-----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, INUvr5Jjx0PLPZcWWwAOh4YABItHdNKtBmp7aVcigcHEquKlrr5CGIj9orPkjptQ b/XbM2wGTbaonKFqOzCydw== 0000950169-97-000277.txt : 19970402 0000950169-97-000277.hdr.sgml : 19970402 ACCESSION NUMBER: 0000950169-97-000277 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILVER DINER DEVELOPMENT INC /MD/ CENTRAL INDEX KEY: 0000923134 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 043234411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24982 FILM NUMBER: 97571968 BUSINESS ADDRESS: STREET 1: 11806 ROCKVILLE PIKE CITY: NEWTON STATE: MA ZIP: 02160 BUSINESS PHONE: 6176304400 MAIL ADDRESS: STREET 1: 11806 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 FORMER COMPANY: FORMER CONFORMED NAME: FOOD TRENDS ACQUISITION CORP DATE OF NAME CHANGE: 19941114 10-K 1 SILVER DINER 10-K - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------ Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 29, 1996 Commission file number 0-24982 ------------------------------------ Silver Diner, Inc. (Exact name of the registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 04-3234411 (I.R.S. employer identification no.) 11806 Rockville Pike Rockville, Maryland 20852 301-770-0333 (Address and telephone number of the registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $.00074 Par Value None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At December 29, 1996, the registrant had 11,520,473 shares of common stock (the "Common Stock") outstanding, and the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $23,775,182. - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement for its Annual Meeting of Shareholders in 1997 are incorporated by reference into Part III. PART I Item 1. Business. The Merger Silver Diner, Inc. (the "Company" or "Silver Diner") was incorporated in Delaware in April 1994 under the name Food Trends Acquisition Corporation ("FTAC"). In March 1996, a subsidiary of the Company merged with Silver Diner Development, Inc., a Virginia corporation ("SDDI"). As a result of the merger ("Merger"), SDDI became a wholly owned subsidiary of the Company and the Company changed its name from Food Trends Acquisition Corporation to Silver Diner Development, Inc., and in June 1996, to Silver Diner, Inc. In addition, the Merger resulted in SDDI's stockholders owning 57% of the Company's common stock, par value $.00074 per share ("Common Stock"), and SDDI's directors and officers becoming the Company's directors and officers. Unless the context otherwise requires, references to the Company or Silver Diner also include FTAC, SDDI and their wholly owned subsidiaries. Prior to the Merger, the Company was a publicly traded "blind pool" of $14.2 million in cash which was raised essentially on the reputation of George Naddaff, the former Chairman and Chief Executive Officer of Boston Chicken. This infusion of capital resulted in a virtually debt-free balance sheet and cash for the Company to fund growth. The Company's executive offices are located at 11806 Rockville Pike, Rockville, Maryland 20852 and its telephone number is (301) 770-0333. The Company's Common Stock trades on the Nasdaq National Market under the symbol "SLVR." Acquisition of Minority Interest in Silver Diner Limited Partnership Silver Diner Limited Partnership ("SDLP"), of which the Company was the general partner, operated the first three Silver Diner restaurants. In June 1996, the Company acquired all of the limited partner interests in SDLP for a purchase price of $2.472 million and 84,000 warrants to purchase shares of the Common Stock at $8.00 per share and, subsequently, liquidated SDLP into SDDI. The warrants are exercisable at any time on or before the earlier of January 31, 1998 or 30 days following the first public offering of Common Stock on or after June 30, 1997. Business The Company currently operates eight Silver Diner restaurants in the Washington/Baltimore Metropolitan Area serving breakfast, lunch, dinner and late night meals. The Company targets the growing number of customers tired of traditional fast food whose need for a quick, high-quality, reasonably priced meal is not being adequately served by existing family or casual theme restaurants; the Company capitalizes on the timeless diner theme to uniquely address this need. By attracting a broad range of customer segments, maintaining extended operating hours, a diverse menu and convenient locations, the Company is able to compete effectively in the fast food, family and casual dining segments of the restaurant industry, contributing to the significant sales volumes of its units. The Company is introducing Silver Diner To Go, which features a range of carry out options targeting the growing "home meal replacement" market, as well as specialty coffee drinks and expanded bakery selections. The restaurants typically are open for business from 7:00 a.m. to midnight on weekdays and from 7:00 a.m. to 3:00 a.m. on weekends. The Silver Diner menu strategy is to "serve real home cooking at a real fair price" by serving generous portions of made-from-scratch cooking at prices competitive with traditional family dining restaurants. The average check per customer is approximately $7.00 and the average dining time is approximately 30 minutes. For the last fiscal year, the six Silver Diner restaurants open throughout the year had sales ranging from $2.2 million to $4.0 million with average unit sales of $2,741,000 on an average of 208 seats. Management attributes the significant sales volumes of its units to its ability to attract a broad range of customer segments, extended operating hours, diverse menu, and convenient locations. Management believes it has established a strong company mission and culture by emphasizing a sense of ownership and entrepreneurship in its employees and by providing frequent training, recognition and development of its management. Each Silver Diner is led by a general manager who lives, and participates, in the community and, through an incentive-based bonus system which includes profit sharing and stock ownership, has a long-term commitment to that restaurant's success. Diners have been indigenous to the United States for more than 100 years. Since opening the first Silver Diner restaurant in 1989, the Company has capitalized on the diner restaurant theme to uniquely address the customers' need of where to go for quick, high quality meals at reasonable prices. Key elements which differentiate Silver Diner restaurants from other restaurants include: o Broad and diverse menu combining "traditional diner" items with contemporary regional specialties - The menu includes a broad range of made-from-scratch meal choices featuring traditional home-style diner fare and all-day breakfast, as well as more contemporary "heart healthy" selections and regional specialty items. Each Silver Diner restaurant bakes from scratch all of its cakes, pies and other baked goods on the premises and features a carry-out section offering its full menu of home-meal replacement items. o Classic, readily recognizable diner exterior, in combination with a comfortable diner interior decor and atmosphere - The visually striking exterior of the Silver Diner restaurants is both familiar and distinctive combining polished stainless steel, glass block and neon lighting traditional to old-style diners with more contemporary tile, accent colors and a 25-foot clock tower. Similarly, the Silver Diner restaurant's interior combines traditional diner motifs such as a counter area with seating, booths and tabletop old style juke boxes with a contemporary open kitchen and ambient dining room lighting. The result of these contrasting elements produces a high energy, fun, nostalgic atmosphere which is also comfortable. o Extended operating hours with four meal periods - Silver Diner's breadth of entree selection, its beer and wine service and night time ambience allow it to generate close to 50% of its business at dinner and late night, the most profitable meal periods. Additionally, the Silver Diner's extended hours and diverse menu afford it two extra meal periods - breakfast and late night. Together, these four meal periods afford the Silver Diner the opportunity to generate significantly greater customer counts per facility than traditional two- or three-meal period full-service restaurants. o Rapid meal service resulting in a table turnover rate significantly above industry averages for full service restaurants - Silver Diner's menu, food preparation techniques and kitchen engineering account for its rapid meal service. The Silver Diner's physical plant and kitchen layout allow it to serve meals in approximately 10 minutes, providing quick turnover and further improving productivity. The Silver Diner employs a food preparation and storage process which incorporates a type of "sous vide" production technique enabling it to efficiently make a wide range of scratch-cooking recipes with reduced labor hours, kitchen preparation and raw ingredient storage area. As a result, Silver Diner restaurants are able to achieve high quality, consistency and excellent productivity despite the broad menu. o Generous portions and moderate prices with entrees ranging from $6.99 to $8.99 Management believes the Silver Diner delivers outstanding value by providing generous portions of fresh, high quality food at affordable prices. Appetizers range from $3.99 to $5.99, entrees range from $6.99 to $8.99, and full meals are available at moderate prices including senior citizen meals at $3.49, early bird specials at $4.99 and blue plate specials at $6.99. - 2 - Restaurants. The following sets forth certain information regarding the Company's existing restaurants.
Approximate Approximate Number Operating Locations Date Opened Square Feet of Seats ------------------- ----------- ----------- ----------- Rockville, Maryland February 1989 5,500 256 Laurel, Maryland September 1990 4,680 153 Potomac Mills, Virginia October 1991 4,675 164 Towson, Maryland September 1992 5,250 194 Fair Oaks, Virginia April 1995 5,675 240 Tysons Corner, Virginia December 1995 5,675 240 Clarendon, Virginia December 1996 5,675 240 Merrifield, Virginia February 1997 5,675 240
The Company leases its corporate offices at 11806 Rockville Pike, Rockville, Maryland, which is the location of the original Silver Diner restaurant. Management believes the greater Washington/Baltimore area can support fifteen to twenty Silver Diner restaurants and it will continue to penetrate this market area in order to take advantage of increased name recognition and economies of scale in advertising, management and overhead. Silver Diner restaurants are currently under construction at locations in Springfield and Reston, Virginia, and the Company has signed a letter of intent for a site in Columbia, Maryland. Management believes that there are numerous other major metropolitan areas throughout the United States that can support a similar concentration of Silver Diner restaurants and intends to pursue expansion in these markets in a manner similar to Washington/Baltimore. The Company has been aggressively pursuing locations in new geographical markets, specifically the Philadelphia-Southern New Jersey area and South Florida. To that end, the Company has signed a lease agreement for a Silver Diner restaurant in Cherry Hill, New Jersey, and a land purchase agreement for a Silver Diner restaurant in Kendall, Florida, which pending successful completion of various site contingencies, will allow the Company to open a new store in each of those markets in 1997 and 1998, respectively. The Company expects that the Silver Diner restaurants opened in the next two years will continue to be company-owned; however, expansion into any markets outside of Washington/Baltimore may include area joint-ventures or franchises. There is no assurance that the Company's expansion plans will be realized or that future Silver Diner restaurants will be favorably received. Marketing. Management focuses on providing its customers with superior food quality, service and perceived value in a distinctive atmosphere and has relied primarily on its eye-catching appearance, customer satisfaction and word of mouth to obtain repeat customers as well as to attract new clientele. As a result, the Company has been able to maintain a minimal marketing budget for its existing restaurants, with marketing funds primarily used for pre-opening events, public relations and direct marketing for new Silver Diner openings. As the Company achieves sufficient market penetration within a given market area and economies of scale with respect to its discretionary marketing budget, other mass marketing vehicles, including television advertising, will become viable methods of further increasing average unit volume. Menu. The Silver Diner menu includes a broad range of dining alternatives featuring traditional diner fare, including soups, sandwiches, burgers, Blue Plate Specials as well as more contemporary "Heart Healthy" salads, grilled chicken, seafood, pasta and stir-fried regional specialties. Silver Diner's full breakfast menu, including omelettes, pancakes and waffles, is available throughout the day and night. The menu includes numerous entrees which rotate on a seasonal basis, as well as signature homemade pies and cakes baked on premises. High-quality - 3 - ingredients are used for all menu items, including Silver Diner's own unique gravies, sauces and dressings. Silver Diner's recipes are prepared for the way management believes people eat today with an emphasis on fresh ingredients, low salt and cholesterol-free oil. In addition, Silver Diner's "heart healthy" menu features a dozen low- fat popular items formulated to exceed USDA "heart healthy" dietary guidelines. Silver Diner restaurants also serve beer, wine and non-alcoholic specialty beverages. Purchasing. The Company purchases items on a centralized basis and negotiates directly with suppliers for food and beverage products to ensure consistent quality and freshness of products as well as to obtain competitive prices. Food and supplies are shipped directly to the Silver Diner restaurants. All shipments are inspected for quality and freshness by a kitchen manager upon receipt. The Company does not maintain a central product warehouse or commissary. The Company's food and supplies are available from a wide number of suppliers. Therefore, Silver Diner is not dependent on any particular source of supplies. Customer Satisfaction/Quality Control. The Company has a variety of programs to measure its customer satisfaction, including comment cards, a mystery shopper program, and frequent visits by supervisory management. Through the use of these techniques, senior management receives valuable feedback from customers and through prompt action, demonstrates a continued interest in meeting customer needs and desires. In addition, Silver Diner staff perform a variety of quality checks and are authorized to not serve any products which do not meet Silver Diner's quality standards. Competition The restaurant industry is intensely competitive with respect to price, service, location and food quality. With respect to quality and cost of food, size of food portions, decor and quality service, Silver Diner restaurants compete with fast food and family style restaurants with ready to cook food and take-out. Silver Diner restaurants are located in areas of high concentration of such restaurants. There are many well established food service competitors with substantially greater financial and other resources than the Company and with substantially longer operating histories. These competitors will also compete with the Company in obtaining premium locations for restaurants (e.g., shopping malls and strip shopping centers) and in attracting and retaining employees. In addition, one or more national food service chains or other companies could introduce a multi-unit chain of food service establishments that use one or more food service concepts which resemble one or more of the food service concepts used by the Company. The restaurant business is also affected by changes in consumer tastes and eating patterns of the general public; national, regional or local economic conditions; demographic trends; traffic patterns; as well as the type, number and location of competitors. In addition, factors such as inflation, increased food, labor and benefit costs and a lack of experienced management and hourly employees may adversely affect the restaurant industry in general and the Company in particular. The Company believes that its distinctive diner concept, attractive price-value relationship and quality of food and service and long-term appeal enable it to differentiate itself from its competitors. While the Company believes that its restaurants are distinctive in design and operating concept, it is aware of restaurants that operate with similar concepts. The Company believes that its ability to compete effectively will continue to depend upon its ability to offer high-quality, moderately priced food in a full-service distinctive dining environment. Employees As of December 29, 1996, the Company had approximately 665 employees, 13 of whom are corporate personnel, 42 of whom are restaurant management personnel (including 4 managers-in-training), and the remainder of whom are hourly restaurant personnel. None of the Company's employees is covered by a collective bargaining agreement. The Company considers its employee relations to be good. - 4 - The management staff of a typical Silver Diner restaurant consists of one "owner operator" (general manager) and four assistant managers, including a kitchen manager and a service manager. Each Silver Diner restaurant also employs approximately 75 associates on a part-time and full-time basis. Restaurant Personnel. The Company has established a strong company mission focusing on culture and values and emphasizing a sense of ownership and entrepreneurship that empowers its people to achieve professional and personal excellence. Management believes that its people are its most valuable asset and has a variety of programs to provide training, recognition and development of its management and associates to their full potential. Non-management employees' performance is tracked daily through productivity measurements that are established as an integral part of a system of frequent incentive awards. Restaurant Owner Operator Plan. To attract and retain talented management, the Company's compensation plan is very competitive. Management believes that a key component for long-term success is for each restaurant to be led by a general manager who lives in the community and has a long-term commitment to that restaurant's success. Accordingly, management has established a Restaurant Owner Operator Plan whereby the general manager receives an annual salary and a monthly cash profit sharing award which equals a percentage of the restaurant's operating income. In addition, each general manager is required to purchase $12,500 of Common Stock at a price equal to 50% of the Common Stock's market value and receives an annual award of between $5,000 and $10,000 of Common Stock. Selection, Training and Supervision. Management has developed specific profiles and protocols used to interview and select its management and associate staff. Management personnel are required to participate in a 12- to 15-week training program emphasizing the Company's operating procedures as well as management development programs. Each associate also participates in a standardized training program ranging from two to five days (depending on position) which utilizes testing results to ensure all associates achieve a specified standard of performance. Government Regulations The Company is subject to numerous federal, state and local laws affecting health, sanitation and safety standards as well as to state and local licensing regulation of the sale of alcoholic beverages. The Company has appropriate licenses from regulatory authorities allowing it to sell beer and wine, and has food service licenses from local health authorities. The Company's licenses to sell alcoholic beverages must be renewed annually and may be suspended or revoked at any time for cause, including violation by the Company or its employees of any law or regulation pertaining to alcoholic beverage control, such as those regulating the minimum age of patrons or employees, advertising, wholesale purchasing and inventory control. The Company's failure to obtain or retain liquor or food service licenses would have a material adverse effect on its operation. To reduce this risk, each restaurant is operated with procedures in accordance with complete compliance with applicable code and regulations. There can be no assurance, however, that such approvals and licenses for new restaurants will be obtained and, if obtained, will be renewed or not revoked. The Company is subject in certain states to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance. The Company has never been named as a defendant in a lawsuit involving "dram-shop" statutes. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations. The Company's operations are also subject to federal and state minimum wage laws governing such matters as working conditions, overtime and tip credits and other employee matters. - 5 - Management believes it is in compliance with all current applicable regulations relating to restaurant accommodations for the disabled including the Federal Americans With Disabilities Act of 1992. Trademarks Management believes that its trademarks and servicemarks are valuable to the marketing of its restaurants and that it has substantial rights in such trademarks and servicemarks for the Silver Diner name, based upon the Company's actual usage and constructive usage derived from its U.S. trademark. The Company intends to aggressively protect its marks from infringement and competing claims. However, there can be no assurance that the Company's marks, even as, and if, registered do not or will not violate the proprietary rights of others, that the marks will be upheld if challenged, or that the Company will not be prevented from using the marks, any of which could have a material adverse effect on the Company. Management's policy is to pursue registration of its marks whenever possible and to oppose vigorously any infringements of its marks, the success of which cannot be assured. Executive Officers of the Company The name, age, period of service and position held of each of the executive officers of the Company are as follows:
Name Age Served Since(1) Position(s) Held - --------------------------------------------------------------------------------------------------------------- Robert T. Giaimo 45 1987 Chairman of the Board, President and Chief Executive Officer Ype Hengst 46 1987 Director, Vice President, Executive Chef and Corporate Secretary David Oden 36 1995 Chief Financial Officer and Senior Vice President Patrick Meskell 43 1996 Senior Vice President, Human Resources Daniel Brannan 27 1997 Vice President, Finance
(1) Includes service with SDDI. All of the officers have had the principal occupation indicated under "Position(s) Held" for the previous five years except as follows: Mr. Oden was Vice President, Chief Financial Officer, Treasurer and Assistant Secretary for Pancho's Mexican Buffet, a public restaurant company with annual sales exceeding $86 million; Mr. Meskell was an independent consultant to financial institutions, specializing in the areas of risk management systems design and implementation from 1988 to 1992 and Director of Organizational Development & Management & Operations Training for the Student Loan Marketing Association from 1992 to 1995; and Mr. Brannan was the Company's controller from 1996 to 1997. Previously, Mr. Brannan was corporate controller for Greenstone Industries, a public manufacturing company with annual sales exceeding $30 million from 1995 to 1996 and was an auditor with KPMG Peat Marwick LLP from 1991-1995. Item 2. Property. Information concerning the registrant's property is set forth under "Restaurants" in Item 1 of Part I. Item 3. Legal Proceedings. On May 20, 1996, the Company was named as a defendant in a proceeding instituted in the Circuit Court for Prince George's County, Maryland captioned Laura Reese v. Roger Richardson and Silver Diner Development, Inc. The plaintiff alleges that she was sexually assaulted by Roger Richardson, who was the general manager of the Laurel Silver Diner restaurant. Mr. Richardson was terminated promptly following occurrence of the event in November 1994. Plaintiff continues to be an employee of the Company. The Complaint contains four counts - 6 - against the Company: failure to provide a reasonably safe and harassment free working environment, negligently and unreasonably allowing alcoholic beverages to be consumed at a Company sponsored event, negligently hiring and retaining Richardson after knowing of his drinking problem and respondent superior. Plaintiff seeks recovery of $500,000 for each count. It is not clear if the counts are in the alternative or cumulative. The Company's insurance carrier is currently defending the claim with reservation of rights. The Company is insured up to $1,000,000 with respect to the above mentioned claims. The Company does not believe that it is liable to the plaintiff and intends to vigorously defend itself. Item 4. Submission of Matters to a Vote of Security-Holders. Not Applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Market Information. Since March 27, 1996, the Common Stock has been quoted on the Nasdaq National Market under the symbol SLVR. Before that date, the Common Stock was quoted on the OTC Bulletin Board under the symbol FDTR. The following table sets forth the high and low closing prices for the Common Stock for the periods indicated: Quarter High Low ------- ---- --- 1995 First $4-3/8 $4-1/4 Second $4-1/2 $4-3/8 Third $4-15/16 $4-1/2 Fourth $5-1/16 $4-15/16 1996 First (to March 26) $6-11/16 $4-3/4 First (March 27 to March 31) $6-3/4 $6-1/8 Second $7-7/8 $5-5/8 Third $6 $4-1/2 Fourth $5-5/8 $3-1/2 Dividends. Since the Company's inception, no dividends have been paid on the Common Stock. Holders. As of December 29, 1996, there were approximately 400 record holders of the Common Stock. - 7 - Item 6. Selected Financial Data.
Fiscal Years Ended ------------------------------------------------------------------------------------- December 31, December 31, January 1, December 31, December 29, 1992 1993 1995 1995 1996 Statement of Operations Data: Net sales $9,912,161 $11,257,307 $10,896,682 $13,350,255 $16,550,468 Restaurant costs and expenses: Cost of sales 2,951,033 3,179,552 3,036,995 3,655,254 4,526,286 Labor 3,161,115 3,519,484 3,525,472 4,452,134 5,464,896 Operating 1,410,686 1,660,515 1,642,039 2,015,668 2,536,609 Occupancy 1,103,606 1,316,757 1,293,842 1,588,527 1,931,866 Depreciation and amortization 508,525 860,126 382,082 715,426 882,843 --------------- --------------- --------------- --------------- --------------- Total restaurant costs and expenses 9,134,965 10,536,434 9,880,430 12,427,009 15,342,500 --------------- --------------- --------------- --------------- --------------- Restaurant operating income 777,196 720,873 1,016,252 923,246 1,207,968 General and administrative expenses 1,088,921 1,179,264 1,877,774 2,077,735 2,705,940 Depreciation and amortization 38,386 41,639 61,042 97,351 183,928 Development and abandoned site costs 22,622 746,026 98,637 - - --------------- --------------- --------------- --------------- --------------- Operating loss (372,733) (1,246,056) (1,021,201) (1,251,840) (1,681,900) --------------- --------------- --------------- --------------- --------------- Interest expense 289,224 382,291 254,810 334,086 180,293 Investment income (2,255) (16,759) 3,599 (83,021) (432,721) --------------- --------------- --------------- --------------- --------------- Loss before minority interest (659,702) (1,611,588) (1,279,610) (1,502,905) (1,429,472) Minority interest in net loss of SDLP 144,020 137,224 332,977 180,175 - --------------- --------------- --------------- --------------- --------------- NET LOSS $ (515,682) $(1,474,364) $ (946,633) $(1,322,730) $(1,429,472) =============== =============== =============== =============== =============== Net loss per common share $ (0.15) $ (0.39) $ (0.19) $ (0.26) $ (0.15) =============== =============== =============== =============== =============== Weighted average common shares outstanding 3,364,839 3,755,038 4,982,414 5,013,319 9,545,681 =============== =============== =============== =============== =============== As of ------------------------------------------------------------------------------------ December 31, December 31, January 1, December 31, December 29, 1992 1993 1995 1995 1996 Balance Sheet Data: Working capital (deficiency) $(1,364,967) $1,697,475 $ (560,972) $ (5,201,102) $ 6,542,348 Total assets 6,427,155 8,947,195 7,078,679 10,794,469 25,864,375 Current liabilities 3,061,806 2,765,405 2,580,329 6,975,363 3,174,262 Long-term liabilities 3,364,569 2,726,974 2,205,695 2,584,832 749,396 Stockholders' equity (deficit) (675,478) 2,941,664 2,112,480 1,234,274 21,940,717
- 8 - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. General At December 29, 1996, the Company operated seven diners in the Washington/Baltimore metropolitan area and plans to operate 12 diners by the end of 1997, including one in Cherry Hill, New Jersey, its first outside the Washington/Baltimore area. The Company is also pursuing locations in the South Florida market for 1998. Longer term, the Company plans to expand the Silver Diner chain nationwide through additional openings of Company- owned restaurants and possibly through the development of franchise or joint venture relationships. One Silver Diner restaurant was opened during fiscal 1996, the Company's seventh restaurant which opened in Arlington, Virginia on December 17, 1996. The eighth Silver Diner opened February 24, 1997 in the Merrifield area of Fairfax County, Virginia. Additional Silver Diners are under construction in Springfield and Reston, Virginia. On March 27, 1996, FTAC Transition Corporation, a wholly owned subsidiary of FTAC, merged with and into Silver Diner Development, Inc., a Virginia Corporation, with SDDI surviving as a wholly owned subsidiary of FTAC. In connection with the Merger, FTAC changed its name to Silver Diner Development, Inc., then subsequently to Silver Diner, Inc. Pursuant to the merger agreement, each outstanding share of SDDI common stock converted into 33.339 shares of the common stock of FTAC. Upon consummation of the Merger, the stockholders of SDDI became the owners in the aggregate of approximately 57% of the outstanding common stock of FTAC and the directors and officers of SDDI became directors and officers of FTAC. For accounting and financial reporting purposes, the Merger was treated as a recapitalization of SDDI and as an issuance of SDDI common shares for monetary assets and liabilities. The Company has reflected in its consolidated financial statements the assets, liabilities and equity of SDDI and its subsidiary Silver Diner Limited Partnership at their historical book values. Accordingly, the consolidated results of operations and financial position of the Company for periods and dates prior to the Merger are the consolidated historical results of operations and financial position of SDDI and SDLP for such periods and dates. All historical shares of common stock and per share amounts for periods prior to the Merger have been retroactively adjusted to reflect the FTAC shares issued to the SDDI shareholders at the time of the Merger. In connection with the Merger, on April 2, 1996, notes payable to related parties totaling $1,236,811 were repaid by the offset of amounts due from affiliates of $355,023 and the net outstanding balance was paid in full by the Company. On April 1, 1996, the Company terminated its capital lease obligation with a related party by purchasing the leased equipment at the remaining lease obligation balance of approximately $148,000. In addition, the Company repaid certain bank notes of SDDI in the approximate amount of $904,000 on April 4, 1996. On June 13, 1996, the Company completed its purchase of the minority interest in SDLP from the original investors for $2,472,000 in cash and 84,000 warrants to purchase common stock exercisable at $8.00 per share until the earlier of 30 days following a public offering or January 31, 1998. The offer was accepted by 100% of the limited partners. Because SDLP's financial statements are included in the consolidated financial statements of the Company, acquisition of the minority interest will not result in any change in the Company's future reported net sales, restaurant costs and expenses or restaurant operating income. The acquisition has been accounted for under the purchase method and the entire cost of the transaction, totaling $2.8 million, has been recorded as goodwill and is being amortized on a straight-line basis over 15 years. On July 11, 1996, the Company completed a $8,250,000 private placement of common stock through the sale of 1.5 million shares at $5.50 per share. Of the $7.6 million net proceeds of the sale, $2.5 million was used to replace the funds used for the acquisition of the minority interests in SDLP, approximately $400,000 was used to repay the bank debt of SDLP and the remainder is available to fund expansion. On August 7, 1996, the Company registered the shares with the Securities and Exchange Commission pursuant to a Form S-3 Registration Statement filed under the Securities and Exchange Act of 1933, as amended. - 9 - Effective January 1, 1994, the Company adopted a 52 or 53-week fiscal year which ends on the Sunday nearest December 31. Fiscal quarters consist of accounting periods of 16, 12, 12 and 12 or 13 weeks, respectively. As a result of the change, the year ended January 1, 1995 was a 366-day year. In October, 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123 "). SFAS No. 123 is effective for financial statements issued for fiscal years beginning after December 15, 1995. SFAS No. 123 addresses the accounting for awards of stock-based compensation to employees and transactions in which an entity issues its equity instruments to acquire goods and services from nonemployees. SFAS No. 123 allows an entity to continue to measure compensation cost for awards of stock-based compensation to employees using the intrinsic value based method of accounting prescribed by APB Opinion No. 25. However, entities electing to remain with the accounting under APB Opinion No. 25 must make pro forma disclosures of net income and earnings per share, as if the fair value method of accounting defined within SFAS No. 123 had been applied. The Company's management has elected to remain with the accounting under APB Opinion No. 25 and to provide the pro forma disclosures as required under SFAS No. 123. - 10 - Results Of Operations The following table sets forth the percentage of net sales of items included in the consolidated statements of operations for the periods indicated:
Fiscal Years Ended ------------------------------------------------- December 29, December 31, January 1, 1996 1995 1995 --------------- --------------- -------------- Net sales 100.0% 100.0% 100.0% Restaurant costs and expenses: Cost of sales 27.4% 27.4% 27.9% Labor 33.0% 33.3% 32.4% Operating 15.3% 15.1% 15.1% --------------- --------------- -------------- Restaurant operating margin 24.3% 24.2% 24.6% Occupancy 11.7% 11.9% 11.8% Depreciation and amortization 5.3% 5.4% 3.4% --------------- --------------- -------------- Restaurant operating income 7.3% 6.9% 9.4% General and administrative expenses 16.3% 15.6% 17.2% Depreciation and amortization 1.1% 0.7% 0.6% Development and abandoned site costs 0.0% 0.0% 0.9% --------------- --------------- -------------- Operating Loss (10.1%) (9.4%) (9.3%) Interest expense 1.1% 2.5% 2.4% Investment (income) loss, net (2.6%) (0.6%) 0.0% --------------- --------------- -------------- Loss before minority interest (8.6%) (11.3%) (11.7%) Minority interest in net loss of SDLP 0.0% 1.4% 3.1% --------------- --------------- -------------- Net loss (8.6%) (9.9%) (8.6%) =============== =============== ==============
Year Ended December 29, 1996 Compared to the Year Ended December 31, 1995. Net sales for the fiscal year ended December 29, 1996 ("Fiscal 1996") increased $3.2 million to $16,550,468 compared to $13,350,255 for the fiscal year ended December 31, 1995 ("Fiscal 1995"). Silver Diner restaurants opened during Fiscal 1995 and Fiscal 1996 in Fair Oaks, Tysons Corner and Arlington, Virginia added $3.3 million to net sales. Comparable Company sales (sales for Silver Diner restaurants open throughout both periods being compared, excluding the initial six months of operations during which sales are typically higher than normal) decreased 1.2%. Average net sales for Rockville and Tysons Corner, the Company's highest volume stores, were $3,598,000 for Fiscal 1996, with the two diners aggregating approximately 44% of net sales. Average net sales for the other four restaurants open throughout Fiscal 1996 were approximately $2,312,000. Cost of sales, primarily food and beverage cost, was unchanged at 27.4% of net sales for Fiscal 1996 compared to Fiscal 1995. Management was able to offset higher wholesale food costs during the year through improved purchasing as a result of the Company's stronger financial condition. Labor, which consists of restaurant management and hourly employee wages and bonuses, payroll taxes, workers' compensation insurance, group health insurance and other benefits, was 33.0% of net sales for the Fiscal 1996, a decrease of 0.3% of net sales compared to Fiscal 1995. Fiscal 1996 was favorably impacted by the maturing of the Fair Oaks and Tysons Corner Silver Diner restaurants opened during 1995, as well as lower - 11 - workers' compensation costs in the Company's Virginia stores. Congress has passed legislation which increased the minimum wage effective October 1, 1996. Many of the Company's employees are paid hourly wages, and any increase in the minimum wage increases the Company's cost. Management estimates that the minimum wage increase raised the Company's overall labor cost by approximately 0.2% to 0.3% of net sales. The Company expects to recover this increased cost through increased operating efficiencies, and to a lesser degree, price increases to customers. Operating expenses, which consist of all restaurant operating costs other than labor and occupancy, including supplies, utilities, repairs and maintenance and advertising, increased to 15.3% of net sales for Fiscal 1996, compared to 15.1% for Fiscal 1995. Lower comparable store sales, combined with slightly above average operating expenses in new stores, resulted in the increase as a percentage of net sales. Restaurant operating margin, which consists of net sales minus cost of sales, labor and operating expenses exclusive of occupancy, improved to 24.3% of net sales for Fiscal 1996 from 24.2% for Fiscal 1995. Management believes restaurant operating margin is the most consistent measure of store level operating results because it focuses on unit level performance. The Fiscal 1996 improvement was due to better control of costs overall, and the maturing of the Company's new stores at Fair Oaks and Tysons Corner. In late 1996, the Company began testing a new menu designed to enhance customer value and build sales, while reducing operational complexity. Management believes that the new menu, which was implemented in all stores in late January 1997, will increase cost of sales but decrease labor as a percentage of net sales, with the result being no significant change in restaurant operating margin. However, the implementation of the new menu is expected to temporarily increase cost of sales, labor and operating expenses in the first quarter of 1997 due to initial training and smallwares costs. Occupancy, which is composed primarily of rent, property taxes and property insurance, increased $343,339 for Fiscal 1996 compared to Fiscal 1995, due primarily to the opening of new restaurants during 1995 and 1996. Restaurant depreciation and amortization increased $167,417 for Fiscal 1996 compared to Fiscal 1995, primarily due to new restaurant openings. Depreciation decreased approximately $75,000 overall in the first four diners, due in part to a prospective reduction in the estimated useful life of smallwares, which increased expense in Fiscal 1995. Fiscal 1996 and Fiscal 1995 include approximately $240,000 and $153,000, respectively, of preopening amortization. Preopening costs are amortized on a straight-line basis over twelve months from the date of each new restaurant opening. General and administrative expenses include the cost of corporate administrative personnel and functions, multi-unit management and restaurant management recruitment and initial training. Such expenses were $2,705,940 for Fiscal 1996, an increase of $628,205 compared to Fiscal 1995. As a percentage of net sales, general and administrative expenses increased to 16.3% in Fiscal 1996 from 15.6% in Fiscal 1995. Increased corporate salary costs, higher restaurant management and recruitment costs, new menu costs and additional expenses related to being a public company were the primary factors contributing to the increases. The Company's administrative overhead as a percentage of net sales remains above the industry average primarily due to the cost of building a corporate management team to support the Company's intermediate and long-term growth plans. Also, during Fiscal 1996, the Company began to incur expenses related to the recruitment and training of restaurant management to support new Silver Diner openings in late 1996 and early 1997. As revenues increase in 1997 with the addition of new Silver Diners, general and administrative expenses are expected to decrease as a percentage of net sales. Depreciation and amortization for Fiscal 1996 includes approximately $100,000 for amortization of goodwill related to the acquisition of the SDLP minority interest. - 12 - In September 1995, the Company raised $2.5 million in a private placement of subordinated notes and common stock warrants, and in October 1995 borrowed $750,000 from a bank. Investment income, interest expense and amortization expense (related to deferred loan costs) all initially increased during Fiscal 1996 compared to Fiscal 1995 as a result of these borrowings. Following consummation of the Merger with FTAC, the subordinated notes were converted into common stock, the common stock warrants were canceled and the Company's bank debt and affiliate debt was repaid. The bank debt of SDLP was subsequently repaid in late July 1996 following acquisition of the SDLP minority interest. Interest expense and amortization of deferred loan costs were eliminated for the remainder of Fiscal 1996 due to the repayment of debt. Interest income increased significantly in Fiscal 1996 due to investment of the Merger and private placement proceeds. The limited partners' interest in the net loss of SDLP of $180,175 for Fiscal 1995 depleted the remaining equity of the limited partners. Accordingly, minority interest was not available in Fiscal 1996 prior to the acquisition of the minority interest in SDLP to absorb SDLP losses, and SDLP's losses were realized by the Company in their entirety. Net loss for Fiscal 1996 was $1,429,472, or $0.15 per share, compared to the net loss of $1,322,730, or $0.26 per share, for Fiscal 1995. Average shares outstanding increased from 5,013,319 for Fiscal 1995 to 9,545,681 for Fiscal 1996. The increase in shares resulted from the Merger and the private placement. Management expects that the Company will continue incurring relatively modest quarterly losses until sufficient revenue is generated from new units to absorb start-up expenses and the increased overhead put in place to support the Company's growth plans. Year Ended December 31, 1995 Compared to the Year Ended January 1, 1995. Net sales for Fiscal 1995 increased $2,453,573 to $13,350,255, compared to $10,896,682 for the year ended January 1, 1995 (Fiscal 1994). New restaurants opened during Fiscal 1995 in Fair Oaks and Tysons Corner, Virginia were primarily responsible for the increase, contributing $2,503,884 to sales. Comparable Company sales increased 0.8% after adjustment for the additional two days in Fiscal 1994 resulting from the change in the Company's fiscal year. Cost of sales decreased 0.5% of net sales to 27.4% in Fiscal 1995, compared to 27.9% for 1994. Fiscal 1995 reflected the full benefit of a change in the Company's primary supplier in the spring of 1994, favorable poultry prices and ongoing menu refinements. Labor was 33.3% of net sales for Fiscal 1995, an increase of 0.9% of net sales compared to Fiscal 1994. This increase resulted from higher initial labor costs associated with the Fair Oaks and Tysons Corner openings, and, to a lesser degree, increased restaurant management bonuses due to better than budgeted store level financial performance. Labor costs for existing restaurants, excluding Fair Oaks and management bonuses in both years, decreased 0.4% of net sales. Operating expenses were unchanged at 15.1% of net sales. Occupancy increased $294,685 for Fiscal 1995 compared to Fiscal 1994. The new restaurants in Fair Oaks and Tysons Corner had total occupancy cost of approximately $243,000. The remainder of the increase was primarily due to consumer price index related rent increases and expansion of the Rockville diner. Restaurant depreciation and amortization increased $333,344 for Fiscal 1995 compared to Fiscal 1994. Of this increase, $199,722 is associated with Fair Oaks and Tysons Corner, including $153,029 of preopening cost amortization. Depreciation and amortization also increased due to expansion of the Rockville diner, improvements to other established Silver Diners and a prospective reduction in the estimated useful life of smallwares. General and administrative expenses increased $199,961 to $2,077,735 in 1995. As a percentage of net sales, general and administrative expenses fell from 17.2% in 1994 to 15.6% in 1995. The Company's administrative - 13 - overhead as a percentage of net sales is above the industry average, primarily due to the Company's commitment to, and subsequent cost of, building a management team to support its intermediate and long-term growth plans. During Fiscal 1994, the Company abandoned a proposed site due to a legal dispute and recorded a charge to operations of $98,637. No sites were abandoned during Fiscal 1995. In September 1995, the Company raised $2.5 million in a private placement of subordinated notes and common stock warrants, and in October, 1995 borrowed $750,000 from a bank. Investment income, interest expense and amortization expense (related to deferred loan costs) all increased during Fiscal 1995 as a result of these borrowings. The limited partners' interest in the net loss of SDLP of $180,175 for Fiscal 1995 depleted the remaining equity of the limited partners, resulting in a decrease in minority interest in net loss of SDLP of $152,802 for Fiscal 1995 compared to Fiscal 1994. Income Taxes. No current or deferred income tax benefit has been provided in the Company's consolidated financial statements due to the Company's history of net operating losses for income tax purposes. At December 29, 1996, the Company has a net operating loss carryforward of approximately $4.9 million for income tax purposes that expires in 2008 through 2011, which may be used to reduce future taxable income and tax liabilities. Liquidity and Capital Resources The Company's current financial position is strong as a result of the consummation of the Merger and the private placement. At December 29, 1996, cash and cash equivalents were $8.3 million, short-term investments were $1.1 million, working capital was $6.5 million, the Company had no long-term debt and stockholders' equity was $21.9 million. Cash and cash equivalents increased $6.7 million during Fiscal 1996, due primarily to net Merger proceeds of $11.9 million and net private placement proceeds of approximately $7.6 million, less cash used to repay debt, finance the Fiscal 1996 operating cash flow deficit and pay for purchases of property and equipment, including construction payables associated with the Tysons Corner diner, which opened in December 1995. The Company's principal future capital requirement is expected to be the development of restaurants. The Company plans to open five new Company-owned Silver Diner restaurants in 1997 and grow the number of Company-owned stores at a rate of approximately 50% annually over the next several years. The typical building, equipment (including smallwares) and site development cost of a new Silver Diner prototype is expected to be approximately $1,625,000. Land generally will be leased. When land is purchased, management intends to pursue a sale leaseback or debt financing strategy following the restaurant's opening. At December 29, 1996, the Company was under construction in the Washington/Baltimore market on locations in Merrifield (opened in February 1997), Springfield and Reston, Virginia. Due to above average site costs, these locations are expected to average approximately $1.7 million for building, equipment and site costs. The Reston land is being purchased for approximately $1.3 million. Management is continuing to negotiate to obtain other sites in the Washington/Baltimore market. The Company has been pursuing locations in new geographical markets, specifically the Philadelphia-Southern New Jersey area and South Florida. To that end, the Company has entered into a lease agreement and a land purchase agreement that, pending successful completion of site plan contingencies, will allow the Company to open a new store in Cherry Hill, New Jersey in 1997 and Kendall, Florida in 1998. Management believes that the Company's current capital resources will be adequate to meet its planned capital requirements through 1997. Additional debt or equity financing will be required to finance 1998 growth. Management is currently evaluating financing alternatives. Should the Company be unable to raise sufficient - 14 - capital in 1997 to meet its 1998 requirements, management may be forced to limit 1998 growth. Seasonality and Quarterly Results Although the Company's limited operating history, geographic concentration and small number of existing Silver Diners make future trends difficult to predict, Silver Diner restaurants have generally experienced higher average weekly net sales in the second and third quarters. The timing of new Silver Diner restaurant openings and extreme weather, especially during the winter months, may also affect sales and quarterly results. Accordingly, quarter-to-quarter comparisons of the Company's results of operations may not be meaningful, and results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. The first fiscal quarter includes 16 weeks of operations as compared to 12, 12 and 12 or 13 weeks for each of the subsequent three quarters, respectively. As a result, despite higher average weekly sales, net sales from comparable Silver Diners can be expected to be lower in the second quarter as compared to the first quarter of each year. Impact of Inflation Management does not believe that inflation has materially affected the Company's operating results. Substantial increases in costs and expenses, particularly food, supplies, labor and operating expenses, could have a significant impact on the Company's operating results to the extent that such increases cannot be passed along to customers. Item 8. Financial Statements and Supplementary Data. SILVER DINER, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Reports of Independent Auditors.................................................................................. 16 Consolidated Financial Statements: Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995..................................................................... 18 Consolidated Statements of Operations for the Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995................................. 19 Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995................................. 20 Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995................................. 21 Notes to Consolidated Financial Statements....................................................................... 23
- 15 - INDEPENDENT AUDITORS' REPORT To the Stockholders of Silver Diner, Inc.: We have audited the accompanying consolidated balance sheet of Silver Diner, Inc. and subsidiaries (the "Company") as of December 29, 1996 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year (52 weeks) then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of the Company as of December 31, 1995 and for each of the years (52 weeks) ended December 31, 1995 and January 1, 1995 were audited by other auditors whose report, dated April 2, 1996, expressed an unqualified opinion on those combined statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Silver Diner, Inc. and subsidiaries as of December 29, 1996 and the results of their operations and their cash flows for the year (52 weeks) then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP - ------------------------- March 14, 1997 - 16 - INDEPENDENT AUDITORS' REPORT To the Stockholders Silver Diner, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of Silver Diner, Inc. and Subsidiaries (formerly Silver Diner Development, Inc., Silver Diner Limited Partnership and Silver Diner Potomac Mills, Inc.), as of December 31, 1995, and the related consolidated statements of operations, stockholders' equity and partners' deficit and cash flows for each of the two years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the corporations' and partnership's managements. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Silver Diner Development, Inc., Silver Diner Limited Partnership and Silver Diner Potomac Mills, Inc. as of December 31, 1995, and the results of their operations, their stockholders' equity and partners' deficit and their cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ REZNICK FEDDER & SILVERMAN ______________________________ Bethesda, Maryland April 2, 1996 - 17 - SILVER DINER, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 29, December 31, 1996 1995 ---------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 8,285,533 $ 1,584,716 Marketable securities available for sale 1,081,015 - Inventory 147,981 117,393 Prepaid and other current assets 202,081 72,152 ---------------- ---------------- Total current assets 9,716,610 1,774,261 Property, equipment and improvements, net 12,956,119 7,142,120 Due from affiliates 55,957 355,023 Preopening costs, net 127,413 239,750 Deferred issuance costs - 907,373 Goodwill, net 2,667,810 - Deposits and other 340,466 375,942 ---------------- ---------------- Total assets $ 25,864,375 $ 10,794,469 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 3,174,262 $ 3,582,238 Current maturities of notes to related parties - 200,000 Current maturities of long-term debt - 3,193,125 ---------------- ---------------- Total current liabilities 3,174,262 6,975,363 Deferred rent liability 749,396 574,821 Notes to related parties, less current maturities - 1,036,811 Long-term debt, less current maturities - 973,200 ---------------- ---------------- Total liabilities 3,923,658 9,560,195 Commitments and contingencies (Note 10) Stockholders' equity: Preferred stock, at December 29, 1996, $.001 par value, 1,000,000 shares authorized; none issued - - Common stock, at December 29, 1996, $.00074 par value, 20,000,000 shares authorized; 11,520,473 shares issued and outstanding; at December 31, 1995, $.10 par value, 1,000,000 shares authorized, 150,947 pre-merger shares issued and outstanding 8,526 15,095 Additional paid-in capital 30,297,290 8,154,806 Accumulated deficit (8,365,099) (6,935,627) ---------------- ---------------- Total stockholders' equity 21,940,717 1,234,274 ---------------- ---------------- Total liabilities and stockholders' equity $ 25,864,375 $ 10,794,469 ================ ================
Accompanying notes are an integral part of these financial statements - 18 - SILVER DINER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended --------------------------------------------------------------- December 29, December 31, January 1, 1996 1995 1995 ------------------ ------------------ ----------------- Net sales $ 16,550,468 $ 13,350,255 $ 10,896,682 Restaurant costs and expenses: Cost of sales 4,526,286 3,655,254 3,036,995 Labor 5,464,896 4,452,134 3,525,472 Operating 2,536,609 2,015,668 1,642,039 Occupancy 1,931,866 1,588,527 1,293,842 Depreciation and amortization 882,843 715,426 382,082 ------------------ ------------------ ----------------- Total restaurant costs and expenses 15,342,500 12,427,009 9,880,430 ------------------ ------------------ ----------------- Restaurant operating income 1,207,968 923,246 1,016,252 General and administrative expenses 2,705,940 2,077,735 1,877,774 Depreciation and amortization 183,928 97,351 61,042 Development and abandoned site costs - - 98,637 ------------------ ------------------ ----------------- Operating loss (1,681,900) (1,251,840) (1,021,201) Interest expense 180,293 334,086 254,810 Investment (income) loss, net (432,721) (83,021) 3,599 ------------------ ------------------ ----------------- Loss before minority interest (1,429,472) (1,502,905) (1,279,610) Minority interest in net loss of SDLP - 180,175 332,977 ------------------ ------------------ ----------------- NET LOSS $ (1,429,472) $ (1,322,730) $ (946,633) ================== ================== ================= Net loss per common share $ (0.15) $ (0.26) $ (0.19) ================== ================== ================= Weighted average common shares outstanding 9,545,681 5,013,319 4,982,414 ================== ================== =================
Accompanying notes are an integral part of these financial statements - 19 - SILVER DINER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995
Common Stock Additional ------------ Paid-in Accumulated Shares Amount Capital Deficit Total ---------------- ---------------- ----------------- ---------------- ---------------- Balance at December 31, 1993 149,447 $ 14,945 $ 7,592,983 $ (4,666,264) $ 2,941,664 Stock options issued - - 117,449 - 117,449 Net loss - - - (946,633) (946,633) ---------------- ----------------- ----------------- ---------------- ---------------- Balance at January 1, 1995 149,447 14,945 7,710,432 (5,612,897) 2,112,480 Common stock offering 1,500 150 202,350 - 202,500 Stock options issued - - 242,024 - 242,024 Net loss - - - (1,322,730) (1,322,730) ---------------- ----------------- ----------------- ---------------- ---------------- Balance at December 31, 1995 150,947 15,095 8,154,806 (6,935,627) 1,234,274 Issuance of common stock in connection with Merger 9,227,857 (8,155) 11,739,775 - 11,731,620 Debenture conversion 625,000 463 2,654,140 - 2,654,603 Common stock offering 1,500,000 1,111 7,555,427 - 7,556,538 Payments on notes receivable from stockholders - - 41,669 - 41,669 Stock options exercised 16,669 12 38 - 50 Repurchase of outstanding options - - (30,348) - (30,348) Amortization of unearned compensation - - 39,823 - 39,823 Warrants issued - - 141,960 - 141,960 Net loss - - - (1,429,472) (1,429,472) ---------------- ----------------- ----------------- ---------------- ---------------- Balance at December 29, 1996 11,520,473 $ 8,526 $ 30,297,290 $ (8,365,099) $ 21,940,717 ================ ================= ================= ================ ================
Accompanying notes are an integral part of these financial statements - 20 - SILVER DINER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended ---------------------------------------------------------------- December 29, December 31, January 1, 1996 1995 1995 ---------------- ---------------- --------------- Cash flows from operating activities Net loss $ (1,429,472) $ (1,322,730) $ (946,633) Adjustments to reconcile net loss to net cash used in operations Depreciation and amortization 1,066,771 812,777 443,124 Compensation expense - stock options and deferred compensation 81,489 368,505 78,240 Minority interest - (180,175) (332,977) Changes in operating assets and liabilities Inventory (30,588) (47,802) 7,711 Prepaid expenses and other assets (129,929) 41,294 54,453 Preopening expenses (128,287) (392,779) - Deposits and other (78,696) (185,234) (33,386) Accounts payable and accrued expenses (284,195) 628,798 240,851 Deferred rent liability 174,575 86,772 19,668 ---------------- ---------------- --------------- Net cash used in operating activities (758,332) (190,574) (468,949) ---------------- ---------------- --------------- Cash flows from investing activities Purchases of property and equipment (5,729,378) (2,691,826) (247,406) Maturities of short-term investments - 1,529,543 1,231,262 Purchase of short term investments (1,081,015) (120,000) (2,760,805) Advances to affiliates - (204,080) (472,083) Payment of advances to affiliates - 84,371 285,580 ---------------- ---------------- --------------- Net cash used in investing activities (6,810,393) (1,401,992) (1,963,452) ---------------- ---------------- ---------------
(continued) Accompanying notes are an integral part of these financial statements - 21 - SILVER DINER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Fiscal Years Ended ---------------------------------------------------------------- December 29, December 31 January 1, 1996 1995 1995 -------------------- -------------------- ------------------ Cash flows from financing activities Loan Costs - (26,439) (3,469) Net proceeds from merger 11,916,868 (167,764) - Net proceeds from sale of stock 7,556,538 202,500 - Net proceeds from sale of stock options to employees - 39,471 - Acquisition of minority interest in Silver Diner Limited Partnership (2,625,453) - - Proceeds from notes payable - 3,620,000 - Payments on advances - affiliates - (13,000) - Payments of principal - notes payable (1,666,325) (641,106) (1,290,165) Payments of principal - capital leases (107,123) (168,547) Payments of principal - notes payable - related party (881,788) - (55,604) Repurchase of employee stock options (30,298) (10,720) - -------------------- -------------------- ------------------ Net cash provided by (used in) financing activities 14,269,542 2,895,819 (1,517,785) -------------------- -------------------- ------------------ Net increase (decrease) in cash and cash equivalents 6,700,817 1,303,253 (3,950,186) Cash and cash equivalents at beginning of the period 1,584,716 281,463 4,231,649 -------------------- -------------------- ------------------ Cash and cash equivalents at end of the period $ 8,285,533 $ 1 ,584,716 $ 281,463 ==================== ==================== ================== Supplemental disclosure of cash flow information: Interest paid $ 137,300 $ 334,086 $ 245,677 ==================== ==================== ================== Noncash investing and financing activities: Construction payables included in accounts payable and accrued expenses $ 1,054,652 $ 301,702 $ 746,142 ==================== ==================== ================== Recapitalization costs included in accounts payable and accrued expenses $ - $ 722,128 $ - ==================== ==================== ================== Repayment of notes payable - related party by offset amounts due from affiliates $ 355,023 $ - $ - ==================== ==================== ================== Conversion of senior subordinated convertible promissory notes to 625,000 shares of common stock $ 2,500,000 $ - $ - ==================== ==================== ================== Issuance of 84,000 warrants in conjunction with SDLP purchase $ 141,960 $ - $ - ==================== ==================== ==================
Accompanying notes are an integral part of these financial statements - 22 - SILVER DINER, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 29, 1996 1. Organization and Summary of Significant Accounting Policies Silver Diner, Inc. and its subsidiaries develop and operate the Silver Diner restaurant chain. At December 29, 1996, the Company owned and operated seven diners in the Washington/Baltimore metropolitan area. Basis of Presentation The consolidated financial statements for the fiscal year ended December 29, 1996 include the accounts and operations of the Company and its wholly owned subsidiaries, Silver Diner Development, Inc. and Silver Diner Limited Partnership. All significant intercompany balances and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the 1996 presentation. The financial statements for the years ended December 31, 1995 and January 1, 1995 reflect the combined financial statements of Silver Diner Development, Inc., Silver Diner Limited Partnership and Silver Diner Potomac Mills, Inc. During 1996, the Company acquired the minority interest in SDLP (see Note 3), liquidated SDLP into SDDI and began presenting results on a consolidated basis. Because SDLP's financial statements were previously combined with the Company's, the change to a consolidated basis did not have a material impact on the Company's financial statements. Fiscal Year Effective January 1, 1994, the Company adopted a 52 or 53-week fiscal year which ends on the Sunday nearest December 31. The fiscal quarters for the Company consist of accounting periods of 16, 12, 12 and 12 or 13 weeks, respectively. Fiscal years 1996, 1995 and 1994 were comprised of 52 weeks and ended on December 29, 1996, December 31, 1995 and January 1, 1995, respectively. As a result of the change, the fiscal year ended January 1, 1995 was a 366-day year. Cash and Cash Equivalents and Marketable Securities All short-term investments are classified as available-for-sale. Those investments that are part of the Company's cash management portfolio with a remaining maturity of three months or less when purchased are reported as cash equivalents. The balance of the short-term investments are classified as marketable securities. At December 29, 1996, marketable securities consists of investment grade commercial paper. Cash and cash equivalents and marketable securities are stated at cost plus accrued interest, which approximates fair value. Inventory Inventory consists of food and supplies and is valued at the lower of cost (first-in, first-out) or market. Property, Equipment and Improvements Property, equipment and improvements are stated at cost. Buildings and leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the respective anticipated lease period including renewal options, ranging from 20 to 35 years, with a provision for salvage value for the Rockville building. Furniture and equipment are depreciated over the estimated useful lives of the related assets, ranging from 2 to 10 years. Depreciation is computed using accelerated and straight-line methods, and includes assets owned and those under capital lease agreements. Preopening Costs Preopening costs, including payroll, employee recruitment and advertising, incurred in the restaurant start-up and training period prior to the opening of each restaurant, are amortized on the straight-line basis over twelve months from the date of opening. - 23 - Deferred Issuance Costs Deferred issuance costs, primarily legal, accounting and investment banking costs, incurred in connection with SDDI's merger with Food Trends Acquisition Corporation (see Note 2) were deferred and offset against contributed capital upon consummation of the merger. The substance of the reverse acquisition is that of an initial public offering and the acquisition costs incurred by the Company have therefore been treated as a reduction in paid-in capital. Goodwill Cost in excess of fair value of net assets acquired related to the acquisition of the minority interest in SDLP (see Note 3) is being amortized on a straight-line basis over 15 years. Deferred Rent Deferred rent is recorded and amortized to the extent the total minimum rental payments allocated to the current period on a straight-line basis exceed or are less than the cash payments required. Income Taxes The provision for income taxes is based on earnings reported in the financial statements. Deferred income taxes are provided for temporary differences between financial assets and liabilities and those reported for income tax purposes. Taxable losses reported by SDLP passed through to, and were reportable by, its partners. Net Loss Per Common Share Net loss per common share is computed based upon the weighted average number of common shares outstanding during the period. Fully diluted and primary earnings per common share calculations reflecting the impact of stock options and warrants are antidilutive and accordingly, are not presented in the financial statements. In connection with the Merger (see Note 2), the weighted average shares outstanding for purposes of presenting net loss per common share on a comparative basis has been retroactively restated to reflect the effect of the recapitalization that occured in the reverse acquisition. Evaluation of Long-Lived Assets The Company evaluates the potential impairment of long-lived assets, including goodwill, based upon projections of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Management believes no material impairment of these assets exists at December 29, 1996. Stock-Based Compensation Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on fair value of the equity instrument awarded (see Note 12). The Company has chosen to continue to account for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, compensation costs for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount the employee must pay to acquire the stock. Reclassification Certain prior year balances have been reclassified to conform with the 1996 presentation. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. - 24 - 2. Merger On March 27, 1996, FTAC Transition Corporation, a wholly owned subsidiary of Food Trends Acquisition Corporation merged with and into SDDI with SDDI surviving as a wholly owned subsidiary of FTAC. In connection with the Merger, FTAC changed its name to Silver Diner Development, Inc., and in June 1996, to Silver Diner, Inc. Pursuant to the Merger agreement, each outstanding share of SDDI common stock converted into 33.339 shares of the common stock of FTAC. Upon consummation of the Merger, the stockholders of SDDI became the owners in the aggregate of approximately 57% of the outstanding common stock of FTAC and the directors and officers of SDDI became directors and officers of FTAC. Prior to the Merger, FTAC had no operating activities. For accounting and financial reporting purposes, the Merger was treated as a recapitalization of SDDI and as an issuance of SDDI common shares for monetary assets and liabilities. The transaction was in essence a reverse acquisition with SDDI retaining the majority voting interest in the merged entity. The reverse acquisition is a business combination accounted for by the purchase method in which the continuing entity is not assumed to be the acquirer. The substance of the reverse acquisition is that of an initial public offering and the acquisition costs incurred by the Company have therefore been treated as a reduction in paid-in capital. The Company has reflected in its consolidated financial statements the assets, liabilities and equity of SDDI at their historical book values. Accordingly, the consolidated results of operations and financial position of the Company for periods and dates prior to the Merger are the consolidated historical results of operations and financial position of SDDI for such periods and dates. All historical shares of common stock and per share amounts for periods prior to the Merger have been retroactively adjusted to reflect the FTAC shares issued to the SDDI shareholders at the time of the Merger. 3. Acquisition of Minority Interest in Silver Diner Limited Partnership On June 13, 1996 the Company completed its purchase of all of the limited partnership interests in SDLP from the original investors for $2,472,000 in cash and 84,000 warrants ("New Warrants") to purchase common stock exercisable at $8.00 per share. The New Warrants are exercisable until the earlier of 30 days following a public offering of common stock or January 31, 1998. The offer was unanimously accepted by all of the limited partners. The acquisition was accounted for under the purchase method and the entire cost of the transaction, totaling $2.8 million, has on a preliminary basis been allocated to goodwill based on the Company's estimate that the fair value of the tangible assets acquired approximates book value. The goodwill is being amortized on a straight-line basis over 15 years and as a result, amortization expense related to goodwill totaled $99,603 in fiscal year 1996. 4. Property, Equipment and Improvements The major components of property and equipment are as follows:
December 29, December 31, 1996 1995 ---------------- ----------------- Land $ 1,090,470 $ - Buildings and leasehold improvements 7,042,095 5,661,681 Furniture, fixtures and equipment 3,961,786 2,827,656 Deferred lease costs 599,790 395,499 Property under capital leases - 495,000 Construction in progress 3,168,023 - ---------------- ----------------- 15,862,164 9,379,836 Less accumulated depreciation and amortization (2,906,045) (2,237,716) ---------------- ----------------- $ 12,956,119 $ 7,142,120 ================ =================
Deferred lease costs represent brokerage commissions, legal fees and zoning related costs primarily related to those leases upon which the Company constructed its restaurants. - 25 - 5. Accounts Payable & Accrued Expenses Accounts payable and accrued expenses consists of the following:
December 29, December 31, 1996 1995 ---------------- ----------------- Trade payables $ 2,564,381 $ 2,879,286 Payroll and related taxes 427,584 360,015 Interest - 114,942 Sales and use taxes 92,628 69,216 Other 89,669 158,779 ---------------- ----------------- $ 3,174,262 $ 3,582,238 ================ =================
6. Long-Term Obligations Long-term debt includes the following:
December 31, 1995 ----------------- Senior subordinated convertible promissory notes, bearing interest at 10%, payable in one installment of principal plus accrued interest on December 31, 1996. On March 27, 1996, the outstanding promissory notes, plus accrued interest, were exchanged for 625,000 shares of the Company's common stock. $ 2,500,000 Installment notes payable to a bank, bearing interest at the prime rate plus 2%. These notes were fully paid on April 4, 1996. 903,596 Installment note payable to a bank, bearing interest at the prime rate plus 2%. The note was fully paid on July 30, 1996. 346,488 Promissory notes with a bank, bearing interest at the prime rate plus 1.5%. The notes were fully paid on July 31, 1996. 238,986 ----------------- 3,989,070 Capital lease obligations (See Note 9) 177,255 ----------------- 4,166,325 Less current installments (3,193,125) ----------------- $ 973,200 =================
7. Notes Payable - Related Party At December 31, 1995, the Company had notes payable to its president totaling $1,236,811 bearing interest at prime plus 2%. The entire balance of related party notes payable, net of the balances due from affiliates as discussed in Note 9 below, was paid off concurrent with the Merger. Interest charged to operations relating to the notes amounted to $30,801, $121,847 and $105,242 in fiscal years 1996, 1995 and 1994, respectively. 8. Private Placement On July 11, 1996, the Company completed a $8,250,000 private placement of common stock through the sale of 1.5 million shares at $5.50 per share. Approximately $2.5 million of the approximately $7.6 million net proceeds of the sale were used to replace the funds used for the acquisition of the minority interests in SDLP, and the - 26 - remainder is available to fund expansion. In connection with the sale, the Company registered the shares with the Securities and Exchange Commission. 9. Related Party Transactions Silver Diner Potomac Mills, Inc. -------------------------------- The Company leases the diner at Potomac Mills pursuant to two lease agreements with Silver Diner Potomac Mills, Inc., a corporation wholly-owned by the president of the Company. The leases expire October 14, 2011 and include annual CPI adjustments to base rent and percentage rent based on gross receipts. For the years ending December 29, 1996, December 31, 1995 and January 1, 1995, occupancy costs include $389,000, $391,000 and $391,000, respectively, in rent and related pass through costs associated with the leases. Robert Giaimo Leasing, Inc. --------------------------- The Company leased the furniture and equipment at one of its diners under terms of a capital lease expiring in 1999 from Robert Giaimo Leasing, Inc. ("RGLI"), a corporation established solely to purchase furniture and equipment to be leased to the Company. RGLI is wholly-owned by the president of the Company. At December 31, 1995, property and equipment included $210,000 in capital leased assets, net of accumulated depreciation, and long-term debt included $177,000 in capital lease liability related to the lease with RGLI. In connection with the Merger, on April 1, 1996, the Company terminated its capital lease obligation with RGLI by purchasing the leased equipment at the remaining lease obligation balance of approximately $148,000. For the years ending December 29, 1996, December 31, 1995 and January 1, 1995, interest expense includes $3,931, $22,000 and $38,000, respectively, in interest related to the lease with RGLI. Due From/To Affiliates ---------------------- At December 31, 1995, due from affiliates represented non-interest bearing amounts due on demand from RTG Real Estate Limited Partnership, formerly Silver Diner Real Estate Limited Partnership, an affiliate, RGLI and Robert Giaimo Development, Inc., resulting from current and prior year cash advances in the amounts of $157,696, $14,110 and $183,217, respectively, at December 31, 1995. Balances due from affiliates were offset against amounts paid to the president of the Company concurrent with the Merger, as discussed in Note 7 above. At December 29, 1996, the Company is paying premiums for three life insurance policies owned respectively by two officers. Due from affiliates represents non-interest bearing amounts due on demand from the two officers, which are collateralized by the life insurance policies and are equal to the amount paid by the Company on such life insurance policies. 10. Commitments and Contingencies Operating Leases ---------------- The Company leases restaurant land and buildings under various noncancellable operating leases with terms expiring at various dates through 2015. Certain of these leases are with related parties (see Note 9). These leases include minimum lease payments, reimbursable operating costs and real estate taxes. Also, certain of these leases contain renewal options for a maximum of 15 years beyond the original term, have provisions for additional rent based on sales at the individual locations and annual increases based on the consumer price index. The leases provide for certain rent holidays and escalations in payments over the lease terms. The effect of the holidays and escalations have been reflected in rent expense on a straight-line basis over the initial lease terms. The excess of expense over cash payments has been reflected in the consolidated financial statements as deferred rent. - 27 - Future minimum lease payments as of December 29, 1996 are: 1997 $ 1,857,000 1998 2,028,000 1999 2,144,000 2000 2,226,000 2001 2,271,000 Thereafter 21,620,000 Rent expense under the leases for fiscal 1996, 1995 and 1994 was approximately $1,622,000, $1,270,000 and $1,069,000, respectively, inclusive of contingent rent of $9,000 and $14,000 for fiscal 1995 and 1994, respectively. Employment Continuity Agreements -------------------------------- SDDI has entered into employment continuity agreements with certain executives. The agreements are generally three to five years in length and provide for minimum salary levels, as adjusted for minimum percentage increases and include incentive bonuses based on specified management goals. The aggregate minimum commitment for future salaries, excluding bonuses, as of December 29, 1996 is approximately $1.5 million. Legal Matters ------------- On May 20, 1996, the Company was named as a defendant in a proceeding instituted in the Circuit Court for Prince George's County, Maryland. The Company's insurance carrier is currently defending the claim with reservation of rights. The Company does not believe that it is liable and intends to vigorously defend itself. 11. Income Taxes At December 29, 1996, the Company has a net operating loss carryforward of approximately $4.9 million for income tax purposes, that expires in 2008 through 2011, which may be used to reduce future taxable income and tax liabilities. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
December 29, December 31, 1996 1995 ---------------- ---------------- Net tax operating loss carryforwards $ 1,962,941 $ 452,059 Book over (under) tax depreciation/amortization 172,063 (106,829) Accrued deferred compensation - 95,540 Deferred rent 302,697 36,707 ---------------- ---------------- Deferred tax assets 2,437,701 477,477 Less: valuation allowance (2,437,701) (477,477) ---------------- ---------------- Net deferred tax asset $ - $ - ================ ================
As a result of the Company's history of cumulative losses, a valuation allowance equal to the calculated deferred tax benefit has been recorded at December 29, 1996 and December 31, 1995. 12. Stock Compensation Plans The Company has the following stock-based compensation plans: 1996 Employee Stock Purchase Plan The 1996 Employee Stock Purchase Plan was adopted in September 1996 by the Company's board of directors, subject to shareholder approval, and continues in effect for a term of 10 years. The Company is authorized to issue 300,000 shares under the plan to employees who customarily work at least 20 hours per week and more than five months in a calendar year, and who have been continuously employed by the Company for six months. Under the terms of the plan, employees can choose each quarter to have up to 10 percent of their base - 28 - earnings (not to exceed $21,250 annually) withheld to purchase the Company's common stock. The purchase price of the stock is 85% of the lower of its beginning-of-quarter or end-of-quarter market price. The Company plans to implement the plan in the spring of 1997. Incentive Stock Option Plan The Incentive Stock Option Plan was adopted by the Company's board of directors in September 1996 and continues in effect for 10 years. The plan provides for incentive stock options and nonqualified stock options. Options may be granted to any director, officer, key employee or outside consultant of the Company. Terms of the options are set by the Company's board of directors. The Company has reserved 350,000 shares of common stock for issuance under the plan. Restaurant Owner Operator Program The Restaurant Owner Operator Program, which was adopted by the Company's board of directors in December 1996 for implementation in fiscal year 1997, provides for the general manager (Owner Operator) and the store manager team (Store Managers) of each of the Company's restaurants to share in the profits of their restaurant and to participate as equity owners of the Company. To participate in the program, Owner Operators must make an initial investment in discounted Company common stock, which may not be sold or otherwise transferred by the Owner Operator for a period of five years from the date of purchase. Should the Operating Partner's employment terminate for any reason other than death or disability, the Company has the right to repurchase the stock from the Owner Operator for the amount of his or her investment. The plan also provides for annual restricted common stock awards to Owner Operators and Store Managers. Stock awarded at the end of the first year vests after the fourth anniversary of the award date. For each year thereafter, stock awards vest after the third anniversary of the award date. The Company has reserved 300,000 shares of common stock for issuance under the plan. 1996 Consultant Stock Option and Stock Purchase Plan The 1996 Consultant Stock Option and Stock Purchase Plan was adopted by the Company's board of directors in December 1996, and continues in effect for a term of 10 years. The plan provides for the Company's consultants to purchase (i) options to purchase shares of common stock in the Company or (ii) shares of common stock in the Company, and apply a portion of the fees otherwise payable to them by the Company to pay the purchase price for such options or common stock. Options under the plan are granted at the fair market value of the common stock on the first day of each calendar quarter at a price determined pursuant to Black- Scholes methodology, are exercisable at any time in whole or in part for a period of three years from date of grant and vest immediately. The Company has reserved 100,000 shares of common stock for issuance under the plan. 1996 Non-Employee Director Stock Option Plan The 1996 Non-Employee Director Stock Option Plan was adopted by the Company's board of directors in December 1996, subject to shareholder approval, and continues in effect for 10 years. Under the plan, each non-employee director shall be granted an option to purchase 1,000 shares of the Company's common stock at fair market value on the first day of each calendar quarter. Options granted under the plan are exercisable at any time in whole or in part for a period of three years from date of grant, and vest immediately. The Company has reserved 75,000 shares of common stock for issuance under the plan. Second Amended and Restated 1991 Stock Option Plan The Second Amended and Restated 1991 Stock Option Plan for directors, officers, key employees and consultants provides for incentive and non-qualified stock options. The options generally expire 10 years from - 29 - the date of grant and are exercisable over the period stated in each option. The board of directors determines the option price (not to be less than fair market value for incentive options) at the date of grant. Excluding the effect of the Merger (see Note 2), options under the plan are exercisable in full if the Company executes a merger agreement or consolidates with another company, if more than 50% of the Company's voting stock is acquired by another person or group in an other than capital stock transaction, or if Robert T. Giaimo ceases to be President of the Company. The plan expires in 2001. At December 29, 1996, no options were available for future grant under the plan. Second Amended and Restated Earned Ownership Plan The Second Amended and Restated Earned Ownership Plan for key employees provides for non-qualified stock options. The options generally expire 10 years from the date of grant, have an option price of $0.0003 and vest 20% at date of grant and 20% on each of the next four anniversaries following the grant date. Excluding the effect of the Merger (see Note 2), options under the plan are exercisable in full if the Company executes a merger agreement or consolidates with another company, if more than 50% of the Company's voting stock is acquired by another person or group in an other than capital stock transaction, or if Robert T. Giaimo ceases to be President of the Company. The plan has no fixed expiration date. At December 29, 1996, no options were available for future grant under the plan. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. The compensation cost that has been charged against income under the Company's plans was $81,492, $227,989 and $76,162 for the years ended December 29, 1996, December 31, 1995 and January 1, 1995, respectively. Had compensation cost been determined in accordance with FASB Statement No. 123, the Company's net loss and net loss per share would have been the pro forma amounts indicated below:
Years Ended --------------------------------------------------------------- December 29, December 31, January 1, 1996 1995 1995 Net loss: As reported $ (1,429,472) $ (1,322,730) $ (946,633) Pro forma $ (1,469,539) $ (1,421,642) $ (1,079,903) Net loss per common share: As reported $ (0.15) $ (0.26) $ (0.19) Pro forma $ (0.15) $ (0.28) $ (0.22)
All options granted during the year ended December 29, 1996 were issued pursuant to the 1996 Non-Employee Director Stock Option Plan. The fair value of each option grant under this plan is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of 0.0%, expected volatility of 27%, risk free interest rate of 6.2% and an expected life of two years. Options granted during 1994 and 1995 were issued pursuant to the Second Amended and Restated 1991 Stock Option Plan and the Second Amended and Restated Earned Ownership Plan. During this period the Company was privately held. The fair value of each option grant under these plans is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: dividend yield of 0.0%; expected volatility of 1%; common stock fair market value of $4.05; risk-free interest rates of 7.5% and 6.1% for 1994 and 1995, respectively; and an expected life of seven years. - 30 - A summary of the status of the Company's stock option plans as of December 29, 1996, December 31, 1995 and January 1, 1995 and changes during the years ended on these dates is:
1996 1995 1994 ------------------------- -------------------------- -------------------------- Weighted - Weighted - Weighted - Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Options Outstanding, beginning of year 784,959 $ 2.50 279,451 $ 1.49 171,409 $ 0.64 Granted 18,000 $ 5.83 563,251 $ 3.13 142,948 $ 2.57 Exercised (16,669) $ 0.00 - $ 0.00 - $ 0.00 Forfeited (82,081) $ 4.05 (53,276) $ 3.98 (33,339) $ 1.80 Repurchased (14,989) $ 0.00 (4,467) $ 0.00 (1,567) $ 0.00 ------- ------- ------- Options outstanding, end of year 689,220 $ 2.52 784,959 $ 2.50 279,451 $ 1.49 ======= ======= ======= Options exercisable at year end 313,260 284,382 154,170 Weighted-average fair value of options granted during the year $ 1.21 $ 1.98 $ 2.51
The following table summarizes information about stock options outstanding at December 29, 1996:
Options Outstanding Options Exercisable -------------------------------------------------- ------------------------------- Range Number Weighted-Avg. Weighted-Avg. Number Weighted-Avg. of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 12/29/96 Contractual Life Price at 12/29/96 Price Less than $0.01 263,417 7.5 years $ 0.00 180,473 $ 0.00 $2.25 to $3.60 16,670 6.7 years $ 2.93 16,670 $ 2.93 $4.05 to $6.50 409,133 8.8 years $ 4.13 116,117 $ 4.33 ------------- ------------- $0.0003 to $6.50 689,220 8.0 years $ 2.52 313,260 $ 1.76 ============= =============
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Previous Independent Accountants. Prior to the Merger, the Company's certifying accountant was KPMG Peat Marwick LLP ("Peat Marwick"). Pursuant to the Merger, and effective as of March 27, 1996, Reznick Fedder & Silver ("Reznick"), 4520 East-West Highway, Suite 300, Bethesda, Maryland, SDDI's certifying accountant, became the Company's certifying accountant. Peat Marwick's report on the financial statements for each of the past two years did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or generally accepted accounting principles. The decision to change accountants was approved by the Company's board of directors and was reported in the Company's Current Report on Form 8-K dated March 27, 1996, as amended. During the Company's two most recent fiscal years and for any subsequent interim period preceding such dismissal, there have been no disagreements with Peat Marwick on any matter of generally accepted accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement(s), if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter of such disagreement(s) in connection with its report. The Company's board of directors and audit committee subsequently determined that it was in the Company's best interest to engage a new independent auditor. The Company notified Reznick of its dismissal as independent auditors on December 3, 1996 and reported the dismissal in a Current Report on Form 8-K dated December 9, 1996. - 31 - Reznick has not issued any reports on the Company's financial statements. Reznick's report on the Combined Financial Statements of SDDI, SDLP and Silver Diner Potomac Mills, Inc. ("SDPMI") for the years ended December 31, 1995 and January 1, 1995 contained no adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 1995 and January 1, 1995, and through the date of termination on December 3, 1996, neither the Company nor SDDI had any disagreements with Reznick on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved, would have caused Reznick to make reference to the subject matter of the disagreement in connection with its report. New Independent Accountants. On December 3, 1996, the Company engaged Deloitte & Touche LLP to audit the Company's financial statements for the year ended December 29, 1996 and reported such engagement on a Current Report on form 8-K dated December 9, 1996. Item 10. Directors and Executive Officers of the Company. The information under "Election of Directors" in the Proxy Statement for the Annual Meeting of Shareholders in 1997 is incorporated herein by reference. Information concerning executive officers is set forth under "Executive Officers of the Registrant" in Part I. Item 11. Executive Compensation. The information under "Executive Compensation" in the Proxy Statement for the Annual Meeting of Shareholders in 1997 is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information under "Ownership of Common Stock by Directors and Executive Officers" and Election of Directors" in the Proxy Statement for the Annual Meeting of Shareholders in 1997 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information under "Election of Directors" and "Executive Compensation" in the Proxy Statement for the Annual Meeting of Shareholders in 1997 is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Lists of Documents Filed as Part of this Report 1. Financial Statements
Page Reports of Independent Auditors................................................................................ 16 Consolidated Financial Statements: Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995................................................................... 18
- 32 - Consolidated Statements of Operations for the Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995............................... 19 Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995............................... 20 Consolidated Statements of Cash Flows for the Fiscal Years Ended December 29, 1996, December 31, 1995 and January 1, 1995............................... 21 Notes to Consolidated Financial Statements..................................................................... 23
2. Schedules All Schedules are omitted because the required information is inapplicable or it is presented in the Consolidated Financial Statements or the notes thereto. 3. Exhibits Exhibit Number Description of Document - -------------- ----------------------- 2 Plan of acquisition, reorganization, arrangement, liquidation or succession 2.1 Agreement and Plan of Reorganization dated August 29, 1995, as amended January 25, 1996, by and among FTAC, FTAC Transition Corporation and SDDI, incorporated by reference to Exhibits 2.1 and 2.7 of the registrant's Form S-4 (File No. 33-98844). 3 Articles of incorporation and bylaws 3.1 Registrant's Certificate of Incorporation as amended by Certificates of Amendment incorporated by reference to Exhibit 3.01 of the registrant's Form 8-K dated March 27, 1996. 3.2 Registrant's Bylaws incorporated by reference to Exhibit 3.3 of the registrant's Form S-4 (File No. 33-98844). 4 Instruments defining the rights of security holders, including indentures 4.1 Certificate of Designation, Preferences and Rights of the class of the registrant's preferred stock to be designated Special Convertible Preferred Stock and Warrant Agreement between the registrant and Continental Stock Transfer & Trust Company incorporated by reference to Exhibit 4.01 of the registrant's Form 8-K dated March 27, 1996. 4.2 Form of the registrant's Special Convertible Preferred Stock incorporated by reference to Exhibit 4.02 of the registrant's Form 8-K dated March 27, 1996. 4.3 Form of the registrant's Common Stock Certificate incorporated by reference to Exhibit 4.03 of the registrant's Form 8-K dated March 27, 1996. 4.4 Form of the registrant's Warrant Certificate incorporated by reference to Exhibit 4.04 of the registrant's Form 8-K dated March 27, 1996. 9 Voting Trust Agreements 9.1 Form of Voting and Lockup Agreement with respect to Stock Option Agreements incorporated by - 33 - reference to Exhibit 9.01 of the registrant's Form 8-K dated March 27, 1996. 9.2 Form of Lockup Agreement among SDDI and certain of its shareholders, together with schedule of executed Lockup Agreements incorporated by reference to Exhibit 9.02 of the registrant's Form 8-K dated March 27, 1996. 9.3 SDDI Affiliate Lockup Agreement dated as of August 29, 1995 by and among SDDI, Robert T. Giaimo, Ype Hengst, Clinton Clark, Charles Steiner and Edward Kaplan incorporated by reference to Exhibit 9.03 of the registrant's Form 8-K dated March 27, 1996. 9.4 Form of SDDI Voting and Lockup Agreement among SDDI, Robert T. Giaimo and certain shareholders of SDDI, together with Schedule of executed Voting and Lockup Agreements incorporated by reference to Exhibit 9.04 of the registrant's Form 8-K dated March 27, 1996. 9.5 FTAC Voting and Lockup Agreement dated as of September 15, 1995 by and among the registrant and George A. Naddaff, Douglas M. Suliman, Jr., Ralph J. Guarino and Charles A. Cocotas incorporated by reference to Exhibit 9.05 of the registrant's Form 8-K dated March 27, 1996. 9.6 Assumption of SDDI Voting and Lockup Agreement, SDDI Affiliate Lockup Agreement and Stockholder Lockup Agreement dated March 27, 1996, pursuant to Section 5.14(c) of merger agreement by and among FTAC, FTAC Transition Corporation and SDDI, incorporated by reference to Exhibit 9.06 of the registrant's Form 8-K dated March 27, 1996. 9.7 GKN Voting and Lockup Agreement dated as of September 15, 1995 by and among the registrant, Robert T. Giaimo, GKN Securities Corp., and certain additional signatories thereto incorporated by reference to Exhibit 9.07 of the registrant's Form 8-K dated March 27, 1996. 10 Material Contracts Material Contracts - Real Property Rockville, Maryland 10.1 Lease Agreement between Federal Realty Investment Trust (Landlord) and SDLP (Tenant) dated July 13, 1988 as amended by Lease Modification dated August 17, 1988, Second Lease Modification dated February 3, 1989, Third Amendment to Lease dated January 20, 1993, and Fourth Lease Modification Agreement dated October 17, 1994 incorporated by reference to Exhibit 10.01 of the registrant's Form 8-K dated March 27, 1996. Laurel, Maryland 10.2 Lease between CG Beltsville Limited Partnership (Landlord) and SDLP (Tenant) dated January 26, 1990, as amended by Letter Agreement dated October 28, 1995 incorporated by reference to Exhibit 10.02 of the registrant's Form 8-K dated March 27, 1996. Dale City, Virginia (Potomac Mills) 10.3 Lease between RGDI (Landlord) and SDPMI (Tenant), dated June 10, 1991, as amended by First Amendment to Lease, dated October 14, 1991, as amended by Second Amendment to Lease dated October 30, 1995 incorporated by reference to Exhibit 10.03 of the registrant's Form 8-K dated March 27, 1996. - 34 - Parking Lot (parcel 11-B-1A), Dale City, Virginia (located adjacent to Silver Diner Restaurant at Potomac Mills) 10.4 Lease between Robert Giaimo Development, Inc. ("RGDI") (Landlord) and SDPMI (Tenant) dated May 27, 1992, as amended by Amendment to Lease dated October 30, 1995 incorporated by reference to Exhibit 10.04 of the registrant's Form 8-K dated March 27, 1996. Towson, Maryland 10.5 Lease Agreement between Towson Town Center Associates (Landlord) and the registrant (Tenant) effective January 30, 1992 incorporated by reference to Exhibit 10.05 of the registrant's Form 8-K dated March 27, 1996. Fair Lakes, Virginia (Fair Oaks) 10.6 Ground Lease Agreement between F.L. Promenade L.P. (Landlord) and the registrant (Tenant) dated July 12, 1994, as amended by First Amendment to Ground Lease Agreement dated February 15, 1995, and Second Amendment to Ground Lease Agreement dated April 4, 1995 incorporated by reference to Exhibit 10.06 of the registrant's Form 8-K dated March 27, 1996. Tysons Corner, Virginia 10.7 Ground Lease between Lehndorff Tysons Joint Venture (Landlord) and the registrant (Tenant) dated December 29, 1994), as amended by First Amendment to Lease dated May 14, 1995 incorporated by reference to Exhibit 10.07 of the registrant's Form 8-K dated March 27, 1996. Springfield, Virginia 10.8 Springfield Mall Lease between Franconia Associates (Landlord) and the registrant (Tenant) effective May 1, 1996 incorporated by reference to Exhibit 10.08 of the registrant's Form 8-K dated March 27, 1996. Merrifield, Virginia 10.9 Agreement of Lease dated September 14, 1995 by and between 2909 Gallows LC (Landlord) and the registrant (Tenant) incorporated by reference to Exhibit 10.09 of the registrant's Form 8-K dated March 27, 1996. Reston, Virginia 10.10 Purchase and Sale Agreement dated December 29, 1995 by and between Reston Land Corporation (Seller) and the registrant (Buyer) incorporated by reference to Exhibit 10.10 of the registrant's Form 8-K dated March 27, 1996. Clarendon, Virginia 10.11 Lease dated February 12, 1996 between Wilson Limited Partnership (Landlord) and the registrant (Tenant) incorporated by reference to Exhibit 10.11 of the registrant's Form 8-K dated March 27, 1996. - 35 - Kendall, Florida 10.12 Purchase Agreement dated October 4, 1996 by and between Documentation Corp. And Bersin Development Corp. (Sellers) and the registrant (Buyer).* Cherry Hill, New Jersey 10.13 Lease Agreement dated September 30, 1996 by and between Cherry Hill Associates L.P. (Landlord) and the registrant (Tenant).* Material Contracts - Stock Plans 10.14 SDDI Second Amended and Restated 1991 Stock Option Plan, together with forms of incentive stock option agreement and non-qualified stock option agreement incorporated by reference to Exhibit 10.14 of the registrant's Form 8-K dated March 27, 1996. 10.15 SDDI Second Amended and Restated Earned Ownership Plan, together with form of non-qualified stock option agreement incorporated by reference to Exhibit 10.15 of the registrant's Form 8-K dated March 27, 1996. 10.16 Silver Diner, Inc. 1996 Non-employee Director Stock Option Plan together with form of stock option agreement incorporated by reference to Exhibit 4(a) of the registrant's Form S-8 filed December 20, 1996. 10.17 Silver Diner, Inc. 1996 Consultant Stock Option and Stock Purchase Plan together with form of stock option agreement, form of stock purchase agreement, form of election to purchase common stock and form of election to purchase options, incorporated by reference to Exhibit 4(b) of the registrant's Form S-8 filed December 20, 1996. 10.18 Certificate and Agreement of Participation, Silver Diner, Inc. Restaurant Owner Operator Program and Addenda incorporated by reference to Exhibit 4 of the registrant's Form S-8 filed February 14, 1997. 10.19 Silver Diner, Inc. Stock Option Plan together with form of Stock Option Agreement.* 10.20 Silver Diner, Inc. Employee Stock Purchase Plan together with form of Subscription Agreement and Notice of Withdrawal.* Material Contracts - Agreements with Executive Officers/Directors 10.21 Letter Agreement dated August 28, 1995, between the registrant and James David Oden regarding terms of employment, as amended by Letter Agreement dated March 26, 1996 incorporated by reference to Exhibit 10.17 of the registrant's Form 8-K dated March 27, 1996. 10.22 Letter Agreement dated December 31, 1995 between the registrant and Daniel Brannan regarding terms of employment, as amended by Letter Agreement dated March 26, 1996 incorporated by reference to Exhibit 10.18 of the registrant's Form 8-K dated March 27, 1996. 10.23 Letter Agreement dated December 4, 1996 between the registrant and Patrick Meskell regarding terms of employment, as amended by Letter Agreement dated March 26, 1996 incorporated by reference to Exhibit 10.19 of the registrant's Form 8-K dated March 27, 1996. - 36 - 10.24 Founder's Employment Agreement dated August 28, 1995 by and between the registrant and Robert T. Giaimo incorporated by reference to Exhibit 10.20 of the registrant's Form 8-K dated March 27, 1996. 10.25 Assumption of Founder's Employment Agreement dated March 27, 1996 pursuant to Section 5.14(b) of merger agreement by and among FTAC, FTAC Transition Corporation and SDDI,, incorporated by reference to Exhibit 10.21 of the registrant's Form 8-K dated March 27, 1996. 10.26 Indemnity Agreement dated August 29, 1995 by and between Robert T. Giaimo, as indemnitee, and the registrant incorporated by reference to Exhibit 10.22 of the registrant's Form 8-K dated March 27, 1996. Material Contracts - Miscellaneous 10.27 1991 Management Agreement (undated in original) between SDPMI (Owner) and SDLP (Manager) in connection with SDPMI Virginia incorporated by reference to Exhibit 10.35 of the registrant's Form 8-K dated March 27, 1996. 10.28 Option to Purchase dated January 26, 1990 between CG Beltsville Limited Partnership (Optionor), and SDLP (Optionee) regarding land parcel on which the Silver Diner Restaurant in Laurel, Maryland, is located incorporated by reference to Exhibit 10.36 of the registrant's Form 8-K dated March 27, 1996. 10.29 Amendment No. 1 to the Stock Escrow Agreement dated as of March 26, 1996 among the Registrant, George A. Naddaff, Douglas M. Suliman, Jr., Ralph J. Guarino, Charles A. Cocotas and Continental Stock Transfer & Trust Company, together with letter dated March 27, 1996 from the Registrant to Continental Stock Transfer & Trust Company incorporated by reference to Exhibit 10.37 of the registrant's Form 8-K dated March 27, 1996. 10.30 Affiliate Warrant Exchange and Custodial Agreement dated September 15, 1996, by and among George A. Naddaff, Douglas M. Suliman, Jr. and Charles A. Cocotas, as Warrant Holders, SDDI and Douglas M. Suliman, Jr., as Custodian incorporated by reference to Exhibit 10.38 of the registrant's Form 8-K dated March 27, 1996. 10.31 Escrow Agreement dated as of February 1, 1996 by and between GKN Securities Corp., certain affiliates thereof, the SDDI and Arent Fox, as Escrow Agent incorporated by reference to Exhibit 10.39 of the registrant's Form 8-K dated March 27, 1996. 10.32 Option Agreement dated March 27, 1996 by and between RGDI and SDDI granting option to SDDI for the purchase of Potomac Mills real estate parcels incorporated by reference to Exhibit 10.34 of the registrant's Form 8-K dated March 27, 1996. 21 Subsidiaries of the Registrant.* 23 Accountants Consents 23.1 Consent of Reznick Fedder & Silverman.* 23.2 Consent of Deloitte & Touche LLP.* (b) The Company filed a Current Report on Form 8-K on December 9, 1996 to report a change in the Company's certifying accountant. See "Changes in and Disagreements with Accountants on Accounting and Financial Disclosure" in Item 9 of Part II. * Filed herewith. All other exhibits have been previously filed as indicated. - 37 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Silver Diner, Inc. By:/s/ Robert T. Giaimo ---------------------------------- Robert T. Giaimo President and Chief Executive Officer March 31, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and int he capacities and on the dates indicated.
Signatures Title Date /s/ Robert T. Giaimo President, Chief Executive March 31, 1997 - --------------------------- Officer and Director Robert T. Giaimo /s/ David Oden Senior Vice President and Chief March 31, 1997 - --------------------------- Financial Officer David Oden /s/ Catherine Britton Director March 31, 1997 - --------------------------- Catherine Britton /s/ Clinton Clark Director March 31, 1997 - --------------------------- Clinton Clark /s/ Ype Hengst Director March 31, 1997 - --------------------------- Ype Hengst /s/ Edward H. Kaplan Director March 31, 1997 - --------------------------- Edward H. Kaplan /s/ George A. Naddaff Director March 31, 1997 - --------------------------- George A. Naddaff /s/ Louis P. Neeb Director March 31, 1997 - --------------------------- Louis P. Neeb /s/ Charles Steiner Director March 31, 1997 - --------------------------- Charles Steiner /s/ Douglas M. Suliman Director March 31, 1997 - --------------------------- Douglas M. Suliman
- 38 - EXHIBIT INDEX Exhibit Number Description of Document - -------------- ----------------------- 2 Plan of acquisition, reorganization, arrangement, liquidation or succession 2.1 Agreement and Plan of Reorganization dated August 29, 1995, as amended January 25, 1996, by and among FTAC, FTAC Transition Corporation and SDDI, incorporated by reference to Exhibits 2.1 and 2.7 of the registrant's Form S-4 (File No. 33-98844). 3 Articles of incorporation and bylaws 3.1 Registrant's Certificate of Incorporation as amended by Certificates of Amendment incorporated by reference to Exhibit 3.01 of the registrant's Form 8-K dated March 27, 1996. 3.2 Registrant's Bylaws incorporated by reference to Exhibit 3.3 of the registrant's Form S-4 (File No. 33-98844). 4 Instruments defining the rights of security holders, including indentures 4.1 Certificate of Designation, Preferences and Rights of the class of the registrant's preferred stock to be designated Special Convertible Preferred Stock and Warrant Agreement between the registrant and Continental Stock Transfer & Trust Company incorporated by reference to Exhibit 4.01 of the registrant's Form 8-K dated March 27, 1996. 4.2 Form of the registrant's Special Convertible Preferred Stock incorporated by reference to Exhibit 4.02 of the registrant's Form 8-K dated March 27, 1996. 4.3 Form of the registrant's Common Stock Certificate incorporated by reference to Exhibit 4.03 of the registrant's Form 8-K dated March 27, 1996. 4.4 Form of the registrant's Warrant Certificate incorporated by reference to Exhibit 4.04 of the registrant's Form 8-K dated March 27, 1996. 9 Voting Trust Agreements 9.1 Form of Voting and Lockup Agreement with respect to Stock Option Agreements incorporated by reference to Exhibit 9.01 of the registrant's Form 8-K dated March 27, 1996. 9.2 Form of Lockup Agreement among SDDI and certain of its shareholders, together with schedule of executed Lockup Agreements incorporated by reference to Exhibit 9.02 of the registrant's Form 8-K dated March 27, 1996. 9.3 SDDI Affiliate Lockup Agreement dated as of August 29, 1995 by and among SDDI, Robert T. Giaimo, Ype Hengst, Clinton Clark, Charles Steiner and Edward Kaplan incorporated by reference to Exhibit 9.03 of the registrant's Form 8-K dated March 27, 1996. 9.4 Form of SDDI Voting and Lockup Agreement among SDDI, Robert T. Giaimo and certain shareholders of SDDI, together with Schedule of executed Voting and Lockup Agreements incorporated by reference to Exhibit 9.04 of the registrant's Form 8-K dated March 27, 1996. - 39 - 9.5 FTAC Voting and Lockup Agreement dated as of September 15, 1995 by and among the registrant and George A. Naddaff, Douglas M. Suliman, Jr., Ralph J. Guarino and Charles A. Cocotas incorporated by reference to Exhibit 9.05 of the registrant's Form 8-K dated March 27, 1996. 9.6 Assumption of SDDI Voting and Lockup Agreement, SDDI Affiliate Lockup Agreement and Stockholder Lockup Agreement dated March 27, 1996, pursuant to Section 5.14(c) of merger agreement by and among FTAC, FTAC Transition Corporation and SDDI, incorporated by reference to Exhibit 9.06 of the registrant's Form 8-K dated March 27, 1996. 9.7 GKN Voting and Lockup Agreement dated as of September 15, 1995 by and among the registrant, Robert T. Giaimo, GKN Securities Corp., and certain additional signatories thereto incorporated by reference to Exhibit 9.07 of the registrant's Form 8-K dated March 27, 1996. 10 Material Contracts Material Contracts - Real Property Rockville, Maryland 10.1 Lease Agreement between Federal Realty Investment Trust (Landlord) and SDLP (Tenant) dated July 13, 1988 as amended by Lease Modification dated August 17, 1988, Second Lease Modification dated February 3, 1989, Third Amendment to Lease dated January 20, 1993, and Fourth Lease Modification Agreement dated October 17, 1994 incorporated by reference to Exhibit 10.01 of the registrant's Form 8-K dated March 27, 1996. Laurel, Maryland 10.2 Lease between CG Beltsville Limited Partnership (Landlord) and SDLP (Tenant) dated January 26, 1990, as amended by Letter Agreement dated October 28, 1995 incorporated by reference to Exhibit 10.02 of the registrant's Form 8-K dated March 27, 1996. Dale City, Virginia (Potomac Mills) 10.3 Lease between RGDI (Landlord) and SDPMI (Tenant), dated June 10, 1991, as amended by First Amendment to Lease, dated October 14, 1991, as amended by Second Amendment to Lease dated October 30, 1995 incorporated by reference to Exhibit 10.03 of the registrant's Form 8-K dated March 27, 1996. Parking Lot (parcel 11-B-1A), Dale City, Virginia (located adjacent to Silver Diner Restaurant at Potomac Mills) 10.4 Lease between Robert Giaimo Development, Inc. ("RGDI") (Landlord) and SDPMI (Tenant) dated May 27, 1992, as amended by Amendment to Lease dated October 30, 1995 incorporated by reference to Exhibit 10.04 of the registrant's Form 8-K dated March 27, 1996. Towson, Maryland 10.5 Lease Agreement between Towson Town Center Associates (Landlord) and the registrant (Tenant) effective January 30, 1992 incorporated by reference to Exhibit 10.05 of the registrant's Form 8-K dated March 27, 1996. - 40 - Fair Lakes, Virginia (Fair Oaks) 10.6 Ground Lease Agreement between F.L. Promenade L.P. (Landlord) and the registrant (Tenant) dated July 12, 1994, as amended by First Amendment to Ground Lease Agreement dated February 15, 1995, and Second Amendment to Ground Lease Agreement dated April 4, 1995 incorporated by reference to Exhibit 10.06 of the registrant's Form 8-K dated March 27, 1996. Tysons Corner, Virginia 10.7 Ground Lease between Lehndorff Tysons Joint Venture (Landlord) and the registrant (Tenant) dated December 29, 1994), as amended by First Amendment to Lease dated May 14, 1995 incorporated by reference to Exhibit 10.07 of the registrant's Form 8-K dated March 27, 1996. Springfield, Virginia 10.8 Springfield Mall Lease between Franconia Associates (Landlord) and the registrant (Tenant) effective May 1, 1996 incorporated by reference to Exhibit 10.08 of the registrant's Form 8-K dated March 27, 1996. Merrifield, Virginia 10.9 Agreement of Lease dated September 14, 1995 by and between 2909 Gallows LC (Landlord) and the registrant (Tenant) incorporated by reference to Exhibit 10.09 of the registrant's Form 8-K dated March 27, 1996. Reston, Virginia 10.10 Purchase and Sale Agreement dated December 29, 1995 by and between Reston Land Corporation (Seller) and the registrant (Buyer) incorporated by reference to Exhibit 10.10 of the registrant's Form 8-K dated March 27, 1996. Clarendon, Virginia 10.11 Lease dated February 12, 1996 between Wilson Limited Partnership (Landlord) and the registrant (Tenant) incorporated by reference to Exhibit 10.11 of the registrant's Form 8-K dated March 27, 1996. Kendall, Florida 10.12 Purchase Agreement dated October 4, 1996 by and between Documentation Corp. And Bersin Development Corp. (Sellers) and the registrant (Buyer).* Cherry Hill, New Jersey 10.13 Lease Agreement dated September 30, 1996 by and between Cherry Hill Associates L.P. (Landlord) and the registrant (Tenant).* - 41 - Material Contracts - Stock Plans 10.14 SDDI Second Amended and Restated 1991 Stock Option Plan, together with forms of incentive stock option agreement and non-qualified stock option agreement incorporated by reference to Exhibit 10.14 of the registrant's Form 8-K dated March 27, 1996. 10.15 SDDI Second Amended and Restated Earned Ownership Plan, together with form of non-qualified stock option agreement incorporated by reference to Exhibit 10.15 of the registrant's Form 8-K dated March 27, 1996. 10.16 Silver Diner, Inc. 1996 Non-employee Director Stock Option Plan together with form of stock option agreement incorporated by reference to Exhibit 4(a) of the registrant's Form S-8 filed December 20, 1996. 10.17 Silver Diner, Inc. 1996 Consultant Stock Option and Stock Purchase Plan together with form of stock option agreement, form of stock purchase agreement, form of election to purchase common stock and form of election to purchase options, incorporated by reference to Exhibit 4(b) of the registrant's Form S-8 filed December 20, 1996. 10.18 Certificate and Agreement of Participation, Silver Diner, Inc. Restaurant Owner Operator Program and Addenda incorporated by reference to Exhibit 4 of the registrant's Form S-8 filed February 14, 1997. 10.19 Silver Diner, Inc. Stock Option Plan together with form of Stock Option Agreement.* 10.20 Silver Diner, Inc. Employee Stock Purchase Plan together with form of Subscription Agreement and Notice of Withdrawal.* Material Contracts - Agreements with Executive Officers/Directors 10.21 Letter Agreement dated August 28, 1995, between the registrant and James David Oden regarding terms of employment, as amended by Letter Agreement dated March 26, 1996 incorporated by reference to Exhibit 10.17 of the registrant's Form 8-K dated March 27, 1996. 10.22 Letter Agreement dated December 31, 1995 between the registrant and Daniel Brannan regarding terms of employment, as amended by Letter Agreement dated March 26, 1996 incorporated by reference to Exhibit 10.18 of the registrant's Form 8-K dated March 27, 1996. 10.23 Letter Agreement dated December 4, 1996 between the registrant and Patrick Meskell regarding terms of employment, as amended by Letter Agreement dated March 26, 1996 incorporated by reference to Exhibit 10.19 of the registrant's Form 8-K dated March 27, 1996. 10.24 Founder's Employment Agreement dated August 28, 1995 by and between the registrant and Robert T. Giaimo incorporated by reference to Exhibit 10.20 of the registrant's Form 8-K dated March 27, 1996. 10.25 Assumption of Founder's Employment Agreement dated March 27, 1996 pursuant to Section 5.14(b) of merger agreement by and among FTAC, FTAC Transition Corporation and SDDI,, incorporated by reference to Exhibit 10.21 of the registrant's Form 8-K dated March 27, 1996. - 42 - 10.26 Indemnity Agreement dated August 29, 1995 by and between Robert T. Giaimo, as indemnitee, and the registrant incorporated by reference to Exhibit 10.22 of the registrant's Form 8-K dated March 27, 1996. Material Contracts - Miscellaneous 10.27 1991 Management Agreement (undated in original) between SDPMI (Owner) and SDLP (Manager) in connection with SDPMI Virginia incorporated by reference to Exhibit 10.35 of the registrant's Form 8-K dated March 27, 1996. 10.28 Option to Purchase dated January 26, 1990 between CG Beltsville Limited Partnership (Optionor), and SDLP (Optionee) regarding land parcel on which the Silver Diner Restaurant in Laurel, Maryland, is located incorporated by reference to Exhibit 10.36 of the registrant's Form 8-K dated March 27, 1996. 10.29 Amendment No. 1 to the Stock Escrow Agreement dated as of March 26, 1996 among the Registrant, George A. Naddaff, Douglas M. Suliman, Jr., Ralph J. Guarino, Charles A. Cocotas and Continental Stock Transfer & Trust Company, together with letter dated March 27, 1996 from the Registrant to Continental Stock Transfer & Trust Company incorporated by reference to Exhibit 10.37 of the registrant's Form 8-K dated March 27, 1996. 10.30 Affiliate Warrant Exchange and Custodial Agreement dated September 15, 1996, by and among George A. Naddaff, Douglas M. Suliman, Jr. and Charles A. Cocotas, as Warrant Holders, SDDI and Douglas M. Suliman, Jr., as Custodian incorporated by reference to Exhibit 10.38 of the registrant's Form 8-K dated March 27, 1996. 10.31 Escrow Agreement dated as of February 1, 1996 by and between GKN Securities Corp., certain affiliates thereof, the SDDI and Arent Fox, as Escrow Agent incorporated by reference to Exhibit 10.39 of the registrant's Form 8-K dated March 27, 1996. 10.32 Option Agreement dated March 27, 1996 by and between RGDI and SDDI granting option to SDDI for the purchase of Potomac Mills real estate parcels incorporated by reference to Exhibit 10.34 of the registrant's Form 8-K dated March 27, 1996. 21 Subsidiaries of the Registrant.* 23 Accountants Consents 23.1 Consent of Reznick Fedder & Silverman.* 23.2 Consent of Deloitte & Touche LLP.* * Filed herewith. All other exhibits have been previously filed as indicated. - 43 - EX-10 2 EXHIBIT 10.12 EXHIBIT 10.12 Exhibit 10.12 Purchase Agreement - Kendall, Florida AGREEMENT TO PURCHASE REAL PROPERTY: This Agreement to Purchase Real Property ("Agreement") is dated October 4, 1996 for reference purposes only, and is made by and between Documentation Corp. and Bersin Development Corp., each a Florida corporation, each as to an undivided 50% interest ("Seller"), and Silver Diner Development, Inc., a Virginia corporation ("Buyer"). ARTICLE 1 DEFINITIONS For purposes of this Agreement, the following terms shall have the following meanings: 1.1 Closing. The term Closing shall mean the date and event upon which title to the Property is transferred of record to Buyer. 1.2 Contemplated Use. The term "Contemplated Use" shall mean a full service restaurant consistent with the prototypical design of Buyer's restaurants, containing a minimum of 220 seats and with a liquor license allowing the sale of beer, wine and alcoholic beverages for consumption on site. 1.3 Contemplated Improvements. The term "Contemplated Improvements" shall mean a building containing not more than 8,000 square feet inclusive of any outdoor or covered patio areas for outside dining, if any, plus, in addition thereto, related screened exterior dumpster pad, walkways, landscaping, lighting and other site improvements pertaining thereto, if any; provided however, that the width (the east-west dimension) of any building constructed on the Property at any time shall not exceed 100 lineal feet. 1.4 Effective Date of this Agreement. This Agreement shall be effective on, and the term "Effective Date" shall mean, the date on which this Agreement is executed by the last designated signatory to this Agreement and a fully executed counterpart thereof, including all exhibits hereto, has been delivered to the other party. 1.5 Environmental Law. The term "Environmental Law" or "Environmental Laws" shall mean all applicable federal, state and local environmental laws, regulations, rules, ordinances, statutes, licenses, permits, orders or restrictions relating to or affecting the Property and/or the development, use or operation thereof with respect to Hazardous Materials and/or the use and control thereof. 1.6 Escrow Holder. The term "Escrow Holder" shall mean Rubin Baum Levin Constant Friedman & Bilzin, 2500 First Union Financial Center, Miami, Florida 33131. 1.7 Government Approvals. The term "Government Approvals" shall mean any and all permits, licenses, authorizations or consents of federal, state, and municipal governmental or quasi-governmental authorities, agencies, boards or offices having jurisdiction over the Property, duly issued in accordance with applicable Laws to permit Buyer to construct the Contemplated Improvements and utilize the same for the Contemplated Use, including specifically, but not limited to subdivisions approval, compliance with zoning requirements (or obtaining any necessary variances or special use permits thereto or changes therefrom), site plan approval, highway department access and curb cut approvals, satisfaction of environmental and traffic impact study requirements and building permits. 1.8 Hazardous Materials. The term "Hazardous Materials" shall mean any pollution or contaminants as defined by any applicable governmental regulatory agency, including but not limited to, hazardous or toxic substances or materials regulated under federal, state or local environmental laws, regulations, rules, ordinances, statutes, licenses, permits, or orders; asbestos; radon and polychlorinated biphenyls. 1.9 Kendall Drive Portion of the Product. The term "Kendall Drive Portion of the Project" shall mean the trapezoidal portion of the Seller's Project which borders Kendall Drive and consists of Parcels "E," "F," "G" and "H," together with the parking field associated with such parcels (but excluding the parking area located between parcels "H" and "I") all landscaping areas, roadways and drives serving such parcels, and the grass set-back area between such parking field and Kendall Drive, all as shown on the sketch attached hereto as Exhibit "C". 1.10 Laws. The term "Laws" or "Law" shall mean all local, regional, municipal, county, state, and federal statutes, regulations, ordinances, orders, judgments, codes, rules or other laws applicable to or affecting the ownership, operation or use of the Property or any portion thereof (including, without limitation, health, safety, building, fire safety, liquor, subdivision, environmental, and zoning laws). 1.11 Permitted Exceptions. The term "Permitted Exceptions" shall mean the exceptions to title determined pursuant to paragraph 3.2. 1.12 Property. The term "Property" shall mean that certain real property located (i) east of the northeast corner of the intersection of North Kendall Drive and S.W. 124th Avenue in the unincorporated County of Dade, State of Florida, as depicted in Exhibit A attached hereto and identified as Parcel F on the Site Plan, as hereinafter defined, which Property shall be not less than 150 feet by 150 feet in size; (ii) all improvements and structures located on the land; (iii) all easements, hereditaments and appurtenances in favor of or benefitting the land or improvements, or any portion thereof, including all rights, title and interest in -2- and to all streets abutting or serving the land or any portion thereof; and (iv) any items of tangible and intangible personal property, located on and/or attached to, used in connection with, or arising in connection with, the ownership, operation, maintenance and management of said land and improvements. 1.13 REA. The term "REA" shall mean the Reciprocal Easement Agreement between the owner of Seller's Project and other tenants and occupants of Seller's Project granting easements over the common roadway areas and utility lines of Seller's Project including the Property and governing and restricting the use of Seller's Project, as more particularly described in paragraph 2.4. 1.14 Seller's Project. The term "Seller's Project" shall mean the overall mixed use parcel shown on Exhibit "B", of which the Property is a part, and depicted in bold on the site plan attached as Exhibit B to the REA (the "Site Plan"). ARTICLE 2 TERMS OF PURCHASE 2.1 Agreement to Purchase and Sell. Buyer agrees to purchase the Property from Seller, and Seller agrees to sell the Property to Buyer, upon the terms and conditions contained in this Agreement. 2.2 Purchase Price. The purchase price for the Property shall be $1,350,000.00 (the "Purchase Price"). 2.3 Terms of Payment. The Purchase Price shall be paid by Buyer to Seller as follows: (a) Deposit. Contemporaneously with the execution of this Agreement by Buyer, Buyer will deposit with Escrow Holder as earnest money deposit (the "Deposit") clear funds in the amount of $150,000. The Deposit shall be held in an interest bearing repurchase agreement or similar account under Buyer's Federal Identification Number which is 54-1439417, and disbursed as herein provided. If this Agreement is terminated for any reason other than Buyer's default in its obligations under this Agreement, then the Deposit, and any interest thereon, shall be returned to Buyer. Upon Closing the Deposit shall be disbursed to Seller and all interest thereon shall be paid to Buyer. (b) Balance of Purchase Price. The balance of the Purchase Price shall be paid to the order of Seller in clear funds as follows: (i) the sum of $1,175,000 shall be payable at Closing; and (ii) the sum of $25,000 shall be payable upon Seller's obtaining (and providing evidence thereof to Buyer) all required Governmental Approvals to permit a minimum of forty (40) additional parking spaces to be constructed in the grass set-back -3- area currently existing in the front portion of the Kendall Drive Portion of the Project, as same may be expanded to include land currently dedicated for right of way, if applicable, such that there shall be a net increase of forty (40) parking spaces within the Kendall Drive Portion of the Project (including those in the grass set-back area, as same may be expanded as aforesaid) above the minimum otherwise required by Section 3.9 hereof. If the condition set forth in this subparagraph (ii) has been met as of the Closing, then the sums required to be paid hereunder shall be due at Closing. If such condition is not satisfied on or before December 31, 1998, then Buyer shall be relieved of its obligation for the payment related to this condition. This obligation shall survive Closing and be the joint and several obligation of Buyer named herein and any assignee notwithstanding any assignment of Buyer's rights hereunder. 2.4 Reciprocal Easement Agreement. Attached hereto as Exhibit "E" is the form of the REA. The REA, subject to such changes as Seller may require (whether to satisfy governmental requirements or otherwise), which changes shall be subject to Buyer's prior written consent which shall not be unreasonably withheld (Buyer hereby consents to the inclusion in the REA, at the sole and absolute option of Seller, of the restriction contemplated in Section 8(c) of the Buyer's Supplemental Declaration attached hereto and made a part hereof as Exhibit "H"), shall, as a condition to Closing, be executed by all necessary parties at or prior to Closing and shall be recorded in the public records promptly thereafter. Additionally, Seller agrees that the unilateral right of Seller to shift the north-south accessway in the middle of the parking area in the event a direct entrance into the Center is permitted from Kendall Drive, as contemplated in paragraph 2(a) and (c) of the REA, shall be conditioned upon Seller's developing the Center in accordance with the alternative site plan attached hereto as Exhibit "F," as same may be changed with Buyer's consent, not unreasonably withheld (the "Alternative Site Plan"). Further, Seller agrees that if such direct entrance from Rendall Drive is to be constructed and same is not constructed (and completed) prior to the date Buyer completes construction of its building and opens for business with the public (the "Opening Date"), then, commencement of the construction of such entrance shall not occur until after six (6) months from the Opening Date. Seller agrees that it will not commence such construction activities prior to the Opening Date unless it has in good faith determined that the construction of the entrance will be completed before the Opening Date, as same may be reasonably projected by Buyer, and the contract relating to the construction of such entrance requires that same be completed prior to the Buyer's projected Opening Date. Seller shall give Buyer not less than thirty (30) days' advance notice of the date on which construction of the entrance is expected to commence. ARTICLE 3 CONDITIONS TO BUYER'S OBLIGATION TO CLOSE -4- 3.1 In General. All of Buyer's obligations pursuant to this Agreement are expressly conditioned upon the satisfaction or waiver by Buyer of each of the conditions precedent set forth in this Article 3, and if any are not so satisfied or waived by Buyer on or before the date of Closing (or by the date specified therein, if longer or shorter), this Agreement shall be deemed terminated and Buyer shall receive the return of the Deposit. 3.2 Approval of Title. Within forty-five (45) days following the Effective Date, Seller shall cause a proforma title commitment written on Commonwealth Land Title Insurance Company to be delivered to Buyer (the "Title Report") together with hard copies of all items shown as conditions or exceptions thereto, and, which Title Report shall commit to insure, at Closing, Buyer's title to the Property in fee simple and Buyer's rights in and to the easements created by the REA, subject only to the Permitted Exceptions. Seller hereby advises Buyer that the matters included on Exhibit "D" attached hereto (the "Title Schedule") will likely be reflected in the Title Report as exceptions and those matters may not be objected to by Buyer and shall be deemed Permitted Exceptions. Buyer shall have the right to review Seller's title to the Property and to object to any exception to title (other than those reflected on the Title Schedule) that renders title unmarketable or unusable for Buyer's Contemplated Use and (a) is reflected in the Title Report and disclosed to Seller by Buyer within ten (10) days after its receipt of the Title Report or (b) is otherwise disclosed to Seller by Buyer within ten (10) days after Buyer's first discovering same. If Buyer timely objects to an exception to title, then on or before the earlier of the tenth (10th) day following Buyer's notice of exception or the date for Closing, but in no event prior to October 31, 1996, Seller shall agree to remove the exception by Closing or notify Buyer that it is unwilling or unable to remove the exception prior to Closing. Within ten (10) business days following Buyer's receipt of Seller's notice that it is unable or unwilling to remove an exception to title, Buyer may elect to either (i) terminate this Agreement, whereupon the Deposit shall be returned to Buyer, or (ii) continue this Agreement in effect, in which event Buyer will be deemed to have approved the previously disapproved exception. Seller's failure to provide written notice that it is unwilling or unable to remove an exception within the time allowed for delivery of such notice shall be deemed to evidence the willingness and ability of Seller to remove the exception prior to Closing. All additional exceptions to title created or discovered by Buyer subsequent to delivery of the Title Report to Buyer shall be subject to the ten-day time frames for notice of disapproval by Buyer and removal by Seller as set forth above. All exceptions to title to the Property which do not render title unmarketable or unusable for Buyer's Contemplated Use which either are disclosed by the Title Report or are subsequently discovered by Buyer and, in either such case, to which Buyer does not timely object are referred to herein as the "Permitted Exceptions." Notwithstanding the foregoing, Buyer hereby objects to, and the term "Permitted Exceptions" shall not include, (i) any lien for payment of delinquent real property -5- taxes, (ii) any item listed as a condition under Schedule B-I of the Title Report (excluding items to be satisfied by Buyer such as payment or the providing of evidence of its corporate status and/or authority), or any "standard exceptions" reflected on the Title Report or Owners Title Policy described in paragraph 5.1, and (ii) any deed of trust, mortgage, UCC financing statement, mechanic's lien, judgment lien or other lien encumbering the Property. Seller shall convey good and marketable title in fee simple to the Property to Buyer at the Closing, subject only to the Permitted Exceptions. Buyer acknowledges being advised that the Property and adjacent lands are encumbered by financing presently held by General Motors Acceptance Corporation ("GMAC"). It is a condition to the obligation to close of Buyer under this Agreement that GMAC will have released its existing financing as it affects the Property prior to or concurrently with the Closing and that GMAC will have subordinated concurrently with the Closing the lien and effects of its' financing to the easements to be granted in the REA, and Seller's inability to do so regardless of the reason therefor, shall be subject to the provisions set forth in Section 6.11(i), below. Buyer acknowledges being advised of the Declaration of Restrictive Covenants, item 3 of the Title Schedule (the "Declaration"), which was imposed for the benefit of Kendall Federation of Homeowner Associations, Inc. ("KFHA") and ties development of the Seller's Project, including the Property, and other lands, to an approved site plan and sets forth limitations on the use and development of the Property, Seller's Project and other lands. Paragraph 4 of the Declaration described in item 3 of the Title Schedule requires the provision of a community meeting area as more particularly provided therein. Notwithstanding the fact that the Declaration is a Permitted Exception that cannot be objected to as a title defect by Buyer, it is a condition to Buyer's obligation to close that Seller shall have been successful in obtaining from KFHA (i) a modification of the afore referenced paragraph of the Declaration to provide that same is inapplicable to the Property; (ii) approval of a revised site plan consistent with Exhibit B or F, as applicable (provided that Seller can, in its absolute and sole discretion, make such changes to the Site Plan or Alternative Site Plan that are wholly outside the boundaries of Seller's Project so long as no such changes violate any exclusive or restrictive covenant set forth for the benefit of Buyer in the REA, Buyer's Supplemental Declaration or Exhibit "G", described below); and (iii) an executed modification of the Declaration (which shall, as a condition to Closing, also be executed by Seller) and (unless a substantial compliance determination letter is received from Dade County) an amendment executed by Dade County and Seller, amending Items No. 2 and 3 of the Title Schedule to reflect the foregoing, which modification(s) shall specifically provide that same supersedes any conflicting provisions of such Items 2 and 3 of the Title Schedule. Buyer agrees that any required or desired communications with KFHA, pursuant to the Declaration or otherwise, both before and after -6- Closing, shall be coordinated through Seller. Seller's inability, regardless of the reasons therefor, to obtain the consents and/or amendments required by this paragraph shall be subject to the provisions set forth in Section 6.11(i), below. The parties agree that, although the Declaration of Restrictions disclosed at item 4 of the Title Schedule burdens the Property, Buyer shall have no liability for the monetary school donation contemplated by paragraph 3 thereof and Seller shall timely pay or cause to be paid the full amount thereof in a manner that will not delay Buyer's obtaining of its building permit or certificate of completion for its Contemplated Improvements. Accordingly, Seller or its designee shall be entitled to any impact fee credit contemplated by paragraph 10 thereof. Seller shall indemnify, defend (with counsel reasonably acceptable to Buyer) and hold Buyer harmless from any and all liabilities, claims, demands, attorneys' fees, costs, and expenses arising from Seller's failure to timely pay the full amount of the monetary school donation and this obligation shall survive Closing. If any portion of the Property is located within that portion of vacated Southwest 123rd Avenue that is included within Seller's Project, it is a condition to Buyer's obligation to close that Seller shall have obtained confirmation in writing from Florida Power and Light Company and BellSouth that arrangements have been made for relocation of their existing facilities within such vacated right-of-way to another location off of the Property. Such relocation shall be accomplished as part of Seller's work under Section 3.8 below. The rights of Florida Power and Light Company and BellSouth to retain their existing facilities in vacated Southwest 123rd Avenue and to utilize same until the contemplated relocation is completed shall be a Permitted Exception. 3.3 Books and Records. Within five (5) days following the Effective Date, Seller shall deliver to Buyer true and correct copies of pertinent records and other documents then in Seller's possession or under Seller's control relating to the Property, Seller's Project (excluding leases or sales agreements) and its ownership and operation which are requested by Buyer, to the extent not previously delivered. Such documents shall include, but shall not be limited to, commission agreements, easements, service contracts, management contracts, utility statements, tax bills, plans and specifications for the Property and common areas of Seller's Project, and improvements on the Property, surveys, environmental studies and reports, soil and water tests, engineering studies, and any other test results or reports in Seller's possession or under Seller's control. 3.4 Survey. At least ten (10) days prior to Closing, Seller at its sole expense shall deliver to Buyer a survey of the Property, prepared by a certified or registered surveyor acceptable to Buyer (Makowski & Wright, Inc. is hereby approved) together with a certification to Buyer and the title insurance company indicating the following information: -7- (a) Boundary lines and legal description of the Property; (b) The area of land in the Property expressed in square feet [or acres]; (c) The location of all physical encroachments, if any, by and upon the Property; (d) The locations of all easements, encumbrances, and title exceptions which can be shown and depicted on a survey map, and the recording information of such easements, encumbrances and exceptions; and (e) The location of all structures and abutting streets with respect to the Property. Buyer shall have 5 days from receipt of the survey to object to any matters that preclude or adversely restrict or limit Buyer's ability to use the Property for the Contemplated Use. Any timely raised survey objection(s) shall be dealt with in the same manner as timely raised title defects. Any survey matters that are not timely objected to shall be deemed Permitted Exceptions. 3.5 Hazardous Materials. The Property shall be free from any Hazardous Materials at the Closing. This condition shall be deemed satisfied unless Buyer delivers to Seller, at least 15 days prior to Closing, an environmental audit that discloses the presence of Hazardous Materials affecting the Property. 3.6 Utilities. At the Closing, the Property shall have available (subject to extension from the perimeter of the Seller's Project to the Property as contemplated below), permissible of connection, public water supply and sewage disposal systems having sufficient capacity to serve the Contemplated Improvements and the use of the Property for the Contemplated Use, and public utilities providing sufficient electrical, gas, domestic and sprinkler water, and sanitary sewer for the Contemplated Improvements and the use of the Property for the Contemplated Use. Seller shall pay for all costs associated with the connection of such utilities, subject only to the contribution by Buyer of $150,000.00 as provided in Section 3.8 below and subject to the third paragraph of Section 3.8 below. If necessary, Seller shall grant easements over Seller's Project and/or other adjoining lands owned by Seller or its affiliates and abutting Seller's Project, to serve the Property. Buyer and the Property shall have the benefit of the easements granted in the REA. 3.7 Governmental Approvals. At the Closing, Buyer shall have obtained all Governmental Approvals which permit the construction of the Contemplated Improvements and the use of the Property for the Contemplated Use. Buyer shall diligently, continuously and in good faith pursue obtaining such Governmental Approvals, including hiring G. Wright & Associates to process and expedite obtaining -8- Governmental Approvals. Seller shall cooperate with Buyer and provide Buyer with all information reasonably necessary for Buyer to complete the application process for the Governmental Approvals, including without limitation, a utility plan for the Property. Buyer shall deliver to Seller and the Governmental Authorities within 45 days after the Effective Date, subject to extension by reason of force majeure, working drawings for a prototypical Silver Diner restaurant that are ready in all respects for submission for permitting; provided, however, that Purchaser shall not be in default of this Agreement by virtue of its failure to meet such 45- day time frame, provided that it meets its obligations under this Section within seventy-five (75) days (without giving effect to force majeure) and shall pay to Seller, within ten (10) days of demand, the sum of $369.86 per diem for each day beyond said 45-day period that Buyer has failed to deliver the working drawings as contemplated by the foregoing. Buyer shall diligently, continuously and in good faith, subject to extension by reason of force majeure, make and deliver such revisions to the working drawings as may be required for permitting. 3.8 Site Improvements. Seller is responsible to complete, at Seller's expense but subject to Buyer's obligation to contribute as hereinafter described, the off-site and on-site development work specified below within 120 days after Closing, subject to extension by reason of force majeure. Seller shall install all roadways depicted by the diagonal lines on Exhibit C of the REA and complete all roadwork required, if any, to complete S.W. 124th Avenue lying west of Seller's Project, and shall complete all necessary utility work and site work within the Seller's Project and/or off-site therefrom, as necessary to allow the Property to be usable by Buyer for the Contemplated Use upon completion of Buyer's construction of its Contemplated Improvements, which site work shall include, but not be limited to, land clearing, water, sewer, paving, drainage, striping, site lighting and landscaping, and the burial of all FP&L lines or Southern Bell lines as necessary to satisfy all requirements (as imposed by governmental entities or the applicable utility company) applicable to the site improvement work for Seller's Project. Seller shall also be responsible to deliver, at the Closing and as a condition thereto, a rough graded building pad to within 1/10 of a foot of final grade with ninety percent (90%) compaction sufficient to support Buyer's prototype building, and Seller shall further be responsible to bring all stubbed utilities to the Property within five (5) feet inside the building pad at points to be determined by Seller within sixty (60) days after Closing, each subject to extension by reasons of force majeure. Seller shall further complete the grading of the entire Seller's Project within one hundred and twenty (120) days after the Closing (being at the same time as all other on and off-site development work is required to be completed)subject to extension by reason of force majeure. As a condition to Buyer's obligation to close, Seller shall furnish at or prior to Closing a construction contract for the afore stated site development work that requires completion within the time frame set forth herein and a payment and performance bond securing such obligation, as well as provide -9- reasonable evidence to Buyer of the availability of funds (through such combinations of Seller's equity, occupant contributions and/or financing, as applicable) required to perform the above-described on-site and off-site development work. Seller agrees to use good faith efforts to perform or caused to be performed the above referenced site work in a manner that will not prevent or unduly interfere with Buyer's construction of its Contemplated Improvements in a continuous and uninterrupted manner following the Closing. If Buyer has (i) completed construction of its Contemplated Improvements in a manner that would permit it to obtain its certificate of completion therefor, but, is unable to obtain same, or (ii) is unable to proceed with the next stages of the construction of its building, in either event solely as a direct result of Seller's failure to perform any of its obligations hereunder, including its obligation to complete the site work or portions thereof as aforestated, then, in such event, Buyer may, following five (5) days' advance written notice to Seller specifying the nature of Seller's failure which is preventing Buyer from obtaining its certificate of completion or proceeding with the next stage of its construction, and provided Seller fails to cure such condition within such five (5) day period, subject to extension by reason of force majeure, perform such site work or comply with such obligation of Seller and the Escrow Holder shall pay the amount of the reasonable costs thereof to Buyer from the escrow established by Buyer pursuant to this Section. Additionally, Seller shall be obligated to pay Buyer, and Buyer shall likewise be paid said sums from the escrow funds held for disbursement pursuant to Section 3.8(b) below by the Escrow Holder, a penalty of $1,000 per day for each day that Buyer is delayed in (i) obtaining its certificate of completion for its Contemplated Improvements or (ii) proceeding with the next stages of the construction of its building, in each case solely as a direct result of the failure of Seller to perform its obligations hereunder or complete its site work, or portions thereof, as aforestated. Buyer shall be required to pay all impact fees (including, without limitation, traffic impact fees, if any) and water and sewer connection charges attributable to its development or use of the Property. In addition to the purchase price, and the costs otherwise payable by Buyer pursuant to this Agreement, Buyer shall contribute the sum of $150,000.00 toward the construction of the site work, infrastructure and parking improvements to be completed by Seller as described above, to be deposited in clear funds with Seller's attorney at the Closing, with interest added to principal and disbursement to be made as follows: (a) the sum of $100,000 shall be disbursed by the Escrow Holder to pay for site work improvements proportionately and to the extent that said improvements are completed and in place as certified in writing by Seller's architect to Escrow Holder and Buyer (e.g. if the total project cost is $500,000 and Seller's architect certifies that the site work improvements are completed to a sufficient extent so as to entitle the contractor to $100,000 -10- (20% complete) and no monies had been previously disbursed from the escrow, $20,000 may then be disbursed by Escrow Holder); provided that no mechanic's liens are then filed against the Property or the easement area of Seller's Project related to Seller's work, and if any such liens are then filed the payment due hereunder shall, if sufficient for such purpose, be used to pay or bond such liens as determined by Seller, and if insufficient, shall be held and disbursed by Escrow Holder as appropriate to protect the Property from the effect of such liens; and (b) the sum of $50,000 plus interest accrued on the escrow funds shall be disbursed by the Escrow Holder within five (5) days of the later of the date that: (i) Seller completes all of its on-site and off-site development work, as certified in writing by Seller's architect, receives the final Governmental Approvals in connection therewith, and copies of such certification and approvals are provided Escrow Holder and Buyer; or (ii) any of the buildings constructed on Parcels E, F, G or H in the Seller's Project receives its final certificate of completion such that there are then no governmental impediments to the occupant's ability to open its premises for business to the general public and a copy thereof is provided to Escrow Holder and Buyer; provided that no mechanic's liens are then filed against the Property or the easement area of Seller's Project related to Seller's work, and if any such liens are then filed the payment due hereunder shall, if sufficient for such purpose, be used to pay or bond such liens as determined by Seller, and if insufficient, shall be held and disbursed by Escrow Holder as appropriate to protect the Property from the effect of such liens. Notwithstanding the provisions of Sections (a) and (b) hereof requiring copies of the architect's certification to be given to Buyer, Buyer agrees that Seller will not be in default if, notwithstanding Seller's request of the architect to do so, the architect fails to send copies of such notices to Buyer. Seller shall from time to time until its work under this Section 3.8 is completed designate reasonable means for construction access and reasonable construction staging areas for Buyer's use in connection with initial construction of the Contemplated Improvements, which access shall be continuously afforded Buyer from and after the Closing. Buyer shall use only such designated areas for such purposes and each party shall take reasonable steps to minimize interference with, disruption of and delay in the other party's work. The provisions of Section 3.8 shall survive Closing. 3.9 The Site Plan. Seller shall have obtained all Governmental Approvals required to allow the Property to be developed in a manner consistent with the Site Plan, with Buyer's Contemplated Improvements and the improvements to be constructed on Parcels E, G and H to be located as reflected thereon. Additionally, and notwithstanding any changes to the configuration of the parking area that may be permitted by the REA, there shall -11- be a minimum of 360 parking spaces (subject to the effects of any future condemnation) within the Kendall Drive Portion of the Project (excluding the spaces located between parcels "H" and "I"), and excluding any additional parking spaces authorized to be built in the grass set-back area described in paragraph 2.3(b)(ii) above. Further, Seller shall, on or before Closing, record a declaration of restrictions substantially in form of Exhibit "G". Seller agrees that should any contract to sell or lease any of parcels affected by the foregoing be executed prior to the Closing, then, Seller shall, as a condition to entry thereof and prior thereto, record or reserve the right to subsequently record and render fully enforceable the declaration imposing such restrictions on the applicable property. 3.10 Sale or Lease of Parcels "E," "G" and "H." The Seller shall have entered into binding contracts to sell or lease two (2) of the three (3) parcels shown on the Site Plan (or Alternative Site Plan, as applicable), as Parcels E, G and H, and, if a sale, either the requisite number of transactions shall have closed and the parcels shall have been conveyed to the purchasers thereof, or such transactions shall be required to close pursuant to the terms of the contracts applicable thereto within thirty (30) days following the date of Closing hereunder, and Seller believes, in good faith, that all conditions precedent thereto, if any, will be satisfied within such time frame as will allow the closings thereof to occur within said thirty (30) day period, and if leases, either the leases shall have become fully effective and enforceable and rent (or a free rent period if applicable) shall have commenced, or any pre-construction conditions shall have been satisfied such that the landlord or tenant thereunder may, subject only to obtaining permits, commence construction of the leased premises. ARTICLE 4 SELLER'S COVENANTS AND REPRESENTATIONS 4.1 Preservation of the Property. At all times prior to the Closing, Seller, at its sole expense, shall: (a) Maintain the Property in the same condition existing on the Effective Date, normal wear and tear and the site work contemplated by this Agreement excepted; (b) Not enter into any, sales or other contract, lease or rental agreement affecting the Property without Buyer's prior written approval; (c) Not further encumber the Property or assist or participate in the placement of any encumbrance, lien or other claim which may affect title to the Property or easement areas of Seller's Project and which cannot be released (or appropriately subordinated to Buyer's easement rights if affecting only the easement areas) at Closing; -12- (d) Not enter into any management or service contract affecting the Property or its operation which cannot be terminated or released at Closing without Buyer's prior approval; and (e) Observe and perform all obligations on Seller's part to be performed under the terms of any agreement affecting the Property. 4.2 Cooperation with Buyer. Seller and Buyer shall cooperate with each other, provide documents and timely and in good faith execute applications, forms, instruments and other documents required to obtain any Governmental Approvals or other authorizations enabling Buyer to proceed fully with its development plans of the Contemplated Improvements and Contemplated Use of the Property and to transfer the benefit of all such permits, licenses and certificates issued to Seller to Buyer. Seller shall allow Buyer and its authorized representatives and agents access to the Property to make tests, surveys, or other studies of the Property, provided that Buyer pays for all such tests and studies, keeps the Property free and clear of any liens, repairs all damage to the Property, and indemnifies and holds Seller harmless from and against all liability, claims, demands, damages, or costs (including reasonable attorneys' fees at all tribunal levels) specifically related to performing such tests, surveys, or studies. This paragraph shall survive Closing. 4.3 Seller's Representations. As of the Effective Date and as of the Closing, Seller states, warrants and represents as follows: (a) Valid Formation. Each of the entities comprising, Seller is a corporation duly organized and validly existing and qualified to do business under the laws of the State of Florida. Seller has the full power, capacity, authority and legal right to execute and deliver this Agreement and to perform its obligations hereunder (including, without limitation, the conveyance of the Property to Buyer). This provision shall survive Closing. (b) Due Execution. This Agreement and all other docu ments executed and delivered by Seller shall constitute the legal, valid and binding obligations of the Seller in accordance with the terms of each instrument. This Agreement and all other instruments delivered to Buyer: (i) have been duly authorized by all necessary action on the part of Seller's partners or officers and directors, (ii) have received all required governmental approvals, (iii) do not violate any law, (iv) do not conflict with or constitute a default under any indenture, agreement or other instrument to which Seller is a party or by which Seller, any partners or officers or directors of Seller, or the Property may be bound, and (v) are not threatened with invalidity or enforceability by any action, pro ceeding or investigation pending or threatened by or against Seller, any partner or officer or director of Seller, or the Property. This provision shall survive Closing. -13- (c) Title. Seller has good and marketable fee title to the Property, free and clear of all liens, claims, encumbrances, easements or rights of way, covenants, conditions, restrictions and limitations, other than the Permitted Exceptions. (d) Claims. Seller has no knowledge of any pending or threatened (in writing) condemnation or special assessments against the Property (other than a street lighting special assessment district, which the Property will be included in and be bound by, and the papers creating said district shall be a Permitted Exception and Buyer shall, if requested, join in same), any lawsuits which will affect the Property, nor any other claim, action, suit or proceeding at law or in equity, by or before any administrative or governmental authority affecting Seller or the Property. (e) No Violation of Law. To Seller's knowledge, the Property does not violate any Law and Seller has not received any notice of any claimed violation of any Law from any administrative or governmental authority or board of fire insurance underwriters. Seller is not aware of any legal restriction which would interfere with Buyer's proposed construction of the Contemplated Improvements or use of the Property for the Contemplated Use. (f) Mechanics' Liens. No alteration, repair, improvement or other work has been performed on the Property, for which payment has not been, or will not be, made when due and in all events prior to delinquency in the ordinary course. At Closing no such sum due shall prevent the title company from deleting the exception for unrecorded liens and no liens shall be recorded against the Property or Seller shall pay same, or transfer same to bond or other acceptable security, prior to or at Closing. Seller shall likewise not permit any lien to be placed on any other area of Seller's Project which would have the effect of restricting Buyer's ability to freely use all easement areas thereof. (g) Documents. All documents, information and other records with respect to the Property, which Seller has or will give to Buyer in connection with this Agreement, will be complete and correct in all material respects and will accurately represent the condition of the Property, and its ownership, operations and management, as of the date and for the period identified in the document. (h) Contracts. There are no contracts or other agree ments for occupancy of the Property or the payment of leasing commissions, the rendering of management or other services with respect to the Property, or the construction of improvements on the Property, nor are there any other contracts or agreements by which Buyer would become obligated or liable to any person or entity, other than the Permitted Exceptions. (i) Access. The rights of way for all roads necessary for the full utilization of the Property have been acquired or -14- dedicated to public use by the appropriate governmental authorities or easements will be in effect therefor pursuant to the REA. (j) Material Defects. Seller has no knowledge, either actual or constructive, of any material defect in the Property which would prevent the construction of the Contemplated Improvements or the use of the Property for the Contemplated Use. (k) Zoning. Seller warrants that at the present time and as of the Closing the Property is and will be zoned to permit the Contemplated Use under the laws of Dade County. (l) Subdivision Map Act. Seller warrants that once platting as contemplated by this Agreement is completed, the Property will comply with all applicable subdivision requirements and no further subdivision map, parcel map, or division of land is or will be required to validly transfer the Property to Buyer. (m) Insolvency. Seller has not (i) made a general assignment for the benefit of creditors, (ii) filed any involuntary petition in bankruptcy or suffered the filing of any involuntary petition by Seller's creditors, (iii) suffered the appointment of a receiver to take possession of all or substantially all of Seller's assets, (iv) suffered the attachment or other judicial seizure of all, or substantially all, of Seller's assets, (v) admitted in writing its inability to pay its debts as they come due, or (vi) made an offer of settlement, extension or composition to its creditors generally. (n) Hazardous Materials. To Seller's knowledge there are not now and never have been any underground storage tanks or Hazardous Materials present in, on or under the Property or adjoining property, and there are not now, and were no prior uses of the Property or adjoining area which would create or release any Hazardous Materials upon or from the Property. Seller shall notify Buyer of any changes in any of the foregoing matters that occur between the Effective Date and Closing. Seller shall endeavor to remedy any material changes in the foregoing matters, except where such remediation would require litigation or the expenditure of more than $5,000.00 by Seller in the aggregate. Notwithstanding the foregoing, in the event any such changes materially adversely affect Buyer and were not the result of Seller's willful act or misconduct, and Seller is unable or unwilling to remedy such matters to Buyer's reasonable satisfaction within the afore stated limitations, Buyer may, as its sole and exclusive remedy unless such change results from actions of GMAC, KFHA, any utility company or any applicable governing authority, in which case Section 6.11(i) will be applicable, terminate this Agreement by written notice to Seller and receive the return of its Deposit forthwith. If any of the representations were materially untrue on the Effective Date hereof, or become materially untrue as a result of Seller's willful act or misconduct and in either event Seller fails to remedy same, then Buyer may terminate this -15- Agreement by written notice to Seller and receive the return of its Deposit without waiving Buyer's rights to compensation pursuant to Section 6.11, below. ARTICLE 5 CLOSING 5.1 Title. Seller shall (i) convey to Buyer fee title to the Property at Closing by delivery of a Special Warranty Deed, free and clear of all liens, encumbrances and exceptions other than the Permitted Exceptions, and free of all tenants or other occupants, and (ii) cause to be issued an American Land Title Association Owner's Policy -- Form B (or a marked up Commitment therefor) from Commonwealth Land Title Insurance Company with coverage in the amount of the Purchase Price, showing title to the Property vested in Buyer in fee simple and insuring Buyer's interest in all of the easements provided in the REA, subject only to the Permitted Exceptions, and without any "standard exceptions" or exceptions for the "gap" period. The policy shall be issued by Seller's attorneys. 5.2 Timing. Provided all conditions to Closing have been satisfied or waived by Buyer, Closing shall occur within twenty (20) days after the Buyer has received all Governmental Approvals and permits for construction of the Contemplated Improvements on the Property and use of same for the Contemplated Use; provided, however, that Seller may terminate this Agreement if Closing has not occurred by February 28, 1997 (not subject to extension by reason of force majeure), unless the reason the Closing has not then occurred is due to the fact that one or more of the conditions to Closing (exclusive of the condition set forth in Section 3.7 unless the reason for Buyer's failure to satisfy such condition can be clearly shown to be as a result of Seller's failure to perform any of its obligations hereunder) have not been fully satisfied or waived, in which event the outside date for Closing shall be deemed extended for up to ninety (90) days and thereafter may be, if such unsatisfied condition as is under Seller's control has still not been satisfied, extended by Buyer or Seller for one additional up to ninety (90) day period. If neither party elects to extend the Closing for the second up to ninety (90) day period, this Agreement shall then be terminated and the Deposit refunded to Buyer without waiving Buyer's rights to compensation, if and as applicable pursuant to Section 6.11, below. If the Closing has not occurred by the expiration of the second up to ninety (90) day extension period, if applicable, then either party may terminate this Agreement and the Deposit will be refunded to Buyer. Notwithstanding the foregoing, if after February 28, 1997 all conditions to Closing have occurred other than Buyer's having satisfied the condition precedent set forth in Section 3.7 above (for reasons other than Seller's failure to satisfy any of its obligations), then, if Seller elects to terminate this Agreement as permitted herein, Buyer may negate Seller's election to terminate this Agreement if, by written notice to Seller given within five (5) business days of receipt of notice from Seller terminating this -16- Agreement, Buyer waives such condition to Closing and the Closing of this transaction occurs within fifteen (15) days thereafter. 5.3 Prorations and Closing Costs. (a) Taxes. Buyer acknowledges being advised that the Property and other land are included as one tax parcel. Accordingly, an equitable allocation of taxes and special or other assessments between the Property and the remainder of the lands included in the tax parcel shall be made (taking into consideration the assessment amounts per acre, relative acreages, and similar factors) at the Closing. Ad valorem real estate taxes levied against the Property for the year in which this transaction is closed shall be prorated as of the date of the Closing, utilizing the maximum allowable discount, based upon the millage rate and tax assessment of the Property for the current year, if known, or for the prior year if the figures for the current year are not known. In the later event, either party may require that the taxes be reprorated based on the actual taxes due, utilizing maximum allowable discount, when known. Buyer shall accept title to the Property subject to non-delinquent taxes for the current year, but subject to the afore stated proration and Seller's obligation. (b) Assessments. All assessments (to the extent due or payable at or prior to Closing) and encumbrances affecting the Property shall be paid by Seller on or before the Closing. (c) Operating Expenses. All utility, maintenance, service and operating expenses paid by Seller, and applicable to services to be performed or materials to be provided to the Pro perty after the Closing, shall be prorated between the parties to the date of the Closing. (d) Closing Costs. City, county and state real property conveyance taxes, document taxes, surtax and transfer fees shall be paid by the Seller. Recording fees and the minimum promulgated risk rate title insurance premium shall be paid by the Buyer. 5.4 Possession. At the Closing, possession of the Property shall be delivered to Buyer, free of all tenancies. 5.5 Risk of Loss. At all times prior to the Closing, the risk of loss of the Property shall be with Seller. If prior to the Closing any condemnation proceeding is commenced affecting the Pro perty or access to the Property, then Seller shall immediately notify Buyer of such event. Upon receipt of such notice, Buyer shall elect by written notification to Seller within ten (10) days thereafter to either: (i) terminate this Agreement, whereupon all monies deposited by Buyer shall be returned to Buyer and the parties shall have no further rights or obligations with respect to this Agreement; or (ii) permit the Closing, in accordance with this Agreement (which shall be deemed to have been elected if timely notice has not been furnished by Buyer), whereupon Seller shall -17- assign and deliver to Buyer all condemnation awards payable as a result of the condemnation. 5.6 Documents at Closing. (a) Seller's Requirements. At the Closing, Seller shall deliver to Buyer the following: (1) A special warranty deed duly executed in recordable form with all necessary federal, state, and local tax stamps and surtax affixed at Seller's expense conveying the Property to Buyer; (2) The REA fully executed by all parties with any interest in Seller's Project and containing all restrictions required hereby, if same has not theretofore been recorded; (3) The fully executed Supplemental Declaration relating to the Property; (4) An affidavit or certificate for the purpose of establishing that Seller is not a foreign person and has no foreign affiliations which would require withholding under Section 1445 of the Internal Revenue Code or any other Laws; (5) Such documents as may be required by the title company to (i) satisfy all of Seller's Section B-I requirements set forth in the Title Report, (ii) delete all standard exceptions for mechanic's liens, matters of survey and parties in possession and (iii) insure the "gap"; and (6) The Owner's Title Insurance Policy or "marked up commitment" in the form as required hereby. (b) Buyer's Requirements. At the Closing, Buyer shall deliver Clear funds in an amount sufficient to satisfy Buyer's Closing obligations under this Agreement. (c) At Closing, each party shall deliver such other items as may be provided for herein or as may reasonably be requested by the other in furtherance hereof. ARTICLE 6 GENERAL PROVISIONS 6.1 Brokerage Commissions. Seller shall pay the total broker's commission payable to Prime Sites, Inc. and Kendallgate Properties, Inc. (which latter entity is affiliated with Seller and is the agent solely of Seller) pursuant to separate agreement(s). Buyer and Seller hereby represent and warrant to the other that they have not taken any action which would create any other obligation for broker's commissions or finder's fees to be payable with regard to this transaction other than as aforesaid. Buyer and Seller each agree to indemnify and hold the other harmless from and -18- against all liability, claims, demands, damages, or costs (including reasonable attorneys' fees at all tribunal levels) of any kind arising from or connected with any broker's commission or finder's fee or other charge claimed to be due any person arising from the indemnifying party's conduct with respect to this transaction (which indemnity from Buyer is acknowledged to specifically include any commission or claim therefor asserted by Florida Shopping Center Group, Inc.), other than the commissions authorized in this paragraph. This provision shall survive Closing. 6.2 Notices. Any notice required or permitted to be given with respect to the subject matter of this Agreement shall be in writing and shall be deemed properly delivered, given or served (i) when personally served or when such personal service is refused (including delivery by an overnight courier), or (ii) on the date shown for delivery or rejection on a return receipt, if the notice is deposited in the U.S. mail, certified or registered, return receipt requested, postage prepaid, addressed as follows: TO SELLER: Berkowitz Development Group 2665 S. Bayshore Drive Suite 1200 Coconut Grove, FL 33133 Phone: (305) 854-2800 Fax: (305) 854-9795 With a copy to: Arnold A. Brown, Esq. Rubin Baum Levin Constant Friedman & Bilzin 2500 First Union Financial Center Miami, FL 33131 Phone: (305) 374-7580 Fax: (305) 374-7593 TO BUYER: Silver Diner Development, Inc. 11806 Rockville Pike Rockville, MD 20852 Attn: Robert T. Giaimo, President Fax: (301) 770-2832 With a copy to: Arnold D. Shevin, Esq. Stroock & Stroock & Lavan 3300 First Union Financial Center 200 South Biscayne Boulevard Miami, Florida 33131-2385 Fax: (305) 789-9302 The above parties may change the address to which notices shall thereafter be delivered by giving five (5) days' prior written notice to all other parties in the manner set forth in this paragraph. -19- 6.3 Memorandum of Agreement. Neither this Agreement nor any notice hereof shall be recorded in any public records. 6.4 Attorneys' Fees. If any legal action is commenced con cerning the Property, this Agreement, or the rights and duties of any party in relation thereto, the prevailing party in such liti gation shall be entitled to reasonable attorneys' fees at all tribunal levels in an amount set by the court. Should either party become the subject of any bankruptcy or insolvency proceeding, the other party shall be entitled to all attorneys' fees at all tribunal levels and costs incurred to establish any right hereunder, or to obtain adequate assurances or relief from the effects of the bankruptcy or insolvency proceeding. 6.5 Authority and Execution. Each person executing this Agreement on behalf of a party represents and warrants that such person is duly and validly authorized to do so on behalf of the party it purports to bind and, if such party is a partnership, corporation or trust, that such partnership, corporation or trust has full right and authority to enter into this Agreement and perform all of its obligations hereunder. As to representations, warranties, covenants or agreements made by Seller in this Agreement, each of Bersin Development Corp. and Documentation Corp. shall be liable only for matters pertaining to it, in the case of representations and warranties pertaining to the selling entities or things within their knowledge, and for an undivided 50% of the obligations or liabilities, in the case of other representations, warranties, covenants and agreements. 6.6 Further Assurances. Each party shall act diligently and in good faith with respect to all matters pertaining to this Agreement and shall perform or cause to be performed all acts and execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, all instruments and documents as may be reasonably required to carry out the intent and purpose of this Agreement. This provision shall survive Closing. 6.7 Entire Agreement. This Agreement and the exhibits marked hereto (all of which are by this reference incorporated herein) constitute the entire agreement between the parties and supersede all other agreements, whether written or oral, respecting the subject matter of this Agreement; no other agreement, statement or promise made by either party hereto with respect to the subject matter of this Agreement shall be binding or valid. This Agreement may be executed simultaneously or in counterparts, each of which shall be deemed an original but all of which together shall con stitute one and the same contract. 6.8 Amendments. This Agreement shall not be modified by either party by oral representations made before or after the execution of this Agreement, and all amendments to this Agreement must be in writing and signed by Buyer and Seller. -20- 6.9 Binding Effect. This Agreement shall be binding upon and inure to the benefit of each party's assignees (to the extent assignable), heirs, successors and legal representatives. None of the representations, warranties, or covenants of Seller set forth herein shall survive the Closing and delivery of the deed and the same shall be merged into the deed, except as and to the extent specifically provided for herein. 6.10 Interpretation. Each party and its counsel have reviewed this Agreement. Any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Agreement. The captions of this Agreement are for convenience and reference only, and the words contained therein shall not be deemed to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Agreement. This Agreement shall be construed and interpreted under, and governed and enforced according to, the laws of the State of Florida. If any provisions of this Agreement are held to be unenforceable or invalid, it is the specific intent of the parties that the remaining provisions shall be of full force and effect. 6.11 Damages for Default or Seller's Inability to Close. If the Closing fails to occur due to a default of Buyer, then Seller will sustain substantial damages. Buyer and Seller agree that it would be impracticable or extremely difficult to determine the actual damages sustained by Seller in the event of such a default hereunder by Buyer, and therefore, Seller and Buyer agree that if Buyer commits such a default, Seller shall, as its sole and exclusive remedies and as agreed and liquidated damages, retain the Deposit and all interest accrued thereon. Except where a contrary remedy is specifically provided for elsewhere in this Agreement, in the event that Seller fails to close this transaction for any reason other than Buyer's default or failure of Buyer, through no default on its part, to satisfy the condition to Closing set forth in Section 3.7 above, and in view of the parties acknowledgment that the actual losses suffered by Buyer would be extremely difficult to ascertain with great certainty, and in an effort to recognize that such losses of Buyer should be compensable, the parties have agreed, as an inducement to Buyer to enter into this Agreement, that Buyer shall, under such circumstances, be entitled to terminate this Agreement and receive the return of its Deposit and, in addition thereto, receive from Seller as compensation for its losses and expenses hereunder, (i) the liquidated sum of $75,000 in the event Seller's failure or inability to close is a result of the acts of third parties outside of Seller's control, such as GMAC, KFHA, Dade County or any agency thereof, any utility company, or the like; or (ii) the liquidated sum of $150,000 if Seller's failure to close is a result of -21- Seller's default hereunder and not as a result of the acts, or failure to act, of any third party. Notwithstanding and in addition to the foregoing limitations on remedies, each of the parties shall be liable for the payment of attorneys' fees and court costs (including expert witness fees whenever such term is used in this Agreement) payable to the prevailing party in the event of litigation by the parties hereunder or in connection herewith and shall also be liable for the payment of any amounts due pursuant to any indemnification provisions contained herein or in any document given pursuant hereto or in furtherance hereof. 6.12 Time of Essence. Time is of the essence in the per formance of Buyer's obligations under this Agreement. 6.13 Assignment. Buyer may assign this Agreement to any person or entity provided that Buyer shall deliver to Seller an executed copy of any such assignment and any assignee must assume all of the obligations of Buyer to the extent provided hereunder and further provided that such assignment must occur at least fifteen (15) days prior to Closing. No such assignment shall relieve Buyer from liability hereunder. 6.14 Platting. Seller shall, as a condition to closing, plat the Property (and, at Seller's option, adjacent lands owned or controlled by Seller), at Seller's cost (the "Plat"), and in conjunction therewith, cause any unities of title affecting the Property and adjacent lands to be released. Seller agrees to use reasonable efforts (excluding litigation or the payment of money, other than customary amounts for customary purposes associated with platting) to accomplish the foregoing as expeditiously as possible. Buyer agrees to fully cooperate with Seller in connection with the foregoing at no additional cost to Buyer. Buyer acknowledges being advised that certain standard plat restrictions will likely be required in connection with finalization of the Plat, including restrictions on the use of well water and septic tanks, a requirement for the installation of underground utility lines, and a requirement for perimeter utility easements. Buyer shall not be entitled to object to any of such matters and they shall be Permitted Exceptions, so long as they do not unreasonably interfere with Buyer's Contemplated Improvements or Contemplated Use. Buyer acknowledges being advised that the Plat will likely be a perimeter plat, with a waiver of plat or declaration in lieu of unity of title being obtained for the Property and adjacent lands, and Buyer approves of this provided no restrictions or conditions required thereby adversely affect Buyer's ability to construct its Contemplated Improvements or use the Property for its Contemplated Use, or otherwise infringe upon the marketability of the Property, and Buyer will promptly and in good faith cooperate with all -22- reasonable requests pertaining to the effectuation of this, at no additional cost to Buyer. 6.15 Escrow Holder Provisions. The Escrow Holder shall not be liable for any acts taken in good faith, shall only be liable for its willful misconduct or gross negligence, and may in its sole discretion, rely upon the written notices, communications, orders or instructions jointly given by any party hereto. Seller and Buyer, jointly and severally, indemnify and hold the Escrow Holder harmless from and against any and all matters directly or indirectly related to or in connection with the funds held by Escrow Holder under this Agreement including, without limitation, attorneys' and paralegals' fees at all tribunal levels and in connection with all proceedings, accountant fees and any other costs or expenses (hereinafter referred to as "Escrow Expenses"). In the event that any Escrow Expenses are paid by Escrow Holder, Escrow Holder may recover such payments, at its option, as follows: (i) as a first priority out of the funds held by Escrow Holder, or (ii) from Seller or Buyer. If for any reason the Closing does not occur and either party makes a written demand upon Escrow Holder for payment of the Deposit, Escrow Holder shall give written notice to the other party of such demand. If Escrow Holder does not receive a written objection from the non-demanding party to the proposed payment within 7 days after the giving of such notice, Escrow Holder is authorized, instructed and directed to make such payment. If Escrow Holder does receive such written objection within such 7-day period or if for any other reason Escrow Holder in good faith shall elect not to make such payment, Escrow Holder shall continue to hold such amount until otherwise directed by written instructions from the Seller and Buyer or a final judgment of a court. Escrow Holder shall have the right at any time to deposit the escrowed proceeds and interest thereon, if any, with the clerk of the Court of the county in which the Property is located. Escrow Holder shall give written notice of such deposit to Seller and Buyer. Upon such deposit, Escrow Holder shall be relieved and discharged of all further obligations and responsibilities hereunder. The fact that Seller's attorneys are Escrow Holder hereunder shall not preclude them from representing Seller in the event of litigation hereunder. The provisions of this paragraph shall survive closing and any termination of this Agreement. 6.16 Permitted Delays By Reason of Force Majeure. Whenever performance is required of any party hereunder, such party shall use all due diligence to perform and take all necessary measures in good faith to perform; provided, however, that if completion of performance shall be delayed at any time by reason of acts of God, war, civil commotion, riots, strikes, picketing, or other labor disputes, unavailability of labor or materials or damage to work in progress by reason of fire or other casualty, then the time for -23- performance as herein specified shall be appropriately extended by the time of the delay actually incurred. 6.17 Outside Date for Acceptance. The execution of this Agreement by Buyer shall be deemed null and void and this Agreement will be revoked and of no further force or effect if a counterpart hereof, fully executed by Seller and with all exhibits appended thereto, is not delivered to Buyer on or before 5:00 p.m. on Monday, October 7, 1996. [The balance of this page has been intentionally left blank] -24- IN WITNESS WHEREOF, the parties have executed this Agreement on the respective dates set forth below. SELLER: BUYER: BERSIN DEVELOPMENT CORP., SILVER DINER DEVELOPMENT a Florida corporation INC., a Virginia corporation /s/ Jeffrey L. Berkowitz /s/ Robert T. Giaimo By:_________________________ By:_________________________ Name: Jeffrey L. Berkowitz Name: Robert T. Giaimo Title: President Title: President Dated: October 9, 1996 Dated: October 4, 1996 DOCUMENTATION CORP., a Florida corporation /s/ Alan H. Potamkin By:_________________________ ALAN H. POTAMKIN Name:_______________________ President Title:______________________ October 7, 1996 Dated:______________________ -25- ESCROW HOLDER'S RECEIPT The undersigned, as Escrow Holder, does hereby acknowledge receipt of Buyer's Deposit in the amount of $150,000 and agrees to hold and disburse same as contemplated in the Agreement. RUBIN BAUM LEVIN CONSTANT FRIEDMAN & BILZIN By:_____________________________ Name:___________________________ Title:__________________________ Dated:__________________________ EXHIBIT "A" General Description of the Property Exhibit A to Contract [Property Plat Map appears here] EXHIBIT "B" Site Plan of Seller's Project Exhibit "B" to Contract [Property Plat Map appears here] EXHIBIT "C" Sketch of Kendall Drive Portion of the Project Exhibit C to Contract [Property Plat Map appears here] EXHIBIT "D" KENDALL VILLAGE CENTER PERMITTED EXCEPTIONS 1. Covenants, conditions and restrictions contained in Covenants Running with the Land (hazardous substances) recorded in Official Records Book 12177, Page 2601, in Official Records Book 12518, Page 447, and in Official Records Book 14173, Page 1715, all of the Public Records of Dade County, Florida. 2. Covenants, conditions and restrictions contained in Amended, Corrected and Restated Declaration of Restrictions recorded in Official Records Book 15543, Page 215, of the Public Records of Dade County, Florida. 3. Covenants, conditions and restrictions contained in Declaration of Restrictive Covenants recorded in Official Records Book 15582, Page 1165, of the Public Records of Dade County, Florida. 4. Covenants, conditions and restrictions contained in Declaration of Restrictions recorded in Official Records Book 15631, Page 2618, of the Public Records of Dade County, Florida, as amended by instrument recorded in Official Records Book 17320, Page 4299 of the Public Records of Dade County, Florida. 5. Covenants, conditions and restrictions set forth in Agreement (WASA) recorded in Official Records Book 16012, Page 3580, supplemented in Official Records Book 16454, Page 1179, and Official Records Book 16765, Page 1712, all of the Public Records of Dade County, Florida. 6. Covenants, conditions and restrictions set forth in Declarations of Restrictions (Barnes & Noble and Michaels) recorded in Official Records Book 17150, Pages 822 and 834, respectively, both of the Public Records of Dade County, Florida. EXHIBIT "E" Current Form of REA This instrument prepared by and after recording, return to: Arnold A. Brown, Esq. Rubin Baum Levin Constant Friedman & Bilzin 2500 First Union Financial Center Miami, Florida 33131 (Kendall Village Center) DECLARATION OF RESTRICTIONS AND RECIPROCAL EASEMENT AGREEMENT This Declaration of Restrictions and Reciprocal Easement Agreement (the ("Agreement") is made and entered into as of this _____ day of __________, 199__ by Documentation Corp. and Bersin Development Corp., each a Florida corporation, each as to an undivided 50% interest, whose address is 2665 South Bayshore Drive, Suite 1200, Coconut Grove, Florida 33133, hereinafter collectively referred to as "First Party". WHEREAS, First Party is the owner of a certain parcel of real property legally described on Exhibit "A" attached hereto and made a part hereof (the "Center"), which is depicted in bold on Exhibit "B" attached hereto and made a part hereof (the "Site Plan"); and WHEREAS, First Party, in connection with its sale or financing of portions of the Center separate and apart from other portions of the Center, is desirous of (i) establishing certain easements in, to, over, across and through portions of the Center for the benefit of other portions of the Center and (ii) imposing certain restrictions in connection with the development and use of portions of the Center, all as more particularly provided for herein and for the purpose of facilitating the implementation of a unified development plan for the lands included within the Center. NOW, THEREFORE, for valuable consideration, First Party declares and agrees as follows: 1. First Party does hereby establish, create and grant a perpetual non-exclusive easement in, to, over, across and through those portions of the Center (the "Easement Area") as may from time to time be used for the purposes designated in paragraph 2 hereof, for the use and benefit of the respective owners and tenants of the Center and their employees, agents, customers, guests, licensees, invitees, mortgagees, successors and assigns. Exhibit "E" to Contract 2. The Easement Area described in paragraph 1 hereof shall include the following property: (a) Any property (but, in particular, the areas cross hatched on the Site Plan attached hereto as Exhibit "C", which areas shall be available for the purposes specified in this subparagraph 2(a) and shall not be subject to the provisions of paragraph 7 below unless alternative means of access, reasonably acceptable to all of the owners of Parcels E, F, G and H depicted on the Site Plan attached hereto as Exhibit "C", are established) as may from time to time be used as roadways, streets, driveways, entranceways or other access ways within the Center for ingress and egress of persons and motor vehicles on, over, across and through the Center and to and from adjacent public streets and highways, together with the right to eliminate such curbing and landscaping and replace same with paving as may reasonably be required to permit unobstructed traffic flow. Notwithstanding the foregoing, however, First Party may unilaterally shift the north/south accessway that is located in the middle of the parking area shown on Exhibit "C" to the east or west (but only within the Easement Area), so that it will line up with the continuation thereof to the north and with any entrance into the Center from North Kendall Drive between S.W. 124th Avenue and the Florida Turnpike; and (b) Any property as may from time to time be used for or reasonably necessary for the installation, maintenance, repair and replacement of (i) public utilities (including water, sewer electric, gas and telephone) or (ii) the drainage of surface water run-off to, from or within the Center; provided that none of same shall ever be installed under any buildings and, to the maximum extent possible, all of same shall be located within then existing areas devoted to such purpose(s); and (c) Any property (but, in particular, the areas noted by diagonal lines on the Site Plan attached hereto as Exhibit "C", which areas shall be available for the purposes specified in this subparagraph 2(c) and shall not be subject to the provisions of paragraph 7 below unless alternative means of parking, reasonably acceptable to all of the owners of Parcels E, F, G and H depicted on the Site Plan attached hereto as Exhibit "C", are established) as may from time to time be used as parking areas within the Center (including, without limitation, any parking garage structure) for the parking of motor vehicles. Notwithstanding the foregoing, however, First Party may unilaterally make minor adjustments in the configuration of the parking spaces in order to accommodate relocation of the portion of the roadway described at the end of subparagraph 2(a) above to line up with any accessway that may be installed along Kendall Drive between S.W. 124th Avenue and the Florida Turnpike, in order to add additional parking in the area south of the diagonally lined area, if permitted by applicable law, and in order to accommodate 2 a minor reconfiguration of the Parcel G building to the west; provided, however, that, except if reduced as a result of a future condemnation or deed in lieu thereof, there will at no times be less than 360 parking spaces within the diagonally lined area on the Site Plan attached hereto as Exhibit "C" and, if permitted by applicable governing authorities, the area to the south thereof in the aggregate (excluding, however, the parking area to the north of Parcel H); and (d) Any property as may from time to time be used for landscaped areas or pedestrian walkways, and any property or facilities as may from time to time be available for the common use of all owners within the Center (whether or not actually used by all owners within the Center), but only to the extent the items specified in this subparagraph (d) are so designated by First Party. 3. No barriers will be erected within the Center which would have the effect of limiting or restricting the easement rights granted hereinabove; provided, however, that reasonable non-discriminatory rules and regulations may be established by the owner(s) from time to time within the Center related to the use of the Easement Area located on its property or by First Party related to the use of any portion of the Easement Area, whether or not owned by First Party (including, without limitation, First Party (but not other owners) designating and posting reasonable portions of the Center with signs for short term parking and/or designating and posting reasonable portions of the parking areas within the Center with signs limiting their use for customers of the businesses in the vicinity of such parking areas). Any improvements placed within the Center or any portion thereof will provide for the free flow of pedestrian and vehicular traffic between all portions of the Center in order to effectuate the easement rights granted in this Agreement, and will fully comply with all federal, state and local requirements for development and with all matters of record. Anything in this paragraph 3 or elsewhere in this Agreement to the contrary notwithstanding, all parties burdened by this Agreement acknowledge being advised and agree that all or a portion of the parking areas within the Center will, at the option of First Party, be comprised of controlled parking and all of such parties approve of the foregoing, provided that a system shall be implemented whereby the occupants of Parcels E, F, G and H (and any other parcels designated in any supplemental declaration) will be entitled to validate parking for their customers such that there will be no charge for parking by their customers (but this no charge validation right shall not be applicable to any garage or similar structured parking area located outside the land described on Exhibit "A" attached hereto that may hereafter be added to the effects of this Declaration). Such validation shall be subject to such reasonable and non-discriminatory rules and regulations as may, from time to time, be promulgated by First Party, including length of time with respect to which validation is applicable and designation of specific areas in which parking must 3 occur. The provisions of this paragraph shall not limit or restrict the installation of temporary construction barricades to be utilized prior to and during construction of the Center and adjacent lands; provided, however, that any such barricades shall be installed and maintained in such a manner as to minimize inconvenience to or disruption of the businesses within the Center. 4. (a) No portion of the Center shall be used for any illegal use. (b) In the event any portion of the Center is damaged or destroyed by reason of casualty or condemnation, the owner thereof shall, within a reasonable period of time after the occurrence thereof and with due diligence, either (i) restore the damaged or destroyed portions to complete and useable condition or (ii) raze the remaining improvements; provided, however, that all access ways and parking within the cross hatched and diagonally lined areas shown on the Site Plan attached hereto as Exhibit "C" shall be restored. (c) Buildings may be constructed within the area legally described on Exhibit "A" attached hereto only in those areas not cross-hatched or diagonally lined on Exhibit "C" attached hereto. Each portion of the Center on which buildings are permitted to be constructed shall contain gross square footage of building area (including gross square footage of outdoor serving area unless expressly provided to the contrary) and a maximum height above finish grade that does not exceed the amount specified in a supplemental declaration that is recorded by First Party prior to or at the time First Party conveys the applicable portion of the Center to someone other than a successor First Party, and shall be limited in use as specified in such supplemental declaration. The area legally described on Exhibit "A" attached hereto (depicted in bold on Exhibit "B" as aforestated) shall contain no more than 40,000 gross square feet of building area (including outdoor serving area) in the aggregate. (d) No loud speakers that can be heard outside of the buildings located within the Center shall be operated, except to the extent either operated by First Party or they can be heard solely within the outdoor dining/serving area of the applicable building. (e) (i) No building, fence, wall, structure, sign or other improvements (including, without limitation, landscaping and both the interior (to the extent visible from the exterior) and exterior of buildings and other structures or improvements) of any nature shall be commenced, erected, placed, altered or maintained within any portion of the Center, and no addition or alteration to the interior (to the extent visible from the exterior) or exterior of any structure or other improvements shall be made within any portion of 4 the Center, until the construction plans and specifications, including elevations, and a plan showing the location of the structure(s) or other improvements and any signs together with a landscaping plan have been approved in writing by First Party. Any material change in the interior (to the extent visible from the exterior), any change in the exterior appearance of any building, fence, wall, structure, sign or other improvement, and any change in the appearance of the landscaping as approved and installed initially shall be deemed an alteration requiring approval as aforestated. The items or matters to be submitted for approval as provided in this subparagraph (e)(i) shall hereinafter collectively or individually, as the context may require or permit, be referred to as the "Plans." Each building, fence, wall, structure, sign or other improvement of any nature and all landscaping shall be erected, placed, or altered only in accordance with the Plans as approved. Refusal of approval of the Plans, or any portion thereof, may be based on any ground, including purely aesthetic grounds, which, in the sole and absolute discretion of First Party, shall be deemed sufficient. (ii) First Party (which term, as used in this subpara graph (e), shall include its respective officers, directors, employees, partners, agents, contractors, consultants and attorneys, as the context requires or permits) shall not be liable for damages to anyone submitting any items (including, without limitation, Plans pursuant to subparagraph (e)(i) for approval or to any owner or owners of property within the Center or to any other party by reason of mistake in judgment, negligence or non-feasance arising out of or in connection with the approval or disapproval or failure to approve any such items or its enforcement or failure to enforce against third parties any site maintenance or other requirements hereof. Anyone submitting any items to First Party for approval, by the submitting of such items, and any owner or other party, by acquiring an interest in any portion of the Center, agrees not to seek any such damages against First Party. Without limiting the generality of the foregoing, First Party shall not be responsible for reviewing, nor shall its approval of any Plans be deemed approval of any Plans from the standpoint of structural safety, soundness, workmanship, materials, usefulness, conformance with building or other codes or industry standards, or compliance with governmental requirements. (iii) First Party will respond to a request for approval of Plans within twenty (20) business days from the time that two (2) sets of such Plans are delivered to First Party with a written request for approval. The party submitting the Plans shall promptly submit to First Party any additional information or materials requested by First Party for the purpose of aiding in its review of the original submission and the twenty (20) business day approval period shall not commence until such additional information or materials are received, so long as First Party requests such 5 information within ten (10) business days of the original submission of Plans. If First Party disapproves, First Party shall so notify the party submitting the Plans in writing within said twenty (20) business day period stating the specific reason or reasons for denying approval, whereupon the party submitting the Plans shall revise the Plans accordingly and resubmit same, at which time such resubmission will be treated hereunder as an original submission. A failure by First Party to respond within such twenty (20) business day period shall constitute an automatic approval. (f) (i) No tents or trailers of any description, whether readily movable or not, campers, motor homes, vans without side windows other than in the front doors, shacks, tanks (excepting aboveground tanks) or temporary or accessory buildings or structures shall be placed or permitted to remain on any property within the Center except those needed during construction (the location and exterior appearance of any construction trailers, and the location or placement of any construction vehicles and staging areas shall be subject to the prior reasonable written approval of First Party), and after the completion of construction of the main structures and issuance of a certificate of occupancy, all such tents, trailers of any description, campers, motor homes, vans, shacks, tanks, temporary and accessory buildings or structures shall be removed forthwith. Notwithstanding the foregoing, (A) permanent accessory buildings or structures approve pursuant to subparagraph (e)(i) above may remain after completion of the main structures and issuance of a certificate of occupancy and (B) customer campers and recreation type vehicles shall not be prohibited by the foregoing while the customer is patronizing business(es) at the Center. The provisions of this subparagraph shall not be applicable to First Party. (ii) At all times during the course of construction of improvements and landscaping upon any portion of the Center, the owner(s) thereof will remove construction debris of all kinds from such portion of the Center and all adjoining streets and premises and, when such construction is substantially completed, the owner(s) thereof shall promptly and properly clear and remove all debris, equipment and excess, surplus or remainder of construction materials, of whatever nature, from such portion of the Center and all adjoining streets and premises. (iii) No weeds, underbrush or other unsightly growths shall be permitted to grow or remain upon any portion of the Center, and no waste paper, trash, refuse pile or unsightly objects shall be allowed to be placed or suffered to remain anywhere thereon. (g) No portion of the Center shall be used for any of the following purposes, which are hereby declared to be prohibited uses: (i) head shop, massage parlor (excluding therapeutic massage by 6 licensed massage therapists), adult book store or any other store involved in the sale, distribution, lease or exhibition of pornographic materials, or any other business restricted by law to "adults" only, (ii) except to the extent specifically permitted by First Party at its sole discretion by a supplemental declaration, cocktail lounge or establishment which sells alcoholic beverages for on the premises consumption, except as a part of the operation of a sit down restaurant, (iii) a fast food restaurant, except to the extent specifically permitted by First Party at its sole discretion by a supplemental declaration, (iv) a drive-in restaurant or any facility with a drive thru feature (including a fast food restaurant with such a feature), except to the extent specifically permitted (but only within lands that may hereafter be added to the effects of this Agreement) by First Party at its sole discretion by a supplemental declaration, (v) for industrial or warehouse purposes (except for the incidental storage of merchandise or other items in conjunction with the conduct of business within the Center), (vi) funeral parlor, (vii) automobile, truck, trailer, recreation vehicle or motorcycle show room or repair facility, (viii) school or training facility (except for training of the workers employed by the establishments operating within the Center as an incident to their employment), (ix) a "second hand" or "surplus store" (provided, however, that this prohibition shall not apply to a high quality consignment shop that is operated in a first-class manner), (x) a mobile home park, trailer park, junk yard or stock yard (except as and to the extent permitted elsewhere in this Agreement, if at all), (xi) any fire sale, bankruptcy sale (unless pursuant to a court order) or auction house operation, (xii) any use which creates vibrations or offensive odors which are noticeable outside of the premises initiating or generating such vibrations or odors, (xiii) any use (excluding one expressly permitted by a Supplemental Declaration and provided, however, that this shall not permit First Party to approve any competing use that is in violation of any then effective exclusive use or restrictive covenant granted by this Agreement, any supplemental declarations or any other recorded instruments) that competes with any (A) exclusive use or restricted use provision contained in any supplemental declaration (regardless of whether or not the beneficiary of such exclusive or restricted use provision owns or leases property within the Center, and any such supplemental declaration may be imposed unilaterally by First Party on all or portions of the Center without the joinder of any other owner and all, or the applicable, portions of the Center shall be bound thereby) or (B) then existing use within any portion of the Center or any lands in the vicinity of the Center designated by First Party in a supplemental declaration (whether or not exclusive use protection for such use is contained in a supplemental declaration) unless, in the case of (B) only, First Party approves of such competing use in its absolute and sole discretion (and, in such event, subject to such terms as First Party may impose) or (xiv) any use which, under applicable law, requires a greater parking ratio for the applicable 7 portion of the Center than the initial use for such portion of the Center required. (h) First Party may from time to time establish, and thereafter modify, reasonable, customary, and nondiscriminatory rules and regulations for the operation and use of the Easement Area (whether or not owned by First Party), or portions thereof, and all parties burdened by this Agreement shall comply with same. (i) No owner or occupant of any portion of the real property legally described on Exhibit "A" attached hereto (depicted in bold on Exhibit "B" as aforestated), other than First Party, shall be entitled to install any free-standing signage in the Center. First Party shall have the exclusive right to install free-standing signage, including pylon signs and monument signs, within said Exhibit "A" property, which signage may be utilized for identification of the Center and/or adjacent lands generally or for identification of the occupants designated from time to time by First Party. This provision shall not be deemed to limit the installation of signage on the buildings within the Center, to the maximum extent permitted by applicable law. 5. In connection with the development from time to time of portions of the Center, the following guidelines shall be observed: (i) development shall be performed in such a manner that surface water runoff within the Center will not materially adversely affect any portion of the Center or result in the accumulation of standing water on any portion of the Center, (ii) all work performed shall be accomplished so as to not interrupt any existing services to the improvements within the Center, and in a manner so as to minimize inconvenience and interruption of access to the owners and occupants of the Center, (iii) in connection with any work performed by an owner, its successors or assigns on any portion of the Easement Area, after completion of such work the Easement Area shall be restored to the condition in which it was prior to the performance of such work, at the cost of the owner causing such work to be performed; (iv) all public utility and drainage facilities shall, to the maximum extent permissible, be located underground, (v) all garbage and trash containers (other than those installed or approved by First Party for placement in the Easement Area and intended to be used by pedestrians/customers) shall be located either within a service area designated by First Party or inside an enclosed building or be enclosed on all sides by a wall, fence or other screening, the height of which exceeds the height of the container(s) and the color of which blends with the color of the building located on the applicable portion of the Center, and all garbage and trash generated from the Center shall be disposed of in such container(s) or otherwise as required by law, and (vi) any service area that will be visible to the public other than solely from a service drive shall be enclosed on all 8 sides by a wall, fence or other screening that totally blocks the service area from public view, the color of which blends with the color of the building located on the applicable portion of the Center. 6. To the extent portions of the Center owned by different parties have installed thereon improvements that abut each other along their common boundary or boundaries, they shall be totally self-contained and shall not be constructed so that there is a common party wall. Notwithstanding the foregoing, the underground support/foundation may be jointly utilized provided same is accomplished in full compliance with applicable law and shall not adversely affect the structural integrity of the building first erected on the applicable common boundary. Any future construction on portions of the Center in the vicinity of a common boundary or boundaries thereof shall be performed in such a manner that will permit joint utilization of the underground support/foundation without the need for performing additional support or similar work. First Party hereby grants non-exclusive perpetual easements for the installation, maintenance and repair of underground foundations and other support, for minor/unintentional encroachments and for joint use of any underground support/foundations, which easements are for the benefit of those portions of the buildings that are from time to time erected on the respective portions of the Center along a common boundary or boundaries thereof, to the extent reasonably required. 7. Subject to the provisions contained herein and in any supplemental declaration or other matters of record, each owner from time to time of the Center, or any portion thereof, reserves the right at any time and from time to time, without the need for obtaining consent or approval from the owner(s) of any other portions of the Center, to change, rearrange, alter, modify, build upon or otherwise reduce the non-exclusive Easement Area created hereby. In the event any of same are accomplished with respect to the non-exclusive Easement Area located on any owner's property, same shall automatically release the area which is so changed, rearranged, altered, modified, built upon or otherwise reduced from this Agreement. In addition to the foregoing, each owner from time to time of the Center, or any portion thereof, specifically reserves the right, without the need for obtaining consent or approval from the owner(s) of any other portions of the Center, to replace, alter or add to any existing buildings or structures located on their respective properties or to build any new buildings or structures on their respective properties as they may from time to time desire, regardless of whether or not the additions or replacements are constructed wholly or partly upon the nonexclusive Easement Area, subject to applicable governmental requirements, matters of record and the provisions contained herein (including architectural review and approval as herein provided). If the foregoing requires relocation of any then existing utility or drainage facilities, the owner that is so changing, rearranging, 9 altering, modifying, building upon or otherwise reducing the easement area shall be responsible, at its cost, for relocating such utility or drainage facilities, but same shall be accomplished without interruption of service and in a manner so as to minimize inconvenience to the owners and occupants of the remaining portions of the Center. Nothing set forth on the Site Plan regarding potential uses, potential users, height limitations, square foot limitations, general configuration or otherwise shall be deemed a limitation on any portion of the Center; all of same appear on the Site Plan solely to indicate the present anticipated and non-binding development scheme for the Center and adjacent lands owned or controlled, or potentially to be owned or controlled, by First Party. No lands depicted on the Site Plan shall be burdened by this Agreement unless and until same are added to the effects of this Agreement in accordance with the terms of this Agreement. 8. (a) Each owner from time to time of each portion of the Center (including First Party) agrees to fully maintain, repair and, when necessary, replace, at its cost and expense, all portions of the Center located on its property so that same are at all times in good working order, condition and repair. The foregoing obligation to maintain, repair and, when necessary, replace, shall include, without limitation: (i) keeping all portions of the Center in a clean, unlittered, orderly and sanitary condition; (ii) removing, to the extent practicable, surface waters; (iii) keeping all marking and directional signs, if any, within the Center clear, distinct and legible; (iv) maintaining, mowing, weeding, trimming and watering all landscaped areas; (v) maintaining and operating exterior lighting at reasonable levels during hours of darkness; and (vi) maintaining and replacing the exterior finish materials of improvements from time to time located within the Center (such as painting building surfaces and sealing driveways and parking areas). Notwithstanding the foregoing, prior to initial construction, portions of the Center may remain in their present, unimproved condition; provided, however, that the owner(s) thereof shall cause same to at all times be kept free of vegetation and overgrowth exceeding one foot in height. Each owner from time to time of the Center, or any portion thereof, further agrees to maintain comprehensive public liability insurance with respect to the portion of the Center located on its property throughout the term of this Agreement in an amount no less than $1,000,000.00, combined single limit, which names the other(s) (and its mortgagee(s), if so requested by such other(s)) as additional insured(s), and to furnish to the other(s) written proof thereof promptly upon request. (b) If the owner of any portion of the Center shall fail to maintain, repair and, when necessary, replace the portions thereof that are located on its property as required hereunder or shall fail to provide proof of insurance as required hereunder, the owner(s) of 10 any other portion of the Center may send written notice to such defaulting party and, if such obligations are not performed by the defaulting party within 30 days from receipt of such notice, then the party or parties giving notice shall have the right (without limiting any other rights that may be available) to perform such obligations and bill the defaulting party for the actual out-of-pocket costs of such performance. If the defaulting party shall not pay such bill within 30 days of receipt, then interest shall accrue on the unpaid amount from the time it was expended until paid at the lower of 18% per annum or the highest lawful rate permitted by law (the "Interest Rate"). In the event First Party is the party who performs the obligations of the defaulting party, the amount of the bill, together with interest and costs of collection, shall be a lien on all property owned by the defaulting party within the Center, which lien shall be effective upon, and have priority as of the date of, the recording in the Public Records of Dade County, Florida, of a claim of lien, which claim of lien shall specify the legal description of the property liened and the amount claimed, and may be foreclosed in the same manner as a mortgage. (c) Each owner from time to time of the Center, or any portion thereof, hereby indemnifies and saves harmless all other owners of portions of the Center from any and all liability, damage, expense, causes of action, suits, claims or judgments arising from the portion of the Center that is owned by it, except to the extent caused by the act or negligence of another owner and in such event only as to such other owner whose act or negligence is excepted. (d) (i) The present plans for development of the Center contemplate that First Party will own substantially all of the Easement Area within the Center and, in accordance with subparagraph 8(a) above, First Party will be obligated to maintain, repair, and, when necessary, replace same. All costs incurred by First Party in maintaining, repairing, and replacing the Easement Area, as well as for insuring same (liability coverage of no less than $1,000,000 combined single limit, casualty coverage for full replacement cost, and any other coverage customary for similar facilities) and paying taxes and assessments (real, personal or otherwise) in connection with same, shall be deemed a "Common Expense" of the Center. Common Expense shall include, without limitation, all payroll and benefit costs for employees and independent contractors to the extent that such benefit costs are reasonable and customary, costs of supplying and cleaning uniforms and work clothes, all charges for electricity, water, sewer, other utilities and rubbish removal, the cost of all supplies, tools, materials and equipment acquired for maintaining, repairing and replacing the Easement Area, the cost of any security or roving patrol provided for the Easement Area, the cost for 11 maintaining, repairing, replacing and manning any controlled access for the parking area of the Center, the costs of resealing, restriping and resurfacing (when necessary) parking areas and roadways, professional expenses (such as attorneys' and accountants' fees) incurred in connection with the Easement Area and a management fee or administrative fee not to exceed 15% of the other Common Expenses, excluding taxes and insurance. Any parking fees generated for use of the parking areas within the Easement Area (excluding those generated from any garage or similar structured parking located on land not included in Exhibit "A" attached hereto that may hereafter be added to the effects of this Declaration, so long as the costs for such garage or similar structured parking is not included in the calculation of Common Expenses) shall be applied to reduce Common Expenses. (ii) Each owner of a portion of the Center shall, from and after the date of its acquisition thereof, be responsible for payment of its "Pro Rata Share" of Common Expenses based on a fraction, the numerator of which is the gross square footage of building area (including outdoor dining/serving area unless expressly provided to the contrary in a supplemental declaration, but excluding building area which constitutes Easement Area) within the applicable portion of the Center that is owned by such owner and the denominator of which is the total gross square footage of building area (including outdoor dining/serving area unless expressly provided to the contrary in a supplemental declaration, but excluding building area which constitutes Easement Area) within the entire Center. Until the initial building(s) contemplated to be constructed on any portion of the Center are constructed, the maximum permitted square footage set forth in recorded supplemental declarations for portions of the Center (and where no such supplemental declarations are recorded, First Party's then contemplated maximum permitted square footage) shall be used to calculate Pro Rata Share of Common Expenses. Following construction, the owner of each applicable portion of the Center shall provide First Party with a certification of square footage from its architect or engineer and, subject to verification thereof by First Party, the square footage so certified shall thereafter be utilized until the square footage increases, if ever, due to additional construction, at which time a new certificate shall be furnished as aforestated and the above procedure shall govern in respect of same. In the event a certificate as aforestated is not provided, the maximum permitted square footage set forth in a recorded supplemental declaration pertaining to the applicable portion of the Center shall be utilized until same is so provided. After casualty or condemnation and prior to restoration, the square footage that existed immediately prior to the casualty or condemnation shall be used to calculate Pro Rata Share of Common Expenses. First Party shall, from time to time but at least once a year, establish a budget for Common Expenses and each owner of property within the Center shall pay to First Party, on the first day of each month in advance, its Pro Rata Share of Common 12 Expenses based on the aforestated budget. At least once per year, First Party shall reconcile the budget with actual Common Expenses incurred and furnish such reconciliation to all owners of property within the Center within 90 days after the end of the applicable year. If excess monies were collected by First Party, a pro rata refund shall accompany the reconciliation. If the reconciliation reflects additional sums owed to First Party, each owner of property within the Center shall pay its Pro Rata Share of the excess within 30 days of receipt of the reconciliation. (iii) Recognizing that the present plans for development of the Center may change, all parties burdened by this Agreement agree that, to the extent Easement Area is located on any portion of the Center not owned by First Party, the party owning same shall be entitled to an equitable adjustment of its Pro Rata Share of Common Expense to take into account the costs of maintaining, repairing and, when necessary, replacing the Easement Area on its property, all in furtherance of the concept that no owner of property within the Center should be paying more than its Pro Rata Share of maintaining, repairing and, when necessary, replacing all of the Easement Area within the Center, regardless of the ownership thereof. Absent manifest error, First Party's determination of the equitable adjustment to be made pursuant to this subparagraph shall be final and binding. Anything in this Agreement to the contrary notwithstanding, First Party may unilaterally, by supplemental declaration, provide from time to time that the obligations set forth in subparagraph 8(a) above, as they relate to portions of the Easement Area not owned by First Party, shall be undertaken by First Party and the determination so made by First Party shall be binding upon the owner from time to time of the applicable Easement Area; and during such time as First Party has undertaken such obligation, the owner of the applicable Easement Area shall not have such obligation and shall not be entitled to any adjustment of its Pro Rata Share of Common Expenses as aforestated (a supplemental declaration as contemplated by the foregoing sentence may be filed by First Party from time to time as often as First Party deems appropriate, regardless of whether or not it then owns the Easement Area in question, and such supplemental declaration shall not require the joinder of the owner of the applicable portion of the Easement Area to which it applies). (iv) Any payment required under this subparagraph 8(d) that is not paid when due shall bear interest at the Interest Rate from the date invoiced until paid. First Party shall have a lien on all property within the Center owned by a party who defaults in the payment of the amounts provided to be paid in this subparagraph 8(d), together with costs of collection, which lien shall be evidenced by a claim of lien that is recorded in the public records of Dade County, Florida, shall be effective and take priority as of the date of recording of this Agreement, shall specify the legal description of 13 the property liened and the amount claimed, and may be foreclosed in the same manner as a mortgage may be foreclosed. Before instituting foreclosure proceedings, however, First Party shall provide the applicable owner, and any mortgagee of such owner who has furnished First Party notice pursuant to paragraph 16 of this Agreement, notice (in the manner provided in paragraph 16 of this Agreement) of the amount due and of First Party's right to institute foreclosure proceedings if payment is not received within 15 days after such notice. (v) First Party agrees that all Common Expenses for which reimbursement is sought as provided in subparagraph 8(d) of this Agreement shall be reasonable in amount and competitive with costs incurred for similar items at similar properties in the vicinity of the Center. Each owner, within one year after the date it receives a reconciliation as contemplated by subparagraph 8(d)(ii) of this Agreement, shall have the right to audit First Party's books and records related to Common Expenses for the applicable year (and First Party agrees to maintain such records until expiration of such time period), upon 15 days' prior written notice, during business hours, at the business offices of First Party (or at such other location as First Party may reasonably designate within Dade County, Florida). Such audit shall be conducted by an accountant or other operating expense auditing professional selected by the applicable owner and reasonably acceptable to First Party and only one audit shall be conducted by any owner for any given year. In the event such audit discloses items included in Common Expenses that are purportedly improperly included in Common Expenses or are purportedly unreasonable in amount, First Party and the applicable owner(s) conducting the audit shall attempt to resolve the disagreement among themselves, in the absence of which the dispute shall be resolved through judicial proceedings. No audit or disagreement regarding the results of such audit shall relieve any owner of its obligation to timely pay its Pro Rata Share of Common Expenses based on the figures established by First Party; provided, however, that upon final resolution of any disagreement (either by mutual consent or final judicial determination), First Party shall refund any excess sums that are determined to have been collected by it, together with interest thereon at the Interest Rate from the date received until the date refunded. (e) Anything in this Agreement to the contrary notwithstanding, all parties burdened by this Agreement agree that, in connection with the development of, construction upon and use of portions of the Center, they shall take every reasonable precaution to avoid damaging any portion of the Easement Area and, in the event any portion of the Easement Area is damaged as a result of their acts, or the acts of those claiming by, through or under them (collectively or individually, as the context requires or permits, a "Damaging Party"), 14 the owner of the applicable Easement Area may (but shall not be obligated to, at the cost of the Damaging Party, and if such owner does not, the Damaging Party shall, at its sole cost, promptly repair, replace and restore all portions of such Easement Area to their condition prior to such damage and shall indemnify and hold the owner of such Easement Area, its successors and assigns, harmless from and against all costs and expenses incurred by such owner, its successors or assigns, in repairing, replacing or restoring any such portion of the Easement Area that is damaged as aforestated. 9. No one other than First Party may use the name or "logo" of "Kendall Village Center" or any other name or "logo" used by First Party at or in connection with the Center in any way whatsoever including, but not limited to, any signage, advertising, sales material or commercials without the prior written consent of First Party (which may be given or withheld in First Party's absolute and sole discretion and with or without cause and, if given, may be subject to such terms and conditions as First Party deems appropriate). However, occupants of portions of the Center may identify the Center in their advertising, promotion, sales material or commercials by reference to the Center's location "at Kendall Village Center" (subject, however, to such reasonable terms and conditions as First Party may impose in order to protect its registered trade names and service marks as hereinbelow provided); provided, however, that reference to the Center's location "at Kendall Village Center" may not be used in the name of any owner or occupant or any of its component entities. If so requested by First Party, and as a condition to utilizing any name whose use is restricted as aforestated, a party utilizing any such name shall sign a license agreement(s) (at no charge by either) which is intended to protect First Party's registered trade names and service marks from unauthorized use by others. Such license agreement(s) shall be non-exclusive, non-transferable and in form and substance reasonably acceptable to First Party. 10. (a) No portion of the Center or any interest therein shall be sold, transferred or leased (which term shall include sublease and any other occupancy arrangement whenever used) unless and until the owner (which term shall include lessor whenever used, to the extent applicable) of the applicable portion thereof shall have first offered to sell, transfer or lease the applicable portion thereof or interest therein to First Party and First Party has waived, in writing, its right to purchase or lease the applicable portion thereof or interest therein. In the event the owner is a corporation, partnership or trustee, the sale, assignment or other transfer of any controlling interest of the stock of, partnership interest of or beneficial interest in the owner (whether accomplished all at once or over time), as the case may be, shall constitute a transfer to which the 15 provisions of this paragraph shall apply, except in the case of a publicly traded entity or wholly owned subsidiary thereof. (b) Any owner(s) intending to sell, transfer or lease as aforestated shall give to First Party notice of such intention, together with a fully executed copy of the proposed contract of sale or lease (the "Proposed Contract"). Within fifteen (15) days after receipt of such notice and Proposed Contract, First Party shall either exercise, or waive exercise of, its right of first refusal. If First Party exercises its right of first refusal, it shall, within fifteen (15) days after receipt of such notice and Proposed Contract, deliver to the applicable owner an agreement to purchase or lease the applicable portion of the Center or interest therein upon the terms set forth in the Proposed Contract (and the applicable owner shall promptly execute and return to First Party a counterpart of such agreement to purchase or lease); provided, however, that if the Proposed Contract contemplates a property exchange, First Party may tender the cash value of the property contemplated to be exchanged or a parcel of property having substantially similar value. If First Party shall fai1 to exercise or waive exercise of its right of first refusal within the said fifteen (15) day period, then First Party's right of first refusal shall be deemed to have been waived as to that particular Proposed Contract and First Party shall furnish a certificate of waiver as hereinafter provided (although failure to so provide a certificate shall not abrogate the effects of the waiver). Notwithstanding and in addition to the foregoing, if First Party exercises its right of first refusal, it shall not be bound by any use restrictions contained in the Proposed Contract and shall not be bound by any limitations on further transfer, assignment or subletting of its interests, the parties specifically recognizing that First Party's exercise of its right of first refusal will likely be for the purpose of preserving its investment in the Center and adjacent lands and not, necessarily, to operate the business located on the property that is the subject matter of the Proposed Contract. (c) If First Party shall waive its right of first refusal or shall fail to exercise said right within fifteen (15) days after receipt of the aforestated notice and the Proposed Contract, First Party's waiver shall be evidenced by a certificate executed by First Party in recordable form, which shall be delivered to the applicable owner (although the failure to obtain or record any such certificate shall not abrogate the effects of any waiver that may exist). In the event First Party elects not to proceed with the purchase or lease as provided for in this paragraph, the applicable owner may proceed with the transaction contemplated by the Proposed Contract; provided, however, that First Party's right of first refusal provided herein shall also apply to (i) any subsequent proposed contracts to purchase or lease and (ii) any material changes to the terms or conditions of 16 the Proposed Contract (any change in the economic terms shall be deemed material) or any subsequent proposed contracts or leases. (d) Any sale, lease or other transfer of any portion of the Center or any interest therein without notice to First Party and waiver of First Party's right of first refusal as aforesaid shall be void. (e) This paragraph shall not apply to (i) any property owned by First Party or acquired from First Party through foreclosure or deed in lieu thereof or (ii) the acquisition of title by any bank, life insurance company, federal or state savings and loan association, real estate investment trust or other institutional lender which acquires its title as a result of owning a mortgage upon all or a portion of the Center, and this shall be so whether the title is acquired through foreclosure proceedings or by deed in lieu thereof, but this paragraph shall apply to a sale, lease or other transfer by any such institution which so acquires title. Anything herein contained to the contrary notwithstanding, if (and only if) required in order for the provisions of this paragraph to be effective and enforceable under applicable law, the provisions of this paragraph shall terminate twenty-one (21) years after the date of recording of this instrument; otherwise, the provisions of this paragraph shall continue in full force and effect until the date this Agreement is terminated. 11. (a) Anything to the contrary contained in this Agreement notwithstanding, specific performance and/or injunctive relief shall specifically be available for breach or violation of, or default under, any provision contained in paragraphs 3, 4, 5, 9 or 10 above, it being expressly acknowledged and agreed that damages may, at best, be difficult to ascertain and would be an inadequate remedy in any event. (b) The prevailing party in any action in connection with this Agreement shall be entitled to the award of court costs and a reasonable attorneys' and paralegals' fees at all tribunal levels and in connection with all proceedings, whether or not suit is instituted. Whenever in this Agreement the term "costs of collection" or words of similar import are used, same shall include sums awarded pursuant to this subparagraph. 12. Each owner from time to time of the Center, or any portion thereof, agrees, promptly upon request, to furnish from time to time to any other such owner in writing such truthful estoppel information and/or one or more confirmatory easements (confirmatory of the general easements granted hereby) as may be reasonably requested. 17 13. In the event any portion of the Center is condemned or taken through eminent domain, the owner of the property so taken shall be entitled to the full award therefor as if this Agreement were not in existence and the other owner(s) shall not be entitled to share in any portion of the award as a result of the existence of this Agreement; provided, however, that the foregoing shall not prevent an award to any other owner(s) for the diminution in value of the property of the other owner(s), provided same does not reduce the award payable to the owner whose property was condemned or taken. 14. Nothing contained herein shall be construed as a dedication of the easements granted herein to the general public. 15. (a) This Agreement shall be a covenant running with the land and shall be binding upon and inure to the benefit of, and may be enforced by, the owners from time to time of every portion of the Center, their successors, assigns, employees, agents, customers, tenants, guests, licensees, invitees and mortgagees. Notwithstanding the foregoing, this Agreement may be abrogated, modified, terminated, rescinded or amended in whole or in part by an instrument executed by the then owners of all portions of the Center, joined by their respective mortgagees (if any); and the joinder of any tenants, guests, licensees or invitees of any such owner (or anyone else) shall specifically not be required in connection with any of the foregoing. (b) Anything in this Agreement to the contrary notwithstanding, the rights of First Party under this Agreement may only be assigned by a written instrument of assignment, a counterpart of which is recorded in the Public Records of Dade County, Florida. Any party receiving such an assignment shall be deemed a successor First Party and shall be entitled to all of the rights and shall be deemed to have assumed all of the obligations of First Party under this Agreement. Any such assignment shall include the address of the assignee for notice purposes and, in conjunction with such assignment, the assignor shall furnish the assignee with the then current Notices Schedule (as hereinafter defined). (c) First Party shall have the unilateral right by supplemental declaration to add to the lands comprising a part of the Center any lands owned by First Party (or owned by a third party, provided such third party joins in such supplemental declaration). First Party shall have the unilateral right by supplemental declaration to withdraw from the effects of this Agreement any land owned by First Party (or by a third party, provided such third party joins in such supplemental declaration); provided, however, that the areas cross hatched and diagonally lined on the Site Plan attached hereto as Exhibit "C" may not be withdrawn from the effects of this Agreement without the consent of all owners of property within the Center. 18 (d) Anything in this Agreement to the contrary notwithstanding, but in addition to more expansive rights granted to First Party elsewhere in this Agreement (such as, without limitation, the right to unilaterally impose exclusive or restricted use provisions or to permit otherwise prohibited uses on all or portions of the Center under section 4(g) without the joinder of any other owners), First Party may, from time to time, unilaterally file one or more supplemental declarations solely affecting portions of the Center that it owns (or that a third party owns, provided such third party joins in the supplemental declaration), which supplemental declarations reconfigure the Site Plan as it relates to the land legally described in such supplemental declarations or otherwise deals with such land or its owner (such as, by way of example and not by way of limitation, by limiting gross square footage of building area, height, use or other matters pertaining to such land that do not affect other land within the Center, or limiting First Party's rights, as to such owner or land only, in respect of matters under this Agreement that are within First Party's control). Any such supplemental declaration may be unilaterally amended or terminated by First Party, joined by the owner(s) of the land legally described in the supplemental declaration that is the subject matter of such amendment or termination and joined by any other party, if any, specified in such supplemental declaration (or in a subsequently filed supplemental declaration) as having to join in any such amendment or termination for it to be effective. Notwithstanding the foregoing, use of the areas cross hatched and diagonally lined on the Site Plan attached hereto as Exhibit "C" for the purposes specified in subparagraphs 2(a) and 2(c) may not be changed except as therein provided. 16. Any notices required to be given hereunder shall be given by certified mail, return receipt requested, by hand delivery, by facsimile machine or by Federal Express or similar overnight courier service, postage prepaid, to the address set forth in the introductory paragraph of this Agreement, in a supplemental declaration, or in the Notice Schedule, as hereinafter defined. Except as and to the extent expressly provided for below with respect to notices of change of address, notices that are given in the manner aforestated shall be effective (regardless of whether or not they are actually received) upon mailing or depositing with Federal Express or similar overnight courier service, if mailed or deposited with Federal Express or similar overnight courier service, upon transmission if sent by facsimile machine or upon receipt if hand delivered. Any party hereto may change its address for notice by notifying the other parties hereto in the manner provided for above; provided, however, that notices of change of address shall not be effective unless and until they are actually received, delivery is refused or they are returned because the address to which they were sent is no longer a current address and the party sending such notice was not properly furnished a 19 notification of change of address. First Party shall at all times maintain a list of the most current addresses that have been furnished to First Party for owners and mortgagees of portions of the Center (the "Notice Schedule") and shall, upon request, make such Notice Schedule available to those requesting same. Copies of any notices required to be given to another party hereto shall also be given to the holder of any mortgage encumbering the property owned by such party if the holder of any such mortgage has notified (in the manner provided for above for giving notice of change of address) the party giving notice of such holder's address and requested that notices be furnished to such holder. Notice given by the attorney for any party shall be as effective as if given by that party. 17. This Agreement shall be governed by the laws of the State of Florida. If any portion of this Agreement shall be or become illegal or unenforceable for any reason, the remaining portions shall remain in full force and effect and shall be enforceable to the fullest extent permitted by law. Any failure to enforce any restriction, covenant, condition, obligation, reservation, right, power or charge herein contained shall in no event be deemed a waiver of the right to thereafter enforce any of same. Upon sale of any portion of the Center, the transferor thereof shall be relieved of personal liability hereunder related to the time period subsequent to such transfer with respect to the portion so transferred. This instrument may be executed in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same document. IN WITNESS WHEREOF, the undersigned have caused this instrument to be executed as of the day and year first above written. Witnesses: DOCUMENTATION CORP., a Florida corporation Sign Name:_________________________ By:_______________________________ Print Name:________________________ Alan H. Potamkin, President Sign Name:_________________________ Print Name:________________________ BERSIN DEVELOPMENT CORP., a Florida corporation Sign Name:_________________________ By:_______________________________ Print Name:________________________ Jeffrey L. Berkowitz, President Sign Name:_________________________ Print Name:________________________ 20 STATE OF ______________) ) SS. COUNTY OF______________) The foregoing instrument was acknowledged before me this ___ day of __________, 199__ by Alan H. Potamkin, as President of Documentation Corp., a Florida corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:________________________ Print Name:_______________________ Notary Public My Commission Expires: _____________________ STATE OF FLORIDA ) ) SS. COUNTY OF DADE ) The foregoing instrument was acknowledged before me this ___ day of ____________, 199__ by Jeffrey L. Berkowitz, as President of Bersin Development Corp., a Florida corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:_________________________ Print Name:________________________ Notary Public My Commission Expires: _____________________ 21 JOINDER The undersigned, General Motors Acceptance Corporation, Mortgagee under those certain Mortgages recorded in Official Records Book ______, Pages ______ and ______, of the Public Records of Dade County, Florida, as modified (the "Mortgages"), encumbering lands which include the lands covered by the foregoing Declaration, hereby joins in the foregoing Declaration for the purpose of binding the lands encumbered by its Mortgages to the effects of foregoing Declaration. IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed as of the ___ day of ____________, 199__. GENERAL MOTORS ACCEPTANCE CORPORATION, a New York corporation By:_________________________________ Print Name:_________________________ Title:______________________________ STATE OF_______________) ) SS. COUNTY OF______________) The foregoing instrument was acknowledged before me this ___ day of ____________, 199__, by ____________________________ as _____________________ of General Motors Acceptance Corporation, a New York corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:___________________________ Print Name:__________________________ My Commission Expires: Notary Public Serial No. (none if blank):__________ [NOTARIAL SEAL] EXHIBIT "A" TO THE REA Legal Description of the Center Exhibit "B" to REA [Property Plat Map appears here] Exhibit "C" to REA [Property Plat Map appears here] EXHIBIT "F" Alternative Site Plan Exhibit F to Contract [Property Plat Map appears here] EXHIBIT "G" Declaration of Restrictions This instrument prepared by and after recording return to: Arnold A. Brown, Esq. Rubin Baum Levin Constant Friedman & Bilzin 2500 First Union Financial Center Miami, Florida 33131 (Silver Diner) DECLARATION OF RESTRICTIONS This Declaration of Restrictions is entered into by Bersin Development Corp. and Documentation Corp., each a Florida corporation, each as to an undivided 50% interest ("First Owner"), and Preparation, Inc. and Jeffrey A. Berkowitz, each as to an undivided 50% interest ("Second Owner", and collectively with First Owner, "Owners"), whose address is c/o Berkowitz Development Group, 2665 South Bayshore Drive, Suite 1200, Coconut Grove, Florida 33133, for the benefit of Silver Diner Development, Inc., a Virginia corporation ("Beneficiary"), whose address is 11806 Rockville Pike, Rockville, Maryland 20852. WHEREAS, First Owner is contemporaneously herewith, conveying to Beneficiary the Property legally described on Exhibit "A" attached hereto and made a part hereof (the "Outparcel"); WHEREAS, Owner currently owns lands in the vicinity of the Outparcel, which lands (including the Outparcel) are legally described on Exhibit "B" attached hereto and made a part hereof (the "Kendall Village Center Lands"); WHEREAS, as a material inducement for Beneficiary to purchase the Outparcel, Owner has agreed to impose the following restrictions on Kendall Village Center Lands: NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, Owner agrees as follows: 1. For so long as the Outparcel is used as a family style restaurant with the word "diner" in its name, no other business operated on any portion of the Kendall Village Center Lands can use the word "diner" in its name or logo. 2. In the event the portion of the Kendall Village Center Lands designated as Parcel I on the site plan attached hereto as Exhibit "C" is used for restaurant purposes, there shall be constructed, on or before the date such restaurant opens for business, parking spaces within all or portions of the boldly highlighted area surrounding said Parcel I for no less than 110 cars. 3. This Declaration is given for the benefit of Beneficiary and its successors and assigns, and may be enforced by Beneficiary and such successors and assigns, by injunction or otherwise, Owner hereby recognizing that damages may be an insufficient remedy in the event of violation of the provisions of this Declaration. 4. If enforcement of the terms of this Declaration becomes necessary, the prevailing party in any action pertaining thereto shall be entitled to an award of court costs and reasonable attorneys' fees at all tribunal levels from the party or parties causing the violation. 5. Beneficiary, by joining herein, agrees to provide, from time to time to time upon request, an estoppel letter containing such truthful information as Owner, its successors or assigns may, from time to time, reasonably request. 6. This Declaration shall be a covenant running with the land and shall be binding upon and inure to the benefit of the owner from time to time of all of the applicable portions of the Kendall Village Center Lands, and also shall be binding upon and inure to the benefit of Beneficiary, its successors and assigns. 7. This Declaration may be modified, terminated, rescinded or amended in whole or in part by an instrument executed by the owner(s) of the applicable portions of the Kendall Village Center Lands, and by the owner of the Outparcel, joined by their respective mortgagees, if any, and joinder by no other party shall be required. 8. Any notices required to be given hereunder shall be given by certified mail, return receipt requested, postage prepaid, or by overnight delivery service and shall be deemed effective upon receipt or upon refusal or delivery or inability to deliver by virtue of an unnoticed change of address or similar cause. Notices shall be forwarded to the addresses set forth in the introductory paragraph of this Declaration, or to such other addresses as the parties may furnish by notice as provided in this paragraph. IN WITNESS WHEREOF, the undersigned have caused this instrument to be executed as of the day and date first above written. 2 Witnesses: DOCUMENTATION CORP., a Florida corporation Sign Name:_________________________ By:______________________________ Print Name:________________________ Alan Potamkin, President Sign Name:_________________________ Print Name:________________________ (as to Documentation) BERSIN DEVELOPMENT CORP., a Florida corporation Sign Name:_________________________ By:______________________________ Print Name:________________________ Jeffrey L. Berkowitz, President Sign Name:_________________________ Print Name:________________________ (as to Documentation) PREPARATION, INC., a Florida corporation Sign Name:_________________________ By:______________________________ Print Name:________________________ Alan Potamkin, President Sign Name:_________________________ Print Name:________________________ (as to Preparation) Sign Name:_________________________ _________________________________ Print Name:________________________ Jeffrey L. Berkowitz Sign Name:_________________________ Print Name:________________________ (as to Berkowitz) SILVER DINER DEVELOPMENT, INC., a Virginia corporation Sign Name:_________________________ By:______________________________ Print Name:________________________ Print Name:______________________ Title:___________________________ Sign Name:_________________________ Print Name:________________________ (as to Silver Diner) 3 STATE OF FLORIDA ) ) SS. COUNTY OF DADE ) The foregoing instrument was acknowledged before me this ___ day of ____________, 199__ by Alan Potamkin, as President of Documentation Corp., a Florida corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:____________________________ Print Name:___________________________ Notary Public My Commission Expires: _____________________ STATE OF FLORIDA ) ) SS. COUNTY OF DADE ) The foregoing instrument was acknowledged before me this ___ day of ____________, 199__ by Jeffrey L. Berkowitz, both individually and as President of Bersin Development Corp., a Florida corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:___________________________ Print Name:__________________________ Notary Public Serial No. (none if blank):__________ My Commission Expires: _____________________ 4 STATE OF FLORIDA ) ) SS. COUNTY OF DADE ) The foregoing instrument was acknowledged before me this ___ day of ____________, 199__ by Alan Potamkin, as President of Preparation Inc., a Florida corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:____________________________ Print Name:___________________________ Notary Public My Commission Expires: _____________________ STATE OF FLORIDA ) ) SS. COUNTY OF DADE ) The foregoing instrument was acknowledged before me this ___ day of ____________, 199__ by ___________________________ as _________________________ of Silver Diner Development, Inc., a Virginia corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:____________________________ Print Name:___________________________ Notary Public My Commission Expires: _____________________ 5 JOINDER The undersigned, General Motors Acceptance Corporation, Mortgagee under those certain Mortgages recorded in Official Records Book ______, Pages ______ and ______, of the Public Records of Dade County, Florida, as modified (the "Mortgages"), encumbering lands which include the lands covered by the foregoing Declaration, hereby joins in the foregoing Declaration for the purpose of binding the lands encumbered by its Mortgages to the effects of foregoing Declaration. IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed as of the ___ day of ____________, 199__. GENERAL MOTORS ACCEPTANCE CORPORATION, a New York corporation By:_____________________________ Print Name:_____________________ Title:__________________________ STATE OF ) ) SS. COUNTY OF ) The foregoing instrument was acknowledged before me this ___ day of ____________, 199__, by __________________________ as _________________________ of General Motors Acceptance Corporation, a New York corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:__________________________ Print Name:_________________________ Notary Public Serial No. (none if blank):_________ [NOTARIAL SEAL] My Commission Expires: _____________________ 6 EXHIBIT "A" TO THE DECLARATION OF RESTRICTIONS Legal Description of the Silver Diner Property LESS AND EXCEPT the portion thereof dedicated for public purposes on the plat of KV Center West, according to the plat thereof recorded in Plat Book 148, Page 33, of the Public Records of Dade County, Florida. PLUS the following two parcels: Hernandez Parcel: South 1/2 of Southeast 1/4 of Southeast 1/4 of Northeast 1/4 of Southwest 1/4 of Section 36, Township 54 South, Range 39 East, Dade County, Florida, less the East 35 feet thereof for right-of-way. USMS Sliver: All that portion of the South 3/4 of the Southeast 1/4 of Section 36, Township 54 South, Range 39 East, Dade County, Florida, lying Northwesterly of the Northwesterly line of the right-of-way of State Road 821 and South of the North line of the Southwest 1/4 of the Southeast 1/4 of said Section 36, lying and being in Dade County, Florida. Exhibit "B" (2 of 3) KENDALL VILLAGE CENTER Exhibit "B" (3 of 3) [Property Plat Map appears here] For Informational purposes only. Legal description governs. Improvements are subject to change by the owners of the applicable portions of the property. Exhibit "C" to Silver Diner Restrictions [Property Plat Map appears here] EXHIBIT "H" Supplemental Declaration This instrument prepared by and after recording return to: Arnold A. Brown, Esq. Rubin Baum Levin Constant Friedman & Bilzin 2500 First Union Financial Center Miami, Florida 33131 SUPPLEMENTAL DECLARATION (SILVER DINER) This Supplemental Declaration is made and entered into as of the ___ day of ____________, 199__ by Documentation Corp. and Bersin Development Corp., each a Florida corporation, each as to an undivided 50% interest, whose address is 2665 South Bayshore Drive, Suite 1200, Coconut Grove, Florida 33133, hereinafter collectively referred to as "First Party". WHEREAS, First Party is the owner of a certain parcel of real property legally described on Exhibit "A" attached hereto and made a part hereof (the "Property"), which is labeled Parcel F on Exhibit "B" attached hereto and made a part hereof; and WHEREAS, First Party has heretofore burdened the Property, and additional lands, with a Declaration of Restrictions and Reciprocal Easement Agreement recorded in Official Records Book ______, Page ______, of the Public Records of Dade County, Florida (the "Declaration"); and WHEREAS, the Declaration contemplates the entering into of a Supplemental Declaration in conjunction with sale of the Property, which is to occur on or about the date hereof; NOW, THEREFORE, for valuable consideration, First Party declares and agrees as follows: 1. All terms capitalized but not defined herein shall have the meanings ascribed to such terms in the Declaration. 2. The gross square footage of building area on the Property, including any outdoor serving area, shall be no more than 8,000 square feet; provided however, that the width (the east-west dimension) of any building constructed on the Property at any time shall not exceed 100 lineal feet. 3. The height of any improvements located on the Property at any time shall have a maximum height above finish grade that does not exceed 22 feet in height as to all portions of the building with the exception of decorative facades, which facades may be placed on any of the sides of the building and may extend up to a maximum height above finish grade of 28 feet; provided however, that no facade shall be wider than 20% of the length of the side of the building on which said facade is located. 4. The Property shall be used solely for a full service restaurant. However, notwithstanding and in addition to the foregoing, no portion of the Property may be used as a restaurant serving primarily either Mexican cuisine or seafood. Only a restaurant which derives more than (a) 10% of its gross sales from the sale of Mexican food shall be deemed to violate the foregoing restriction respecting Mexican cuisine or (b) 25% of its gross sales from the sale of seafood shall be deemed to violate the foregoing restriction respecting seafood. 5. For as long as the Property is used as a family style restaurant with the word "diner" in its name, no other portion of the Center, as defined in the Declaration on the date hereof (which shall include any subsequent additions thereto (but only to the extent within the lands burdened by that certain Declaration of Restriction naming ________________________ as beneficiary, as beneficiary, which is being recorded contemporaneously herewith) and shall also include any subsequent withdrawals therefrom), shall use the word "diner" in its name or logo. This provision may be enforced by specific performance by the occupant from time to time of the Property, it being recognized that remedies at law may be inadequate. This provision shall supplement, but is not intended to supersede, the provisions of any separate recorded instrument pertaining to the same subject matter. 6. No business located on Parcel G depicted on the site plan attached to the Declaration as Exhibit "C" shall be operated as a restaurant; provided, however, that food/beverage service businesses containing not more than 2,500 square feet such as, but not limited to, a doughnut shop (such as Dunkin' Donuts), bagel shop, cocktail lounge and/or coffee shop (such as StarBucks), shall be permitted, regardless of whether or not sit down service is provided therein, provided further that such permitted food/beverage service businesses shall not occupy more than 5,000 square feet of Parcel G in the aggregate. This provision may be enforced by specific performance by the occupant from time to time of the Property, it being recognized that remedies at law may be inadequate. 7. For so long as the Property is used as a family style restaurant which has a significant breakfast component, no other portion of the Center, as defined in the Declaration on the date hereof (which shall not include any subsequent additions thereto, but shall include any subsequent withdrawals therefrom), shall be 2 used as a family style restaurant which has a significant breakfast component, such as, but not limited to, Denny's, IHOP or Perkins. The foregoing is not intended to restrict restaurants such as, but not limited to, Chevy's, Hops or Monty's from serving breakfast. This provision may be enforced by specific performance by the occupant from time to time of the Property, it being recognized that remedies at law may be inadequate. 8. (a) Notwithstanding anything contained in the Declaration to the contrary, the right of first refusal set forth in Section 10 of the Declaration shall not apply to a transfer, sale or lease to (i) any entity into which or with which the owner of the Property may merge or consolidate, (ii) any subsidiary of such owner, (iii) any commonly controlled affiliate of such owner, (iv) any franchisee of such owner or (v) any party or entity as part of any transfer, sale or lease of any of owner's assets if such transfer, sale or lease includes, or is of, substantially all of the assets of the owner's Dade and Broward County operations; provided in each such event that the operation and use of the Property after such event remains substantially the same as existed prior thereto; and provided, further, however, that nothing herein contained shall diminish or in any way affect any other provision of the Declaration or this Supplemental Declaration. (b) Notwithstanding anything contained in the Declaration to the contrary, the right of first refusal set forth in Section 10 of the Declaration shall not apply to a transfer, acquisition, sale or lease to or by (i) any party involved in a sale/leaseback transaction with the owner (lessee) of the Property, or (ii) any mortgagee (or an affiliated entity of any mortgagee) that acquires title to the Property; provided in each such event that nothing herein contained shall diminish or in any way affect any other provision of the Declaration or this Supplemental Declaration. (c) Notwithstanding the foregoing paragraphs (a) or (b) of this Section, a sale, transfer or lease otherwise exempted from the right of first refusal provided for in the Declaration shall nonetheless be subject to such right if the party acquiring or leasing the Property intends to utilize same for the operation of an establishment that features nude (male or female) dancing or that utilizes scantily clad men or women as waiters, dancers, hosts or otherwise in connection with its operations (such as for example, Hooters, Melons or Porkys); provided, however, that if First Party elects, in its sole and absolute discretion, to make the foregoing use a prohibited use throughout the Center (as same may be constituted from time to time), by including same in Section 4(g) of the Declaration, then in such event, in lieu of a 3 transfer, sale or lease to party engaged in such activities being subject to the right of first refusal as aforesaid, any transfer, sale or lease to a party seeking to engage in such activities shall be prohibited unless expressly approved in writing by First Party in its sole and absolute discretion; provided that nothing herein contained shall diminish or in any way affect any other provision of the Declaration or this Supplemental Declaration. (d) Notwithstanding anything contained in the Declaration to the contrary, the right of first refusal set forth in Section 10 of the Declaration shall not apply to any transfer, sale, acquisition or lease of the Property to or by any party from and after the date that is fifteen (15) years following the date of this Supplemental Declaration; provided that the foregoing is not intended to diminish or otherwise affect any other provision of the Declaration (including, but not limited to, the use restrictions set forth in Section 4 thereof) or this Supplemental Declaration. 9. Notwithstanding the provisions of paragraph 2 of the Declaration that grant the First Party the right to construct a direct entrance into the Center from Kendall Drive, First Party agrees that if such direct entrance is not fully constructed and completed prior to the date that the operations to be conducted in the building and improvements constructed on the Property are opened for business with the public (the "Opening Date"), then, construction of such entrance shall not be commenced prior to a date that is less than six (6) months after the Opening Date. First Party further agrees that it will not commence such construction activities prior to the Opening Date unless it has in good faith determined that the construction of the entrance will be completed before the Opening Date, as same may be reasonably projected by the then owner (or contract purchaser) of the Property, and the contract relating to the construction of such entrance requires that same be completed prior to the projected Opening Date. First Party shall give owner not less than thirty (30) days' advance notice of the date on which construction of the entrance is expected to commence. 10. Notwithstanding the provisions of paragraph 3 of the Declaration that grant to First Party the unilateral right to install controlled parking within the lands that are from time to time included within the Center, First Party agrees that, as to the diagonally lined portions of the Center as depicted on Exhibit "C" to the Declaration as it exists on the date hereof, excluding the portion thereof located north of Parcel H, controlled parking will not be installed without the approval of the then owner of the Property, which approval shall not be unreasonably withheld. 4 11. Notwithstanding the provisions of paragraph 3 of the Declaration that grant to First Party the unilateral right to install certain signage limiting parking rights, in the event a movie theater is constructed north of the Center (as defined on the date hereof), within any of the lands depicted on Exhibit "B" to the Declaration as it exists on the date hereof, First Party shall, at the request of the then owner of the Property, install signs at the entrances to the diagonally lined portions of the Center as depicted on Exhibit "C" to the Declaration as it exists on the date hereof, excluding the portion thereof located north of Parcel H, which disclose that such portions of the Center are not to be utilized for parking by patrons of the movie theater. 12. The name and address for the owner of the Property, from and after the date hereof until changed as provided in the Declaration, is ______________. 13. This Supplemental Declaration is intended to supplement the Declaration and, in the event of a conflict, to supersede same. Except as and to extent supplemented hereby, the Declaration shall remain in full force and effect according to its terms. IN WITNESS WHEREOF, the undersigned have caused this instrument to be executed as of the day and date first above written. Witnesses: DOCUMENTATION CORP., a Florida corporation Sign Name:________________________ By:___________________________ Print Name:_______________________ Print Name:___________________ Title:________________________ Sign Name:________________________ Print Name:_______________________ (as to Documentation) BERSIN DEVELOPMENT CORP., a Florida corporation Sign Name:_________________________ By:________________________ Print Name:________________________ Jeffrey L. Berkowitz, President Sign Name:_________________________ Print Name:________________________ (as to Bersin) STATE OF ) ) SS. COUNTY OF ) 5 The foregoing instrument was acknowledged before me this ___ day of ____________, 199__ by __________________________, as _________________________ of Documentation Corp., a Florida corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:____________________________ Print Name:___________________________ Notary Public My Commission Expires: _____________________ STATE OF FLORIDA ) ) SS. COUNTY OF DADE ) The foregoing instrument was acknowledged before me this ___ day of ____________, 199__ by Jeffrey L. Berkowitz, as President of Bersin Development Corp., a Florida corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:__________________________ Print Name:_________________________ Notary Public Serial No. (none if blank):__________ My Commission Expires: _____________________ 6 JOINDER The undersigned, General Motors Acceptance Corporation, Mortgagee under those certain Mortgages recorded in Official Records Book ______, Pages ______ and ______, of the Public Records of Dade County, Florida, as modified (the "Mortgages"), encumbering lands which include the lands covered by the foregoing Supplemental Declaration, hereby joins in the foregoing Supplemental Declaration for the purpose of binding the lands encumbered by its Mortgages to the effects of foregoing Supplemental Declaration. IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed as of the ___ day of ____________, 199__. GENERAL MOTORS ACCEPTANCE CORPORATION, a New York corporation By:_____________________________ Print Name:_____________________ Title:__________________________ STATE OF ) ) SS. COUNTY OF ) The foregoing instrument was acknowledged before me this _______ day of ___________, 199__, by _________________________ as _________________________ of General Motors Acceptance Corporation, a New York corporation, in the capacity aforestated; such person is personally known to me or has produced a driver's license as identification. Sign Name:____________________________ Print Name:___________________________ Notary Public Serial No. (none if blank):___________ [NOTARIAL SEAL] My Commission Expires: _____________________ EXHIBIT "A" TO THE SUPPLEMENTAL DECLARATION Legal Description of the Property EXHIBIT "B" TO THE SUPPLEMENTAL DECLARATION Site Plan Reflecting Property EX-10.13 3 EXHIBIT 10.13 EXHIBIT 10.13 Exhibit 10.13 Lease Agreement - Cherry Hill, New Jersey Lease ----- Cherry Hill Associates L.P., Landlord and Silver Diner Development, Inc., Tenant September __, 1996 TABLE OF CONTENTS ----------------- SECTION PAGE ---- 1. Demised Premises................................................... 1 2. Term; Renewal Options.............................................. 1 3. Base Rent; Additional Rent; Percentage Rent........................ 2 4. Operating Costs; Real Estate Taxes................................. 6 5. Taxes on Rental.................................................... 9 6. Use of Demised Premises............................................ 10 7. Assignment or Subletting........................................... 10 8. Repairs and Maintenance............................................ 11 9. Initial Site Work.................................................. 12 10. Signs.............................................................. 12 11. Inspection......................................................... 12 12. Insurance.......................................................... 12 13. Indemnification.................................................... 14 14. Liability of Landlord.............................................. 14 15. Alterations, Landlord Cooperation.................................. 15 16. Mechanic's Liens................................................... 16 17. Services and Utilities............................................. 17 18. Damage by Fire or Casualty......................................... 17 19. Default of Tenant.................................................. 19 (a) Defaults...................................................... 19 (b) Remedies...................................................... 19 (1) Continue Lease................................... 19 (2) Terminate Lease.................................. 20 (3) Reimbursement of Landlord's Costs in Exercising Remedies.............................. 20 (4) Damages.......................................... 21 (5) Remedies Are Cumulative.......................... 21 (6) Waiver of Rights of Redemption................... 21 (c) Effect of Cure................................................ 22 - i - 20. Waiver............................................................. 22 21. Subordination and Attornment....................................... 22 22. Condemnation....................................................... 23 (a) Total Condemnation............................................ 23 (b) Taking - Parking Area......................................... 24 (c) Partial Taking - Improvements................................. 24 (d) Termination for Partial Taking................................ 24 (e) Condemnation Award............................................ 25 (f) Rent Abatement for Partial Taking............................. 26 23. Covenant of Quiet Enjoyment........................................ 26 24. Sale or Transfer................................................... 26 25. No Partnership..................................................... 27 26. No Other Rights Acquired........................................... 27 27. Brokers............................................................ 27 28. Notices............................................................ 27 29. Estoppel Certificates.............................................. 27 30. Surrender; Holding Over............................................ 28 31. Right of Landlord to Cure Tenant's Default......................... 29 32. Tenant's Trade Fixtures............................................ 29 33. Tenant's Personal Property......................................... 29 34. Benefit and Burden................................................. 30 35. Memorandum of Lease................................................ 30 36. Leasehold Mortgages................................................ 30 37. Landlord or Tenant as an Individual or Partnership................. 35 38. Mortgagee Protection............................................... 35 39. Non-Competition.................................................... 35 40. Excuse for Nonperformance.......................................... 36 41. Environmental Matters.............................................. 36 42. Landlord's Representations, Warranties and Covenants............... 37 43. Miscellaneous...................................................... 38 - ii - TABLE OF EXHIBITS ----------------- Exhibit A The Demised Premises Exhibit B Construction Responsibilities Exhibit C Improvements to be Constructed by Tenant Exhibit D Form of First Amendment to Lease Exhibit E Subordination, Nondisturbance and Attornment Agreement Exhibit F Existing Title Exceptions - iii - BASIC LEASE INFORMATION ----------------------- LANDLORD: Cherry Hill Associates L.P., a New Jersey limited partnership LANDLORD'S ADDRESS FOR NOTICES: The Rubin Organization, Inc. The Bellevue 200 South Broad Street, Suite 300 Philadelphia, Pennsylvania 19102 Attn: General Counsel TENANT: Silver Diner Development, Inc., a Virginia corporation TENANT'S ADDRESS FOR NOTICES: Silver Diner c/o Silver Diner Development, Inc. Corporate Office (Rear Entrance) 11806 Rockville Pike Rockville, Maryland 20852 Attn: Mr. Robert T. Giaimo Telecopy No. (301) 770-4521 and a copy to: Silver Diner c/o Silver Diner Development, Inc. Corporate Office (Rear Entrance) 11806 Rockville Pike Rockville, Maryland 20852 Attn: Controller Telecopy No. (301) 770-4521 BUILDING: The Silver Diner restaurant building to be located at the Shopping Center (the "Building") LAND: The building pad on which the Building will be situated together with protected ingress and egress and benefit of restricted surrounding area as shown on Exhibit A and Exhibit A-1. DEMISED PREMISES: The Land EFFECTIVE DATE: Sept. 30, 1996 ________________ TARGET LEASE COMMENCEMENT DATE: April 1, 1997 - i - TARGET RENT COMMENCEMENT DATE: 270th day after Lease Commencement Date RENT COMMENCEMENT DATE: The later of (A) the 270th day after the Lease Commencement Date or (B) the date on which a Kohl's store is open for business in the Shopping Center LEASE EXPIRATION DATE: The last day of the calendar month in which the twentieth anniversary of the Rent Commencement Date occurs subject to three five-year extensions SHOPPING CENTER: Hillview Shopping Center Cherry Hill, New Jersey TERM: Twenty years plus three five-year options BASE RENT: The base rental for each Lease Year (a "Lease Year" being defined as each consecutive 12-month period beginning on the first day of the calendar month next following the month in which the Rent Commencement Date occurs) during the Term (hereinafter referred to as the "Base Rent"), shall be as follows: Annual Monthly Lease Years Base Rent Base Rent ----------- --------- --------- 1 - 5 $160,000 $13,333.00 6 - 10 175,000 14,583.33 11 - 15 192,500 16,041.67 16 - 20 211,750 17,645.83 Option 1 21 - 25 232,925 19,410.42 Option 2 26 - 30 256,218 21,351.50 Option 3 31 - 35 281,839 23,486.58 PERCENTAGE RENT: See Section 3(c) BREAKPOINT AMOUNT: Applicable Base Rent divided by Three Percent (3%) except that the Breakpoint - ii - Amount shall be the applicable Base Rent divided by Four Percent (4%) when Tenant is permitted to sell alcoholic beverages at the Demised Premises PERCENTAGE RENT MULTIPLIER: Three percent (3%) INTEREST RATE: The prime rate of interest charged from time to time by Citibank, New York City, plus two percent (2%) per annum RETAIL USE OF DEMISED PREMISES: Full service sit-down restaurant LANDLORD'S BROKER: Legend Properties, Inc. OEA: Operation and Easement Agreement between Dayton Hudson Corporation and Landlord dated May 28, 1996 The foregoing Basic Lease Information is hereby incorporated and made a part of the Lease. Each reference in the Lease to any information and definitions contained in the Basic Lease Information shall mean and refer to the information and definitions hereinabove set forth. References in this document to the "Lease" shall mean the Basic Lease Information, the body of the Lease, and any Exhibits, Addenda, or Riders thereto. The provisions of the body of Lease shall be read to implement the Basic Lease Information. - iii - LEASE THIS LEASE is made and entered into on the date set forth on the cover page hereof by Landlord and Tenant. 1. Demised Premises. Landlord hereby leases the Demised Premises to Tenant, and Tenant hereby leases the Demised Premises from Landlord, for the Term and upon the conditions hereinafter provided. The Demised Premises are located in the Hillview Shopping Center (the "Shopping Center"). It is understood and agreed that Landlord will not make, and is under no obligation to make, any structural or other alterations, decorations, additions or improvements in or to the Demised Premises except as set forth in Exhibit B. 2. Term; Renewal Options. (a) Lease Commencement Date. The Term shall commence on the Lease Commencement Date and expire at midnight on the Lease Expiration Date unless extended or earlier terminated pursuant to the provisions contained herein. The Lease Commencement Date shall be the date Landlord delivers the Demised Premises to Tenant ready for Tenant to construct its Building which date shall not be earlier than March 1, 1997. Landlord shall give Tenant at least fifteen (15) days advance notice of the Lease Commencement Date. Landlord or Tenant may terminate this Lease by notice to the other if the Lease Commencement Date has not occurred by July 1, 1997, provided the party exercising the termination right has proceeded diligently to fulfill all of its obligations hereunder. The Landlord shall complete the Demised Premises in accordance with Exhibit B. The Phase One Work (as defined in Exhibit B) shall be substantially complete as of the Lease Commencement Date. (b) Rent Commencement Date. The Rent Commencement Date shall be the later of (i) the 270th day after the Lease Commencement Date, or (ii) the date a Kohl's store is open for business in the Shopping Center. If the Building is not "substantially completed" by the Target Rent Commencement Date as a result of Force Majeure (as defined in Section 40), then the Rent Commencement Date shall be postponed by the total number of days of Force Majeure, not to exceed thirty (30) days. For purposes of this Lease, the term "substantially completed" shall mean that either a temporary or permanent certificate of occupancy for the Building has been issued by the applicable governmental authority. (c) First Amendment to Lease. Within thirty (30) days after the Rent Commencement Date, Landlord and Tenant shall execute a First Amendment to Lease (substantially in the form of Exhibit D attached hereto) setting forth the Rent Commencement Date and Lease Expiration Date. - 1 - (d) Renewal Options. Tenant shall have the right, at its option, to extend the Term of this Lease for three additional periods ("Renewal Terms") of five years each on all of the same terms and conditions herein set forth, except that the Base Rent payable by Tenant during each Renewal Term shall be as set forth in the Base Lease Information. Each renewal option shall be deemed to have been exercised by Tenant unless Tenant, not later than six (6) months prior to the expiration of the Term (as it may previously have been extended) in the absence of such exercise, gives notice to Landlord that Tenant will not exercise its renewal option. 3. Base Rent; Additional Rent; Percentage Rent. (a) (1) "Base Rent" is the amount set forth in the Basic Lease Information as adjusted from time to time pursuant to the terms of this Lease. "Additional Rent" is any and all Percentage Rent (as defined in Section 3(c)(1)), and any and all other payments or charges payable by Tenant hereunder, other than Base Rent, whether due and payable immediately or in monthly installments. Throughout the Lease, Base Rent and Additional Rent are sometimes collectively referred to as the "Rent." (2) Base Rent and Additional Rent (where applicable pursuant to the terms of the Lease) shall be due and payable, in advance, in equal monthly installments. If the Rent Commencement Date is a date other than the first day of a month, Rent for the month in which the Rent Commencement Date occurs shall be prorated on a daily basis based upon a thirty (30)-day month and shall be paid in advance on or before the Rent Commencement Date. All payments of Base Rent shall be due on the first day of each and every calendar month during the Term after the Rent Commencement Date. All payments of Additional Rent (other than Percentage Rent) shall be due on the first day of each and every calendar month (except as expressly required herein). All payments of Rent shall be made to Landlord at Landlord's Address for Notices as set forth in the Basic Lease Information, or to such other party or at such other office as Landlord may designate from time to time by written notice to Tenant. All payments of Rent shall be made without demand, notice or invoice (except as expressly required herein) and without deduction, set-off or counterclaim. Except as speci fically provided in Section 22(f) and for applications of Percentage Rent under Section 3(c) of this Lease, no abatement, diminution, reduction of Rent, charges or other compensation shall be claimed by or allowed to Tenant, or any persons claiming under Tenant, under any circumstance, whether for inconvenience, discomfort, interruption of business, or otherwise. If Landlord shall at any time or times accept Rent after it shall become due and payable, such acceptance shall not excuse delay upon subse quent occasion. - 2 - (b) Tenant shall pay any installment of Base Rent and any Additional Rent (whether such Additional Rent is being paid on an installment or other basis) by check made payable to Landlord and postmarked on or before the due date. (c) (1) In addition to Base Rent and any other Additional Rent payable hereunder, Tenant shall pay as percentage rent ("Percentage Rent"), an amount equal to the Percentage Rent Multiplier multiplied by the amount, if any, by which Gross Receipts (as defined below) for such Lease Year exceed the Breakpoint Amount for such Lease Year. (2) Statements and payments in respect of Percentage Rent shall be made by Tenant as follows: (i) Within thirty (30) days after the end of each four week accounting period of each Lease Year during the Term, beginning with the accounting period first ending after the Rent Commencement Date, Tenant shall submit to Landlord (i) an accurate written statement, certified as true, complete and correct by the chief financial officer of Tenant, setting forth the amount of Gross Receipts for such accounting period and (ii) the Percentage Rent payment for such accounting period. The Percentage Rent payable for such accounting period shall be an amount equal to (A) the Percentage Rent Multiplier times the amount, if any, by which (i) the Gross Receipts for such Lease Year through such accounting period exceeds (ii) the applicable Breakpoint Amount prorated for the portion of such Lease Year through such accounting period, less (B) Percentage Rent actually paid for prior accounting periods for such Lease Year. The Breakpoint Amount shall be pro-rated on an accounting period basis. The Breakpoint Amount shall be the applicable Base Rent divided by Three Percent (3%) except that during such Accounting Periods as Tenant is at all times permitted to sell alcoholic beverages at the Demised Premises the Breakpoint Amount shall be the Applicable Base Rent divided by Four Percent (4%). The Percentage Rent shall be separately computed for those accounting periods of a Lease Year during which Tenant is permitted to sell alcoholic beverages and those accounting periods of a Lease Year when Tenant is not permitted to sell alcoholic beverages, but the results shall be netted together to determine the actual Percentage Rent payable for any Lease Year or portion of a Lease Year. (ii) Within ninety (90) days after the end of each Lease Year during the Term, Tenant shall submit to Landlord a written statement (the "Annual Statement"), certified by Tenant's auditor and chief financial officer as true, complete and correct and in accordance with Tenant's books and records, showing in reasonable detail the full amount of the Gross Receipts during the immediately preceding Lease Year (broken down between accounting periods during which Tenant was permitted to - 3 - sell alcoholic beverages and accounting periods during which Tenant was not permitted to sell alcoholic beverages) and the Percentage Rent payable and paid for such Lease Year. If the Percentage Rent for such Lease Year shall exceed the Percentage Rent theretofore paid in respect of such Lease Year, the balance due with interest on such balance at the Interest Rate shall be paid by Tenant with the Annual Statement. Any overpayment of Percentage Rent disclosed by the Annual Statement shall be applied to the next payment of Base Rent. Each Annual Statement shall include and reflect data necessary for an accurate computa tion of the Percentage Rent due under this Lease for the period covered by such Annual Statement. (iii) Throughout the Term, Tenant shall maintain and keep, or cause to be maintained and kept, at its general offices a full, complete and accurate record and account of all sales of food, beverages, merchandise and services and all sums of money paid or payable for or on account of or arising out of the business transactions conducted at or from the Demised Premises. Tenant shall maintain its books and records substan tially in accordance with generally accepted accounting principles. Tenant shall keep and preserve, or cause to be kept and preserved, the records applicable to any 12-month period for not less than thirty-six (36) months after the Annual Statement in respect of such 12-month period is delivered to Landlord. Tenant agrees that Landlord may inspect Tenant's records relating to the calculation of Gross Receipts (including daily register reports, credit card receipts, all sales tax returns, and portions of income tax returns relating to sales) at the office of Tenant (which shall be located at the Demised Premises or at a location within the Washington, D.C. metropolitan area) upon reasonable advance notice during normal business hours, provided that, with respect to any particular Annual Statement, such inspection is made within thirty-six (36) months after the Annual Statement is delivered to Landlord and is limited to the period covered by such Annual Statement. Any claim made by Landlord for revision of any Annual Statement or for additional Percentage Rent, which claim is not made to Tenant within thirty-six (36) months after the date when the Annual Statement is delivered to Landlord, shall be and hereby is waived by Landlord. If it is ultimately determined that there was an error in any of Tenant's statements prejudicial to Landlord's receipt of Percentage Rent, Tenant shall pay any differential, plus interest at the Interest Rate from the time such Percentage Rent was to have been paid until actually paid, on demand as Additional Rent and if such difference is in an amount equal to more than five percent (5%) of the amount of Percentage Rent reported by the Annual Statement for the period covered by the Annual Statement, the expenses of Landlord's audit shall be paid on demand as Additional Rent by Tenant. Otherwise, the expenses of Landlord's audit shall be paid by Landlord. In the event of any disagreement in regard to any claimed revisions, the parties shall submit the disagreement -4- to a certified public accountant chosen mutually whose judgment shall be binding, with the costs of this procedure to be borne equally by the parties. (3) For purposes of this Lease, the term "Gross Receipts" shall mean all amounts charged by Tenant and by all licensees, concessionaires and sublessees of Tenant, arising from all business conducted upon or from the Demised Premises, whether such business be conducted by Tenant or by any licensee, concessionaire or sublessee of Tenant, whether such sales shall be credit or cash sales or otherwise and shall include, but not be limited to, the amounts received from the sale of food, liquor, goods, wares, merchandise and services at or on the Demised Premises. Landlord acknowledges that Tenant's organiza tional structure is such that there may be inventory transfers between Tenant and any Affiliate of Tenant. For purposes of this Lease, an "inventory transfer" is a transfer of inventory to an Affiliate made solely for the convenience of Tenant's business and not for the purpose of consummating a sale which has been made at, in or from the Demised Premises. For purposes of this Lease, an "Affiliate" of any entity is any other entity that controls, is controlled by or is under common control with the first entity or any successor of the first entity. Any and all inventory transfers between Tenant and any Affiliate of Tenant shall be excluded from the term "Gross Receipts." Each sale upon credit shall be treated as a sale for the full price in the month in which such sale shall be made, irrespective of the time when Tenant or its licensee, concessionaire or sublessee shall receive complete or partial payment from its customer. "Gross Receipts" shall not include: (i) sales of merchandise for which cash has been refunded or allowances made on merchandise claimed to be defective or unsatisfactory or on exchanged merchandise or allow ances made on merchandise in connection with promotions and/or discounts; (ii) discounts on the stated sales price which are not actually charged to the customer or employee; (iii) any and all sums collected and actually paid out for any sales or excise tax imposed by any federal, state, municipal or other governmental authority based upon all sales included within the definition of Gross Receipts as required by law, whether now or hereafter in force, to be paid by Tenant or collected from its customers; (iv) any tips collected by employees; and (v) any amounts deposited in pay phones, the jukebox system (including selector boxes at tables), vending machines, and charitable collection boxes. (d) If Tenant fails to pay in the time and manner provided in Section 3(b) any Rent due hereunder, and such failure to pay continues for ten (10) days after Tenant receives notice from Landlord thereof, then such Rent shall bear interest at a rate per annum equal to the Interest Rate from the date such Rent became due to the date of the payment thereof by Tenant, but in no event in excess of the highest rate allowed by law. In addition, if Tenant fails to pay any Rent due hereunder after - 5 - receipt of notice and the expiration of any applicable cure period with respect thereto, then Landlord shall be entitled to collect a late payment charge in the amount of Two Hundred Dollars ($200.00) ("Late Payment Charge"). Any written notice to Tenant of a failure to pay Rent timely shall state the amount of Rent and the per diem interest due. No payment by Tenant of any interest or Late Payment Charge shall relieve Tenant from the obligation to make any other payments due under this Section 3 or any other provision of the Lease. Such interest and Late Payment Charge shall constitute Additional Rent due and payable with the next monthly installment of Rent following Tenant's receipt of written notice thereof from Landlord. If Landlord does not bill Tenant for any interest or Late Payment Charge within ninety (90) days of its accrual, such fact shall be deemed a waiver by Landlord of its right to such interest or Late Payment Charge. 4. Operating Costs; Real Estate Taxes. (a) Commencing on the Rent Commencement Date and ending on the last day of the Term, Tenant shall pay Landlord, as additional rent, an annual charge representing its contribution to the costs of the maintenance and operation of the Common Areas. Such annual charge (hereinafter called the "Common Areas Charge") shall be computed as follows: the Common Areas Expenses (as hereinafter defined) in each calendar year of the Term shall be multiplied by a fraction ("Tenant's Pro Rata Share"), the numerator of which shall be the Floor Area of the Building and the denominator of which shall be the total Floor Area of all buildings in the Shopping Center except that if any other tenant(s) exercise a right to take over the maintenance of their tracts, the Floor Area of their buildings shall be excluded for so long as such tenant(s) perform such maintenance. Landlord from time to time shall estimate the Common Areas Charge for the remainder of the applicable calendar year and Tenant shall pay the estimated amount in equal monthly installments over the remaining portion of the calendar year. Within ninety (90) days after the expiration of each calendar year, Landlord shall notify Tenant of the actual Common Areas Charge due from Tenant for such calendar year and such statement shall be binding upon Landlord and Tenant, subject to Tenant's right to audit the same pursuant to Paragraph (c) of this Section 4. If the Common Areas Charge for such calendar year shall be more than the estimated payments by Tenant, Tenant shall promptly pay the difference to Landlord within thirty (30) days after demand. If the Common Areas Charge for the applicable calendar year is less than the estimated payment paid by Tenant for such calendar year, Landlord shall credit Tenant an amount equal to the difference between the estimated payments made by Tenant and the actual Common Areas Charge or refund such overpayment within thirty (30) days in the case of the last year in the Term. If the Rent Commencement Date shall be a day other than the first day of a calendar month, payment for the first month shall be made on a pro rata basis and - 6 - if the term of this Lease shall end on a day other than the last day of a calendar month, payment for the last month shall likewise be made on a pro rata basis. (b) As used herein, the term "Common Areas Expenses" shall mean the reasonable costs and expenses actually incurred by Landlord in the repair, replacement, maintenance and operation of the Common Areas, as determined, on a consistent basis, in accordance with generally accepted accounting principles and shall include, without limit, the following costs and expenses: charges for electricity for lighting of the Common Areas; the cost of repairing, maintaining, replacing and operating the Common Areas, including electrical and storm sewer systems; the cost of general public liability insurance for the Common Areas; the wages of nonmanagement personnel employed in cleaning sidewalks and parking areas, snow removal, the removal of trash and similar work; the cost of maintaining landscaping, if any, in the Common Areas, including replacement of trees, shrubs, and plants where necessary; the costs of repairing and replacing sidewalks and parking areas (including parking lot striping) after the completion of the Landlord's work to be performed pursuant to Exhibit B; the wages of non-management personnel employed as security personnel and parking area attendants; the cost of snow removal services; the cost of miscellaneous repairs to the Common Areas and to signs and fountains, if any, located therein; the cost of general supplies consumed in the maintenance and operation of the Common Areas; and a general administrative fee (in lieu of any other management fees or administrative overhead) equal to five percent (5%) of the total of all other Common Areas Expenses. There shall be deducted from the Common Areas Expenses proceeds from insurance and warranty claims. In any event, the Common Areas Expenses shall not include (i) the cost of the original site improvements to the Shopping Center, (ii) debt service on indebtedness of Landlord, (iii) Landlord's cost of any utility or other services, if any, separately sold by Landlord to Tenant and/or other occupants in the Shopping Center, (iv) costs incurred by Landlord for alterations, if any, for other tenants, (v) depreciation of the Shopping Center buildings and major components, (vi) the cost of any maintenance or services with respect to tracts which are excluded from the computation of Tenant's Pro Rata Share, (vii) real estate taxes which are subject to subsection 4(d), and (viii) costs for capital improvements and/or replacements to upgrade existing facilities, but capital costs for replacement of the curbs, sidewalks, drainage, lighting and similar systems and repaving of parking areas and access drives shall be included, except that, if under generally accepted accounting principles, such expenditure is not a current expense, then, the cost thereof shall be amortized over a period equal to the useful life of such improvement, determined in accordance with generally accepted accounting principles, and the amortized cost allocated to each calendar year during the Term, together with an imputed interest - 7 - amount calculated on the unamortized portion thereof using an interest rate which is two percent (2%) below the Interest Rate at the time of the expenditure, shall be treated as a Common Area Expense. (c) Tenant shall have the right to audit the Common Areas Expenses and Tenant's Real Estate Tax Share for any calendar year at any time within 360 days after the date on which Tenant receives the statement of Common Areas Expenses. Such audit must be performed either by Tenant's own employees or by independent contractors who are being paid on a fixed (as opposed to contingent) fee basis. The cost of any such audit shall be paid by Tenant, except that, if it is ultimately determined that the Common Areas Charge for any calendar year was overstated by more than five percent (5%), then the cost of the audit shall be paid by Landlord. Landlord shall pay to Tenant any overpayment of Common Areas Charge for the calendar year in question within 30 days after the amount of the overpayment has ultimately been established by the audit. If Tenant fails to exercise its right of audit within the 360-day period, the amount of the Common Areas Charge for the calendar year shall be conclusively established as the amount set forth in the statement of Common Areas Expenses for such calendar year delivered by Landlord to Tenant pursuant to subsection (b). If, however, Tenant timely exercises its right of audit, the amount of Common Areas Charge for such calendar year shall be conclusively established as the amount determined as a result of such audit unless, within 180 days after receipt of a report of the same from the auditors selected by Tenant, Landlord shall contest the amount thereof. (d) Tenant shall also pay its share ("Tenant's Real Estate Tax Share") of all taxes, assessments, and other govern mental fees and charges applicable to the Land and the Building, whether federal, state, county, municipal, or other authority, and whether assessed by taxing districts or authorities presently taxing the Land or the Building or the operation thereof or by other taxing authorities subsequently created or otherwise. Real estate taxes for the year in which the Rent Commencement Date occurs and for subsequent calendar years shall be deemed to be the taxes paid in the respective calendar years, even though the levy or assessment thereof may be for a different fiscal year; provided, however, that real estate taxes levied for any period prior to the Rent Commencement Date or after the Lease Expiration Date shall be excluded from Operating Costs. Real estate taxes for each calendar quarter during the Term shall be paid by Tenant at least fifteen (15) days prior to the date such taxes are due to be paid to the applicable governmental body, based upon Landlord's reasonable estimate of such taxes. Tenant's Real Estate Tax Share shall be the taxes for the portions of the Shopping Center not separately assessed times the Floor Area of the Building divided by the Floor Area of all buildings in the Shopping Center which are not separately assessed. Landlord - 8 - covenants that taxes attributable to parking areas and open space will be equitably apportioned among those portions of the Shopping Center which are separately assessed and those portions of the Shopping Center as to which Tenant's Real Estate Tax Share is computed. 5. Taxes on Rental. (a) In addition to the component of Operating Costs respecting taxes, assessments, etc., Tenant shall pay to the appropriate agency any sales, excise, public space rentals and other tax (not including, however, Landlord's income taxes) levied, imposed or assessed on Tenant by any applicable governmental or other taxing authority upon any rental payable hereunder. Tenant shall also pay, prior to the time the same shall become delinquent or payable with penalty, all taxes imposed on its inventory, furniture, trade fixtures, apparatus, equipment, leasehold improvements installed by Tenant (except to the extent such leasehold improvements shall be covered by those taxes referred to in subsection 4(d) hereof), and any other property of Tenant. (b) Tenant may contest the amount or validity of any real estate taxes or any taxes referenced in Section 5(a) by appropriate legal proceeding. However, Tenant shall promptly pay the full amount of such imposition unless such proceeding shall operate to prevent or stay the collection or the imposition so contested without payment of the imposition being required. If such proceeding shall not operate to prevent or stay the collection of the imposition so contested, Tenant shall deposit with Landlord the amount so contested and unpaid, which Landlord shall be entitled to utilize to pay any such assessment or in such other fashion as Landlord may reasonably deem necessary or appropriate to protect the Demised Premises from attachment, levy, or other legal proceeding by any tax authority because of Tenant's failure to pay any such assessment, imposition or charges. Upon the termination of such proceeding, Tenant shall deliver to Landlord proof of the amount of the imposition and any such charges as finally determined, and thereupon Landlord shall, out of the sum so deposited with it by Tenant, pay such imposition and any such charges and shall refund any balance to Tenant. If the sums deposited with Landlord are insufficient to pay the full amount of such imposition and other charges, Tenant shall forthwith pay any deficiency as Additional Rent upon ten (10) days' written notice by Landlord to Tenant. Landlord, at Tenant's sole expense, shall join in any such proceeding if any law shall so require. - 9 - 6. Use of Demised Premises. (a) Tenant will use and occupy the Demised Premises solely for use as a full service sit down restaurant (which shall initially be a Silver Diner) and in accordance with the use permitted under applicable zoning regulations. Tenant will not use or occupy the Demised Premises for any unlawful purpose or in any way which will violate the OEA. Tenant will comply with all of the obligations of the OEA applicable to the Demised Premises except that Landlord shall be responsible for all maintenance and other obligations for the parking and common areas. (b) In regard to the use and occupancy of the Demised Premises, Tenant shall, at its sole cost and expense, (i) maintain the Demised Premises in a clean and orderly condition, and (ii) comply with all laws, ordinances, rules, and regulations of governmental authorities and all reasonable recommendations of Tenant's casualty insurer(s) and other applicable insurance rating organizations now or hereafter in effect. 7. Assignment or Subletting. (a) Tenant shall have no right to assign this Lease or sublet all or any portion of the Demised Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, Landlord's consent shall not be withheld provided that Tenant is not in monetary default beyond applicable notice and cure periods and that (i) the assignee has a verifiable net worth of at least Fifteen Million Dollars, (ii) the assignee is operating at least six sit down family style restaurants having total Gross Receipts (for all such restaurants as a group) of at least Ten Million Dollars per year, and (iii) Tenant continues as an obligor under the Lease for two (2) years after the assignment. (b) Except as provided in Section 7(e) below, if Tenant desires to assign this Lease or sublet all or any portion of the Demised Premises, Tenant shall give Landlord written notice of Tenant's desire to do so at least thirty (30) days prior to the effective date thereof. At such time, Tenant shall also submit to Landlord with the notice such financial statements and other information to show the then-current net worth and business experience of the assignee or sublessee. Landlord shall have twenty (20) days from the receipt of Tenant's notice to notify Tenant whether it consents to the proposed assignment or sublease. If Landlord fails to respond within such twenty (20)- day period Tenant shall send Landlord a reminder notice and if Landlord fails to respond within five (5) days from the receipt of the reminder notice, such failure shall be deemed Landlord's approval of the proposed assignment or sublease. The reminder notice shall set forth the deemed approval consequence of failure to respond. Landlord expressly agrees and acknowledges that it - 10 - may not withhold its consent to any proposed assignment or sublet unless it specifically explains its reasons for withholding consent. (c) Except as otherwise specifically provided herein, upon the assignment of this Lease by Tenant, Tenant shall not be released from any of its obligations under the Lease. Upon an assignment complying with Section 7(a), Tenant shall, after such two year period, be released from any and all of its obligations under this Lease except for any obligations accruing prior to such assignment. Except as otherwise specifically provided here in, Landlord and Tenant acknowledge and agree that Landlord shall look primarily to the assignee for relief upon breach of any of the obligations contained in this Lease subsequent to any permitted assignment. (d) Except as otherwise specifically provided herein, neither Tenant nor Tenant's successors or permitted assigns, shall assign, mortgage, give as security, pledge or encumber this Lease, in whole or in part, by operation of law or otherwise, or sublet the Demised Premises in whole or in part, or permit the Demised Premises or any portion thereof to be used or occupied by others, without the prior written consent of Landlord in each instance; provided, however, that upon the request of Silver Diner Development, Inc. or an Affiliate of Silver Diner Development, Inc., Landlord shall not unreasonably withhold its consent to a leasehold mortgage (or collateral assignment of leasehold to a lender) for Silver Diner Development, Inc. or an Affiliate of Silver Diner Development, Inc. (e) Notwithstanding any provision to the contrary contained in this Lease, provided that Tenant is not in monetary default beyond applicable notice and cure periods hereunder, Tenant shall have the right at any time during the Term, without Landlord's consent, to assign the Lease to any Affiliate, franchisee or licensee of Tenant or to any entity with which Tenant merges or consolidates or to any entity which acquires all or substantially all of Tenant's assets provided that no such assignment shall be valid if it is a device to circumvent the restrictions on assignment of this section. 8. Repairs and Maintenance. Tenant shall, throughout the Term, at its sole cost and expense, keep and maintain the Demised Premises and Building and all fixtures and personalty located thereon or appurtenant thereto (including, without limitation, the Building roof, foundation, structure and the Building mechanical, electrical, HVAC and plumbing systems) in good order and condition and shall make all necessary and desirable repairs and replacements thereof and shall use all reasonable precaution to prevent waste, damage or injury thereto. - 11 - 9. Initial Site Work. Landlord shall complete the Demised Premises as set forth on Exhibit B. Landlord and Tenant agree that Landlord may complete its work with respect to the Demised Premises after the Lease Commencement Date so long as such work does not interfere with the construction of the Building by Tenant. In this connection, Landlord shall provide reasonable means for construction access and reasonable construction staging areas for Tenant's use in connection with construction of the Building. In the event that Landlord interferes with, or delays, Tenant's construction and completion of the Building, Landlord shall give Tenant a credit of $500 for each day by which Tenant is delayed due to acts or failures of Landlord. In addition, the Rent Commencement Date shall be extended by one day for each such day of delay. 10. Signs. Tenant shall have the exclusive right to place and maintain signs and other advertising matter upon the Demised Premises subject to applicable law and the OEA. Tenant shall, at its sole cost and expense, maintain such signs and other advertising matter in good condition and repair. Landlord agrees to cooperate with Tenant in Tenant's efforts to secure any required OEA and/or governmental approvals for any such signs and other advertising matter. Tenant's initial signs will be substantially as depicted on the plans referenced in Exhibit C. 11. Inspection. Tenant will permit Landlord, or its representative, upon reasonable prior notice (except in the case of an emergency when no such notice shall be required), to enter the Demised Premises at any reasonable time and from time to time, without charge to Landlord and without diminution of the Rent payable by Tenant, to examine, inspect and protect the same or to exhibit the same to prospective lenders or purchasers. Landlord shall use reasonable efforts to minimize any interference with Tenant's business in connection with such entry. 12. Insurance. (a) Tenant, at its sole cost and expense, shall obtain and maintain in effect, throughout the Term, insurance policies providing at least the following coverage: (1) A commercial general liability insurance policy, with broad form property damage endorsement (or a substantially similar policy), naming Landlord and any mortgagees of the Demised Premises as additional insureds and protecting Landlord, Tenant and the mortgagees against any liability for bodily injury, personal injury, death or property damage occurring upon the Demised Premises, with such policy (together with "umbrella" policies) to afford protection with a combined - 12 - single limit of not less than $5,000,000 per occurrence. The policy shall contain cross-liability and contractual liability endorsements. (2) A policy of fire and extended coverage and additional broad perils insurance (i.e., an "all risk" policy) (or a substantially similar policy) covering all of Tenant's personal property, including contents, furniture, fixtures, and equipment not permanently attached to the Building, for not less than one hundred percent (100%) of the full replacement cost. (3) A policy providing workers' compensation insurance as required by law. (4) A policy of fire and extended coverage and additional broad perils insurance (i.e., an "all risk" policy) (or a substantially similar policy) covering the Building and the improvements and betterments thereto, in an amount not less than one hundred percent (100%) of the full replacement cost of the Building and the improvements and betterments thereto. (b) All insurance policies required to be maintained under the terms of this Lease (i) shall be issued in a form reasonably acceptable to Landlord by a company or companies licensed to do business in the jurisdiction in which the Demised Premises is located; (ii) shall be procured by Tenant for periods of not less than one (1) year; (iii) shall be non-assessable; (iv) shall require thirty (30) days' prior written notice to Landlord of any cancellation or material change affecting Landlord's coverage under such policy; and (v) shall not be prejudiced if the insureds thereunder have waived in whole or in part the right of recovery from any person or persons prior to the date and time of loss or damage, if any, and/or the insurer waives any rights of subrogation against Landlord. Upon Land lord's written request, Tenant shall submit a Certificate of Insurance (or binders) and evidence of payment therefor on or prior to the Rent Commencement Date. (c) Tenant shall pay the premiums of all insurance policies required to be maintained by Tenant hereunder directly to the appropriate insurance companies. Upon Landlord's written request, Tenant shall submit receipts evidencing payment for such insurance policies. (d) Landlord and Tenant hereby each waive and release the other from any and all claims against each other for loss or damage to the Building and other buildings owned by Landlord, and the fixtures, equipment and/or other personal property arising from a risk insured under "all risk" coverage, but only to the extent of such party's actual recovery of losses or damages under such policy. - 13 - (e) If at any time the type of insurance required to be maintained hereunder becomes generally unavailable (for reasons other than the gross negligence or willful misconduct of Tenant), then Landlord and Tenant will agree on an appropriate substitute whether by insurance, self-insurance or other alternative. (f) Neither the issuance of any policy required hereunder nor the minimum limits specified herein shall be deemed to limit or restrict Tenant's liability under this Lease. 13. Indemnification. (a) Tenant shall indemnify and defend Landlord and hold Landlord harmless from and against all loss, cost, expense, claims, damages or liability for or on account of any injury (including death) or damage received or sustained by any person or persons (including Landlord and any employee, agent or invitee of Landlord) to the extent that such loss or liability is caused by reason of any default by Tenant hereunder, or any negligent act, omission or willful misconduct on the part of the Tenant or any agent, contractors, servants or employees. (b) Landlord shall indemnify and defend Tenant and hold Tenant harmless from and against all loss, cost, expense, claims, damages or liability for or on account of any injury (including death) or damage received or sustained by any person or persons (including any employee, agent or invitee of Tenant) to the extent that such loss of liability is caused by reason of any default by Landlord hereunder, or any negligent act, omission or willful misconduct on the part of Landlord or any agent, contractors, servants or employees. (c) If either Landlord or Tenant (the "Indemnitee") is made a party to any litigation commenced against the Indemnitee which falls within the scope of the foregoing indemnities, then the other party (the "Indemnitor") shall pay all costs and expenses, including reasonable attorneys' fees and court costs, incurred by or imposed upon Indemnitee because of any such litigation, and the amount of such costs and expenses, including reasonable attorneys' fees and court costs, shall be a demand obligation owing by Indemnitor to Indemnitee. 14. Liability of Landlord. Except for damages caused by the negligence or the intentionally wrongful acts or omissions of Landlord, Landlord shall not be liable to Tenant, its employees, agents, invitees, or customers for any damage, compensation or claim arising from (i) any interruption in the use of the Demised Premises, (ii) the termination of this Lease by reason of the destruction of the Building or a taking or sale in lieu thereof by eminent domain, (iii) any fire, robbery, theft, criminal act and/or any other casualty, or (iv) any damage caused by other - 14 - persons or occupants of adjacent property, or caused by operations in construction of any private, public or quasi-public work. All personal property of Tenant or others kept or stored on the Demised Premises shall be kept or stored at the risk of Tenant. Notwithstanding anything to the contrary contained in this Lease, the liability of Landlord hereunder shall be limited to its interest in the Demised Premises, and Tenant agrees to look solely to such interest for the satisfaction of any liability of Landlord under this Lease, it being specifically agreed that in no event shall Landlord (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders, principals or other representatives of Landlord) ever be personally liable for any such liability. 15. Alterations, Landlord Cooperation. (a) After the Lease Commencement Date, promptly upon obtaining all required governmental licenses and approvals, Tenant shall commence and diligently prosecute to completion the construction on the Land of a Silver Diner restaurant substantially in accordance with Exhibit C. During the Term, Tenant shall have the right, at its sole cost and expense, to make or cause to be made any alterations, betterments or improve ments in or to the Demised Premises ("Alterations") without Landlord's consent, provided that such Alterations do not have a material adverse impact upon the value of the Demised Premises. All Alterations must be constructed in a first class, workmanlike manner. Tenant may, as part of any Alterations, expand the Building by not more than 2,000 square feet of floor area provided that, at the time such expansion is proposed, such floor area has not been previously leased or committed to others by Landlord and is available under applicable zoning, the OEA, and any other applicable restrictions. Tenant will not be required to pay any additional Base Rent due to any such expansion(s) of not more than 2,000 square feet total. The term "Alterations" does not include any furniture, fixtures and equipment, any personal property, or any other similar items. Tenant shall not make any Alterations to the exterior of the Building which (i) are not in good taste, (ii) materially detract from the aesthetically pleasing appearance of the Building, or (iii) violate the OEA or any applicable law, ordinance, regulation or order of a public authority. Tenant will comply with, at its sole cost and expense, and make any Alterations to the Demised Premises (including structural alterations and alterations to the Building systems) as may be necessary to effect compliance with all present and future laws, ordinances, regulations, and orders of any public authority having jurisdiction over the Demised Premises. All Alterations to the Demised Premises, made or installed in or about the Demised Premises by either party shall be surrendered to Landlord with the Demised Premises as a part thereof upon the expiration or earlier termination of the Term. (b) Landlord agrees, within fifteen (15) days after receipt of a written request therefor from Tenant, to execute, acknowledge and deliver (or join with Tenant in the execution, acknowledgement and delivery of), at Tenant's sole cost and - 15 - expense, any and all (i) applications for licenses, permits, vault space or other authorizations of any kind or character required by any governmental authority in connection with the construction, alteration or repair of any buildings or improvements located on the Demised Premises, (ii) grants or deeds of easements and/or rights of way for public utilities or similar public facilities, which, in Tenant's sole discretion, may be useful and/or necessary in the proper economic and orderly development of the Demised Premises, and (iii) grants or deeds of dedication where such dedication is required by any governmental authority in connection with the construction of buildings or improvements on the Demised Premises. If Landlord fails to execute, acknowledge and deliver (or fails to join with Tenant in the execution, acknowledgement and delivery of) any application, deed or other instrument referred to in this Section 15, within fifteen (15) days after receipt of a written request from Tenant therefor, Tenant shall have the right to execute, acknowledge and deliver any such application, deed or other instrument in the name and on behalf of Landlord, and for that purpose, Landlord hereby irrevocably appoints Tenant as Landlord's attorney-in-fact to execute, acknowledge and deliver any such application, deed or other instrument in the name and on behalf of Landlord. Landlord and Tenant hereby expressly declare that the foregoing power-of- attorney granted by Landlord to Tenant is intended to be, and shall be construed for all purposes as, a power coupled with an interest, shall be and remain in full force and effect throughout the entire term of this Lease, and shall not be revoked or impaired by Landlord's dissolution, bankruptcy, or incapacity or for any other reason. In addition, Tenant shall have the right to seek specific performance of the obligations of Landlord, injunctive relief or other equitable remedies. Tenant agrees to indemnify and hold harmless Landlord from and against all liability and obligation in connection with, or resulting from, the signing of any such document or instrument. 16. Mechanic's Liens. No work performed by Tenant pursuant to this Lease, whether in the nature of erection, construction, alteration or repair, shall be deemed to be for the immediate use and benefit of Landlord, nor shall Tenant be deemed to be the agent of Landlord in performing such work, so that no mechanic's or other lien shall be allowed against the estate of Landlord by reason of any consent given by Landlord to Tenant to improve the Demised Premises. Tenant shall pay promptly all persons furnishing labor or materials with respect to any work performed by Tenant or its contractor on or about the Demised Premises. If any mechanic's or other lien shall at any time be filed against the Demised Premises by reason of work, labor, services or materials performed or furnished, or alleged to have been performed or furnished, to Tenant or to anyone holding the Demised Premises through or under Tenant, Tenant shall, within thirty (30) business days after receiving notice thereof, cause the same to be discharged of record or bonded to the satisfaction of Landlord, at Tenant's sole cost and expense. If Tenant shall fail to cause such lien to be so discharged or bonded within such thirty (30)-day period, then, in addition to any other right or - 16 - remedy of Landlord, Landlord may bond or discharge the same by paying the amount claimed to be due, and the amount so paid by Landlord, including reasonable attorneys' fees, incurred by Landlord either in defending against such lien or in procuring the bonding or discharge of such lien, together with interest thereon at the Interest Rate shall be due and payable by Tenant to Landlord as Additional Rent within ten (10) days after Tenant's receipt of notice thereof from Landlord. 17. Services and Utilities. (a) Landlord shall, at no cost to Tenant, cause utilities, as specified on Exhibit B, to be constructed to within five feet of the Building. Such utilities shall include water, sanitary sewer, electricity, natural gas, and telephone. Land lord shall cooperate with Tenant and execute such documentation as may be necessary to permit water, sewer, gas and electric utility services to be provided to the Demised Premises with meters to measure Tenant's use of such services. (b) Tenant shall pay for all utilities directly to the appropriate utility company. Landlord shall not be liable in any way to Tenant, and Tenant's obligation to pay Rent shall not be affected, for any failure, interruption, curtailment, stoppage, suspension or defect in the supply or character of the utilities furnished to the Demised Premises by reason of any requirement, act or omission of the public utility serving the Demised Premises or otherwise, except as may be the result of the negligence or the intentionally wrongful acts or omissions of Landlord. (c) In the event natural gas service is unavailable or cannot reasonably be obtained by Tenant, then Landlord hereby consents to the installation of a liquified petroleum gas system (i.e., bottled gas) to service the Demised Premises. Tenant may install such tanks and pipes as are necessary in conjunction with such system at a location to be mutually agreed upon by Landlord, Tenant and the appropriate governmental authorities. Any cost and expenses associated with the installation and use of a liquified petroleum gas system, including any increase in insurance premiums for fire and extended coverage, shall be borne solely by Tenant. 18. Damage by Fire or Casualty. (a) In the event any improvements on or forming part of the Demised Premises or Building are damaged or destroyed, partially or totally, from any cause whatsoever at any time during the Term of this Lease, Tenant shall, at its own cost and expense, restore and repair the damaged or destroyed portions of the Demised Premises or Building in conformity with the provisions of this Lease. In restoring and repairing the damaged - 17 - portions of the Demised Premises, Tenant shall repair, restore, and rebuild the improvements to at least as good condition as existed immediately prior to such damage or destruction and this Lease shall continue in full force and effect. Such repair, restoration and rebuilding (all of which are herein called "repair") shall be commenced within a reasonable time after such damage or destruction (not to exceed ninety (90) days after the casualty) and shall be subject to all the provisions of this Lease relating to construction work by Tenant and shall be pursued diligently to completion. There shall be no abatement of Rent or of any other obligation of Tenant hereunder by reason of such damage or destruction. (b) (1) If at any time during the last two (2) Lease Years of the Initial Term of this Lease or during any Renewal Term the buildings and improvements constructed on the Demised Premises are damaged or destroyed to the extent that it would not reasonably be repaired or restored within ninety (90) days after such damage occurs, then Tenant may elect to terminate this Lease by giving written notice to Landlord within ninety (90) days after the occurrence of such damage or destruction provided Tenant pays to Landlord that portion of the insurance proceeds which are received by reason of such casualty which do not exceed the value of the Building prior to the casualty. For the purposes of the preceding sentence, such insurance proceeds shall not include any business interruption insurance proceeds. (2) In the event this Lease is terminated pursuant to this Section, Tenant will raze and remove all of the damaged improvements and restore such areas to a clean, level and grassed area. If the Lease is not terminated, Tenant shall be obligated to rebuild, restore and repair the damaged or destroyed portions of the Demised Premises as set forth in Section 18(a). (3) The effective date of termination of this Lease shall be the date that Tenant surrenders to Landlord the Demised Premises in conformity with the provisions of this Lease, and pays in full all Rent accrued and due under the Lease as of such date. If Tenant shall terminate this Lease pursuant to this Section, all Rent payable by Tenant to Landlord hereunder shall be prorated as of the termination date, and Landlord shall make an equitable refund of any Rent paid by Tenant in advance and not yet earned. (c) Except as otherwise provided in Section 18(b), Tenant hereby waives any and all rights provided by law to Tenant to terminate this Lease upon the partial or total destruction of the Demised Premises, whether now existing or hereinafter enacted. - 18 - 19. Default of Tenant. (a) Defaults. (1) If (i) Tenant shall fail to pay in the manner provided in Section 3 any installment of Base Rent or any Additional Rent (whether such Additional Rent is being paid on an installment or other basis) payable hereunder, or any other charge due hereunder (although no demand has been made therefor except as expressly required herein), or (ii) Tenant shall breach, violate or otherwise fail to perform any of the other conditions, covenants, agreements or obligations contained herein to be performed by Tenant, or (iii) Tenant shall be liquidated or dissolved (if a corporation or other entity), or (iv) Tenant should cease to operate as a viable restaurant for any consecutive six (6)-month period (other than (A) in order to renovate or refurbish the Demised Premises, (B) in the event of a Force Majeure (as defined in Section 40), or (C) to permit a permitted transferee, pursuant to Section 7, to renovate or refurbish the Demised Premises), then such failure, breach, violation, occurrence or condition shall constitute a default of the Lease. (2) It shall be an Event of Default if a default pursuant to Section 19(a)(1)(i) continues for a period of ten (10) days after written notice thereof to Tenant by Landlord, or a default pursuant to Section 19(a)(1)(ii) or (iv) shall continue for a period of thirty (30) days after written notice thereof to Tenant by Landlord, provided that if such a default under Section 19(a)(1)(ii) or (iv) will take longer than this thirty (30)-day period to cure, Tenant shall have such longer period as may be reasonably required to effectuate such cure, as long as such cure is commenced within such thirty (30)-day period, and such cure is prosecuted diligently to completion. (b) Remedies. (1) Continue Lease. The Landlord may, at its option, continue this Lease in full force and effect, without terminating the Tenant's right to possession of the Demised Premises, in which event the Landlord shall have the right to collect rent and other charges when due. In the alternative, the Landlord shall have the right to peaceably re-enter the Demised Premises on the terms set forth in subparagraph (b)(2) below, without such re-entry's being deemed a termination of the Lease or an acceptance by the Landlord of a surrender thereof. The Landlord shall also have the right, at its option, from time to time, without terminating this Lease, to relet the Demised Premises, or any part thereof, with or without legal process, as the agent, and for the account, of the Tenant upon such terms and conditions as the Landlord may deem advisable, in which event the rents received on such reletting shall be applied (i) first to - 19 - the reasonable and actual expenses of such reletting and collection, including without limitation necessary renovation and alterations of the Demised Premises, reasonably determined by the Landlord to be desirable, reasonable and actual attorneys' fees, and any reasonable and actual leasing commissions paid (including leasing commissions payable to a partner, officer or shareholder of the Landlord), and (ii) thereafter toward payment of all sums due or to become due the Landlord hereunder. If a sufficient sum to pay such expenses and sums shall not be realized or secured in the Landlord's exercise of its reasonable efforts to mitigate its damages, then the Tenant shall pay the Landlord any such deficiency monthly, and the Landlord may, at the sole cost and expense of the Tenant, including attorney's fees, bring an action therefor as such monthly deficiency shall arise. Nothing herein, however, shall be construed to require the Landlord to re-enter and relet in any event, except as provided by applicable law. The Landlord shall not, in any event, be required to pay the Tenant any sums received by the Landlord on a reletting of the Demised Premises in excess of the rent provided in this Lease. The Landlord's re-entry and reletting of the Demised Premises without termination of this Lease shall not preclude the Landlord from subsequently terminating this Lease as set forth below. (2) Terminate Lease. The Landlord may terminate this Lease by written notice to the Tenant specifying a date therefor, which shall be no sooner than ten (10) days following receipt of such notice by the Tenant, and this Lease shall then terminate on the date so specified as if such date had been originally fixed as the expiration date of the Term. In the event this Lease shall be terminated as provided above, by summary proceedings or otherwise, the Landlord, its agents, employees or representatives may immediately or at any time thereafter peaceably re-enter and resume possession of the Demised Premises and remove all persons and property therefrom, either by summary dispossession proceedings or by other suitable action or proceeding at law without liability for damages therefor. Upon such termination, the Tenant shall remain liable for all rent that would be due hereunder but for such termination, and at the Landlord's option, subject to applicable law, the Landlord may accelerate all amounts of rent due hereunder or that would have been due hereunder but for the occurrence of the event of default; provided, however, that damages shall be computed in accordance with the provisions of Section 19(b)(4) below. (3) Reimbursement of Landlord's Costs in Exercising Remedies. Landlord may recover from the Tenant, and the Tenant shall pay to the Landlord upon demand, such reasonable and actual expenses as the Landlord may incur in recovering possession of the Demised Premises, placing the same in good order and condition and repairing the same for reletting, all other reasonable and actual out of pocket expenses, commissions - 20 - and charges incurred by the Landlord in exercising any remedy provided herein or as a result of any event of default by the Tenant hereunder (including without limitation reasonable attorneys' fees). (4) Damages. If this Lease is terminated by Landlord pursuant to Section 19(b)(2), the Tenant nevertheless shall remain liable for any Annual Base Rent and Additional Rent and damages which may be due or sustained by Landlord and all reasonable costs, fees and expenses including, but not limited to, attorney's fees, costs and expenses incurred by Landlord in pursuit of its remedies hereunder, or in renting the Premises to others from time to time (all such Annual Base Rent and Additional Rent, damages, costs, fees and expenses being referred to herein as "Termination Damages") and additional damages (the "Liquidated Damages"), which, at the election of Landlord, shall be an amount equal to the present worth (as of the date of such termination) of Annual Base Rent and Additional Rent which, but for termination of this Lease, would have become due during the remainder of the Term, less the fair rental value of the Demised Premises, as determined by an independent real estate appraiser named by Landlord, in which case such Liquidated Damages shall be payable to Landlord in one lump sum on demand and shall bear interest at the Default Rate until paid. For purposes of this paragraph, "present worth" shall be computed by discounting such amount to present worth at a discount rate then in effect at the Federal Reserve Bank nearest to the location of the Shopping Center. If this Lease is terminated pursuant to Section 19(b)(2), Landlord may relet the Demised Premises or any part thereof, alone or together with other premises, for such term or terms (which may be greater or less than the period which otherwise would have constituted the balance of the Term) and on such terms and conditions (which may include concessions of free rent and alterations of the Demised Premises) as Landlord, in its absolute discretion, may determine, but Landlord shall not be liable for, nor shall the Tenant's obligations hereunder be diminished by reason of, any failure by Landlord to relet the Demised Premises or any failure by Landlord to collect any rent due upon such reletting. (5) Remedies Are Cumulative. The various rights and remedies reserved to the Landlord herein, including those not specifically described by law in force and effect at the time of the execution hereof, are cumulative, and the Landlord may pursue any and all rights and/or remedies, whether at the same time or otherwise. (6) Waiver of Rights of Redemption. To the extent permitted by law, the Tenant waives any and all right of redemption granted by or under any present or future laws if the - 21 - Tenant is evicted or dispossessed for any cause or if the Landlord obtains possession of the Demised Premises due to an Event of Default hereunder or otherwise. (c) Effect of Cure. Notwithstanding any provision in this Lease to the contrary, in the event that Tenant cures a default with respect to any matter prior to the institution of litigation by Landlord with respect to such default, whether or not such cure is completed prior to the expiration of any applicable notice and cure periods, the default shall be deemed cured as if it had been cured prior to the expiration of such applicable notice and cure periods, and Landlord shall not have the right to terminate the Lease as a result of such default. 20. Waiver. If under the provisions hereof Landlord or Tenant shall institute proceedings and a compromise or settlement thereof shall be made with respect to any matter, the same shall not constitute a waiver of any covenant herein contained nor of any of Landlord's or Tenant's rights hereunder with respect to any other matter. No waiver by Landlord or Tenant of any breach of any covenant, condition or agreement herein contained shall operate as a waiver of such covenant, condition or agreement itself, or of any subsequent breach thereof. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Base Rent or any Additional Rent shall be deemed to be other than on account of the earliest stipulated Base Rent and Additional Rent nor shall any endorsement or statement on any check or letter accompanying a check for payment of any Base Rent or Additional Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such Base Rent or Additional Rent or to pursue any other remedy provided in this Lease, except as otherwise provided herein. Tenant hereby expressly waives any and all rights of redemption it may have under applicable law. 21. Subordination and Attornment. (a) Landlord warrants and represents that there are no holders of any deeds of trust, mortgages or other security interests (collectively, the "Superior Instruments") covering the Building and/or Land or any interest of Landlord therein (collectively, the "Holders of Superior Instruments"). Landlord shall obtain and deliver to Tenant a non-disturbance agreement substantially in the form of Exhibit E hereto from Key Bank or such other construction lender as Landlord may borrow from within thirty (30) days after the later of (i) the date of this Lease, or (ii) the date of such loan. If Tenant has not received such non-disturbance agreement by such date, Tenant may at its option terminate this Lease by notifying Landlord of such election in writing. In the event of such termination neither party shall have any further rights, obligations or liabilities hereunder. - 22 - (b) This Lease shall be subject and subordinate to any future Superior Instruments which may from time to time during the Term cover the Building and/or the Land, or any interest of Landlord therein, and to any advances made on the security thereof, and to any refinancings, increases, renewals, modifications, consolidations, replacements, and extensions of any of such future Superior Instruments, provided that, if Tenant is not in default beyond any applicable cure period, then as a condition of such subordination being effective, the Holder of such Superior Instrument shall have executed, acknowledged and delivered to Tenant a non-disturbance agreement substantially in the form of Exhibit E. Upon execution and delivery of such non-disturbance agreement, this Section 21(b) shall be self-operative and no further instrument shall be required to effect such subordination of this Lease. Upon demand, however, Tenant shall execute, acknowledge, and deliver to Landlord any further instruments and certificates evidencing such subordination as Landlord, or such Holder of the Superior Instrument may reasonably request. (c) Subject to the provisions of Section 22(a), any Holder of a Superior Instrument shall have the right, unilaterally, at any time to subordinate fully or partially any such Superior Instrument to this Lease. Upon request Tenant shall execute an instrument confirming any such subordination by any Holder of a Superior Instrument. At any time, before or after the institution of any proceedings for the foreclosure of any such Superior Instrument, or sale of the Building under any such Superior Instrument, Tenant shall attorn to such purchaser upon any such sale or the grantee under any deed in lieu of such foreclosure and shall recognize such purchaser or grantee as Landlord under this Lease. Tenant hereby waives the right, if any, to elect to terminate this Lease or to surrender possession of the Demised Premises in the event of the judicial or non-judicial foreclosure of any deed of trust, mortgage, or security agreement (or any transfer in lieu thereof). The foregoing agreement of Tenant to attorn shall survive any such foreclosure sale, trustee's sale, or conveyance in lieu thereof. Tenant shall upon demand at any time, before or after any such foreclosure sale, trustee's sale, or conveyance in lieu thereof, execute, acknowledge, and deliver to Landlord's mortgagee or any successor thereof, any written instruments and certificates evidencing such attornment as such Holder of a Superior Instrument may reasonably require. 22. Condemnation. (a) Total Condemnation. If during the Term of this Lease, fee title to all of the Demised Premises or to all of the improvements, or the entire leasehold estate of Tenant is taken under the power of eminent domain by any public or quasi-public agency or entity (a "Total Taking"), this Lease shall terminate - 23 - as of 12:01 A.M. on the date legal title becomes vested in the agency or entity exercising the power of eminent domain. Thereafter, both Landlord and Tenant shall be released from all obligations under this Lease, except those specified elsewhere herein. (b) Taking - Parking Area. If, at any time during the Term of this Lease, a taking occurs that is less than a Total Taking and said taking affects the Demised Premises' Parking Areas (as identified on the Site Plan), all compensation and damages payable on account of such taking of the Parking Areas shall be paid to Landlord but used, to the extent reasonably needed, to repair any portion of the remaining Parking Areas damaged by the taking and to replace the Demised Premises' Parking Areas taken with other new parking areas for the benefit of Tenant on the portion of the Shopping Center not taken, provided that replacement is then permitted by existing law. Plans and specifications for the replacement parking areas must be first approved in writing by Tenant which approval shall not be unreasonably withheld. (c) Partial Taking - Improvements. If at any time during the Term of this Lease a taking occurs that is less than a Total Taking and said taking affects the Building, all compensation and damages payable for that taking (excluding any portion payable for a taking of parking areas) shall be paid to Tenant but will be used to the extent reasonably needed by Tenant to repair the Building or replace the portion taken with other new improvements on the portion of the Demised Premises not taken, provided that replacement is then permitted by existing law. Plans and specifications for replacing the restaurant must be compatible, in terms of architecture and quality of construc tion, with the portion of the restaurant not taken and must be first approved in writing by Landlord which approval shall not be unreasonably withheld. Notwithstanding anything to the contrary in this paragraph, if any taking renders the remainder of the Demised Premises, in Tenant's good faith judgment, unusable for Tenant's business operations, Tenant may terminate this Lease in the manner prescribed in Section 22(d) of this Lease. (d) Termination for Partial Taking. Tenant may terminate this Lease for the reasons stated in either Section 22(a) or 22(c) of this Lease, or both, by serving written notice of termination on Landlord within sixty (60) days after Tenant has received from Landlord or from the condemning authority written notice of a definite taking setting forth the date of the taking, and/or a copy of the condemnation proceedings as filed in the appropriate court and the extent and scope of such taking. If Tenant elects to terminate this Lease pursuant to this Section 22, the effective date of termination shall be the earlier of the date of termination specified in the Tenant's notice to Landlord or the date the condemning authority takes physical possession of - 24 - the portion of the Demised Premises taken by eminent domain. On termination of this Lease pursuant to this paragraph, all subleases and subtenancies in or on the Demised Premises, if any, or any portion or portions of the Demised Premises created by Tenant under this Lease shall also terminate and the Demised Premises shall be delivered to Landlord free and clear of all such subleases and subtenancies. Tenant shall demolish the remainder of the Building and remove all debris from the Demised Premises, but shall not be required to remove site improvements or to landscape the Demised Premises. On termination of this Lease pursuant to this paragraph, both Landlord and Tenant shall be released from all obligations to the other under this Lease except those specified elsewhere in this Lease. (e) Condemnation Award. Any compensation or damages awarded or payable because of the taking of all or any portion of the Demised Premises by eminent domain shall be allocated between Landlord and Tenant and paid in the following priority: (1) All compensation or damages awarded or payable for the taking by eminent domain of any land that is part of the Demised Premises shall be paid to and be the sole property of Landlord, free and clear of any claim of Tenant or any person claiming rights to the Demised Premises through or under Tenant. (2) Improvements constructed or located on the portion of the Demised Premises taken by eminent domain when only a portion of the Demised Premises is taken by eminent domain and Tenant is not entitled to or does not terminate this Lease shall be applied in the manner specified in Section 22(b) or Section 22(c) toward the replacement of those improvements with equivalent new improvements on the remaining portions of the Demised Premises. (3) All compensation or damages awarded or payable because of the Demised Premises taken by eminent domain when this Lease is terminated because of the taking by eminent domain, whether all or only a portion of the Demised Premises is taken by eminent domain, shall be allocated between Tenant and Landlord as follows: (i) Tenant shall be entitled to recover from any award up to an amount equal to the unamortized cost of the portion of the improvements taken which were constructed by Tenant at the time of the taking. (ii) The balance of any award after deducting the amount described in (i) above shall be the sole property of Landlord. (iii) The term "time of taking" as used in this subparagraph shall mean 12:01 A.M. of whichever of the - 25 - following shall first occur: the date that title, or the date that physical possession of the portion of the Demised Premises on which the improvements are located is taken by the agency or entity exercising the eminent domain power. (4) Any damages awarded or payable for relocation due to Tenant's termination of the Lease as permitted hereunder shall be the sole and separate property of Tenant. (f) Rent Abatement for Partial Taking. If title and possession of only a portion of the Demised Premises is taken under the power of eminent domain by any public or quasi-public agency or entity during the term of this Lease and Tenant does not or cannot terminate this Lease, then this Lease shall terminate as to the portion of the Demised Premises taken under eminent domain as of 12:01 A.M. on whichever of the following first occurs: the date title is taken, or the date actual physical possession of the portion taken by eminent domain is taken, by the agency or entity exercising the eminent domain power. Furthermore, the Rent payable under this Lease shall, as of that time, be reduced in the same proportion that the area of the portion of the Demised Premises taken by eminent domain bears to the full area of the Demised Premises at that time. Nothing contained herein shall require Tenant to pay any amount out of pocket for the replacement of any improvement; provided, however, there shall be no abatement in the event the taking covers a portion of the Demised Premises that does not adversely affect the improvements. 23. Covenant of Quiet Enjoyment. Landlord covenants that it has the right to make this Lease for the Term and that Tenant, upon paying Rent and complying with its other obligations set forth in this Lease, shall during the Term freely, peaceably and quietly occupy and enjoy the full possession of the Demised Premises without molestation or hindrance by Landlord or any party claiming through or under Landlord. 24. Sale or Transfer. Landlord may freely sell, assign or otherwise transfer all or any portion of its interest in this Lease or in the Demised Premises, the Building or the Land, and in the event of any such sale or transfer the landlord whose interest is thus sold or transferred (the "Selling Landlord") shall be and hereby is completely released and forever discharged from and in respect of all covenants, obligations and liability as Landlord hereunder, except for any obligations accruing prior to such transfer. Thereafter, Tenant shall attorn and be bound to such purchaser with the same effect as though the latter had been the original Landlord hereunder, provided that such purchaser assumes and agrees to carry out the obligations of Landlord hereunder. - 26 - 25. No Partnership. Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of landlord and tenant. 26. No Other Rights Acquired. No rights, privileges, easements or licenses are acquired by Tenant pursuant to this Lease except as herein expressly set forth. This Lease shall not be binding on the parties until and unless this Lease is fully executed and delivered by the parties hereto. 27. Brokers. Landlord shall pay Legend Properties, Inc. a brokerage commission pursuant to a separate agreement. Landlord and Tenant each represents and warrants one to the other that if either has engaged any other broker or agent in carrying on the negotiations relating to this Lease, it will pay any brokerage commission payable to said broker or agent. Any such broker or agent is identified in the Basic Lease Information. Landlord shall indemnify and hold Tenant harmless, and Tenant shall indemnify and hold Landlord harmless, from and against any claim or claims for brokerage or other commissions arising from or out of any breach of the foregoing representation and warranty by the respective indemnitors. 28. Notices. All notices or other communications hereunder shall be in writing and shall be deemed duly given if delivered by hand, or by overnight courier, or by telecopier (with telephonic confirmation and follow-up hard copy), or when received (or when delivery is refused) if sent by certified mail return receipt requested, (i) if to Landlord, to Landlord's Address for Notices set forth in the Basic Lease Information, and (ii) if to Tenant, at Tenant's Address for Notices set forth in the Basic Lease Information, unless notice of a change of address is given pursuant to the provisions of this Section 28. Notice shall be deemed to have been given upon receipt or at the time delivery is refused. 29. Estoppel Certificates. Landlord and Tenant agree at any time and from time to time (but not more than three (3) times in any twelve (12)-month period), upon not less than ten (10) business days' prior written notice from Tenant or Landlord, as the case may be, to execute, acknowledge and deliver to the other party a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the Lease is in full force and effect as modified and stating the modifications), (ii) stating the dates to which the rentals and other charges hereunder have been paid by Tenant or Landlord, (iii) stating whether or not to the best knowledge of Tenant or Landlord, the other party has failed to fulfill any of its obligations under this Lease, and, if so, specifying each such failure of which Tenant or Landlord may have - 27 - knowledge, (iv) stating the address to which notices to Tenant or Landlord should be sent, and (v) providing such other information as may reasonably be requested. 30. Surrender; Holding Over. (a) In the event Tenant gives Landlord notice not more than one hundred twenty (120) days nor less than ninety (90) days prior to the Lease Expiration Date that Tenant, or anyone (including a sublessee) claiming under Tenant, will not immediately surrender the Demised Premises on the expiration of the Term, Landlord, within thirty (30) days of receipt of such notice, shall provide Tenant with written consent (which Tenant expressly agrees may be withheld for any reason) or shall in its sole and absolute discretion notify Tenant that it does not consent to holding over by Tenant or anyone claiming under Tenant beyond the Lease Expiration Date. (b) Tenant agrees that it will not occupy or retain or allow occupancy or retention by any subtenant of possession of the Demised Premises at any time after the expiration of the Term, without the prior written consent of Landlord. In the event that Tenant shall hold over after the expiration of the Term without Landlord's prior written consent, Landlord shall have the right to regain possession of the Demised Premises by any legal process in force at such time. Furthermore, in the event Tenant continues to occupy the Demised Premises after the expiration of the Term without Landlord's prior written consent, Tenant shall then be liable to pay to Landlord, as liquidated damages, an amount equal to one and one-half (1 1/2) times the total Base Rent being paid immediately prior to the Lease Expiration Date, divided by 365, for each day or part of a day that Tenant occupies the Demised Premises after the date of expiration of the Term, plus any other Additional Rent or charges due, reasonable attorneys' fees, costs, and expenses incurred by Landlord in regaining possession of the Demised Premises and to recover said liquidated damages. Holdover occupancy by Tenant shall be subject to all of the terms, covenants, and conditions of this Lease. (c) If, pursuant to the prior written consent of Landlord, Tenant, or anyone (including a sublessee) claiming under Tenant, does not immediately surrender the Demised Premises on the date of the expiration of this Lease, then Tenant shall, by virtue of the provisions hereof, become a Tenant by the month at a monthly rental equal to one hundred fifty percent (150%) of the Rent in effect at the termination of the Lease but otherwise on the same terms and provisions of this Lease. Said monthly tenancy shall commence with the first day next after the Lease Expiration Date. Tenant, as a monthly Tenant, shall be subject to all of the terms, covenants, and conditions of this Lease. In the event Tenant becomes a monthly Tenant under the provisions of - 28 - this Section 30, such tenancy shall be terminable by Landlord upon thirty (30) days' written notice to Tenant, except in the event of non-payment of Base Rent, Additional Rent, or any other charge or cost, in which case, Tenant shall be deemed to have waived its right to receive any notice to quit. (d) At the expiration or earlier termination of the Term, Tenant shall surrender the Demised Premises, including all Alterations, to Landlord in the same condition as on the Lease Commencement Date, ordinary wear and tear and damage by fire or other casualty excepted. 31. Right of Landlord to Cure Tenant's Default. If Tenant defaults in the making of any payment or in the doing of any act herein required to be performed by Tenant (other than the payment of Base Rent and Percentage Rent), Landlord may, but shall not be required to, make such payment or do such act, and the amount of the expense thereof, if made or done by Landlord, with interest thereon at the Interest Rate from the date paid by Landlord, shall be paid by Tenant to Landlord and shall constitute Additional Rent hereunder due and payable with the next monthly installment of Base Rent after Tenant's receipt of notice thereof from Landlord; but the making of such payment or the doing of such act by Landlord shall not operate to cure such default or to estop Landlord from the pursuit of any remedy to which Landlord would otherwise be entitled, except as otherwise provided herein. 32. Tenant's Trade Fixtures. All trade fixtures and apparatus leased or owned (whether under an installment sales contract or otherwise) by Tenant and installed in or about the Demised Premises by Tenant shall remain the property of Tenant and shall be removed upon the expiration or earlier termination of the Term, provided that Tenant shall not at such time be in default beyond applicable notice and cure periods of any terms or covenants of this Lease. Tenant retains the right to replace any and all equipment and fixtures in or about the Demised Premises. Tenant shall repair any damage to the Demised Premises caused by the removal of said trade fixtures and apparatus at its sole expense. 33. Tenant's Personal Property. Landlord shall have a lien (which shall be junior to any equipment financing obtained by Tenant) upon all the personal property of Tenant moved into the Demised Premises as and for security for the payment by Tenant of Rent and the performance by Tenant of the other obligations set forth hereunder as provided by applicable law. Provided that Tenant is not then in default beyond any applicable notice and cure periods, Tenant shall have the right to remove its personal property from the Demised Premises at any time and from time to time. Any personal property of Tenant or any other person which is left at the Demised Premises after the date the Lease has expired or terminated shall be deemed to have been abandoned, and - 29 - Landlord shall have the right to declare itself owner and to dispose of it in whatever manner Landlord deems appropriate and Tenant shall not have any right to compensation or claim against Landlord as a result. 34. Benefit and Burden. Subject to the provisions of Sections 7 and 24 hereof, the provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective representatives, successors and permitted assigns. 35. Memorandum of Lease. (a) Landlord and Tenant shall, at the request of either party, execute, acknowledge and deliver to the other party a memorandum of this Lease (the "Lease Memorandum") in recordable form, setting forth the date of this Lease, the names of the parties hereto, the Lease Commencement Date and describing the Demised Premises and Tenant's right to renew this Lease. Said Lease Memorandum shall not in any circumstances be deemed to modify or to change any of the provisions of this Lease. Either party may elect, at the equal expense of Landlord and Tenant, to record the Lease Memorandum. (b) In the event that Landlord and Tenant execute such Lease Memorandum, each party shall after the expiration or termination of the Term, at the request of the other party, execute, acknowledge and deliver a memorandum in recordable form evidencing the expiration or termination of this Lease, and if such party fails to execute such memorandum within fifteen (15) days after the date of such request, such party hereby irrevocably appoints the requesting party its attorney-in-fact to execute and deliver such memorandum on behalf of such party. The requesting party may elect, at its sole expense, to record said memorandum. 36. Leasehold Mortgages. (a) The term "Leasehold Mortgage" shall include a mortgage, a deed of trust, a deed to secure debt, or other security instrument by which Tenant's leasehold estate is mortgaged, conveyed, assigned, or otherwise transferred, to secure a debt or other obligation. (b) The term "Leasehold Mortgagee" shall refer to a holder of a Leasehold Mortgage. (c) Notwithstanding anything in Section 7 to the contrary, Tenant shall have the right from time to time, subject to the terms and conditions hereinafter set forth in this Section, to encumber the leasehold estate created by this Lease by one or more Leasehold Mortgages provided that (i) there only - 30 - be one such Leasehold Mortgage in effect at any one time, (ii) that any such Leasehold Mortgage be granted to an institutional lender, and (iii) that the face amount of any such Leasehold Mortgage may not exceed Tenant's cost (hard and soft) of the Building including all site work and improvements. In no event, and under no circumstances, is the Landlord to be required to subordinate Landlord's interest in this Lease or the Demised Premises. No Leasehold Mortgage shall encumber Landlord's fee or reversionary interest in the Demised Premises. Any Leasehold Mortgage granted by Tenant and secured by its leasehold estate created by this Lease shall comply with the following conditions: (i) all rights acquired thereunder shall be subject to each and all of the covenants, conditions, restrictions and provisions of this Lease and to all of the rights and interests of Landlord under the Lease; and (ii) upon the expiration of this Lease or the sooner termination of this Lease for any reason whatsoever, both the Demised Premises and all improvements now or hereafter located thereon is and shall be, except as specifically provided in this Lease, the property of Landlord free and clear of any rights, claims, liens, encumbrances, security interests or charges of the Leasehold Mortgagee. (d) Concurrently with the execution of the Leasehold Mortgage, Leasehold Mortgagee or Tenant shall notify Landlord, in writing of the Leasehold Mortgage, giving the name and address of the Leasehold Mortgagee, together with true and complete copies of the Leasehold Mortgage, and the note or other obligations secured by such Leasehold Mortgage and any other documents pertinent to the Leasehold Mortgage. Thereafter, Tenant, at Tenant's expense, shall provide Landlord a copy, from time to time, of each amendment or other modification or supplement to the Leasehold Mortgage documents. (e) Provided Landlord has been notified of the existence of a Leasehold Mortgage, Landlord, when giving notice to Tenant with respect to any default hereunder, or with respect to a matter which may predicate or claim a default, shall also mail a copy of such notice to any such Leasehold Mortgagee at the most recent address given to Landlord pursuant to subsection 36(d) hereof. No notice of default shall be effective against Leasehold Mortgagee unless a copy thereof has been delivered to Leasehold Mortgagee pursuant to the provisions of this subsection 36(d). All notices by Landlord to the Mortgagee pursuant to this Section shall be in writing and shall be given pursuant to the provisions of Section 28 of this Lease. (f) If Tenant shall default in the performance of any of the terms, covenants, agreements and conditions of this Lease on the Tenant's part to be performed or observed, any Leasehold - 31 - Mortgagee shall have the right, within the same period available to Tenant under this Lease for curing such default. (g) Landlord shall not terminate this Lease because of any default or breach hereunder on the part of Tenant if the Leasehold Mortgagee under such Mortgage, within thirty (30) days after delivery of written notice (the "Termination Notice") to the Leasehold Mortgagee by Landlord stating that Tenant has failed to cure any default or breach hereunder within the applicable cure period and notifying Leasehold Mortgagee of Landlord's intention to terminate this Lease for such default or breach, has cured such default or breach or, with regard to non-monetary defaults only, has commenced to perform the necessary actions (in the event that the default or breach would take longer than thirty (30) days to perform) to cure such default or breach and diligently pursue them to completion. Notwithstanding the foregoing, if such default or breach is not susceptible of being cured by Leasehold Mortgagee until it has secured possession of the Demised Premises, Landlord shall not terminate this Lease because of such default or breach on the part of Tenant if the Leasehold Mortgagee, within sixty (60) days after delivery of the Termination Notice, has notified Landlord, in writing (the "Foreclosure Notice"), that the Leasehold Mortgagee has instituted, and will thereafter diligently pursue to completion, steps and proceedings for the exercise of the power of sale under and pursuant to the Leasehold Mortgage in the manner provided by law (or an assignment in lieu thereof); agrees to keep and perform (and undertake in writing with Landlord to keep and perform) all of Tenant's covenants and conditions of this Lease (except for those which Leasehold Mortgagee cannot keep and perform without obtaining possession of the Demised Premises but only during the time and to the extent the same cannot be kept and performed by Leasehold Mortgagee) until such time as Tenant's leasehold shall be sold upon foreclosure pursuant to the Leasehold Mortgage or shall be released or reconveyed thereunder, but in no event longer than twelve (12) months from the date of delivery of the Foreclosure Notice to Landlord; provided, however, that if the holder of the Leasehold Mortgagee shall fail to comply with any and all of the conditions of this Section and such failure by Leasehold Mortgagee has not been cured within thirty (30) days after delivery of written notice to the Leasehold Mortgagee by Landlord, then and thereupon Landlord shall be released from the covenants of forbearance herein contained; and provided further that Landlord shall be required to forebear from terminating this Lease only so long as Leasehold Mortgagee pays all Rent as and when it becomes due hereunder; and only so long as Leasehold Mortgagee is keeping and performing all of Tenant's covenants and conditions of this Lease (except for those which Leasehold Mortgagee cannot keep and perform without obtaining possession of the Demised Premises but only during the time and to the extent the same cannot be kept and performed by Leasehold Mortgagee). - 32 - (h) Landlord shall accept the performance by Leasehold Mortgagee of its obligations under this Section as though the same has been done or performed by Tenant. (i) Landlord and Tenant agree that the making of a Leasehold Mortgage, which complies with all of the terms and conditions of this Article, shall not be deemed to constitute an assignment or transfer of this Lease or of the leasehold estate created by this Lease, nor shall any Leasehold Mortgagee, solely as the beneficiary of such Leasehold Mortgage, be deemed to be an assignee or transferee of this Lease or of the leasehold estate created by this Lease so as to require such Leasehold Mortgagee, as such, to assume the performance of the terms, covenants, or conditions on the part of Tenant to be performed, hereunder. (j) Provided that this Lease has not theretofore been terminated, Landlord and Tenant agree that if the Leasehold Mortgage shall be foreclosed, or the leasehold estate created by this Lease otherwise acquired under the Leasehold Mortgage (which foreclosure or acquisition may be in the name of the Leasehold Mortgagee or in the name of Leasehold Mortgagee's nominee such as the trustee under a deed of trust), the Leasehold Mortgagee shall be deemed to be an assignee or transferee within the meaning of this Section and shall be deemed to have agreed to perform and be bound to each and all of the terms, covenants, conditions and obligations of this Lease which have accrued and thereafter accrue under this Lease, but only for so long as Leasehold Mortgagee (or its nominee) holds title to the leasehold created by this Lease. In the event of a foreclosure: (i) the written consent of Landlord shall not be required to a transfer of the title to the leasehold created by this Lease to the Leasehold Mortgagee (or its nominee); (ii) Leasehold Mortgagee shall forthwith give notice to Landlord in writing of any such transfer of title to Leasehold Mortgagee (or its nominee) setting forth the name and address of the Leasehold Mortgagee (or its nominee), the effective date of the transfer and the express written agreement of the Leasehold Mortgagee (or its nominee) that, so long as Leasehold Mortgagee (or its nominee) holds title to the Tenant's leasehold estate under this Lease (but not thereafter), Leasehold Mortgagee (or its nominee) shall assume and agree to perform and be bound by each and all of the terms, covenants, conditions and obligations of this Lease which have accrued and thereafter accrue under this Lease, together with a copy of the document by which such transfer was made; and (iii) the Landlord shall have the right to acquire the Leasehold by paying the Leasehold Mortgagee the full unpaid amount secured by the Leasehold Mortgage provided Landlord - 33 - makes such payment within thirty (30) days after receiving notice of the transfer of title. If the Leasehold Mortgagee (or its nominee) shall fail or refuse to comply with any and all of the conditions of this Section and such failure continues for more than thirty (30) days after notice to Leasehold Mortgagee, then and thereupon, and without further notice to the Leasehold Mortgagee (or its nominee), Landlord may terminate this Lease in accordance with its terms. (k) Provided that this Lease has not theretofore been terminated, and provided further that the Leasehold Mortgagee has performed its obligations under subsection 36(g) hereof, in the event of a foreclosure of the Leasehold Mortgage (or an assignment in lieu thereof) any assignment or transfer of this Lease to a party other than the Leasehold Mortgagee (or its nominee) shall not be effective or deemed valid unless, at or before the time of such assignment or transfer, the transferee meets the criteria set forth in Section 7. Except as permitted by Section 7 and this Article hereof, neither Tenant nor any Transferee shall further assign or transfer its interest in this Lease. (l) For purposes of this Lease, a "Qualifying Mortgage" shall mean a first Leasehold Mortgage which complies with the following requirements: the Leasehold Mortgagee is an "Institutional Lender", or any affiliate, parent or subsidiary of an Institutional Lender (for purposes of this Lease the term "Institutional Lender" shall mean (1) a lender whose policies are subject to the supervision of the Controller of the Currency, the Federal Reserve Board or any state banking commission or department of insurance; or (2) with respect to pension or profit sharing funds or trusts, such funds shall be deemed Institutional Lenders if the fiduciary of the fund or trust is an institution which qualifies as an Institutional Lender under subsection, or if the employer for whose employees the fund or trust was established is a publicly held company listed on any nationally recognized stock exchange). Upon the termination of this Lease for any reason, excluding however a termination due to a breach by Leasehold Mortgagee of its obligations under this Section and the Leasehold Mortgagee of the Qualifying Mortgage shall have the right, in addition to the rights contained in subsection 36(k), to demand a new lease of the Demised Premises, exercisable by notice in writing to Landlord within sixty (60) days after the giving of notice by Landlord to the Leasehold Mortgagee of such termination, provided that on or before the delivery of such new lease the Leasehold Mortgagee has paid to Landlord all Rent which (i) was unpaid prior to the termination of this Lease, and (ii) would have accrued hereunder after the termination of this Lease had this Lease remained in full force until the time of such delivery. The new lease shall continue for the balance of the - 34 - Term remaining as of the date of termination, at the rent and upon all of the other terms, provisions, covenants and agreements set forth in this Lease (including without limitation any unexecuted Renewal Options). Any new lease may, at the option of Leasehold Mortgagee, name as tenant the Leasehold Mortgagee or a nominee of Leasehold Mortgagee, provided that the nominee meets the criteria set forth in Section 7. In the event of the election by a Qualifying Mortgagee to enter into a new lease with Landlord, Tenant shall, and does hereby waive all rights it may have to redeem its leasehold interest under this Lease or to reinstate this Lease. It is the intent of Landlord and any Qualifying Mortgagee that such new lease shall have the same priority as this Lease, and Landlord covenants that it shall not take any affirmative action on its part which would frustrate or defeat the foregoing intent; provided, however, that nothing contained in this Section shall render Landlord liable to the Leasehold Mortgagee of the Qualifying Mortgage and/or the tenant under the new lease if Landlord is unable to deliver physical possession of the Demised Premises by reason of the failure of Tenant, or anyone holding the Demised Premises (or any part thereof) to surrender possession thereof. 37. Landlord or Tenant as an Individual or Partnership. If Landlord or Tenant or any successor in interest to Landlord or Tenant shall be an individual, corporation, joint venture, tenancy in common, firm or partnership, general or limited, there shall be no personal liability on any employees, officers, directors or other individuals, of the Landlord or Tenant, their successors, partners, or Affiliates with respect to any of the provisions of this Lease, any obligation arising therefrom or in connection therewith. Nothing in this Section 37 shall be construed to limit the liability of Landlord or Tenant hereunder. 38. Mortgagee Protection. Tenant agrees to give any mortgagee(s) and/or trust Landlord holder(s), by certified or registered mail, postage prepaid, return receipt requested, a copy of any notice of any failure by Landlord to fulfill any of its obligations under this Lease served upon the Landlord by Tenant, provided that prior to such notice Tenant has been notified in writing (by way of notice of assignment of rents and leases, or otherwise) of the addresses of such mortgagee(s) and/or trust deed holder(s). Tenant further agrees that the mortgagee(s) and/or trust deed holder(s) shall have such time as may be reasonably necessary to cure such failure as long as any mortgagee(s) and/or trust deed holder(s) has commenced and is diligently pursuing the remedies necessary to cure such failure. 39. Non-Competition. Subject to the rights of tenants under leases executed prior to the date of this Lease, Landlord shall not sell or lease to, and shall not permit the operation of, another "diner" or "family-style" restaurant within the Shopping Center during the period of time that Tenant operates a - 35 - restaurant at the Demised Premises. Tenant shall have the right to seek injunctive relief to enforce its rights under this Section 39. 40. Excuse for Nonperformance. Either party shall be excused from performing any obligation or undertaking provided in this Lease for a period of time equivalent to the delay caused by the items described below, except the obligations of Tenant to pay Rent under the provisions of this Lease (unless such obligation is abated or modified pursuant to the provisions of Section 22), in the event and so long as the performance of any such obligation is prevented or delayed, retarded or hindered by Act of God, fire, earthquake, floods, explosion, actions of the elements, war, invasion, insurance, riot, mob violence, sabotage, inability to procure or general shortage of labor, equipment, facilities, materials or supplies in the open market, failure of transportation, condemnation, requisition, laws, orders of government or civil military or naval authorities, or any other cause, whether similar or dissimilar to the foregoing not within the reasonable control of such party ("Force Majeure"), excluding however, the inability to obtain monies to perform or fulfill a party's obligations and undertakings. 41. Environmental Matters. (a) Landlord represents and warrants to Tenant that, as of the date hereof, there are no Hazardous Materials on or about Demised Premises. Neither Landlord nor Tenant, nor their agents and employees, shall violate or cause to be violated any federal, state or local law, ordinance or regulation relating to the environmental conditions on, under or about the Demised Premises, including, but not limited to, soil and ground water conditions. Neither Landlord nor Tenant, nor their agents and employees, shall introduce, use, generate, store, accept or dispose of on, under or about the Demised Premises or transport to or from the Demised Premises any hazardous wastes, toxic substances or related materials, except normal and usual office and cleaning supplies ("Hazardous Materials"). For the purposes of this Article, Hazardous Materials shall include, but not be limited to substances defined as "hazardous substances" or "toxic substances" in the Comprehensive Environmental Response, Compen sation and Liability Act of 1980, as amended, 42 U.S.C. Section 9061 et seq.; Hazardous Materials Transportation Act, 49 U.S.C. Section 1802; and Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq., asbestos, petroleum hydrocarbons, and any other substances considered hazardous, toxic or the equivalent pursuant to any other applicable laws and in the regulations adopted and publications promulgated pursuant to said laws or any future laws or regulations (collectively, the "Environmental Laws"). - 36 - (b) Landlord or Tenant, as the case may be, shall clean up and remove or cause to be cleaned up and removed from, under or about the Demised Premises any Hazardous Materials it or its agents or employees have or have caused to be introduced, at its sole cost and expense, and shall ensure that such removal is conducted in compliance with all applicable Environmental Laws. (c) Landlord and Tenant shall and do indemnify, defend and hold the other, its successors and assigns harmless from and against any losses (including reasonable attorneys' fees and court costs) which Landlord or Tenant, or their successors and assigns may sustain or which may arise by reason of Tenant's or Landlord's failure to comply with the requirements of this Section. (d) This Section 41 shall survive the expiration or earlier termination of this Lease. 42. Landlord's Representations, Warranties and Covenants. Landlord hereby warrants and represents to Tenant and covenants and agrees with Tenant that (i) it has equitable title to the Demised Premises and, on or before December 31, 1996, will acquire good and marketable fee simple title to the Demised Premises free and clear of liens, encumbrances, or other title exceptions except as shown on Exhibit F attached hereto; (ii) the person signing on behalf of Landlord is authorized to do so by any and all necessary partnership and corporate actions; (iii) no litigation has been initiated or, to the knowledge of Landlord, threatened against Landlord or against the Demised Premises which, if adversely determined, would impair Landlord's ability to execute, deliver, and perform this Lease; (iv) neither Landlord, any affiliate of Landlord, nor the Demised Premises is subject to or otherwise bound by any legal requirement or agreement (written or oral) which would be breached, or which would result in the creation or imposition of any title exception applicable to the Demised Premises, by Landlord's execution, delivery, or performance of this Lease; (v) the attached site plan has been approved by all necessary governmental bodies so that, except for building permits, no further governmental approvals need be obtained before Tenant may construct its Building; (vi) Landlord will not seek or consent to any street or alley closing or other action that would eliminate or shut off light, air, or view to or from the Demised Premises or which would infringe upon the No Build Zone surrounding the Demised Premises as shown on Exhibit A (provided that Landlord shall not be required to initiate judicial action to prevent others from so doing), and (vii) although part of the No Build Zone is subject to the lease dated June 21, 1996 between Landlord and Kohl's Department Stores,Inc., (A) Landlord will use its best efforts to assure that the No Build Zone is improved for parking substantially as shown on Exhibit A, and (B) Tenant and its patrons and employees will have the right, in common with patrons - 37 - and employees of Kohl's, to park in the No Build Zone. Notwithstanding anything to the contrary contained in this Lease, no alterations, renovations, or additions made by Landlord to the Shopping Center shall materially interfere in any way, whether on a temporary or permanent basis, with access to the Demised Premises or the view of the Demised Premises from Route 38, or from the access roads of the Shopping Center shown on Exhibit A, nor shall any such alterations, renovations, or additions materially reduce the number of parking spaces shown in the No Build Zone. Tenant recognizes that Landlord intends to dedicate for highway purposes part or all of the 2.47 acres identified on the Site Plan as "To Be Dedicated." Landlord covenants that it will seek to retain the right to maintain such area and that, if it does retain such right, it will maintain and landscape the area in such a way that the view of the Building is obstructed as little as is practicable. Landlord further covenants that it will promptly seek the consent (pursuant to the OEA) of Dayton Hudson Corporation to the plans of Tenant. If Dayton Hudson fails to give such consent on or before the thirtieth day after the date hereof, Tenant may, upon five days notice to Landlord, terminate this Lease. If neither Landlord nor any affiliate of or successor in interest to Landlord acquires title to the Demised Premises on or before December 31, 1996, this Lease shall automatically terminate and be of no further force or effect. 43. Miscellaneous. (a) Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution. (b) Landlord and Tenant hereby waive their right to a trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in respect of any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or occupancy of the Demised Premises, and any claim or counterclaim of injury, damage or otherwise by Landlord and Tenant against or with respect to each other. (c) This Lease contains and embodies the entire agreement of the parties hereto, and supersedes and revokes any and all negotiations, arrangements, letters of intent, representations, inducements or other agreements, oral or in writing. No representations, inducements or agreements, oral or in writing, between the parties not contained in this Lease, shall be of any force or effect. This Lease may not be modified, changed, amended, altered or terminated in whole or in part in any manner other than by an agreement in writing duly signed by both parties hereto. - 38 - (d) If any provision of this Lease or the application thereof to any person or circumstances shall to any extent be held by a court of competent jurisdiction invalid or unenforce able, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. (e) Any references in the Lease to the term "day" shall be deemed to mean "calendar day" unless expressly stated otherwise. (f) This Lease shall become immediately binding upon the parties hereto on the Effective Date, notwithstanding that the Term of this Lease shall commence on a future date. (g) The Table of Contents preceding this Lease and the headings of the paragraphs and subparagraphs are inserted solely for conveyance of reference and shall not constitute a part of this Lease, nor limit, define or describe the scope or intent of any provision hereof. (h) This Lease, the rights and obligations of the parties hereto, and any claims or disputes relating thereto shall be governed by and construed in accordance with the laws of the state in which the Demised Premises is located (but not including the choice of law rules thereof). (i) Landlord and Tenant hereby represent and warrant that each is a validly existing and duly created corporation, limited liability company, or partnership in good standing under the laws of the jurisdiction in which it is organized and qualified to do business in the state in which the Demised Premises is located. Landlord and Tenant each hereby represents and warrants that this Lease has been executed and delivered on its behalf pursuant to due authority and that the Lease constitutes the valid and binding obligations of each of them, enforceable against each of them in accordance with its terms. - 39 - IN WITNESS WHEREOF, Landlord and Tenant have each executed this Lease under seal on the day and year hereinabove written. TENANT Silver Diner Development, Inc., a Virginia corporation WITNESS: By: _________________________ __________________________________ Name: Name: _________________________ __________________________________ Title: Title: _________________________ __________________________________ LANDLORD Cherry Hill Associates L.P., a New Jersey limited partnership By: Cherry Hill Partner, Inc., general partner WITNESS: By: /s/ Eric M. Mallory _________________________ __________________________________ Name: Name: _________________________ __________________________________ Title: Title: _________________________ __________________________________ - 40 - _________________________ ) ) ss: _________________________ ) Before me, a Notary Public in and for the jurisdiction aforesaid, on this date personally appeared before me , of Silver Diner Development, Inc. personally well known to me and acknowledged that he executed the annexed Lease as the corporate act and deed of Silver Diner Development, Inc. WITNESS my hand and official seal on , 199__. [SEAL] ----------------- Notary Public My commission expires: _________________________ ) ) ss: _________________________ ) Before me, a Notary Public in and for the jurisdiction aforesaid, on this date personally appeared before me , of Cherry Hill Partner, Inc., general partner of Cherry Hill Associates L.P. personally well known to me and acknowledged that he executed the annexed Lease as the act and deed of Cherry Hill Partner, Inc. as general partner of Cherry Hill Associates L.P. WITNESS my hand and official seal on , 199__. [SEAL] ----------------- Notary Public My commission expires: - 41 - EXHIBIT B --------- CONSTRUCTION RESPONSIBILITIES The following sets forth the respective construction responsibilities of Landlord and Tenant with regard to Landlord's obligation to construct certain Site Improvements (hereafter defined) with regard to the Shopping Center, including certain designated work on the Demised Premises and Tenant's responsibility to construct the Building. 1. Landlord's Work. (a) Landlord agrees to provide for the design and construction of the Building pad for Tenant's Building, the common pylon sign, detention ponds, on and off site road work, parking areas, common utilities and other common Site Improvements, including landscaping within the Common Areas, all substantially as shown on the Site Plan attached to the Lease. All such work is collectively referred to herein as the "Site Improvements". (b) Landlord shall cause the preparation of plans and specifications in sufficient detail so as to permit the construction of the Site Improvements and shall provide same to Tenant's designated architect or engineer. Landlord shall prepare such plans and specifications so as to be consistent with plans given to Landlord by Tenant showing the location of the utility lines to Tenant's Building. (c) Landlord will apply for and use reasonable efforts to obtain, at its own expense any and all necessary permits and variances that are necessary to construct the Site Improvements, including, without limitation, any such Permits pertaining to utilities, curb cuts, driveways (including ingress and egress to public thoroughfares), and environmental controls. Landlord shall pay all utility hook-up and connection fees required in connection with the Building. Notwithstanding anything herein to the contrary, Landlord shall not be responsible for or obligated to obtain a building permit for the Tenant's Building and Tenant shall be responsible for obtaining the building permit for Building or other improvements to be performed by Tenant at its own expense. (d) Landlord shall provide to Tenant testing results relating to work on the Demised Premises from licenses engineers and/or testing labs for tests conducted by Landlord. All tests must meet or exceed the criteria established in the plans and specifications. Test results, as completed, shall be sent to Landlord and Tenant. Upon completion of the Tenant's building - 1 - EXHIBIT B pad and site grading, Landlord shall provide a certification statement from a licensed surveyor certifying to Tenant that the Demised Premises has been graded to the elevation required in the plans and specifications. (e) After the awarding of the construction contract(s) by Landlord and receipt of the necessary Permits, Landlord shall cause the commencement and diligent continuance of the construction of the Site Improvements until completion. Landlord shall cause the construction of the Site Improvements serving the Demised Premises (including all parking within the No Build Zone) in two phases, the first phase being the delivery of Tenant's Building pad, staging areas and an access road to such areas from Route 38 (the "Phase One Work"). The Phase One Work shall be substantially completed by April 1, 1997, subject to ss. 40 of the Lease. The remaining Site improvements serving the Demised Premises (the "Phase Two Work"), shall be completed in accordance with the following schedule: (i) Permanent Utilities to Tenant's Building - April 30, 1997 (ii) Substantial completion of remaining Phase Two Work - September 30, 1997, in each case subject to (section mark) 40 of the Lease. (f) Landlord shall be responsible for the supervision of the construction of the Site Improvements, and shall use reasonable efforts to advise and consult with Tenant as to material elements of the work and its progress. Tenant and its designated architect and/or engineer, at its own expense, may visit the job site to inspect the progress and performance of the work and the materials being incorporated into the Site Improvements. (g) In connection with the construction of the Site Improvements by or on behalf of Landlord, Landlord shall not create or suffer to be created or to remain, and shall discharge, any mechanic's, laborer's or materialmen's lien which shall become a lien upon the Demised Premises or any part thereof. If any mechanic's, laborer's or materialmen's lien shall at any time be filed against the Demised Premises or any part thereof arising from work performed on behalf of Landlord, Landlord, within thirty (30) days shall cause such lien to be discharged of record by payment, deposit, bond, order of court of competent jurisdiction or otherwise. (h) The Site Improvements shall be deemed "completed" after the completion of all work and certification of such completion by Landlord's engineer. The Site Improvements shall be deemed "substantially completed" upon the completion of all - 2 - EXHIBIT B such work, except for minor items which do not materially detract from the usability of such item or are of a seasonal nature (such as landscaping or striping and the final coat of asphalt on the parking area and the interior roads in the Shopping Center), commonly referred to as "punch list" items and certification of such by Landlord's engineer. Landlord shall diligently complete all punch list items. (i) Landlord will perform the Site Improvements in a manner reasonably designed to minimize any interference with the construction of the Tenant's Building. In the event that during the construction of the Building, the construction activities of Landlord, or the progress of the same, as required by Section 1(e), interferes with or delays the construction activities of the Tenant, Tenant shall notify the Landlord, in writing, of the same, specifying exactly what construction activities of Landlord are the source of the problem or what portion of Landlord's work needs to be performed to avoid such delay. Landlord will have forty-eight (48) hours after its receipt of the foregoing notice to stop or commence to diligently cure the matters raised by Tenant in its notice. Should Landlord fail to do so, or should Landlord, having commenced such cure, fail to diligently complete it, Tenant shall be entitled to a credit against Rent of Five Hundred Dollars ($500) for each day or partial day Tenant is delayed by Landlord. 2. Tenant's Work. (a) Tenant has delivered to Landlord its general design elevations which include Tenant's proposed general physical characteristics of the Tenant's Building, exterior materials, exterior color scheme and building heights. Landlord has approved the construction of a restaurant substantially in accordance with the plans listed on Exhibit C. The Tenant's Building shall be a one story sit down restaurant containing not more than 5,900 Gross Leasable Floor Area, and having a maximum height of thirty (30) feet. Tenant has delivered to Landlord a plan which depicts the location of all utilities entering the Tenant's Building and will deliver detailed plans for the same within fifteen (15) days after the date hereof. (b) Tenant shall commence the construction of the Tenant's Building no later than the 60th day after the last to occur of: (i) the Lease Commencement Date, (ii) completion of the Phase One Work, and (iii) delivery of possession of the Demised Premises. Tenant shall diligently pursue such construction to timely completion and shall promptly fixture and open such restaurant to the public under the initial trade name "Silver Diner". The construction of the Tenant's Building shall be performed in a good and workmanlike manner in accordance with sound professional standards and with the provision of this Agreement, in compliance with all governmental authorities. All - 3 - EXHIBIT B materials used in the construction of the Tenant's store shall be of new, commercial grade and first class quality. (c) Tenant shall apply for and use all reasonable efforts to obtain, at its own cost and expense, any and all necessary permits that are necessary to construct the Tenant's Building except those that Landlord must obtain to construct the Site Improvements. Landlord must obtain the permits to construct the Site Improvements as a precondition to Tenant commencing construction of the Tenant's Building. (d) All contracts of Tenant shall provide for the coordination and cooperation of such contractor with Landlord in completing the Site Improvements and other construction work on the Shopping Center, including any space to be erected by Landlord or its tenants. Tenant shall perform its construction in a manner reasonably designed to minimize any interference with the construction taking place simultaneously on the balance of the Shopping Center or the operation of stores then open for business. In the event that during the construction of the Building, the construction activities of Tenant, or the progress of the same, interferes with or delays the construction activities of the Landlord, Landlord shall notify the Tenant, in writing, specifying exactly what construction activities of Tenant are the source of the problem or what portion of Tenant's work needs to be performed to avoid such delay. Tenant will have forty-eight (48) hours after its receipt of the foregoing notice to stop or commence to diligently cure the matters raised by Landlord in its notice. FURTHER, IN CONSTRUCTING THE TENANT'S BUILDING, TENANT SHALL ONLY UTILIZE SUCH LABOR AS SHALL WORK IN HARMONY WITH AND WITHOUT CAUSING LABOR DISPUTES OR STRIKES WITH ANY OTHER CONTRACTORS AND LABOR THEN BEING USED IN THE SHOPPING CENTER AND TENANT SHALL, WITHIN FIVE (5) DAYS AFTER LANDLORD'S REQUEST, CAUSE THE REMOVAL FROM THE DEMISED PREMISES OF ANY CONTRACTORS AND LABOR UTILIZED BY TENANT WHICH RESULTS IN ANY LABOR STOPPAGE, STRIKE, LOCKOUT, OR LABOR DISPUTE AFFECTING THE SHOPPING CENTER. Notwithstanding the foregoing, in no event shall Tenant be expected or obligated to engage in any conduct which is in conflict with or violates any federal, state or local law including, without limitation, the National Labor Relations Act or the regulations thereto. (e) Tenant's construction work shall be properly protected with lights and barricades and secured against accident, storm or any other hazard. Staging for the construction of the Tenant's restaurant shall be confined to the area designated "staging" on the Site Plan. Tenant shall keep all other portions of the Shopping Center substantially free from and unobstructed by debris, equipment materials or supplies related to Tenant's construction work and will use its best good faith commercially reasonable efforts to keep obstruction to a minimum. Tenant shall patch and repair asphalt and cement, if - 4 - EXHIBIT B necessary, in its staging areas upon demobilization of construction and leave same clean and free of debris. During such construction work, Tenant shall store all trash, debris and rubbish as reasonably directed by Landlord and upon the completion of Tenant's construction work, Tenant shall remove all temporary structures, surplus materials, debris and rubbish of whatever kind remaining on the Demised Premises, the staging areas or other portions of the Shopping Center. Landlord shall be responsible for the removal of rubbish and trash from the Shopping Center caused by Landlord. Landlord and Landlord's architect or engineer shall be given notice of, and may attend any meetings with Tenant's contractors and may visit the job site to observe the progress and performance of the construction work. (f) In connection with the construction of the Tenant's Building, Tenant shall not create or suffer to be created or to remain, and shall discharge, any mechanic's, laborer's or materialmen's liens which shall become a lien upon Demised Premises or Shopping Center or any part thereof. If any mechanic's, laborer's or materialmen's liens shall at any time be filed against the Demised Premises, the Shopping Center or any part thereof arising from work performed on behalf of Tenant, Tenant within thirty (30) days shall cause such lien to be discharged of record by payment, deposit, bond, order of court of competent jurisdiction or otherwise. 3. Indemnity and Insurance. (a) Landlord shall indemnify, defend and save Tenant and its agents, servants, employees, officers and directors harmless from any and all loss, damages, liability, costs and expenses including but not limited to reasonable attorney's fees, and al other sums which Tenant, its agents, servants, employees, officers and directors may pay or become obligated to pay on account of any claim or assertion of liability arising or alleged to have arisen out of any act or omission of Landlord, its agents, contractors, subcontractors, servants, employees, licensees or invitees in connection with construction of the Site Improvements to be performed by or at the direction of Landlord under this Exhibit; provided, however, Landlord shall not be responsible for any such loss, damages, liability, costs or expenses which arise from the act or omission of Tenant, its agents, servants, employees or officers. Notwithstanding the foregoing, in no event shall Landlord be responsible for any lost profits or consequential damages. Tenant shall indemnify, defend and save Landlord and its agents, servants, employees, officers and directors harmless from any and all loss, damages, liability, costs and expenses including but not limited to reasonable attorneys fees, and al other sums which Landlord, its agents, servants, employees, officers and directors may pay or become obligated to pay, on account of any claim or assertion of liability arising or alleged to have arisen out of any act or - 5 - EXHIBIT B omission of Tenant, its agents, contractors, subcontractors, servants, employees, licensees or invitees in connection with the construction of the Tenant's Building on the Demised Premises; provided, however, Tenant shall not be responsible for any loss, damage, liability, cost or expenses which arise from the act or omission of Landlord, its agents, servants, employees or officers. Notwithstanding the foregoing, in no event shall Tenant be responsible for any lost profits or consequential damages. (b) Landlord and Tenant shall each maintain or cause to be maintained in force a general comprehensive public liability policy or policies of insurance written by one or more responsible insurance carriers licensed to do business in New Jersey insuring against liability for injury to and/or death of any person and/or damage to property of any person or persons in connection with the construction of the Site Improvements to be performed by landlord pursuant to this Agreement, and as to Tenant, the construction of the Tenant's Building, in each case with single limit liability coverage of not less than $1,000,000.00 (plus umbrella coverage for an additional $1,000,000.00). Such policy or policies shall name the other party as an additional insured. Each party agrees to deliver to the other a certificate of insurance evidencing the existence of such policy or policies of insurance. Such certificate will provide that such insurance will not be canceled or materially amended unless thirty (30) days' prior written notice of such cancellation or amendment is given to the other. - 6 - EXHIBIT B EXHIBIT C --------- IMPROVEMENTS TO BE CONSTRUCTED BY TENANT Tenant shall construct a Silver Diner restaurant substantially in accordance with the plans and specifications identified as follows: Cover Sheet Helbing-Lipp, Ltd. September 4, 1996 Sheet 1 of 3 CaptiveAire March 8, 1996 Sheet 2 of 3 CaptiveAire March 12, 1996 Sheet 3 of 3 CaptiveAire March 8, 1996 A-0 Architectural Site Details Helbing-Lipp, Ltd. September 4, 1996 A-1 Floor Plan Helbing-Lipp, Ltd. September 4, 1996 A-2 Finish and Equipment Plan Helbing-Lipp, Ltd. September 4, 1996 A-3 Reflected Ceiling Plan Helbing-Lipp, Ltd. September 4, 1996 A-4 Building Sections Helbing-Lipp, Ltd. September 4, 1996 A-5 Wall Sections Helbing-Lipp, Ltd. September 4, 1996 A-6 Elevations Helbing-Lipp, Ltd. September 4, 1996 A-7 Roof Plan/Details Helbing-Lipp, Ltd. September 4, 1996 ID-1 Interior Plan and Details Helbing-Lipp, Ltd. September 4, 1996 ID-2 Interior Elevations Helbing-Lipp, Ltd. September 4, 1996 ID-3 Interior Design Details Helbing-Lipp, Ltd. September 4, 1996 ID-4 Helbing-Lipp, Ltd. September 4, 1996 FS-1.1 Foodservice Equipment Plan and Schedule Cini-Little Int'l., Inc. August 27, 1996 FS-1.1D Foodservice Equipment Dimensioned Plan Cini-Little Int'l., Inc. August 27, 1996 FS-1.1M Foodservice Equipment Mechanical Spot Connection Plan Cini-Little Int'l., Inc. August 27, 1996 FS-1.1E Foodservice Equipment Electrical Spot Connection Plan Cini-Little Int'l., Inc. August 27, 1996 FS-1.1SC Foodservice Equipment Special Conditions Plan Cini-Little Int'l., Inc. August 27, 1996 FS-2.1 Foodservice Equipment Elevations & Details Cini-Little Int'l., Inc. August 27, 1996 FS-2.2 Foodservice Equipment Elevations & Details Cini-Little Int'l., Inc. August 27, 1996 FS-3.1 Foodservice Equipment Utility Loan Schedule Cini-Little Int'l., Inc. August 27, 1996 FS-3.2 Foodservice Equipment Utility Loan Schedule Cini-Little Int'l., Inc. August 27, 1996 FS-3.3 Foodservice Equipment Utility Loan Schedule Cini-Little Int'l., Inc. August 27, 1996 FS-3.4 Foodservice Equipment Utility Loan Schedule Cini-Little Int'l., Inc. August 27, 1996 S-1 Foundation Plan Helbing-Lipp, Ltd. September 4, 1996 S-2 Roof Framing Plan Helbing-Lipp, Ltd. September 4, 1996 M-1 Floor Plan - HVAC Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996 M-2 Mechanical Notes & Schedules Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996 P-1 Floor Plan - Plumbing Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996 P-2 Riser Diagrams Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996 P-3 Notes, Schedules and Details Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996 E-1 Electrical Notes Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996 E-2 Floor Plan - Lighting Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996 E-3 Floor Plan - Power Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996 E-4 Site Plan and Electrical Panels Helbing-Lipp, Ltd./ AJ Engineers September 4, 1996
EXHIBIT D --------- FORM OF FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made this ______ day of ______________, 1997 between CHERRY HILL ASSOCIATES L. P., a New Jersey limited partnership ("Landlord"), and SILVER DINER DEVELOPMENT, INC., a Virginia corporation ("Tenant"). R E C I T A L S A. Landlord and Tenant executed that certain Lease dated September __, 1996 (collectively referred to herein with all amendments and agreements regarding that certain Lease as the "Lease") with respect to certain Demised Premises located in the Hillview Shopping Center, Cherry Hill, New Jersey, all as more particularly described in the Lease. All terms and definitions used in this Amendment not herein defined are to be given the definition of the term as provided in the Lease, unless specifically stated otherwise. B. Section 2(c) of the Lease requires that the Landlord and Tenant execute this Amendment to establish the Rent Commencement Date and the Lease Expiration Date. NOW, THEREFORE, in consideration of the foregoing, TEN AND NO/100 DOLLARS ($10.00) and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged and confessed, Landlord and Tenant hereby agree as follows: i. The Rent Commencement Date is the ___ day of __________, 199__ and the Lease Expiration Date is the ___ day of __________, 201__. ii. Except as hereby amended, the Lease shall remain unchanged in full force and effect. If there is any conflict between the terms and provisions of the Lease and the terms and provisions of this Amendment, this Amendment shall control. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. TENANT Silver Diner Development, Inc., a Virginia corporation WITNESS: By: _________________________ __________________________________ Name: Name: _________________________ __________________________________ Title: Title: _________________________ __________________________________ LANDLORD Cherry Hill Associates L.P., a New Jersey limited partnership By: Cherry Hill Partner, Inc., general partner WITNESS: By: _________________________ __________________________________ Name: Name: _________________________ __________________________________ Title: Title: _________________________ __________________________________ _________________________ ) ) ss: _________________________ ) Before me, a Notary Public in and for the jurisdiction aforesaid, on this date personally appeared before me , of Silver Diner Development, Inc. personally well known to me and acknowledged that he executed the annexed Lease as the corporate act and deed of Silver Diner Development, Inc. WITNESS my hand and official seal on , 199__. [SEAL] ----------------- Notary Public My commission expires: _________________________ ) ) ss: _________________________ ) Before me, a Notary Public in and for the jurisdiction aforesaid, on this date personally appeared before me , of Cherry Hill Partner, Inc., general partner of Cherry Hill Associates L.P. personally well known to me and acknowledged that he executed the annexed Lease as the act and deed of Cherry Hill Partner, Inc. as general partner of Cherry Hill Associates L.P. WITNESS my hand and official seal on , 199__. [SEAL] ----------------- Notary Public My commission expires: EXHIBIT E --------- SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT is made and entered into as of the day of , 199__, by and among Cherry Hill Associates L.P., a New Jersey limited partnership ("Landlord"); __________ _____________________________________, a _______________ corporation ("Tenant"); _____________________, a _____________________ ("Mortgagee"); and _____________ _____________________ and _______________________ ("Trustees"). RECITALS: --------- A. Landlord is the owner in fee simple of the real property in Cherry Hill, New Jersey described in Exhibit A attached hereto ("Land"). B. Mortgagee is the owner of the beneficial interest under that certain deed of trust dated _____________, 199__, encumbering the Land to the Trustees, and recorded in the records of the Clerk of the Circuit Court of ____________________, _______________ in Deed Book _______ at Page _____ (the "Mortgage"). C. Pursuant to that certain Lease dated ___________________, 1996 the "Lease"), Tenant has leased from Landlord the Land (the Land, together with all improvements now or hereinafter situated thereon are collectively referred to as the "Premises"). The Premises are more particularly described in the Lease, a true copy of which as executed by Landlord and Tenant has been delivered to Mortgagee. D. Tenant and Mortgagee desire to confirm certain understandings with respect to the Lease and the Mortgage, and Landlord desires to join herein to evidence its agreement to the provisions hereof. NOW, THEREFORE, in consideration of the covenants herein contained, the parties hereby agree as follows: 1. Approval of Lease. Mortgagee hereby approves the execution of the Lease by Landlord and Tenant. 2. Nondisturbance; No Joinder. So long as Tenant is not in default (beyond any period granted to Tenant to cure such default) in the payment of rent or additional rent or in the performance of any of the other terms, covenants or conditions of the Lease on Tenant's part to be performed: - 1 - EXHIBIT E (a) Tenant's possession of the Premises and Tenant's rights, options and privileges under the Lease, or under any extensions thereof effected in accordance with any option therefor in the Lease, shall not be diminished or interfered with by Mortgagee, and Tenant's occupancy of the Premises shall not be disturbed by Mortgagee for any reason whatsoever during the term of the Lease or any such extensions or renewals thereof; and (b) Mortgagee will not join Tenant as a party defendant in any action or proceeding for the purpose of terminating Tenant's interest and estate under the Lease because of any default under the Mortgage. 3. Attornment. If Mortgagee succeeds to the interest of Landlord in the Lease by reason of foreclosure, dispossession or other proceedings brought by Mortgagee, or by any other manner, Tenant shall be bound to Mortgagee under all of the terms, covenants and conditions of the Lease for the balance of the term thereof and any extensions thereof effected in accordance with any option therefor in the Lease, with the same force and effect as if Mortgagee were the landlord under the Lease, and Tenant does hereby attorn to Mortgage as its landlord. Such attornment shall be effective and self-operative, without the execution of any further instruments on the part of any of the parties hereto, immediately upon Mortgagee's succeeding to the interest of Landlord under the Lease. In confirmation of such attornment, Tenant shall execute and deliver promptly any certificate or other instrument which Mortgagee may request; provided, that Tenant shall be under no obligation to pay Minimum Rent, additional rent or other sums payable under the Lease until Tenant receives written notice from Mortgagee that Mortgagee has succeeded to the interest of Landlord under the Lease or that Mortgagee has exercised any right under the Mortgage to collect such payments directly from Tenant. The respective rights and obligations of Tenant and Mortgagee upon such attornment shall be the same as set forth in the Lease. 4. Mortgagee's Succession. If Mortgagee shall succeed to the interest of Landlord in the Lease, Mortgagee shall be bound to Tenant under all the terms, covenants and conditions of the Lease, and Tenant shall, from and after Mortgagee's succeeding to the interest of Landlord in the Lease, have the same remedies against Mortgagee for the breach of any agreement contained in the Lease that Tenant might have had under the Lease against Landlord if Mortgagee had not succeeded to the interest of Landlord; provided, that Mortgagee shall not be -- (i) bound by any termination, amendment, modification or surrender of the Lease without Mortgagee's written consent; - 2 - EXHIBIT E (ii) bound by any payment in advance of Minimum Rent or additional rent for more than one month to any prior landlord (including Landlord), unless such advance payment is specifically required under the Lease; and (iii) liable for any act, omission or default of any prior landlord. 5. Subordination. Subject to the provisions hereof, the Lease now is and shall continue to be subject and subordinate to the Mortgage, to any and all renewals and modifications thereof and to all advances made and to be made thereunder, so long as no such renewal or modification shall increase any obligation of Tenant or shall diminish any obligation of Mortgagee or Landlord hereunder or under the Lease. Any such renewal or modification shall nevertheless be subject to and entitled to the benefits of the terms of this Agreement and no further instrument of subordination shall be required. Such subordination shall be effective and self-operative, without the execution of any further instruments on the part of any of the parties hereto. 6. No Oral Modifications. This Agreement may not be modified orally or in any manner other than by an agreement in writing signed by the parties hereto or their respective successors in interest. 7. Benefit and Burden. All provisions and covenants in this Agreement shall be deemed to touch and concern and run with the Land. This Agreement shall inure to the benefit of, be enforceable by and be binding upon the parties hereto and their respective successors and assigns, including as a successor in the case of Mortgagee any purchaser at a foreclosure sale. The word "Mortgagee" shall include the original Mortgagee named herein and any of its successors and assigns, including any person or entity succeeding to Landlord's interest in the Land or the Lease upon foreclosure of the Mortgage. The word "foreclosure" and "foreclosure sale" as used herein shall be deemed to include the acquisition of Landlord's estate in the Land by voluntary deed, assignment or other disposition or transfer in lieu of foreclosure. 8. Lease Defined. The word "Lease" as used herein shall be deemed to be the Lease as originally executed by Landlord and Tenant, as amended or modified by written agreements hereafter made, from time to time, between the Landlord and Tenant and consented to by Mortgagee. 9. Applicable Law; Gender. This Agreement shall be construed according to the laws of the State of New Jersey. The use of the neuter gender in this Agreement shall be deemed to include any other gender, and words in the singular number shall be held to include the plural, when the sense so requires. - 3 - EXHIBIT E 10. Trustee. Mortgagee hereby authorizes the Trustee to execute this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. WITNESS/ATTEST: _____________________________________ By: ______________________________ Robert T. Giaimo President WITNESS/ATTEST: Cherry Hill Associates L.P. By: Cherry Hill Partner, Inc. general partner By: - ------------------------------------- --------------------------- Name: ------------------------ Title: ------------------------ WITNESS/ATTEST: By: - ------------------------------------- --------------------------- Name: ------------------------ Title: ------------------------ WITNESS/ATTEST: By: - ------------------------------------- --------------------------- Name: ------------------------ Title: ------------------------ - 4 - EXHIBIT E _________________________ ) ) ss: _________________________ ) Before me, a Notary Public in and for the jurisdiction aforesaid, on this date personally appeared before me __________________________ of _________________ personally well known to me and acknowledged that he executed the Agreement as the corporate act and deed of Silver Diner Development, Inc. WITNESS my hand and official seal on , 199__. [SEAL] ----------------- Notary Public My commission expires: _________________________ ) ) ss: _________________________ ) Before me, a Notary Public in and for the jurisdiction aforesaid, on this date personally appeared before me ________________________, _________________________ of Cherry Hill Partner, Inc., a New Jersey corporation and the general partner of Cherry Hill Associates L.P., a New Jersey limited partnership personally well known to me and acknowledged that he executed the Agreement as the corporate act and deed of Cherry Hill Partner, Inc. as general partner of Cherry Hill Associates L.P. WITNESS my hand and official seal on , 199__. [SEAL] ----------------- Notary Public My commission expires: - 5 - EXHIBIT E _________________________ ) ) ss: _________________________ ) Before me, a Notary Public in and for the jurisdiction aforesaid, on this date personally appeared before me __________________________ of _________________ personally well known to me and acknowledged that he executed the Agreement as the corporate act and deed of __________________________________. WITNESS my hand and official seal on , 199__. [SEAL] ----------------- Notary Public My commission expires: _________________________ ) ) ss: _________________________ ) Before me, a Notary Public in and for the jurisdiction aforesaid, on this date personally appeared before me__________________________ of _________________ personally well known to me and acknowledged that he executed the Agreement as the corporate act and deed of __________________________________. WITNESS my hand and official seal on , 199__. [SEAL] ----------------- Notary Public My commission expires: - 6 - EXHIBIT E EXHIBIT F --------- EXISTING TITLE EXCEPTIONS 1. Flooding and drainage rights within the lines of, bounding or crossing any natural stream, brook, creek, ditch, drain or other watercourse, if any. 2. Public and private rights in and to any area included within the lines of any street, road, avenue, lane, court, etc., including slope, drainage and grading rights bounding or abutting New Jersey State Highway Route 38. 3. Utility easements presently existing or hereafter created affecting all or any portion of the Shopping Center provided such easements do not materially adversely affect Tenant's use of the Demised Premises and the Common Areas of the Shopping Center. 4. Terms, covenants, conditions, restrictions and reservations contained in the OEA. 5. Agreements executed between Landlord and the owners of adjoining residential apartment buildings with respect to access roads and easements to construct parking areas in the portions of the Common Areas, as set forth in Section 2.5 of the OEA. 6. Any agreement executed between Landlord and the City of Cherry Hill and/or any other governmental body within the State of New Jersey relating to the development of the Shopping Center provided such agreement does not prohibit or restrict the use or occupancy of the Demised Premises for the purposes permitted by the Lease or materially impair the rights of Tenant under the Lease including, but not limited to, Tenant's rights of access to, and use of, the Demised Premises and the common areas of the Shopping Center. 7. Any Fee Mortgage and related financing documents executed by Landlord provided that Landlord has obtained for Tenant the non-disturbance and attornment agreement required by the Lease. 8. Any other agreement executed by Landlord between the date of this Lease and the date the memorandum of this Lease is recorded provided such agreement does not prohibit or restrict the use or occupancy of the Demised Premises for the purposes permitted by the Lease or materially impair the rights of Tenant under the Lease including, but not limited to, Tenant's rights of access to, and use of, the Demised Premises and the common areas of the Shopping Center. EX-10.19 4 EXHIBIT 10.19 Exhibit 10.19 Silver Diner, Inc. Stock Option Plan together with form of Stock Option Agreement SILVER DINER, INC. STOCK OPTION PLAN 1. Purpose This Stock Option Plan (the "Plan") for Silver Diner, Inc. (the "Company") is intended to provide incentive to officers and other key employees of the Company by providing those persons with opportunities to purchase shares of the Company's Common Stock under (a) incentive stock options ("Incentive Stock Options") as such term is defined under Section 422 of the Internal Revenue Code of 1986, as amended and (b) other stock options ("Non-Qualified Options"). 2. Definitions As used in this Plan, the following words and phrases shall have the meanings indicated: (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the Common Stock, $0.00074 par value, of the Company. (d) "Company" shall mean Silver Diner, Inc., a Delaware corporation. (e) "Disability" shall mean an Optionee's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. (f) "Fair Market Value" per share as of a particular date shall mean (i) the closing sales price per share of Common Stock on the principal national securities exchange, if any, on which the shares of Common Stock shall then be listed for the last preceding date on which there was a sale of such Common Stock on such exchange, or (ii) if the shares of Common Stock are not then listed on a national securities exchange, the last sales price per share of Common Stock entered on a national inter-dealer quotation system for the last preceding date on which there was a sale of such Common Stock on such national inter-dealer quotation system, or (iii) if no closing or last sales price per share of Common Stock is entered on a national inter-dealer quotation system, the average of the closing bid and asked prices for the shares of Common Stock in the over-the-counter market for the last preceding date on which there was a quotation for such Common Stock in such market, or (iv) if no price can be determined under the preceding alternatives, then the price per share as most recently determined by the Board, which shall make such determinations of value at least once annually. (g) "Incentive Stock Option" means one or more options to purchase Common Stock which, at the time such options are granted under this Plan or any other such plan of the Company, qualify as incentive stock options under Section 422 of the Code. (h) "Non-Qualified Option" shall mean any Option that is not an Incentive Stock Option. (i) "Option Price" shall mean the purchase price of shares of Common Stock covered by an Option. (j) "Parent" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of granting an Option, each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (k) "Plan" shall mean this Stock Option Plan. (l) "Option" shall mean any option issued pursuant to this Plan. (m) "Optionee" shall mean any person to whom an Option is granted under this Plan. (n) "Subsidiary" shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting an Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (o) "Ten Percent Shareholder" shall mean an Optionee who, at the time an Option is granted, owns directly or indirectly (within the meaning of section 425(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, its Parent or a Subsidiary. - 2 - 3. General Administration. (a) The Plan shall be administered by the Board. (b) The Board shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine the Option Price; to determine the persons to whom, and the time or times at which, Options shall be granted; to determine the number of shares to be covered by each Option; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Option Agreements (which need not be identical) entered into in connection with Options granted under the Plan; and to make all other determinations deemed necessary or advisable for the administration of the Plan. (c) No member of the Board shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option granted hereunder. 4. Granting of Options Options may be granted under the Plan at any time prior to September 11, 2006. 5. Eligibility (a) Options may be granted to any director, officer key employee or outside consultant of the Company. In determining from time to time the officers and employees to whom Options shall be granted and the number of shares to be covered by each Option, the Board shall take into account the duties of the respective officers and employees, their present and potential contributions to the success of the Company and such other factors as the Board shall deem relevant in connection with accomplishing the purposes of the Plan. (b) At the time of the grant of each Option under the Plan, the Board shall determine whether such Option is to be designated an Incentive Stock Option. Incentive Stock Options shall not be granted to a director who is not an employee of the Company. The length of the exercise period of Incentive Stock Options shall be governed by Section 7(e)(1) of the Plan; the exercise period of all other Options will be governed by Section 7(e)(2). - 3 - (c) An Option designated an Incentive Stock Option can, prior to its exercise, be changed to a Non-Qualified Option if the Optionee consents to amend his Option Agreement to provide that the exercise period of such Option will be governed by Section 7(e)(2) of the Plan. 6. Stock (a) The stock subject to the Options shall be shares of the Common Stock. Such shares may, in whole or in part, be authorized but unissued shares contributed directly by the Company or shares which shall have been or which may be acquired by the Company. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under the Plan shall be 350,000 shares. The limitation established by the preceding sentence shall be subject to adjustment as provided in Section 7(i) hereof. (b) If any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full, the shares of Common Stock allocable to the unexercised portion of such Option shall (unless the Plan shall have been terminated) become available for subsequent grants of Options under the Plan. 7. Terms and Conditions of Options Each Option granted pursuant to the Plan shall be evidenced by Option Agreements in such forms as the Board may from time to time approve. Options shall comply with and be subject to the following terms and conditions: (a) Option Price. Each Option shall state the Option Price, which in the case of Incentive Stock Options shall be not less than one hundred percent (100%) of the Fair Market Value of the shares of Common Stock on the date of grant of the Option; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the Option Price shall not be less than one hundred ten percent (110%) of such fair market value. The Option Price per share for Non- Qualified Options shall not be less than the par value of a share of Common Stock on the date of grant of the Option. The Option Price shall be subject to adjustment as provided in Section 7(i) hereof. The date on which the Board adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. (b) Restrictions. Any Common Stock issued under the Plan may contain restrictions including, but not limited to, limitations on transferability that may constitute substantial risks of forfeiture, as the Board may determine. - 4 - (c) Value of Shares. Options may be granted to any eligible person for shares of Common Stock of any value, provided that the aggregate Fair Market Value (determined at the time the Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all the plans of the Company, its Parent and its Subsidiaries) shall not exceed $100,000. (d) Medium and Time of Payment. The Option Price shall be paid in full, at the time of exercise, in cash or, with the approval of the Board, in shares of Common Stock having a fair market value in the aggregate equal to such Option Price or in a combination of cash and such shares. (e) Term and Exercise of Options. (1) Unless the applicable Option Agreement otherwise provides, each Option shall become vested and first exercisable in the following installments: Year Percentage Exercisable ---- ---------------------- Less than Two Years 0% Two Years 20% Three Years 20% Four Years 25% Five Years 35% (2) Incentive Stock Options shall be exercisable over the exercise period specified by the Board in the Option Agreement, but in no event shall such period exceed ten (10) years from the date of the grant of each such Incentive Stock Option; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the exercise period shall not exceed five (5) years from the date of grant of such Option. The exercise period shall be subject to earlier termination as provided in Section 7(f) and 7(g) hereof. An Incentive Stock Option may be exercised, as to any or all full shares of Common Stock as to which the Incentive Stock Option has become exercisable, by giving written notice of such exercise to the Board; provided that an Incentive Stock Option may not be exercised at any one time as to less than 100 shares (or such number of shares as to which the Incentive Stock Option is then exercisable if such number of shares is less than 100). - 5 - (3) Non-Qualified Options shall be exercisable over a period not to exceed ten (10) years. (f) Termination of Employment. Except as provided in this Section 7(f) and Section 7(g) hereof, an Option may not be exercised by persons who are not outside consultants to the Company unless the Optionee is then a director of or in the employ of the Company or any Parent or Subsidiary of the Company (or a corporation or a Parent or Subsidiary of such corporation issuing or assuming the Option in a transaction to which Section 425(a) of the Code applies), and unless the Optionee has remained continuously a director or so employed since the date of grant of the Option. In the event all association of an Optionee (other than an outside consultant) with the Company (as an employee, or director or both) shall terminate (other than by reason of death or Disability), all Options or unexercised portions thereof granted to such Optionee which are then exercisable may, unless earlier terminated in accordance with their terms, be exercised within thirty (30) days after such termination; provided, however, that if the association of the Optionee with the Company shall terminate for "cause" (as determined by the Board), all Options theretofore granted to such Optionee shall, to the extent not theretofore exercised, terminate forthwith. A bona fide leave of absence shall not be considered a termination or break in continuity of employment for any purpose of the Plan so long as the period of such leave does not exceed ninety (90) days or such longer period during which the Optionee's right to reemployment is guaranteed by statute or by contract. Where the period of such leave exceeds ninety (90) days and the Optionee's right to reemployment is not guaranteed, the Optionee's employment will be deemed to have terminated on the ninety-first (91st) day of such leave. Nothing in the Plan or in any Option granted pursuant hereto shall confer upon an employee any right to continue in the employ of the Company or any of its divisions or Parent or Subsidiaries or interfere in any way with the right of the Company or any such divisions or Parent or Subsidiary to terminate or change the terms of such employment at any time. (g) Death or Disability of Optionee. If an Optionee who was an outside consultant when his Option was granted shall die or if an Optionee shall die while a director of or employed by the Company or any Parent or Subsidiary of the Company, or if the Optionee's employment shall terminate by reason of Disability, all Options theretofore granted to such Optionee may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by the personal representative of the Optionee's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of death of the Optionee, at any time within nine (9) months after the date of death or Disability of the Optionee, but in no - 6 - event later than the date of expiration of the Option, provided that during the lifetime of the Optionee any Option granted to him may be exercised only by the Optionee. (h) Nontransferability of Options. Options granted under the Plan shall not be transferable other than by will or by the laws of descent and distribution, and Options may be exercised, during the lifetime of the Optionee, only by the Optionee. Notwithstanding the preceding sentence, the Board, in its sole discretion, permit the assignment or transfer of a Non-Qualified Option and the exercise thereof by a person other than an Optionee, on such terms and conditions as the Board in its sole discretion may determine. Any such terms shall be determined at the time the Non-Qualified Option is granted, and shall be set forth in the Option Agreement. (i) Effect of Certain Changes. (1) If there is any change in the number of shares of Common Stock through the declaration of stock dividends, recapitalization resulting in stock splits, or combinations or exchanges of such shares, then the number of shares of Common Stock available for Options, the number of such shares covered by outstanding Options, and the price per share of such Options shall be proportionately adjusted to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. (2) In the event of a proposed dissolution or liquidation of the Company, or in the event of any corporate separation or division, including but not limited to, a split-up, a split-off or spin-off, the Board may provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then Option Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolutions or liquidation, or corporate separation or division; or the Board may provide, in the alternative, that each Option granted under the Plan shall terminate as of a date to be fixed by the Board, provided, however, that no less than thirty (30) days' written notice of the date so fixed shall be given to each Optionee, who shall have the right, during the period of thirty (30) days preceding such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby, including shares as to which such Options would not otherwise be exercisable. (3) If while unexercised Options remain outstanding under the Plan (i) the Company executes a definitive agreement to merge or consolidate with or - 7 - into another corporation or to sell or otherwise dispose of substantially all its assets, (ii) more than 50% of the Company's then outstanding voting stock is acquired by any person or group or (iii) Robert T. Giaimo ceases to be President of the Company (any such event being an "Accelerating Event") then from and after the date of any such agreement or the date on which public announcement of the acquisition of such percentage shall have been made or the date on which Mr. Giaimo ceases to be President of the Company (any such date being referred to herein as the "Acceleration Date"), all Options shall be exercisable in full, whether or not otherwise exercisable. Following the Acceleration Date, (a) the Board shall, in the case of a merger, consolidation or sale or disposition of assets, promptly make an appropriate adjustment to the number and class of shares of Common Stock available for Options, and to the amount and kind of shares or other securities or property receivable upon exercise of any outstanding Options after the effective date of such transaction, and the price thereof, and (b) the Board may, in its discretion, permit the cancellation of outstanding Options in exchange for a cash payment in an amount per share subject to any such option determined by the Board in its sole discretion, but not less than the difference between the Option Price per share and the Fair Market Value per share of Common stock on the Acceleration Date. (4) Paragraphs (2) and (3) of this Section 7(i) shall not apply to a merger or consolidation in which the Company is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities or any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Company in which the Company is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Board may provide that the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Company), property, cash or any combination thereof receivable by the holder of the number of shares of Common Stock for which such Option might have been exercised upon such reclassification, change, consolidation or merger. - 8 - (5) In the event of a change in the Common Stock as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. (6) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive, provided that each Option granted pursuant to this Plan and designated an Incentive Stock Option shall not be adjusted in a manner that causes the Option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. (7) Except as hereinbefore expressly provided in this Section 7(i), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation, and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Option Price of shares of Common Stock subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. (j) Rights as a Shareholder. An Optionee or a transferee of an Option shall have no rights as a shareholder with respect to any shares covered by his Option until the date of the issuance of a stock certificate to him for such shares. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 7(i) hereof. (k) Other Provisions. The Option Agreements authorized under the Plan shall contain such other provisions, including, without limitation, (i) the imposition of restrictions upon the exercise of an Option and (ii) the inclusion of any condition not inconsistent with an Option designated by the Board as an Incentive Stock Option - 9 - qualifying as an Incentive Stock Option, as the Board shall deem advisable, including provisions with respect to compliance with federal and applicable state securities laws. 8. Agreement by Optionee Regarding Withholding Taxes (a) No later than the date of exercise of any Option granted hereunder, the Optionee will pay to the Company or make arrangements satisfactory to the Board regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Option, and (b) The Company shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Option. 9. Term of Plan Options may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date on which the Plan is adopted by the Board, provided that no Options granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Company's shareholders. 10. Savings Clause Notwithstanding any other provision hereof, this Plan is intended to qualify as a plan pursuant to which Incentive Stock Options may be issued under Section 422 of the Code. If this Plan or any provision of this Plan shall be held to be invalid or to fail to meet the requirements of Section 422 of the Code or the regulations promulgated thereunder, such invalidity or failure shall not affect the remaining parts of this Plan, but rather it shall be construed and enforced as if the Plan or the affected provision thereof, as the case may be, complied in all respects with the requirements of Section 422 of the Code. 11. Amendment and Termination of the Plan The Board may at any time and from time to time suspend, terminate, modify or amend the Plan, provided that any amendment that would materially increase the aggregate number of shares of Common Stock as to which Options may be granted under the Plan, materially increase the benefits accruing to participants under the Plan, or materially modify the requirements as to eligibility for participation in the Plan shall be subject to the approval of the holders of a majority of the Common Stock voting at a meeting at which a quorum is present, except that any such increase or modification that may result from adjustments - 10 - authorized by Section 7(i) hereof shall not require such approval. Except as provided in Section 7 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any Option previously granted unless the written consent of the Optionee is obtained. 12. Nonexclusivity of the Plan Neither the adoption of the Plan by the Board nor the submission of the Plan to stockholders of the Company for approval shall be construed as creating any limitations on the power or authority of the Board to adopt such other or additional incentive or other compensation arrangements of whatever nature as the Board may deem necessary or desirable or preclude or limit the continuation of any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any Subsidiary now has lawfully put into effect, including, without limitation, any retirement, pension, savings and stock purchase plan, insurance, death and disability benefits and executive short-term incentive plans. 13. Nature of Payments (a) All Options granted shall be in consideration of services performed for the Company by the Optionee. (b) All Options granted shall constitute a special incentive benefit to the Optionee and shall not be taken into account in computing the amount of salary or compensation of the Optionee for the purpose of determining any benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company or under any agreement between the Company and the Optionee, unless such plan or agreement specifically otherwise provides. 14. Nonuniform Determinations The Board's determinations under this Plan need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Board shall be entitled, among other things, to make nonuniform and selective determinations which may, inter alia, reflect the specific terms of individual employment agreements, and to enter into nonuniform and selective Option Agreements, as to the persons to receive Options and the terms and conditions of Options. - 11 - 15. Section Headings The section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of said sections. Adopted by the Board of Directors on September 11, 1996. Attest: - --------------------------- -------------------------------- Secretary Date: ________________ - 12 - SILVER DINER, INC. STOCK OPTION PLAN AGREEMENT A Stock Option award is hereby granted by_________________________, a _________________ corporation ("Company"), to the Key Employee named below ("Optionee"), for and with respect to common stock of the Company, par value _______ per share ("Common Stock"), subject to the following terms and conditions: 1. Subject to the provisions set forth herein and the provisions of the Stock Option Plan ("Plan"), the provisions of which are hereby incorporated by reference, and in consideration of the agreements of Optionee herein provided, the Company hereby grants to Optionee a Stock Option to purchase from the Company the number of shares of Common Stock, at the purchase price per share ("Option Exercise Price"), and on the schedule, all as set forth below. Such Stock Option is sometimes referred to herein as the "Award." Name of Optionee: Number of Shares Subject to Stock Option: Option Exercise Price Per Share: Date of Grant: Exercise Schedule:
Number of Shares Exercise Period Subject to Stock Option Date First Exercisable Expiration Date ----------------------- ---------------------- ---------------
2. The exercise of all or any portion of the Award is conditioned upon the acceptance by Optionee of the terms hereof as evidenced by his execution of this Option Agreement in the space provided therefor at the end hereof and the return of an executed copy to the Secretary of the Company. Written notice of an election to exercise any portion of the Award, in a form substantially identical to that attached as an Exhibit hereto and specifying the portion thereof being exercised and the exercise date, shall be given by Optionee, or his legal representative, (a) by delivering such notice at the principal executive offices of the Company no later than the exercise date, or (b) by mailing such notice, postage prepaid, addressed to the Secretary of the Company at the Company's principal executive offices at least three business days prior to the exercise date. 3. Neither Optionee nor any other person entitled to exercise the Stock Option under the terms hereof shall be, or have any of the rights or privileges of, a shareholder of the Company in respect of any Common Stock issuable on exercise of the Stock Option, until the date of the issuance of a stock certificate for such Common Stock. 4. If the Award shall be exercised in whole, this Option Agreement shall be surrendered to the Company for cancellation. If the Award shall be exercised in part, or a change in the number or designation of the Common Stock shall be made, this Option Agreement shall be delivered by Optionee to the Company for the purpose of making appropriate notation thereon, or of otherwise reflecting, in such manner as the Company shall determine, the partial exercise or the change in the number or designation of the Common Stock. 5. Optionee represents, warrants and agrees that Optionee will acquire and hold the shares purchased on exercise of the Option for his own account for investment and not with the view to the resale or distribution thereof, except for resales or distributions in accordance with applicable securities laws, and that Optionee will not, at any time or times, directly or indirectly, offer, sell, distribute, pledge, or otherwise grant a security interest in or otherwise dispose of or transfer all, any portion of or any interest in, any shares purchased on exercise of the Option (or solicit an offer to buy, take in pledge or otherwise acquire or receive, all or any portion thereof). Optionee acknowledges that Optionee has received and reviewed a description of the Common Stock of the Company and a copy of the Plan. Optionee further acknowledges that Optionee has had the opportunity to ask questions of, and receive answer from, the officers and representatives of the Company concerning all material information concerning the Company and the terms and conditions of the transactions in which Optionee is acquiring the Option and may subsequently acquire shares of the Common Stock. Optionee further acknowledges that Optionee understands that the Company may use the proceeds from the exercise of the Option for general corporate purposes. 6. The grant of the Award hereunder shall not be deemed to give the Optionee the right to be retained in the employ of the Company or to affect the right of the Company to discharge the Optionee at any time. 7. The Award shall be exercised in accordance with such administrative regulations as the Board shall from time to time adopt. - 2 - 8. The Award and this Option Agreement shall be construed, administered and governed in all respects under and by the laws of the State of Maryland, without giving effect to principles of conflict of laws. 9. The Award and this Option Agreement are subject to the requirement that the shareholders of the Company approve and ratify the adoption of the Plan no later than __________________, 1996. SILVER DINER, INC, a Delaware corporation By:__________________________________ The undersigned hereby accepts the foregoing Award and the terms and conditions hereof. ------------------------------------- Key Employee - 3 - EX-10.20 5 EXHIBIT 10.20 Exhibit 10.20 Silver Diner, Inc. Employee Stock Purchase Plan together with form of Subscription Agreement and Notice of Withdrawal SILVER DINER, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the Employee Stock Purchase of Silver Diner, Inc. (the "Company"). 1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the Common Stock, $0.00074 par value, of the Company. (d) "Company" shall mean Silver Diner, Inc., a Delaware corporation. (e) "Compensation" shall mean all regular straight time gross earnings excluding payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, commissions and other compensation. (f) "Continuous Status As An Employee" shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (g) "Contributions" shall mean all amounts credited to the account of a participant pursuant to the Plan. (h) "Designated Subsidiaries" shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (i) "Employee" shall mean any person, including an officer, who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (k) "Exercise Date" shall mean the last day of each Offering Period of the Plan. (l) "Offering Date" shall mean the first business day of each Offering Period of the Plan, except that in the case of an individual who becomes an eligible Employee after the first business day of an Offering Period but prior to the first business day of the last calendar quarter of such Offering Period, the term "Offering Date" shall mean the first business day of the calendar quarter coinciding with or next succeeding the day on which that individual becomes an eligible Employee. Options granted after the first business day of an Offering Period will be subject to the same terms as the options granted on the first business day of such Offering Period except that they will have a different grant date (thus, potentially, a different exercise price) and, because they expire at the same time as the options granted on the first business day of such Offering Period, a shorter term. (m) "Offering Period" shall mean a period of twelve (12) months. (n) "Plan" shall mean this Employee Stock Purchase Plan. (o) "Subsidiary" shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. Eligibility. (a) Any person who has been continuously employed as an Employee for three (3) months as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, provided that such person was not eligible to participate in such Offering Period as of any prior Offering Date, and further, subject to the requirements of paragraph 5(a) and the limitations imposed by Section 423(b) of the Code. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) - 2 - of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) which permits his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by a series of Offering Periods, with a new Offering Period commencing on January 1 of each year (or at such other time or times as may be determined by the Board of Directors). The Plan shall continue until terminated in accordance with paragraph 19 hereof. The Board of Directors of the Company shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without stockholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. 5. Participation. (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided by the Company and filing it with the Company's Office of Human Resources prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given offering. The subscription agreement shall set forth the percentage of the participant's Compensation (which shall not be less than 1% and not more than 10%) to be paid as Contributions pursuant to the Plan. (b) Payroll deductions shall commence on the first payroll following the Offering Date and shall end on the last payroll paid on or prior to the Exercise Date of the offering to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in paragraph 10. 6. Method of Payment of Contributions. (a) The participant shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than ten percent (10%) of such participant's Compensation on each such payday; provided that the aggregate of such payroll deductions during the Offering Period shall not exceed ten percent (10%) of the participant's aggregate Compensation during said Offering Period. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account. (b) A participant may discontinue his or her participation in the Plan as provided in paragraph 10, or, on one occasion only during the Offering Period, may decrease, - 3 - but may not increase, the rate of his or her Contributions during the Offering Period by completing and filing with the Company a new subscription agreement within the ten (10) day period immediately preceding the beginning of any calendar quarter during the Offering Period. The change in rate shall be effective as of the beginning of the calendar quarter following the date of filing of the new subscription agreement. (c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a participant's payroll deductions may be decreased to 0% at such time during any Offering Period which is scheduled to end during the current calendar year that the aggregate of all payroll deductions accumulated with respect to such Offering Period and any other Offering Period ending within the same calendar year equal $21,250. Payroll deductions shall recommence at the rate provided in such participant's Subscription Agreement at the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in paragraph 10. 7. Grant of Option. (a) On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period a number of shares of the Company's Common Stock determined by dividing such Employee's Contributions accumulated prior to such Exercise Date and retained in the participant's account as of the Exercise Date by the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date, or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Exercise Date; provided, however, that the maximum number of shares an Employee may purchase during each Offering Period shall be determined at the Offering Date by dividing $25,000 by the fair market value of a share of the Company's Common Stock on the Offering Date, and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. The fair market value of a share of the Company's Common Stock shall be determined as provided in Section 7(b) herein. (b) The option price per share of the shares offered in a given Offering Period shall be the lower of (i) 85% of the fair market value of a share of the Common Stock of the Company on the Offering Date; or (ii) 85% of the fair market value of a share of the Common Stock of the Company on the Exercise Date. The fair market value of the Company's Common Stock on a given date shall be determined by the Board on its discretion based on the closing price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported by the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System or, if such price is not reported, the mean of the bid and asked prices per share of the Common Stock as reported by NASDAQ or, in the event the Common Stock is listed on a stock exchange, the fair market value per share shall be the closing price on such - 4 - exchange on such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal. 8. Exercise of Option. Unless a participant withdraws from the Plan as provided in paragraph 10, his or her option for the purchase of shares will be exercised automatically on the Exercise Date of the Offering Period, and the maximum number of full shares subject to option will be purchased for him or her at the applicable option price with the accumulated Contributions in his or her account. The shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Exercise Date. During his lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after the Exercise Date of each Offering Period, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. Any cash remaining to the credit of a participant's account under the Plan after a purchase by him or her of shares at the termination of each Offering Period, or which is insufficient to purchase a full share of Common Stock of the Company, shall be returned to said participant. 10. Withdrawal; Termination of Employment. (a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to the Exercise Date of the Offering Period by giving written notice to the Company. All of the participant's Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of shares will be made during the Offering Period. (b) Upon termination of the participant's Continuous Status as an Employee prior to the Exercise Date of the Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under paragraph 14, and his or her option will be automatically terminated. (c) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated. - 5 - (d) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company. 11. Interest. No interest shall accrue on the Contributions of a participant in the Plan. 12. Stock. (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 300,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in paragraph 18. If the total number of shares which would otherwise be subject to options granted pursuant to Section 7(a) hereof on the Offering Date of an Offering Period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall make a pro rata allocation of the shares remaining available for option grant in as uniform a manner as shall be practicable and as it shall determine to be equitable. Any amounts remaining in an Employee's account not applied to the purchase of stock pursuant to this Section 12 shall be refunded on or promptly after the Exercise Date. In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of Contributions, if necessary. (b) The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 13. Administration. The Board, or a committee named by the Board, shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan. The composition of the committee shall be in accordance with the requirements to obtain or retain any available exemption from the operation of Section 16(b) of the Exchange Act, pursuant to Rule 16b-3 promulgated thereunder. 14. Designation of Beneficiary. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of the Offering Period but prior to delivery to - 6 - him or her of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Exercise Date of the Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. Transferability. Neither Contributions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with paragraph 10. 16. Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions. 17. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees promptly following the Exercise Date, which statements will set forth the amounts of Contributions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any. 18. Adjustments Upon Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, - 7 - however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Exercise Date (the "New Exercise Date"). If the Board shortens the Offering Period then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each participant in writing, at least ten (10) days prior to the New Exercise Date, that the Exercise Date for his or her option has been changed to the New Exercise Date and that his or her option will be exercised automatically on the New Exercise Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in paragraph 10. For purposes of this paragraph, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets or merger, the option confers the right to purchase, for each share of option stock subject to the option immediately prior to the sale of assets or merger, the consideration (whether stock, cash or other securities or property) received in the sale of assets or merger by holders of Common Stock for each share of Common Stock held on the effective date of the transaction (and if such holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in the sale of assets or merger was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation and the participant, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock and the sale of assets or merger. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation. - 8 - 19. Amendment or Termination. The Board of Directors of the Company may at any time terminate or amend the Plan. Except as provided in paragraph 18, no such termination may affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required. 20. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 22. Term of Plan. The Plan became effective upon its adoption by the Board of Directors on September 11, 1996 and shall continue in effect for a term of twenty (20) years unless sooner terminated under paragraph 19. 23. Additional Restrictions of Rule 16b-3. The terms and conditions of options granted hereunder to, and the purchase of shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule 16b-3. This Plan shall be deemed to contain, and such options shall contain, and the shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions as may be required by Rule 16b- 3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. 24. Severability. With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or - 9 - any action by the administrator of the Plan fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the administrator of the Plan. - 10 - New Election ___ Change of Election ___ SILVER DINER, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT 1. I, , hereby elect to participate in the Silver Diner Inc. 1996 Employee Stock Purchase Plan (the "Plan") for the Offering Period , 19 to , 19 , and subscribe to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Plan. 2. I elect to have Contributions in the amount of % of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount must not be less than 1% and not more than 10% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted.) 3. I hereby authorize payroll deductions from each paycheck during the Offering Period at the rate stated in Item 2 of this Subscription Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. I understand that all payments made by me shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, shares will be purchased for me automatically on the Exercise Date of the Offering Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose. 4. I understand that I may discontinue at any time prior to the Exercise Date my participation in the Plan as provided in paragraph 10 of the Plan. I also understand that on one occasion only during the Offering Period I may increase or decrease the rate of my Contributions during the Offering Period by completing and filing with the Company a new Subscription Agreement. The change in rate shall be effective as of the beginning of the calendar quarter following the date of filing of the new Subscription Agreement. 5. I have received a copy of the Company's most recent description of the Plan and a copy of the complete "Silver Diner Inc. 199 Stock Purchase Plan." I understand that my participation in the Plan is in all respects subject to the terms of the Plan. 6. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only): -------------------------- -------------------------- 7. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due to me under the Plan. NAME: (Please print) ______________________________________________________ (First) (Middle) (Last) - ---------------------- ------------------------------------------------------ (Relationship) (Address) ------------------------------------------------------ 8. I understand that if I dispose of any shares received by me pursuant to the Plan within two (2) years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or within one (1) year after the date of the end of the Offering Period, I will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were transferred to me over the price which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at transfer. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. I hereby agree to notify the Company in writing within thirty (30) days after the date of any such disposition, and I will make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to the sale or early disposition of Common Stock by me. 9. If I dispose of such shares at any time after expiration of the two (2) year and one (1) year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the shares on the Offering Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss. - 2 - I understand that this tax summary is only a summary and is subject to change. 10. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan. SIGNATURE:__________________________________ SOCIAL SECURITY NUMBER:_____________________ DATE:_______________________________________ SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse): (Signature) - -------------------------------------------- - -------------------------------------------- (Print name) - 3 - SILVER DINER, INC. 1996 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL I, , hereby elect to withdraw my participation in the Silver Diner Inc. 199 Employee Stock Purchase Plan (the "Plan") for the Offering Period . This withdrawal covers all Contributions credited to my account and is effective on the date designated below. I understand that all Contributions credited to my account will be paid to me within ten (10) business days of receipt by the Company of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the Offering Period. The undersigned further understands and agrees that he or she shall be eligible to participate in succeeding offering periods only by delivering to the Company a new Subscription Agreement. If the undersigned is an officer, director of Silver Diner Inc. or other person subject to Section 16 of the Securities Exchange Act of 1934, the undersigned further understands that under rules promulgated by the U.S. Securities and Exchange Commission he or she may not re-enroll in the Plan for a period of six (6) months after withdrawal. Dated: ---------------------------- ------------------------------ Signature of Employee ------------------------------ Social Security Number EX-21 6 EXHIBIT 21 Exhibit 21 Subsidiaries SUBSIDIARIES OF THE REGISTRANT
Percentage of State of Incorporation Parent Subsidiary Ownership or Organization ------ ---------- ------------- ---------------------- Silver Diner, Inc. Silver Diner Development, Inc. 100% Virginia
EX-23 7 EXHIBIT 23.1 Exhibit 23.1 The Board of Directors Silver Diner, Inc. We consent to incorporation by reference in the registration statements Nos. 33-9668449 and 33-97535703 on Form S-8 and No. 333-09735 on Form S-3 of Silver Diner, Inc. and Subsidiaries of our report dated April 2, 1996, relating to the consolidated balance sheet of Silver Diner, Inc. and Subsidiaries (formerly Silver Diner Development, Inc., Silver Diner Limited Partnership and Silver Diner Potomac Mills, Inc.) as of December 31, 1995, and the related consolidated satements of operations, stockholders' equity and partners' deficit and cash flows for the two-year period ended December 31, 1995, which report appears in the December 29, 1996 annual report on Form 10-K of Silver Diner, Inc. and Subsidiaries. /s/ REZNICK FEDDER & SILVERMAN _________________________________ Bethesda, Maryland March 31, 1997 EX-23 8 EXHIBIT 23.2 Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-09735 of Silver Diner, Inc. on Form S-3 and in Registration Statements No. 33-96684449 and No. 33-97535703 of Silver Diner, Inc. on Forms S-8 of our report dated March 14, 1997, appearing in this Annual Report on Form 10-K of Silver Diner, Inc. for the year ended December 29, 1996. /s/ Deloitte & Touche LLP _____________________________ March 14, 1997 Washington DC EX-27 9 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-29-1996 DEC-29-1996 8,285,533 0 0 0 147,981 9,716,610 15,862,164 2,906,045 25,864,375 3,174,262 0 0 0 8,526 21,932,191 25,864,375 16,550,468 16,550,468 4,526,286 4,526,286 10,816,214 0 180,293 (1,429,472) 0 (1,429,472) 0 0 0 (1,429,472) (0.15) (0.15)
-----END PRIVACY-ENHANCED MESSAGE-----