "Permitted Exceptions" means those recorded easements, restrictions, liens and encumbrances set forth as exceptions in the title insurance policies issued by Title Company to Buyer and approved by Buyer in connection with this Agreement. Buyer will be deemed to have approved all exceptions in the title insurance policies issued at the Closing. 4 "Permitted Facility" means a Chart House restaurant or such other restaurant concepts of Guarantor and its subsidiaries which are approved by Buyer after the Closing, such approval not to be unreasonably withheld, conditioned or delayed. "Properties" means, collectively, the parcels of real estate described by address, Buyer Number and Unit Number in Exhibit A attached hereto and legally --------- described in Exhibit A-1 attached hereto, all rights, privileges and ----------- appurtenances associated therewith, and all buildings, structures, fixtures and other improvements now or hereafter located on such real estate (whether or not affixed to such real estate). "Purchase Price" means the amount specified in Section 3. "Put Agreement" means the post-closing agreement dated as of the date of this Agreement to be executed by Seller, Buyer, Lender and HC Remainder, LLC with respect to the Property located at 5700 S.W. Terwilliger, Portland, Oregon. "Questionnaires" means the environmental questionnaires completed by Seller with respect to each of the Properties and submitted to Environmental Insurer in connection with the issuance of the Environmental Policies. "Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Materials, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials. "Sale-Leaseback Documents" means this Agreement, the Lease, the Memorandum, the Acknowledgement, the Guaranty, the Put Agreement and all other documents executed in connection therewith or contemplated thereby. "Seller Entities" means, collectively, Seller, Guarantor and all Affiliates of Seller or Guarantor. "Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any of the Properties which may result from such Release. "Title Company" means the title insurance company described in Section 6. 5 "UCC-1 Financing Statements" means such UCC-1 Financing Statements as Buyer shall require to be executed and delivered by Seller with respect to the transactions contemplated by this Agreement. 2. Transaction. On the terms and subject to the conditions set forth herein: (i) Seller shall sell, or cause to be conveyed, and Buyer shall purchase all of the Properties; (ii) Buyer shall lease all of the Properties to Seller pursuant to the Lease; and (iii) Seller shall cause Guarantor to guaranty all of the obligations of Seller under the Lease pursuant to the Guaranty. The sale and purchase of all of the Properties pursuant to this Agreement and the lease of all of the Properties to Seller pursuant to the Lease are not severable and shall be considered a single integrated transaction. 3. Purchase Price. The aggregate gross purchase price for all of the Properties (including the capitalized closing costs described below) shall be $15,000,000.00 (the "Purchase Price"). The Purchase Price has been allocated among the Properties as set forth on Exhibit A attached hereto. The Purchase --------- Price shall be paid at the Closing in cash or its equivalent subject to any prorations and adjustments required by this Agreement. The Purchase Price shall be remitted at Closing to Seller or at Seller's direction. The Purchase Price includes capitalized closing costs of Buyer incurred in connection with the acquisition of the Properties and the financing of the acquisition of the Properties in the aggregate amount of $_______________, which capitalized closing costs shall be payable out of the Purchase Price. 4. Expense Deposit. The Fee previously paid to Buyer was deemed fully earned upon Buyer's receipt and is not refundable except as otherwise provided below. In the event the transaction set forth in this Agreement fails to close due to a breach or default by Seller under this Agreement, Buyer shall retain the Fee (without affecting or limiting Buyer's remedies set forth in this Agreement). In the event the transaction set forth in this Agreement fails to close due to a breach or default by Buyer under this Agreement, Buyer shall return the Fee to Seller. In the event the transaction set forth in this Agreement fails to close for any reason other than a breach or default by either party hereto, the Fee, less Buyer's reasonable expenses incurred in connection with this transaction, including, but not limited to, attorneys fees, Lender's expenses and due diligence expenses, shall be returned to Seller. 5. Closing Date. The purchase and sale of the Properties shall be closed (the "Closing") within 30 days following the satisfaction of all of the terms and conditions contained herein, but in no event shall the date of the Closing be extended beyond June 23, 2000, unless such extension shall be approved by Buyer and Seller in their sole discretion (the date on which the Closing shall occur is referred to herein as the "Closing Date"). 6 6. Closing. Buyer has ordered a title insurance commitment for each of the Properties from LandAmerica Financial Group ("Title Company"). Prior to the Closing Date, the parties hereto shall deposit with Title Company all documents and moneys necessary to comply with their obligations under this Agreement. Title Company shall not cause the transaction to close unless and until it has received written instructions from Buyer to do so. Except for the fees and costs to be paid by Buyer pursuant to Section 3, all reasonable costs of such transaction shall be borne by Seller, including, without limitation, the reasonable cost of title insurance and endorsements, the attorneys' fees of Seller and Guarantor, reasonable attorneys' fees of Buyer, the reasonable cost of the Environmental Policies to be delivered pursuant to Section 11.E, the reasonable cost of the surveys, stamp taxes, transfer fees and escrow and recording fees. All real and personal property and other applicable taxes and assessments and other charges relating to any of the Properties which are delinquent on the Closing Date shall be paid by Seller at or prior to the Closing, and all other taxes and assessments shall be paid by Seller in its capacity as lessee under the Lease in accordance with the terms of the Lease. The Closing documents shall be dated as of the Closing Date. Seller and Buyer hereby employ Title Company to act as escrow agent in connection with this transaction. Seller and Buyer will deliver to Title Company all documents, pay to Title Company all sums and do or cause to be done all other things necessary or required by this Agreement, in the reasonable judgment of Title Company, to enable Title Company to comply herewith and to enable any title insurance policy provided for herein to be issued. Title Company is authorized to pay, from any funds held by it for Buyer's or Seller's respective credit all amounts necessary to procure the delivery of such documents and to pay, on behalf of Buyer and Seller, all charges and obligations payable by them, respectively. Seller will pay all charges payable by it to Title Company. Title Company is authorized, in the event any conflicting demand is made upon it concerning these instructions or the escrow, at its election, to hold any documents and/or funds deposited hereunder until an action shall be brought in a court of competent jurisdiction to determine the rights of Seller and Buyer or to interplead such documents and/or funds in an action brought in any such court. Deposit by Title Company of such documents and funds, after deducting therefrom its reasonable charges and its reasonable expenses and attorneys' fees incurred in connection with any such court action, shall relieve Title Company of all further liability and responsibility for such documents and funds. Title Company's receipt of this Agreement and opening of an escrow pursuant to this Agreement shall be deemed to constitute conclusive evidence of Title Company's agreement to be bound by the terms and conditions of this Agreement pertaining to Title Company. Disbursement of any funds shall be made by check, certified check or wire transfer, as directed by Buyer. Title Company shall be under no obligation to disburse any funds represented by check or draft, and no check or draft shall be payment to Title Company in compliance with any of the requirements hereof, until it is advised by the bank in which such check or draft is deposited that such check or draft has been honored. Title Company is authorized to act upon any statement furnished by the holder or payee, or a collection agent for the holder or payee, of any lien on or charge or assessment in connection with any of the Properties, concerning the amount of such charge or assessment or the amount secured by such lien without liability or responsibility for the accuracy of such statement. The employment of Title Company as escrow agent shall not affect any rights of 7 subrogation under the terms of any title insurance policy issued pursuant to the provisions thereof. 7. Representations and Warranties of Buyer. The representations and warranties of Buyer contained in this Section are being made by Buyer as of the date of this Agreement and the Closing Date to induce Seller to enter into this Agreement and consummate the transactions contemplated herein, and Seller has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement and the Closing. Buyer represents and warrants to Seller as follows: A. Organization of Buyer. Buyer has been duly formed, is validly existing and has taken all necessary action to authorize the execution, delivery and performance by Buyer of this Agreement. B. Authority of Buyer. The person who has executed this Agreement on behalf of Buyer is duly authorized so to do. C. Enforceability. Upon execution by Buyer, this Agreement shall constitute the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. All representations and warranties of Buyer made in this Agreement shall survive the Closing. 8. Representations and Warranties of Seller. The representations and warranties of Seller contained in this Section are being made as of the date of this Agreement and the Closing Date to induce Buyer to enter into this Agreement and consummate the transactions contemplated herein, and Buyer has relied, and will continue to rely, upon such representations and warranties from and after the execution of this Agreement and the Closing. Seller represents and warrants to Buyer as follows: A. Information and Financial Statements. Seller has delivered to Buyer financial statements (either audited financial statements or, if Seller does not have audited financial statements, certified financial statements) and certain other information concerning itself and Guarantor, which financial statements and other information are true, correct and complete in all material respects; and no material adverse change has occurred with respect to any such financial statements and other information provided to Buyer since the date such financial statements and other information were prepared or delivered to Buyer. Seller understands that Buyer is relying upon such financial statements and information and Seller represents that such reliance is reasonable. All such financial statements were prepared in accordance with generally accepted accounting principles consistently applied and accurately reflect, as of the date of this Agreement and the Closing Date, the financial condition of each individual or entity to which they pertain. 8 B. Organization and Authority. (i) Each of Seller and Guarantor is a duly organized or formed corporation, validly existing and in good standing under the laws of its state of incorporation or formation, and qualified to do business in any jurisdiction where such qualification is required. All necessary corporate action has been taken to authorize the execution, delivery and performance of this Agreement and of the other documents, instruments and agreements provided for herein. (ii) The person who has executed this Agreement on behalf of Seller is duly authorized so to do. C. Enforceability of Documents. Upon execution by Seller and Guarantor, this Agreement and the other documents, instruments and agreements to be executed in connection with this Agreement, shall constitute the legal, valid and binding obligations of Seller and Guarantor, as applicable, enforceable against Seller and Guarantor, as applicable, in accordance with their respective terms. D. Litigation. There are no suits, actions, proceedings or investigations pending or, to the best of its knowledge, threatened against or involving Seller, Guarantor or any of the Properties before any Governmental Authority which might reasonably result in any material adverse change in the contemplated business, condition, worth or operations of Seller, Guarantor or any of the Properties. E. Absence of Breaches or Defaults. Neither Seller nor Guarantor is in default under any other document, instrument or agreement to which Seller or Guarantor is a party or by which Seller, Guarantor any of the Properties or any of Seller's or Guarantor's property is subject or bound, which breach or default might reasonably result in any material adverse change in the contemplated business, condition, worth or operations of Seller, Guarantor or any of the Properties. The authorization, execution, delivery and performance of this Agreement and the documents, instruments and agreements provided for herein will not result in any breach or default under any other document, instrument or agreement to which Seller or Guarantor is a party or by which Seller, Guarantor, any of the Properties or any of Seller's or Guarantor's property is subject or bound. The authorization, execution, delivery and performance of this Agreement and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. F. Utilities. At the Closing Date, each of the Properties will be served by adequate public utilities to permit full utilization of each of the Properties for their intended purposes and all utility connection fees and use charges will have been paid in full. G. Intended Use and Zoning; Compliance With Laws. Seller intends to use each of the Properties solely for the operation of a Permitted Facility in accordance with the standards of operations then in effect on a system- wide basis, and related ingress, egress and parking, and for no other purposes. Each of the Properties is in material 9 compliance with all applicable zoning requirements and the current officers of Seller have not received any written notice that the use of any of the Properties as a Permitted Facility constitutes a nonconforming use under applicable zoning requirements. Each of the Properties complies in all material respects with all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of any governmental agencies, departments, commissions, bureaus, boards or instrumentalities of the United States, the states in which the Properties are located and all political subdivisions thereof, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements, all applicable standards of the National Board of Fire Underwriters and the Americans With Disabilities Act of 1990, and all policies or rules of common law, in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment applicable to Seller. H. Area Development. No condemnation or eminent domain proceedings affecting any of the Properties have been commenced or, to the knowledge of Seller's officers, are contemplated. To the knowledge of Seller's officers, the area where any of the Properties is located has not been declared blighted by any Governmental Authority. I. Licenses and Permits; Access. Prior to the Closing Date, Seller shall have all required licenses and permits, both governmental and private, to use and operate each of the Properties in the intended manner. There are adequate rights of access to public roads and ways available to each of the Properties to permit full utilization of each of the Properties for its intended purpose and all such public roads and ways have been completed and dedicated to public use. J. Condition of Properties. As of the Closing Date, each of the Properties will be of good workmanship and materials, fully equipped and operational, in good condition and repair, free from structural defects, clean, orderly and sanitary, safe, well lit, landscaped, decorated, attractive and well maintained. K. Environmental. Seller's officers are fully familiar with the present use of each of the Properties. To the knowledge of the officers of Seller, no Hazardous Materials have been used, handled, manufactured, generated, produced, stored, treated, processed, transferred or disposed of at or on any of the Properties, except in De Minimis Amounts or in material compliance with all applicable Environmental Laws, and no Release or Threatened Release has occurred at or on any of the Properties, except such as have been remedied in compliance with applicable Environmental Laws. To the knowledge of Seller's officers, the activities, operations and business undertaken on, at or about each of the Properties, including, but not limited to, any past or ongoing alterations or improvements at each of the Properties, are and have been at all times, in compliance with all Environmental Laws. To the knowledge of Seller's officers, no further action is required to remedy any Environmental Condition or violation of, or to be in compliance in all material respects with, any Environmental Laws, and no lien has been imposed on any of the Properties by any Governmental Authority in connection with any 10 Environmental Condition, the violation or threatened violation of any Environmental Laws or the presence of any Hazardous Materials on or off any of the Properties. There is no pending or, to the knowledge of Seller's officers, threatened litigation or proceeding before any Governmental Authority in which any person or entity alleges the violation or threatened violation of any Environmental Laws or the presence, Release, Threatened Release or placement on or at any of the Properties of any Hazardous Materials, or of any facts which would reasonably be expected to give rise to any such action, nor has Seller (a) received any notice (and the officers of Seller have no actual knowledge) that any Governmental Authority or any employee or agent thereof has determined, threatens to determine or requires an investigation to determine that there has been a violation of any Environmental Laws at, on or in connection with any of the Properties; (b) received any notice under the citizen suit provision of any Environmental Law in connection with any of the Properties or any facilities, operations or activities conducted thereon, or any business conducted in connection therewith; or (c) received any request for inspection, request for information, notice, demand, administrative inquiry or any formal or informal complaint or claim with respect to or in connection with the violation or threatened violation of any Environmental Laws. The information and disclosures in the Questionnaires are true, correct and complete in all material respects, Buyer and Environmental Insurer may rely on such information and disclosures, and the person or persons executing the Questionnaires were duly authorized to do so. L. Title to Properties. Fee title to each of the Properties is vested in Seller, except that Seller is vested with a leasehold interest with respect to the Patio Portion. Upon Closing, fee title to each of the Properties shall be vested in Buyer, free and clear of all liens, encumbrances, charges and security interests of any nature whatsoever, except the Permitted Exceptions, except that, Buyer shall be vested with a leasehold interest in the Patio Portion. M. No Other Agreements and Options. Neither Seller, Guarantor nor, to the best of Seller's knowledge, any of the Properties is subject to any commitment, obligation, or agreement, including, without limitation, any right of first refusal, option to purchase or lease granted to a third party, which could or would prevent Seller from completing or impair Seller's ability to complete the sale of any of the Properties under this Agreement or which would bind Buyer subsequent to consummation of the transaction contemplated by this Agreement. N. No Mechanics' Liens. There are no outstanding accounts payable, mechanics' liens, or rights to claim a mechanics' lien in favor of any materialman, laborer, or any other person or entity in connection with labor or materials furnished to or performed on any portion of any of the Properties that will not have been fully paid for before the date such payment becomes delinquent; no work has been performed or is in progress nor have materials been supplied to any of the Properties or agreements entered 11 into for work to be performed or materials to be supplied to any of the Properties prior to the date hereof, which will not have been fully paid for before the date the same becomes delinquent; Seller shall be responsible for any and all claims for mechanics' liens and accounts payable that have arisen or may subsequently arise due to agreements entered into for and/or any work performed on, or materials supplied to any of the Properties prior to the Closing Date; Seller shall and does hereby agree to defend, indemnify and forever hold Buyer and Buyer's designees harmless for, from and against any and all mechanics' lien claims, accounts payable or other commitments relating to any of the Properties due to contracts or arrangements initiated by Seller or its agents. O. No Reliance. Seller acknowledges that Buyer did not prepare or assist in the preparation of any of the projected financial information used by Seller in analyzing the economic viability and feasibility of the transaction contemplated by this Agreement, and that Seller has not relied on any report or statement by Buyer in entering into this Agreement. Furthermore, Seller acknowledges that it has not relied upon, nor may it hereafter rely upon, the analysis undertaken by Buyer in determining the Purchase Price, and such analysis will not be made available to Seller. P. Purchase Price. The Purchase Price is the fair market value of the Properties and was agreed to by Seller and Buyer on that basis. Q. Patio Lease. Seller has delivered to Buyer a certified true, correct and complete copy of the Patio Lease. The Patio Lease has not been modified, amended, supplemented or otherwise revised. The Patio Lease is the only lease or agreement between the Patio Lessor and Seller with respect to the Patio Portion. The Patio Lease is in full force and effect. Seller has not assigned, transferred, mortgaged, hypothecated or otherwise encumbered the Patio Lease or any interest therein, and Seller has not received any notice that the Patio Lessor has made any assignment, pledge or hypothecation of all or any part of its interest in the Patio Lease. Seller has not received any notice of default from the Patio Lessor which has not been cured or given any notice of default to the Patio Lessor which has not been cured. No event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute a default by the Patio Lessor or Seller under the Patio Lease. All representations and warranties of Seller made in this Section 8 shall survive the Closing. Seller acknowledges and agrees that Environmental Insurer may rely on the environmental representations and warranties set forth in the preceding subsection K, that Environmental Insurer is an intended third-party beneficiary of such representations and warranties and that Environmental Insurer shall have all rights and remedies available at law or in equity as a result of a breach of such representations and warranties, including, to the extent applicable, the right of subrogation. 9. Covenant and Agreements of Seller. Seller shall, at all reasonable times, upon reasonable advance notice from Buyer (i) provide Buyer and Buyer's officers, employees, agents, advisors, attorneys, accountants, architects, and engineers with access to each of the Properties, 12 all drawings, plans, and specifications for each of the Properties in possession of Seller, all engineering reports relating to each of the Properties in the possession of Seller, the files and correspondence relating to each of the Properties, and the financial books and records, including lists of delinquencies, relating to the ownership, operation, and maintenance of each of the Properties, and (ii) allow such persons to make such inspections, tests, copies, and verifications as Buyer considers necessary. All such persons shall use reasonable efforts not to unduly interfere with the conduct of Seller's business. 10. Transaction Characterization. A. It is the intent of the parties that the conveyance of each of the Properties to Buyer be an absolute conveyance in effect as well as form, and the instruments of conveyance to be delivered at Closing are not intended to serve or operate as a mortgage, equitable mortgage, deed of trust, security agreement, trust conveyance or financing or trust arrangement of any kind, nor as a preference or fraudulent conveyance against any creditors of Seller. After the execution and delivery of the deeds described in Section 11.A, Seller will have no legal or equitable interest or any other claim or interest in any of the Properties other than as set forth in the Lease. Furthermore, the parties intend: (i) for the Lease to be a true lease and not a transaction creating a financing lease, capital lease, equitable mortgage, mortgage, deed of trust, security interest or other financing arrangement, and the economic realities of the Lease are those of a true lease; and (ii) for the Lease to constitute a single master lease of all, but not less than all, of the Properties, and to be a unitary, unseverable instrument pertaining to all, but not less than all, of the Properties and that neither the Lease nor the duties, obligations or rights of Seller may be allocated or otherwise divided by Seller among the Properties. Notwithstanding the existence of the Lease, neither party shall contest the validity, enforceability or characterization of the sale and purchase of any of the Properties by Buyer pursuant to this Agreement as an absolute conveyance, and both parties shall support the intent expressed herein that the purchase of all of the Properties by Buyer pursuant to this Agreement provides for an absolute conveyance and does not create a joint venture, partnership, equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs. B. This Agreement is a contract to extend a financial accommodation (as such term is used in the Code) for the benefit of Seller and may not be assumed over the objection of Buyer in the event Seller becomes a debtor or debtor in possession in any bankruptcy proceeding. The financial accommodation made through this Agreement is Buyer's acquisition of all of the Properties for the purpose of leasing all of the Properties to Seller pursuant to a true lease. 11. Conditions of Closing. The obligation of Buyer to consummate the purchase of the Properties pursuant to this Agreement is subject to the fulfillment or waiver of each of the following conditions: 13 A. Title. Seller shall convey each of the Properties (other than the Patio Portion) to Buyer by a special warranty deed (collectively, the "Deeds"), free of all liens, encumbrances, restrictions, encroachments and easements, except the Permitted Exceptions. Seller shall transfer a leasehold interest in the Patio Portion to Buyer pursuant to an assignment of lease in form and substance reasonably satisfactory to Buyer (the "Patio Lease Assignment"), free of all liens, encumbrances, restrictions, encroachments and easements, except the Permitted Exceptions. B. Condition of Properties. Buyer shall have inspected and approved each of the Properties, and each of the Properties shall be in good condition and repair. C. Evidence of Title. Buyer shall have received a preliminary title report and irrevocable commitment to insure title by means of an ALTA extended coverage owner's policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where any of the Properties is located) issued by Title Company showing good and marketable fee title in Seller (other than with respect to the Patio Portion, for which a good and marketable leasehold interest shall be shown), committing to insure Buyer's fee simple ownership in each of the Properties (other than with respect to the Patio Portion, for which Title Company shall commit to insure Buyer's leasehold interest therein) subject only to Permitted Exceptions and containing such endorsements as Buyer may reasonably require. D. Survey; Flood Hazard. Buyer shall have received a current ALTA survey of each of the Properties, the form and substance of which shall be satisfactory to Buyer in its sole discretion. Seller shall have provided Buyer with evidence satisfactory to Buyer that the location of each of the Properties is not within the 100-year flood plain or identified as a Special Flood Hazard Area by the Federal Emergency Management Agency, or if any of the Properties is in such a Special Flood Hazard Area, Seller shall provide Buyer with evidence of flood insurance maintained on such Properties in amounts and on terms and conditions reasonably satisfactory to Buyer. E. Environmental. Buyer shall have received the Environmental Policies with respect to the Properties. 14 F. Zoning. If requested by Buyer, Seller shall have provided Buyer with evidence satisfactory to Buyer to confirm that each of the Properties is properly zoned for its use as a Permitted Facility and that such use constitutes a legal, conforming use under applicable zoning requirements. In the event that the use of any of the Properties constitutes a legal, nonconforming use under applicable zoning requirements, Seller shall have provided Buyer with evidence of law and ordinance insurance reasonably satisfactory to Buyer covering both the increase cost of construction and dimunitions in value in the event that, after a casualty, the improvements at any of the Properties cannot be rebuilt to the same condition or for the same use which existed prior to such casualty because of applicable zoning requirements. G. Utilities. Buyer shall have received evidence satisfactory to Buyer in its sole discretion that all utilities and roads necessary for the operation of each of the Properties as a Permitted Facility are available and that all necessary consents to the use of such utilities and roads have been obtained. H. Compliance With Representations, Warranties and Covenants. (i) All obligations of Seller under this Agreement shall have been fully performed and complied with, and no event shall have occurred or condition shall exist which would, upon the Closing Date, or, upon the giving of notice and/or passage of time, constitute a breach or default by Seller hereunder or under the Lease or any other agreement between or among Buyer or Seller pertaining to the subject matter hereof, and no event shall have occurred or condition shall exist or information shall have been disclosed by Seller or discovered by Buyer which has had or would have a material adverse effect on any of the Properties, Seller or Buyer's willingness to consummate the transaction contemplated by this Agreement, as determined by Buyer in its sole and absolute discretion. (ii) Buyer shall have received such evidence satisfactory to Buyer in its reasonable discretion that the representations and warranties of Seller under this Agreement are true, correct and complete as of the Closing Date. I. Proof of Insurance. Seller shall have delivered to Buyer copies of insurance policies or other evidence of insurance reasonably satisfactory to Buyer, showing that all insurance required by the Lease and providing coverage and limits reasonably satisfactory to Buyer is in full force and effect. J. Opinions of Counsel to Seller and Guarantor. Seller shall have caused Counsel to prepare and deliver opinions in form and substance reasonably satisfactory to Buyer and its counsel. K. Guaranty. Seller shall have caused Guarantor to execute and deliver the Guaranty. 15 L. Closing of Loan Agreement. All of the transactions described in the Loan Agreement shall have closed prior to or simultaneously with the Closing of the transaction described in this Agreement. M. Patio Lease. The Patio Lease shall be in full force and effect and Seller shall be entitled to occupy the Patio Portion. N. Put Agreement and Letter of Credit. Seller shall have executed and delivered the Put Agreement and shall have delivered the Letter of Credit. O. Parking Lease Estoppel. Seller shall have delivered an estoppel certificate from the City of Portland in a form reasonably acceptable to Buyer with respect to the parking lease between the City of Portland and the Seller relating to the Property located at 5700 S.W. Terwilliger, Portland, Oregon. P. Closing Documents. On or prior to the Closing Date, Buyer and/or Seller, as may be appropriate, shall execute and deliver or cause to be executed and delivered to Title Company or Buyer, as may be appropriate, all documents required to be delivered by this Agreement, and such other documents, payments, instruments and certificates, as Buyer may require in form acceptable to Buyer, including, without limitation, the following: (i) Deeds; (ii) Lease; (iii) Memorandum; (iv) Guaranty; (v) Proof of Insurance; (vi) Opinions of Counsel to Seller and Guarantor; (vii) Non-Foreign Seller Certificate; (viii) UCC-1 Financing Statements; (ix) Acknowledgement; (x) Put Agreement; (x) Patio Lease Assignment; and (xi) Closing settlement statement prepared by Title Company. Upon fulfillment or waiver of all of the above conditions, Buyer shall deposit funds necessary to close this transaction with the Title Company and this transaction shall close in accordance with the terms and conditions of this Agreement. 12. Default and Remedies. A. Each of the following shall be deemed an event of default by Seller (each, an "Event of Default"): (i) If any representation or warranty of Seller or Guarantor set forth in any of the Sale-Leaseback Documents is false in any material respect or if Seller or Guarantor renders any statement or account which is false in any material respect; 16 (ii) If Seller fails to keep or perform any of the terms or provisions of this Agreement; (iii) If Seller or Guarantor is or becomes insolvent within the meaning of the Code, files or notifies Buyer that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, an "Action"), becomes the subject of either a petition under the Code or an Action which is not dissolved within 90 days after filing, or is not generally paying its debts as the same become due; (iv) If there is an "Event of Default" under the Lease; or (v) If there is an "Event of Default" or a breach or default, after the passage of all applicable notice and cure or grace periods, under any other Sale-Leaseback Document or any of the Other Agreements. B. In the event of any Event of Default, Buyer shall be entitled to exercise, at its option, concurrently, successively or in any combination, all remedies available under the Lease or at law or in equity (other than seeking punitive, consequential or indirect damages), including without limitation any one or more of the following: (i) To terminate this Agreement by giving written notice to Seller in which case neither party shall have any further obligation or liability, except such liabilities as Seller may have for such breach or default; (ii) To proceed with the Closing and direct Title Company to apply such portion of the Purchase Price as Buyer may deem reasonably necessary to cure any such breach or default; (iii) To bring an action for damages (other than punitive, consequential or indirect damages) against Seller, which, in the event Buyer proceeds to close, may include an amount equal to the difference between the value of the Properties as conveyed to Buyer and the value such Properties would have had if all representations and warranties of Seller were true and Seller had complied with all of its obligations; (iv) To bring an action to require Seller specifically to perform its obligations hereunder; and/or (v) To recover from Seller all reasonable costs and expenses, including reasonable attorneys' fees, paid or incurred by Buyer in connection with the transaction contemplated by this Agreement and all costs and expenses incurred or paid by Buyer as a result of such breach or default. 13. Assignments. A. From and after the Closing, Buyer may assign in whole or in part its rights under this Agreement. In the event of any unconditional assignment of Buyer's 17 entire right and interest hereunder and provided Buyer's assignee shall have assumed in writing all of the duties and obligations of Buyer hereunder, Buyer shall automatically be relieved, from and after the date of such assignment, of liability for the performance of any obligation of Buyer contained herein. B. Seller shall not, without the prior written consent of Buyer, which consent may be withheld in Buyer's sole discretion, sell, assign, transfer, mortgage, convey, encumber or grant any easements or other rights or interests of any kind in any of the Properties, any of Seller's rights under this Agreement or any interest in Seller, whether voluntarily, involuntarily or by operation of law or otherwise, including, without limitation, by merger, consolidation, dissolution or otherwise, except, subsequent to the Closing, as expressly permitted by the Lease. 14. Indemnity. Seller agrees to indemnify, protect, hold harmless and defend Buyer, Lender and their respective directors, officers, shareholders, employees, successors, assigns, agents, lenders, contractors, subcontractors, experts, licensees, affiliates, lessees, mortgagees, trustees and invitees, as applicable (collectively, the "Indemnified Parties"), for, from and against any and all losses, costs, claims, liabilities, damages and expenses (collectively, "Losses") (including, without limitation, Buyer's reasonable attorneys' fees, but excluding Losses suffered by an Indemnified Party arising out of such Indemnified Party's gross negligence or willful misconduct; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of the Buyer's interest in any of the Properties or Seller's failure to act in respect of matters which are the obligation of Seller under the Lease) arising as the result of an Environmental Condition and/or a breach of any of the representations, warranties, covenants, agreements or obligations of Seller set forth in this Agreement. Without limiting the generality of the foregoing, such indemnity shall include, without limitation, any damages reasonably incurred with respect to any engineering, governmental inspection and reasonable attorneys' fees and expenses that the Indemnified Parties may incur by reason of any Environmental Condition and/or any representation or warranty set forth in Section 8.K being false, or by reason of any investigation or claim of any Governmental Authority in connection therewith. The provisions of this Section 14 shall survive the Closing. 15. Remainderman. Notwithstanding anything to the contrary contained herein, Seller acknowledges that Buyer may only obtain title to an estate for years in each of the Properties, and that Buyer may arrange for a remainderman ("Remainderman") to obtain title to the remainder of the estate of the Properties (the "Remainder Interest"). Seller agrees to cooperate in such event, which cooperation shall include, without limitation (1) the granting of deeds for the estate for years in each of the Properties to Buyer and separate deeds for the Remainder Interest to the Remainderman (or its designee), (2) the execution of a tripartite agreement among Seller, Buyer and the Remainderman relating to, inter alia, the extension terms under the Lease, (3) delivering appropriate title insurance policies to the Remainderman, and (4) delivery of such other documents as may be reasonably required. Seller acknowledges that Remainderman is an approved assignee of this Agreement to the extent of the Remainder Interest. 18 16. Miscellaneous Provisions. A. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Agreement shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt or refusal of the intended recipient to accept receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next business day, if delivered by express overnight delivery service, or (d) the third business day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: If to Seller: Chart House, Inc. 640 North LaSalle Street Suite 295 Chicago, Illinois 60610 Attention: General Counsel Telephone: (312) 202-1342 Telecopy: (312) 202-1938 With a copy to: Seyfarth Shaw 55 East Monroe Street, Suite 4200 Chicago, Illinois 60603 Attention: Burton X. Rosenberg, Esq. Telephone: (312) 269-8000 Telecopy: (312) 269-8869 If to Buyer: CH Restaurant Property, LLC c/o U.S. Realty Advisors, LLC 1370 Avenue of the Americas New York, NY 10019 Attention: Mr. David M. Ledy Telephone: (212) 581-4540 Telecopy: (212) 581-4950 19 With a copy to: Proskauer Rose LLP 1585 Broadway New York, NY 10036 Attention: Kenneth S. Hilton, Esq. Telephone: (212) 969-3000 Telecopy: (212) 969-2900 B. Risk of Loss. As between Buyer and Seller, Seller shall be responsible for the risk of loss, damage or destruction of any of the Properties or any part thereof prior to the Closing Date. C. Condemnation. In the event of a taking of all or any part of any of the Properties prior to the Closing, Buyer at its sole option shall have the right to either (i) receive the proceeds of any condemnation award and, proceed to close this transaction or (ii) terminate this Agreement with respect to any Property which is subject to such taking. Buyer and Seller agree to execute such amendments to this Agreement as may be reasonably required by Buyer to evidence any such termination. D. Real Estate Commission. Buyer and Seller represent and warrant to each other that they have dealt with no real estate broker, agent, finder or other intermediary in connection with the transactions contemplated by this Agreement. Buyer and Seller shall indemnify and hold each other harmless for, from and against any costs, claims or expenses, including attorneys' fees, arising out of the breach of their respective representations and warranties contained within this Section. E. Waiver and Amendment. No provisions of this Agreement shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. F. Captions. Captions are used throughout this Agreement for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. G. Buyer's Liability. Notwithstanding anything to the contrary provided in this Agreement, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Agreement by Buyer, that (i) there shall be absolutely no personal liability on the part of Buyer, its successors or assigns and the trustees, members, partners, shareholders, officers, directors, employees and agents of Buyer and its successors and assigns, to Seller with respect to any of the terms, covenants and conditions of this Agreement or the other Sale-Leaseback Documents, as applicable, (ii) Seller waives all claims, demands and causes of action against the trustees, members, partners, shareholders, officers, directors, employees and agents of Buyer and its successors or assigns in the event of any breach by Buyer of any of the terms, covenants 20 and conditions of this Agreement or the other Sale-Leaseback Documents, as applicable, to be performed by Buyer, and (iii) Seller shall look solely to the Properties for the satisfaction of each and every remedy of Seller in the event of any breach by Buyer of any of the terms, covenants and conditions of this Agreement or the other Sale-Leaseback Documents, as applicable, to be performed by Buyer, or any other matter in connection with this Agreement, the other Sale-Leaseback Documents or any of the Properties, such exculpation of liability to be absolute and without any exception whatsoever. H. Severability. The provisions of this Agreement shall be deemed severable. If any part of this Agreement shall be held unenforceable, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. I. Construction Generally. This is an agreement between parties who are experienced in sophisticated and complex matters similar to the transaction contemplated by this Agreement and is entered into by both parties in reliance upon the economic and legal bargains contained herein and shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Seller and Buyer were each represented by legal counsel competent in advising them of their obligations and liabilities hereunder. J. Other Documents. Each of the parties agrees to sign such other and further documents as may be necessary or reasonably requested by the other party in order to carry out the intentions expressed in this Agreement. K. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs in addition to any other relief to which it may be entitled. L. Entire Agreement. This Agreement, together with any other certificates, instruments or agreements to be delivered hereunder, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements, written or oral, between Seller and Buyer with respect to the subject matter of this Agreement. Notwithstanding anything in this Agreement to the contrary, upon the execution and delivery of this Agreement by Seller and Buyer, the Commitment shall be deemed null and void and of no further force and effect and the terms and conditions of this Agreement shall control notwithstanding that such terms and conditions are inconsistent with or vary from those set forth in the Commitment. M. Recording. This Agreement may not be recorded by either party. 21 N. Forum Selection; Jurisdiction; Venue; Choice of Law. Seller acknowledges that this Agreement was partially negotiated in the State of Arizona, the Agreement was executed and delivered by Seller and Buyer in the State of Arizona, all payments under the Lease will be delivered in the State of Arizona (unless otherwise directed by Buyer or its successors) and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Agreement, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona and Seller consents that it may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Seller waives and agrees not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. It is the intent of the parties hereto that all provisions of this Agreement shall be governed by and construed under the laws of the State of Arizona. To the extent that a court of competent jurisdiction finds Arizona law inapplicable with respect to any provisions hereof, then, as to those provisions only, the law of the states in which the Properties are located, as applicable, shall be deemed to apply. Nothing in this Section shall limit or restrict the right of Buyer to commence any proceeding in the federal or state courts located in the states in which the Properties are located, as applicable, to the extent Buyer deems such proceeding necessary or advisable to exercise remedies available under this Agreement. O. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original. P. Binding Effect. This Agreement shall be binding upon and inure to the benefit of Seller and Buyer and their respective successors and permitted assigns, including, without limitation, any United States trustee, any debtor-in-possession or any trustee appointed from a private panel. Q. Survival. Except for the conditions of Closing set forth in Section 11, which shall be satisfied or waived as of the Closing Date, all representations, warranties, agreements, obligations and indemnities of Seller and Buyer set forth in this Agreement (including, without limitation, the provisions of Sections 7, 8 and 14) shall survive the Closing. R. Waiver of Jury Trial and Punitive, Consequential and Indirect Damages. BUYER AND SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED 22 HERETO. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, BUYER AND SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES FROM THE OTHER OR ANY OF THE OTHER'S AFFILIATES, OFFICERS, DIRECTORS, MEMBERS AND EMPLOYEES OR THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR ANY OF THE OTHER'S AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO, EXCEPT THAT SUCH WAIVER ON THE PART OF BUYER SHALL NOT BE DEEMED TO LIMIT, REDUCE OR PRECLUDE IN ANY WAY BUYER'S REMEDIES PURSUANT TO SECTION 23 OF THE LEASE. THE RECIPROCAL WAIVERS BY BUYER AND SELLER OF ANY RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. S. Reliance By Lender. Seller acknowledges and agrees that Lender may rely on all of the representations, warranties and covenants set forth in this Agreement, that Lender is an intended third-party beneficiary of such representations, warranties and covenants and that Lender shall have all rights and remedies available at law or in equity as a result of a breach of such representations, warranties and covenants, including to the extent applicable, the right of subrogation. 23 IN WITNESS WHEREOF, Seller and Buyer have entered into this Agreement as of the date first above written. BUYER: CH RESTAURANT PROPERTY, LLC, a Delaware limited liability company By: CH Restaurant Equity, LLC, a Delaware limited liability company, its member By ________________________________________ Jamie Elliott Its Vice President SELLER: CHART HOUSE, INC., a Delaware corporation By ________________________________________ William Sullivan Its Executive Vice President and Chief Financial Officer EXHIBIT A PROPERTIES/ALLOCATION OF PURCHASE PRICE EXHIBIT A-1 LEGAL DESCRIPTIONS OF PROPERTIES IN WITNESS WHEREOF, Seller and Buyer have entered into this Agreement as of the date first above written. BUYER: CH RESTAURANT PROPERTY, LLC, a Delaware limited liability company By: CH Restaurant Equity, LLC, a Delaware limited liability company, its member By /s/ Jamie Elliott ----------------------------- Jamie Elliott Its Vice President SELLER: CHART HOUSE, INC., a Delaware corporation By /s/ William Sullivan -------------------------------- William Sullivan Its Executive Vice President and Chief Financial Officer EX-10.19 3 0003.txt MASTER LEASE AGREEMENT EXHIBIT 10.19 MASTER LEASE THIS MASTER LEASE (this "Lease") is made as of June 23, 2000 (the "Effective Date"), by and between CH RESTAURANT PROPERTY, LLC, a Delaware limited liability company ("Lessor"), whose address is c/o U.S. Realty Advisors, LLC, 1370 Avenue of the Americas, New York, New York 10019, and CHART HOUSE, INC., a Delaware corporation ("Lessee"), whose address is 640 North LaSalle Street, Suite 295, Chicago, Illinois 60610. W I T N E S S E T H : THAT, in consideration of the mutual covenants and agreements herein contained, Lessor and Lessee hereby covenant and agree as follows: 1. Certain Defined Terms. The following terms shall have the following meanings for all purposes of this Lease: "ADA" has the meaning set forth in Section 16.C. "Additional Rental" has the meaning set forth in Section 5.C. "Adjustment Date" means the first day of the month following the month in which the second anniversary of the Effective Date occurs, and every second anniversary thereafter during the Lease Term (excluding the extension periods if Lessee exercises its option pursuant to Section 27). "Affiliate" means any Person which directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, "controls", "under common control with" and "controlled by" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise. "Aggregate Fixed Charge Coverage Ratio" shall have the meaning set forth in Section 8.A. "Applicable Regulations" means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of each Governmental Authority having jurisdiction over Lessee and/or any of the Properties, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements and all applicable standards of the National Board of Fire Underwriters and the ADA, in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment applicable to Lessee. "Applicable Rent Reduction Percentage" means, with respect to any Property, a fraction, the numerator of which shall be the Purchase Price for such Property, and the denominator of which shall be the sum of the Purchase Price for all of the Properties then subject to this Lease, including such Property. "Base Annual Rental" means $1,581,000.00, subject to the increases provided for in Section 5.B. "Base Annual Rental Period" means the period commencing on July 1, 2000 and ending on June 30, 2020. "Base Monthly Rental" means an amount equal to 1/12 of the applicable Base Annual Rental. "Business Day" means a day on which banks located in Phoenix, Arizona are not required or authorized to remain closed. "Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended. "CPI" means the Consumer Price Index which is designated for the applicable month of determination as the United States City Average for All Urban Consumers, All Items, Not Seasonally Adjusted, with a base period equaling 100 in 1993-1995, as published by the United States Department of Labor's Bureau of Labor Statistics or any successor agency. "CPI Adjustment Date" means the first day of the month following the month in which the first anniversary of the Effective Date occurs, and every first anniversary thereafter during the Lease Term. "CPI Increase" means the quotient (expressed as a percentage) of (a) the positive difference, if any, between (i) the CPI for the month which is one month prior to the month of the applicable CPI Adjustment Date and (ii) the CPI for the month which is thirteen months prior to the month of such CPI Adjustment Date (the "Base CPI"), and (b) the Base CPI. In the event the statistics are not available or in the event that publication of the CPI is modified or discontinued in its entirety, the CPI Increase shall be determined on the basis of an index chosen by Lessor as a comparable and recognized index of the purchasing power of the United States consumer dollar published by the United States Department of Labor or other governmental agency. In the event that the CPI contemplated herein is not reported for the months required for the calculation set forth above, the parties agree to utilize the CPI reported for the month(s) nearest preceding the month(s) required for such calculation. "De Minimis Amounts" shall mean, with respect to any given level of Hazardous Materials, that level or quantity of Hazardous Materials in any form or combination of forms, the use, storage or release of which does not constitute a violation of, or require regulation or remediation under, any Environmental Laws and is customarily employed in the ordinary course of, or associated with, similar businesses located in the states in which the Properties are located. 2 "Default Rate" means 14% per annum or the highest rate permitted by law, whichever is less. "Disclosures" has the meaning set forth in Section 8.C. "Effective Date" has the meaning set forth in the Preamble. "Environmental Insurer" means American International Specialty Lines Insurance Company or such other insurer providing Environmental Policies reasonably acceptable to Lessor. "Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to Hazardous Materials and/or the protection of human health or the environment, by reason of a Release or a Threatened Release of Hazardous Materials or relating to liability for or costs of Remediation or prevention of Releases. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations, rulings, orders or decrees promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a Governmental Authority of the environmental condition of the property; requiring notification or disclosure of Releases or other environmental condition of any of the Properties to any Governmental Authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements relating to Hazardous Materials in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to Hazardous Materials; and relating to wrongful death, personal injury, or property or other damage in connection with the physical condition or use of any of the Properties by reason of the presence of Hazardous Materials in, on, under or above any of the Properties. "Environmental Liens" has the meaning set forth in Section 16.D(ix). "Environmental Policies" means the environmental insurance policy or policies, as applicable, issued by Environmental Insurer to Lessor with respect to the Properties, which Environmental Policies shall be in form and substance satisfactory to Lessor in its sole discretion. 3 "Event of Default" has the meaning set forth in Section 23. "FCCR Period" means the twelve month period of time immediately preceding the date on which Lessee gives written notice to Lessor that Lessee is proposing to substitute a Substitute Property as permitted by Section 55.A. "Fiscal Year" has the meaning set forth in Section 8.A. "GAAP" means generally accepted accounting principles consistently applied. "Governmental Authority" means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi- governmental authority of the United States, the states in which the Properties are located or any political subdivision thereof. "Gross Sales" means the sales or other income arising from all business conducted at all of the Properties by Lessee during the period of determination, less sales tax. "Guarantor" means Chart House Enterprises, Inc., a Delaware corporation. "Guaranty" means that certain unconditional guaranty of payment and performance dated as of the date of this Lease to be executed by Guarantor with respect to the obligations of Lessee under this Lease, as the same may be amended from time to time. "Hazardous Materials" means (i) any toxic substance or hazardous waste; (ii) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (iii) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," "hazardous wastes," "regulated substances" or words of similar import under any Environmental Laws; and (iv) any other chemical, material, gas or substance the exposure to or release of which is or may be prohibited, limited or regulated by any Governmental Authority that asserts or may assert jurisdiction over any of the Properties or the operations or activity at any of the Properties, or any chemical, material, gas or substance that does or may pose a hazard to the health and/or safety of the occupants of any of the Properties or the owners and/or occupants of property adjacent to or surrounding any of the Properties. "Indemnified Parties" means Lessor, Environmental Insurer, Remainderman, and Lender and their directors, officers, shareholders, trustees, beneficial owners, partners, members, and any directors, officers, shareholders, trustees, beneficial owners, partners, members of any beneficial owners, partners or members of Lessor, Environmental Insurer, Remainderman or Lender, and all employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any of the foregoing, including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial 4 portion of the assets and business of Lessor, Environmental Insurer, Remainderman or Lender, as applicable. "Lease Term" shall have the meaning described in Section 4. "Lease Year" means the 12-month period commencing on the first day of the calendar year or any other 12-month period as may be approved in writing by Lessor after the commencement of the Lease Term and each successive 12-month period thereafter. "Lender" means FFCA Acquisition Corporation, a Delaware corporation, its successors and assigns, any successor lender in connection with any loan secured by Lessor's interest in any of the Properties, and any servicer of any loan secured by Lessor's interest in any of the Properties, including, without limitation, Franchise Finance Corporation of America, a Delaware corporation. "Lessee Entities" means, collectively, Lessee and all Affiliates of Lessee. "Loan" means the loans evidenced by the Loan Documents. "Loan Agreement" means the Loan Agreement dated as of the date of this Lease in effect between Lessor and Lender, as such agreement may be amended from time to time and any and all replacements or substitutions thereof. "Loan Documents" means, collectively, the Loan Agreement, the Notes, the Mortgages and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, all as amended and supplemented and any and all replacements or substitutions thereof. "Losses" means any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, reasonable attorneys' fees, court costs and other costs of defense). "Maturity Date" means July 1, 2020. "Memorandum" means the memorandum of master lease dated as of the date of this Lease between Lessor and Lessee with respect to the Properties. A duplicate original Memorandum will be executed and recorded in the applicable real property records for each Property. Each Memorandum will contain exhibits with the addresses and store identification numbers for all of the Properties and the legal description for the applicable Property. "Mortgages" means, collectively, the mortgages, deeds of trust or trust deeds, assignments of rents and leases, security agreements and fixture filings dated as of even date herewith executed by Lessor for the benefit of Lender with respect to the Properties, as such 5 instruments may be amended, restated and/or supplemented from time to time and any and all replacements or substitutions thereof. "Notes" means, collectively, the promissory notes dated as of the date of this Lease executed by Lessor and payable to Lender with respect to the Properties, as such notes may be amended, restated and/or substituted from time to time. "Other Agreements" means, collectively, all agreements and instruments now or hereafter entered into between, among or by (1) any of the Lessee Entities, and, or for the benefit of, (2) Lessor; provided, however, the term Other Agreements shall not include this Lease and the other Sale-Leaseback Documents. "Participation" means the granting of any participations in any document evidencing loan obligations or any or all servicing rights with respect thereto. "Patio Lease" has the meaning set forth in Section 58. "Patio Portion" has the meaning set forth in Section 58. "Permitted Facility" means a Chart House restaurant or such other restaurant concepts of Guarantor and its subsidiaries which are approved by Lessor, such approval not to be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Lessor's approval shall not be required to change the use of no more than two (2) of the Properties to an Angelo and Maxie's restaurant as long as Lessor's consent is obtained to the alterations relating to such change of use if required by Section 18 hereof. "Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity. "Personalty" means all machinery, appliances, furniture, equipment, trade fixtures and other personal property of Lessee from time to time situated on or used in connection with the Properties; provided, however, the term "Personalty" shall not include the HVAC, walk-in coolers, walk-in freezers, supply fans, exhaust fans, air ducts, hoods, vents, built-in sinks, built-in countertops, plumbing and electrical fixtures, sign poles and lighting poles, all of which items are intended to be fixtures as such term is used within the definition of "Properties". "Prepayment Charges" means, for purposes of this Lease, the lesser of (i) an amount equal to any prepayment premium or charge, yield maintenance payment, or other cost or expense imposed on Lessor by the applicable lender in connection with the payment of the applicable Note(s) or promissory note(s) prior to the Maturity Date, or (ii) the Yield Maintenance Payment. "Properties" means, collectively, the parcels of real estate described by address, Lessor Number and Unit Number in Exhibit A attached hereto and --------- legally described in Exhibit A-1 attached hereto, all rights, privileges and ----------- appurtenances associated therewith, and all buildings, 6 structures, fixtures and other improvements now or hereafter located on such real estate (whether or not affixed to such real estate). "Property" means any one of the Properties. "Purchase Price" means, with respect to any Property, the amount of the purchase price corresponding to such Property as set forth on Exhibit A to --------- the Sale-Leaseback Agreement. "Questionnaires" means those certain environmental questionnaires completed by Lessee and submitted to Environmental Insurer in connection with the issuance of the Environmental Policies. "Rejectable Offer" has the meaning set forth in Section 21.B. "Rejectable Purchase Offer" has the meaning set forth in Section 56.A. "Rejectable Substitution Offer" has the meaning set forth in Section 55.A. "Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Materials. "Remainderman" means HC Remainder, LLC, a Delaware limited liability company, which owns a remainder interest in the parcels of real estate described by address, Lessor Number and Unit Number in Exhibit A attached hereto and --------- legally described in Exhibit A-1 attached hereto and all rights, privileges and ----------- appurtenances associated therewith, together with its successors and assigns. "Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Materials, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials. "Sale-Leaseback Agreement" means that certain Sale-Leaseback Agreement dated as of the date hereof between Lessor and Lessee with respect to the Properties. "Sale-Leaseback Documents" means the Sale-Leaseback Agreement, this Lease and all other documents executed in connection therewith or contemplated thereby. "Securitization" means one or more sales, dispositions, transfers or assignments by Lender or any Affiliate of Lender to a special purpose corporation, trust or other entity identified by Lender or any Affiliate of Lender of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any Affiliate of Lender (and, to the extent applicable, the subsequent sale, transfer or assignment of such notes to another special purpose corporation, 7 trust or other entity identified by Lender or any Affiliate of Lender), and the issuance of bonds, certificates, notes or other instruments evidencing interests in pools of such loans, whether in connection with a permanent asset securitization or a sale of loans in anticipation of a permanent asset securitization. Each Securitization shall be undertaken in accordance with all requirements which may be imposed by the investors or the rating agencies involved in each such sale, disposition, transfer or assignment or which may be imposed by applicable securities, tax or other laws or regulations, including, without limitation, laws relating to Lender's status as a real estate investment trust. "Substitute Property" means one or more parcels of real estate substituted for any of the Properties in accordance with the requirements of Section 55, together with all rights, privileges and appurtenances associated therewith, and all buildings, structures, fixtures and other improvements located thereon. For purposes of clarity, where two or more parcels of real property comprise a Substitute Property, such parcels shall be aggregated and deemed to constitute the Substitute Property for all purposes of this Lease. "Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any of the Properties which may result from such Release. "Title Company" means LandAmerica Financial Group or such other nationally recognized title insurance company reasonably acceptable to Lessor. "Transfer" means any sale, transfer or assignment of any document evidencing loan obligations, or any or all servicing rights with respect thereto. "Yield Maintenance Payment" means, for purposes of this Lease, an amount equal to the positive difference between (a) the present value, computed at the Reinvestment Rate (as defined below), of the stream of monthly principal and interest payments in effect under the applicable Note(s) as of the Effective Date from the date of prepayment through the Maturity Date, and (b) the outstanding principal balance of such Note(s) as of the date of prepayment; provided, however, if such difference is a negative number, the Yield Maintenance Payment shall be zero. For purposes hereof, the term "Reinvestment Rate" means an interest rate equal to the then current yield of U.S. treasury securities having a weighted average life to maturity closest to the Maturity Date. 2. Demise of Properties. In consideration of the rentals and other sums to be paid by Lessee and of the other terms, covenants and conditions on Lessee's part to be kept and performed, Lessor hereby leases to Lessee, and Lessee hereby takes and hires, the Properties. The Properties are leased to Lessee "AS IS" and "WHERE IS" without representation or warranty by Lessor and subject to the rights of parties in possession, to the existing state of title, any state of facts which an accurate survey or physical inspection might reveal, and all Applicable Regulations now or hereafter in effect. Lessee has examined each of the Properties 8 and title to each of the Properties and has found all of the same satisfactory for all of Lessee's purposes. 3. Characterization of Lease. A. Lessor and Lessee intend that: (i) this Lease constitutes a single master lease of all, but not less than all, of the Properties and that Lessor and Lessee have executed and delivered this Lease with the understanding that this Lease constitutes a unitary, unseverable instrument pertaining to all, but not less than all, of the Properties, and that neither this Lease nor the duties, obligations or rights of Lessee may be allocated or otherwise divided among the Properties by Lessee; (ii) this Lease is a "true lease" and not a financing lease, capital lease, mortgage, equitable mortgage, deed of trust, trust agreement, security agreement or other financing or trust arrangement, and the economic realities of this Lease are those of a true lease; and (iii) the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein. B. Lessor and Lessee acknowledge and agree that the Lease Term, including any term extensions provided for in this Lease, is less than the remaining economic life of each of the Properties. C. Lessee waives any claim or defense based upon the characterization of this Lease as anything other than a true lease and irrevocably waives any claim or defense which asserts that the Lease is anything other than a true lease. Lessee covenants and agrees that it will not assert that this Lease is anything but a true lease. Lessee stipulates and agrees not to challenge the validity, enforceability or characterization of the lease of the Properties as a true lease and further stipulates and agrees that nothing contained in this Lease creates or is intended to create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like. Lessee shall support the intent of the parties that the lease of the Properties pursuant to this Lease is a true lease and does not create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs. D. Lessee waives any claim or defense based upon the characterization of this Lease as anything other than a master lease of all of the Properties and irrevocably waives any claim or defense which asserts that the Lease is anything other than a master lease. Lessee covenants and agrees that it will not assert that this Lease is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties. Lessee stipulates and agrees not to challenge the validity, enforceability or characterization of the lease of the Properties as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties. Lessee shall take no action or position inconsistent with, and upon Lessor's request, shall take such actions as are reasonably necessary to support, the intent of the parties that this Lease is a unitary, 9 unseverable instrument pertaining to the lease of all, but not less than all, of the Properties, if, and to the extent that, any challenge occurs. E. Lessee represents and warrants to Lessor that (i) the Base Annual Rental is the fair market value for the use of the Properties and was agreed to by Lessor and Lessee on that basis, and (ii) the execution, delivery and performance by Lessee of this Lease does not constitute a transfer of all or any part of the Properties, other than a transfer of the leasehold interest granted herein. F. The expressions of intent, the waivers, the representations and warranties, the covenants, the agreements and the stipulations set forth in this Section are a material inducement to Lessor entering into this Lease. 4. Lease Term. The Lease Term for all of the Properties shall commence as of the Effective Date and shall expire on July 31, 2020, unless terminated sooner as provided in this Lease and as may be extended for four periods of five years each as set forth in Section 27 below. The time period during which this Lease shall actually be in effect is referred to herein as the "Lease Term." 5. Rental and Other Payments. A. If the Effective Date is a date other than the first day of the month, Lessee shall pay Lessor on the Effective Date the Base Monthly Rental prorated on the basis of the ratio that the number of days from the Effective Date through the last day in the month containing the Effective Date bears to the number of days in such month. Thereafter, on or before the first day of each succeeding calendar month, Lessee shall pay Lessor in advance the Base Monthly Rental. B. Commencing on the first Adjustment Date and on each Adjustment Date thereafter, the Base Annual Rental shall increase by an amount equal to the product of the then-current Base Annual Rental multiplied by 5.00%, which increase shall be compounded. The increased Base Annual Rental shall constitute the Base Annual Rental due and payable until the next Adjustment Date. C. All sums of money required to be paid by Lessee under this Lease which are not specifically referred to as rent ("Additional Rental") shall be considered rent although not specifically designated as such. Lessor shall have the same remedies for nonpayment of Additional Rental as those provided herein for the nonpayment of Base Annual Rental. D. (i) For purposes of this Section 5.D, the following terms shall have the following meanings: "Aggregate Assumed Base Annual Rental" means the aggregate amount of Base Annual Rental required to be paid by Lessee during the Base Annual Rental Period. "Aggregate Rent Refund" means the positive difference, if any, between the Aggregate Assumed Base Annual Rental and the CPI-Adjusted Rent. 10 "CPI-Adjusted Rent" means the aggregate amount of Base Annual Rental that would have been paid during the entire Base Annual Rental Period had the Base Annual Rental on each CPI Adjustment Date been increased over the Base Annual Rental immediately preceding such CPI Adjustment Date by three and one- half times the applicable CPI Increase. "Extended Term" means the period subsequent to the expiration of the Primary Term during which this Lease is actually in effect. "Primary Term" means the period commencing on the Effective Date and expiring on July 31, 2020. (ii) Lessor hereby agrees that, to the extent that the Aggregate Assumed Base Annual Rental exceeds the CPI-Adjusted Rent, Lessor shall be required to pay Lessee the Aggregate Rent Refund in accordance with the provisions of this Section 5.D. In no event shall Base Annual Rental be deemed reduced as of any Adjustment Date from the Base Annual Rental which would have been payable during the year immediately preceding such Adjustment Date. In addition, if the Aggregate Assumed Base Annual Rental is less than or equal to the aggregate CPI-Adjusted Rent, then no additional amounts shall be payable by Lessee to Lessor and the payments of Base Annual Rental otherwise contemplated by this Lease for the Primary Term shall become the final amounts payable as Base Annual Rental for the Primary Term. Anything contained herein to the contrary notwithstanding, in no event shall Lessor be required to pay the Aggregate Rent Refund in the event of any termination of this Lease resulting from the occurrence of an Event of Default or a rejection of this Lease in a bankruptcy case involving Lessee. (iii) Within thirty (30) days after the end of the Primary Term (other than a termination resulting from the occurrence of an Event of Default or a rejection of this Lease in a bankruptcy case involving Lessee), Lessor shall (x) provide Lessee with a statement setting forth Lessor's calculation of the amount of the Aggregate Rent Refund and each CPI Increase used in calculating the Aggregate Rent Refund and (y) pay the Aggregate Rent Refund to Lessee; provided, however, the obligation of Lessor to pay the Aggregate Rent Refund to Lessee shall not excuse or reduce Lessee's obligation to pay any Base Annual Rental or Additional Rental payable in respect of the Primary Term or, except as provided in subsection (iv) below, the Extended Term, or any payment due in respect of any termination of this Lease or as a result of the rejection of this Lease in a bankruptcy case involving Lessee, or any other amount (including, without limitation, indemnification payments or damages) payable hereunder during or with respect to the Primary Term or the Extended Term, and Lessee shall not have any right to set-off the Aggregate Rent Refund or any part thereof against its obligation to pay any such Base Annual Rental, Additional Rental, any payment due in respect of any termination of this Lease or as a result of the rejection of this Lease in a bankruptcy case involving Lessee, or any such other amount, except as provided in subsection (iv) below. If this Lease is terminated as a result of an Event of Default or if this Lease is rejected in a bankruptcy case involving Lessee, or if an Event of Default shall have occurred and be continuing at the expiration of the Primary Term, Lessor may, but shall not be required to, in exercising its rights hereunder, use, apply or retain the whole 11 or any part of the Aggregate Rent Refund for the payment of any rent or other sum (including damages) to which Lessor may be entitled by reason of such Event of Default or rejection. (iv) In the event Lessee exercises its option to extend this Lease as set forth in Section 27 below, Lessor may elect to apply the Aggregate Rent Refund, if any, as a credit against the Base Annual Rental first accruing for the Extended Term, until the balance of the Aggregate Rent Refund shall be reduced to zero. Lessor shall evidence its election by giving notice thereof to Lessee no later than the due date of the first installment of rent due in the first Extended Term; provided, however, if Lessor fails to deliver such notice, Lessor shall be deemed to have elected to so credit the Aggregate Rent Refund. (v) Notwithstanding anything contained herein to the contrary, the obligation created by this Section 5.D shall be personal to Lessor and shall be subordinate in all respects to the loans secured by the Mortgages. Without limiting the generality of the preceding sentence, in the event that Lender succeeds to the interest of Lessor in this Lease whether by a foreclosure of the Mortgages or the delivery to Lender of deeds-in-lieu of foreclosure, the preceding subsections of this Section 5.D shall be of no force or effect, Lender shall have no obligation to pay Lessee the Aggregate Rent Refund, and Lessee shall have no right to receive a credit for the Aggregate Rent Refund against the Base Annual Rental due for the Extended Term. 6. Representations and Warranties of Lessor. The representations and warranties of Lessor contained in this Section are being made to induce Lessee to enter into this Lease and Lessee has relied and will continue to rely upon such representations and warranties. Lessor represents and warrants to Lessee as of the Effective Date as follows: A. Organization, Authority and Status of Lessor. (i) Lessor has been duly organized and is validly existing and in good standing under the laws of the State of Delaware. All necessary corporate action has been taken to authorize the execution, delivery and performance by Lessor of this Lease and the other documents, instruments and agreements provided for herein. (ii) The person who has executed this Lease on behalf of Lessor is duly authorized so to do. B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms. 7. Representations and Warranties of Lessee. The representations and warranties of Lessee contained in this Section are being made to induce Lessor to enter into this Lease and Lessor has relied, and will continue to rely, upon such representations and warranties. Lessee represents and warrants to Lessor as of the Effective Date as follows: A. Organization, Authority and Status of Lessee. (i) Lessee has been duly organized or formed, is validly existing and in good standing under the laws of its state of incorporation or formation and is qualified to do business in any jurisdiction where such 12 qualification is required. All necessary corporate action has been taken to authorize the execution, delivery and performance by Lessee of this Lease and of the other documents, instruments and agreements provided for herein. Lessee is not a "foreign corporation", "foreign partnership", "foreign trust", "foreign limited liability company" or "foreign estate", as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder. Lessee's United States tax identification number is correctly set forth on the signature page of this Lease. (ii) The person who has executed this Lease on behalf of Lessee is duly authorized to do so. B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms. C. Litigation. There are no suits, actions, proceedings or investigations pending, or, to the best of its knowledge, threatened against or involving Lessee, Guarantor or any of the Properties before any arbitrator or Governmental Authority which might reasonably result in any material adverse change in the contemplated business, condition, worth or operations of Lessee, Guarantor or any of the Properties. D. Absence of Breaches or Defaults. Neither Lessee nor Guarantor is in default under any document, instrument or agreement to which Lessee or Guarantor is a party or by which Lessee, Guarantor, any of the Properties or any of Lessee's or Guarantor's property is subject or bound, which breach or default might reasonably result in any material adverse change in the contemplated business, condition, worth or operations of Lessee, Guarantor or any of the Properties. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not result in any breach of or default under any document, instrument or agreement to which Lessee or Guarantor is a party or by which Lessee, Guarantor, any of the Properties or any of Lessee's or Guarantor's property is subject or bound. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order. E. Liabilities of Lessor. Lessee is not liable for any indebtedness for money borrowed by Lessor and has not guaranteed any of the debts or obligations of Lessor. 8. Covenants. Lessee covenants to Lessor for so long as this Lease is in effect as follows: A. Aggregate Fixed Charge Coverage Ratio. Lessee shall maintain an Aggregate Fixed Charge Coverage Ratio at all of the Properties in the aggregate of at least 1.25:1, as determined on the last day of each fiscal year of Lessee (each, a "Fiscal Year"). For purposes of this Lease, the term "Aggregate Fixed Charge Coverage Ratio" shall mean with respect to the twelve month period of time immediately preceding the date of 13 determination, the ratio calculated for such period of time, each as determined in accordance with GAAP, of (a) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 4% of Gross Sales, to (b) the sum of the Operating Lease Expense and the Equipment Payment Amount. For purposes of this Section, the following terms shall be defined as set forth below: "Capital Lease" shall mean any lease of any property (whether real, personal or mixed) by Lessee with respect to one or more of the Properties which lease would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of Lessee. The term "Capital Lease" shall not include any operating lease or this Lease. "Debt" shall mean as directly related to all of the Properties and the period of determination (i) indebtedness of Lessee for borrowed money, (ii) obligations of Lessee evidenced by bonds, indentures, notes or similar instruments, (iii) obligations of Lessee to pay the deferred purchase price of property or services, (iv) obligations of Lessee under leases which should be, in accordance with GAAP, recorded as Capital Leases, and (v) obligations of Lessee under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. The term "Debt" shall not include Lessor's debt with respect to the Properties or otherwise. "Depreciation and Amortization" shall mean with respect to all of the Properties the depreciation and amortization accruing during any period of determination with respect to Lessee as determined in accordance with GAAP. The term "Depreciation and Amortization" shall not include Lessor's depreciation and amortization with respect to the Properties or otherwise. "Equipment Payment Amount" shall mean for any period of determination the sum of all amounts (other than Operating Lease Expense) payable during such period of determination under all (i) leases entered into by Lessee for equipment located at one or more of the Properties and (ii) all loans made to Lessee secured by Lessee's interest in the equipment located at one or more of the Properties. "Interest Expense" shall mean for any period of determination, the sum of all interest accrued or which should be accrued in respect of all Debt of Lessee allocable to one or more of the Properties and all business operations thereon during such period (including interest attributable to Capital Leases), as determined in accordance with GAAP. 14 "Net Income" shall mean with respect to all of the period of determination, the net income or net loss of Lessee allocable to all of the Properties. In determining the amount of Net Income, (i) adjustments shall be made for nonrecurring gains and losses allocable to the period of determination, (ii) deductions shall be made for, among other things, Depreciation and Amortization, Interest Expense and Operating Lease Expense allocable to the period of determination, and (iii) no deductions shall be made for (x) income taxes or charges equivalent to income taxes allocable to the period of determination, as determined in accordance with GAAP, or (y) corporate overhead expense allocable to the period of determination. "Operating Lease Expense" shall mean the expenses incurred by Lessee under any operating leases with respect to one or more of the Properties (including this Lease) and the business operations thereon during the period of determination, as determined in accordance with GAAP. B. Nonconsolidation Covenants. (i) Lessee will not assume liability for any indebtedness for money borrowed by Lessor and does not, and will not, guarantee any of the debts or obligations of Lessor. Lessee will not hold itself out as being liable for any obligations or indebtedness of Lessor. (ii) Lessee shall not and shall use its best efforts to cause its affiliates not to hold Lessor out to the public or to any individual creditors as being a unified entity with assets and liabilities in common with Lessee. (iii) Lessee shall conduct its business so as not to mislead others as to the separate identity of Lessor, and particularly will avoid the appearance of conducting business on behalf of Lessor. Without limiting the generality of the foregoing, no oral and written communications of Lessee, including, without limitation, letters, invoices, purchase orders, contracts, statements and loan applications, will be made in the name of Lessor which to the extent that to do otherwise would materially bear upon the maintenance of Lessor's separate identity. (iv) Lessee will not act in Lessor's name. (v) Where necessary and appropriate, Lessee shall disclose the independent business status of Lessor to creditors of Lessee, if any. (vi) The resolutions, agreements and other instruments of Lessee, if any, underlying the transactions described in this Lease will be maintained by Lessee. (vii) All transactions between Lessee and Lessor will be no less fair to each party than they could obtain on an arm's-length basis. 15 (viii) The books, records and accounts of Lessee shall at all times be maintained in a manner permitting the assets and liabilities of Lessor to be easily separated and readily ascertained from those of Lessee. (ix) Lessee will not direct, or otherwise control, the ongoing business decisions of Lessor. (x) Lessee will not file or cause to be filed a voluntary or involuntary petition in bankruptcy on behalf of or against Lessor. C. Securitization Covenants. (i) Lessee agrees to cooperate in good faith with Lessor and Lender in connection with any Transfer, Participation and/or Securitization of any of the Notes, Mortgages and/or any of the Loan Documents, or any or all servicing rights with respect thereto, including, without limitation, (i) providing such documents, financial and other data, and other information and materials (the "Disclosures") which would typically be required with respect to Lessee by a purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or Securitization, as applicable; provided, however, Lessee shall not be required to make Disclosures of any confidential information or any information which has not previously been made public unless required by applicable federal or state securities laws; and (ii) amending the terms of this Lease to the extent necessary so as to satisfy the requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfer, Participation or Securitization, so long as such amendments would not have a material adverse effect upon Lessee, the rights of and obligations on Lessee under this Lease or the transactions contemplated by this Lease. (ii) Lessee consents to Lessor and Lender providing the Disclosures, as well as any other information which Lessor and Lender may now have or hereafter acquire with respect to the Properties or the financial condition of Lessee to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or Securitization, as applicable. Lessor shall pay or cause Lender to pay all of Lessee's reasonable attorney fees and other out- of-pocket expenses incurred in connection with the performance of its obligations under this Section 8.C. D. Compliance Certificate. Within 120 days after the end of each fiscal year of Lessee, Lessee shall deliver to Lessor such compliance certificates as Lessor may reasonably require in order to establish that Lessee is in compliance in all material respects with all of the obligations, duties and covenants imposed on Lessee pursuant to this Lease. 9. Rentals To Be Net to Lessor. The Base Annual Rental payable hereunder shall be net to Lessor, so that this Lease shall yield to Lessor the rentals specified during the Lease Term, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Properties shall be performed and paid by Lessee, including, without limitation, all costs, expenses and obligations with respect to the Patio Lease and the Patio Portion. 16 10. Taxes and Assessments. Lessee shall pay, prior to the earlier of delinquency or the accrual of interest on the unpaid balance, all taxes and assessments of every type or nature assessed against, imposed upon or arising with respect to Lessor, any of the Properties, this Lease, the rental or other payments due under this Lease or Lessee during the Lease Term which affect in any manner the net return realized by Lessor under this Lease, including, without limitation, the following: A. All taxes and assessments upon any of the Properties or any part thereof and upon any Personalty, whether belonging to Lessor or Lessee, or any tax or charge levied in lieu of such taxes and assessments; B. All taxes, charges, license fees and or similar fees imposed by reason of the use of any of the Properties by Lessee; and C. All excise, transaction, privilege, license, sales, use and other taxes upon the rental or other payments due under this Lease, the leasehold estate of either party or the activities of either party pursuant to this Lease. Notwithstanding the foregoing, but without limiting the preceding obligation of Lessee to pay all taxes which are imposed on the rental or other payments due under this Lease, in no event will Lessee be required to pay any net income taxes (i.e., taxes which are determined taking into account deductions for depreciation, interest, taxes and ordinary and necessary business expenses) or franchise taxes (unless imposed in lieu of other taxes that would otherwise be the obligation of Lessee under this Lease, including, without limitation, any "gross receipts tax" or any similar tax based upon gross income or receipts of Lessor which does not take into account deductions from depreciation, interest, taxes and/or ordinary or necessary business expenses) of Lessor, any transfer taxes of Lessor, or any tax imposed with respect to the sale, exchange or other disposition by Lessor, in whole or in part, of any of the Properties or Lessor's interest in this Lease (other than transfer or recordation taxes imposed in connection with the transfer of any of the Properties to Lessee, the substitution of a Substitute Property or the termination of this Lease pursuant to the provisions of this Lease). All taxing authorities shall be instructed to send all tax and assessment invoices to Lessee and Lessee shall promptly provide Lessor and Lender with copies of all tax and assessment invoices received by Lessee. Upon request, Lessee shall also provide Lessor and Lender with evidence that such invoices were paid in a timely fashion. Lessee may, at its own expense, contest or cause to be contested (in the case of any item involving more than $1,000.00, after prior written notice to Lessor), by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any item specified in this Section or lien therefor, provided that (i) such proceeding shall suspend the collection thereof from the applicable Properties or any interest therein, (ii) neither such Properties nor any interest therein would be in any danger of being sold, forfeited or lost by reason of such proceedings, (iii) no Event of Default has occurred, and (iv) Lessee shall have deposited with Lessor adequate reserves for the payment of the taxes, together with all interest and penalties thereon, unless paid in full under 17 protest, or Lessee shall have furnished the security as may be required in the proceeding or as may be reasonably required by Lessor to insure payment of any contested taxes. 11. Utilities. Lessee shall contract, in its own name, for and pay when due all charges for the connection and use of water, gas, electricity, telephone, garbage collection, sewer use and other utility services supplied to the Properties during the Lease Term. Under no circumstances shall Lessor be responsible for any interruption of any utility service; provided, however, Lessor shall remain responsible for its affirmative acts which constitute gross negligence or intentional misconduct. 12. Insurance. Throughout the Lease Term, Lessee shall maintain with respect to each of the Properties, at its sole expense, the following types and amounts of insurance (which may be included under a blanket insurance policy if all the other terms hereof are satisfied): A. Insurance against loss, damage or destruction by fire and other casualty, including theft, vandalism and malicious mischief, flood (for each of the Properties which is in a location designated by the Federal Emergency Management Administration as a Special Flood Hazard Area), earthquake (for each of the Properties which is in an area subject to destructive earthquakes within recorded history), boiler explosion (for each of the Properties with a boiler), plate glass breakage, sprinkler damage (for each of the Properties which has a sprinkler system), all matters covered by a standard extended coverage endorsement, all matters covered by a special coverage endorsement commonly known as an "all-risk" endorsement and such other risks as Lessor may reasonably require, insuring each of the Properties for not less than 100% of their full insurable replacement cost. Such insurance shall also include law and ordinance insurance covering both the increase in cost of construction and diminution in value in the event that, after a casualty, the improvements at any of the Properties cannot be rebuilt to the same condition or for the same use which existed prior to such casualty because of applicable zoning requirements. B. Commercial general liability and property damage insurance, including a products liability clause, covering Lessor, Remainderman and Lessee against bodily injury liability, property damage liability and automobile bodily injury and property damage liability, including without limitation any liability arising out of the ownership, maintenance, repair, condition or operation of the Properties or adjoining ways, streets or sidewalks and, if applicable, insurance covering Lessor, Remainderman and Lessee against liability arising from the sale of liquor, beer or wine on the Properties. Such insurance policy or policies shall contain a broad form contractual liability coverage endorsement under which the insurer agrees to insure Lessee's obligations under Section 19 hereof to the extent insurable, and a "severability of interest" clause or endorsement, or its equivalent, which precludes the insurer from denying the claim of Lessee, Remainderman or Lessor because of the negligence or other acts of the other, shall be in amounts of not less than $1,000,000.00 per injury and occurrence with respect to any insured liability, whether for personal injury or property damage, or such higher limits as Lessor or Remainderman may reasonably require from time to time, and shall be of form and substance satisfactory to Lessor and Remainderman. 18 C. Business income insurance or rental interruption insurance, as requested by Lessor, equal to 100% of the Base Annual Rental for a period of not less than 12 months. D. State Worker's compensation insurance in the statutorily mandated limits, employer's liability insurance with limits not less than $500,000 or such greater amount as Lessor or Remainderman may from time to time require and such other insurance as may be necessary to comply with applicable laws. E. Such other insurance as may from time to time be reasonably required by Lessor, Remainderman or Lender in order to protect their respective interests with respect to the Properties, consistent with reasonably prudent business practices. All insurance policies shall: (i) Provide for a waiver of subrogation by the insurer as to claims against Lessor, Remainderman, Lender and their respective employees and agents; (ii) Provide that any "no other insurance" clause in the insurance policy shall exclude any policies of insurance maintained by Lessor, Remainderman or Lender and that the insurance policy shall not be brought into contribution with insurance maintained by Lessor, Remainderman or Lender; (iii) Contain a standard without contribution mortgage clause endorsement in favor of Lender and any other party designated by Lessor, as their interests may appear; (iv) Provide that the policy of insurance shall not be terminated, cancelled or substantially modified by endorsement without at least thirty (30) days' prior written notice to Lessor, Remainderman, Lender and to any other party covered by any standard mortgage clause endorsement; (v) Provide that the insurer shall not have the option to restore the applicable Properties if Lessor or Lessee elects to terminate this Lease in accordance with the terms hereof; (vi) Be issued by insurance companies licensed to do business in the states in which the Properties are located and which are rated A:VI or better by Best's Insurance Guide or are otherwise approved by Lessor and Remainderman; and (vii) Provide that the insurer shall not deny a claim nor shall the insurance be cancelled, invalidated or suspended by (1) any action, inaction, conduct or negligence of Lessor, Remainderman, Lender or any other party covered by any standard mortgage clause endorsement, Lessee, anyone acting for Lessee or any subtenant or other occupant of any of the Properties, (2) occupancy 19 or use of any of the Properties for purposes more hazardous than permitted by such policies, (3) any foreclosure or other proceedings relating to any of the Properties or change in title to or ownership of any of the Properties, or (4) any breach or violation by Lessee or any other person of any warranties, declarations or conditions contained in such policies or the applications for such policies. It is expressly understood and agreed that the foregoing minimum limits of insurance coverage shall not limit the liability of Lessee for its acts or omissions as provided in this Lease. All insurance policies (with the exception of workers' compensation insurance to the extent not available under statutory law and property insurance described in Section 12.A. and business income insurance described in Section 12.C), shall designate Lessor, Remainderman and Lender as additional named insureds, as their interests may appear and shall be payable as set forth in Section 21 hereof. Property insurance policies shall designate Lessor and Remainderman as loss payee and Lender as mortgagee. All such policies shall be written as primary policies, with deductibles not to exceed 10% of the amount of coverage. Any other policies, including any policy now or hereafter carried by Lessor, Remainderman or Lender, shall serve as excess coverage. Lessee shall procure policies for all insurance for periods of not less than one year and shall provide to Lessor, Remainderman and Lender certificates of insurance or, upon the request of Lessor, Remainderman or Lender, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Lease is in effect at all times. In the event of any transfer by Lessor of Lessor's interest in any of the Properties or any financing or refinancing of Lessor's interest in any of the Properties, or by Remainderman of Remainderman's interest in any of the Properties, Lessee shall, upon not less than ten (10) days' prior written notice, deliver to Lessor and Remainderman or any Lender providing such financing or refinancing, as the case may be, certificates of all insurance required to be maintained by Lessee hereunder naming such transferee or such Lender, as the case may be, as an additional named insured to the extent required herein effective as of the date of such transfer, financing or refinancing. 13. Tax and Insurance Impound. Upon the occurrence of an Event of Default, Lessor may require Lessee to pay to Lessor sums which will provide an impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and/or insurance premiums for each of the Properties. Upon such requirement, Lessor will estimate the amounts needed for such purposes and will notify Lessee to pay the same to Lessor in equal monthly installments, as nearly as practicable, in addition to all other sums due under this Lease. Should additional funds be required at any time, Lessee shall pay the same to Lessor on demand. Lessee shall advise Lessor of all taxes and insurance bills which are due and shall cooperate fully with Lessor in assuring that the same are paid timely. Lessor may deposit all impounded funds in accounts insured by any federal or state agency and may commingle such funds with other funds and accounts of Lessor. Interest or other gains from such funds, if any, shall be the sole property of Lessor. In the event of any default by Lessee, Lessor may apply all impounded funds against any sums due from Lessee to Lessor. Lessor shall give to Lessee an annual accounting showing all credits and debits to and from such impounded funds received from Lessee. 20 14. Payment of Rental and Other Sums. All rental and other sums which Lessee is required to pay hereunder shall be the unconditional obligation of Lessee and shall be payable in full when due without any setoff, abatement, deferment, deduction or counterclaim whatsoever. Upon execution of this Lease, Lessee shall establish arrangements whereby payments of the Base Monthly Rental and impound payments, if any, are transferred by wire or other means directly from Lessee's bank account to such account as Lessor may designate. Any delinquent payment (that is, any payment not made within five calendar days after the date when due) shall, in addition to any other remedy of Lessor, incur a late charge of 5% (which late charge is intended to compensate Lessor for the cost of handling and processing such delinquent payment and should not be considered interest) and bear interest at the Default Rate, such interest to be computed from and including the date such payment was due through and including the date of the payment; provided, however, in no event shall Lessee be obligated to pay a sum of late charge and interest higher than the maximum legal rate then in effect and Lessee shall not be obligated to pay the 5% late charge for the first delinquent payment occurring in any 12 month-period. 15. Use. Except as set forth below, each of the Properties shall be used solely for the operation of a Permitted Facility in accordance with the standards of operations then in effect on a system-wide basis, and for no other purpose. Lessee shall occupy the Properties promptly following the Effective Date and, except as set forth below and except during periods when any of the Properties is untenantable by reason of fire or other casualty or condemnation (provided, however, during all such periods while any of the Properties is untenantable, Lessee shall strictly comply with the terms and conditions of Section 21 of this Lease), Lessee shall at all times during the Lease Term occupy each of the Properties and shall diligently conduct its business on each of the Properties as a Permitted Facility. Lessee may cease diligent operation of business at any of the Properties for a consecutive period not to exceed 90 days and may do so only once with respect to each Property within any five-year period during the Lease Term. If Lessee does discontinue operation as permitted by this Section, Lessee shall (i) give written notice to Lessor within 10 days after Lessee elects to cease operation, (ii) provide adequate protection and maintenance of any such Properties during any period of vacancy, (iii) comply with all Applicable Regulations and otherwise comply with the terms and conditions of this Lease other than the continuous use covenant set forth in this Section, and (iv) pay all costs necessary to restore such Properties to their condition on the day operation of the business ceased at such time as such Properties are reopened for Lessee's business operations or other substituted use approved by Lessor as contemplated below. In addition, closing a Permitted Facility for up to two days in each calendar week and up to seven consecutive days once in any calendar year, in each case without notice to Lessee or Lender, shall not be deemed a violation of this provision as long as such closing does not cause Lessee to violate the provisions of Section 8.A. Notwithstanding anything herein to the contrary, Lessee shall pay the Base Monthly Rental on the first day of each month during any period in which Lessee discontinues operation. Lessee shall not, by itself or through any assignment, sublease or other type of transfer, convert any of the Properties to a use other than a Permitted Facility during the Lease Term without Lessor's consent, which consent shall not be unreasonably withheld or delayed. Lessor 21 may consider any or all of the following in determining whether to grant its consent, without being deemed to be unreasonable: (i) whether the converted use will be consistent with the highest and best use of the Properties, and (ii) whether the converted use will increase Lessor's risks or decrease the value of the Properties. 16. Compliance with Laws, Restrictions, Covenants and Encumbrances. A. Lessee's use and occupation of each of the Properties, and the condition thereof, shall, at Lessee's sole cost and expense, comply fully with all Applicable Regulations and all restrictions, covenants and encumbrances of record with respect to each of the Properties. In addition to the other requirements of this Section, Lessee shall, at all times throughout the Lease Term, comply with all Applicable Regulations, including, without limitation, in connection with any maintenance, repairs and replacements of the Properties undertaken by Lessee as required by Section 17 of this Lease. B. Lessee will not permit any act or condition to exist on or about any of the Properties which will increase any insurance rate thereon, except when such acts are required in the normal course of its business and Lessee shall pay for such increase. C. Without limiting the generality of the other provisions of this Section, Lessee agrees that it shall be responsible for ensuring that the Properties comply in all material respects with all applicable requirements of the Americans with Disabilities Act of 1990, as such act may be amended from time to time, and all regulations promulgated thereunder (collectively, the "ADA"). Lessee further agrees that any and all alterations made to the Properties during the Lease Term will comply with the requirements of the ADA. All plans for alterations which must be submitted to Lessor under the provisions of Section 18 must include a statement from a licensed Architect or Engineer certifying that they have reviewed the plans, and that the plans comply with all applicable requirements of the ADA. Any subsequent approval or consent to the plans by Lessor shall not be deemed to be a representation of Lessor's part that the plans comply with the requirements of the ADA, which obligation shall remain with Lessee. Lessee agrees that it will defend, indemnify and hold harmless the Indemnified Parties from and against any and all Losses caused by, incurred or resulting from Lessee's failure to comply with its obligations under this Section. D. Lessee represents and warrants to Lessor and Environmental Insurer as follows: (i) None of the Properties nor Lessee are in violation of, or subject to, any pending or threatened investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws, and this representation and warranty would continue to be true and correct following disclosure to the applicable Governmental Authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Properties. (ii) No permits, licenses or similar authorizations to construct, occupy, operate or use any buildings, improvements, fixtures and equipment forming a part of any of the 22 Properties by reason of any Environmental Laws have been obtained or are required to be obtained. (iii) No Hazardous Materials have been used, handled, manufactured, generated, produced, stored, treated, processed, transferred, disposed of or otherwise Released in, on, under, from or about any of the Properties, except in De Minimis Amounts or in compliance with Environmental Laws. (iv) Except as disclosed in the Questionnaires, the Properties do not contain Hazardous Materials, other than in De Minimis Amounts or in compliance with Environmental Laws, or underground storage tanks. (v) To the knowledge of the officers of Lessee, there is no threat of any Release migrating to any of the Properties. (vi) To the knowledge of the officers of Lessee, there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with any of the Properties. (vii) Lessee has not received any written notice from any Governmental Authority relating to Hazardous Materials or Remediation thereof, of possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with any of the Properties, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing, which have not been remedied in compliance with Environmental Laws. (viii) Lessee has truthfully and fully provided to Lessor, in writing, any and all information relating to environmental conditions in, on, under or from the Properties that is known to the officers of Lessee and that is contained in Lessee's files and records, including but not limited to any reports relating to Hazardous Materials in, on, under or from any of the Properties. (ix) All uses and operations on or of the Properties by Lessee and, to the knowledge of the officers of Lessee by any other person or entity, have been in material compliance with all Environmental Laws and permits issued pursuant thereto; there have been no Releases in, on, under or from any of the Properties, except in De Minimis Amounts; there are no Hazardous Materials in, on, or under any of the Properties, except in De Minimis Amounts or in compliance with Environmental Laws; and the Properties have been kept free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law (the "Environmental Liens"). Lessee has not allowed any tenant or other user of any of the Properties to do any act on any of the Properties in violation of any Environmental Laws. E. Lessee covenants to Lessor and Environmental Insurer during the Lease Term that: (i) the Properties shall not be in violation of any investigation or inquiry by any Governmental 23 Authority or any remedial obligations under any Environmental Laws. If any such investigation or inquiry is initiated with respect to any alleged violation of Environmental Laws, Lessee shall promptly notify Lessor; (ii) all uses and operations on or of each of the Properties, whether by Lessee or any other person or entity, shall be in material compliance with all Environmental Laws and permits issued pursuant thereto; (iii) there shall be no Releases in, on, under or from any of the Properties, except in De Minimis Amounts or that do not violate any Environmental Laws; (iv) there shall be no Hazardous Materials in, on, or under any of the Properties, except in De Minimis Amounts or which do not violate any Environmental Laws; (v) Lessee shall keep each of the Properties free and clear of all Environmental Liens, whether due to any act or omission of Lessee or any other person or entity; (vi) Lessee shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to subsection F below, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (vii) in the event that Lessor notifies Lessee that it has knowledge of a Release or a Threatened Release at any of the Properties or has a reasonable basis to believe that a material violation of Environmental Laws at any of the Properties may have occurred, Lessee shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with any of the Properties as may be reasonably requested by Lessor (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and share with Lessor and Environmental Insurer the reports and other results thereof, and Lessor, Environmental Insurer and the other Indemnified Parties shall be entitled to rely on such reports and other results thereof; (viii) Lessee shall, at its sole cost and expense, comply with all reasonable written requests of Lessor to (1) reasonably effectuate Remediation of any condition (including but not limited to a Release) in, on, under or from any of the Properties; (2) comply with any Environmental Law; (3) comply with any applicable directive from any Governmental Authority having jurisdiction over the Properties; and (4) take any other reasonable action necessary or appropriate for protection of human health or the environment; (ix) Lessee shall not do or allow any tenant or other user of any of the Properties to do any act that materially increases the dangers to human health or the environment, poses an unreasonable risk of harm to any person or entity (whether on or off any of the Properties), impairs or may impair the value of any of the Properties, is contrary to any requirement of any insurer, constitutes a public or private nuisance, constitutes waste, or violates any covenant, condition, agreement or easement applicable to any of the Properties; and (x) Lessee shall immediately notify Lessor in writing of (A) any presence of Releases or Threatened Releases in, on, under, from or migrating towards any of the Properties in violation of any applicable Environmental Laws; (B) any non-compliance with any Environmental Laws related in any way to any of the Properties; (C) any Environmental Lien; (D) any required Remediation of environmental conditions relating to any of the Properties; and (E) any written notice of which any officer of Lessee becomes aware from any Governmental Authority relating in any way to liability of any person or entity pursuant to any Environmental Law, or any administrative or judicial proceedings commenced or overtly threatened in connection with any alleged violation of Environmental Laws. F. Lessor, Lender, Environmental Insurer and any other person or entity designated by Lessor, including but not limited to any receiver, any representative of a Governmental Authority, and any environmental consultant, shall have the right, but not the obligation, to enter 24 upon the Properties at all reasonable times (including, without limitation, in connection with any Securitization, Participation or Transfer or in connection with a proposed sale or conveyance of any of the Properties or a proposed financing or refinancing secured by any of the Properties or in connection with the exercise of any remedies set forth in this Lease, the Mortgages or the other Loan Documents, as applicable) to assess any and all aspects of the environmental condition of the Properties and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in the sole and absolute discretion of the party conducting the assessment) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing; provided, however, that any such persons (except in emergencies) shall use reasonable efforts to undertake any such assessments or investigations so as to minimize the impact on Lessee's business operations at the Properties. Lessee shall cooperate with and provide access to Lessor, Lender, Environmental Insurer and any other person or entity designated by Lessor. Any such assessment and investigation shall be at Lessee's sole cost and expense. Notwithstanding the forgoing, however, such access and investigation shall be limited to one time in any calendar year except in cases where more frequent access and investigation is reasonably necessary under the circumstances. G. Lessee shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless each of the Indemnified Parties for, from and against any and all Losses (excluding Losses suffered by an Indemnified Party directly arising out of such Indemnified Party's gross negligence or willful misconduct; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of the Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease) and costs of Remediation (whether or not performed voluntarily), engineers' fees, environmental consultants' fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (i) any presence of any Hazardous Materials in, on, above, or under any of the Properties; (ii) any past or present Release or Threatened Release in, on, above, under or from any of the Properties; (iii) any activity by Lessee, any person or entity affiliated with Lessee or any other tenant or other user of any of the Properties in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from any of the Properties of any Hazardous Materials at any time located in, under, on or above any of the Properties; (iv) any activity by Lessee, any person or entity affiliated with Lessee or any other tenant or other user of any of the Properties in connection with any actual or proposed Remediation of any Hazardous Materials at any time located in, under, on or above any of the Properties, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (v) any past, present or threatened non- compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with any of the Properties or operations thereon, including but not limited to any failure by Lessee, any person or entity affiliated with Lessee or any other tenant or other user of any of the 25 Properties to comply with any order of any Governmental Authority in connection with any Environmental Laws; (vi) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering any of the Properties; (vii) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Section; (viii) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with any of the Properties, including but not limited to costs to investigate and assess such injury, destruction or loss; (ix) any acts of Lessee, any person or entity affiliated with Lessee or any other tenant or user of any of the Properties in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials owned or possessed by Lessee, any person or entity affiliated with Lessee or any other tenant or user of any of the Properties, at any facility or incineration vessel owned or operated by another person or entity and containing such or similar Hazardous Materials; (x) any acts of Lessee, any person or entity affiliated with Lessee or any other tenant or user of any of the Properties, in accepting any Hazardous Materials for transport to disposal or treatment facilities, incineration vessels or sites selected by Lessee, any person or entity affiliated with Lessee or any other tenant or user of any of the Properties, from which there is a Release, or a Threatened Release of any Hazardous Materials which causes the incurrence of costs for Remediation; (xi) any personal injury, wrongful death, or property damage arising under any statutory or common law or tort law theory, including but not limited to damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity on or near any of the Properties; and (xii) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Section. H. The obligations of Lessee and the rights and remedies of Lessor under the foregoing subsections D through G shall survive the termination, expiration and/or release of this Lease with respect to matters arising or occurring prior to or during the Lease Term. 17. Condition of Properties; Maintenance. Lessee, at its own expense, will maintain all parts of each of the Properties in good repair and sound condition, except for ordinary wear and tear, and will take all action and will make all structural and non-structural, foreseen and unforeseen and ordinary and extraordinary changes and repairs which may be required to keep all parts of each of the Properties in good repair and sound condition, ordinary wear and tear excepted. Lessee waives any right to (i) require Lessor to maintain, repair or rebuild all or any part of any of the Properties or (ii) make repairs at the expense of Lessor, pursuant to any Applicable Regulations at any time in effect, except in each case for those necessitated by affirmative acts of Lessor or its agents which constitute gross negligence or intentional misconduct. 18. Waste; Alterations and Improvements. Lessee shall not commit actual or constructive waste upon any of the Properties. Lessee shall not alter the exterior, structural, plumbing or electrical elements of any of the Properties in any manner without the consent of Lessor, which consent shall not be unreasonably withheld or conditioned (it being understood and agreed that to the extent Lessor is required to obtain the approval of Lender with respect to any such alterations, Lessor shall in no event be deemed to have unreasonably withheld Lessor's 26 approval thereof if Lender shall not have given its approval if required); provided, however, Lessee may undertake nonstructural alterations to any of the Properties costing less than $500,000.00 without Lessor's consent. If Lessor's consent is required hereunder and Lessor consents to the making of any such alterations, the same shall be made according to plans and specifications approved by Lessor, such approval not be unreasonably withheld or conditioned, and subject to such other conditions as Lessor shall reasonably require. All alterations shall be made by Lessee at Lessee's sole expense by licensed contractors and in accordance with all applicable laws governing such alterations. Any work at any time commenced by Lessee on any of the Properties shall be prosecuted diligently to completion, shall be of good workmanship and materials and shall comply fully with all the terms of this Lease. Upon completion of any alterations, Lessee shall promptly provide Lessor with (i) evidence of full payment to all laborers and materialmen contributing to the alterations, (ii) an architect's certificate certifying the alterations to have been completed in conformity with the plans and specifications, (iii) a certificate of occupancy (if the alterations are of such a nature as would require the issuance of a certificate of occupancy), and (iv) any other documents or information reasonably requested by Lessor. Any addition to or alteration of any of the Properties, other than the addition to or alteration of Personalty, shall automatically be deemed a part of the Properties and belong to Lessor, and Lessee shall execute and deliver to Lessor such instruments as Lessor may require to evidence the ownership by Lessor of such addition or alteration. Lessee shall execute and file or record, as appropriate, a "Notice of Non-Responsibility," or any equivalent notice permitted under applicable law in the states where the applicable Properties are located. 19. Indemnification. Lessee shall indemnify, protect, defend and hold harmless each of the Indemnified Parties from and against any and all Losses (excluding Losses suffered by an Indemnified Party arising out of the gross negligence or willful misconduct of such Indemnified Party; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of the Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease) caused by, incurred or resulting from Lessee's operations of or relating in any manner to any of the Properties, whether relating to their original design or construction, latent defects, alteration, maintenance, use by Lessee or any person thereon, supervision or otherwise, or from any breach of, default under, or failure to perform, any term or provision of this Lease by Lessee, its officers, employees, agents or other persons, or to which any Indemnified Party is subject because of Lessor's or Remainderman's interest in any of the Properties, including, without limitation, Losses arising from (1) any accident, injury to or death of any person or loss of or damage to property occurring in, on or about any of the Properties or portion thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways, (2) any use, non-use or condition in, on or about, or possession, alteration, repair, operation, maintenance or management of, any of the Properties or any portion thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways, (3) any representation or warranty made herein by Lessee, in any certificate delivered in connection herewith or in any other agreement to which Lessee is a party or pursuant thereto being false or misleading in any material respect as of the date of such representation or warranty was made, (4) performance of any labor or services or the furnishing of any materials or other property in respect to any of the Properties or any portion thereof, 27 (5) any taxes, assessments or other charges which Lessee is required to pay under Section 10, (6) any lien, encumbrance or claim arising on or against any of the Properties or any portion thereof under any Applicable Regulation or otherwise which Lessee is obligated hereunder to remove and discharge, or the failure to comply with any Applicable Regulation, (7) the claims of any invitees, patrons, licensees or subtenants of all or any portion of any of the Properties or any Person acting through or under Lessee or otherwise acting under or as a consequence of this Lease or any sublease, (8) any act or omission of Lessee or its agents, contractors, licensees, subtenants or invitees, (9) any contest referred to in Section 10, and (10) the sale of liquor, beer or wine on any of the Properties. It is expressly understood and agreed that Lessee's obligations under this Section shall survive the expiration or earlier termination of this Lease for any reason with respect to matters arising or occurring prior to or during the Lease Term. 20. Quiet Enjoyment. So long as Lessee shall pay the rental and other sums herein provided and shall keep and perform all of the terms, covenants and conditions on its part herein contained, Lessee shall have, subject and subordinate to Lessor's rights herein, the right to the peaceful and quiet occupancy of the Properties. Notwithstanding the foregoing, however, in no event shall Lessee be entitled to bring any action against Lessor to enforce its rights hereunder if an Event of Default shall have occurred and be continuing. 21. Condemnation or Destruction. A. In the event of a taking of all or any part of any of the Properties for any public or quasi-public purpose by any lawful power or authority by exercise of the right of condemnation or eminent domain or by agreement between Lessor, Lessee and those authorized to exercise such right ("Taking") or the commencement of any proceedings or negotiations which might result in a Taking or any damage to or destruction of any of the Properties or any part thereof (a "Casualty"), Lessee will promptly give written notice thereof to Lessor, generally describing the nature and extent of such Taking, proceedings, negotiations or Casualty and including copies of any documents or notices received in connection therewith. Thereafter, Lessee shall promptly send Lessor copies of all correspondence and pleadings relating to any such Taking, proceedings, negotiations or Casualty. During all periods of time following a Casualty, Lessee shall insure that the subject Property is secure and does not pose any risk of harm to adjoining property owners or occupants or third-parties. B. In the event of (i) a Taking of the whole of any of the Properties, other than for temporary use, (ii) a Taking of substantially all of any of the Properties (other than for temporary use) that results in Lessee making a good faith determination that the restoration and continued use of the remainder of such Property as a Permitted Facility would be uneconomic (each of (i) and (ii), a "Total Taking"), or (iii) a Casualty of substantially all of any of the Properties that results in Lessee making a good faith determination that the restoration and continued use of such Property as a Permitted Facility would be uneconomic (a "Total Casualty"), Lessor shall be entitled to receive the entire award, insurance proceeds or payment in connection therewith without deduction for any estate vested in Lessee by this Lease. Lessee hereby expressly assigns to Lessor all of its right, title and interest in and to every such award, insurance proceeds or payment and agrees that Lessee shall not be entitled to any award, insurance proceeds or 28 payment for the value of Lessee's leasehold interest in this Lease. Lessee shall be entitled to claim and receive any award or payment from the condemning authority expressly granted for the taking of Personalty, the interruption of its business and moving expenses, but only if such claim or award does not adversely affect or interfere with the prosecution of Lessor's claim for the Total Taking or otherwise reduce the amount recoverable by Lessor for the Total Taking. Lessee shall be entitled to claim and receive any insurance proceeds with respect to the Personalty, the interruption of its business and moving expenses, but only if such claim or proceeds does not adversely affect or interfere with the prosecution of Lessor's claim for the Total Casualty or otherwise reduce the amount recoverable by Lessor for the Total Casualty. In the event of a Total Taking or Total Casualty, Lessee shall have the right to terminate this Lease with respect to the applicable Property by notice (the "Termination Notice") given to Lessor not later than 30 days after the Total Taking or Total Casualty, as applicable. The Termination Notice must: (i) specify a date on which this Lease with respect to such Property shall terminate, which date shall be the last day of a calendar month occurring not earlier than 120 days and not later than 150 days after the delivery of such notice (the "Early Termination Date"); (ii) contain a certificate executed by the president, chief financial officer or treasurer of Lessee which (X) describes the Total Taking or Total Casualty, and (Y) represents and warrants that either the whole of such Property has been taken, or that substantially all of such Property has been taken and Lessee has determined in good faith that the restoration and continued use of the remainder of such Property as a Permitted Facility would be uneconomic, or that substantially all of such Property has been damaged or destroyed and Lessee has determined in good faith that the restoration and continued use of such Property as a Permitted Facility would be uneconomic; and (iii) if the Early Termination Date shall occur prior to the commencement of any extension options which may be exercised pursuant to Section 27, contain either (X) an irrevocable rejectable written offer (the "Rejectable Offer") of Lessee to purchase Lessor's interest in such Property and in the net award for such Total Taking or net insurance proceeds for such Total Casualty, as applicable, after deducting all costs, fees and expenses incident to the collection thereof, including all costs and expenses incurred by Lessor and Lender in connection therewith (the "Net Award") on the Early Termination Date for a purchase price equal to the Stipulated Loss Value (as hereinafter defined) for such Property, or (Y) a Rejectable Substitution Offer to substitute a Substitute Property satisfying the applicable requirements of Section 55.A for such Property and Lessor's interest in the Net Award. As used herein, the term "Stipulated Loss Value" shall mean the sum of (a) the product of the amount specified on Schedule I attached hereto which corresponds to the Early ---------- Termination Date multiplied by the Purchase Price for such Property, plus (b) all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, plus (c) in the event of a Rejectable Offer relating to a Total Casualty, the Prepayment Charge corresponding to such Property. If the Early Termination Date shall occur prior to the commencement of any extension options which may be exercised pursuant to Section 27, Lessor shall have 90 days from the delivery of the Termination Notice to deliver to Lessee written notice of its election to either accept or reject any Rejectable Offer or Rejectable Substitution Offer contained in the Termination Notice. Lessor's failure to deliver such notice within such time period shall be 29 deemed to constitute Lessor's acceptance of the applicable Rejectable Offer or Rejectable Substitution Offer. If the Mortgage corresponding to such Property is still outstanding, any rejection of the Rejectable Offer or Rejectable Substitution Offer by Lessor shall not be effective unless it is consented to in writing by the Lender. If Lessor accepts the Rejectable Offer or is deemed to have accepted the Rejectable Offer or if any rejection of the Rejectable Offer by Lessor is not consented to in writing by the Lender, then, on the Early Termination Date, Lessor shall sell and convey, and Lessee shall purchase for the purchase price described above, Lessor's interest in such Property and the Net Award. Lessee's obligations under this Lease with respect to such Property shall not be terminated until the applicable Stipulated Loss Value is paid in full. Upon such payment, (i) Lessor shall convey such Property to Lessee "as-is" by special warranty deed, subject to all matters of record (except for the Mortgage corresponding to such Property and any other consensual liens granted by Lessor other than those granted by Lessor at the request of Lessee), and without representation or warranty, and (ii) all obligations of either party hereunder with respect to such Property shall cease as of the Early Termination Date, provided, however, Lessee's obligations to Lessor under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the Early Termination Date shall survive the termination of this Lease with respect to such Property. This Lease shall, however, continue in full force and effect with respect to all other Properties. If Lessor accepts the Rejectable Substitution Offer or is deemed to have accepted the Rejectable Substitution Offer or if any rejection of the Rejectable Substitution Offer by Lessor is not consented to in writing by the Lender, then, on the Early Termination Date, Lessee shall complete such substitution, subject, however, to the satisfaction of each of the applicable terms and conditions set forth in this Section 55. Upon such substitution (i) Lessee shall be entitled to claim and receive the Net Award and (ii) all obligations of either party hereunder with respect to the Property being replaced shall cease as of the Early Termination Date, provided, however, Lessee's obligations to Lessor under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the Early Termination Date shall survive the termination of this Lease with respect to such Property. This Lease shall, however, continue in full force and effect with respect to all other Properties. Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with the conveyance of a Property to Lessee pursuant to this Section 21, including, without limitation, to the extent applicable, the cost of title insurance, survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and recording fees, taxes imposed on Lessor as a result of such conveyance, taxes imposed in connection with the transfer of a Property to Lessee or the termination of this Lease with respect to a Property pursuant to the provisions of this Section 21, Lessee's attorneys' fees and the reasonable attorneys' fees and expenses of counsel to Lessor and Lender. 30 If Lessor rejects the Rejectable Offer or Rejectable Substitution Offer and, as long as the Mortgage corresponding to the Property subject to such Rejectable Offer or Rejectable Substitution Offer is still outstanding, such rejection is consented to by Lender, or if the Early Termination Date shall occur after the commencement of any extension options exercised pursuant to Section 27, then (i) the Net Award shall be paid to and belong to Lessor, (ii) on the Early Termination Date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, and (iii) all obligations of either party hereunder shall cease as of the Early Termination Date with respect to the applicable Property, including the termination of the obligation to pay rent with respect to such Property for the period from and after the Early Termination Date, provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the Early Termination Date shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties. C. In the event of a Taking of all or any part of any of the Properties for a temporary use ("Temporary Taking"), this Lease shall remain in full force and effect without any reduction of Base Annual Rental, Additional Rental or any other sum payable hereunder. Except as provided below, Lessee shall be entitled to the entire award for a Temporary Taking, whether paid by damages, rent or otherwise, unless the period of occupation and use by the condemning authorities shall extend beyond the date of expiration of this Lease, in which case the award made for such Taking shall be apportioned between Lessor and Lessee as of the date of such expiration. At the termination of any such Temporary Taking, Lessee will, at its own cost and expense and pursuant to the terms of Section 18 above, promptly commence and complete the restoration of the Property affected by such Temporary Taking; provided, however, Lessee shall not be required to restore such Property if the Lease Term shall expire prior to, or within one year after, the date of termination of such Temporary Taking, and in such event Lessor shall be entitled to recover all damages and awards arising out of the failure of the condemning authority to repair and restore such Property at the expiration of such Temporary Taking. D. In the event of a Taking which is not a Total Taking or a Temporary Taking ("Partial Taking") or of a Casualty which is not a Total Casualty (a "Partial Casualty"), all awards, compensation or damages shall be paid to Lessor, and Lessor shall have the option to (i) terminate this Lease with respect to the Property affected, provided that, as long as the Mortgage corresponding to the applicable Property is still outstanding, Lessor shall have obtained Lender's prior written consent, by notifying Lessee within 60 days after Lessee gives Lessor notice of such Partial Casualty or that title has vested in the taking authority or (ii) continue this Lease in effect, which election may be evidenced by either a notice from Lessor to Lessee or Lessor's failure to notify Lessee that Lessor has elected to terminate this Lease with respect to such Property within such 60-day period. Lessee shall have a period of 60 days after Lessor's notice that it has elected to terminate this Lease with respect to such Property during which to elect to continue this Lease with respect to such Property on the terms herein provided. 31 If Lessor elects to terminate this Lease with respect to such Property and Lessee does not elect to continue this Lease with respect to such Property or shall fail during such 60-day period to notify Lessor of Lessee's intent to continue this Lease with respect to such Property, then this Lease shall terminate with respect to such Property as of the last day of the month during which such period expired. Lessee shall then immediately vacate and surrender such Property, all obligations of either party hereunder with respect to such Property shall cease as of the date of termination (provided, however, Lessee's obligations to Lessor under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay Base Annual Rental, Additional Rental and all other sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the date of termination shall survive such termination) and Lessor may retain all such awards, compensation or damages. The Lease shall continue in full force and effect with respect to all other Properties. If Lessor elects not to terminate this Lease with respect to such Property, or if Lessor elects to terminate this Lease with respect to such Property but Lessee elects to continue this Lease with respect to such Property, then this Lease shall continue in full force and effect on the following terms: (i) all Base Annual Rental, Additional Rental and other sums and obligations due under this Lease shall continue unabated, and (ii) Lessee shall promptly commence and diligently prosecute restoration of such Property to the same condition, as nearly as practicable, as prior to such Partial Taking or Partial Casualty as approved by Lessor. Subject to reasonable conditions for disbursement imposed by Lessor, Lessor shall promptly make available in installments as restoration progresses an amount up to but not exceeding the amount of any award, compensation or damages received by Lessor after deducting all costs, fees and expenses incident to the collection thereof, including all costs and expenses incurred by Lessor and Lender in connection therewith (the "Net Restoration Amount"), upon request of Lessee accompanied by evidence reasonably satisfactory to Lessor that such amount has been paid or is due and payable and is properly a part of such costs and that Lessee has complied with the terms of Section 18 above in connection with the restoration. Prior to the disbursement of any portion of the Net Restoration Amount with respect to a Partial Casualty, Lessee shall provide evidence reasonably satisfactory to Lessor of the payment of restoration expenses by Lessee up to the amount of the insurance deductible applicable to such Partial Casualty. Lessor shall be entitled to keep any portion of the Net Restoration Amount which may be in excess of the cost of restoration, and Lessee shall bear all additional costs, fees and expenses of such restoration in excess of the Net Restoration Amount. If this Lease is terminated with respect to any Property as a result of a Partial Casualty, simultaneously with such termination Lessee shall pay Lessor an amount equal to the insurance deductible applicable to such Partial Casualty. E. In the event of a termination of this Lease with respect to a Property pursuant to Section 21.B which does involve the acceptance (or deemed acceptance) of a Rejectable Substitution Offer or a termination of this Lease with respect to a Property pursuant to Section 21.D, the Base Annual Rental then in effect shall be reduced by an amount equal to the product of (x) the Applicable Rent Reduction Percentage for such Property, and (y) the Base Annual Rental then in effect. 32 F. Any loss under any property damage insurance required to be maintained by Lessee shall be adjusted by Lessor and Lessee. Any award relating to a Total Taking or a Partial Taking shall be adjusted by Lessor or at Lessor's election, Lessee. Notwithstanding the foregoing or any other provisions of this Section to the contrary, if at the time of any Taking or any Casualty or at any time thereafter Lessee shall be in default under this Lease and such default shall be continuing, Lessor is hereby authorized and empowered but shall not be obligated, in the name and on behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any, for an award on account of such Taking or for insurance proceeds on account of such Casualty and to collect such award or proceeds and apply the same, after deducting all costs, fees and expenses incident to the collection thereof, to the curing of such default and any other then existing default under this Lease and/or to the payment of any amounts owed by Lessee to Lessor under this Lease, in such order, priority and proportions as Lessor in its discretion shall deem proper. G. Notwithstanding the foregoing, nothing in this Section 21 shall be construed as limiting or otherwise adversely affecting the representations, warranties, covenants and characterizations set forth in Lease, including, without limitation, those provisions set forth in Section 3 of this Lease. 22. Inspection. Lessor and its authorized representatives shall have the right, upon giving reasonable advance notice, to enter any of the Properties or any part thereof at reasonable times in order to inspect the same and make photographic or other evidence concerning Lessee's compliance with the terms of this Lease or in order to show the Properties to prospective purchasers and lenders. Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of any of the Properties and any other loss occasioned by such entry so long as Lessor shall have used reasonable efforts not to unreasonably interrupt Lessee's normal business operations. Lessee shall keep and maintain at the Properties or Lessee's corporate headquarters full, complete and appropriate books of account and records of Lessee's business relating to the Properties in accordance with GAAP. Lessee's books and records shall at all times, upon reasonable advance notice from Lessor or Lender, be open for inspection by Lessor, Lender and their respective auditors or other authorized representatives and shall show such information as is reasonably necessary to determine compliance with Lessor's obligations under the Loan Documents. 23. Default, Conditional Limitations, Remedies and Measure of Damages. A. Each of the following shall be an event of default under this Lease (each, an "Event of Default"): (i) If any representation or warranty of Lessee set forth in this Lease is false in any material respect, or if Lessee renders any statement or account which is false in any material respect; (ii) If any rent or other monetary sum due under this Lease is not paid within five days from the date when due; provided, however, notwithstanding the occurrence of such an Event of Default, Lessor shall not be entitled to exercise its remedies set forth below 33 unless and until Lessor shall have given Lessee notice thereof and a period of five days from the delivery of such notice shall have elapsed without such Event of Default being cured; (iii) If Lessee fails to pay, prior to delinquency, any taxes, assessments or other charges, the failure of which to pay will result in the imposition of a lien against any of the Properties or the rental or other payments due under this Lease or a claim against Lessor, unless Lessee is contesting such taxes, assessments or other charges in accordance with the provisions of Section 10 of this Lease; (iv) If Lessee or Guarantor becomes insolvent within the meaning of the Code, files or notifies Lessor that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, hereinafter, an "Action"), becomes the subject of either a petition under the Code or an Action which is not dissolved within 90 days after filing, or is not generally paying its debts as the same become due; (v) If Lessee vacates or abandons any of the Properties other than in accordance with the provisions of Section 15 of this Lease; (vi) If Lessee fails to observe or perform any of the other covenants, conditions or obligations of this Lease (except with respect to a breach of the Aggregate Fixed Charge Coverage Ratio, which breach is addressed in subitem (ix) below, breaches of Sections 24 and 25, which breaches are addressed in subitem (xi) below, and the failure to maintain insurance, which breach is addressed in subitem (xii) below) and such failure continues for 30 days after Lessor shall have given Lessee notice thereof; provided, however, if such failure cannot reasonably be cured within such 30 day period and Lessee is diligently pursuing a cure of such failure, then Lessee shall have a reasonable period to cure such failure beyond such 30 day period, which shall in no event exceed 90 days after receiving notice of such failure from Lessor. If Lessee shall fail to correct or cure such failure within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further notice or demand of any kind being required; (vii) If there is an "Event of Default" or a breach or default, after the passage of all applicable notice and cure or grace periods, under any other Sale-Leaseback Document or any of the Other Agreements; (viii) If a final, nonappealable judgment is rendered by a court against Lessee which has a material adverse effect on either the ability to conduct business at any of the Properties for its intended use or Lessee's ability to perform its obligations under this Lease, or is in the amount of $100,000.00 or more, and in either event is not discharged, stayed or provision made for such discharge or stay within 60 days from the date of entry thereof; (ix) If there is a breach of the Aggregate Fixed Charge Coverage Ratio requirement and Lessor shall have given Lessee notice thereof and Lessee shall have failed within a period of 10 days from the delivery of such notice to either: 34 (1) deliver a Rejectable Substitution Offer to Lessor for the substitution of such Substitute Properties satisfying the applicable requirements of Section 55.A for the Properties (starting with the Property with the lowest "Fixed Charge Coverage Ratio" (determined as contemplated in the following sentence) and proceeding in ascending order to the Property with the next lowest Fixed Charge Coverage Ratio) as is necessary to cause the Aggregate Fixed Charge Coverage Ratio for the Fiscal Year in which such breach occurred to be in compliance with the Aggregate Fixed Charge Coverage Ratio requirement; or (2) deliver a Rejectable Purchase Offer to Lessor to purchase such of the Properties (starting with the Property with the lowest Fixed Charge Coverage Ratio and proceeding in ascending order to the Property with the next lowest Fixed Charge Coverage Ratio) as is necessary to cause the Aggregate Fixed Charge Coverage Ratio for the Fiscal Year in which such breach occurred to be in compliance with the Aggregate Fixed Charge Coverage Ratio requirement. For purposes of the preceding subitems (1) and (2), the definitions set forth in Section 8.A of this Lease with respect to the calculation of the Aggregate Fixed Charge Coverage Ratio shall be deemed modified as applicable to provide for the calculation of a Fixed Charge Coverage Ratio for each Property on an individual basis rather than on an aggregate basis with the other Properties. For purposes of such calculation, the Operating Lease Expense with respect to this Lease for each such Property shall equal the Base Annual Rental then in effect multiplied by the Applicable Rent Reduction Percentage for such Property. Unless Lessor rejects such Rejectable Substitution Offer or Rejectable Purchase Offer as contemplated by Section 55 or 56, as applicable, the failure of Lessee to complete such substitutions or purchases within 90 days after the delivery to Lessor of such Rejectable Substitution Offer or Rejectable Purchase Offer shall be deemed an Event of Default without further notice or demand of any kind being required. Notwithstanding the foregoing, if, within a 30 day period after the delivery of Lessor's notice to Lessee of Lessee's breach of the Aggregate Fixed Charge Coverage Ratio requirement, Lessee provides evidence satisfactory to Lessor that the Aggregate Fixed Charge Coverage Ratio is at least 1.25:1 for the twelve calendar month period immediately preceding the delivery to Lessor of such evidence, no Event of Default shall be deemed to have occurred as a result of such breach of the Aggregate Fixed Charge Coverage Ratio requirement. (x) If Guarantor shall fail to maintain a net worth of at least $25,000,000.00, as determined in accordance with GAAP or if Guarantor shall breach Section 7(a) or 7(b) of the Guaranty. 35 (xi) If Lessee shall fail to sign any instrument or certificate in accordance with the provisions of Sections 24 or 25 of this Lease and such failure shall not be cured within five days following notice from Lessor. (xii) If Lessee shall fail to maintain insurance in accordance with the requirements of Section 12 and such failure continues for 5 days. B. Upon the occurrence of an Event of Default, with or without notice or demand, except the notice prior to default required under certain circumstances by subsection A. above or such other notice as may be required by statute and cannot be waived by Lessee (all other notices being hereby waived), Lessor shall be entitled to exercise, at its option, concurrently, successively, or in any combination, all remedies available at law or in equity (other than seeking punitive, consequential or indirect damages), including without limitation, any one or more of the following: (i) Lessor may serve a written three (3) day notice of cancellation and termination of this Lease upon Lessee, and upon the expiration of such three (3) days, this Lease and the term hereunder shall end and expire as fully and completely as if the date of expiration of such three (3) day period were the day herein definitely fixed for the end and expiration of this Lease and the term thereof, and Lessee shall immediately quit and surrender the Properties to Lessor, but Lessee shall remain liable as hereinafter provided; (ii) To reenter and take possession of any or all of the Properties and, to the extent permissible, all franchises, licenses, area development agreements, permits and other rights or privileges of Lessee pertaining to the use and operation of any or all of the Properties and to expel Lessee and those claiming under or through Lessee, without being deemed guilty in any manner of trespass or becoming liable for any loss or damage resulting therefrom, without resort to legal or judicial process, procedure or action. No notice from Lessor hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Lessor to terminate this Lease unless such notice specifically so states. If Lessee shall, after default, voluntarily give up possession of any of the Properties to Lessor, deliver to Lessor or its agents the keys to any of the Properties, or both, such actions shall be deemed to be in compliance with Lessor's rights and the acceptance thereof by Lessor or its agents shall not be deemed to constitute a termination of this Lease. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice. (iii) To remove all Personalty located on or at any or all of the Properties and cause the same to be stored in a public warehouse or elsewhere at Lessee's sole expense, without becoming liable for any loss or damage resulting therefrom and without resorting to legal or judicial process, procedure or action. 36 (iv) To bring an action against Lessee for any damages sustained by Lessor (other than punitive, consequential or indirect damages) or any equitable relief available to Lessor. (v) To relet any or all of the Properties or any part thereof for such term or terms (including a term which extends beyond the original Lease Term), at such rentals and upon such other terms as Lessor, in its sole discretion, may determine, with all proceeds received from such reletting being applied to the rental and other sums due from Lessee in such order as Lessor may, in it sole discretion, determine, which other sums include, without limitation, all repossession costs, brokerage commissions, attorneys' fees and expenses, employee expenses, alteration and remodeling costs in connection with such reletting and repair costs and expenses of preparing for such reletting. Except to the extent required by applicable law, Lessor shall have no obligation to relet any of the Properties or any part thereof and shall in no event be liable for refusal or failure to relet any of the Properties or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon such reletting, and no such refusal or failure shall operate to relieve Lessee of any liability under this Lease or otherwise to affect any such liability. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice. (vi) (x) To recover from Lessee all rent and other monetary sums then due and owing under this Lease; and (y) to accelerate and recover from Lessee the present value (discounted at the rate of 6% per annum) of all rent and other monetary sums scheduled to become due and owing under this Lease after the date of such breach for the entire original scheduled Lease Term, provided, however, in no event shall such recovery be less than the sum of (i) the product of the amount specified on Schedule I attached ---------- hereto which corresponds to the time period during which such Event of Default occurs multiplied by the sum of the Purchase Price for all of the Properties which are then subject to this Lease plus (ii) the sum of the Prepayment Charges corresponding to all of the Properties which are then subject to this Lease. (vii) To recover from Lessee all costs and expenses, including attorneys' fees, court costs, expert witness fees, costs of tests and analyses, travel and accommodation expenses, deposition and trial transcripts, copies and other similar costs and fees, paid or incurred by Lessor as a result of such breach, regardless of whether or not legal proceedings are actually commenced. (viii) To immediately or at any time thereafter, and with or without notice, at Lessor's sole option but without any obligation to do so, correct such breach or default and charge Lessee all costs and expenses incurred by Lessor therein. Any sum or sums so paid by Lessor, together with interest at the then existing maximum legal rate, but not higher than the Default Rate, shall be deemed to be Additional Rental hereunder and shall be immediately due from Lessee to Lessor. Any such acts by Lessor in correcting Lessee's 37 breaches or defaults hereunder shall not be deemed to cure said breaches or defaults or constitute any waiver of Lessor's right to exercise any or all remedies set forth herein. (ix) To immediately or at any time thereafter, and with or without notice, except as required herein, set off any money of Lessee held by Lessor under this Lease against any sum owing by Lessee or Guarantor hereunder. (x) To seek any equitable relief available to Lessor, including, without limitation, the right of specific performance. All powers and remedies given by this Section to Lessor, subject to applicable law, shall be cumulative and not exclusive of one another or of any other right or remedy or of any other powers and remedies available to Lessor under this Lease, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements of Lessee contained in this Lease, and no delay or omission of Lessor to exercise any right or power accruing upon the occurrence of any Event of Default shall impair any other or subsequent Event of Default or impair any rights or remedies consequent thereto. However, Lessor shall not be entitled to duplicate recoveries for the same loss. Every power and remedy given by this Section or by law to Lessor may be exercised from time to time, and as often as may be deemed expedient, by Lessor, subject at all times to Lessor's right in its sole judgment to discontinue any work commenced by Lessor or change any course of action undertaken by Lessor. If Lessee shall fail to observe or perform any of its obligations under this Lease or in the event of an emergency, then, without waiving any Event of Default which may result from such failure or emergency, Lessor may, but without any obligation to do so, take all actions, including, without limitation, entry upon any or all of the Properties to perform Lessee's obligations, immediately and without notice in the case of an emergency and upon five days written notice to Lessee in all other cases. All expenses incurred by Lessor in connection with performing such obligations, including, without limitation, reasonable attorneys' fees and expenses, together with interest at the Default Rate from the date any such expenses were incurred by Lessor until the date of payment by Lessee, shall constitute Additional Rental and shall be paid by Lessee to Lessor upon demand. 24. Liens; Mortgages, Subordination, Nondisturbance and Attornment. Lessor's interest in this Lease and/or any of the Properties shall not be subordinate to any liens or encumbrances placed upon any of the Properties by or resulting from any act of Lessee, and nothing herein contained shall be construed to require such subordination by Lessor. Lessee shall keep the Properties free from any liens for work performed, materials furnished or obligations incurred by Lessee. NOTICE IS HEREBY GIVEN THAT LESSEE IS NOT AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST, SECURITY INTEREST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF ANY OF THE PROPERTIES OR LESSEE'S LEASEHOLD INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION WHICH IS NOT APPROVED BY LESSOR SHALL BE VOID. FURTHERMORE, ANY SUCH PURPORTED 38 TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH LESSOR'S RELATIONSHIP WITH LESSEE AND LESSOR'S OWNERSHIP OF THE PROPERTIES. This Lease at all times shall automatically be subordinate to the Mortgages and to the lien of any and all ground leases, mortgages, deeds of trust and trust deeds now or hereafter placed upon any of the Properties by Lessor, and Lessee covenants and agrees to execute and deliver, within 20 days following demand, such further instruments subordinating this Lease to the lien of the Mortgages and any or all such ground leases, mortgages, deeds of trust or trust deeds as shall be desired by Lessor, or any present or proposed mortgagees or lenders under deeds of trust or trust deeds, upon the condition that Lessee shall have the right to remain in possession of the Properties under the terms of this Lease, notwithstanding any default in the Mortgages or any or all such ground leases, mortgages, deeds of trust or trust deeds or after foreclosure of any or all such Mortgages, mortgages, deeds of trust or trust deeds or termination of any or all such ground leases, so long as no Event of Default has occurred or is continuing under this Lease. If any mortgagee, receiver, Lender or other secured party elects to have this Lease and the interest of Lessee hereunder be superior to any of the Mortgages or any such ground lease, mortgage or trust deed and evidences such election by notice given to Lessee, then this Lease and the interest of Lessee hereunder shall be deemed superior to any such Mortgage, ground lease, mortgage or trust deed, whether this Lease was executed before or after such Mortgage, ground lease, mortgage or trust deed and in that event such mortgagee, receiver, Lender or other secured party shall have the same rights with respect to this Lease as if it had been executed and delivered prior to the execution and delivery of such Mortgage ground lease, mortgage or trust deed and had been assigned to such mortgagee, receiver, Lender or other secured party. Although the foregoing provisions shall be self-operative and no future instrument of subordination shall be required, upon request by Lessor, Lessee shall execute and deliver whatever instruments may be required for such purposes within 20 days following demand. In the event any purchaser or assignee of Lender at a foreclosure sale acquires title to any of the Properties, or in the event Lender or any assignee otherwise succeeds to the rights of Lessor as landlord under this Lease, Lessee shall attorn to Lender or such purchaser or assignee, as the case may be (a "Successor Lessor"), and recognize the Successor Lessor as lessor under this Lease, and this Lease shall continue in full force and effect as a direct lease between the Successor Lessor and Lessee, provided that the Successor Lessor shall only be liable for any obligations of the lessor under this Lease which accrue after the date that such Successor Lessor acquires title. The foregoing provision shall be self operative and effective without the execution of any further instruments. Lessee shall give written notice to any lender of Lessor having a recorded lien upon any of the Properties or any part thereof of which Lessee has been notified of any breach or default by Lessor of any of its obligations under this Lease simultaneously with the giving of such notice to Lessor, and Lessee shall give such lender at least 60 days beyond any notice period to which Lessor might be entitled to cure such default before Lessee may exercise any remedy with respect thereto. Upon request by Lessor, Lessee shall also provide Lessee's most recent audited 39 financial statements (to the extent audited financial statements are prepared) to Lessor or any such lender and certify the continuing accuracy of such financial statements in such manner as Lessor or such lender may request. Notwithstanding the forgoing, Lessee shall be obligated to provide such financial statements and certifications to only one lender at a time. If Lessor has more than one lender, it shall designate to Lessee a single lender or servicer to receive such financial statements and certifications. 25. Estoppel Certificate. At any time, and from time to time, Lessee shall, promptly and in no event later than 20 days after a request from Lessor or Lender, execute, acknowledge and deliver to Lessor or Lender a certificate in the form supplied by Lessor, Lender or any present or proposed mortgagee or purchaser designated by Lessor, certifying: (i) that Lessee has accepted the Properties (or, if Lessee has not done so, that Lessee has not accepted the Properties, and specifying the reasons therefor); (ii) that this Lease is in full force and effect and has not been modified (or if modified, setting forth all modifications), or, if this Lease is not in full force and effect, the certificate shall so specify the reasons therefor; (iii) the commencement and expiration dates of the Lease Term, including the terms of any extension options of Lessee; (iv) the date to which the rentals have been paid under this Lease and the amount thereof then payable; (v) whether there are then any existing defaults by Lessor in the performance of its obligations under this Lease, and, if there are any such defaults, specifying the nature and extent thereof; (vi) that no notice has been received by Lessee of any default under this Lease which has not been cured, except as to defaults specified in the certificate; (vii) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of Lessee; (viii) that neither Lessor nor Lender has actual involvement in the management or control of decision making related to the operational aspects or the day-to-day operations of the Properties; and (ix) any other information reasonably requested by Lessor, Lender or such present or proposed mortgagee or purchaser. 26. Assignment. A. Lessor shall have the right to sell or convey all, but not less than all, of the Properties or to assign its right, title and interest as Lessor under this Lease in whole, but not in part. In the event of any such sale or assignment other than a security assignment, provided Lessee receives written notice that such purchaser or assignee has assumed all of Lessor's obligations under this Lease, Lessee shall attorn to such purchaser or assignee and Lessor shall be relieved, from and after the date of such transfer or conveyance, of liability for the performance of any obligation of Lessor contained herein, except for obligations or liabilities accrued prior to such assignment or sale. B. Lessee acknowledges that Lessor has relied both on the business experience and creditworthiness of Lessee and upon the particular purposes for which Lessee intends to use the Properties in entering into this Lease. Without the prior written consent of Lessor: (i) Lessee shall not assign, transfer or convey this Lease or any interest therein, whether by operation of law or otherwise; and (ii) Lessee shall not sublet all or any part of any of the Properties. It is expressly agreed that Lessor may withhold or condition such consent based upon such matters as Lessor may in its reasonable discretion determine, including, without limitation, the experience and creditworthiness of any assignee, the assumption by any assignee of all of Lessee's obligations 40 hereunder by undertakings enforceable by Lessor, the transfer to any assignee of all necessary licenses and franchises to continue operating the Properties for the purposes herein provided, receipt of such representations and warranties from any assignee as Lessor may request, including such matters as its organization, existence, good standing and finances and other matters, whether or not similar in kind. At the time of any assignment of this Lease which is approved by Lessor, the assignee shall assume all of the obligations of Lessee under this Lease pursuant to Lessor's standard form of assumption agreement. No such assignment nor any subletting of any of the Properties shall relieve Lessee of its obligations under this Lease or the other Sale-Leaseback Documents or Guarantor from any of its obligations under the Guaranty. Any assignment, transfer or conveyance in violation of this paragraph shall be voidable at the sole option of Lessor. C. Without the prior written consent of Lessor: (i) a majority of the voting stock of Lessee shall not be transferred by the owners of such stock as of the Effective Date, whether through one or more transactions (a "Controlling Interest Transfer"), (ii) Lessee shall not merge or consolidate with any other entity (a "Consolidation"), and (iii) Lessee shall not sell or otherwise transfer substantially all of its assets (an "Asset Sale"). Notwithstanding the foregoing, Lessor's consent shall be deemed given with respect to a Controlling Interest Transfer, Consolidation or Asset Sale if the following conditions have been satisfied: (1) the applicable Controlling Interest Transfer, Consolidation or Asset Sale does not cause any of the rating agencies which have issued ratings in connection with any Securitization of the Loan to downgrade, modify, withdraw or qualify any of such ratings; (2) the applicable Controlling Interest Transfer, Consolidation or Asset Sale does not result in a violation of Section 29 of the Guaranty; (3) with respect to a Controlling Interest Transfer, Lessee shall not be released from any of its obligations under this Lease or the other Sale- Leaseback Documents and Guarantor shall not be released from any of its obligations under the Guaranty, including without limitation, Section 29 thereof; and (4) with respect to a Consolidation or Asset Sale, the surviving entity or purchaser, as applicable, has assumed in writing (or by operation of law) all of Lessee's obligations under this Lease and the other Sale-Leaseback Documents and Guarantor shall not be released from any of its obligations under the Guaranty, including without limitation, Section 29 thereof. 27. Option To Extend. Provided that, at the time of exercise or at the expiration of the Lease Term or, if applicable, the preceding extension of the Lease Term, no Event of Default has occurred and is continuing under this Lease and no default in payment of rent, insurance or taxes is continuing under this Lease, Lessee shall have the option to continue this Lease in effect for up to four additional successive periods of five years each in accordance with the terms and provisions of this Lease then in effect, except that the Base Annual Rental during each extension period shall be an amount equal to 95% of the annual fair market rental value of the Properties during such extension period (to be determined as set forth below). 41 Lessee shall exercise the first extension option by giving notice to Lessor of Lessee's intention to do so not later than January 31, 2019. If the first extension option is exercised by Lessee, Lessee shall exercise the second extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2024. If the first two extension options are exercised, Lessee shall exercise the third extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2029. If the first three extension options are exercised, Lessee shall exercise the fourth extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2034. Lessor shall cause an appraisal of the fair market rental value of the Properties to be made by an independent MAI appraiser (the "Lessor Appraisal") within 60 days after Lessor is notified of the exercise of such option. Lessee shall have 20 days from its receipt of the Lessor Appraisal to either accept or reject such appraisal, provided that, Lessee's failure to reject the Lessor Appraisal within such 20 day period shall be deemed to be an acceptance thereof. If Lessee shall accept or be deemed to have accepted the Lessor Appraisal, the fair market rental value shall be the amount set forth in the Lessor Appraisal. If Lessee shall reject the Lessor Appraisal within such 20 day period, then Lessee shall within 60 days after such rejection cause an appraisal of the fair market rental value of the Properties to be made by an independent MAI appraiser selected by Lessee (the "Lessee Appraisal"). Lessor shall have 20 days from its receipt of the Lessee Appraisal to either accept or reject such appraisal, provided that, Lessor's failure to reject the Lessee Appraisal within such 20 day period shall be deemed to be an acceptance thereof. If Lessor shall accept or be deemed to have accepted the Lessee Appraisal, the fair market rental value shall be the amount set forth in the Lessee Appraisal. If Lessor shall reject the Lessee Appraisal within such 20 day period, then the appraisers who conducted the Lessor Appraisal and the Lessee Appraisal shall be directed to jointly select, within 20 days thereafter, a third independent MAI appraiser who shall, within 30 days after selection, select either the Lessor Appraisal or the Lessee Appraisal as the fair market rental value of the Properties. If the two appraisers are unable to agree on the third appraiser within such 20 day period, the third appraiser shall be selected by the American Arbitration Association. Lessee shall be obligated to pay the costs of all three appraisers and the American Arbitration Association (to the extent applicable). 28. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Lease shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt or refusal of the intended recipient to accept receipt, if hand delivered, (b) transmission, if delivered by facsimile, (c) the next Business Day, if delivered by express overnight delivery service, or (d) the third Business Day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below: 42 If to Lessee: Chart House, Inc. 640 North LaSalle Street Suite 295 Chicago, Illinois 60610 Attention: General Counsel Telephone: (312) 202-1342 Telecopy: (312) 202-1938 With a copy to: Seyfarth Shaw 55 East Monroe Street, Suite 4200 Chicago, Illinois 60603 Attention: Burton X. Rosenberg, Esq. Telephone: (312) 269-8000 Telecopy: (312) 269-8869 If to Lessor: CH Restaurant Property, LLC c/o U.S. Realty Advisors LLC 1370 Avenue of the Americas New York, NY 10019 Attention: Mr. David M. Ledy Telephone: (212) 581-4540 Telecopy: (212) 581-4950 With a copy to: Proskauer Rose LLP 1585 Broadway New York, NY 10036 Attention: Kenneth S. Hilton, Esq. Telephone: (212) 969-3000 Telecopy: (212) 969-2900 or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. No such notices, consents, approvals or other communications shall be valid unless Lender is provided a duplicate original thereof at the following address: Dennis L. Ruben, Esq. Executive Vice President, General Counsel and Secretary FFCA Acquisition Corporation 17207 North Perimeter Drive Scottsdale, AZ 85255 Telephone: (480) 585-4500 Telecopy: (480) 585-2226 43 or to such other address or such other person as Lender may from time to time specify to Lessor and Lessee in a notice delivered in the manner provided above. 29. Holding Over. If Lessee remains in possession of any of the Properties after the expiration of the term hereof, Lessee, at Lessor's option and within Lessor's sole discretion, may be deemed a tenant on a month-to-month basis and shall continue to pay rentals and other sums in the amounts herein provided, except that the Base Monthly Rental shall be 150% of the Base Monthly Rental in effect at such expiration, and to comply with all the terms of this Lease; provided that nothing herein nor the acceptance of rent by Lessor shall be deemed a consent to such holding over. Lessee shall defend, indemnify, protect and hold the Indemnified Parties harmless from and against any and all Losses resulting from Lessee's failure to surrender possession upon the expiration of the Lease Term, including, without limitation, any claims made by any succeeding lessee. 30. Removal of Personalty. At the expiration of the Lease Term, and if no Event of Default has occurred and is continuing, Lessee may remove all Personalty from the Properties. Lessee shall repair any damage caused by such removal and shall leave the Properties broom clean and in good and working condition and repair inside and out. Any property of Lessee left on the Properties on the fifteenth day following the expiration of the Lease Term shall, at Lessor's option, automatically and immediately become the property of Lessor. 31. Financial Statements. Within 45 days after the end of each fiscal quarter and within 120 days after the end of each fiscal year of Lessee, Lessee shall deliver to Lessor and Lender (i) complete financial statements of Lessee including a balance sheet, profit and loss statement, statement of cash flows and all other related schedules for the fiscal period then ended; and (ii) income statements for the business at each of the Properties. All such financial statements shall be prepared in accordance with GAAP and shall be certified to be accurate and complete by Lessee (or the Treasurer or other appropriate officer of Lessee). Lessee understands that Lessor and Lender will rely upon such financial statements and Lessee represents that such reliance is reasonable. In the event that Lessee's property and business at the Properties is ordinarily consolidated with other business for financial statement purposes, such financial statements shall be prepared on a consolidated basis showing separately the sales, profits and losses, assets and liabilities pertaining to each of the Properties with the basis for allocation of overhead of other charges being clearly set forth. The financial statements delivered to Lessor and Lender need not be audited, but Lessee shall deliver to Lessor and Lender copies of any audited financial statements of Lessee which may be prepared, as soon as they are available. 32. Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, acts of God, enemy or hostile governmental action, civil commotion, fire or other casualty beyond the control of the party obligated to perform shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to rental and other monies to be paid by Lessee pursuant to this Lease and any indemnification obligations imposed upon Lessee under this Lease. 44 33. Time Is of the Essence. Time is of the essence with respect to each and every provision of this Lease in which time is a factor. 34. Lessor's Liability. Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessor, that (i) there shall be absolutely no personal liability on the part of Lessor, its successors or assigns and the trustees, members, partners, shareholders, officers, directors, employees and agents of Lessor and its successors or assigns, to Lessee with respect to any of the terms, covenants and conditions of this Lease, (ii) Lessee waives all claims, demands and causes of action against the trustees, members, partners, shareholders, officers, directors, employees and agents of Lessor and its successors or assigns in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, and (iii) Lessee shall look solely to the Properties for the satisfaction of each and every remedy of Lessee in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, or any other matter in connection with this Lease or the Properties, such exculpation of liability to be absolute and without any exception whatsoever. 35. Consent of Lessor. (a) Unless specified otherwise herein, Lessor's consent to any request of Lessee may be conditioned or withheld in Lessor's sole discretion. Lessor shall have no liability for damages resulting from Lessor's failure to give any consent, approval or instruction reserved to Lessor, Lessee's sole remedy in any such event being an action for injunctive relief. (b) It is understood and agreed that to the extent Lessor is required to obtain the consent, approval, agreement or waiver of Lender with respect to a matter for which Lessor's approval has been requested under this Lease, Lessor shall in no event be deemed to have unreasonably withheld Lessor's consent, approval, agreement or waiver thereof if Lender shall not have given its approval if required. 36. Waiver and Amendment. No provision of this Lease shall be deemed waived except by a written instrument unambiguously setting forth the matter waived and signed by the party against which enforcement of such waiver is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. No provision of this Lease shall be deemed amended except by a written instrument unambiguously setting forth the matter amended and signed by both parties hereto. No acceptance by Lessor of an amount less than the monthly rent and other payments stipulated to be due under this Lease shall be deemed to be other than a payment on account of the earliest such rent or other payments then due or in arrears nor shall any endorsement or statement on any check or letter accompanying any such payment be deemed a waiver of Lessor's right to collect any unpaid amounts or an accord and satisfaction. 37. Successors Bound. Except as otherwise specifically provided herein, the terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of the respective heirs, successors, executors, administrators and assigns of each of the parties hereto. 45 38. No Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not result in a merger of Lessor's and Lessee's estates, and shall, at the option of Lessor, either terminate any or all existing subleases or subtenancies, or operate as an assignment to Lessor of any or all of such subleases or subtenancies. 39. Captions. Captions are used throughout this Lease for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. 40. Severability. The provisions of this Lease shall be deemed severable. If any part of this Lease shall be held unenforceable by any court of competent jurisdiction, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein. 41. Characterization. A. It is the intent of the parties hereto that the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein. None of the agreements contained herein, is intended, nor shall the same be deemed or construed, to create a partnership between Lessor and Lessee, to make them joint venturers, to make Lessee an agent, legal representative, partner, subsidiary or employee of Lessor, nor to make Lessor in any way responsible for the debts, obligations or losses of Lessee. B. Lessor and Lessee acknowledge and warrant to each other that each has been represented by independent counsel and has executed this Lease after being fully advised by said counsel as to its effect and significance. This Lease shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Whenever in this Lease any words of obligation or duty are used, such words or expressions shall have the same force and effect as though made in the form of a covenant. 42. Easements. During the Lease Term Lessor shall have the right to grant utility easements on, over, under and above any of the Properties without the prior consent of Lessee, provided that such easements will not interfere with Lessee's use of such Properties or business operations or increase Lessee's obligations or decrease Lessee's rights under this Lease. 43. Bankruptcy. A. As a material inducement to Lessor executing this Lease, Lessee acknowledges and agrees that Lessor is relying upon (i) the financial condition and specific operating experience of Lessee and Lessee's obligation to use each of the Properties specifically in accordance with system- wide requirements imposed from time to time on Permitted Facilities, (ii) Lessee's timely performance of all of its obligations under this Lease notwithstanding the entry of an order for relief under the Code for Lessee and (iii) all defaults under this Lease as to all Properties being cured promptly and this Lease being assumed within 60 days of any order for relief entered under the Code for Lessee, or this Lease being rejected within such 60 day period and the Properties surrendered to Lessor. 46 Accordingly, in consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, Lessee hereby agrees that: (i) All obligations that accrue under this Lease (including the obligation to pay rent), from and after the date that an Action is commenced shall be timely performed exactly as provided in this Lease and any failure to so perform shall be harmful and prejudicial to Lessor; (ii) Any and all obligations under this Lease that become due from and after the date that an Action is commenced and that are not paid as required by this Lease shall, in the amount of such rents, constitute administrative expense claims allowable under the Code with priority of payment at least equal to that of any other actual and necessary expenses incurred after the commencement of the Action; (iii) Any extension of the time period within which Lessee may assume or reject this Lease without an obligation to cause all obligations coming due under this Lease from and after the date that an Action is commenced to be performed as and when required under this Lease shall be harmful and prejudicial to Lessor; (iv) Any time period designated as the period within which Lessee must cure all defaults and compensate Lessor for all pecuniary losses which extends beyond the date of assumption of this Lease shall be harmful and prejudicial to Lessor; (v) Any assignment of this Lease must result in all terms and conditions of this Lease being assumed by the assignee without alteration or amendment, and any assignment which results in an amendment or alteration of the terms and conditions of this Lease without the express written consent of Lessor shall be harmful and prejudicial to Lessor; (vi) Any proposed assignment of this Lease to an assignee: (a) that will not use the Properties specifically in accordance with a franchise, license and/or area development agreement with the franchisor of Permitted Facilities, (b) that does not possess financial condition, operating performance and experience characteristics equal to or better than the financial condition, operating performance and experience of Lessee as of the Effective Date, shall be harmful and prejudicial to Lessor, or (c) that does not provide guarantors of the Lease obligations with financial condition equal to or better than the financial condition of Guarantor as of the Effective Date; (vii) The rejection (or deemed rejection) of this Lease for any reason whatsoever shall constitute cause for immediate relief from the automatic stay provisions of the Code, and Lessee stipulates that such automatic stay shall be lifted immediately and possession of the Properties will be delivered to Lessor immediately without the necessity of any further action by Lessor; and (viii) This Lease shall at all times be treated as consistent with the specific characterizations set forth in Section 3 of this Lease, and assumption or rejection of this 47 Lease shall be (a) in its entirety, (b) for all of the Properties, and (c) in strict accordance with the specific terms and conditions of this Lease. B. No provision of this Lease shall be deemed a waiver of Lessor's rights or remedies under the Code or applicable law to oppose any assumption and/or assignment of this Lease, to require timely performance of Lessee's obligations under this Lease, or to regain possession of the Properties as a result of the failure of Lessee to comply with the terms and conditions of this Lease or the Code. C. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor under this Lease, whether or not expressly denominated as such, shall constitute "rent" for the purposes of the Code. D. For purposes of this Section addressing the rights and obligations of Lessor and Lessee in the event that an Action is commenced, the term "Lessee" shall include Lessee's successor in bankruptcy, whether a trustee, Lessee as debtor in possession or other responsible person. 44. No Offer. No contractual or other rights shall exist between Lessor and Lessee with respect to the Properties until both have executed and delivered this Lease, notwithstanding that deposits may have been received by Lessor and notwithstanding that Lessor may have delivered to Lessee an unexecuted copy of this Lease. The submission of this Lease to Lessee shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for Lessee to lease or otherwise create any interest on the part of Lessee in the Properties. 45. Other Documents. Each of the parties agrees to sign such other and further documents as may be necessary or appropriate to carry out the intentions expressed in this Lease. 46. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Lease, to the extent permitted by law, the prevailing party shall be entitled to recover all of its reasonable attorneys' fees and other costs in addition to any other relief to which it may be entitled. In addition, Lessor shall, upon demand, be entitled to all attorneys' fees and all other costs incurred in the preparation and service of any notice or demand hereunder, whether or not a legal action is subsequently commenced. 47. Entire Agreement. This Lease and any other instruments or agreements referred to herein, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements except as herein provided. Without limiting the foregoing, Lessee specifically acknowledges that neither Lessor nor any agent, officer, employee or representative of Lessor has made any representation or warranty regarding the projected profitability of the business to be conducted on the Properties. Furthermore, Lessee acknowledges that Lessor did not prepare or assist in the preparation of any of the projected figures used by Lessee in analyzing the economic viability and feasibility of the business to be conducted by Lessee at the Properties. 48 48. Forum Selection; Jurisdiction; Venue; Choice of Law. Lessee acknowledges that this Lease was partially negotiated in the State of Arizona, the Lease was executed and delivered in the State of Arizona, all payments under this Lease will be delivered in the State of Arizona (unless otherwise directed by Lessor or its successors) and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. For purposes of any action or proceeding arising out of this Lease, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Lessee and Lessor consent that they may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, Lessee and Lessor waive and agree not to assert in any such action, suit or proceeding that they are not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. The creation of this Lease and the rights and remedies of Lessor with respect to the Properties, as provided herein and by the laws of the states in which the Properties are located, as applicable, shall be governed by and construed in accordance with the internal laws of the states in which the Properties are located, as applicable, without regard to principles of conflicts of law. With respect to other provisions of this Lease, this Lease shall be governed by the internal laws of the State of Arizona, without regard to its principles of conflicts of law. Nothing contained in this Section shall limit or restrict the right of Lessor or Lessee to commence any proceeding in the federal or state courts located in the states in which the Properties are located to the extent Lessor or Lessee deems such proceeding necessary or advisable to exercise remedies available under this Lease. 49. Counterparts. This Lease may be executed in one or more counterparts, each of which shall be deemed an original. 50. Memorandum of Master Lease. Concurrently with the execution of this Lease, Lessor and Lessee are executing the Memorandum to be recorded in the applicable real property records with respect to each of the Properties. Further, upon Lessor's request, Lessee agrees to execute and acknowledge a termination of lease and/or quit claim deed in recordable form with respect to each of the Properties to be held by Lessor until the expiration or sooner termination of the Lease Term. 51. No Brokerage. Lessor and Lessee represent and warrant to each other that they have had no conversation or negotiations with any broker concerning the leasing of the Properties. Each of Lessor and Lessee agrees to protect, indemnify, save and keep harmless the other, against and from all liabilities, claims, losses, costs, damages and expenses, including attorneys' fees, arising out of, resulting from or in connection with their breach of the foregoing warranty and representation. 52. Waiver of Jury Trial and Punitive, Consequential and Indirect Damages. LESSOR AND LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES 49 HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF ANY OF THE PROPERTIES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, LESSOR AND LESSEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES FROM THE OTHER OR ANY OF THE OTHER'S AFFILIATES, OFFICERS, DIRECTORS, MEMBERS AND EMPLOYEES OR THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER OR ANY OF THE OTHER'S AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR THEIR SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO, EXCEPT THAT SUCH WAIVER ON THE PART OF LESSOR SHALL NOT BE DEEMED TO LIMIT, REDUCE OR PRECLUDE IN ANY WAY LESSOR'S REMEDIES PURSUANT TO SECTION 23 HEREOF. THE RECIPROCAL WAIVERS BY LESSOR AND LESSEE OF ANY RIGHT EITHER MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. 53. Reliance By Environmental Insurer and Lender. (a) Lessee acknowledges and agrees that Environmental Insurer may rely on the representations, warranties and covenants set forth in Section 16 of this Lease, that Environmental Insurer is an intended third-party beneficiary of such representations, warranties and covenants and that Environmental Insurer shall have all rights and remedies available at law or in equity as a result of a breach of such representations, warranties and covenants, including to the extent applicable, the right of subrogation. (b) Lessee acknowledges and agrees that Lender may rely on all of the representations, warranties and covenants set forth in this Lease, that Lender is an intended third-party beneficiary of such representations, warranties and covenants and that Lender shall have all rights and remedies available at law or in equity as a result of a breach of such representations, warranties and covenants, including to the extent applicable, the right of subrogation. 54. Document Review. In the event Lessee makes any request upon Lessor requiring Lessor, Lender or the attorneys of Lessor or Lender to review and/or prepare (or cause to be reviewed and/or prepared) any documents, plans, specifications or other submissions in connection with or arising out of this Lease, then Lessee shall reimburse Lessor or its designee promptly upon Lessor's demand therefor for all reasonable out-of-pocket costs and expenses incurred by Lessor in connection with such review and/or preparation. 50 55. Substitution. A. Subject to the fulfillment of all of the conditions set forth in the following subsection B, Lessee shall have the right to deliver a rejectable offer to Lessor (each, a "Rejectable Substitution Offer") to substitute a Substitute Property for a Property if: (i) the terms of Section 21.B of this Lease permit such substitution (each, a "Casualty/Condemnation Substitution"); or (ii) the terms of Section 23.A(ix)(1) of this Lease permit such substitution (each, a "FCCR Substitution"). From and after the third anniversary of the Effective Date and subject to the fulfillment of all of the conditions set forth in the following subsection B, Lessee shall also have a one time right to deliver a Rejectable Substitution Offer to substitute a Substitute Property for a Property if the Fixed Charge Coverage Ratio (with the definitions of Section 8.A being deemed to be modified, as contemplated by Section 23.A(ix), to provide for a calculation of a "Fixed Charge Coverage Ratio" for the Property to be replaced only) for the Property to be replaced is less than 1:1 for the FCCR Period (an "Uneconomic Substitution"). Each Rejectable Substitution Offer shall identify the proposed Substitute Property in reasonable detail and contain a certificate executed by a duly authorized officer of Lessee pursuant to which Lessee shall certify that in Lessee's good faith judgment such proposed Substitute Property satisfies as of the date of such notice, or will satisfy as of the date of the closing of such substitution, all of the applicable conditions to substitution set forth in this Section 55. Lessee agrees to deliver to Lessor all of the diligence information and materials contemplated by the provisions of Section 55.B of this Lease within 30 days after the delivery to Lessor of a Rejectable Substitution Offer. Lessor shall have 90 days from the delivery of a Rejectable Substitution Offer notice satisfying the requirements of the preceding paragraph to deliver to Lessee written notice of its election to either accept or reject the Rejectable Substitution Offer. Lessor's failure to deliver such notice within such time period shall be deemed to constitute Lessor's acceptance of the Rejectable Substitution Offer. If the Mortgage corresponding to the Property to be replaced is still outstanding, any rejection of the Rejectable Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender. If Lessor accepts the Rejectable Substitution Offer or is deemed to have accepted the Rejectable Substitution Offer or if Lender does not consent in writing to any rejection of the Rejectable Substitution Offer by Lessor, then Lessee shall complete such substitution, subject, however, to the satisfaction of each of the applicable terms and conditions set forth in this Section 55. If Lessor rejects the Rejectable Substitution Offer and Lessee has satisfied the applicable requirements for substitution set forth in this Section 55, and such rejection is consented to by Lender, then: 51 (X) if such rejected Rejectable Substitution Offer was made with respect to a Casualty/Condemnation Substitution, the provisions of Section 21.E and the last paragraph of Section 21.B shall be applicable; (Y) if such rejected Rejectable Substitution Offer was made with respect to a FCCR Substitution, then the breach of the Aggregate Fixed Charge Coverage Ratio requirement which was the basis of such Rejectable Substitution Offer shall be deemed waived; and (Z) if such rejected Rejectable Substitution Offer was made with respect to a Uneconomic Substitution, this Lease shall terminate with respect to the Property which Lessee proposed to replace on the next scheduled Base Monthly Rental payment date (the "Early Substitution Termination Date") provided Lessee has paid to Lessor all Base Annual Rental, Additional Rental and all other sums and obligations then due and payable under this Lease as of such Early Substitution Termination Date. On the Early Substitution Termination Date, and provided Lessee shall have paid to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease as of the Early Substitution Date: (i) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of (x) the Applicable Rent Reduction Percentage for the Property which Lessee proposed to replace, and (y) the Base Annual Rental then in effect; and (ii) all obligations of Lessor and Lessee shall cease as of the Early Substitution Termination Date with respect to such Property; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19 of this Lease) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the Early Substitution Termination Date shall survive the termination of this Lease with respect to such Property or otherwise. This Lease shall, however, continue in full force and effect with respect to all other Properties. B. The substitution of a Substitute Property for a Property pursuant to the preceding subsection A shall be subject to the fulfillment of all of the following terms and conditions: (i) The Substitute Property must: (1) be a Permitted Facility, in good condition and repair, ordinary wear and tear excepted, and located in the same state as the Property to be replaced or in another state acceptable to Lessor in Lessor's sole discretion; 52 (2) have a Fixed Charge Coverage Ratio (with the definitions of Section 8.A being deemed to be modified, as contemplated by Section 23.A(ix), to provide for a calculation of a "Fixed Charge Coverage Ratio" for the Substitute Property only) for the FCCR Period of not less than the greater of (X) 1.25:1 or (Y) the Fixed Charge Coverage Ratio for the Property to be replaced for such FCCR Period; provided that, with respect to each FCCR Substitution, the Fixed Charge Coverage Ratio for the Substitute Property for such FCCR Period must also be high enough (after taking into account any other substitutions for Properties which are being consummated simultaneously therewith) to result in a cure of the breach of the Aggregate Fixed Charge Coverage Ratio requirement (it being understood and agreed that the determination of the Fixed Charge Coverage Ratio for the Substitute Property shall be based on an assumption that the portion of the Operating Lease Expense for the Substitute Property which would be attributable to this Lease would be the same as the portion of the Operating Lease Expense attributable to this Lease for the Property to be replaced as determined in accordance with the provisions of Section 23.A(ix)); (3) have a fair market value no less than the greater of the then fair market value of the Property being replaced or the fair market value of such Property as of the Effective Date (in each case, determined without regard to this Lease, but assuming that while this Lease has been in effect, Lessee has complied with all of the terms and conditions of this Lease), as reasonably determined by Lessor, and consented to by Lender, utilizing the same valuation method as used in connection with the closing of the transaction described in the Sale- Leaseback Agreement, which was based upon the sum of (x) the fair market value of the land comprising such Property and (y) the replacement cost of the improvements located thereon; (4) have improvements which have a remaining useful life substantially equivalent to, or better than, that of the improvements located at the Property to be replaced; and (5) be conveyed to Lessor (or, if directed by Lessor, to Lessor and a person designated to acquire the remainderman interest) by special or limited warranty deed, free and clear of all liens and encumbrances, except such matters as are reasonably acceptable to Lessor (the "Substitute Property Permitted Exceptions"); (ii) Lessor shall have inspected and approved the Substitute Property utilizing Lessor's customary site inspection and underwriting approval criteria. Lessee shall have reimbursed Lessor and Lender for all of their reasonable costs and expenses incurred with respect to such proposed substitution, including, without limitation, Lessor's third-party and/or in-house site inspectors' costs and expenses with respect to the proposed Substitute Property. Lessee shall be solely responsible for the payment of all costs and expenses resulting from such proposed substitution, regardless of whether such substitution is 53 consummated, including, without limitation, the cost of title insurance and endorsements for both Lessor and Lender, survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and recording fees, the cost of environmental policies or endorsements to the Environmental Policies as applicable, income and transfer taxes imposed on Lessor as a result of such substitution and the reasonable attorneys' fees and expenses of counsel to Lessee, Lessor and Lender; (iii) Lessor shall have received a preliminary title report and irrevocable commitment to insure title by means of an ALTA extended coverage owner's policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the proposed Substitute Property is located) for the proposed Substitute Property issued by Title Company and committing to insure Lessor's good and marketable title in the proposed Substitute Property, subject only to the Substitute Property Permitted Exceptions and containing endorsements substantially comparable to those required by Lessor at the Closing (as defined in the Sale- Leaseback Agreement) and Lender shall have received such title report and irrevocable commitment to insure its first priority lien encumbering the proposed Substitute Property as Lender shall reasonably require; (iv) Lessor shall have received a current ALTA survey of the proposed Substitute Property, the form of which shall be comparable to those received by Lessor at the Closing and sufficient to cause the standard survey exceptions set forth in the title policy referred to in the preceding subsection to be deleted; (v) Lessor shall have received an environmental insurance policy with respect to the proposed Substitute Property, or to the extent applicable, an endorsement to the Environmental Policies, the form and substance of which shall be satisfactory to Lessor in its sole discretion; (vi) Lessee shall deliver, or cause to be delivered, with respect to Lessee and the Substitute Property, opinions of Counsel (as defined in the Sale-Leaseback Agreement) in form and substance comparable to those received at Closing (but also addressing such matters unique to the Substitute Property as may be reasonably required by Lessor); (vii) no Event of Default shall have occurred and be continuing under any of the Sale-Leaseback Documents (other than the Event of Default under Section 23.A(ix) if such Event of Default is the reason for the substitution); (viii) Lessee shall have executed such documents as may be reasonably required by Lessor as a result of such substitution, including amendments to this Lease and the memorandum of this Lease (the "Substitute Documents"), all of which documents shall be in form and substance reasonably satisfactory to Lessor and Lessee; (ix) the representations and warranties set forth in the Substitute Documents, this Lease and the Sale-Leaseback Agreement applicable to the proposed Substitute Property 54 shall be true and correct in all material respects as of the date of substitution, and Lessee shall have delivered to Lessor an officer's certificate certifying to that effect; (x) Lessee shall have delivered to Lessor certificates of insurance showing that insurance required by the Substitute Documents is in full force and effect; (xi) Lessor shall have obtained an endorsement to the policy of residual value insurance issued to Lessor and Lender in connection with the transaction described in the Sale-Leaseback Agreement with respect to the proposed Substitute Property, which endorsement shall be in form and substance reasonably satisfactory to Lessor and Lender; and (xii) Lender shall have consented to the substitution of the proposed Substitute Property. C. Upon satisfaction of the foregoing conditions set forth in Section 55.B and provided Lessor has accepted the Rejectable Substitution Offer: (i) the proposed Substitute Property shall be deemed substituted for the Property to be replaced; (ii) the Substitute Property shall be referred to herein as a "Property" and included within the definition of "Properties"; (iii) the Substitute Documents shall be dated as of the date of the substitution; and (iv) Lessor shall convey the Property to be replaced to Lessee or a designee of Lessee "as-is" by special warranty deed, subject to all matters of record (except for the Mortgage corresponding to the Property to be replaced and any other consensual liens granted by Lessor other than those granted by Lessor at the request of Lessee), and without representation or warranty. D. Notwithstanding the foregoing, nothing in this Section 55 shall be construed as limiting or otherwise adversely affecting the representations, warranties, covenants and characterizations set forth in Lease, including, without limitation, those provisions set forth in Section 3 of this Lease. 56. Rejectable Purchase Offer. A. If Lessor shall have given Lessee notice of a breach of the Aggregate Fixed Charge Coverage Ratio requirement under this Lease, Lessee shall have the right to deliver a rejectable offer to Lessor (a "Rejectable Purchase Offer") to purchase such of the Properties as is contemplated by Section 23.A(ix)(2), subject to the fulfillment of all of the conditions set forth in this Section 56. 55 Lessor shall have 90 days from the delivery of the Rejectable Purchase Offer notice to deliver to Lessee written notice of its election to either accept or reject the Rejectable Purchase Offer. Lessor's failure to deliver such notice within such time period shall be deemed to constitute Lessor's acceptance of the Rejectable Purchase Offer. If the Mortgage corresponding to the Property to be purchased is still outstanding, any rejection of the Rejectable Purchase Offer by Lessor shall not be effective unless it is consented to in writing by Lender. If Lessor accepts the Rejectable Purchase Offer or is deemed to have accepted the Rejectable Purchase Offer or if Lender does not consent in writing to any rejection of the Rejectable Purchase Offer by Lessor, then Lessee shall complete such purchase, subject, however, to the satisfaction of each of the terms and conditions set forth in the following subsection B. If Lessor rejects the Rejectable Purchase Offer pursuant to the previous paragraph, and such rejection is consented to by Lender, then, the breach of the Aggregate Fixed Charge Coverage Ratio requirement which was the basis of such Rejectable Purchase Offer shall be deemed waived. B. The purchase of a Property pursuant to the preceding subsection A shall be subject to the fulfillment of all of the following terms and conditions: (i) no Event of Default shall have occurred and be continuing under any of the Sale-Leaseback Documents (other than the Event of Default under Section 23.A(ix)); (ii) Lessee shall have delivered to Lessor a certificate executed by a duly authorized officer of Lessee certifying to Lessor that Lessee does not own any properties which are available for substitution and which meet the applicable requirements for substitution set forth in Section 55; (iii) the purchase of such Property (together with any other Properties which are being purchased simultaneously therewith) must result in a cure of the breach of the Aggregate Fixed Charge Coverage Ratio requirement; (iv) Lessee shall have paid to Lessor the Subject Purchase Price (as defined below), together with all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease as of the date of the closing of such purchase; (v) Lessee shall be solely responsible for the payment of all costs and expenses resulting from such proposed purchase, regardless of whether the purchase is consummated, including, without limitation, to the extent applicable, the cost of title insurance and endorsements, including, survey charges, stamp taxes, mortgage taxes, transfer taxes and fees, escrow and recording fees, taxes imposed on Lessor as a result of such purchase, the attorneys' fees of Lessee and the reasonable attorneys' fees and expenses of counsel to Lessor and Lender; and 56 (vi) the date of the closing of such purchase shall occur on the next scheduled Base Monthly Rental payment date following Lessor's acceptance (or deemed acceptance) of the Rejectable Purchase Offer, but in no event later than 30 days after the date of acceptance (or deemed acceptance) by Lessor of such Rejectable Purchase Offer. On the date of the closing of the purchase of a Property pursuant to this Section (the "Rejectable Purchase Closing Date"), subject to satisfaction of the foregoing conditions: (1) this Lease shall be deemed terminated with respect to such Property only, but this Lease shall continue in full force and effect with respect to all of the other Properties; provided, however, such termination shall not limit Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease (including, without limitation, Sections 16 and 19 of this Lease) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the Rejectable Purchase Closing Date shall survive the termination of this Lease; (2) the Base Annual Rental shall be reduced for each such Property by an amount equal to the product of (x) the Applicable Rent Reduction Percentage for such Property and (y) the Base Annual Rental then in effect; and (3) Lessor shall convey such Property to Lessee "as-is" by special warranty deed, subject to all matters of record (except for the Mortgage corresponding to the Property to be replaced and any other consensual liens granted by Lessor other than those granted by Lessor at the request of Lessee), and without representation or warranty. For purposes of this Section 56, the term "Subject Purchase Price" shall mean the greater of: (i) the Fair Market Value of the Property being purchased, or (ii) the product of the amount specified on Schedule I attached ---------- hereto which corresponds to the time period during which such purchase occurs multiplied by the Purchase Price for the Property being purchased. The term "Fair Market Value" means the fair market value of the Property being purchased determined as follows: Lessor shall cause an appraisal of the fair market value of such Property, including any additions or renovations thereto, to be made by an independent MAI appraiser (the "Section 56 Lessor Appraisal") within 20 days after notice of the Rejectable Purchase Offer is given to Lessor. In determining the fair market value of such Property, the appraiser shall utilize the cost, income and sales comparison approaches to value. In utilizing the income approach, the appraiser shall determine the "leased fee" value of such Property, which shall be arrived at by considering (i) the income that would be produced by this Lease through the end of the applicable Lease Term, and (ii) any other factors relating to such approach which the appraiser shall deem 57 relevant in his sole discretion, including, without limitation, determining the residual value of such Property following the expiration of the Lease Term. The highest amount which results from the calculation of each of the cost approach, the income approach, and the sales comparison approach, all as determined in accordance with the provisions of this Section 56, shall constitute the "Fair Market Value" of such Property for purposes of this Section 56. Lessee shall have 5 Business Days from its receipt of the Section 56 Lessor Appraisal to either accept or reject such appraisal, provided that, Lessee's failure to reject the Section 56 Lessor Appraisal within such 5 Business Day period shall be deemed to be an acceptance thereof. If Lessee shall accept or be deemed to have accepted the Section 56 Lessor Appraisal, the "Fair Market Value" of such Property for purposes of this Section 56 shall be the amount set forth in the Section 56 Lessor Appraisal as determined above. If Lessee shall reject the Section 56 Lessor Appraisal within such 5 Business Day period, then Lessee shall within 20 days after such rejection cause an appraisal of the Fair Market Value of such Property, including any additions or renovations thereto, to be made by an independent MAI appraiser selected by Lessee utilizing the methodology specified above (the "Section 56 Lessee Appraisal"). Lessor shall have 5 Business Days from its receipt of the Section 56 Lessee Appraisal to either accept or reject such appraisal, provided that, Lessor's failure to reject the Section 56 Lessee Appraisal within such 5 Business Day period shall be deemed to be an acceptance thereof. If Lessor shall accept or be deemed to have accepted the Section 56 Lessee Appraisal, the "Fair Market Value" of such Property for purposes of this Section 56 shall be the amount set forth in the Section 56 Lessee Appraisal as determined above. If Lessor shall reject the Section 56 Lessee Appraisal within such 5 Business Day period, then the appraisers who conducted the Section 56 Lessor Appraisal and the Section 56 Lessee Appraisal shall be directed to jointly select, within 5 Business Days thereafter, a third independent MAI appraiser who shall, within 15 days after selection, select the amount set forth (as determined above) in either the Lessor Appraisal or the Lessee Appraisal as the Fair Market Value of such Property. If the two appraisers are unable to agree on the third appraiser within such 5 Business Day period, the third appraiser shall be selected by the American Arbitration Association. Lessee shall be obligated to pay the costs of all three appraisers and the American Arbitration Association (to the extent applicable). C. Notwithstanding the foregoing, nothing in this Section 56 shall be construed as limiting or otherwise adversely affecting the representations, warranties, covenants and characterizations set forth in Lease, including, without limitation, those provisions set forth in Section 3 of this Lease. 57. State Specific Provisions. The provisions and/or remedies which are set forth on Schedule II shall be deemed a part of and included within the terms ----------- and conditions of this Lease. 58. Property Specific Provisions. With respect to the Property located at 7255 McCormick Parkway, Scottsdale, Arizona, a portion of such Property (the "Patio Portion") is leased by Lessor from McCormick Ranch Property Owners Association ("McCormick Ranch") pursuant to a Lease Agreement dated as of June 18, 1979 between McCormick Ranch and Lessee 58 (as successor to Paragon Restaurant Group, Inc. (formerly Vicorp Specialty Restaurants, Inc.) which was the successor to Foodmaker, Inc.) (the "Patio Lease"), which Patio Lease has been assigned by Lessee to Lessor as of the Effective Date. Notwithstanding anything to the contrary contained herein, Lessor and Lessee acknowledge and agree that, with respect to the Patio Portion, this Lease is a sublease of the Patio Portion and, during the Lease Term, Lessee shall be responsible for complying with all of the obligations of the lessee under the Patio Lease, including, without limitation, the payment of all rent and other sums required to be paid to the lessor under the Patio Lease. Nothing in this Section 58 shall be construed as limiting or otherwise adversely affecting the representations, warranties, covenants and characterizations set forth in Lease, including, without limitation, those provisions set forth in Section 3 of this Lease. 59 IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of the date first above written. LESSOR: CH RESTAURANT PROPERTY, LLC, a Delaware limited liability company By CH Restaurant Equity, LLC, a Delaware limited liability company, its member By: /s/ Jamie Elliott -------------------------------------- Jamie Elliott Its Vice President LESSEE: CHART HOUSE, INC., a Delaware corporation By: /s/ William Sullivan -------------------------------------- William Sullivan Its Executive Vice President and Chief Financial Officer Lessee's Tax Identification Number: 41-1526813 EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from June 26, 2000 Form 10Q and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-25-2000 DEC-28-1999 JUN-26-2000 376 0 2,732 0 1,957 6,093 99,175 38,880 90,564 19,379 0 0 0 118 54,858 90,564 68,672 68,672 22,774 41,996 15,179 0 1,212 (1,313) 0 (1,313) 0 0 0 (1,313) (.11) (.11)
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