-----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, GsSF+Mlx+YO+rusNnYE2aUX+84DyPdifwUPJwnINWu49wYNfQubWH+hUE89wjOVS 5C6VFR/VT/4ToPpVz5y9jA== 0000771677-05-000018.txt : 20060719 0000771677-05-000018.hdr.sgml : 20060719 20050330145638 ACCESSION NUMBER: 0000771677-05-000018 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050330 DATE AS OF CHANGE: 20050815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEI INCOME & GROWTH FUND XXI LTD PARTNERSHIP CENTRAL INDEX KEY: 0000931755 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 411789725 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-85076 FILM NUMBER: 05713705 BUSINESS ADDRESS: STREET 1: 30 EAST 7TH ST SUITE 1300 CITY: ST PAUL STATE: MN ZIP: 55101 BUSINESS PHONE: 6512277333 MAIL ADDRESS: STREET 1: 30 EAST 7TH ST SUITE 1300 CITY: ST PAUL STATE: MN ZIP: 55101 10KSB 1 k214-04.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended: December 31, 2004 Commission file number: 0-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Name of small business issuer in its charter) State of Minnesota 41-1789725 (State or other jurisdiction of (I.R.S. Employer) incorporation or organization) Identification No.) 30 East 7th Street, Suite 1300, St. Paul, Minnesota 55101 (Address of principal executive offices) (651) 227-7333 (Issuer's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Check if disclosure of delinquent filers in response to Rule 405 of Regulation S-B is not contained in this Form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or and amendment to this Form 10-KSB. [X] The Issuer's revenues for the year ended December 31, 2004 were $1,350,229. As of February 28, 2005, there were 22,819.447 Units of limited partnership interest in the registrant outstanding and owned by nonaffiliates of the registrant, which Units had an aggregate market value (based solely on the price at which they were sold since there is no ready market for such Units) of $22,819,447. DOCUMENTS INCORPORATED BY REFERENCE The registrant has not incorporated any documents by reference into this report. Transitional Small Business Disclosure Format: Yes No [X] PART I ITEM 1. DESCRIPTION OF BUSINESS. AEI Income & Growth Fund XXI Limited Partnership (the "Partnership" or the "Registrant") is a limited partnership which was organized pursuant to the laws of the State of Minnesota on August 22, 1994. The registrant is comprised of AEI Fund Management XXI, Inc. (AFM) as Managing General Partner, Robert P. Johnson, the President and sole director of AFM, as the Individual General Partner, and purchasers of partnership units as Limited Partners. The Partnership offered for sale up to $24,000,000 of limited partnership interests (the "Units") (24,000 Units at $1,000 per Unit) pursuant to a registration statement effective February 1, 1995. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the Partnership offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units ($24,000,000) was reached. The Partnership was organized to acquire existing and newly constructed commercial properties located in the United States, to lease such properties to tenants under triple net leases, to hold such properties and to eventually sell such properties. From subscription proceeds, the Partnership purchased ten properties including partial interests in seven properties, at a total cost of $19,686,525. The balance of the subscription proceeds was applied to organization and syndication costs, working capital reserves and distributions, which represented a return of capital. The properties are commercial, single tenant buildings leased under triple net leases. The Partnership's properties were purchased with subscription proceeds without any indebtedness. The Partnership will not finance properties in the future to obtain proceeds for new property acquisitions. If it is required to do so, the Partnership may incur short-term indebtedness, which may be secured by a portion of the Partnership's properties, to finance day-to-day cash flow requirements (including cash flow necessary to repurchase Units). The amount of borrowings that may be secured by the properties is limited in the aggregate to 10% of the purchase price of all properties. The Partnership will not incur borrowings prior to application of the proceeds from sale of the Units, will not incur borrowings to pay distributions, and will not incur borrowings while there is cash available for distributions. The Partnership will hold its properties until the General Partners determine that the sale or other disposition of the properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell properties, the General Partners will consider factors such as potential appreciation, net cash flow and income tax considerations. In addition, certain lessees may be granted options to purchase properties after a specified portion of the lease term has elapsed. The Partnership expects to sell some or all of its properties prior to its final liquidation and to reinvest the proceeds from such sales in additional properties. The Partnership reserves the right, at the discretion of the General Partners, to either distribute proceeds from the sale of properties to the Partners or to reinvest such proceeds in additional properties, provided that sufficient proceeds are distributed to the Limited Partners to pay federal and state income taxes related to any taxable gain recognized as a result of the sale. It is anticipated that the Partnership will commence liquidation through the sale of its remaining properties twelve to fifteen years after its formation, although final liquidation may be delayed by a number of circumstances, including market conditions and seller financing of properties. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Leases Although there are variations in the specific terms of the leases, the following is a summary of the general terms of the Partnership's leases. The properties are leased to various tenants under triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses for the property. The initial lease terms are for 15 to 20 years. The leases provide for base annual rental payments, payable in monthly installments, and contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. The leases provide the lessees with two to five five-year renewal options subject to the same terms and conditions as the initial lease. Certain lessees may be granted options to purchase the property at a formula price, which would exceed the original cost. The actual sale price of a property to a lessee may or may not exceed original cost depending on market and other conditions. Property Activity Through December 31, 2002, the Partnership sold its interest in the Champps Americana restaurant in Schaumburg, Illinois, in thirteen separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,892,414, which resulted in a net gain of $838,268. The total cost and related accumulated depreciation of the interests sold was $2,256,461 and $202,315, respectively. For the years ended December 31, 2002 and 2001, the net gain was $16,738 and $727,695, respectively. Through December 31, 2002, the Partnership sold 99.8466% of the Champps Americana restaurant in Livonia, Michigan, in twenty-one separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $5,490,789, which resulted in a net gain of $1,888,226. The total cost and related accumulated depreciation of the interests sold was $4,143,694 and $541,131, respectively. For the years ended December 31, 2002 and 2001, the net gain was $1,464,843 and $423,383, respectively. During the third quarter of 2002, the Partnership sold 23.8161% of the Johnny Carino's restaurant in Austin, Texas, in three separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $603,681, which resulted in a net gain of $68,672. The total cost and related accumulated depreciation of the interests sold was $544,819 and $9,810, respectively. On June 14, 2002, the Partnership purchased three Children's World daycare centers located in Andover, Minnesota, Ballwin, Missouri and Kimberly, Wisconsin. The properties were purchased for $1,264,207, $1,517,778 and $1,358,239, respectively. The properties are leased to Knowledge Learning Enterprises, Inc. under Lease Agreements with primary terms of 15 years and annual rental payments of $120,204, $144,113 and $129,087, respectively. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) On October 31, 2002, the Partnership purchased a parcel of land in Farmington, New Mexico for $810,000. The Partnership obtained title to the land in the form of an undivided fee simple interest. The land is leased to SFG Farmington I Limited Partnership (SFG) under a Lease Agreement with a primary term of 20 years and annual rental payments of $85,050. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to SFG for the construction of a Johnny Carino's restaurant on the site. Pursuant to the Lease, any improvements to the land during the term of the Lease, become property of the lessor. Through December 31, 2002, the Partnership had advanced $44,281 for construction of the property. The Partnership charged interest on the advances at a rate of 10.5%. On May 28, 2003, after the development was completed, the Lease Agreement was amended to require annual rental payments of $231,000. Total acquisition costs, including the cost of the land, were $2,183,344. In June 2004, the Partnership entered into an agreement to sell the Johnny Carino's restaurant in Farmington, New Mexico to an unrelated third party. On October 6, 2004, the sale closed with the Partnership receiving net sale proceeds of $2,893,779, which resulted in a net gain of $786,594. At the time of sale, the cost and related accumulated depreciation was $2,183,344 and $76,159, respectively. On September 19, 2003, the Partnership purchased a 37% interest in a Winn-Dixie store in Panama City, Florida for $1,714,965. The property is leased to Winn-Dixie Montgomery, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $138,380. The remaining interests in the property were purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Income & Growth Fund 24 LLC, affiliates of the Partnership. Through March 31, 2004, the Partnership sold 16.5975% of the Winn-Dixie store in Panama City, Florida, in four separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $900,843, which resulted in a net gain of $139,707. The total cost and related accumulated depreciation of the interests sold was $769,300 and $8,164, respectively. For the years ended December 31, 2004 and 2003, the net gain was $137,068 and $2,639, respectively. During the first nine months of 2003, the Partnership sold the Children's World in Mundelein, Illinois, in seven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,010,839, which resulted in a net gain of $495,127. The total cost and related accumulated depreciation of the interests sold was $1,618,824 and $103,112, respectively. During the third quarter of 2003, the Partnership sold its 25.0% interest in the Champps Americana restaurant in Centerville, Ohio, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,384,939, which resulted in a net gain of $498,449. The total cost and related accumulated depreciation of the interests sold was $984,426 and $97,936, respectively. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) During the fourth quarter of 2003, the Partnership sold 37.0128% of the Garden Ridge retail store, in eleven separate transactions, to unrelated third parties. The Partnership received net sale proceeds of $3,968,116, which resulted in a net gain of $1,347,739. The cost and related accumulated depreciation of the interests sold was $3,310,163 and $689,786, respectively. On January 13, 2004, the Partnership sold its remaining 3.7372% interest in the Garden Ridge retail store to an unrelated third party. The Partnership received net sale proceeds of $392,836, which resulted in a net gain of $128,636. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $264,200. On December 30, 2003, the Partnership purchased a Johnny Carino's restaurant in Laredo, Texas for $2,605,079. The property is leased to Kona Restaurant Group, Inc. under a Lease Agreement with a primary term of 13 years and annual rental payments of $215,646. On February 9, 2004, the Partnership purchased a 50% interest in a Jared Jewelry store in Hanover, Maryland for $1,989,135. The property is leased to Sterling Jewelers Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $153,228. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XX Limited Partnership, an affiliate of the Partnership. On September 20, 2004, the Partnership purchased a 40% interest in an Eckerd drug store in Utica, New York for $1,848,107. The property is leased to Eckerd Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of $149,671. The remaining interest in the property was purchased by AEI Accredited Investor Fund 2002 Limited Partnership, an affiliate of the Partnership. On December 15, 2004, the Company entered into an agreement to purchase a 40% interest in a Jared Jewelry store in Auburn Hills, Michigan for approximately $1,440,000. Subsequent to December 31, 2004, the acquisition was completed. The property is leased to Sterling Jewelers Inc. under a Lease Agreement with a remaining primary term of 15 years and annual rental payments of $102,520. The remaining interest in the property was purchased by AEI Income & Growth Fund 25 LLC, an affiliate of the Partnership. Subsequent to December 31, 2004, the Partnership purchased a 20% interest in a CarMax auto superstore in Lithia Springs, Georgia for approximately $1,864,000. The property is leased to CarMax Auto Superstores, Inc. under a Lease Agreement with a remaining primary term of 13.4 years and annual rental payments of $136,080. The remaining interests in the property were purchased by AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership, affiliates of the Partnership. ITEM 1. DESCRIPTION OF BUSINESS. (Continued) Major Tenants During 2004, four tenants each contributed more than ten percent of the Partnership's total rental revenue. The major tenants in aggregate contributed 74% of total rental revenue in 2004. It is anticipated that, based on minimum rental payments required under the leases, each major tenant will continue to contribute more than ten percent of rental revenue in 2005 and future years. However, the tenant of the Johnny Carino's restaurant in Farmington, New Mexico will not continue to be a major tenant since the property was sold in October 2004. Any failure of these major tenants could materially affect the Partnership's net income and cash distributions. Competition The Partnership is a minor factor in the commercial real estate business. There are numerous entities engaged in the commercial real estate business which have greater financial resources than the Partnership. At the time the Partnership elects to dispose of its properties, the Partnership will be in competition with other persons and entities to find buyers for its properties. Employees The Partnership has no direct employees. Management services are performed for the Partnership by AEI Fund Management, Inc., an affiliate of AFM. ITEM 2. DESCRIPTION OF PROPERTIES. Investment Objectives The Partnership's investment objectives are to acquire existing or newly-developed commercial properties throughout the United States that offer the potential for (i) regular cash distributions of lease income; (ii) growth in lease income through rent escalation provisions; (iii) preservation of capital through all-cash sale-leaseback transactions; (iv) capital growth through appreciation in the value of properties; and (v) stable property performance through long-term lease contracts. The Partnership does not have a policy, and there is no limitation, as to the amount or percentage of assets that may be invested in any one property. However, to the extent possible, the General Partners attempt to diversify the type and location of the Partnership's properties. Description of Properties The Partnership's properties are commercial, single tenant buildings. The properties were acquired on a debt-free basis and are leased to various tenants under triple net leases, which are classified as operating leases. The Partnership holds an undivided fee simple interest in the properties. ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) The Partnership's properties are subject to the general competitive conditions incident to the ownership of single tenant investment real estate. Since each property is leased under a long-term lease, there is little competition until the Partnership decides to sell the property. At this time, the Partnership will be competing with other real estate owners, on both a national and local level, in attempting to find buyers for the properties. In the event of a tenant default, the Partnership would be competing with other real estate owners, who have property vacancies, to attract a new tenant to lease the property. The Partnership's tenants operate in industries that are very competitive and can be affected by factors such as changes in regional or local economies, seasonality and changes in consumer preference. The following table is a summary of the properties that the Partnership acquired and owned as of December 31, 2004. Total Property Annual Annual Purchase Acquisition Lease Rent Per Property Date Costs Lessee Payment Sq. Ft. Arby's Restaurant Montgomery, AL RTM Gulf (2.6811%) 5/31/95 $ 23,049 Coast, Inc. $ 2,720 $34.22 Champps Champps Americana Restaurant Entertainment San Antonio, TX 12/23/97 $2,833,357 of Texas, Inc. $336,847 $38.81 Champps Americana Restaurant Champps Livonia, MI Operating (.1534%) 5/19/98 $ 6,366 Corporation $ 751 $53.49 Tumbleweed Restaurant Tumbleweed, Fort Wayne, IN 9/11/00 $1,334,315 Inc. $143,554 $24.20 Johnny Carino's Restaurant Austin, TX Kona Restaurant (1.1839%) 9/26/01 $ 27,083 Group, Inc. $ 2,993 $39.13 Children's World Knowledge Daycare Center Learning Andover, MN 6/14/02 $1,264,207 Enterprises, Inc. $120,204 $13.94 Children's World Knowledge Daycare Center Learning Ballwin, MO 6/14/02 $1,517,778 Enterprises, Inc. $144,113 $17.28 Children's World Knowledge Daycare Center Learning Kimberly, WI 6/14/02 $1,358,239 Enterprises, Inc. $129,087 $12.49 ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) Total Property Annual Annual Purchase Acquisition Lease Rent Per Property Date Costs Lessee Payment Sq. Ft. Winn-Dixie Retail Store Panama City, FL Winn-Dixie (20.4025%) 9/19/03 $ 945,665 Montgomery, Inc. $ 76,305 $ 7.71 Johnny Carino's Restaurant Kona Restaurant Laredo, TX 12/30/03 $2,605,079 Group, Inc. $215,646 $30.95 Jared Jewelry Store Hanover, MD Sterling Jewelers (50%) 2/9/04 $1,989,135 Inc. $153,228 $52.76 Eckerd Drug Store Utica, NY Eckerd (40%) 9/20/04 $1,848,107 Corporation $149,671 $25.45 The properties listed above with a partial ownership percentage are owned with affiliates of the Partnership and/or unrelated third parties. The remaining interests in the Winn- Dixie store are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership and unrelated third parties. The remaining interest in the Jared Jewelry store is owned by AEI Net Lease Income & Growth Fund XX Limited Partnership. The remaining interest in the Eckerd drug store is owned by AEI Accredited Investor Fund 2002 Limited Partnership. The remaining interests in the Arby's restaurant, the Champps Americana restaurant in Livonia, Michigan and the Johnny Carino's restaurant in Austin, Texas are owned by unrelated third parties. The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in- common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. The initial Lease terms are 20 years, except for the Children's World daycare centers and the Tumbleweed restaurant, which have Lease terms of 15 years and the Johnny Carino's restaurant in Laredo, Texas, which has a Lease term of 13 years. The Leases contain renewal options which may extend the Lease term an additional 15 years, except for the Jared Jewelry store and the Arby's and Tumbleweed restaurants, which have renewal options that may extend the Lease term an additional 10 years, the Eckerd drug store, which has renewal options that may extend the Lease term an additional 20 years and the Winn-Dixie retail store, which has renewal options that may extend the Lease term an additional 25 years. ITEM 2. DESCRIPTION OF PROPERTIES. (Continued) Pursuant to the Lease Agreements, the tenants are required to provide proof of adequate insurance coverage on the properties they occupy. The General Partners believe the properties are adequately covered by insurance and consider the properties to be well-maintained and sufficient for the Partnership's operations. For tax purposes, the Partnership's properties are depreciated under the Modified Accelerated Cost Recovery System (MACRS). The largest depreciable component of a property is the building which is depreciated, using the straight-line method, over 39 or 40 years. The remaining depreciable components of a property are personal property and land improvements which are depreciated, using an accelerated method, over 5 and 15 years, respectively. Since the Partnership has tax-exempt Partners, the Partnership is subject to the rules of Section 168(h)(6) of the Internal Revenue Code which requires a percentage of the properties' depreciable components to be depreciated over longer lives using the straight-line method. In general, the federal tax basis of the properties for tax depreciation purposes is the same as the basis for book depreciation purposes. Through December 31, 2004, all properties listed above were 100% occupied. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. (a) As of December 31, 2004, there were 1,287 holders of record of the registrant's Limited Partnership Units. There is no other class of security outstanding or authorized. The registrant's Units are not a traded security in any market. During the period covered by this report, the Partnership did not sell any equity securities that are not registered under the Securities Act of 1933. Cash distributions of $22,424 and $21,818 were made to the General Partners and $2,220,005 and $2,160,011 were made to the Limited Partners in 2004 and 2003, respectively. The distributions were made on a quarterly basis and represent Net Cash Flow, as defined, except as discussed below. These distributions should not be compared with dividends paid on capital stock by corporations. As part of the Limited Partner distributions discussed above, the Partnership distributed $945,136 and $808,453 of proceeds from property sales in 2004 and 2003, respectively. ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES. (b) Not applicable. (c) Pursuant to Section 7.7 of the Partnership Agreement, each Limited Partner has the right to present Units to the Partnership for purchase by submitting notice to the Managing General Partner during September of each year. The purchase price of the Units is based on a formula specified in the Partnership Agreement. Units tendered to the Partnership are redeemed on October 1st of each year subject to the following limitations. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. Small Business Issuer Purchases of Equity Securities
Total Number of Units Maximum Number Total Number Average Purchased as Part of of Units that May Yet of Units Price Paid Publicly Announced Be Purchased Under Period Purchased per Unit Plans or Programs the Plans or Programs 10/1/04 to 10/31/04 88.04 $611.76 1,180.55(1) (2) 11/1/04 to 11/30/04 -- -- -- -- 12/1/04 to 12/31/04 -- -- -- --
(1) The Partnership's repurchase plan is mandated by the Partnership Agreement as included in the prospectus related to the original offering of the Units. (2) The Partnership Agreement contains annual limitations on repurchases described in the paragraph above and has no expiration date. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. The Management's Discussion and Analysis contains various "forward looking statements" within the meaning of federal securities laws which represent management's expectations or beliefs concerning future events, including statements regarding anticipated application of cash, expected returns from rental income, growth in revenue, taxation levels, the sufficiency of cash to meet operating expenses, rates of distribution, and other matters. These, and other forward looking statements made by the Partnership, must be evaluated in the context of a number of factors that may affect the Partnership's financial condition and results of operations, including the following: Market and economic conditions which affect the value of the properties the Partnership owns and the cash from rental income such properties generate; the federal income tax consequences of rental income, deductions, gain on sales and other items and the affects of these consequences for the Partners; resolution by the General Partners of conflicts with which they may be confronted; the success of the General Partners of locating properties with favorable risk return characteristics; the effect of tenant defaults; and the condition of the industries in which the tenants of properties owned by the Partnership operate. The Application of Critical Accounting Policies The preparation of the Partnership's financial statements requires management to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates these estimates on an ongoing basis, including those related to the carrying value of real estate and the allocation by AEI Fund Management, Inc. of expenses to the Partnership as opposed to other funds they manage. The Partnership purchases properties and records them in the financial statements at the lower of cost or estimated realizable value. The Partnership initially records the properties at cost (including capitalized acquisition expenses). The Partnership is required to periodically evaluate the carrying value of properties to determine whether their realizable value has declined. For properties the Partnership will hold and operate, management determines whether impairment has occurred by comparing the property's probability-weighted cash flows to its current carrying value. For properties held for sale, management determines whether impairment has occurred by comparing the property's estimated fair value less cost to sell to its current carrying value. If the carrying value is greater than the realizable value, an impairment loss is recorded to reduce the carrying value of the property to its realizable value. A change in these assumptions or analysis could cause material changes in the carrying value of the properties. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) AEI Fund Management Inc. allocates expenses to each of the funds they manage primarily on the basis of the number of hours devoted by their employees to each fund's affairs. They also allocate expenses at the end of each month that are not directly related to a fund's operations based upon the number of investors in the fund and the fund's capitalization relative to other funds they manage. The Partnership reimburses these expenses subject to detailed limitations contained in the Partnership Agreement. Management of the Partnership has discussed the development and selection of the above accounting estimates and the management discussion and analysis disclosures regarding them with the managing partner of the Partnership. Results of Operations For the years ended December 31, 2004 and 2003, the Partnership recognized rental income from continuing operations of $1,350,229 and $896,428, respectively. In 2004, rental income increased as a result of additional rent received from four property acquisitions in 2003 and 2004 and rent increases on two properties. For the years ended December 31, 2004 and 2003, the Partnership incurred Partnership administration expenses from affiliated parties of $216,944 and $212,942, respectively. These administration expenses include costs associated with the management of the properties, processing distributions, reporting requirements and correspondence to the Limited Partners. During the same periods, the Partnership incurred Partnership administration and property management expenses from unrelated parties of $25,620 and $18,275, respectively. These expenses represent direct payments to third parties for legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs. For the years ended December 31, 2004 and 2003, the Partnership recognized interest income of $58,155 and $82,159, respectively. In 2004, interest income decreased due to the Partnership receiving interest from construction advances in 2003. For the years ended December 31, 2004 and 2003, the Partnership recognized gain on sale of real estate from continuing operations of $137,068 and $2,639, respectively, from the sale of the Winn-Dixie store. Since the Partnership retains an ownership interest in the property, the operating results and gain on sale of the property were not classified as discontinued operations. Through March 31, 2004, the Partnership sold 16.5975% of the Winn-Dixie store in Panama City, Florida, in four separate transactions, to unrelated third parties. The Partnership received net sale proceeds of $900,843, which resulted in a net gain of $139,707. The cost and related accumulated depreciation of the interests sold was $769,300 and $8,164, respectively. For the years ended December 31, 2004 and 2003, the net gain was $137,068 and $2,639, respectively. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods operating results and any partial sales of the property to discontinued operations. For the year ended December 31, 2004, the Partnership recognized income from discontinued operations of $1,056,410, representing rental income less property management expenses and depreciation of $141,180 and gain on disposal of real estate of $915,230. For the year ended December 31, 2003, the Partnership recognized income from discontinued operations of $2,871,872, representing rental income less property management expenses and depreciation of $530,557 and gain on disposal of real estate of $2,341,315. During the first nine months of 2003, the Partnership sold the Children's World in Mundelein, Illinois, in seven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,010,839, which resulted in a net gain of $495,127. The total cost and related accumulated depreciation of the interests sold was $1,618,824 and $103,112, respectively. During the third quarter of 2003, the Partnership sold its 25.0% interest in the Champps Americana restaurant in Centerville, Ohio, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,384,939, which resulted in a net gain of $498,449. The total cost and related accumulated depreciation of the interests sold was $984,426 and $97,936, respectively. During the fourth quarter of 2003, the Partnership sold 37.0128% of the Garden Ridge retail store in Pineville, North Carolina, in eleven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $3,968,116, which resulted in a net gain of $1,347,739. The total cost and related accumulated depreciation of the interests sold was $3,310,163 and $689,786, respectively. On January 13, 2004, the Partnership sold its remaining 3.7372% interest in the Garden Ridge retail store to an unrelated third party. The Partnership received net sale proceeds of $392,836, which resulted in a net gain of $128,636. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $264,200. In June 2004, the Partnership entered into an agreement to sell the Johnny Carino's restaurant in Farmington, New Mexico to an unrelated third party. On October 6, 2004, the sale closed with the Partnership receiving net sale proceeds of $2,893,779, which resulted in a net gain of $786,594. At the time of sale, the cost and related accumulated depreciation was $2,183,344 and $76,159, respectively. In 2003 and 2004, the Partnership realized significant gains from the sale of property. While the real estate market is expected to remain attractive for sellers of property, there can be no assurance the Partnership will be able to achieve a similar level of sales activity or sales profitability in 2005 due to unforeseen changes in the real estate market. In addition, it is likely the Partnership will curtail its selling activity as it is becoming more difficult to find attractive property in which to reinvest the proceeds from property sales. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) Inflation has had a minimal effect on income from operations. Leases may contain rent increases, based on the increase in the Consumer Price Index over a specified period, which will result in an increase in rental income over the term of the leases. In addition, leases may contain rent clauses which entitle the Partnership to receive additional rent in future years if gross receipts for the property exceed certain specified amounts. Increases in sales volumes of the tenants, due to inflation and real sales growth, may result in an increase in rental income over the term of the leases. Inflation also may cause the real estate to appreciate in value. However, inflation and changing prices may have an adverse impact on the operating margins of the properties' tenants, which could impair their ability to pay rent and subsequently reduce the Net Cash Flow available for distributions. Liquidity and Capital Resources During the year ended December 31, 2004, the Partnership's cash balances decreased $723,049 as a result of cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities, which were partially offset by cash generated from the sale of property. During the year ended December 31, 2003, the Partnership's cash balances increased $1,364,723 as a result of cash generated from the sale of property, which was partially offset by cash used to purchase property and distributions paid to the Partners in excess of cash generated from operating activities. Net cash provided by operating activities decreased from $1,593,518 in 2003 to $1,199,642 in 2004 as a result of a decrease in total rental and interest income in 2004 and net timing differences in the collection of payments from the lessees and the payment of expenses. The major components of the Partnership's cash flow from investing activities are investments in real estate and proceeds from the sale of real estate. During the years ended December 31, 2004 and 2003, the Partnership generated cash flow from the sale of real estate of $4,160,851 and $7,390,501, respectively. During the same periods, the Partnership expended $3,847,538 and $5,658,584, respectively, to invest in real properties (inclusive of acquisition expenses) as the Partnership reinvested cash generated from property sales. On October 31, 2002, the Partnership purchased a parcel of land in Farmington, New Mexico for $810,000. The Partnership obtained title to the land in the form of an undivided fee simple interest. The land is leased to SFG Farmington I Limited Partnership (SFG) under a Lease Agreement with a primary term of 20 years and annual rental payments of $85,050. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to SFG for the construction of a Johnny Carino's restaurant on the site. Pursuant to the Lease, any improvements to the land during the term of the Lease, become property of the lessor. The Partnership charged interest on the advances at a rate of 10.5%. On May 28, 2003, after the development was completed, the Lease Agreement was amended to require annual rental payments of $231,000. Total acquisition costs, including the cost of the land, were $2,183,344. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On September 19, 2003, the Partnership purchased a 37% interest in a Winn-Dixie store in Panama City, Florida for $1,714,965. The property is leased to Winn-Dixie Montgomery, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $138,380. The remaining interests in the property were purchased by AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Income & Growth Fund 24 LLC, affiliates of the Partnership. Subsequent to December 31, 2004, the lessee of the Winn- Dixie store and its parent company, Winn-Dixie, Inc., filed for Chapter 11 bankruptcy reorganization. Rent was current through the date of the bankruptcy filing. The Partnership expects to continue to receive all scheduled rents in future months unless the Lease is rejected by Winn-Dixie. If the Lease is affirmed, Winn-Dixie must comply with all Lease terms. If the Lease is rejected, Winn-Dixie would be required to return possession of the property to the Partnership and the Partnership would be responsible for real estate taxes and other costs associated with maintaining the property. The Partnership has evaluated the lease and property value and decided that there is no impairment loss at this time. At December 31, 2004, the book value of this property was $906,471. On December 30, 2003, the Partnership purchased a Johnny Carino's restaurant in Laredo, Texas for $2,605,079. The property is leased to Kona Restaurant Group, Inc. under a Lease Agreement with a primary term of 13 years and annual rental payments of $215,646. On February 9, 2004, the Partnership purchased a 50% interest in a Jared Jewelry store in Hanover, Maryland for $1,989,135. The property is leased to Sterling Jewelers Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $153,228. The remaining interest in the property was purchased by AEI Net Lease Income & Growth Fund XX Limited Partnership, an affiliate of the Partnership. On September 20, 2004, the Partnership purchased a 40% interest in an Eckerd drug store in Utica, New York for $1,848,107. The property is leased to Eckerd Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of $149,671. The remaining interest in the property was purchased by AEI Accredited Investor Fund 2002 Limited Partnership, an affiliate of the Partnership. On December 15, 2004, the Company entered into an agreement to purchase a 40% interest in a Jared Jewelry store in Auburn Hills, Michigan for approximately $1,440,000. Subsequent to December 31, 2004, the acquisition was completed. The property is leased to Sterling Jewelers Inc. under a Lease Agreement with a remaining primary term of 15 years and annual rental payments of $102,520. The remaining interest in the property was purchased by AEI Income & Growth Fund 25 LLC, an affiliate of the Partnership. Subsequent to December 31, 2004, the Partnership purchased a 20% interest in a CarMax auto superstore in Lithia Springs, Georgia for approximately $1,864,000. The property is leased to CarMax Auto Superstores, Inc. under a Lease Agreement with a remaining primary term of 13.4 years and annual rental payments of $136,080. The remaining interests in the property were purchased by AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership, affiliates of the Partnership. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The Partnership's primary use of cash flow, other than investment in real estate, is distribution and redemption payments to Partners. The Partnership declares its regular quarterly distributions before the end of each quarter and pays the distribution in the first ten days after the end of each quarter. The Partnership attempts to maintain a stable distribution rate from quarter to quarter. Redemption payments are paid to redeeming Partners in the fourth quarter of each year. For the years ended December 31, 2004 and 2003, the Partnership declared distributions of $2,242,429 and $2,181,829, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $2,220,005 and $2,160,011 and the General Partners received distributions of $22,424 and $21,818 for the periods, respectively. In December 2003, the Partnership declared a bonus distribution of $545,455 of net sale proceeds. In December 2004, the Partnership declared a bonus distribution of $606,061 of net sale proceeds, which resulted in higher distributions in 2004 and a higher distribution payable at December 31, 2004. During 2004 and 2003, the Partnership distributed $954,682 and $816,619 of net sale proceeds to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $41.38 and $35.27 per Limited Partnership Unit, respectively. The Partnership anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 2004, five Limited Partners redeemed a total of 88.04 Partnership Units for $53,859 in accordance with the Partnership Agreement. During 2003, eight Limited Partners redeemed a total of 117.84 Partnership Units for $81,076. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 41 Limited Partners redeemed 974.67 Partnership Units for $804,867. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $544 and $819 in 2004 and 2003, respectively. The continuing rent payments from the properties, together with cash generated from property sales, should be adequate to fund continuing distributions and meet other Partnership obligations on both a short-term and long-term basis. ITEM 7. FINANCIAL STATEMENTS. See accompanying index to financial statements. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Balance Sheet as of December 31, 2004 and 2003 Statements for the Years Ended December 31, 2004 and 2003: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners: AEI Income & Growth Fund XXI Limited Partnership St. Paul, Minnesota We have audited the accompanying balance sheet of AEI Income & Growth Fund XXI Limited Partnership (a Minnesota limited partnership) as of December 31, 2004 and 2003, and the related statements of income, cash flows and changes in partners' capital for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AEI Income & Growth Fund XXI Limited Partnership as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. /s/BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P. Boulay, Heutmaker, Zibell & Co. P.L.L.P. Certified Public Accountants Minneapolis, Minnesota January 26, 2005 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET DECEMBER 31 ASSETS 2004 2003 CURRENT ASSETS: Cash and Cash Equivalents $ 5,295,303 $ 6,018,352 Receivables 18,809 579 ----------- ----------- Total Current Assets 5,314,112 6,018,931 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 5,560,626 4,770,063 Buildings and Equipment 10,191,754 10,063,261 Accumulated Depreciation (1,193,144) (862,718) ----------- ----------- 14,559,236 13,970,606 Real Estate Held for Sale 0 264,200 ----------- ----------- Net Investments in Real Estate 14,559,236 14,234,806 ----------- ----------- Total Assets $19,873,348 $20,253,737 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 36,234 $ 160,512 Distributions Payable 1,011,957 951,129 ----------- ----------- Total Current Liabilities 1,048,191 1,111,641 ----------- ----------- PARTNERS' CAPITAL: General Partners 25,818 28,987 Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,819 and 22,907 Units outstanding in 2004 and 2003, respectively 18,799,339 19,113,109 ----------- ----------- Total Partners' Capital 18,825,157 19,142,096 ----------- ----------- Total Liabilities and Partners' Capital $19,873,348 $20,253,737 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31 2004 2003 RENTAL INCOME $ 1,350,229 $ 896,428 EXPENSES: Partnership Administration - Affiliates 216,944 212,942 Partnership Administration and Property Management - Unrelated Parties 25,620 18,275 Depreciation 379,405 254,901 ----------- ----------- Total Expenses 621,969 486,118 ----------- ----------- OPERATING INCOME 728,260 410,310 OTHER INCOME: Interest Income 58,155 82,159 Gain on Sale of Real Estate 137,068 2,639 ----------- ----------- Total Other Income 195,223 84,798 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 923,483 495,108 Income from Discontinued Operations 1,056,410 2,871,872 ----------- ----------- NET INCOME $ 1,979,893 $ 3,366,980 =========== =========== NET INCOME ALLOCATED: General Partner $ 19,799 $ 33,670 Limited Partners 1,960,094 3,333,310 ----------- ----------- $ 1,979,893 $ 3,366,980 =========== =========== INCOME PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 39.95 $ 21.31 Discontinued Operations 45.70 123.64 ----------- ----------- Total $ 85.65 $ 144.95 =========== =========== Weighted Average Units Outstanding 22,885 22,996 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,979,893 $ 3,366,980 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Depreciation 414,555 424,079 Gain on Sale of Real Estate (1,052,298) (2,343,954) (Increase) Decrease in Receivables (18,230) 14,615 Increase (Decrease) in Payable to AEI Fund Management, Inc. (124,278) 131,798 ----------- ----------- Total Adjustments (780,251) (1,773,462) ----------- ----------- Net Cash Provided By Operating Activities 1,199,642 1,593,518 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (3,847,538) (5,658,584) Proceeds from Sale of Real Estate 4,160,851 7,390,501 ----------- ----------- Net Cash Provided By Investing Activities 313,313 1,731,917 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in Distributions Payable 60,828 303,012 Distributions to Partners (2,242,429) (2,181,829) Redemption Payments (54,403) (81,895) ----------- ----------- Net Cash Used For Financing Activities (2,236,004) (1,960,712) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (723,049) 1,364,723 CASH AND CASH EQUIVALENTS, beginning of period 6,018,352 4,653,629 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 5,295,303 $ 6,018,352 =========== =========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31 Limited Partnership General Limited Units Partner Partners Total Outstanding BALANCE, December 31, 2002 $ 17,954 $18,020,886 $18,038,840 23,025.33 Distributions (21,818) (2,160,011) (2,181,829) Redemption Payments (819) (81,076) (81,895) (117.84) Net Income 33,670 3,333,310 3,366,980 -------- ----------- ----------- ---------- BALANCE, December 31, 2003 28,987 19,113,109 19,142,096 22,907.49 Distributions (22,424) (2,220,005) (2,242,429) Redemption Payments (544) (53,859) (54,403) (88.04) Net Income 19,799 1,960,094 1,979,893 -------- ----------- ----------- ---------- BALANCE, December 31, 2004 $ 25,818 $18,799,339 $18,825,157 22,819.45 ======== =========== =========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (1) Organization - AEI Income & Growth Fund XXI Limited Partnership (Partnership) was formed to acquire and lease commercial properties to operating tenants. The Partnership's operations are managed by AEI Fund Management XXI, Inc. (AFM), the Managing General Partner. Robert P. Johnson, the President and sole director of AFM, serves as the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AEI Fund Management, Inc. (AEI), an affiliate of AFM, performs the administrative and operating functions for the Partnership. The terms of the Partnership offering call for a subscription price of $1,000 per Limited Partnership Unit, payable on acceptance of the offer. The Partnership commenced operations on April 14, 1995 when minimum subscriptions of 1,500 Limited Partnership Units ($1,500,000) were accepted. On January 31, 1997, the offering terminated when the maximum subscription limit of 24,000 Limited Partnership Units was reached. Under the terms of the Limited Partnership Agreement, the Limited Partners and General Partners contributed funds of $24,000,000 and $1,000, respectively. During operations, any Net Cash Flow, as defined, which the General Partners determine to distribute will be distributed 90% to the Limited Partners and 10% to the General Partners; provided, however, that such distributions to the General Partners will be subordinated to the Limited Partners first receiving an annual, noncumulative distribution of Net Cash Flow equal to 10% of their Adjusted Capital Contribution, as defined, and, provided further, that in no event will the General Partners receive less than 1% of such Net Cash Flow per annum. Distributions to Limited Partners will be made pro rata by Units. Any Net Proceeds of Sale, as defined, from the sale or financing of properties which the General Partners determine to distribute will, after provisions for debts and reserves, be paid in the following manner: (i) first, 99% to the Limited Partners and 1% to the General Partners until the Limited Partners receive an amount equal to: (a) their Adjusted Capital Contribution plus (b) an amount equal to 10% of their Adjusted Capital Contribution per annum, cumulative but not compounded, to the extent not previously distributed from Net Cash Flow; (ii) any remaining balance will be distributed 90% to the Limited Partners and 10% to the General Partners. Distributions to the Limited Partners will be made pro rata by Units. For tax purposes, profits from operations, other than profits attributable to the sale, exchange, financing, refinancing or other disposition of property, will be allocated first in the same ratio in which, and to the extent, Net Cash Flow is distributed to the Partners for such year. Any additional profits will be allocated in the same ratio as the last dollar of Net Cash Flow is distributed. Net losses from operations will be allocated 99% to the Limited Partners and 1% to the General Partners. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (1) Organization - (Continued) For tax purposes, profits arising from the sale, financing, or other disposition of property will be allocated in accordance with the Partnership Agreement as follows: (i) first, to those partners with deficit balances in their capital accounts in an amount equal to the sum of such deficit balances; (ii) second, 99% to the Limited Partners and 1% to the General Partners until the aggregate balance in the Limited Partners' capital accounts equals the sum of the Limited Partners' Adjusted Capital Contributions plus an amount equal to 10% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously allocated; (iii) third, the balance of any remaining gain will then be allocated 90% to the Limited Partners and 10% to the General Partners. Losses will be allocated 98% to the Limited Partners and 2% to the General Partners. The General Partners are not required to currently fund a deficit capital balance. Upon liquidation of the Partnership or withdrawal by a General Partner, the General Partners will contribute to the Partnership an amount equal to the lesser of the deficit balances in their capital accounts or 1% of total Limited Partners' and General Partners' capital contributions. (2) Summary of Significant Accounting Policies - Financial Statement Presentation The accounts of the Partnership are maintained on the accrual basis of accounting for both federal income tax purposes and financial reporting purposes. Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates. The Partnership regularly assesses whether market events and conditions indicate that it is reasonably possible to recover the carrying amounts of its investments in real estate from future operations and sales. A change in those market events and conditions could have a material effect on the carrying amount of its real estate. Cash Concentrations of Credit Risk The Partnership's cash is deposited primarily in one financial institution and at times during the year it may exceed FDIC insurance limits. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (2) Summary of Significant Accounting Policies - (Continued) Statement of Cash Flows For purposes of reporting cash flows, cash and cash equivalents may include cash in checking, cash invested in money market accounts, certificates of deposit, federal agency notes and commercial paper with a term of three months or less. Receivables Credit terms are extended to tenants in the normal course of business. The Partnership performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral. Receivables are recorded at their estimated net realizable value. The Partnership follows a policy of providing an allowance for doubtful accounts; however, based on historical experience, and its evaluation of the current status of receivables, the Partnership is of the belief that such accounts will be collectible in all material respects and thus an allowance is not necessary. Accounts are considered past due if payment is not made on a timely basis in accordance with the Partnership's credit terms. Receivables considered uncollectible are written off. Income Taxes The income or loss of the Partnership for federal income tax reporting purposes is includable in the income tax returns of the partners. In general, no recognition has been given to income taxes in the accompanying financial statements. The tax return and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such an examination results in changes to distributable Partnership income or loss, the taxable income of the partners would be adjusted accordingly. Real Estate The Partnership's real estate is leased under triple net leases classified as operating leases. The leases provide for base annual rental payments payable in monthly installments. The Partnership recognizes rental revenue according to the terms of the individual leases. For leases which contain stated rental increases, the increases are recognized in the year in which they are effective. Contingent rental payments are recognized when the contingencies on which the payments are based are satisfied and the rental payments become due under the terms of the leases. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (2) Summary of Significant Accounting Policies - (Continued) Real estate is recorded at the lower of cost or estimated net realizable value. The Partnership compares the carrying amount of its properties to the estimated probability-weighted future cash flows expected to result from the property and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the property, the Partnership recognizes an impairment loss by the amount by which the carrying amount of the property exceeds the fair value of the property. The Partnership has capitalized as Investments in Real Estate certain costs incurred in the review and acquisition of the properties. The costs were allocated to the land, buildings and equipment. The buildings and equipment of the Partnership are depreciated using the straight-line method for financial reporting purposes based on estimated useful lives of 25 years and 5 years, respectively. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, upon complete disposal of a property or classification of a property as Real Estate Held for Sale, the Partnership includes the operating results and sale of the property in discontinued operations. In addition, the Partnership reclassifies the prior periods operating results and any partial sales of the property to discontinued operations. The Partnership accounts for properties owned as tenants- in-common with affiliated Partnerships and/or unrelated third parties using the proportionate consolidation method. Each tenant-in-common owns a separate, undivided interest in the properties. Any tenant-in-common that holds more than a 50% interest does not control decisions over the other tenant-in-common interests. The financial statements reflect only this Partnership's percentage share of the properties' land, building and equipment, liabilities, revenues and expenses. Reclassification Certain items in the prior year's financial statements have been reclassified to conform to 2004 presentation. These reclassifications had no effect on Partners' capital, net income or cash flows. Newly Issued Pronouncements The Partnership has considered the accounting pronouncements issued after December 2003 and has determined that none of these pronouncements will have a material impact on its financial statements. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) Related Party Transactions - As of December 31, 2004, the Partnership owns a 20.4025% interest in a Winn-Dixie store. The remaining interests in this property are owned by AEI Net Lease Income & Growth Fund XIX Limited Partnership, an affiliate of the Partnership, and unrelated third parties. AEI Income & Growth Fund 24 LLC, an affiliate of the Partnership, owned a 26% interest in this property until the interest was sold, in two transactions, to unrelated third parties in 2003. The Partnership owns a 50% interest in a Jared Jewelry store in Hanover, Maryland. The remaining interest in this property is owned by AEI Net Lease Income & Growth Fund XX Limited Partnership, an affiliate of the Partnership. The Partnership owns a 40% interest in an Eckerd drug store in Utica, New York. The remaining interest in this property is owned by AEI Accredited Investor Fund 2002 Limited Partnership, an affiliate of the Partnership. The Partnership owns a 40% interest in a Jared Jewelry store in Auburn Hills, Michigan. The remaining interest in this property is owned by AEI Income & Growth Fund 25 LLC, an affiliate of the Partnership. The Partnership owned a 25% interest in a Champps Americana restaurant in Centerville, Ohio. AEI Real Estate Fund XVII Limited Partnership, AEI Real Estate Fund XVIII Limited Partnership and AEI Income & Growth Fund XXII Limited Partnership, affiliates of the Partnership, owned interests in this property until the interests were sold, in a series of transactions, to unrelated third parties in 2003. The Partnership owned a 40.75% interest in a Garden Ridge retail store. AEI Net Lease Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX Limited Partnership owned interests in this property until the interests were sold, in a series of transactions, to unrelated third parties in 2003. AEI and AFM received the following compensation and reimbursements for costs and expenses from the Partnership: Total Incurred by the Partnership for the Years Ended December 31 2004 2003 a.AEI and AFM are reimbursed for all costs incurred in connection with managing the Partnership's operations, maintaining the Partnership's books and communicating the results of operations to the Limited Partners. $ 216,944 $ 212,942 ======== ======== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (3) Related Party Transactions - (Continued) Total Incurred by the Partnership for the Years Ended December 31 2004 2003 b.AEI and AFM are reimbursed for all direct expenses they have paid on the Partnership's behalf to third parties relating to Partnership administration and property management. These expenses included printing costs, legal and filing fees, direct administrative costs, outside audit costs, taxes, insurance and other property costs. $ 26,899 $ 25,128 ======== ======== c.AEI is reimbursed for all costs and direct expenses incurred by it in acquiring properties on behalf of the Partnership. The amounts are net of financing and commitment fees and expense reimbursements received by the Partnership from the sellers and/or lessees in the amount of $10,695 for 2003. $ 64,938 $ 92,365 ======== ======== d.AEI is reimbursed for all costs incurred in connection with the sale of property. $ 64,144 $ 185,048 ======== ======== The payable to AEI Fund Management, Inc. represents the balance due for the services described in 3a, b, c and d. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. (4) Investments in Real Estate - The Partnership leases its properties to various tenants through triple net leases, which are classified as operating leases. Under a triple net lease, the lessee is responsible for all real estate taxes, insurance, maintenance, repairs and operating expenses of the property. The initial Lease terms are 20 years, except for the Children's World daycare centers and the Tumbleweed restaurant, which have Lease terms of 15 years and the Johnny Carino's restaurant in Laredo, Texas, which has a Lease term of 13 years. The Leases contain renewal options which may extend the Lease term an additional 15 years, except for the Jared Jewelry store and the Arby's and Tumbleweed restaurants, which have renewal options that may extend the Lease term an additional 10 years, the Eckerd drug store, which has renewal options that may extend the Lease term an additional 20 years and the Winn-Dixie retail store, which has renewal options that may extend the Lease term an additional 25 years. The Leases contain rent clauses which entitle the Partnership to receive additional rent in future years based on stated rent increases. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (4) Investments in Real Estate - (Continued) The Partnership's properties are commercial, single-tenant buildings. The Arby's restaurant was constructed and acquired in 1995. The Champps Americana restaurants in San Antonio, Texas and Livonia, Michigan were constructed and acquired in 1997 and 1998, respectively. The Tumbleweed restaurant was constructed and acquired in 2000. The Johnny Carino's restaurant in Austin, Texas was constructed and acquired in 2001. The Children's World daycare centers in Andover, Minnesota and Kimberly, Wisconsin were constructed in 1998 and acquired in 2002. The Children's World daycare center in Ballwin, Missouri was constructed in 1999 and acquired in 2002. The Winn-Dixie store was constructed in 1997 and acquired in 2003. The Johnny Carino's restaurant in Laredo, Texas was constructed in 1999 and acquired in 2003. The Jared Jewelry store was constructed in 2001 and acquired in 2004. The Eckerd drug store was constructed and acquired in 2004. There have been no costs capitalized as improvements subsequent to the acquisitions. The cost of the properties and related accumulated depreciation at December 31, 2004 are as follows: Buildings and Accumulated Property Land Equipment Total Depreciation Arby's, Montgomery, AL $ 10,033 $ 13,016 $ 23,049 $ 4,990 Champps Americana, San Antonio, TX 1,127,016 1,706,341 2,833,357 534,439 Champps Americana, Livonia, MI 1,753 4,613 6,366 1,341 Tumbleweed, Fort Wayne, IN 562,078 772,237 1,334,315 157,212 Johnny Carino's, Austin, TX 13,771 13,312 27,083 1,781 Children's World, Andover, MN 179,755 1,084,452 1,264,207 110,252 Children's World, Ballwin, MO 255,080 1,262,698 1,517,778 128,375 Children's World, Kimberly, WI 312,007 1,046,232 1,358,239 106,366 Winn-Dixie, Panama City, FL 187,081 758,584 945,665 39,194 Johnny Carino's, Laredo, TX 1,160,803 1,444,276 2,605,079 57,771 Jared Jewelry, Hanover, MD 861,065 1,128,070 1,989,135 39,482 Eckerd, Utica, NY 890,184 957,923 1,848,107 11,941 ---------- ----------- ----------- ---------- $5,560,626 $10,191,754 $15,752,380 $1,193,144 ========== =========== =========== ========== On September 19, 2003, the Partnership purchased a 37% interest in a Winn-Dixie store in Panama City, Florida for $1,714,965. The property is leased to Winn-Dixie Montgomery, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $138,380. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (4) Investments in Real Estate - (Continued) Through March 31, 2004, the Partnership sold 16.5975% of the Winn-Dixie store in Panama City, Florida, in four separate transactions, to unrelated third parties. The Partnership received net sale proceeds of $900,843, which resulted in a net gain of $139,707. The cost and related accumulated depreciation of the interests sold was $769,300 and $8,164, respectively. For the years ended December 31, 2004 and 2003, the net gain was $137,068 and $2,639, respectively. Subsequent to December 31, 2004, the lessee of the Winn- Dixie store and its parent company, Winn-Dixie, Inc., filed for Chapter 11 bankruptcy reorganization. Rent was current through the date of the bankruptcy filing. The Partnership expects to continue to receive all scheduled rents in future months unless the Lease is rejected by Winn-Dixie. If the Lease is affirmed, Winn-Dixie must comply with all Lease terms. If the Lease is rejected, Winn-Dixie would be required to return possession of the property to the Partnership and the Partnership would be responsible for real estate taxes and other costs associated with maintaining the property. The Partnership has evaluated the lease and property value and decided that there is no impairment loss at this time. At December 31, 2004, the book value of this property was $906,471. On December 30, 2003, the Partnership purchased a Johnny Carino's restaurant in Laredo, Texas for $2,605,079. The property is leased to Kona Restaurant Group, Inc. under a Lease Agreement with a primary term of 13 years and annual rental payments of $215,646. On February 9, 2004, the Partnership purchased a 50% interest in a Jared Jewelry store in Hanover, Maryland for $1,989,135. The property is leased to Sterling Jewelers Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $153,228. In March 2004, the Partnership entered into an agreement to purchase a 50% interest in an Eckerd drug store in Buffalo, New York for approximately $1,606,500. In May 2004, by mutual agreement of the parties, the agreement was terminated. On September 20, 2004, the Partnership purchased a 40% interest in an Eckerd drug store in Utica, New York for $1,848,107. The property is leased to Eckerd Corporation under a Lease Agreement with a primary term of 20 years and annual rental payments of $149,671. On December 15, 2004, the Company entered into an agreement to purchase a 40% interest in a Jared Jewelry store in Auburn Hills, Michigan for approximately $1,440,000. Subsequent to December 31, 2004, the acquisition was completed. The property is leased to Sterling Jewelers Inc. under a Lease Agreement with a remaining primary term of 15 years and annual rental payments of $102,520. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (4) Investments in Real Estate - (Continued) Subsequent to December 31, 2004, the Partnership purchased a 20% interest in a CarMax auto superstore in Lithia Springs, Georgia for approximately $1,864,000. The property is leased to CarMax Auto Superstores, Inc. under a Lease Agreement with a remaining primary term of 13.4 years and annual rental payments of $136,080. The remaining interests in the property were purchased by AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC and AEI Private Net Lease Millennium Fund Limited Partnership, affiliates of the Partnership. The Partnership owns a 2.6811% interest in an Arby's restaurant and a 1.1839% interest in a Johnny Carino's restaurant in Austin, Texas. The remaining interests in these properties are owned by unrelated third parties, who own the properties with the Partnership as tenants-in- common. For properties owned as of December 31, 2004, the minimum future rent payments required by the leases are as follows: 2005 $ 1,475,862 2006 1,482,958 2007 1,495,655 2008 1,498,386 2009 1,501,778 Thereafter 13,198,362 ---------- $20,653,001 ========== There were no contingent rents recognized in 2004 or 2003. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (5) Major Tenants - The following schedule presents rent revenue from individual tenants, or affiliated groups of tenants, who each contributed more than ten percent of the Partnership's total rent revenue for the years ended December 31: 2004 2003 Tenants Industry Knowledge Learning Enterprises, Inc. Child Care $ 393,404 $ 459,999 Champps Americana Group Restaurant 337,580 386,255 Kona Restaurant Group, Inc. Restaurant 218,639 N/A SFG Farmington-I Limited Partnership Restaurant 176,355 171,757 Garden Ridge, L.P. Retail N/A 400,467 ---------- ---------- Aggregate rent revenue of major tenants $1,125,978 $1,418,478 ========== ========== Aggregate rent revenue of major tenants as a percentage of total rent revenue 74% 88% ========== ========== (6) Discontinued Operations - During the first nine months of 2003, the Partnership sold the Children's World in Mundelein, Illinois, in seven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $2,010,839, which resulted in a net gain of $495,127. The total cost and related accumulated depreciation of the interests sold was $1,618,824 and $103,112, respectively. During the third quarter of 2003, the Partnership sold its 25% interest in the Champps Americana restaurant in Centerville, Ohio, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,384,939, which resulted in a net gain of $498,449. The total cost and related accumulated depreciation of the interests sold was $984,426 and $97,936, respectively. During the fourth quarter of 2003, the Partnership sold 37.0128% of the Garden Ridge retail store in Pineville, North Carolina, in eleven separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $3,968,116, which resulted in a net gain of $1,347,739. The total cost and related accumulated depreciation of the interests sold was $3,310,163 and $689,786, respectively. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (6) Discontinued Operations - (Continued) On January 13, 2004, the Partnership sold its remaining 3.7372% interest in the Garden Ridge retail store to an unrelated third party. The Partnership received net sale proceeds of $392,836, which resulted in a net gain of $128,636. At December 31, 2003, the property was classified as Real Estate Held for Sale with a book value of $264,200. On October 31, 2002, the Partnership purchased a parcel of land in Farmington, New Mexico for $810,000. The Partnership obtained title to the land in the form of an undivided fee simple interest. The land is leased to SFG Farmington I Limited Partnership (SFG) under a Lease Agreement with a primary term of 20 years and annual rental payments of $85,050. Simultaneously with the purchase of the land, the Partnership entered into a Development Financing Agreement under which the Partnership advanced funds to SFG for the construction of a Johnny Carino's restaurant on the site. Pursuant to the Lease, any improvements to the land during the term of the Lease, become property of the lessor. The Partnership charged interest on the advances at a rate of 10.5%. On May 28, 2003, after the development was completed, the Lease Agreement was amended to require annual rental payments of $231,000. Total acquisition costs, including the cost of the land, were $2,183,344. In June 2004, the Partnership entered into an agreement to sell the Johnny Carino's restaurant in Farmington, New Mexico to an unrelated third party. On October 6, 2004, the sale closed with the Partnership receiving net sale proceeds of $2,893,779, which resulted in a net gain of $786,594. At the time of sale, the cost and related accumulated depreciation was $2,183,344 and $76,159, respectively. During 2004 and 2003, the Partnership distributed $954,682 and $816,619 of net sale proceeds to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $41.38 and $35.27 per Limited Partnership Unit, respectively. The Partnership anticipates the remaining net sale proceeds will either be reinvested in additional property or distributed to the Partners in the future. The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The following are the results of discontinued operations for the years ended December 31: 2004 2003 Rental Income $ 177,609 $ 706,588 Property Management Expenses (1,279) (6,853) Depreciation (35,150) (169,178) Gain on Disposal of Real Estate 915,230 2,341,315 ---------- ---------- Income from Discontinued Operations $1,056,410 $2,871,872 ========== ========== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (7) Partners' Capital - Cash distributions of $22,424 and $21,818 were made to the General Partners and $2,220,005 and $2,160,011 were made to the Limited Partners for the years ended December 31, 2004 and 2003, respectively. The Limited Partners' distributions represent $97.01 and $93.93 per Limited Partnership Unit outstanding using 22,885 and 22,996 weighted average Units in 2004 and 2003, respectively. The distributions represent $83.29 and $93.93 per Unit of Net Income and $13.72 and $-0- per Unit of return of capital in 2004 and 2003, respectively. As part of the Limited Partner distributions discussed above, the Partnership distributed $945,136 and $808,453 of proceeds from property sales in 2004 and 2003, respectively. The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership will not be obligated to purchase in any year any number of Units that, when aggregated with all other transfers of Units that have occurred since the beginning of the same calendar year (excluding Permitted Transfers as defined in the Partnership Agreement), would exceed 5% of the total number of Units outstanding on January 1 of such year. In no event shall the Partnership be obligated to purchase Units if, in the sole discretion of the Managing General Partner, such purchase would impair the capital or operation of the Partnership. During 2004, five Limited Partners redeemed a total of 88.04 Partnership Units for $53,859 in accordance with the Partnership Agreement. During 2003, eight Limited Partners redeemed a total of 117.84 Partnership Units for $81,076. The Partnership acquired these Units using Net Cash Flow from operations. The redemptions increase the remaining Limited Partners' ownership interest in the Partnership. As a result of these redemption payments and pursuant to the Partnership Agreement, the General Partners received distributions of $544 and $819 in 2004 and 2003, respectively. After the effect of redemptions, the Adjusted Capital Contribution, as defined in the Partnership Agreement, is $1,051.73 per original $1,000 invested. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (8) Income Taxes - The following is a reconciliation of net income for financial reporting purposes to income reported for federal income tax purposes for the years ended December 31: 2004 2003 Net Income for Financial Reporting Purposes $1,979,893 $3,366,980 Depreciation for Tax Purposes Under Depreciation for Financial Reporting Purposes 106,517 117,002 Gain on Sale of Real Estate for Tax Purposes Under Gain for Financial Reporting Purposes (34,276) (312,734) ---------- ---------- Taxable Income to Partners $2,052,134 $3,171,248 ========== ========== The following is a reconciliation of Partners' capital for financial reporting purposes to Partners' capital reported for federal income tax purposes for the years ended December 31: 2004 2003 Partners' Capital for Financial Reporting Purposes $18,825,157 $19,142,096 Adjusted Tax Basis of Investments in Real Estate Over Net Investments in Real Estate for Financial Reporting Purposes 342,878 270,637 Syndication Costs Treated as Reduction of Capital for Financial Reporting Purposes 3,208,042 3,208,043 ----------- ----------- Partners' Capital for Tax Reporting Purposes $22,376,077 $22,620,776 =========== =========== AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 (9) Fair Value of Financial Instruments - The estimated fair values of the financial instruments, none of which are held for trading purposes, are as follows at December 31: 2004 2003 Carrying Fair Carrying Fair Amount Value Amount Value Money Market Funds $5,295,303 $5,295,303 $6,018,352 $6,018,352 ---------- ---------- ---------- ---------- Total Cash and Cash Equivalents $5,295,303 $5,295,303 $6,018,352 $6,018,352 ========== ========== ========== ========== ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 8A. CONTROLS AND PROCEDURES. (a) Evaluation of disclosure controls and procedures Under the supervision and with the participation of management, including its President and Chief Financial Officer, the Managing General Partner of the Partnership evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act). Based upon that evaluation, the President and Chief Financial Officer of the Managing General Partner concluded that, as of the end of the period covered by this report, the disclosure controls and procedures of the Partnership are adequately designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms. (b) Changes in internal controls There were no significant changes made in the Partnership's internal controls during the most recent period covered by this report that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. ITEM 8B. OTHER INFORMATION. None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The registrant is a limited partnership and has no officers, directors, or direct employees. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The General Partners are AEI Fund Management XXI, Inc. (AFM), the Managing General Partner, and Robert P. Johnson, Chief Executive Officer, President and sole director of AFM, the Individual General Partner. AFM is a wholly owned subsidiary of AEI Capital Corporation of which Mr. Johnson is the majority shareholder. AFM has only one senior financial executive, its Chief Financial Officer. The Chief Financial Officer reports directly to Mr. Johnson and is accountable for his actions to Mr. Johnson. Although Mr. Johnson and AFM require that all of their personnel, including the Chief Financial Officer, engage in honest and ethical conduct, ensure full, fair, accurate, timely, and understandable disclosure, comply with all applicable governmental laws, rules and regulations, and report to Mr. Johnson any deviation from these principles, because the organization is composed of only approximately 35 individuals, because the management of a partnership by an entity that has different interests in distributions and income than investors involves numerous conflicts of interest that must be resolved on a daily basis, and because the ultimate decision maker in all instances is Mr. Johnson, AFM has not adopted a formal code of conduct. Instead, the materials pursuant to which investors purchase Units disclose these conflicts of interest in detail and Mr. Johnson, as the CEO and sole director of AFM, resolves conflicts to the best of his ability, consistent with his fiduciary obligations to AFM and the fiduciary obligations of AFM to the Partnership. The director and officers of AFM are as follows: Robert P. Johnson, age 60, is Chief Executive Officer, President and sole director and has held these positions since the formation of AFM in August 1994, and has been elected to continue in these positions until December 2005. From 1970 to the present, he has been employed exclusively in the investment industry, specializing in limited partnership investments. In that capacity, he has been involved in the development, analysis, marketing and management of public and private investment programs investing in net lease properties as well as public and private investment programs investing in energy development. Since 1971, Mr. Johnson has been the president, a director and a registered principal of AEI Securities, Inc., which is registered with the SEC as a securities broker-dealer, is a member of the National Association of Securities Dealers, Inc. (NASD) and is a member of the Security Investors Protection Corporation (SIPC). Mr. Johnson has been president, a director and the principal shareholder of AEI Fund Management, Inc., a real estate management company founded by him, since 1978. Mr. Johnson is currently a general partner or principal of the general partner in twelve limited partnerships and a managing member in three LLCs. Patrick W. Keene, age 45, is Chief Financial Officer, Treasurer and Secretary and has held these positions since January 22, 2003 and has been elected to continue in these positions until December 2005. Mr. Keene has been employed by AEI Fund Management, Inc. and affiliated entities since 1986. Prior to being elected to the positions above, he was Controller of the various entities. From 1982 to 1986, Mr. Keene was with KPMG Peat Marwick Certified Public Accountants, first as an auditor and later as a tax manager. Mr. Keene is responsible for all accounting functions of AFM and the registrant. ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Since Mr. Johnson serves as the Individual General Partner of the Partnership, as well as the sole director of AFM, all of the duties that might be assigned to an audit committee are assigned to Mr. Johnson. Mr. Johnson is not an audit committee financial expert, as defined. As an officer and majority owner, through a parent company, of AFM, and as the Individual General Partner, Mr. Johnson is not a "disinterested director" and may be subject to a number of conflicts of interests in his capacity as sole director of AFM. Before the independent auditors are engaged, Mr. Johnson, as the sole director of AFM, approves all audit-related fees, and all permissible nonaudit fees, for services of our auditors. Section 16(a) Beneficial Ownership Reporting Compliance Under federal securities laws, the directors and officers of the General Partner of the Partnership, and any beneficial owner of more than 10% of a class of equity securities of the Partnership, are required to report their ownership of the Partnership's equity securities and any changes in such ownership to the Securities and Exchange Commission (the "Commission"). Specific due dates for these reports have been established by the Commission, and the Partnership is required to disclose in this Annual Report on 10-KSB any delinquent filing of such reports and any failure to file such reports during the fiscal year ended December 31, 2004. Based upon information provided by officers and directors of the General Partner, all officers, directors and 10% owners filed all reports on a timely basis in the 2004 fiscal year. ITEM 10. EXECUTIVE COMPENSATION. The General Partner and affiliates are reimbursed at cost for all services performed on behalf of the registrant and for all third party expenses paid on behalf of the registrant. The cost for services performed on behalf of the registrant is actual time spent performing such services plus an overhead burden. These services include organizing the registrant and arranging for the offer and sale of Units, reviewing properties for acquisition and rendering administrative, property management and property sales services. The amount and nature of such payments are detailed in Item 12 of this annual report on Form 10-KSB. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information pertaining to the ownership of the Units by each person known by the Partnership to beneficially own 5% or more of the Units, by each General Partner, and by each officer or director of the Managing General Partner as of February 28, 2005: Name and Address Number of Percent of Beneficial Owner Units Held of Class AEI Fund Management XXI, Inc. 0 0% 1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101 Robert P. Johnson 0 0% 1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101 Patrick W. Keene 0 0% 1300 Wells Fargo Place 30 East 7th Street, St. Paul, Minnesota 55101 The General Partners know of no holders of more than 5% of the outstanding Units. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The registrant, AFM and its affiliates have common management and utilize the same facilities. As a result, certain administrative expenses are allocated among these related entities. All of such activities and any other transactions involving the affiliates of the General Partner of the registrant are governed by, and are conducted in conformity with, the limitations set forth in the Limited Partnership Agreement of the registrant. Reference is made to Note 3 of the Financial Statements, as presented, and is incorporated herein by reference, for details of related party transactions for the years ended December 31, 2004 and 2003. The limitations included in the Partnership Agreement require that the cumulative reimbursements to the General Partners and their affiliates for certain expenses will not exceed an amount equal to the sum of (i) 20% of gross offering proceeds, (ii) 5% of Net Cash Flow for property management, (iii) 3% of Net Proceeds of Sale, and (iv) 10% of Net Cash Flow less the Net Cash Flow actually distributed to the General Partners. The cumulative reimbursements subject to this limitation are reimbursements for (i) organization and offering expenses, including commissions, (ii) acquisition expenses, (iii) services provided in the sales effort of properties, and (iv) expenses of controlling persons and overhead expenses directly attributable to the forgoing services or attributable to administrative services. As of December 31, 2004, these cumulative reimbursements to the General Partners and their affiliates did not exceed the limitation amount. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (Continued) The following table sets forth the forms of compensation, distributions and cost reimbursements paid by the registrant to the General Partners or their Affiliates in connection with the operation of the Fund and its properties for the period from inception through December 31, 2004. Person or Entity Amount Incurred From Receiving Form and Method Inception (August 31, 1994) Compensation of Compensation To December 31, 2004 AEI Securities, Inc. Selling Commissions equal to $2,400,000 8% of proceeds plus a 2% nonaccountable expense allowance, most of which was reallowed to Participating Dealers. General Partners and Reimbursement at Cost for other $ 877,000 Affiliates Organization and Offering Costs. General Partners and Reimbursement at Cost for all $ 528,174 Affiliates Acquisition Expenses General Partners and Reimbursement at Cost for all $2,313,209 Affiliates Administrative Expenses attributable to the Fund, including all expenses related to management of the Fund's properties and all other transfer agency, reporting, partner relations and other administrative functions. General Partners and Reimbursement at Cost for all expenses $ 772,560 Affiliates related to the disposition of the Fund's properties. General Partners 1% of Net Cash Flow in any fiscal $ 136,812 year until the Limited Partners have received annual, non-cumulative distributions of Net Cash Flow equal to 10% of their Adjusted Capital Contributions and 10% of any remaining Net Cash Flow in such fiscal year. General Partners 1% of distributions of Net Proceeds of $ 38,602 Sale until Limited Partners have received an amount equal to (a) their Adjusted Capital Contributions, plus (b) an amount equal to 12% of their Adjusted Capital Contributions per annum, cumulative but not compounded, to the extent not previously distributed. 10% of distributions of Net Proceeds of Sale thereafter. PART IV ITEM 13. EXHIBITS. Description 3.1 Certificate of Limited Partnership (incorporated by reference to Exhibit 3.1 of the registrant's Registration Statement on Form SB-2 filed October 10, 1994 [File No. 33- 85076C]). 3.2 Restated Limited Partnership Agreement to the Prospectus (incorporated by reference to Exhibit A of Amendment No. 2 of the registrant's Registration Statement on Form SB-2 filed January 20, 1995 [File No. 33-85076C]). 10.1 Net Lease Agreement dated May 31, 1995, between the Partnership and RTM Gulf Coast, Inc., relating to the Property at 2719 Zelda Road, Montgomery, Alabama (incorporated by reference to Exhibit A of Form 8-K filed June 14, 1995). 10.2 Net Lease Agreement dated March 14, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the Property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed March 25, 1997). 10.3 Net Lease Agreement dated July 8, 1997 between the Partnership and Champps Americana, Inc. relating to the Property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed August 5, 1997). 10.4 First Amendment to Net Lease Agreement dated December 23, 1997 between the Partnership and Champps Entertainment of Texas, Inc. relating to the Property at 11440 Interstate Highway 10, San Antonio, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed January 5, 1998). 10.5 First Amendment to Net Lease Agreement dated May 19, 1998 between the Partnership and Champps Americana, Inc. relating to the Property at 19470 Haggerty Road, Livonia, Michigan (incorporated by reference to Exhibit 10.2 of Form 8-K filed June 16, 1998). 10.6 Net Lease Agreement dated March 8, 2000, between the Partnership and Tumbleweed, Inc. relating to the Property at 8607 US Highway 24 West, Fort Wayne, Indiana (incorporated by reference to Exhibit 10.29 of Form 10-KSB filed March 10, 2000). 10.7 First Amendment to Net Lease Agreement dated September 11, 2000 between the Partnership and Tumbleweed, Inc. relating to the Property at 8607 US Highway 24 West, Fort Wayne, Indiana (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed November 7, 2000). 10.8 Second Amendment to Net Lease Agreement dated September 11, 2000 between the Partnership and Tumbleweed, Inc. relating to the Property at 8607 US Highway 24 West, Fort Wayne, Indiana (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed November 7, 2000). 10.9 Net Lease Agreement dated March 8, 2001 between the Partnership, AEI Real Estate Fund 85-A Limited Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership, AEI Income & Growth Fund 23 LLC and Kona Restaurant Group, Inc. relating to the Property at 5601 Brodie Lane, Austin, Texas (incorporated by reference to Exhibit 10.4 of Form 10- QSB filed May 10, 2001). 10.10 First Amendment to Net Lease Agreement dated September 26, 2001 between the Partnership, AEI Real Estate Fund 85-A Limited Partnership, AEI Income & Growth Fund XX Limited Partnership, AEI Income & Growth Fund 23 LLC and Kona Restaurant Group, Inc. relating to the Property at 5601 Brodie Lane, Austin, Texas (incorporated by reference to Exhibit 10.10 of Form 10-QSB filed October 26, 2001). 10.11 Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 1485 Bunker Lake Boulevard NW, Andover, Minnesota (incorporated by reference to Exhibit 10.4 of Form 8-K filed June 18, 2002). ITEM 13. EXHIBITS. (Continued) Description 10.12 Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 497 Big Bend Road, Ballwin, Missouri (incorporated by reference to Exhibit 10.5 of Form 8-K filed June 18, 2002). 10.13 Net Lease Agreement dated June 14, 2002 between the Partnership and ARAMARK Educational Resources, Inc. relating to the Property at 749 Truman Street, Kimberly, Wisconsin (incorporated by reference to Exhibit 10.6 of Form 8-K filed June 18, 2002). 10.14 First Amendment to Net Lease Agreement dated May 28, 2003 between the Partnership and SFG Farmington I Limited Partnership relating to the Property at 3500 East Main Street, Farmington, New Mexico (incorporated by reference to Exhibit 10.2 of Form 8-K filed June 2, 2003). 10.15 Assignment of Sale-Purchase Agreement dated August 19, 2003 between the Partnership and AEI Fund Management, Inc. relating to the Property at 3621 Highway 231 North, Panama City, Florida (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed November 11, 2003). 10.16 Assignment and Assumption of Lease Agreement dated September 19, 2003 between the Partnership, AEI Net Lease Income & Growth Fund XIX Limited Partnership, AEI Income & Growth Fund 24 LLC and Transmitter Crossing, LLC relating to the Property at 3621 Highway 231 North, Panama City, Florida (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed November 11, 2003). 10.17 Assignment of Agreement of Sale and First Amendment to Agreement of Sale dated December 23, 2003 between the Partnership and AEI Fund Management, Inc. relating to the Property at 7603 San Dario Avenue, Laredo, Texas (incorporated by reference to Exhibit 10.1 of Form 8-K filed January 2, 2004). 10.18 Net Lease Agreement dated December 30, 2003 between the Partnership and Kona Restaurant Group, Inc. relating to the Property at 7603 San Dario Avenue, Laredo, Texas (incorporated by reference to Exhibit 10.2 of Form 8-K filed January 2, 2004). 10.19 Assignment of Purchase Agreement dated January 2, 2004 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership and AEI Fund Management, Inc. relating to the Property at 7684 Arundel Mills, Hanover, Maryland (incorporated by reference to Exhibit 10.1 of Form 8-K filed February 17, 2004). 10.20 Assignment and Assumption of Lease dated February 9, 2004 between the Partnership, AEI Net Lease Income & Growth Fund XX Limited Partnership and Transmills, LLC relating to the Property at 7684 Arundel Mills, Hanover, Maryland (incorporated by reference to Exhibit 10.2 of Form 8-K filed February 17, 2004). 10.21 Assignment of Purchase and Sale Agreement dated March 1, 2004 between the Partnership, AEI Accredited Investor Fund 2002 Limited Partnership and AEI Fund Management, Inc. relating to the Property at 2585 Main Street, Buffalo, New York (incorporated by reference to Exhibit 10.29 of Form 10- KSB filed March 19, 2004). 10.22 Purchase Agreement dated June 14, 2004 between the Partnership and Jaroslaw Paluha and Joseph A. Barraco relating to the Property at 3500 East Main Street, Farmington, New Mexico (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed August 10, 2004). 10.23 Assignment of Purchase Agreement dated August 16, 2004 between the Partnership, AEI Accredited Investor Fund 2002 Limited Partnership and AEI Fund Management, Inc. relating to the Property at 121 Herkimer Road, Utica, New York (incorporated by reference to Exhibit 10.1 of Form 10-QSB filed November 10, 2004). ITEM 13. EXHIBITS. (Continued) Description 10.24 Assignment and Assumption of Lease dated September 20, 2004 between the Partnership, AEI Accredited Investor Fund 2002 Limited Partnership and Herkimer Rd. & Euclid Rd. Development, LLC relating to the Property at 121 Herkimer Road, Utica, New York (incorporated by reference to Exhibit 10.2 of Form 10-QSB filed November 10, 2004). 10.25 Assignment of Purchase Agreement dated December 15, 2004 between the Partnership, AEI Income & Growth Fund 25 LLC and AEI Fund Management, Inc. relating to the Property at 3960 Baldwin Road, Auburn Hills, Michigan. 10.26 Assignment and Assumption of Lease dated January 14, 2005 between the Partnership, AEI Income & Growth Fund 25 LLC and LMB Auburn Hills I LLC relating to the Property at 3960 Baldwin Road, Auburn Hills, Michigan. 10.27 Assignment of Agreement of Purchase and Sale dated March 3, 2005 between the Partnership, AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC, AEI Private Net Lease Millennium Fund Limited Partnership and AEI Fund Management, Inc. relating to the Property at 1977 Thornton Road, Lithia Springs, Georgia. 10.28 Assignment and Assumption of Lease dated March 18, 2005 between the Partnership, AEI Income & Growth Fund 24 LLC, AEI Income & Growth Fund 25 LLC, AEI Private Net Lease Millennium Fund Limited Partnership and Silver Capital Net Lease Fund II, LLC relating to the Property at 1977 Thornton Road, Lithia Springs, Georgia. 31.1 Certification of Chief Executive Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer of General Partner pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The following is a summary of the fees billed to the Partnership by Boulay, Heutmaker, Zibell & Co. P.L.L.P. for professional services rendered for the years ended December 31, 2004 and 2003: Fee Category 2004 2003 Audit Fees $ 11,745 $ 11,359 Audit-Related Fees 498 500 Tax Fees 0 0 All Other Fees 0 0 --------- -------- Total Fees $ 12,243 $ 11,859 ========= ======== Audit Fees - Consists of fees billed for professional services rendered for the audit of the Partnership's annual financial statements and review of the interim financial statements included in quarterly reports, and services that are normally provided by Boulay, Heutmaker, Zibell & Co. P.L.L.P. in connection with statutory and regulatory filings or engagements. Audit-Related Fees - Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees." These services include consultations concerning financial accounting and reporting standards. Tax Fees - Consists of fees billed for professional services for federal and state tax compliance, tax advice and tax planning. All Other Fees - Consists of fees for products and services other than the services reported above. Policy for Preapproval of Audit and Permissible Non-Audit Services of Independent Auditors Before the Independent Auditors are engaged by the Partnership to render audit or non-audit services, the engagement is approved by Mr. Johnson acting as the Partnership's audit committee. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AEI INCOME & GROWTH FUND XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its Managing General Partner March 18, 2005 By: /s/ Robert P Johnson Robert P. Johnson, President and Director (Principal Executive Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ Robert P Johnson President (Principal Executive Officer) March 18, 2005 Robert P.Johnson and Sole Director of Managing General Partner /s/ Patrick W Keene Chief Financial Officer and Treasurer March 18, 2005 Patrick W.Keene (Principal Accounting Officer) EX-10.25 3 aubhilpa.txt ASSIGNMENT OF PURCHASE AGREEMENT THIS ASSIGNMENT made and entered into this 15th day of December, 2004, by and between AEI FUND MANAGEMENT, INC., a Minnesota corporation, ("Assignor") and AEI Income & Growth Fund XXI Limited Partnership, a Minnesota limited partnership and AEI Income & Growth Fund 25 LLC a Delaware limited liability company (as tenants in common, together collectively referred to as "Assignee"); WITNESSETH, that: WHEREAS, on the 28th day of October, 2004, Assignor entered into a Purchase Agreement (referred to as the "Agreement") for that certain property located at 3960 Baldwin Road, Auburn Hills, Michigan (the "Property") with LMB Auburn Hills I, LLC, a Ohio limited liability company, as Seller; and WHEREAS, Assignor desires to assign to AEI Income & Growth Fund XXI Limited Partnership, an undivided forty percent (40.0%) interest as a tenant in common, and AEI Income & Growth Fund 25 LLC, an undivided sixty percent (60.0%) interest as a tenant in common, of its rights, title and interest in, to and under the Agreement as hereinafter provided; NOW, THEREFORE, for One Dollar ($1.00) and other good and valuable consideration, receipt of which is hereby acknowledged, it is hereby agreed between the parties as follows: 1. Assignor assigns all of its rights, title and interest in, to and under the Agreement to Assignee, to have and to hold the same unto the Assignee, its successors and assigns; 2. Assignee hereby assumes all rights, promises, covenants, conditions and obligations under the Agreement to be performed by the Assignor thereunder, and agrees to be bound for all of the obligations of Assignor under the Agreement. All other terms and conditions of the Agreement shall remain unchanged and continue in full force and effect. ASSIGNOR: AEI FUND MANAGEMENT, INC., a Minnesota corporation By: /s/ Robert P Johnson Robert P. Johnson, its President ASSIGNEE: AEI Income & Growth fund XXI Limited Partnership, a Minnesota limited partnership By: AEI Fund Management XXI, Inc., a Minnesota corporation, its General Partner By: /s/ Robert P Johnson Robert P. Johnson, its President AEI Income & Growth Fund 25 LLC, a Delaware limited liability company By: AEI Fund Management XXI, Inc., a Minnesota corporation, its managing member By: /s/ Robert P Johnson Robert P. Johnson, its President PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS THIS PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS (this "Agreement") is made and entered into effective as of this 28 day of October, 2004 (the "Effective Date") by and between LMB AUBURN HILLS I, LLC, a Ohio limited liability company ("Seller"), and AEI FUND MANAGEMENT, INC., a Minnesota corporation, or its successors or assigns (the "Buyer"). RECITALS: A. Seller is the owner of that certain parcel of real property located at 3960 Baldwin Road, Auburn Hills, MI 48326, as more particularly described on Exhibit A attached hereto (the "Land"); B. Constructed on the Land is a retail jewelry store known as "Jared-The Galleria of Jewelry" (the "Improvements") which is leased to Sterling Jewelers Inc., a Delaware corporation ("Lessee") pursuant to that certain lease agreement between Seller and Sterling Jewelers Inc. ( "Sterling"), a copy of which will be provided to Buyer within three (3) days after the Effective Date hereof and subjected to Buyer's approval prior to purchase. C. Seller desires to sell the Land and the Improvements (collectively, the "Property") to Buyer and Buyer desires to purchase the Property from Seller upon the terms and conditions set forth in this Agreement. TERMS AND CONDITIONS 1. AGREEMENT FOR PURCHASE AND SALE. Seller hereby agrees to sell the Property to Buyer, and Buyer hereby agrees to purchase the Property from Seller, in accordance with and subject to the terms and conditions of this Agreement. 2. PURCHASE PRICE. The purchase price for the Property will be Three Million Six Hundred Thousand Dollars ($3,600,000) (the "Purchase Price"). 3. PAYMENT. The Purchase Price shall be paid as follows: (a) Deposit. (1) DEPOSIT. Buyer will deposit the amount of Twenty-Five Thousand Dollars ($25,000) into escrow with First American Title Insurance Company of Minneapolis ("Escrow Holder") as Buyer's deposit (the "Deposit") within one (1) business day following the Effective Date. (2) RELEASE OF DEPOSIT. Upon Buyer's acceptance or waiver of Buyer's due diligence contingencies on or before the expiration of the Due Diligence Period, the Deposit will be non-refundable to Buyer except in the event of Seller's default, a material adverse change in the Due Diligence provided to Buyer, or except as otherwise set forth herein and Escrow Holder will release the Deposit to Seller, without any further written instructions from Buyer or Seller. Buyer and Seller agree to indemnify and hold Escrow Holder harmless from and against any loss (including, without limitation, reasonable attorneys' fees) arising out of or incurred in connection with the release of the Deposit to Seller. (3) CREDIT AGAINST PURCHASE PRICE. The amount of the Deposit will be applied to the Purchase Price at the Close of Escrow, but will be retained by Seller as its liquidated damages as provided in Section 12.2 if Escrow fails to close as a result of Buyer's default. (b) BALANCE DUE AT CLOSE. Not less than one (1) business day before the Close of Escrow, Buyer will deposit into escrow in immediately available Federal Funds an amount equal to the balance of the Purchase Price plus an amount sufficient to cover all of Buyer's closing costs. 4. BUYER'S DUE DILIGENCE. 4.1 DUE DILIGENCE PERIOD. The "Due Diligence Period" shall commence after Buyer's receipt of all items hereafter listed in 4.1(a) and (b) below and expire thirty (30) business days thereafter. (a) Seller will provide the following items Due Diligence for the Parcel in a form acceptable to Buyer in its sole discretion and at no cost to Buyer: (1) Current Phase I environmental report prepared by Eckland Consultants dated August 7, 1999. (2) Commitment for Owner's policy of title insurance from First American Title Insurance Company accompanied by underlying exception documents; (3) Current as-built ALTA survey in Seller's possession; (4) Building plans and specifications; (5) Copy of landlord's insurance policy for the Parcel; (6) Certificate of occupancy; (7) Proposed limited warranty deed for the Parcel; (8) Copy of 2003 and 2004 real estate tax statements for the Parcel; (9) Copy of the Lease by Sterling Jewelers, Inc.; (10) Copy of Temporary Driveway License Agreement; (11) Property Maintenance Manual; (12) Master Declaration of Easements and Restrictions. (b) Seller will also, without warranty as to accuracy of content, except as otherwise set forth herein, provide Buyer with complete copies of all studies, reports, agreements, documents, plans, permits and entitlements in Seller's possession concerning the Property, including, but not limited to, all engineering drawings, soils reports, site history investigations, toxic or hazardous materials investigations or reports, planning studies, construction warranties, and title reports in Seller's possession (collectively the "Reports"). (c) If any matters of adverse change or materially adverse information affecting the Due Diligence and the Reports ("Supplemental Due Diligence") shall come to the attention of Seller or Title, such Supplemental Due Diligence shall be forwarded to Buyer and Buyer shall have a minimum of five business days thereafter to review the same; the Due Diligence Period shall be extended, if necessary, to provide Buyer with such additional review period of five business days after receipt of such Supplemental Due Diligence. 4.2 EXPIRATION OF DUE DILIGENCE PERIOD. Buyer shall approve or disapprove, in writing, Buyer's due diligence on or before expiration of the Due Diligence Period. If Buyer disapproves Buyer's due diligence, in writing, on or before expiration of the Due Diligence Period, this Agreement shall terminate and Escrow Holder shall deliver to Buyer the Deposit and thereafter, neither Seller nor Buyer shall have any further obligation or liability under this Agreement, except for the Obligations Surviving Termination (as hereinafter defined). 5. DURATION OF ESCROW AND ESCROW INSTRUCTIONS. 5.1 JOINT ESCROW INSTRUCTIONS AND GENERAL CONDITIONS. This Agreement shall constitute both agreements between Buyer and Seller and joint escrow instructions to Escrow Holder. Escrow Holder's general conditions (the "General Conditions") attached hereto as Exhibit B are incorporated herein by reference to the extent they are not inconsistent with the provisions of this Agreement. If there is any inconsistency between the provisions of the General Conditions and this Agreement, the provisions of this Agreement shall control. If any provisions of this Agreement are unacceptable to Escrow Holder, or if Escrow Holder requires additional instructions, the Parties agree to make any deletions, substitutions and additions as counsel for the Parties shall mutually approve and which do not materially alter the terms of this Agreement. 5.2 CLOSE OF ESCROW. (a) CLOSING DATE. Unless the Parties agree upon an earlier closing date, Escrow shall close January 2, 2005 (the "Closing Date"), subject to Seller satisfying all of its obligations herein. (b) CLOSE OF ESCROW DEFINED. "Close of Escrow" will have occurred when Escrow Holder records a limited warranty deed (as defined below) transferring the Property. 6. TITLE EXAMINATION. 6.1 PROCUREMENT OF TITLE COMMITMENT. As soon as possible after the Effective Date, Buyer shall, at its expense, obtain a current title commitment covering the Property (the "Title Commitment") issued by Escrow Holder, naming Buyer as proposed insured, in the amount of the Purchase Price, together with legible copies of all documents described in the Title Commitment. 6.2 TITLE EXCEPTIONS. On or before expiration of the Due Diligence Period, Buyer may give written notice to Seller of any objections Buyer may have with respect to any conditions affecting the Property or as disclosed by the Title Commitment (the "Title Objections"). If Buyer fails to give any such notice with respect to any specific matters disclosed in the Title Commitment on or before expiration of the Due Diligence Period, then Buyer shall be deemed to have waived any Title Objections with respect to all such matters as to which no objection is made and any such matter shall be deemed a "Permitted Exception". Any title matters arising subsequent to the date of the provided Title Commitment may be reviewed by Buyer and Buyer shall have at least five business days to review the same; if necessary, the Due Diligence Period shall be extended to provide Buyer with at least five business days to review any such supplemental matters. Any such extension of the Due Diligence Period shall also extend, by like number of days, the Response Period and Title Election Deadline as defined below. 6.3 FAILURE TO CORRECT TITLE OBJECTIONS. Except as hereinafter expressly provided in this Section 6.3, Seller shall have no obligation whatsoever to remove, satisfy, or otherwise cure, or to incur any expense in connection with the curing of any Title Objections of which Seller is notified by Buyer in accordance with Section 6.2. Seller shall notify Buyer within ten (10) days after Seller's receipt of written notice from Buyer of any Title Objections (the "Response Period") whether or not Seller agrees to take action to cause such Title Objections to be cured on or before the Closing Date although Seller shall not otherwise have any obligation to take any action to cure any Title Objections other than to release liens evidenced by mortgages, deeds of trust, financing statements, security interests and similar security instruments created by Seller (such instruments are collectively referred to herein as the "Secured Encumbrances"). Buyer acknowledges that a Title Objection shall be deemed cured if Escrow Holder agrees to issue its policy of title insurance with respect to the Property to Buyer without exception to such Title Objection. If Seller expressly agrees in writing to take action to cure any of such Title Objections pursuant to Buyer's notice, then Seller shall have assumed the obligation to take action to cure only such Title Objections as expressly set forth by Seller, but not other Title Objections, on or before the Closing Date. If Seller does not notify Buyer within the Response Period that it has agreed in writing to take action to cure Buyer's Title Objections, or if Seller thereafter fails to take any action to cure on or before the Closing Date any Title Objections made by Buyer pursuant to Section 6.2 in accordance with Seller's written agreement to take such action (which Closing Date shall, at Buyer's election, be extended for up to fifteen (15) additional days), Buyer may, as its sole remedy, elect by written notice to Seller on or before fifteen (15) days after the end of the Response Period (the "Title Election Deadline"), to do one of the following: 6.3.1 To waive any such Title Objection (thereby making such Title Objection a "Permitted Exception") and to close the transaction in accordance with the terms of this Agreement without reduction of the Purchase Price; or 6.3.2 To terminate this Agreement, and in the event of such termination, Escrow Holder shall deliver to Buyer the Deposit and thereafter, neither Seller nor Buyer shall have any further obligation or liability under this Agreement except for Seller's indemnification obligations under Section 11.2 of this Agreement (as limited by Section 27 of this Agreement) and Buyer's Indemnity Obligations under Sections 9.2 and 11.2 (collectively, the "Obligations Surviving Termination"). If Buyer fails to elect either option under this Section 6.3 on or before the Title Election Deadline, Buyer shall be deemed to have elected to waive such Title Objection(s) and to close the transaction in accordance with the terms of this Agreement as provided in Section 6.3.1 hereof. 7. FINANCING CONTINGENCY. [Intentionally Omitted] 8. REPRESENTATIONS. 8.1 SELLER'S REPRESENTATIONS. As an inducement to Buyer to enter into this Agreement, Seller warrants, covenants and represents to Buyer, which representations shall be deemed to be true and correct as of the Closing unless Seller shall have notified Buyer to the contrary, and which warranties, covenants and representations shall survive closing for a period of one (1) year, as follows: 8.1.1 AUTHORITY. Seller is a limited liability company duly organized, validly existing and in good standing under the laws of its state of formation and has the right, power, and authority to enter into this Agreement and the right, power, and authority to convey the Property in accordance with the terms and conditions of this Agreement. 8.1.2 ENVIRONMENTAL. To the best of Seller's Actual Knowledge (as defined below) as of the date hereof, no hazardous materials are present on the Property at levels that require removal, remediation or other corrective action under applicable laws, ordinances, rules and regulations in effect and applicable to the Property on such date. For purposes of this Agreement, "Seller's Actual Knowledge" shall mean the actual (as opposed to constructive) knowledge of Lloyd Bernstein, but without his independent investigation. Seller represents that such individuals are privy to and hold such position within Seller as to be familiar with the factual circumstances, if the same might exist, for which knowledge may be imputed under commercially reasonable circumstances, upon such matters as Seller may represent to its actual knowledge in this Agreement. 8.1.3. PROPERTY AND STERLING MATTERS. To Seller's Actual Knowledge, the Property is not under threat of condemnation of eminent domain, is in substantially good repair and working order, all real estate taxes are current, and lessee has obtained all licenses, permits and certificates of occupancy necessary to conduct its business on the Property. To Seller's Actual Knowledge, lessee has not declared Seller in default under any term or provision of the Lease relating to Landlord's work or construction responsibilities, matters of zoning, title, or environmental concern, or any other matter, nor to the Seller's Actual Knowledge, has any event occurred that, with the passing of time, would constitute a default by Seller under the Lease, nor is lessee in material default under the Lease, and the Guaranty of Lease is still in full force and effect. 8.2 BUYER'S REPRESENTATIONS. As an inducement to Seller to enter into this Agreement, Buyer warrants and represents to Seller that AEI Fund Management, Inc. is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and has the right, power, and authority to enter into this Agreement and the right, power, and authority to purchase the Property in accordance with the terms and conditions of this Agreement. Buyer further acknowledges, represents and warrants to Seller that Buyer has the knowledge and experience in financial and business matters to enable Buyer to evaluate the merits and risks of the transaction contemplated by this Agreement, and that Buyer is not in a disparate bargaining position relative to Seller with respect to this Agreement. 8.3 NO FURTHER REPRESENTATIONS OR WARRANTIES. Buyer agrees that Buyer's election not to terminate this Agreement pursuant to Section 9.4 below shall constitute a representation by Buyer to Seller that Buyer has fully inspected the Property and agrees to purchase the Property wholly "as is, where is, with all faults", subject to Seller's representations in Sections 8.1 and 11.2 hereof. Buyer acknowledges that Seller has made no warranties or representations whatsoever pertaining to the Property, the condition thereof, the value thereof, or any other matter with respect to the Property that will survive the Closing, other than as may be contained in the documents to be delivered at Closing as provided in Section 10.1.1, the brokerage representation and indemnity set forth in Section 11.2, and the representations set forth in Section 8.1 above. 9. INSPECTIONS. 9.1 ACCESS. Buyer will conduct a site review and inspection of the Parcel prior to closing and approve or disapprove the Premises for purchase, in its sole discretion, during the Due Diligence Period. From the Effective Date, Buyer and its agents, shall have the right to enter upon the Property to inspect, examine, and study the physical integrity of the Property, which, in the opinion of Buyer, are necessary to determine the physical condition of the Property. Seller hereby agrees to cooperate with Buyer and its agents, in connection with such inspections. 9.2 INSURANCE AND INDEMNIFICATION. Buyer will (i) carry not less than One Million Dollars ($1,000,000.00) commercial general liability insurance with contractual liability endorsement naming Seller as an additional insured thereunder and insuring Buyer's Indemnity Obligations (as hereinafter defined) and, prior to the entering upon the Property, will provide Seller with written evidence of same, (ii) will not reveal to any third party not approved by Seller (other than Buyer's agents, employees, contractors, design professionals, and lenders) the results of its inspections, and (iii) will restore promptly any physical damage caused by the inspections. Buyer shall give Seller reasonable prior notice of its intention to conduct any inspections, and Seller reserves the right to have a representative present at such inspections. Buyer agrees to provide Seller with a copy of any inspection report upon Seller's written request. Buyer agrees to indemnify, defend, and hold Seller free and harmless from any loss, injury, damage, claim, lien, allegation, cost or expense, including attorneys' fees, arising out of a breach of the foregoing agreements by Buyer in connection with the inspection of the Property, or otherwise from the exercise by Buyer of the right of access under Section 9.1 (collectively, the "Buyer's Indemnity Obligations"). Any inspections shall be at Buyer's sole cost and expense. The provisions of this Section 9.2 shall survive Closing. 9.3 REPORTS. Within five (5) business days after the Effective Date, Seller will provide, if not previously provided, to Buyer all of the items listed in Section 4.1(a) above. Seller makes no representations or warranties as to the truth, accuracy or completeness of any materials, data or other information supplied to Buyer in connection with Buyer's inspection of the Property (e.g., that such materials are complete, accurate or the final version thereof, or that all such materials are in Seller's possession). To Seller's Actual Knowledge, such materials are not inaccurate. It is the parties' express understanding and agreement that such materials are provided only for Buyer's convenience in making its own examination of the Property, and, in doing so, Buyer shall rely exclusively on its own independent investigation and evaluation of every aspect of the Property and not on any materials supplied by Seller. Buyer expressly disclaims any intent to rely on any such materials provided to it by Seller in connection with its inspection, except to the extent otherwise represented, warranted and covenanted herein by Seller, and agrees that it shall rely solely on its own independently developed or verified information. 9.4 RIGHT TO TERMINATE. If, notwithstanding the Buyer's right to terminate pursuant to Section 9.1 herein, in the sole and absolute opinion of Buyer, the Property is not suitable or acceptable to Buyer for any reason or no reason, Buyer shall have the right at any time prior to 5:00 p.m. Pacific Time on the date which the Due Diligence Period expires, to terminate this Agreement by sending written notice of termination to Seller. In the event of termination pursuant to this Section 9.4, Escrow Holder shall, within two (2) business days after such written notice of termination, return the Deposit to Buyer, less one- half of the Escrow Holder's cancellation fees, and thereafter, neither Seller nor Buyer shall have any further obligation or liability under this Agreement except for Obligations Surviving Termination. If Buyer does not elect to terminate this Agreement as provided in this Section 9.4, Buyer shall be deemed to have waived its right to terminate this Agreement under this Section 9.4, and the Deposit shall be fully earned by Seller and non-refundable to Buyer, except as otherwise expressly provided in this Agreement. 10. THE CLOSING. 10.1 DELIVERIES AT CLOSING. The Closing shall occur as follows, subject to satisfaction of all of the terms and conditions of this Agreement: 10.1.1 Seller shall convey its interest in and to the Property to Buyer by depositing into Escrow a limited warranty deed (the "Deed"), which Deed shall convey fee simple title to the Property to Buyer, subject to the Permitted Exceptions. The Deed shall be expressly accepted by and binding upon Buyer, its successors and assigns and the Property from and after the Closing Date. 10.1.1.1 Such assignment, documents and other instruments and agreements, executed, witnessed and acknowledged in recordable form, as shall be reasonably required by Escrow Holder to release of record the Property from the Secured Encumbrances and all Title Objections which Seller has agreed to remove in accordance with the provisions of Section 6 above; 10.1.1.2 Such other documents, instruments, and agreements as are customarily executed and delivered at closing by sellers of real property in Auburn Hills, Michigan, including but not limited to a standard Seller's affidavit respecting mechanic's liens, and a FIRPTA Affidavit. 10.1.1.3 An Assignment and Assumption of Lease document providing, inter alia, that Seller has good and indefeasible title to the Lease free and clear of all liens and encumbrances except the Permitted Exceptions, and a mutual indemnification of Buyer and Seller, respectively, for lessor obligations under the Lease, pre and post closing, respectively. The form of said Assignment and Assumption Agreement shall be negotiated in good faith between the parties during the Due Diligence Period, and failure to agree on the form of the same shall be grounds for either party to terminate this Agreement. 10.1.1.4 An estoppel from lessee in the form attached hereto as Exhibit C, , dated no more than thirty (30) days prior to the closing. 10.2 CLOSING COSTS. Seller and Buyer shall respectively pay the following costs and expenses: 10.2.1 Seller shall pay half of all costs of closing, including but not limited to: transfer taxes, transfer fees, recording costs, and escrow fee. Seller shall pay any brokerage commissions as set forth in Section 11.1. Seller shall pay at closing up to but not exceeding $4,500 total for the following costs: an Owner's Policy of Title Insurance in favor of Buyer and one-half of the costs of any survey or environmental report update incurred by Buyer otherwise at Buyer's sole cost and expense. Seller shall be solely responsible for the fees and expenses of Seller's attorneys, or other legal costs. 10.2.2 Buyer shall pay half of all costs of closing as listed in Section 10.2.1 above, subject to Seller's contribution toward title, survey and environmental report costs as set forth therein, and excluding all brokerage commissions. Buyer shall be solely responsible for the fees and expenses of Buyer's attorneys, or other legal costs. 11. REAL ESTATE BROKERS. 11.1 COMMISSION. Seller shall be solely responsible for and pay at Closing all real estate commissions to any party claiming commission through Seller ("Seller's Broker") 11.2 REPRESENTATIONS AND INDEMNITY REGARDING BROKERS. Except as specifically set forth in Section 11.1, Seller and Buyer each represent and warrant to the other that neither has employed, retained, or consulted any broker, agent, or finder in carrying on the negotiations in connection with this Agreement or the purchase and sale referred to herein. Seller hereby indemnifies Buyer and agrees to hold Buyer harmless from and against any and all claims (and all expenses, including attorneys' fees incurred in defending any such claim or in enforcing this indemnity) for real estate commissions (including, without limitation, the said commission payable by Seller to Broker) or similar fees if such claims are made by an agent or broker claiming to have dealt with Seller. Buyer hereby indemnifies Seller and agrees to hold Seller harmless from and against any and all claims (and all expenses, including attorneys' fees incurred in defending any such claim or in enforcing this indemnity) for real estate commissions or similar fees if such claims are made by an agent or broker claiming to have dealt with Buyer. The indemnities contained in this Section 11.2 shall survive the Closing or any termination of this Agreement. 11.3 FAILURE TO CLOSE. Neither Seller nor Buyer shall have any liability to Brokers in the event the sale of the Property should fail to close for any reason whatsoever, including, without limitation, a default by Seller or Buyer. 12. DEFAULT. 12.1 SELLER'S DEFAULT. If the sale and purchase of the Property contemplated by this Agreement is not consummated on account of Seller's default, then Buyer retains all remedies available at law or equity in the event of default hereunder by Seller with respect to its obligation to sell the Property. 12.2 BUYER'S DEFAULT. If the sale and purchase of the Property as contemplated by this Agreement is not consummated because of Buyer's default, then Seller shall be entitled to unilaterally direct Escrow Holder in writing (with a copy to Buyer) to pay the Deposit to Seller. Buyer and Seller agree to indemnify and hold Escrow Holder harmless from and against any loss (including, without limitation, attorneys' fees) arising out of or incurred in connection with the release of the Deposit to Seller. Seller retains all remedies available at law or equity in the event of default hereunder by Buyer with respect to its obligation to purchase the Property. 13. NO RECORDING. The parties acknowledge that this Agreement is not in recordable form and agree not to record this Agreement. 14. DATE OF PERFORMANCE. If the time period or date by which any right, option, or election provided under this Agreement must be exercised, or by which any act required hereunder must be performed, or by which the Closing must be held, expires or occurs on a Saturday, Sunday, or legal or bank holiday, then such time period or date shall be automatically extended through the close of business on the next regularly scheduled business day. 15. GOVERNING LAW. This Agreement shall be construed, interpreted, and enforced in accordance with the internal laws of the State of Michigan, without regard to the principles of conflicts of law. 16. NOTICES. Any notices, requests, or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or courier without limitations (including an overnight courier service such as FedEx) or mailed by United States certified mail, return receipt requested, postage prepaid and addressed to each party at the address set forth below, or transmitted by facsimile to the facsimile number set forth below with confirmed receipt and hard copy sent within three (3) days thereof by one of the other approved methods of delivery. Any such notice, request, or other communication shall be considered given, delivered or received, as the case may be, on the date of hand or courier delivery or facsimile transmission or on the third (3rd) day following deposit in the United States mail as provided above. Rejection or other refusal to accept or inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice, request, or other communication. By giving at least five (5) days' prior written notice thereof, any party may from time to time and at any time change its mailing address or facsimile number hereunder. To Seller: LMB Auburn Hills I, LLC 2631 Erie Avenue, Suite 21 Cincinnati, Ohio 45208 Fax: (513) 321-3364 with a copy to: Thomas J. Sherman, Esq. Dinsmore & Shohl 1900 Chemed Center 255 E. Fifth Street Cincinnati, Ohio 45202 Fax: (513) 977-8575 To Buyer: AEI Fund Management, Inc. 1300 Wells Fargo Place 30 Seventh Street East St. Paul, Minnesota 55101 Attn: George J. Rerat and Jenn Schreiner Fax (651) 227-7705 with a copy to: Michael B. Daugherty, Esq. 1300 Wells Fargo Place 30 Seventh Street East St. Paul, Minnesota 55101 Fax: (612) 677-3181 Phone: (612) 720-0777 To Escrow Holder: First American Title Insurance Company Attn: Rod Ives 1900 Midwest Plaza West 801 Nicollet Mall Minneapolis, MN 55402 17. ENTIRE AGREEMENT; MODIFICATION. This Agreement supersedes all prior discussions and agreements between Seller and Buyer with respect to the Property and contains the sole and entire understanding between Seller and Buyer with respect thereto. All promises, inducements, offers, letters of intent, solicitations, agreements, commitments, representation, and warranties heretofore made between such parties with respect to the Property are merged into this Agreement. This Agreement shall not be modified or amended in any respect except by a written instrument executed by or on behalf of each of Buyer and Seller. 18. SURVIVAL OF COVENANTS. All covenants, representations, warranties, obligations and agreements contained in this Agreement shall survive the Close of Escrow and the delivery and recordation of all documents or instruments in connection therewith. Notwithstanding the foregoing, however, a Party's obligation to perform a certain act or take a certain action as required hereunder shall cease upon that Party's timely and proper performance thereof. 19. EXHIBITS. Each and every exhibit referred to or otherwise mentioned in this Agreement is attached to this Agreement and shall be construed to be made a part of this Agreement by such reference or other mention at each point at which such reference or other mention occurs, in the same manner and with the same effect as if each exhibit were set forth in full and at length every time it is referred to or otherwise mentioned. 20. CAPTIONS. All captions, headings, section and subsection numbers and letters, and other reference numbers or letters are solely for the purpose of convenience and shall not be deemed to supplement or limit the subject of such Sections or to be considered in their construction. 21. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall constitute an original and all of which when taken together shall constitute one and the same instrument. 22. WAIVER. Any condition or right of termination, cancellation, or rescission granted by this Agreement to Buyer or Seller may be waived by such party; provided, however, that no waiver shall be binding on a party hereto unless made expressly and in writing. 23. RIGHTS CUMULATIVE. Except as expressly limited by the terms of this Agreement, all rights, powers, and privileges conferred hereunder shall be cumulative and not restrictive of those given by law. 24. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure of the benefit of the parties hereto and their respective heirs, successors, and assigns. 25. ASSIGNMENT. Except as provided in paragraph 31 hereof, without the prior written consent of Seller, Buyer shall not assign, mortgage, pledge, or in any other way encumber or transfer any of Buyer's rights hereunder or any part thereof to any person, firm, partnership, corporation, or other entity by operation of law or otherwise; provided, however, Buyer may assign its rights hereunder to any person, corporation, partnership, limited liability company, or other entity, if the same controls Buyer, is controlled by Buyer or is under common control with Buyer. In the event of such permitted assignment, Buyer shall remain liable for Buyer's obligations under this Agreement. 26. TIME OF ESSENCE. Time is of the essence in the performance of each provision of this Agreement. 27. LIMITATION OF LIABILITY. Buyer (on behalf of itself, its direct and indirect partners, all persons or entities controlling, controlled by, or under common control with Buyer, and all officers, directors, employees, trustees, advisors, agents, shareholders, or contractors of any of the foregoing) agrees and acknowledges that the obligations of Seller under this Agreement do not constitute personal obligations of Seller, and that Buyer agrees that it will look solely to the interest of Seller in the Property and the proceeds thereof (including, without limitation, the Purchase Price) for satisfaction of any liability of Seller with respect to this Agreement, and will not seek recourse against any other assets of Seller, or the members of Seller, or their respective officers, directors, trustees, advisors, members, agents, shareholders, employees or contractors, or any of their personal assets, for such satisfaction. In addition, the obligations of the members of Seller to make capital contributions to Seller shall not constitute assets of Seller against which recourse may be sought for purposes hereof. Seller (on behalf of itself, its direct and indirect partners, all persons or entities controlling, controlled by, or under common control with Seller, and all officers, directors, employees, trustees, advisors, agents, shareholders, or contractors of any of the foregoing) agrees and acknowledges that the obligations of Buyer under this Agreement do not constitute personal obligations of the direct or indirect partners of Buyer or the members of Buyer or their respective officers, directors, trustees, advisors, members, agents, shareholders, employees, or contractors, and that Seller agrees that it will look solely to the interest of Buyer in the Property and the proceeds thereof and Buyer's assets for satisfaction of any liability of Buyer with respect to this Agreement, and will not seek recourse against any members of Buyer, or their respective officers, directors, trustees, advisors, members, agents, shareholders, employees or contractors, or any of their personal assets, for such satisfaction. In addition, the obligations of the members of Buyer to make capital contributions to Buyer shall not constitute assets of Buyer against which recourse may be sought for purposes hereof. The provisions of this Section 27 shall survive Closing. 28. SEVERABILITY. If any portion of this Agreement becomes illegal, null, void or against public policy, for any reason, or is held by any court of competent jurisdiction to be illegal, null, void or against public policy, the remaining portions of this Agreement shall not be affected thereby and shall remain in effect to the fullest extent permitted by law. 29. INTERPRETATION. No provision of this Agreement shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, drafted or dictated such provision. 30. ATTORNEY'S FEES. If Seller or Buyer shall engage an attorney in connection with any action or proceeding to enforce this Agreement, the prevailing party in such action or proceeding shall be entitled to recover its court costs including reasonable attorneys' fees, to the extent permitted by law. If different parties are the prevailing parties on different issues, the respective court costs and related attorneys' fees shall be apportioned in proportion to the value of the issues decided for or against the parties. 31. SECTION 1031 EXCHANGE. Notwithstanding any language in the contract to the contrary, either party may assign this contract and all his interests in and rights under it to other persons or corporations. Either Party may assign its interest in the contract therein for purposes of making a Like Kind Exchange pursuant to Section 1031 of the Internal Revenue Code, but makes no representation or warranty as to whether or not the transaction qualifies as such. 32. Buyer is aware the Seller intends to perform an IRC Section 1031 tax deferred exchange. Seller requests Buyer's cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, costs, liabilities, or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract by the Seller for such purposes subject to the terms hereof. IN WITNESS WHEREOF, the parties hereto have duly signed, sealed and delivered this Agreement as of the date first written above. SELLER: LMB AUBURN HILLS I, LLC a Ohio limited liability corporation By: /s/ Lloyd M Bernstein Name: Lloyd M Bernstein Title: Manager Date of Execution: 10/27/04 BUYER: AEI FUND MANAGEMENT, INC., a Minnesota corporation By: /s/ Robert P Johnson Name: Robert P Johnson Title: President Date of Execution: October 28, 2004 EX-10.26 4 aubrnls.txt ASSIGNMENT AND ASSUMPTION OF LEASE THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") made this 14th day of January, 2005, by and between LMB AUBURN HILLS I, LLC, an Ohio limited liability company ("Assignor"), having an address of 2631 Erie Avenue, Suite 21, Cincinnati, Ohio 45208, and AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP, a Minnesota limited partnership, and AEI INCOME & GROWTH FUND 25 LLC, a Delaware limited liability company (as tenants-in-common together collectively referred to as, "Assignee"), having an address of 1300 Wells Fargo Place, 30 Seventh Street East, St. Paul, Minnesota 55101. W I T N E S S E T H: WHEREAS, Assignor is the owner of certain real property located at 3960 Baldwin Road, Auburn Hills, Oakland County, Michigan (the "Property") as further described on Exhibit A attached hereto and made a part hereof; WHEREAS, Assignor has leased the Property to Sterling Jewelers Inc., a Delaware corporation ("Sterling"), pursuant to that certain Lease Agreement dated April 28, 1999 (hereinafter referred to as, the "Lease"); and WHEREAS, Assignor desires to assign its right, title and interest in and to the Lease to AEI Income & Growth Fund XXI Limited Partnership, an undivided forty percent (40%) interest as a tenant in common; and AEI Income & Growth Fund 25 LLC, an undivided sixty percent (60%) interest as a tenant in common, and Assignee desires to assume Assignor's right, title and interest in and to the Lease; NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each of the parties hereto, Assignor and Assignee do hereby agree as follows: 1. Assignment. Assignor hereby gives, grants, bargains, sells, conveys, transfers and sets over unto Assignee, its successors and assigns, as of the date first above written (the "Effective Date"), all of Assignor's right, title and interest in and to the Lease. 2. Acceptance of Assignment and Assumption. Assignee hereby accepts the foregoing assignment, and hereby assumes and agrees to be bound by and perform all of Assignor's obligations and liabilities to be performed and/or occurring under the Lease on or after the Effective Date, including, without limitation, the obligations for return of security deposits as provided in the Lease and/or required by law, and any and all obligations for any and all leasing commissions, brokerage fees and similar payments which become due and payable after the Effective Date, including, without limitation, any and all leasing commissions, brokerage fees and similar payments which become due and payable in connection with the exercise of any option or right under the Lease. 3. Indemnification. (a) Assignor hereby indemnifies Assignee, and agrees to defend and hold harmless Assignee from and against any and all liability, loss, damage and expense, including without limitation reasonable attorneys' fees, which Assignee may or shall incur under the Lease by reason of any failure or alleged failure of Assignor to have complied with or to have performed, before the Effective Date, the obligations of the landlord thereunder which were to be performed before the Effective Date. (b) Assignee hereby indemnifies Assignor, and agrees to defend and hold harmless Assignor from and against any and all liability, loss, damage and expense, including without limitation reasonable attorneys' fees, which Assignor may or shall incur under the Lease by reason of any failure or alleged failure of Assignee to comply with or perform, on or after the Effective Date, all the obligations of the landlord thereunder which are to be performed on or after the Effective Date. 4. Successors and Assigns. The terms and conditions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 5. Retained Rights. Assignee hereby agrees that Assignor may, at Assignor's election and expense, proceed at law or equity to collect any delinquent rents accruing under the Lease prior to the Effective Date. Assignor hereby agrees that Assignee shall have no obligation to collect any rent due prior to the Effective Date under the Lease; provided, however, that in the event Assignee is paid rent from a tenant that has delinquent rent accruing prior to the Effective Date, and such payment is in excess of current rent due and payable under the Lease and any collection costs incurred by Assignee to collect such rents, then Assignee agrees to pay such excess amount to Assignor as soon as reasonably practicable after the date of receipt by Assignee. 6. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. [The remainder of this page has been intentionally left blank. Signature pages to follow.] IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed on the day and year first set forth above. ASSIGNOR: LMB AUBURN HILLS I, LLC, an Ohio limited liability company By: /s/ Lloyd Bernstein Name: Lloyd Bernstein Title: Sole Member & President STATE OF OHIO ) ) ss. COUNTY OF HAMILTON ) The foregoing was acknowledged before me this 7th day of January, 2005, by Lloyd Bernstein, the Sole Member and President of LMB Auburn Hills I, LLC, an Ohio limited liability company, for himself and for LMB Auburn Hills I, LLC. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State of aforesaid, the day and year last above-written. /s/ Thomas Jay Sherman Notary Public [notary seal] ASSIGNEE: AEI INCOME & GROWTH FUND XXI LIMITED PARTNERHSIP, a Minnesota limited partnership By: AEI FUND MANAGEMENT XXI, INC., a Minnesota corporation, its General Partner By: /s/ Robert P Johnson Name: Robert P Johnson Title: President AEI INCOME & GROWTH FUND 25 LLC, a Delaware limited liability company By: AEI FUND MANAGEMENT XXI, INC., a Minnesota corporation, its Managing Member By: /s/ Robert P Johnson Name: Robert P Johnson Title: President STATE OF MINNESOTA ) ) ss. COUNTY OF RAMSEY ) The foregoing was acknowledged before me this 14th day of January 2005, by Robert P. Johnson, in his capacity as the President of AEI Fund Management XXI, Inc., a Minnesota corporation, the general partner of AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP, a Minnesota limited partnership, who acknowledged the execution of the foregoing instrument to be the voluntary act and deed of said corporation by authority of its board of directors on behalf of the corporation. IN TESTIMOMNY WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State aforesaid, the day and year first above written. /s/ Jennifer L Schreiner Notary Public [notary seal] STATE OF MINNESOTA ) ) ss. COUNTY OF RAMSEY ) The foregoing was acknowledged before me this 14th day of January, 2005, by Robert P. Johnson, in his capacity as the President of AEI Fund Management XXI, Inc., a Minnesota corporation, the Managing Member of AEI INCOME & GROWTH FUND 25 LLC, a Delaware limited liability company, who acknowledged the execution of the foregoing instrument to be the voluntary act and deed of said corporation. IN TESTIMOMNY WHEREOF, I have hereunto set my hand and affixed my official seal in the County and State aforesaid, the day and year first above written. /s/ Jennifer L Schreiner Notary Public My Commission Expires: 1/31/05 [notary seal] EXHIBIT A Real property in County of Oakland, State of Michigan, described as follows: Parcel 1: A part of the Northwest 1/4 of Section 5, town 3 north, range 10 east, City of Auburn Hills, Oakland County, Michigan, being more particularly described as: Commencing at the West 1/4 corner of said Section 5; thence North 85 degrees 35 minutes 59 seconds East, 1317.14 feet along the East-West 1/4 line of Section 5 to the Northwest corner of Lake Angelus Subdivision, as recorded in Liber 48, page 10 of Plats, Oakland County Records; thence North 85 degrees 40 minutes 31 seconds East, 106.07 feet along the North line of said Lake Angelus Subdivision and following the East-West 1/4 line to a point on the East line of Baldwin Road as widened; thence North 02 degrees 16 minutes 14 seconds West, 1038.22 feet along said East line to the point of beginning; thence continuing along said East line North 02 degrees 16 minutes 14 seconds West 145.35 feet; thence North 87 degrees 43 minutes 46 seconds East, 227.50 feet; thence South 02 degrees 16 minutes 14 seconds East, 151.95 feet; thence South 87 degrees 43 minutes 46 seconds West 205.50 feet; thence along a curve to the right 23.29 feet, said curve having a radius of 40.00 feet, central angle of 33 degrees 22 minutes 01 seconds and a long chord bearing of North 75 degrees 35 minutes 13 seconds West, 22.97 feet to the point of beginning, Parcel 2: Including the benefit of the easements set forth in the Master Declaration of Easements and Restrictions recorded in Liber 17340, page 136, Oakland County Records, as modified by (i) the First Amendment recorded in Liber 18559, page 572, Oakland County Records, and (ii) the Second Amendment recorded in Liber 19342, page 502, Oakland County Records. Parcel 3: Also, together with an easement for ingress and egress (shared drive) as disclosed in Warranty Deed recorded in Liber 20572, page 717, Oakland County Records. APN: 14-05-176-009 LEASE AGREEMENT This Lease Agreement is made and entered into as of the 29th day of April, 1999, by and between LMB Auburn Hills I, LLC, ("Landlord"), whose address for the purpose of this lease is 2631 Erie Avenue, Suite 21, Cincinnati, Ohio 45208, and Sterling Jewelers Inc. ("Tenant"), a Delaware corporation, whose address for the purpose of this Lease is 375 Ghent Road, Akron, Ohio 44333. RECITALS A. Landlord is the owner of or has the right to acquire certain premises pursuant to that certain Purchase and Sale Agreement between Landlord and Taubman Auburn Hills Associates Limited Partnership, a Delaware limited partnership ("Taubman") located in the City of Auburn Hills, State of Michigan consisting of approximately 35,000 square feet and more particularly described in Exhibit A hereto ("Premises"). B. Tenant desires to have Landlord construct on the Premises according to ; Tenant's specifications and in accordance with plans to be agreed to between Tenant and Landlord ("Approved Plans"), a building of approximately 5,800 square feet ("Building"). C. Landlord has agreed to pay for construction of the Premises and Building, including any enhancements of change orders requested by Tenant to the Approved Plans and tenant improvements within the Premises and Building according to the Approved Plans (the Building and such tenant improvements being hereafter collectively referred to as the "Improvements") in the sum of the Allowance. D. Tenant desires to have Landlord cause the construction of the Improvements and make payment for such construction only up to the amount of the Allowance. E. Tenant hereby acknowledges that it assumes all risks with respect to the correctness and adequacy for its need of the construction and Improvements based on the Approved Plans. F. The Tenant recognizes that this Lease is intended to be a triple net lease and .agrees to assume not only the obligations as set forth in the Lease Agreement, but all obligations with respect to the operation, maintenance, reconstruction and payment of any and all sums necessary to satisfy those conditions and any other conditions that may be imposed by any governmental agency, except to the extent set forth in this Lease. WITNESSETH In consideration of the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. PREMISES. Landlord does hereby demise and lease unto Tenant, and Tenant does lease and take from Landlord the Premises, the Building and the Improvements. Landlord and Tenant hereby acknowledge and agree that all rentals payable by Tenant under this Lease are not calculated on the basis of the square footage of the Premises or Building or number of parking spaces on the Premises, and amounts payable by Tenant under the Lease shall not be adjusted regardless of any deviations in actual square footage of the Premises or Building or number of parking spaces from the amounts set forth above. Landlord shall, at its sole cost and expense and out of its own funds which are not included in Exhibit B and which shall not be subject to recoupment under Section 5B or otherwise (hereinafter referred to as Non-Allowance Dollars"), obtain from Taubman, for the benefit of Tenant, a license for ingress and egress to Ring Road, and shall construct, at its sole cost and expense with Non- Allowance Dollars, a temporary access road across adjacent property to the east of the Premises (" Adjacent Property"), such license and temporary road to be continuing until such time as a permanent cross- access to Ring Road, across the Adjacent Property , has been constructed. 2. COMMENCEMENT OF TERM. The term of this Lease (the "Term ") shall commence on the date (the "Commencement Date") which is the earlier to occur of (a) the date of Tenant's opening of Tenant's business from the Premises to the public, or (b) ninety (90) days after Landlord's delivery of the Building to Tenant. The Commencement Date is contingent upon Landlord's attainment of any and all approvals, other than governmental approvals, which may be required pursuant to any third party agreement as to which Landlord is bound as a result of Landlord's ownership of the Premises. Landlord shall deliver the Premises no later than November 1, 1999. If Landlord cannot deliver the Premises by November 1, 1999 (which date shall be extended on a day-for-day basis to the extent of any delays in delivery resulting solely from the occurrence of any "Force Majeure Events," as defined herein below, and/or resulting from the acts or omissions of Tenant and/or any of its employees, agents, representatives and/or contractors), and Tenant has not opened for business from the Premises, Tenant may cancel this Lease on sixty (60) days written notice to Landlord, provided that if such delivery occurs within such sixty (60) day .period, such termination shall be nullified and this Lease shall continue in full force and effect. 3. TERM A. INITIAL TERM. The initial Term of this Lease shall commence on the Commencement Date and shall end at 11:59 p.m. on the last day of the calendar month, which includes the twentieth (20th) anniversary of the Commencement Date. B. OPTION TO RENEW. Provided Tenant is not in default in the performance of any of the material terms, covenants and conditions of this Lease, Tenant shall have the option to renew this Lease for two (2) successive five (5) year periods (collectively, the "Option Terms" and individually an "Option Term") commencing on the day following the end of the then applicable Term, upon all the applicable terms, covenants and conditions set forth herein, except that monthly Base Rent payable during each Option Term shall be ninety percent (90%) of the then fair market monthly rental value of the Premises as of the commencement of such Option Term, provided that in no event shall the Base Rent be adjusted as of the commencement of an Option Term to an amount less than the Base Rent in effect immediately prior to such Option Term. The fair market rental value of the Premises shall be determined by mutual consent of the Tenant and Landlord, provided, however, that if Tenant and Landlord fail to mutually agree upon the fair market rental value of the Premises, at or prior to nine months before the commencement of the Option Period, then Tenant and Landlord shall each select an M.A.I. Appraiser, and the two appraisers shall mutually select a third appraiser, each to make an independent determination of the fair market retail value of the Premises, utilizing the then current rental rates for similar properties within a five (5) mile radius of the subject property , and each to submit such determinations to Tenant and Landlord no later than six months prior to commencement of the Option Period. The fair market rental value shall be the average of the amounts submitted by each of the three (3) M.A.I. Appraisers, and such rate shall be the new base rental rate for the Option Period. Costs and expenses of the three appraisers shall be divided and paid equally as between Landlord and Tenant. Within ten (10) days after receipt of the fair market rental value, Tenant may elect to terminate its exercise of the option to extend by giving written notice to Landlord. The option to renew the Term pursuant hereto shall be conditioned upon Tenant's giving Landlord written notice of its election to renew not less than one (1) year prior to the expiration of the then applicable Term. Should Tenant fail to exercise the option to renew the Term hereof as hereinabove provided, Tenant shall have no right thereafter to renew the Term of this Lease. References in this Lease to tile "Term " shall be deemed to mean the initial Term of this Lease as extended by the Option Terms, as applicable. 4. RENT A. BASE RENT. Tenant agrees to pay to Landlord at the office of Landlord or at such other place as may be designated by Landlord for each month of the Term, monthly base rent ("Base Rent") as follows: Years Monthly Amount Annual Amount 1-5 $19,416.67 $233,000,00 6-10 $21,358.33 $256,300.00 11-15 $23,494.17 $281,930.00 16-20 $25,843.58 $310,123.00 Said Base Rent shall be payable monthly in advance on the first day of each calendar month without prior notice, demand, offset, abatement or deduction, except as specifically provided to the contrary in this Lease. Tenant shall pay prorated daily Base Rent for any portion of a month if the Commencement Date begins after the first day of the month. B. LATE FEE. If Tenant fails to pay when the same is due any Base Rent or Additional Rent, the unpaid amounts shall bear interest at the "Interest Rate" (as hereinafter defined) from the date the unpaid amount was initially due, to and including the date of payment. In addition, Tenant acknowledges that the late payment of any installment of Base Rent or Additional Rent will cause Landlord to incur certain costs and expenses, the exact amount of which are extremely difficult or impractical to fix. These costs and expenses may include, without limitation, administrative and collection costs and processing and accounting expenses. Accordingly, if any installment of Base Rent or Additional Rent is not received by Landlord from Tenant within ten (10) days after notice of nonpayment, Tenant shall immediately pay to Landlord a late charge (the "Late Charge") equal to three percent (3% ) of the delinquent amount. Landlord and Tenant agree that this late charge represents a reasonable estimate of the costs and expenses Landlord will incur and is fair compensation to Landlord for its loss suffered by reason of late payment by Tenant. Upon accrual, all such late charges shall be deemed Additional Rent. As used in this Lease, the "Interest Rate" shall mean the lesser of (i) the rate per annum equal to the prime rate of interest published in the Wall Street Journal from time to time as the base rate of corporate loans at large U .S. money center banks, plus two percent (2% ), or (ii) the maximum lawful rate. B. ADDITIONAL RENT. Except as specifically provided to the contrary in this Lease, any sums of money or charges to be paid by the Tenant pursuant to the provisions of any other sections of this Lease other than Base Rent shall be deemed to be" Additional Rent" whether or not so designated pursuant to this Lease and shall be payable without offset, abatement or deduction, except as specifically provided in this Lease. Tenant's obligation for payment of "Taxes" pursuant to Paragraph 7 below, "Landlord's Insurance Costs" pursuant to Paragraph 8 below, and "Landlord's Common Costs" pursuant to Paragraph 10B below are collectively referred to herein as "Tenant's Recurring Additional Rent". Tenant shall pay to Landlord or to applicable third party , as the case may be, Tenant's Recurring Additional Rent within ten (10) days after receipt of notice from Landlord or the applicable third party delivered to Tenant stating the amounts to be paid, together with a copy of the applicable invoice and/or statement requiring said payment to be made. Evidence of said payment shall be delivered by Tenant to Landlord at the same time said payment is made by Tenant. 5 COSTS OF CONSTRUCTION. A. ALLOWANCE Landlord shall pay for the construction of the Premises and Improvements in the aggregate amount ("Allowance"), without regard to specific line items of the Budget attached hereto as Exhibit B ("Budget"). Those line items on the Budget identified as "Hard Costs" shall be constructed pursuant to one or more construction contracts entered into between Landlord and its subcontractors. A copy of each such contract shall be provided to Tenant. Tenant shall have the right to approve all such contracts, which approval shall not be unreasonably withheld. Tenant's approval or disapproval, as the case may be, shall be delivered to Landlord within ten (10) days after receipt. Landlord's obligations with respect to the access road as provided in Section 1 and Utilities as provided in Section 9 shall be paid for by Landlord and shall not count towards the Allowance. B. EXPENSES IN EXCESS OF ALLOWANCE. To the extent landlord has complied with the notification provisions of this paragraph B, Tenant shall pay all expenses (except those expenses that are to be paid for by Landlord out of Non- Allowance Dollars) incurred by Landlord in connection with the construction of the Premises and Improvements, if any, which are in excess of the Allowance. (1) Tenant shall be obligated to pay any excess expenses identified on the Budget as "Hard Costs," only if Landlord has, not less than two (2) working days prior to incurring such expense, notified Tenant in writing ("Change Notice") of the reason for such increase and Tenant has failed to object as hereafter provided. (a) If within two (2) business days after receipt of a Change Notice Tenant gives to Landlord written notice of an objection to the increase referred to in the Change Notice ("Disapproval Notice"), Tenant and Landlord shall within forty-eight (48) hours thereafter meet and confer, whether by telephone or in person, for the purpose of resolving Tenant's disapproval. In the event Tenant and Landlord are not able to agree to the increase contained in the Change Notice, Landlord shall then have the option to either (i) not incur the expense set forth in the Change Notice, or (ii) incur the expense and submit the matter to arbitration in accordance with paragraph D of this Section 5. (b) The notification provisions and Tenant's right to object to an increase shall not apply to any unanticipated expense contemplated and governed by the terms of any Construction Contract or any change order which is less than Five Hundred Dollars ($500.00) in amount and which, in the reasonable judgment of Landlord, must be approved in the field, without sufficient time to give advance notice to Tenant, to avoid undue delays in construction or cost increases. (2) Tenant shall not be responsible for any expenses in excess of the Allowance which result from Landlord's failure to exercise such diligence in connection with the construction of the Premises as would be usually and customarily exercised by a real estate developer performing services similar to those provided by Landlord under this Lease Agreement. (3) In the event any Lender providing construction financing to Landlord in connection with the construction of the Premises and Improvements ("Lender") shall give written notice to Landlord that the Lender anticipates the total cost of construction of the Premises and Improvements will exceed the Allowance and that, as a condition of further funding of the construction, certain expenses set forth on the Budget must be paid for in full or in part by Landlord, such payment shall be deemed an expense in excess of the Allowance and Tenant shall be obligated to pay such amount. (4) Any excess expenses for which Tenant is obligated under this Section 5B shall be paid by Tenant to Landlord within thirty (30) calendar days after receipt by Tenant from Landlord of an invoice therefore. The invoice for any excess payment required pursuant to Section 5B(1) above shall be accompanied by a copy of each Change Notice to which such payment applies. The invoice for any excess payment required by Section 5B(3) above shall be accompanied by a copy of the written demand from the Lender . C. ALLOWANCE IN EXCESS OF ACTUAL EXPENSES. Upon completion of the construction of the Premises and Improvements, Landlord shall as soon as reasonably practicable determine the costs and expenses actually incurred by Landlord for construction of the Premises and Improvements ("Final Costs"). Landlord shall provide to Tenant a copy of its determination of Final Costs, in the Same format as the Budget, and shall make available for Tenant's review, all invoices, receipts, bids, orders, and other documentation evidencing the Final Costs. If the Final Costs are less than the Allowance, Landlord shall pay the difference to Tenant on the later to occur of: (i) fifteen (15) ..days after funding of permanent financing for the construction of the Premises and Improvements, or (ii) thirty (30) days after the Commencement Date. Provided, however, that if payment is not made by Landlord within thirty (30) days of the Commencement Date, said payment shall thereafter accrue interest for the benefit of Tenant at the then- existing "Prime Rate" published by the Wall Street Journal. D. DISPUTES. Landlord and Tenant agree that all disputes arising out of this Section 5 shall be decided by binding arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, unless the parties mutually agree otherwise. Notice of the demand for arbitration shall be filed in writing with the other party to this Lease and with the American Arbitration Association and may be made at any time by either party but not sooner than ten (10) calendar days after the party electing arbitration has given to the other party written notice setting forth the amount of payment acceptable to such noticing party ("Settlement Offer"). The award rendered by the arbitrator or arbitrators shall be final and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. The prevailing party in any such arbitration preceding shall be the party whose last written Settlement Offer given prior to commencement of the arbitration proceeding, was closest to the actual award. The prevailing party shall be entitled to recover from the other all costs of arbitration, including attorneys fees. 6. TENANT CONSTRUCTION AND ALTERATIONS. A. ALTERATIONS. Tenant, at Tenant's sole cost and expense, during the Term of this Lease, may make such nonstructural alterations, improvements and or additions (collectively, "Alterations") to the interior of the Premises it deems appropriate, provided that (i) the structural integrity of the Premises or Building shall not be affected or diminished; (ii) the value of the Premises or Building is not thereby diminished; (iii) the exterior appearance (including the store front) of the Premises and Building is not thereby materially altered or changed; and (iv) such Alterations are in compliance with Applicable Law. In all other instances except as provided hereinbelow in Paragraph 6B, Tenant shall secure prior written approval and consent of Landlord before making any Alterations, which consent shall not be unreasonably withheld by Landlord. At the time Landlord's approval of any Alterations is sought, Tenant shall submit to Landlord plans and specifications for such work, together with a statement of the estimated costs of such work. All such Alterations shall be completed in a good and workmanlike manner, diligently prosecuted to completion, with first-class materials, in accordance with all applicable federal, state and local laws, rules, regulations, codes, ordinances and other requirements (collectively, "Applicable Laws"), including, without limitation, Applicable Laws respecting access and use by disabled persons. Tenant shall make no Alterations whatsoever to the exterior of the Building or exterior portions of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Upon termination of this Lease, any Alterations made by Tenant shall remain a part of the Premises and be surrendered therewith. Notwithstanding whether prior written approval is required from Landlord with regard to any modifications that are to be made, Tenant shall provide notice of the nature of any and all material modifications or alterations made to the Premises or Tenant Improvements located thereon. B. INITIAL TENANT IMPROVEMENTS. Upon the date Landlord notifies Tenant of Landlord's delivery of possession of the Building to Tenant, Tenant may to the extent not already completed by Landlord, undertake the Improvements to the Premises which are required to adapt it to Tenant's use. Provided however, that such Improvements shall be in accordance with the Approved Plans and shall be in compliance with such Applicable Laws. Any and all change orders, which involve appearance or structural changes from the Approved Plans, shall require the approval of Landlord, which shall not be unreasonably withheld. If said approval, or disapproval which specifies the items and reasons for which Landlord is objecting, is not received by Tenant within five (5) business days after receipt of said changes by the Landlord, Tenant may deem the changes approved and proceed. Tenant shall be responsible for obtaining any and all permits required for the commencement of such construction and occupancy of the areas upon completion thereof. Tenant agrees that any and all construction will be done in a good and workmanlike manner, diligently prosecuted to completion, and in accordance with all Applicable Laws and the approved plans therefor. During the course of construction of the Tenant Improvements and any subsequent permitted Alterations pursuant to Paragraph 6A above, Tenant or its contractor shall maintain in effect a policy of "builder's all risk" insurance covering such work, in such form and amounts, and such other insurance, as may be reasonably required by Landlord. Following completion of the Tenant Improvements and any subsequent permitted Alterations pursuant to Paragraph 6A above, Tenant shall (i) record a notice of completion in accordance with Applicable Laws, if applicable, and (ii) deliver to Landlord a set of ''as built" plans and specifications for the Premises. Except for the negligent acts of Landlord, Tenant agrees to indemnify, defend and hold Landlord harmless from and against any loss, damage, claim, liability or expense (including, without limitation, attorneys' fees and expenses) whatsoever in connection with the performance of such Tenant Improvements or Alterations construction work and if Landlord shall be named as a party of any litigation brought as a result of any acts or omissions of Tenant relating to said construction, Tenant agrees to likewise indemnify, defend and hold harmless Landlord in such action and reimburse Landlord for all costs and expenses, including reasonable attorneys' fees and expenses, incurred by Landlord in connection therewith. C. LANDLORD'S INDEMNITY AND WARRANT. Landlord represents and warrants that to Landlord's actual knowledge as of the date of this Lease, the Premises does not contain any "Hazardous Substances" (as hereinafter defined) at such levels as would interfere with Tenant's operation of its business from the Premises for its intended use or as would constitute a violation of Applicable Laws. 7 TAXES AND ASSESSMENTS. Tenant shall pay prior to delinquency and show evidence of said payment, in accordance with Paragraph 4C above, and this Paragraph 7, any "Taxes and Assessments" (as hereinafter defined) accruing during the Term hereof with respect to the Premises (which for purposes of this Paragraph 7 shall be deemed to include the land of the Premises and the improvements located upon such land, including, without limitation, the Building). Any Taxes and Assessments payable for the partial tax years of the first and last Lease Years of the Term shall be prorated based on the ratio that the total number of days in such Lease Year bears to the total number of days in the tax year. As used herein, the term "Lease Year" shall be defined as each twelve (12) month period commencing on the Commencement Date and each anniversary of the Commencement Date, except that the last Lease Year shall end on the last day of the calendar month which includes the twentieth (20th) anniversary of the Commencement Date or the last day of the calendar month of any option period which is exercised by the Tenant in accordance with the terms of this Lease. As used herein, the term "Taxes and Assessments" shall include all general and/or special real property and improvement taxes, any for-in of assessment, reassessment, special assessment, license fee, license tax, business license tax, commercial-rental tax, in-lieu tax, possessory interest tax, levy , charge, penalty or similar imposition whatever or at all imposed by any authority having the power to tax, including any city , county, state or federal government, or any school, street, storm- drain, sidewalk, community-facility , park-and-ride, agricultural, lighting, drainage and other improvement or special assessment district thereof, or any agency or public body, upon or against the Premises and/or any legal or equitable interest of Landlord in the Premises, including but not limited to the following: (a) any assessment, reassessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally of, any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants (it being the intention of Tenant and Landlord that all such new and increased assessments, reassessments, taxes, fees, levies and charges and all similar assessments, reassessments, taxes, fees, levies and charges imposed now or hereafter be included within the definition of real property taxes for the purposes of this Lease); (b) any assessment, tax, fee, levy or charge allocable to or measured by the area of all or any part of the Premises or the rent payable with respect thereto; (c) any assessment, tax, fee, levy or charge upon leasing transactions involving Tenant with respect to all or any part of the Premises; (d) any assessment or reassessment related to any change of ownership, limited, however, to one (I) time per each ten (10) years of the herein Lease term, of any interest in the Premises or portion thereof held by Landlord or any addition or improvement to the Premises or a portion thereof, or any other assessment levied on the Premises and attributed to the Premises. Taxes and Assessments shall not include Landlord's federal, state or local income, franchise, inheritance or estate taxes. In addition to the foregoing, Tenant shall pay, prior to delinquency, all taxes, assessments, license fees and public charges levied, assessed or imposed upon its business operation, trade fixtures, merchandise and other personal property in, on or upon the Premises. Any tax bills, statements, or assessments for such taxes shall be forwarded by Landlord to Tenant, or Landlord shall cause the taxing agency or entity to send such tax bills,. statements, or assessments directly to Tenant and Tenant shall make payment of all amounts directly to the taxing agency or entity on or before the due date therefore. Notwithstanding the foregoing, if Tenant fails to make such payment on a timely basis, Landlord may make such payment and any interest or penalties due thereon. In such event, Tenant shall after written notice to Tenant of the amount paid by Landlord, reimburse Landlord for such amount on or before the due date for the next payment of Base Rent. The reimbursement amount shall be deemed additional rent payable by Tenant. 8. INSURANCE. A. LANDLORD'S INSURANCE. Tenant shall pay to Landlord within ten (10) days of receipt of a written demand from Landlord in accordance with Paragraph 4C above, and this Paragraph 8, all premiums for insurance maintained by the Landlord for the Premises and/or the Building or Tenant Improvements (collectively, "Landlord's Insurance Costs"). The insurance required to be maintained hereunder by the Landlord (the cost of which shall be included in Landlord's Insurance Costs) includes the following: (1) HAZARD INSURANCE. Insurance against loss or damage to the Building and other improvements upon the Premises by fire and extended coverage and from such other hazards may be covered by a form of "all-risk" insurance then in effect together with coverage of earthquake, hurricane, and flood, all in an amount sufficient to cover full replacement cost (without depreciation) of the Building and other improvements and to prevent any co-insurance provision from becoming effective, but in any event not less than ninety percent (90%) of the then insurable value of the Building and other improvements, and including insurance with respect to not less than twelve (12) months loss of rental income with respect to the Premises and other leasable area within the Building. Tenant shall be named as an additional insured under such policy, as and to the extent its interest may appear . (2) PUBLIC LIABILITY Commercial general liability insurance, on an" occurrence basis", against claims for personal injury, bodily injury, death, property damage and contractual liability covering the indemnity obligations of Landlord under this Lease, occurring in or about the Premises. Such insurance shall afford minimum protection of Two Million Dollars ($2,000,000.00) combined single limit. Tenant shall be named as additional insured under such policy, as and to the extent its interest may appear. (3) GENERAL. If by reason of changed economic conditions the insurance coverages and/or amounts referred to above become inadequate, as reasonably determined by the Landlord, the Landlord may obtain additional coverages and/or increase the amount of such insurance to such amount, as it deems proper. Certificates of Insurance shall be delivered to the Tenant upon request. Notwithstanding anything to the contrary contained herein, Landlord's obligation to carry insurance may be satisfied by coverage under a so-called blanket policy or policies of insurance; provided, however, that the coverage afforded thereunder will not be reduced or diminished and the requirements set forth in this Lease are otherwise satisfied by such blanket policy or policies. Provided further, that in the event of coverage under any such blanket policies, Landlord's Insurance Costs shall include a reasonable proration of the cost of such blanket policy. Notwithstanding the foregoing, Tenant shall have the right to provide such coverage as long as such coverage is acceptable to Landlord. B. TENANT'S INSURANCE. Tenant shall, at its sole cost, maintain in effect during the Term of this Lease the following insurance coverages. Prior to Tenant being able to elect the option to self insure under any of the provisions of this Paragraph B, Tenant shall submit to Landlord financial documentation which Landlord shall use to obtain an opinion by Landlord's own insurance experts to determine whether or not the Tenant has adequate net worth in order to be allowed to self insure. Tenant shall submit said financial information on an annual basis (or as reasonably required by Landlord but not to exceed once per year) for the purposes of determining Tenant's ability to self- insure the risks as provided for under this Paragraph 8B. (1) HAZARD INSURANCE. Insurance against loss or damage to Tenant's personal property and equipment upon the Premises by fire and extended coverage and from such other hazards as may be covered by a form of "all risk" insurance then in effect, all in an amount sufficient to cover full replacement cost (without depreciation) thereof and to prevent any co-insurance provision from becoming effective. Tenant shall have the right to self-insure the foregoing risk providing that at any time Tenant is self -insured, Tenant shall maintain a Standard & Poor's debt rating of 'BB' or higher . (2) PUBLIC LIABILITY Commercial general liability insurance, on an "occurrence basis", against claims for personal injury, bodily injury, death, property damage and contractual liability covering the indemnity obligations of Tenant under this Lease, occurring in or about the Premises. Such insurance shall afford minimum protection of Two Million Dollars ($2,000,000.00) combined single limit. Landlord and any lender or ground lessor to Landlord shall each be named as an additional insured under such liability policy. Tenant shall have the right to self-insure the foregoing risk. (3) WORKER'S COMPENSATION. Worker's compensation coverage in an amount adequate to comply with Applicable Laws; and employer's liability coverage with a limit of not less than One Million Dollars ($1,000,000.00), with waiver by Tenant's insurer of any right of subrogation against Landlord by reason of any payment pursuant to such coverage. Tenant shall have the right to self- insure the foregoing risk. (4) GENERAL. If by reason of changed economic conditions the insurance coverages and/or amounts referred to above become inadequate, as reasonably determined by the Landlord, the Landlord may require that Tenant obtain additional coverages and/or increase the amount of such insurance to an amount consistent with such changed economic conditions and consistent with other similarly situated retail tenants in the Auburn Hills area. All policies of insurance required of Tenant herein shall be issued by insurance companies with a general policy holder's rating of not less than" A " and a financial rating of not less than "VIII", as rated in the most current available "Standard & Poor's Rating Handbook", and which are qualified to do business in the state where the Premises is located. Tenant's policies of insurance pursuant hereto shall be written as primary policies, and not contributing with respect to any insurance maintained by Landlord. Certificates evidencing the insurance required to be maintained by Tenant pursuant hereto shall be delivered to Landlord prior to the Tenant's entry upon the Premises and thereafter not less than thirty (30) days prior to the expiration of the term of each policy. All policies of insurance maintained by Tenant must contain a provision that the company writing the policy will give to Landlord thirty (30) days' prior written notice of any cancellation or lapse or the effective date of any reduction in the amounts of insurance. Notwithstanding anything to the contrary contained herein, Tenant's obligation to carry insurance may be satisfied by coverage under a so-called blanket policy or policies of insurance, provided, however, that the coverage afforded thereunder will not be reduced or diminished and the requirements set forth in this Lease are otherwise satisfied by such blanket policy or policies. 9. UTILITIES. Landlord shall, at its sole cost and expense and out of Non- Allowance Dollars, obtain such utility easements from adjoining property owners and extend to the perimeter of the Premises, such utilities as may be necessary to provide the utility services required for the Premises. Tenant shall pay before delinquency all charges for water, gas, heat, electricity , power, telephone service, sanitary sewer (including cleaning), and other similar charges incurred by Tenant with respect to and during its lease of the Premises, including, without limitation, any hook-up or installation fees in connection therewith (not including Landlord's obligation to extend the proper utilities to the Premises). Landlord shall forward all bills, statements or assessments for utilities to Tenant or shall cause any such utility to send bills, statements or assessments directly to Tenant. Tenant shall make all payments directly to the utility .Any such amounts not timely paid by Tenant may be paid by Landlord plus any interest or penalty thereon. In such event, Tenant shall after written notice to Tenant of the amount paid by Landlord, reimburse Landlord for such amount on or before the due date for the next payment of Base Rent. The reimbursement amount shall be deemed additional rent payable by Tenant. 10. MAINTENANCE AND REPAIR OF PREMISES. A. TENANT'S OBLIGATIONS. It is understood and agreed that this is a triple net lease by which Tenant has the obligation to repair, replace and maintain in good order and condition the Premises and all Tenant Improvements to be constructed thereon during the term of the Lease without the obligation of Landlord to contribute any sums whatsoever towards compliance therewith. Tenant shall repair, replace and maintain in good order and condition the Premises, including without limitation except as covered by 10B below (I) all interior portions of the Premises and all property therein, (2) the Building foundation, roof, exterior walls and structural parts of the Building, (3) any and all automobile parking areas, access roads, truck loading area, delivery areas, walkways, landscaped areas, driveways and sidewalks within the Premises, and (4) the utility and mechanical systems serving the Building. Tenant's obligations pursuant hereto shall include, without limitation, maintenance, repair and replacement of Premises service facilities such as the wiring, plumbing, heating and air conditioning systems, all glass, including plate glass, exterior doors and automatic door operators, interior of Premises ceiling and walls (including painting or decorating), floors and floor covering, sewers and utility services which now are or hereafter may be located on the Premises. Tenant shall deliver to Landlord copies of all service contracts with respect to Tenant's performance of its maintenance and repair obligations pursuant hereto. ; B. LANDLORD'S COMMON COSTS. Tenant shall pay, in accordance with Paragraph 4C above, any costs or assessments required under or pursuant to the Master Declaration, as defined in paragraph 14A hereof and listed on Exhibit C hereto. Tenant hereby acknowledges that it will be bound by said Master Declaration and any recorded amendments thereto. Tenant shall review and approve said agreement(s) prior to Landlord's acquisition of the Premises. 11. TENANT'S ASSIGNMENT OR SUBLETTING A. Provided that Tenant is not then in default under any material term of this Lease, Tenant shall have the right, with Landlord's prior written consent which consent shall not be unreasonably withheld, to assign, sublet or otherwise transfer any interest in this Lease (collectively, any "assignment") or to sublet any portion of the Premises to any third party; except that Tenant may, without Landlord's prior written consent (but upon at least thirty (30) days prior written notice to Landlord), assign or sublease to (i) another operating entity licensed to use the applicable service mark of Tenant or any of its subsidiaries or affiliates in the state where the Premises is located, or (ii) to any other person or entity providing the use of the Premises by the subtenant or assignee would not violate Section 14 hereof or require Landlord's consent, as set forth in Exhibit D hereto. In the event of any assignment or subletting, the assignor Tenant shall remain liable for all rent payments due and for all covenants and obligations of "Tenant" under this Lease. B. Should Tenant desire to enter into an assignment or sublease requiring Landlord's consent, Tenant shall request, in writing, Landlord's consent to the proposed assignment or subletting at least ten (10) days before the intended effective date of the proposed assignment, which request shall include the following: (a) full particulars of the proposed assignment including its nature, effective date, terms and conditions; (b) a description of the identity , net worth and previous business experience of the proposed transferee; (c) a complete business plan prepared by the proposed transferee; and (d) any further information relevant to the proposed assignment which Landlord may reasonably request. C. Any assignment or subletting requiring the consent of Landlord pursuant to this Lease shall be evidenced by a written instrument, with Landlord's consent provisions in form and content reasonably satisfactory to Landlord and shall include an assumption of the obligations of Tenant by the assignee (or the obligations of Tenant allocable to the portion of the Premises to be subleased in the case of a subletting). Tenant shall reimburse Landlord for Landlord's reasonable attorneys' fees not to exceed Five Hundred Dollars ($500.00) per occurrence incurred in the processing of and documentation for, each such requested assignment or subletting, whether or not the assignment or subletting is consummated. D. The following terms and conditions shall apply to any ..subletting by Tenant of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (1) Tenant hereby assigns and transfers to Landlord all of Tenant's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Tenant, and Landlord may collect such rent arid income and apply same toward Tenant's monetary obligations under this Lease; provided, however, that until a material breach shall occur in the performance of Tenant's obligations under this Lease, Tenant may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Landlord shall not, by reason of this or any other assignment of such sublease to Landlord, nor by reason of the collection of the rents from a subtenant, be deemed liable to the subtenant for any failure of Tenant to perform and comply with any of Tenant's obligations to such subtenant under such sublease. Tenant hereby irrevocably authorizes and directs any such subtenant, upon receipt of a written affidavit from Landlord stating that a material breach exists in the performance of Tenant's monetary obligations under this Lease, to pay toLandlord the rents and other charges due and to become due under the sublease. The subtenant may rely upon any such affidavit and request from Landlord and may pay such rents and other charges to Landlord without any obligation or right to inquire as to whether such breach exists and notwithstanding any notice from or claim from Tenant to the contrary Tenant shall have no right or claim against said subtenant, or, until the breach has been cured, against Landlord, for any such rents and other charges so paid by said subtenant to Landlord For purposes of this Paragraph D(I) any non-payment by Tenant of an amount equal to One Thousand Dollars ($1000.00) or more shall constitute a "material breach" of this Lease. (2) In the event of a material breach by Tenant in the performance of its obligations under this Lease, Landlord, at its option and without any obligation to do so, may require any subtenant to attorn to Landlord, in which event Landlord shall undertake the obligations of the sublandlord under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Landlord shall not be liable for any prepaid rents or security deposit paid by such subtenant to Tenant or for any other prior defaults or breaches of Tenant as sublandlord under such sublease. 12. DAMAGE TO OR DESTRUCTION OF PREMISES If the Premises or an portions thereof are so damaged or destroyed by fire or other casualty so as to render the Premises in Tenant's reasonable determination unfit for occupancy, and the Premises cannot reasonably be repaired and restored within three hundred sixty five (365) calendar days from such damage, then Tenant shall have the right to terminate this Lease by giving written notice to Landlord within forty-five (45) days of such damage, in the event of which termination the proceeds of the "all risk" insurance policy with respect to the Premises and Building shall be paid to and be the sole property of Landlord, Notwithstanding the foregoing, if the Premises is materially damaged by casualty during the final twelve (12) months of the Term rendering the Premises untenantable, and the time required for the repair thereof is reasonably estimated to exceed ninety (90) days (or such shorter period as in then remaining in the Term), Landlord and Tenant each shall have the option to terminate this Lease by giving written notice to the other of the exercise option within forty-five(45) days after such casualty. In the event of any termination of this Lease pursuant to this Paragraph 12, Tenant shall be entitled to receive a prorated refund of any rent and other charges paid in advance. In the event this Lease is not terminated pursuant to the terms of this Paragraph 12 following any such casualty to the Premises, then Landlord shall repair and restore the Premises to the former condition just prior to the loss, and the insurance process shall be applied to such repairs and restoration. Landlord shall not be liable for the repair of any damage to Tenant's personal property or equipment, all of which shall be promptly repaired by tenant at Tenant' s sole cost following the substantial completion of repairs to the Premises by Landlord. From the date of such fire or casualty until the Premises are restored to tenantability in accordance with the provisions of this Paragraph 12 set forth above, Tenant's obligation for the payment of rent under this Lease shall be wholly or partially abated, based upon the portion of Premises rendered untenantable as a result of such casualty damage. Landlord and Tenant each waive the benefit of an Applicable Laws providing either party with any right to terminate this Lease in the event of casualty damage to the Premises, it being their agreement that the rights of termination set forth in this Lease as a result of casualty damage to the Premises shall be exclusive. Tenant shall advise Landlord within five (5) days of any such calamity of the nature of said damage or destruction and its request that Landlord make a claim to the insurance company carrying coverage for said damage or destruction, Tenant shall move forward as rapidly as possible for the purposes of repairing any such damage or destruction. 13. CONDEMNATION. A. COMPLETE TAKING. In the event that the whole of the Premises is taken for public or quasi-public purposes by the government of the United States, the State or City in which the Premises is located, or any government or power whatsoever, or by any corporation under the right of eminent domain, or should the whole of the Premises be condemned by any court, city , country, state or governmental authority or office, department or bureau of any city , country, state or of the United States (collectively, any "Taking"), then in any such event this Lease shall terminate as of the date title to the Premises vests in the condemning authority . For the purposes hereof, such date of vesting in the condemnor terminating this Lease shall operate as though it were the date originally intended by the parties for expiration of the tenancy created hereunder, and the rent reserved herein shall be adjusted in the light of the condemnation, so that Tenant shall pay rent to Landlord only up to the date of vesting in the condemnor. Any prepaid or advance rental or other amounts to be paid by Tenant under this Lease paid by Tenant to Landlord or third party for that part of the Term extending beyond the date on which the title vests in the condemnor shall be refunded within three (3) days after Landlord has received an award of just compensation from the condemning authority for the taking of the Premises, provided Tenant shall have duly performed all the covenants and conditions of this Lease by it to be performed. B. PARTIAL TAKING. In the event of any Taking which does not terminate this Lease as aforesaid: (i) Tenant's obligation for payment of Base Rent shall be reduced in the same proportion that the amount of floor area of the Premises taken bears to the floor area of the Premises immediately before such Taking, (ii) Landlord shall, to the extent of the condemnation award, at Landlord's own cost and expense, in the part of the Premises which is not taken, restore the Premises to as near its former condition as the circumstances will permit, and (iii) Tenant shall do likewise with respect to Tenant's personal property and equipment in the part of the Premises which is not taken. C. AWARD. Landlord and Tenant shall each have separate rights of damages against any public authority on account of any such Taking, whether for the whole or a part of the Premises, and it is expressly provided that neither party waives or forgoes any claim it inay have on behalf of the Taking of its property or leasehold value. Landlord and Tenant each waive the benefit of any Applicable Laws providing either party with any right to terminate this Lease in the event of condemnation or other Taking of the Premises, it being their agreement that the rights of termination set forth in this Lease as a result of condemnation or other Taking shall be exclusive. In the event that a separate award cannot be obtained then Tenant and Landlord will share proportionate to their loss said award. 14. PERMITTED USE. A. PERMITTED USE. Tenant shall use the Premises for any lawful purpose which does not violate the permitted uses defined in the Master Declaration of Easements and Restrictions dated June 11, 1997 and recorded in Oakland County, Michigan at Book 173401 Page 136 ("Master Declaration") and those restrictions on use described in Exhibit D (the restrictions contained in the Master Declaration and in Exhibit D being collectively referred to as the "Restriction on Use"). Tenant shall review and approve said Master Declaration prior to Landlord's purchasing the subject property. B. COMPLIANCE WITH LAWS. Subject to the terms and provisions of Section 14C below, Tenant shall at its sole cost comply with all Applicable Laws with respect to the Premises and Tenant's use and occupancy thereof, and Tenant shall, except as otherwise provided herein, at its sole cost, make any repairs, improvements or alterations to the Premises necessary throughout the Lease Term to cause the Premises to comply with all Applicable Laws. Tenant shall, at its expense, procure all governmental licenses and permits required for Tenant's use of Premises set forth herein and shall at all times comply with all requirements of each such license and permit. C. HAZARDOUS SUBSTANCES. Tenant covenants and agrees not to permit any "Hazardous Substances" to be placed, held, located (except in strict compliance with all applicable laws and regulations) or disposed of upon, or released upon, under or at the Premises, or any part thereof at any time during the term of this Lease. For purposes of this Lease, "Hazardous Substances" means and includes asbestos, petroleum products and any hazardous, toxic or dangerous waste, substance or material defined as such in, or for proposes of, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.) and so called "Superfund" or "Superfund" law, or any other federal, state, or local statute, law, ordinance, code, rule, regulation, order to decree regulating, relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect. Tenant does and shall indemnify Landlord and hold Landlord harmless from all loss, costs, claims, damages and expenses, including but not limited to reasonable attorney's fees, incurred by Landlord as a result of the presence, disposal, discharge or release of any Hazardous Materials on the Premises during the term of this Lease which is caused by Tenant, or Tenant's officers, employees, agents, contractors or sublessees, and the indemnity of Tenant in favor of Landlord contained in this Paragraph 14C shall survive the expiration or termination of this Lease for a period of five (5) years. Landlord does and shall indemnify Tenant and hold Tenant harmless from all loss costs, claims, damages and expenses, including but not limited to reasonable attorney's fees, incurred by Tenant as a result of the presence, disposal, discharge, or release of any Hazardous Materials on the Premises prior to Tenant taking possession of the subject premises or from any other cause except as provided in the immediately preceding paragraph, and the indemnity of Landlord in favor of Tenant contained in this paragraph shall survive the expiration or termination of this Lease for a period of . five (5) years. 15. COVENANT AGAINST MECHANIC'S LIEN. Tenant shall do all things reasonably necessary to prevent the filing of any mechanic's or other liens against the Premises, or the interest of any mortgages or holders of any deed of trust covering the Premises, by reason of any work, labor, services performed or any materials supplied or claimed to have been performed or supplied to Tenant, or anyone holding the Premises, or any part thereof, through or under Tenant. If any such lien shall at any time be filed, Tenant shall either cause the same to be vacated and canceled of record within thirty (30) days after the date of the filing thereof or if Tenant in good faith determines that such lien should be contested, Tenant shall furnish such security by surety bond or otherwise as may be necessary or be prescribed by law to release the same as a lien against the real property and to prevent any foreclosure of such lien during the pendency of such contest. If Tenant shall fail to vacate or release such lien in the manner and within the time period aforesaid, then, in addition to any other right or remedy of Landlord resulting from Tenant's said default, Landlord may, but shall not be obligated to vacate or release the same either by paying the amount claimed to be due or by procuring the release of such lien by giving security , or in such other manner as may be prescribed by law. Tenant shall repay to Landlord, on demand, all sums disbursed or deposited by Landlord pursuant to the foregoing provisions of this Paragraph, including Landlord's cost and expenses and reasonable attorneys' fees incurred in connection therewith. However, nothing contained herein shall imply any consent or agreement on the part of the Landlord, Landlord's mortgagees or holders of deeds of trust of the Premises to subject their respective estates or interest to liability under any mechanic's or other lien law, whether or not the performance or the furnishing of such work, labor, services or materials to Tenant or anyone holding the Premises, or any part thereof, through or under Tenant, shall have been consented to by Landlord and/or any of such parties. 16. FIXTURES AND MACHINE. It is mutually agreed that all personal property on the Premises, including merchandise of every kind, nature and description, furnishings, equipment trade fixtures and including any exterior signage placed at Tenant's expense on the Premises or Building and all other personal property hereafter placed or kept on the Premises by Tenant together with all trade fixtures (including, without limitation, removable electrical and mechanical equipment and Tenant Improvements and alterations made to said Premises pursuant to the provisions of Section 6 hereinabove), are and shall continue to be the sole property of the Tenant. However, all non--removable Tenant Improvements which become an intrinsic part of the building shall be upon installation, and shall continue to be during the Term, the $ole property of the Landlord and shall be surrendered by Tenant with the Premises upon the expiration of the Term or earlier termination of this Lease. Tenant shall promptly repair any damage to the Building resulting from removal of any of the above items by Tenant. 17 QUIET ENJOYMENT. Landlord covenants that, subject to satisfaction of the "Conditions Precedent" (as hereinafter defined), upon the Commencement Date, Landlord shall be the sole owner in fee simple of or has a leasehold interest in the Premises, shall have good and marketable title thereto, and shall have full right to lease the Premises for the Term, and that Tenant upon payment of rent and performing Tenant's obligations in this Lease may peaceably and quietly have, hold and enjoy the premises during the Term until the expiration thereof or earlier termination of this Lease, subject to the terms and conditions of this Lease. 18. SUBORDINATION. It is understood and agreed that Landlord from time to time may either seek to assign its interest in this Lease by sale of the Premises and Tenant Improvements, or may seek to finance said Premises and Tenant Improvements. In order to accommodate Landlord's requirement hereunder, Tenant agrees that it s all provide financial information to prospective purchasers or lenders in order to assist said purchaser or lender in making a decision to acquire or loan money against the Premises. Said financial information shall be provided within twenty (20) day's of written request to do so. Landlord agrees not to make any such request more o en than once per year. Landlord may assign its rights under this Lease as security, to the holders of one or more mortgages, trust deed, ground lease or other encumbrance now or hereafter in force against all or any part of the land or improvements constituting the Building. Upon the request of Landlord and thirty (30) days prior written notice, Tenant shall execute a commercially reasonable subordination agreement causing this Lease to be prior in interest to the lien of one or more mortgages, trust deed, ground lease or other encumbrance now in force against all or any part of the land and improvements constituting the Premises, and to all advances made or hereafter to be made upon the security thereof. Upon the request of Landlord and thirty (30) days prior written notice, Tenant will subordinate its rights hereunder to the lien of one or more mortgages, trust deed, ground lease or other encumbrance now or hereinafter force against all or any part of the land and improvements constituting the Premises, and to all advances made or hereafter to be made upon the security thereof, provided, however, that any such mortgage, deed of trust, ground 1ease or other security document shall provide that the secured party , in the event of its acquiring title to the Building whether through foreclosure, or judicial process or otherwise, shall recognize the validity of this Lease and shall honor the rights of Tenant hereunder so long as Tenant (a) is not in default under this Lease at the time such secured party acquired title to the Building, and (b) agrees to attorn to such mortgagee as if it were the original Landlord hereunder. Tenant agrees to enter into a subordination, non- disturbance and attornment agreement in commercially reasonable form with any such mortgagee, trust deed beneficiary , ground lessor or other lien holder upon Landlord's request, and so long as such agreement does not increase or expand the obligations and/or liabilities of Tenant as set forth in this Lease. Tenant agrees to execute any form of estoppel certificate or similar instrument in accordance with Section 23 below. 19. TENANT'S DEFAULT AND LANDLORD'S REMEDIES. A. TENANT'S DEFAULT. Tenant shall be in default under this Lease in the event of: (1) The failure by Tenant to make any payment of Base Rent, Additional Rent or any other monetary payment required to be made by Tenant hereunder, whether to Landlord or to a third party , as and when due, where such failure continues for a period of ten (10) days following written notice thereof by or on behalf of Landlord to Tenant; provided that any such notice of default shall be in lieu of, and not in addition to, any notice of default required by Applicable Laws. (2) The failure by Tenant to perform any other obligation under this Lease (except as provided in clause (1) above), where such failure continues for a period of thirty (30) days after written notice thereof by or on behalf of Landlord to Tenant; provided, however, that if the nature of such failure is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in Default hereunder if Tenant commences such cure within such thirty (30) day period and thereafter diligently prosecutes such cure to completion; provided, further, that any such notice of default shall be in lieu of, and not in addition to, any notice of default required by Applicable Laws. (3) The occurrence of any of the following events: (i) the making by Tenant of any general arrangement or assignment for the benefit of creditors; (ii) Tenant's becoming a "debtor" as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant,the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days, provided, however, in the event that any provision of this subparagraph (3) is contrary to any Applicable Law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. B. LANDLORD'S REMEDIES. (1) LANDLORD'S RIGHT TO TERMINATE LEASE. In the event of any default by Tenant, then in addition to any other remedies available to Landlord at law or in equity, including, without limitation, injunction, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event that Landlord shall elect so to terminate this Lease, then Landlord may recover from Tenant: (a) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (b) the worth at the time of award of the amount by which the unpaid rent would have been earned after termination until the time of award exceeds the fair market rental value of the Premises; plus (c) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the fair market rental value of the Premises; plus (d) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course would be likely to result therefrom; plus (e) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. The amounts recoverable by Landlord in accordance with and pursuant to the preceding sentence shall be denied actual damages for the purposes of this Paragraph B(1). The term "rent" as used herein shall be deemed to include Base Rent, Additional Rent and any other sums required to be paid by Tenant pursuant to the terms of this Lease. Landlord shall reasonably compute all such sums, other than the Base Rent, on the basis of the operating history of the Premises and the amounts payable by Tenant prior to default. As used in clause (a) and (b) above, the "worth at the time of award" is computed by allowing interest at the Interest Rate. As used in clause (c) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank having jurisdiction over the area of the Premises at the time of award plus two percent (2%). Amount owed by Tenant shall be limited to Landlord's actual damages. (2) LANDLORD'S RIGHT TO REENTER PREMISES. In the event of any default by Tenant, Landlord shall also have the right to reenter the Premises and remove all persons and property therefrom by summary proceedings or otherwise; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant or disposed of in a reasonable manner by Landlord. (3) RIGHT TO RECOVER RENTS OR RELET. In the event Landlord shall elect to reenter as provided in Paragraph 19B(2) above, or shall take possession of the Premises pursuant to legal proceedings or pursuant to any notice provided by law or hereunder, and if Landlord does not elect to terminate this Lease as provided by law, then Landlord may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. It is the intention of the parties that in addition to, and without limitation upon, all other rights and remedies set forth in this Lease, Landlord shall have the remedy of continuing the Lease in effect after Tenant's default and abandonment and recover rent and additional rent as it becomes due; provided, however, that notwithstanding the foregoing Landlord shall at all times have a duty to mitigate its damages. (4) APPLICATION FOR RENT. In the event that Landlord shall relet, then rentals received by Landlord from such reletting shall be applied first, to the payment of any amount due under this Lease, other than Base Rent due hereunder, owed by Tenant to Landlord; second to the payment of any cost of such reletting; third, to the payment of the cost of any alterations and repairs to the Premises; fourth, to the payment of Base Rent due and unpaid hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same may become due and payable hereunder; Should that portion of such rentals received from such reletting during any month, which is applied to the payment of rent hereunder, be less than the rent payable during that month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in such reletting, including but not limited to reasonable brokerage commissions, or in making alterations and repairs not covered by the rentals received from such reletting. (5) NO TERMINATION. No reentry or taking possession of the Premises by Landlord pursuant to this Paragraph 19B shall be construed as an election to terminate this Lease unless a written notice of such intention be given by Landlord to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Landlord may at any time after such reletting elect to terminate this Lease for any such default by Tenant. (6) RIGHTS AND REMEDIES CUMULATIVE. All rights and remedies of Landlord contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue anyone or all of such remedies or any other remedy or relief which may be provided at law or in equity , whether or not stated in this Lease. The expiration or termination of this Lease and/or the termination of Tenant's right to possession shall not relieve Tenant from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the Term hereof or by reason of Tenant's occupancy of the Premises. (7) LANDLORD'S RIGHT TO CURE DEFAULT AND SECURE COMPLIANCE. Landlord shall have the right, but shall not be so obligated, to elect to cure at any time, upon at least twenty (20) days prior written notice to Tenant (except in the event of a bona fide emergency, wherein reasonable telephonic notice shall be permitted), any default of Tenant under this Lease. Whenever Landlord so elects, Tenant shall immediately pay to Landlord upon demand, as Additional Rent, all costs and expenses thereby incurred by Landlord. In addition, Tenant shall pay to Landlord, as Additional Rent, all costs and attorneys' fees incurred by Landlord in enforcing against Tenant any covenant, condition or term of this Lease. 20. LANDLORD DEFAULT AND TENANT'S REMEDIES. Landlord shall not be in default hereunder unless Landlord fails to perform any of the covenants, provisions or conditions contained in this Lease on its part to be performed, or fails to cure the breach of any warranty made by Landlord hereunder, within thirty (30) days after written notice of default (or more than thirty (30) days shall be required because of the nature of the default, if Landlord shall fail to proceed diligently to cure the default after written notice). Except as otherwise specifically provided in this Lease, Tenant shall have no right to terminate this Lease or withhold rent in the event of default by Landlord hereunder and Tenant's remedy shall be limited to an action for damages, injunction or specific performance of this Lease. Notwithstanding the foregoing, in the event that Tenant obtains a judgment against Landlord for a default by Landlord hereunder, Tenant shall have the right to offset the amount of such judgment against the rent next coming due under this Lease, together with interest thereon at the Interest Rate until the judgment has been satisfied in full. If any part of the Premises is at any time subject to a first mortgage or a first deed of trust and this Lease or the rentals due from Tenant hereunder are assigned to a mortgagee, trustee or beneficiary (called" Assignee" for purposes of this Article 20 only) and Tenant is given written notice of the assignment, including the post office address of Assignee, then Tenant shall also give written notice of any default by Landlord to Assignee, specifying the default in reasonable detail and affording Assignee a reasonable opportunity to make performance for and on behalf of Landlord. If and when Assignee has made performance on behalf of Landlord, the default shall be deemed cured. 21. SIGNS. Tenant shall have the right to construct and install the exterior building sign(s) in accordance with the Plans and Specifications approved by the city, county or municipality in which the Premises is located. Tenant shall also have the right to display window and door signs in accordance with the corporate identity signage approved by the city , county or municipality in which the Premises is located. Upon the expiration of the Term or earlier termination of this Lease, Tenant shall, at Tenant's sole cost, remove all such signs from the Premises, and repair any damage to the Premises (including, without limitation, the Building facade) resulting from such removal. Tenant shall have the right to relocate the pole sign, at Tenant's sole cost, which currently exists on the Premises providing that such relocation complies with applicable law. 22. WAIVER OF SUBROGATION. Notwithstanding any provision to the contrary , Landlord and Tenant do hereby waive any and all right of recovery , claim, action or cause of action against the other, their respective agents and employees, for any loss or damage that may occur to the Premises, or any contents therein, by reason of fire, the elements or any other cause which could be insured against under the terms of a standard all risk insurance policy or policies, or for which Landlord or Tenant may be reimbursed as a result of insurance coverage effecting any loss suffered by either party hereto, regardless of the cause or origin, including the negligence of Landlord or Tenant, or their respective agents and employees. All insurance policies carried by either party covering the Premises, including but not limited to contents, fire and other casualty insurance, shall expressly waive any right on the part of the insurer against the other party for damage to or destruction of the Premises resulting from the acts or omissions of the other party .Any cost of any waiver shall be paid for by the Tenant. 23 ESTOPPEL CERTIFICATES. Tenant, from time to time upon twenty (20) days prior written notice from Landlord, agrees to execute, acknowledge and deliver to Landlord, in commercially reasonable form, a written statement certifying that Tenant has accepted the Premises, that this Lease is unmodified and in full force and effect or, if there have been modifications, that this Lease is in full force and effect as modified, setting forth the modifications, that Landlord is not in default hereunder , the date to which the rent and other amounts payable by Tenant have been paid in advance, if any. Tenant understands and agrees that any such statement delivered pursuant to this paragraph be relied upon by any prospective purchaser of the Building, any prospective mortgagee of the Building and their respective successors and assigns. Tenant's refusal to execute said document referenced above shall constitute a material default under this lease. 24. SURRENDER OF PREMISES AT END OF TERM. Tenant agrees that upon the termination of this Lease it will surrender, yield up and deliver the Premises in good and clean condition, except the effects of reasonable wear and tear and depreciation arising from lapse of time, or damage without fault or liability of Tenant, and Tenant shall remove its inventory , equipment, fixtures, furniture and other personal property as and to the extent provided in Section 16 above, and repair any damage to the Premises resulting from such removal. Any such inventory , equipment, furniture and/or other personal property which Tenant fails to so remove within three (3) days after expiration or termination of this Lease shall be presumed to be abandoned and shall thereupon be the property of Landlord and may be retained, stored or disposed of by Landlord at Tenant's cost. Nothing herein is to be construed to require or authorize Tenant to remove any property which has become a fixture of the Premises. 25. Landlord Entry A. Landlord reserves the right at all reasonable times during Tenant's business hours and upon prior reasonable notice to tenant (except in the event of emergency, in which case such right is exercisable by Landlord at any time without prior notice) by itself or its duly authorized agents, to go upon the and inspect the Premises and every part thereof and, to make such repairs, alterations and additions as Landlord is obligated to make to the Premises, provided, however, that Landlord shall not go upon or inspect the Premises unless a manager or assistant manager of Tenant is present. In exercising the foregoing right, Landlord shall not unreasonably interrupt or disrupt access to the Premises by Tenant, Tenant's employees, agents, invitees and customers. 26. PARAGRAPH TITLES. The titles of the various paragraphs of this Lease have been inserted as a matter of convenience and for reference only, and shall not be deemed in any manner to define, limit or describe the scope or intent of the particular paragraphs to which they refer or to affect the meaning or construction of the language contained in the body of such paragraphs. 27 SEVERABILITY. If any provision of this Lease shall be declared legally invalid or unenforceable, then the remaining provisions of this Lease nevertheless shall continue in full force and effect and shall be enforceable to the fullest extent permitted by law. 28. TIME OF ESSENCE. Time is of the essence of this Lease, and all provisions of this Lease relating to the time of performance of any obligation under this lease shall be strictly construed. 29 GOVERNING LAW. This Lease shall be governed by and construed in accordance with the laws of the state in which the Premises is located. 30. MULTIPLE COUNTERPARTS. This Lease may be executed in multiple counterparts, each of which shall be deemed to be an original for all purposes. 31. DEFINITIONS. References to this "Lease" shall include this instrument and any properly executed amendment thereof or supplement thereto. 32. WAIVERS. One or more waivers by Landlord or Tenant of a breach of any covenant or condition by the other of them shall not be construed as a waiver of the subsequent breach of the same covenant or condition, and the consent or approval by Landlord or Tenant to or of any act by either requiring the other's consent of approval shall not be deemed to waive or render unnecessary either party's consent to or approval of any subsequent similar act by the other party . 33 BINDING AGREEMENT. All rights and liabilities herein given to or imposed upon the respective parties hereto shall extend to and bind the respective heirs, executors, administrators, personal representatives, successors and assigns of such parties. No rights, however, shall inure to the benefit of any assigns of Tenant unless Landlord has approved the assignment thereof to such assignee in writing, if such approval is required by this Lease. 34. RECORDING. Tenant shall not record this Lease. Tenant may request, or, upon the request of Landlord or Landlord's ground lessor(s), mortgagee(s) or beneficiary(ies) under deed(s) of trust, shall execute and acknowledge a short form or memorandum of this Lease for recording purposes. Upon the expiration or earlier termination of this Lease for any reason, Tenant, within three (3) days after request by Landlord, shall deliver to Landlord a quitclaim deed conveying to Landlord all interest Tenant may have had under this Lease, and such other instruments as Landlord may reasonably request to evidence the same. 35. RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be deemed or construed by the parties hereto, or by any other party, to create the relationship of principal and agent, or of partnership or of joint venture, or of trustee and beneficiary , or of any other association between the parties hereto and neither the method of payment of any monies hereunder, nor any other provisions in this Lease, nor any acts of the parties hereto, shall be deemed to create any of the relationships set forth hereinabove. . 36. NOTICES. Any notices, statements, acknowledgments and consents required to be given by or on behalf of either party to the other shall be in writing and shall given by mailing such Registered or Certified Mail, or by private overnight courier service requiring a signed acknowledgment of delivery (such as Federal Express) addressed as follows: The Landlord at: LMB Auburn Hills I, LLC 2631 Erie Avenue, Suite 21 Cincinnati, Ohio 45208 If to the Tenant at:Sterling Jewelers Inc 375 Ghent Road Akron, Ohio 44333-4600 Fax Number: (330)668-5544 Attention: Richard W. Miller or at such other address as may be specified by such a notice from time to time. Any notice sent by registered or certified mail or courier service shall be deemed to have been served as of the date it is mailed or transmitted in accordance with the foregoing provisions; however, the time period in which a response to any such notice must be given, or in which action must commence or be taken, shall commence to run from the date of receipt by the addressee thereof as shown on the return receipt or acknowledgment of delivery for such notice. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of such notice as of the date of such rejection, refusal or inability to deliver. Notwithstanding anything to the contrary herein, Tenant may give facsimile notice of the need of emergency repairs, followed promptly by certified mail notice. 37 DELAYS IN PERFONNANCE. The performance by Landlord and Tenant of any of their respective obligations or undertakings provided for in this Lease, except the payment of rent or any other sums of money payable by either party under this Lease, shall be excused and no default shall be deemed to exist in the event and so long as the performance of any such obligation or undertaking is prevented, delayed, retarded or hindered by an act of God, fire, earthquake, flood, hurricane, explosion, action of the elements, war, riot, failure of transportation, strikes, lockouts, action of labor unions, condemnation, laws, orders of government or civil or military authorities, inability to procure labor, equipment, materials or supplies in the open market, or any other cause directly beyond the control of Landlord or Tenant, as the case may be, financial inability excepted (collectively, any "Force Majeure Event"). 38. INDEMNIFICATION. Landlord and Tenant agree to indemnify and defend each other against and to hold each other harmless from any and all claims or demands of any third party arising from or based upon any alleged act, omission or negligence of the indemnifying party or its contractors, concessionaires, licensees, agents, servants, invitees, employee~ or anyone else for whom the indemnifying party may be of alleged to be responsible, except to the extent that such matter is covered by insurance maintained by the party otherwise entitled to indemnification hereunder. In the event that either party shall without fault on its part be made a party to any litigation commenced by any third party against the other party, then such other party shall protect and hold the party harmless from and with respect to such litigation, and shall pay all costs, expenses and attorneys' fees incurred or paid by the party without fault in connection with such litigation, together with any judgments rendered against the party without fault. 39. CUMULATIVE RIGHTS. The rights, options, elections and remedies of both parties contained in this Lease shall be cumulative and may be exercised on one or more occasions and none of them shall be construed as excluding any other or any additional, right, priority or remedy allowed or provided by law. 40. HOLDOVER. In the event that Tenant remains in possession of the Premises after the termination of this Lease without the exercise of any option to extend the Term or wit1lout t1le execution of a new lease, then Tenant shall be deemed to be occupying the Premises as a tenant from month to month, subject to all of the conditions, provisions and obligations of this Lease but without the rights to extend the Term, except that the Base Rent for such holdover period shall be at one hundred and twenty-five percent (125%) of the Base Rent charged for the last year of the Term plus additional rent and all other amount$ owing pursuant to this Lease. Acceptance by Landlord of any Base Rent or Additional Rental after the expiration or earlier tem1ination of this Lease shall not constitute a consent to a hold over hereunder, constitute acceptance of Tenant as a tenant at sufferance or result in a renewal of this Lease. 41. BROKERS. Other than Pacific Realty Partners (and t1leir agents and affiliates), Landlord and Tenant hereby represent and warrant that they have not had any dealings with any realtors, brokers or agents in connection with the negotiation of this Lease (the "Brokers"). Each party shall indemnify, defend and hold harmless the other from any cost, expense or liability for any compensation, commission or charges claimed by any realtors, Brokers or agents other than Brokers claiming by, through or on behalf of the indemnifying party with respect to this Lease and/or the negotiation hereof, except that Landlord shall have sole responsibility .for any commission or charges claimed by Pacific Realty Partners (and their agents and affiliates). 42. TRANSFER OF LANDLORD'S INTEREST. Should Landlord sell, exchange or assign this Lease (other than a conditional assignment as security for a loan) and the transferee assumes in writing Landlord's obligations under this Lease, then Landlord, as transferor, shall be relieved of, and such transferee shall be liable for, any and all obligations on the part of Landlord accruing under this Lease from and after the date of the transfer . 43. ATTORNEYS' FEES. In the event that at any time after the date hereof either Landlord or Tenant shall institute any action of proceeding against the other relating to the provisions of this Lease, or any default hereunder, the party not prevailing in the action or proceeding shall reimburse the prevailing party for the reasonable expenses of attorneys' fees and all costs or disbursements incurred therein by the prevailing party including, without limitation, any fees, costs or disbursements incurred on any appeal from the action or proceeding. 44. CONDITIONS PRECEDENT. Notwithstanding anything to the contrary contained in this Lease, the performance by Landlord of its obligations under this Lease is contingent upon the following (collectively, the "Conditions Precedent") (a) Landlord's acquisition of the Premises on terms and conditions acceptable to Landlord in Landlord's sole discretion; and, (b) Landlord's obtaining of financing or other sources of capital in an amount adequate to pay the cost of acquisition of the Premises and Landlord's Contribution to the Tenant Improvements, upon such terms and conditions as are acceptable to Landlord in Landlord's sole discretion. If Landlord is unable to satisfy such Conditions Precedent by June 15, 1999, Landlord and Tenant shall each have the right to terminate this lease upon sixty (60) days' prior written notice to the other party , in which case this Lease shall terminate and neither party shall have any further or additional rights, remedies, claims or liability arising out of this lease or the termination of this lease; provided, however, that if Landlord is able to satisfy the unsatisfied Conditions Precedent within such sixty (60) day period following an election to terminate by Tenant pursuant hereto, such election to terminate shall be null and void and this lease shall continue in full force and effect. 45. NO OPERATINNG COVENANT. Anything contained in this lease, expressly or impliedly, to the contrary notwithstanding, and notwithstanding the agreement herein contained for the payment by Tenant of Rent as hereinbefore provided, it is specifically and expressly understood and agreed that Tenant shall be under no duty or obligation, either express or implied, to open, or thereafter to continuously conduct, its business in the Premises at any time during the Term. Further, Tenant's failure to open for business in the Premises shall not in any way be deemed an event of default under this lease nor shall such a failure otherwise entitle Landlord to commence or to maintain any action, suit, or proceeding, whether in law or in equity , relating in any way to Tenant's failure to open or thereafter to continuously conduct its business in the Premises, except as may be required per the declaration of restrictive covenants. 46. EXHIBITS AND SCHEDULES. The following exhibits and schedules are attached to this l..ease and incorporated herein by this reference. Exhibit A Legal Description of Premises Exhibit B Initial Budget Statement Exhibit C Master Declaration Exhibit D Restrictions on Use 47. The Recitals are incorporated herein by this reference. IN WITNESS WHEREOF t the parties hereto have executed this Lease as of the date first written above. TENANT: LANDLORD: Sterling Jewelerst Inc. LMB Auburn Hills I, LLC A Delaware Corporation /s/ Richard W Miller By: /s/ Lloyd M Bernstein RICHARD W. MILLER Lloyd M Bernstein, Manager Its: EXECUTIVE VICE PRESIOENT By: /s/ George S Frankovich Its: Secretary EXHIBIT A Legal Description A PART OF THE NORTHWEST 1/4 OF SECTION 5, T-3-N., R-10-E., CITY OF AUBURN HILLS, OAKLAND COUNTY, MICHIGAN, BEING MORE PARTICULARLY DESCRIBED AS: COMMENCING AT THE WEST 114 CORNER OF SAID SECTION 5; THENCE N. 85 35' 59" E., 1317.14 FEET ALONG THE EAST-WEST 114 LINE OF SECTION 5 TO THE NORTHWEST CORNER OF "LAKE ANGELUS SUBDIVISION", AS RECORDED IN LIBER 48, PAGE 10 OF PLATS, OAKLAND COUNTY RECORDS; THENCE N. 85 40'31"E., 106.07 FEET ALONG THE NORTH LINE OF SAID "LAKE ANGELUS SUBDIVISION" AND FOLLOWING THE EAST-WEST 114 LINE TO A POINT ON THE EAST LINE OF BALDWIN ROAD AS WIDENED; THENCE N. 02 ,18'14"W., 145.35 FEET; THENCE N. 87 43'46"E., 227.50 FEET; THENCE S. O2 16'14"E., 151.95 FEET; THENCE S. 87 43'46"W., 205.50 FEET; THENCE ALONG A CURVE TO THE RIGHT 23.29 FEET, SAID CURVE HAVING A RADIUS OF 40.00 FEET, CENTRAL ANGLE OF 33 22'01" AND A LONG CHORD BEARING OF N. 75 35'13"W., 22.97 FEET TO THE POINT OF BEGINNING AND CONTAINING 0.793 ACRES. g EX-10.27 5 carmaxpa.txt ASSIGNMENT OF AGREEMENT OF PURCHASE AND SALE THIS ASSIGNMENT made and entered into this 3rd day of March, 2005, by and between AEI FUND MANAGEMENT, INC., a Minnesota corporation, ("Assignor") and AEI Income & Growth Fund XXI Limited Partnership, a Minnesota limited partnership, AEI Income & Growth Fund 24 LLC, a Delaware limited liability company, AEI Income & Growth Fund 25 LLC, a Delaware limited liability company, and AEI Private Net Lease Millennium Fund Limited Partnership, a Minnesota limited partnership (as tenants in common, together collectively referred to as "Assignee"); WITNESSETH, that: WHEREAS, on the 3rd day of February, 2005, Assignor entered into a Agreement of Purchase and Sale (referred to as the "Agreement") for that certain property located at 1977 Thornton Road, Lithia Springs, Georgia (the "Property") with Silver Capital Net Lease Fund II, LLC, a Virginia limited liability company, as Seller; and WHEREAS, Assignor desires to assign to AEI Income & Growth Fund XXI Limited Partnership, an undivided twenty percent (20.0%) interest as a tenant in common, AEI Income & Growth Fund 24 LLC, an undivided fourteen percent (14.0%) interest as a tenant in common, AEI Income & Growth Fund 25 LLC, an undivided forty-five percent (45.0%) interest as a tenant in common, AEI Private Net Lease Millennium Fund Limited Partnership, an undivided twenty- one percent (21.0%) interest as a tenant in common, of its rights, title and interest in, to and under the Agreement as hereinafter provided; NOW, THEREFORE, for One Dollar ($1.00) and other good and valuable consideration, receipt of which is hereby acknowledged, it is hereby agreed between the parties as follows: 1. Assignor assigns all of its rights, title and interest in, to and under the Agreement to Assignee, to have and to hold the same unto the Assignee, its successors and assigns; 2. Assignee hereby assumes all rights, promises, covenants, conditions and obligations under the Agreement to be performed by the Assignor thereunder, and agrees to be bound for all of the obligations of Assignor under the Agreement. All other terms and conditions of the Agreement shall remain unchanged and continue in full force and effect. ASSIGNOR: AEI FUND MANAGEMENT, INC., a Minnesota corporation By: /s/ Robert P Johnson Robert P. Johnson, its President ASSIGNEE: AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP, a Minnesota limited partnership By: AEI Fund Management XXI, Inc., a Minnesota corporation, its General Partner By: /s/ Robert P Johnson Robert P. Johnson, its President AEI INCOME & GROWTH FUND 24 LLC, a Delaware limited liability company By: AEI Fund Management XXI, Inc., a Minnesota corporation, its Managing Member By: /s/ Robert P Johnson Robert P. Johnson, its President AEI INCOME & GROWTH FUND 25 LLC, a Delaware limited liability company By: AEI Fund Management XXI, Inc., a Minnesota corporation, its Managing Member By: /s/ Robert P Johnson Robert P. Johnson, its President AEI PRIVATE NET LEASE MILLINIUM FUND LIMITED PARTNERSHIP, a Minnesota limited partnership By: AEI Fund Management XVIII, Inc., a Minnesota corporation, its Managing Member By: /s/ Robert P Johnson Robert P. Johnson, its President Carmax/GA AGREEMENT OF PURCHASE AND SALE THIS AGREEMENT ("Agreement"), dated as of the 3rd day of February, 2005, by and between SILVER CAPITAL NET LEASE FUND II, LLC, a Virginia limited liability company ("Seller") and AEI FUND MANAGEMENT, INC., a Minnesota corporation ("Purchaser"), recites and provides: RECITALS Seller is the owner of a parcel of real property, with improvements thereon known generally as 1977 Thornton Road, Lithia Springs, Georgia 30122, currently leased to Car Max, such property being more particularly described on Exhibit "A" attached hereto (collectively, the "Property"). Seller wishes to sell and Purchaser wishes to purchase the Property on the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of their mutual promises hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto covenant and agree as follows: 1. RECITALS. The recitals above are incorporated herein by this reference as matters of contract, and not mere recital. 2. CONTRACT. This Agreement shall constitute a binding contract for the purchase and sale of the Property, on the terms and conditions set forth herein. 3. PROPERTY. The Property includes all of Seller's right, title and interest in and to all buildings and other improvements on or within the Property and all appurtenances thereto, including easements and covenants and Seller's right, title and interest in and to all leases of the Property (together with all rents, charges and other matters arising or otherwise accruing thereunder) (the "Leases"). 4. DEPOSIT. Upon execution hereof, Purchaser shall deposit the sum of $50,000 as a "Deposit", which will be held by LANDAMERICA TITLE INSURANCE COMPANY, Richmond, Virginia branch, as the "Escrow Agent" in escrow pending "Settlement". If this Agreement is timely terminated pursuant to any right contained herein, the Deposit shall be returned to Purchaser. The Deposit shall be applied to the Purchase Price at Settlement or shall be paid to Purchaser or Seller in accordance with the provisions of Section 6 and/or 16 below. If this Agreement is not terminated prior to expiration of the Feasibility Period, Purchaser shall deposit an additional $50,000 with Escrow Agent, increasing the Deposit to $100,000. 5. PURCHASE PRICE. The purchase price (the "Purchase Price") for the Property shall be Nine Million Three Hundred Twenty Thousand Dollars ($9,320,000.00). The Purchase Price shall be payable all in cash at settlement by wire transfer. 6. FEASIBILITY. (a) During the fifteen (15) business day period following the latest of the dates on which Purchaser and Seller have both executed this Agreement (the "Feasibility Period"), Purchaser, its agents, employees and contractors shall have the right to enter the Property for the purpose of inspecting improvements, making surveys, updating the due diligence materials previously delivered to Purchaser pursuant to 6(b) below, and performing other tests, studies and examinations as Purchaser, in its sole discretion, desires and to confirm the availability of financing, on terms and conditions acceptable to Purchaser. If Purchaser is not satisfied, in its sole discretion, with all aspects of the Property and the results of all tests and studies, and the availability of the specified financing, Purchaser shall have the right, upon written notice to Seller given prior to expiration of the Feasibility Period, to terminate this Agreement, in which event the Deposit shall be returned to Purchaser. (b) Purchaser acknowledges that Seller has delivered to Purchaser the materials listed on Exhibit B, and that all matters disclosed by such deliveries are acceptable to Purchaser and shall not be the basis for any objection hereunder. The matters of title and survey reflected in the materials already delivered to Purchaser are "Permitted Exceptions" deemed acceptable to Purchaser. Seller shall promptly deliver to Purchaser such other due diligence materials in Seller's possession as Purchaser may specifically identify in writing, excluding any materials of a proprietary nature, not relating to the condition or performance of the Property or the Tenant. All due diligence updates shall be at Purchaser's sole expense. (c) If notice of termination is not given prior to expiration of the Feasibility Period, all such matters shall be deemed acceptable and all such conditions satisfied and/or waived. (d) Purchaser agrees to repair any damage caused directly by exercise of the right of access granted to Purchaser in this paragraph, and to indemnify and hold the Seller harmless from any and all losses actually incurred as a direct result of the exercise of such right of access, other than as a result of the Seller's negligence or willful misconduct. Seller will cooperate and assist Purchaser's access to the buildings. 7. CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASER. This Agreement and all of Purchaser's obligations hereunder are further subject to satisfaction of the following conditions on or before Settlement: (a) SELLER'S REPRESENTATIONS AND DELIVERIES. All representations and warranties of Seller made herein shall be true and correct in all material respects as of the date of Settlement and Seller shall have taken all action and delivered all documents and materials required by this Agreement. (b) NO LITIGATION. As of Settlement, there shall be no litigation, proceeding or investigations pending, or to the knowledge of Purchaser or Seller threatened, which might prevent or adversely affect the use of the Property, or which questions the validity of any action taken or to be taken by Seller hereunder. (c) LEASE. Purchaser shall have received an Estoppel Certificate from the tenant under the Lease, such Estoppel Certificate to be in the form specified by the Lease, confirming that the Lease is in full force and effect, that there are no modifications or amendments, other than those provided to Purchaser, the amount of rent and any security deposit, that amounts due under the Lease are current and not prepaid and that Seller is not in default under the Lease. Purchaser must determine during the Feasibility Period if this form of Estoppel is satisfactory to Purchaser. In the event any of the foregoing conditions is not satisfied on the date of Settlement, then Purchaser, at its sole option, shall either: (i) waive such condition in writing and proceed to consummate Settlement; or (ii) terminate this Agreement by written notice to Seller, whereupon the Deposit shall be promptly repaid to Purchaser, subject to Purchaser's right to exercise its remedies hereunder in the event of a Seller default. Failure to select one of the foregoing on the date of Settlement shall constitute Purchaser's election not to terminate this Agreement and shall constitute waiver of all such conditions. 8. SETTLEMENT. (a) TIME AND PLACE. Unless this Agreement has been terminated as provided above, Seller and Purchaser shall make settlement on the sale and purchase of the Property in accordance with the terms hereof ("Settlement") on the date which is fifteen (15) business days after the expiration of the Feasibility Period (the "Settlement Date"), time being of the essence. Settlement shall take place at the offices of the Escrow Agent, or as mutually agreed by the parties. (b) PURCHASER'S DELIVERIES. At Settlement, the Purchaser shall pay the purchase price to Seller and shall execute and deliver an instrument providing for Purchaser's assumption of the Leases and Purchaser's indemnity of Seller with respect to all matters occurring under the Lease or with respect to the Property from and after the date of Settlement. (c) SELLER'S DELIVERIES. Seller shall deliver the following to Purchaser: (i) the Deed (as defined in paragraph 10); (ii) an affidavit as to mechanics' liens and parties in possession in customary form as reasonably required to cause owner's title policy to be issued without exception for Mechanics Liens or parties in possession (other than the Lease); (iii) a Certificate of Non-Foreign Status as required by Section 1445 of the Internal Revenue Code of 1986 and any other certificates required by any governmental authority or agency; (iv) an assignment of all of Seller's right, title and interest in the Leases; and (v) a written notice from Seller to the Tenant stating that the Property has been sold to Purchaser and directing Tenant to regard Purchaser as its Landlord and make rental payments payable to Purchaser at the address specified by Purchaser and set forth in such notice. (d) COSTS. The Seller shall pay the costs of preparing the Deed, the title insurance company's reasonable escrow settlement charges and any transfer taxes, stamps and recording charges on the Deed. The Purchaser shall pay for the examination of title to the Property, premiums charged by the title insurance company, and the cost of any updated survey, environmental report and other feasibility studies. Each party shall pay its own legal, accounting and other expenses incurred in connection with this Agreement or Settlement hereunder. It is the intent of the parties that Seller shall be entitled to all income for the period of time up to but not including the date of Settlement, and Purchaser shall be entitled to all income and shall be responsible for all expenses for the period of time from, after and including the date of Settlement. Such adjustments shall be shown on the Settlement Statement (with such supporting documentation as the parties hereto may require). Without limiting the generality of the foregoing, the items of income and expense allocated at Settlement shall include rent, maintenance charges, any other additional rent, real and personal property taxes, amounts due under contracts assigned to and assumed by Purchaser, if any, and utility charges, except for costs which the tenants under the Leases are responsible for, which shall not be prorated. In addition, any security deposit under the Leases shall be assigned and delivered to Purchaser at Settlement. For purposes of this Section, Settlement shall not be deemed to have occurred unless and until Seller's proceeds are received by Seller prior to 2:00 p.m. E.S.T. on such date. Settlement and any prorations shall be computed as of the following day in the event Seller's proceeds cannot be delivered by 2:00 p.m. EST on the date specified for Settlement. (e) POSSESSION. Subject only to the rights of the tenant under the Lease, possession of the Property shall be delivered to Purchaser immediately upon consummation of Settlement. (f) CLOSING DOCUMENTS. All closing documents to be executed and delivered by the parties pursuant hereto shall be in form, execution and substance as required herein. 9. TITLE AND SURVEY OBJECTIONS. The Purchaser shall have until expiration of the Feasibility Period to report to Seller in writing any survey or title defects or other objections regarding the Property that are disclosed by Purchaser's examinations, other than the Permitted Exceptions (as to which Purchaser has waived any objection), which, in Purchaser's sole discretion, materially adversely affect use of the Property as currently operated or make the title to the Property uninsurable or which impose restrictions on future use of the Property which are not acceptable to Purchaser. Seller shall have the right, but not the duty to cure any such title objections reported by Purchaser. If the Seller is unable or unwilling to cure objections to the Purchaser's satisfaction prior to Settlement then, notwithstanding anything herein to the contrary, the Purchaser shall, at its option, either (i) terminate this Agreement, in which event the Deposit shall be refunded; or (ii) waive such defects and proceed to Settlement, with no reduction in the Purchase Price; provided, however, that all mortgages, deeds of trusts and other monetary liens may be paid at Settlement, and the parties hereby authorize application of the Purchase Price proceeds to effect the same. If any additional matters of record are created after the date of the examination of title contemplated hereby, and prior to Settlement, Purchaser shall have the right to further delay Settlement a reasonable time to permit Seller to complete curative action. Any matters of title or survey not timely objected to by Purchaser or which are reported but not cured by Settlement shall be deemed waived. 10. THE DEED. At the time specified in paragraph 8 above for Settlement the Seller shall deliver to Purchaser a Special Warranty Deed (the "Deed") conveying fee simple title to the Property, described according to the applicable legal description attached hereto as Exhibit A, subject to all liens, encumbrances, conditions, restrictions and other matters of record, unless otherwise agreed in writing. 11. RISK OF LOSS. The risk of loss or damage to the Property by fire or other casualty prior to Settlement thereon shall be on the Seller. If such loss or damage is substantial, materially and adversely affects the Purchaser's intended use and enjoyment of the Property as of Settlement or gives rise to the right of the Tenant to terminate the Lease as a result of such casualty, the Purchaser shall have the option to (i) terminate this Agreement and have the Deposit refunded, in which event the parties hereto shall have no further obligations or liabilities to one another hereunder; or (ii) proceed to Settlement with an assignment of any right of Seller in and to the proceeds of insurance. 12. CONDEMNATION. If all or any portion of the Property is subject to actual or threatened taking pursuant to the power of eminent domain prior to Settlement, the Purchaser shall be entitled to elect either to (a) terminate this Agreement and have the Deposit refunded in which event the parties shall have no further obligations hereunder, or (b) proceed to Settlement, in which event, at Purchaser's Option all proceeds, awards and other payments arising from any such taking or sale shall be assigned and paid to the Purchaser. 13. COVENANTS. (a) SELLER'S COVENANTS. Seller covenants and agrees with Purchaser that, prior to Settlement: (i) Seller, as Landlord, shall not violate the provisions of the Lease and shall use reasonable efforts to cause Tenant to fully comply with the terms and provisions of the Lease. (ii) Seller shall continue to maintain all of Seller's existing insurance policies relating to the Property, or any part thereof, if any, in full force and effect until the Settlement has occurred, and shall cause Tenant to maintain all of Tenant's policies relating to the Property as required under the Lease. (iii) Seller shall provide Purchaser with a copy of any written notice hereafter received by Seller relating to any violations or alleged violations of any federal, state or municipal laws, ordinances, rules and regulations affecting the Property, or any pending or threatened actions, proceedings or claims affecting the Property. (iv) From and after the date hereof, Seller shall not (A) make or authorize to be made any alterations to the Property, (B) enter into any agreements, leases or undertakings with respect to the Property or any part thereof, (C) submit or file any applications with governmental authorities to change the zoning or the Property, or (D) record or consent to the recordation of any liens, mortgages, or encumbrances of any kind affecting the Property, except as would be discharged at Settlement, without the prior written consent of Purchaser. 14. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and warrants as of the date hereof that to the best of its actual knowledge without investigation: (a) REPAIRS. No governmental agency has served any written notice on the Seller regarding any repairs, alterations or corrections of any existing condition on the Property. (b) CONDEMNATION. There is no pending or threatened proceedings for condemnation or the exercise of the right of eminent domain as to any part of the Property or for the limiting or denying of any right of access thereto. (c) AUTHORIZATION AND EXECUTION. This Agreement has been duly authorized by all necessary action on the part of the Seller and has been duly executed and delivered by the Seller. Seller shall deliver to Purchaser, prior to Settlement, all organizational documents, resolutions, certificates and other materials reasonably required by Purchaser to confirm the foregoing. (d) HAZARDOUS MATERIALS. No hazardous materials, as hereinafter defined, are located on or about the Property nor has Seller used the Property for the storage, manufacture or disposal of hazardous materials. For the purposes of this Agreement, "hazardous materials" shall mean any "hazardous substance", "hazardous waste" and "hazardous material", as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1984, 42 U.S.C. Section 9601 et. seq., as amended, the Resource Conservation and Recovery Act of 1976, as amended, and the Hazardous and Solid Waste Amendment of 1984, as amended, the regulations adopted pursuant thereto and any other federal, state and local law, statute or ordinance or any court or administrative decree or any private agreement with any governmental authority pertaining to hazardous or toxic materials, substances, pollutants, contaminants or waste to Seller's knowledge. (e) LEASES. There are no leases, tenancies, licenses or other rights of occupancy or use for any portion of the Property other than the Lease, the Permitted Exceptions and title matters of record. Neither Tenant nor Seller is in default in performing its obligations under the Lease. (f) Seller has not entered into any agreements affecting the Property other than the Lease and other matters that would be revealed by inquiry and proper search of the land records and/or zoning and planning records in the local jurisdiction. Except for the foregoing representations, Seller makes no representations or warranties with respect to the Property and Purchaser acknowledges and agrees that the Property is being sold "AS IS, WHERE IS" and that Purchaser is relying on its own inspections, consultants and inquiries with respect to the Property, the Leases and all related matters. The "best of Seller's knowledge" as used herein shall be deemed to mean the actual knowledge, without investigation, of Marvin Bolinger and Dennis Weiss. 15. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and warrants as of the date hereof and shall be deemed to represent and warrant as of Settlement that: (a) ORGANIZATION Purchaser is a corporation duly organized and in good standing under the laws of Minnesota, and has qualified (or will be qualified) to do business in all jurisdictions in which such qualification is necessary to consummate the transactions described herein. (b) AUTHORIZATION AND EXECUTION. The execution, delivery and performance of this Agreement by Purchaser has been duly authorized by all necessary action, if any, as applicable, and has been duly executed and delivered by the Purchaser. This Agreement is enforceable against Purchaser in accordance with its terms and does not conflict with any indenture, operating agreement, bylaw, or any other agreement to which Purchaser is bound. The individual signing on behalf of Purchaser is authorized to act for and on behalf of and to bind Purchaser in connection with this Agreement. (c) AGREEMENTS. There is no agreement to which Purchaser is a party or, to Purchaser's knowledge, is binding on Purchaser, which adversely affects Purchaser's ability to perform its obligations under this Agreement. 16. DEFAULT. In the event of a default by Purchaser, Seller's sole and exclusive remedy, in lieu of all other remedies, shall be to retain the Deposit as liquidated damages, and Seller hereby specifically waives the right to seek specific performance of this Agreement by Purchaser. If Seller defaults hereunder, Purchaser may terminate this Agreement, in which event the Deposit shall be promptly refunded to Purchaser or Purchaser may seek specific performance of this Agreement as its sole remedy at law or in equity. 17. AGENTS AND BROKERS. Each party hereunder represents and warrants that it did not consult or deal with any broker or agent, real estate or otherwise, with regard to this Agreement or the transactions contemplated hereby, other than Progressive Properties who shall receive a commission, payable by Seller if and only if Closing occurs, equal to one percent (1%) of the Purchase Price. Each party hereto agrees to indemnify and hold harmless the other party from all liability, expense, loss, cost or damage, including reasonable attorneys' fees, that may arise by reason of any claim, demand or suit of any agent or broker arising out of facts constituting a breach of the foregoing representations and warranties. 18. NOTICES. Any notice, request or demand required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed sufficiently given if delivered by hand by messenger at the address of the intended recipient, sent prepaid by Federal Express (or a comparable guaranteed overnight delivery service), or deposited in the United States first class mail (registered or certified, postage prepaid, with return receipt requested), addressed as follows: For the Purchaser: c/o George Rerat Managing Director of Acquisitions 1300 Wells Fargo Place 30th Seventh Street East St. Paul, MN 55101 Fax No.: (651) 227-7705 Phone No.: (651) 227-7333 Copy to: Robert Johnson, President For the Seller: Silver Capital LLC Sabre Center II, Suite 600 6001 Broken Sound Parkway Boca Raton, FL 33487 Attn: Larry D. Silver Fax No.: (561) 997-1094 Phone No.: (561) 981-5252 with a copy to: Paul S. Elkin, Esquire Sabre Center II, Suite 600 6001 Broken Sound Parkway Boca Raton, FL 33487 Fax No.: (561) 997-1094 Phone No.: (561)-981-5252 with a copy to: John W. Steele, Esquire Hirschler Fleischer Post Office Box 500 Richmond, VA 23218 Fax No.: (804) 644-0957 Phone No.: (804) 771-9565 Notice may also be given by facsimile transmission, provided notice is also sent subsequently by one of the methods specified above. Notice shall be deemed given on the date of the receipt if delivered by hand or mail, one day after posting with FedEx or other comparable carrier or upon confirmed facsimile transmission to the party named therein at the applicable fax number above. 19. APPLICABLE LAW. This Agreement shall be construed, performed and enforced in accordance with the laws of the State of Georgia. 20. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire agreement between the parties hereto relating to the Property and supersedes all prior and contemporaneous negotiations, understandings and agreements, written or oral, between the parties hereto. This Agreement shall not be amended or modified and no waiver of any provision hereof shall be effective unless set forth in a written instrument executed with the same formality as this Agreement. 21. SURVIVAL. The provisions of this Agreement shall not survive Settlement hereunder and shall be deemed merged into the deed at Settlement. 22. TIME OF THE ESSENCE. The parties expressly acknowledge and agree that TIME IS OF THE ESSENCE with respect to each and every provision of this Agreement; provided, however, that if the final date of any period which is set out in any provision of this Agreement falls on a Saturday, Sunday or legal holiday under the laws of the United States, then such time period shall be extended to the next day which is not a Saturday, Sunday or legal holiday. 23. SEVERABILITY. In the event any one or more of the provisions contained in this Agreement are held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had not been contained herein. 24. CAPTIONS. Any paragraph headings or captions contained in this Agreement shall be for convenience of reference only and shall not affect the construction or interpretation of any provision of this Agreement. 25. COUNTERPARTS. Upon written notice to Seller, this Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. 26. TAX-FREE EXCHANGE. The parties acknowledges that Purchaser and/or Seller may wish to close this transaction as part of a tax-free exchange. The parties shall cooperate with the other and take any reasonable actions necessary, including the execution of appropriate documents, to assist the other so to acquire or sell the Property as part of a 1031 deferred exchange provided that: (a) neither party shall not be required to incur any liability or expense in connection with the others exchange; and (b) the exchange does not delay Settlement. 27. ASSIGNMENT. This Agreement shall not be assignable by Purchaser without Seller's prior written consent. No assignment by Purchaser shall relieve him of his obligations and liabilities hereunder. [SIGNATURE PAGE TO FOLLOW.] IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name pursuant to due authority as of the dates set forth below. PURCHASER: AEI FUND MANAGEMENT, INC., a Minnesota corporation By: /s/ Robert P Johnson Name: Robert P Johnson Title: President Date: Feb 3, 2005 SELLER: SILVER CAPITAL NET LEASE FUND II, LLC, a Virginia limited liability company By: SILVER CAPITAL MANAGER, LLC, a Virginia limited liability company, Its Manager By:/s/ Paul S Elkin Title: Member Date: 2-8-05 EXHIBIT A (1977 Thornton Road, Lithia Springs, Douglas County and Cobb County, Georgia) Legal Description: ALL THAT TRACT or parcel of land lying and being in Land Lots 421 and 482 of the 18th District of Douglas and Cobb Counties, Georgia, and being more particularly described as follows: COMMENCING at the intersection of the northerly right of way of Thornton Road (290 foot right of way) and the west line of Land Lot 482; thence south 50 degrees 55 minutes 15 seconds east for 41.76 feet, to a 1/2 inch rebar set, and the Point of Beginning; thence departing the right of way of Thornton Road, north 25 degrees 55 minutes 10 seconds east, for 1,140.63 feet, to a 1/2 rebar on the southerly bank of Carroll Creek; thence continuing along said line, north 25 degrees 55 minutes 10 seconds east, a distance of 11.52 feet, to the centerline of Carroll Creek; thence along the centerline of Carroll Creek the following bearing and distances: south 78 degrees 11 minutes 32 seconds east, for 56.74 feet; thence north 83 degrees 11 minutes 55 seconds east, for 184.43 feet; thence south 47 degrees 35 minutes 48 seconds east, for 342.71 feet; thence north 61 degrees 34 minutes 57 seconds east, for 46.11 feet; thence south 30 degrees 29 minutes 28 seconds east, for 159.12 feet; thence south 78 degrees 35 minutes 46 seconds east, for 229.72 feet, to the east line of Land Lot 421; thence departing the centerline of Carroll Creek and continuing along the easterly line of Land Lots 421 and 482, south 07 degrees 36 minutes 22 seconds west, for 22.76 feet, to a 1/2 inch rebar; thence south 07 degrees 36 minutes 22 seconds west, for 231.54 feet, to a metal fence post in concrete cut off at ground level; thence departing the easterly line of Land Lot 482, south 66 degrees 36 minutes 20 seconds west, for 1,286.85 feet, to a 1/2 inch rebar on the northerly right of way of Thornton Road (290 foot right of way); thence continuing along the northerly right of way of Thornton Road the following bearings and distances: north 48 degrees 41 minutes 08 seconds west, for 46.51 feet; thence north 49 degrees 46 minutes 25 seconds west, for 103.93 feet; thence north 50 degrees 55 minutes 15 seconds west, for 16.51 feet, to the Point of Beginning, containing 806,639 square feet, or 18.518 acres, more or less, as shown on ALTA/ACSM Land Title Survey for Silver Capital Net Lease Fund II, LLC, South Trust Bank and Chicago Title Insurance Company, made by Greenhorne & O'Mara, Inc. bearing the seal of Julian D. Grace, Ga. R.L.S. No. 2679, dated November 4, 2003. EX-10.28 6 carmaxls.txt This Instrument Prepared By: John W. Steele, Attorney At Law Hirschler Fleischer 701 E. Byrd Street Richmond, Virginia 23219 ASSIGNMENT AND ASSUMPTION OF LEASE This Assignment and Assumption of Lease, dated as of March 18, 2005, by and between SILVER CAPITAL NET LEASE FUND II, LLC, a Virginia limited liability company, having an address c/o Larry D. Silver, 6001 Broken Sound Parkway NW, Suite 600, Boca Raton, Florida 33487 ("Assignor") to AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP, a Minnesota limited partnership, as to an undivided twenty percent (20.0%) interest as a tenant in common, AEI INCOME & GROWTH FUND 24 LLC, a Delaware limited liability company, as to an undivided fourteen percent (14.0%) interest as a tenant in common, AEI INCOME & GROWTH FUND 25 LLC, a Delaware limited liability company, as to an undivided forty-five percent (45.0%) interest as a tenant in common, and AEI PRIVATE NET LEASE MILLENNIUM FUND LIMITED PARTNERSHIP, a Minnesota limited partnership, as to an undivided twenty-one percent (21.0%) interest as a tenant in common, having an address 30 East Seventh Street, Suite 1300, St. Paul, MN 55101 (collectively, "Assignee"). W I T N E S S E T H WHEREAS, CarMax, Inc., a Virginia corporation (collectively "Tenant") is the tenant under that certain lease, dated as of July 28, 2003 (as the same may have been modified, supplemented, amended or assigned, the "Lease"), between Wilmington Trust FSB, a federal savings bank, not in its individual capacity, but solely as co-trustee of the GECBAF Real Estate Trust 2002-O under Trust Agreement dated as of November 1, 2002, as amended ("Original Landlord") and Tenant, and pursuant to which Lease, Tenant leases that certain premises described on Exhibit A attached hereto and made a part hereof, in Lithia Springs, Georgia (the "Premises"); WHEREAS, a Memorandum of Lease was recorded on August 1, 2003, in Deed Book 13808, page 1851, in the Cobb County, Georgia records, and in Deed Book 1799, page 374, in the Douglas County, Georgia records; WHEREAS, the Lease was assigned to CarMax Auto Superstores, Inc., by Assignment of Lease dated July 28, 2003, as recorded on August 1, 2003, in Deed Book 13808, page 1855, in the Cobb County, Georgia records, and in Deed Book 1799, page 378, in the Douglas County, Georgia records; WHEREAS, Original Landlord conveyed the Premises to Assignor on November 21, 2003, and assigned the Lease to Assignor by Assignment and Assumption of Lease dated as of November 21, 2003, as recorded on December 8, 2003, in Deed Book 13898, page 1491, in the Cobb County, Georgia records, and in Deed Book 1881, page 613, in the Douglas County, Georgia records; WHEREAS, on this date, Assignor has conveyed the Premises to Assignee; and WHEREAS, in connection with Assignor's conveyance of the Premises to Assignee, Assignor desires to assign its interest in and to the Lease to Assignee and Assignee desires to assume Assignor's interest in and to the Lease. NOW THEREFORE, in consideration of Ten and 00/100 ($10.00) Dollars and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as of the date hereof (the "Effective Date"), as follows: 1. Effective on the date hereof, Assignor hereby assigns, sets over, conveys, delivers and transfers to Assignee all of Assignor's right, title and interest as landlord in and to the Lease. 2. Assignee hereby assumes and agrees to perform all of the terms, covenants and conditions of the Lease on the part of Assignor, as landlord, to be performed on and after the date hereof. 3. The Assignee hereby indemnifies and agrees to hold the Assignor harmless from all claims and liabilities incurred, including reasonable attorneys' fees, in connection with events or defaults occurring under the Lease from and after the Effective Date. The Assignor hereby indemnifies and agrees to hold the Assignee harmless from all claims and liabilities incurred, including reasonable attorneys' fees, in connection with events or default occurring under the Lease prior to the Effective Date. 4. This Assignment shall be construed in accordance with the laws of the State of Georgia. 5. This Assignment may be executed in any number of counterparts, each of which so executed shall be deemed original; such counterparts shall together constitute but one agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK - SIGNATURES APPEAR ON FOLLOWING PAGE] IN WITNESS WHEREOF, the parties have executed this Assignment as of the day and year first above written. Signed, delivered, and notarized ASSIGNOR: in the presence of: SILVER CAPITAL NET LEASE FUND II, LLC, a Virginia limited liability company /s/Patricia A Costa (SEAL) Signature of Unofficial By: SILVER CAPITAL MANAGER, LLC Witness a Virginia limited liabilty company its Manager /s/ Patricia A Costa (SEAL) By: /s/ Paul S Elkin Signature of Notary Public Paul S Elkin Executive Vice President [SEAL] My commission expires: Signed, delivered, and notarized ASSIGNEE: in the presence of: /s/ Linda A Bisdorf AEI INCOME & GROWTH FUND XXI Signature of Unofficial Witness LIMITED PARTNERSHIP, a Minnesota limited partnership /s/ Jennifer L Schreiner By: AEI Fund Management XXI, Inc., Signature of Notary Public its General Partner [SEAL] By: /s/ Robert P Johnson Robert P Johnson, its President My commission expires: Signed, delivered, and notarized ASSIGNEE: in the presence of: /s/ Linda A Bisdorf AEI INCOME & GROWTH FUND 24 LLC Signature of Unofficial Witness a Delaware limited liability company /s/ Jennifer L Schreiner By: AEI Fund Management XXI,Inc., Signature of Notary Public its Managing Member [SEAL] By: /s/ Robert P Johnson Robert P Johnson, its President My commission expires: Signed, delivered, and notarized ASSIGNEE: in the presence of: /s/ Linda A Bisdorf AEI INCOME & GROWTH FUND 25 LLC Signature of Unofficial Witness a Delaware limited liability company /s/ Jennifer L Schreiner By: AEI Fund Management XXI,Inc., Signature of Notary Public its Managing Member [SEAL] By: /s/ Robert P Johnson Robert P Johnson, its President My commission expires: Signed, delivered, and notarized ASSIGNEE: in the presence of: /s/ Linda A Bisdorf AEI PRIVATE NET LEASE MILLENNIUM Signature of Unofficial Witness FUND LIMITED PARTNERSHIP a Minnesota limited partnership /s/ Jennifer L Schreiner By: AEI Fund Management XVIII,Inc., Signature of Notary Public its Managing Member [SEAL] By: /s/ Robert P Johnson Robert P Johnson, its President My commission expires: EXHIBIT A (1977 Thornton Road, Lithia Springs, Douglas County and Cobb County, Georgia) Legal Description: ALLTHAT TRACT or parcel of land lying and being in Land Lots 421 and 482 of the 18th District of Douglas and Cobb Counties, Georgia, and being more particularly described as follows: COMMENCING at the intersection of the northerly right of way of Thornton Road (290 foot right of way) and the west line of Land Lot 482; thence south 50 degrees 55 minutes 15 seconds east for 41.76 feet, to a 1/2 inch rebar set, and the Point of Beginning: thence departing the right of way of Thornton Road, north 25 degrees 55 minutes 10 seconds east, for 1,140.63 feet, to a 1/2 rebar on the southerly bank of Carroll Creek; thence continuing along said line, north 25 degrees 55 minutes 10 seconds east, a distance of 11.52 feet, to the centerline of Carroll Creek; thence along the centerline of Carroll Creek the following bearing and distances: south 78 degrees 11 minutes 32 seconds east, for 56.74 feet; thence north 83 degrees 11 minutes 55 seconds east, for 184.43 feet; thence south 47 degrees 35 minutes 48 seconds east, for 342.71 feet; thence north 61 degrees 34 minutes 57 seconds east, for 46.11 feet; thence south 30 degrees 29 minutes 28 seconds east, for 159.12 feet; thence south 78 degrees 35 minutes 46 seconds east, for 229.72 feet, to the east line of Land Lot 421; thence departing the centerline of Carroll Creek and continuing along the easterly line of Land Lots 421 and 482, south 07 degrees 36 minutes 22 seconds west,for 22.76 feet,to a 1/2 inch rebar; thence south 07 degrees 36 minutes 22 seconds west, for 231.54 feet, to a metal fence post in concrete cut off at ground level; thence departing the easterly line of Land Lot 482, south 66 degrees 36 minutes 20 seconds west, for 1,286.85 feet, to a 1/2 inch rebar on the northerly right of way of Thornton Road (290 foot right of way); thence continuing along the northerly right of way of Thornton Road the following bearings and distances: north 48 degrees 41 minutes 08 seconds west, for 46.51 feet; thence north 49 degrees 46 minutes 25 seconds west, for 103.93 feet; thence north 50 degrees 55 minutes 15 seconds west, for 16.51 feet, to the Point of Beginning, containing 806,639 square feet, or 18.518 acres, more or less, as shown on ALTA/ACSM Land Title Survey for AEI Fund Management, Inc., and its affiliated entities; and Chicago Title Insurance Company, made by Greenhorne & O'Mara, Inc., bearing the seal of John B. Commander, Ga R.L.S. No. 2852, dated February 23, 2005, revised March 3, 2005. #651361 v3 018622.03274 Deed Book 13808 Pg 1855 Filed and Recorded Au-01-2003 09:55 2003-0185290 /s/ Jay C. Stephenson Jay C Stephenson Clerk of Superior Court Cobb Cty. Ga. Return to Shirley Herren Trinity Title Ins. Agency 437 E. Ponce De Leon Ave: Decatur GA 30030-1938 PREPARED BY AND WHEN RECORDED, PLEASE RETURN TO: 4740902, T. Craig Harmon McGuire Woods, L.L.P. One James Center Richmond, Virginia 23219 Lithia Springs, Georgia ASSIGNMENT OF LEASE THIS ASSIGNMENT is made as of the 28th day of Ju1y, 2003 by CARMAX, INC., a Virginia corporation (the" Assignor"), to .CARMAX AUTO SUPERSTORES, INC., a Virginia corporation (the "Assignee") RECITALS 1. Pursuant to Lease Agreement dated as of July , 2003, between Assignor and Wilmington Trust FSB, a federal savings bank, not in its individual capacity, but solely as co- trustee of the GECBAF Real Estate Trust 2002-0 under Trust Agreement dated as of November 1, 2002, as amended (the "Lease"), Assignor leased certain property in Cobb and Douglas Counties, located at 1977 Thornton Road, Lithia Springs, Georgia (the "Property"). 2. Assignor now desires to assign its interest m the Lease to Assignee. NOW, THEREFORE, for and in consideration of the sum of One Dollar ($l.00) and other valuable consideration, receipt of which is hereby acknowledged, Assignor hereby assigns and transfers to Assignee all of Assignor's right; title and interest as tenant in and to the Lease. Assignee hereby assigns and agrees to be bound by all of the obligations of the tenant under the Lease to be paid or performed during the period beginning on the date hereof IN WITNESS WHEREOF. Assignor and Assignee have caused this instnm1ent. to be executed by their respective officers. duly authorized. Signed, sealed and delivered CARMAX, INC in the presence of: By: /s/ Thomas W Reedy Jr /s/ Molly Busch Name: Thomas W Reedy Jr Unofficial Witness Title: Vice President and Treasurer ATTEST: By: Stuart A Heaton /s/ Leslie D Frame Name: Stuart A Heaton Notary Public Title Secretary My Commission Expires September 30, 2006 [Notary Seal] [Corporate Seal] Signed, sealed and delivered CARMAX AUTO SUPERSTORES INC in the presence of: By: /s/ James C Wilson /s/ Molly Busch Name: James C Wilson Unofficial Witness Title: Assistant Secretary ATTEST: By: Stuart A Heaton /s/ Leslie D Frame Name: Stuart A Heaton Notary Public Title Secretary My Commission Expires September 30, 2006 [Notary Seal] [Corporate Seal] Location 37243 1977 Thornton Road Lithia Springs, GA LEASE Between CARMAX, INC., a Virginia corporation, as TENANT and WILMINGTON TRUST FSB, a federal savings bank, not in its individual capacity, but solely as co-trustee of the GECBAF REAL ESATE TRUST 2002-O under Trust Agreement dated as of November 1, 2002, as amended as Landlord Date July 28, 2003 TABLE OF CONTENTS 1. CERTAIN DEFINITIONS 1 2. DEMISE OF PREMISES 4 3. TERM 4 4. RENT 5 5. NET LEASE; TRUE LEASE 7 6. TITLE AND CONDITION 8 7. TAXES 9 8. USE 9 9. MAINTENANCE AND REPAIR 12 10. LIENS 13 11. ALTERATIONS 13 12. CONDEMNATION 14 13. INSURANCE 15 14. DAMAGE, DESTRUCTION 17 15. RESTORATION 18 16. SUBORDINATION TO FINANCING 19 17. ASSIGNMENT, SUBLEASING 20 18. PERMITTED CONTESTS 24 19. DEFAULT 25 20. LANDLORD'S REMEDIES 26 21. NOTICES 28 22. MEMORANDUM OF LEASE; ESTOPPEL CERTIFICATES 28 23. SURRENDER 29 24. NO MERGER OF TITLE 29 25. LANDLORD EXCULPATION 30 26. HAZARDOUS SUBSTANCES 30 27. ENTRY BY LANDLORD 32 28. STATEMENTS 32 29. NO USURY 32 30. BROKER 32 31. WAIVER OF LANDLORD'S LIEN 33 32. NO WAIVER; CONSENTS 33 33. SEPARABILITY 33 34. INDEMNIFICATIONS 33 35. EASEMENTS, ZONING AND ENTITLEMENTS 34 36. HEADINGS 35 37. MODIFICATIONS 35 38. SUCCESSORS, ASSIGNS 35 39. COUNTERPARTS 35 40. GOVERNING LAW 35 41. WAIVER OF JURY TRIAL 35 42. ATTORNEYS' FEES 35 43. EXPANSION REIMBURSEMENT AGREEMENT 35 44. EXCULPATION OF TRUSTEE 37 THIS LEASE AGREEMENT is made as of this day of July, 2003, by and between WILMINGTON TRUST FSB, a federal savings bank, not in its individual capacity, but solely as co-trustee of the GECBAF REAL ESTATE TRUST 2002-0 under Trust Agreement dated as of November 1, 2002, as amended, with offices at 1100 North Market Street, Wilmington, Delaware 19890; Attention: Corporate Trust Administration ("Landlord"), and CARMAX, INC., a Virginia corporation, having its principal office at 4900 Cox Road, Glen Allen, Virginia 23060-3317 ("Tenant"). In consideration of the rents and provisions herein stipulated to be paid and performed, Landlord and Tenant hereby covenant and agree as follows: 1. CERTAIN DEFINITIONS. (a) "Additional Rent" shall mean all sums required to be .paid by Tenant to Landlord hereunder other than Basic Rent, which sums sha1l constitute rental hereunder. (b ) "Affiliate" shall mean any person or entity that is directly or indirectly controlled or owned by Tenant or Landlord, as applicable. For purposes of this Lease, the term "control" shall mean the ownership of fifty percent (50%) or more of the stock or other voting interest of the controlled entity. (c) "Alteration" or ,"Alterations" shall mean any or all changes, additions or improvements to or of any of the Improvements, both interior or exterior, and ordinary and extraordinary; provided, however, installation and replacements of any existing wall covering, floor covering or ceiling coverings, fixtures and equipment of any of the Improvements shall not be deemed an Alteration. (d) "Award" shall mean the entire award payable to Trustee by reason of a Condemnation. (e) "Basic Rent" shall mean the annual rent payable in monthly installments in advance on the first day of each month during each year of the Term, as such Term may be extended in accordance with Paragraph 3, and as such annual rent may be escalated in accordance with Paragraph 4(b ). (f) "Commencement Date" shall mean the Commencement Date as defined in Paragraph 3 (g) "Condemnation" shall mean a Taking and/or a Requisition (h) "Default Rate" shall mean an annual rate of interest equal to the lesser of (i) the Prime Rate plus five hundred (500) basis points or (ii) twelve percent (12%). (i) "Discount Rate," with. respect to the calculation of the present value of any future payment, means a rate equal to the interpolated rate of yield for U.S. Treasury obligations as listed on the Bloomberg :financial web site currently located at http://llwww.bloomberg.com/marketslrateslindex.html. (or if such site ceases to exist, the successor to such site or a comparable site) and having the same maturity as the date at which such future payment is to be made. (j) "Environmental Requirements" shall mean Environmental Requirements as defined in Paragraph 26(a). (k) "Environmentally Hazardous Business" shall mean Environmentally Hazardous Business as defined in Paragraph 8(a). (l) "Event of Default" shall mean an Event of Default as defined in Paragraph 19. (m) "Hazardous Materials" shall mean Hazardous Materials as defined in Paragraph 26(a). (n) "Insurance Requirement" or "Insurance Requirements" shall mean, as the case may be, anyone or more of the terms of each insurance policy required to be carried by Tenant under this Lease and the requirements of the issuer of such policy, and whenever Tenant shall be engaged in making any Alteration or Alterations, repairs or construction work of any kind (collectively, "Work"), the term "Insurance Requirement" or "Insurance Requirements" shall be deemed to include a requirement that Tenant obtain or cause its contractor to obtain completed value builder's risk insurance when the estimated cost of the Work in anyone. instance exceeds the sum of One Hundred Thousand Dollars ($100,000.00) and that Tenant or its contractor shall obtain worker's compensation insurance or other adequate insurance coverage covering all persons employed in connection with the Work, whether by Tenant, its contractors or subcontractors and with respect to whom death or bodily injury claims could be asserted against Landlord. . (o) "Inventory" shall mean all items of personal property offered for sale, rental or lease by Tenant at or on the Leased Premises, including, without limitation. all automobiles and automobile parts and accessories. (P) "Law" shall mean any constitution, statute, ordinance, regulation or rule of law. (q) "Legal Requirement" or "Legal Requirements" shall mean, as the case may be, anyone or more of all present and future laws, codes, ordinance (including, without limitation, zoning ordinances and land use requirements), orders, judgments, decrees, injunctions, rules, regulations and requirements, even if unforeseen or extraordinary, of every duly constituted governmental authority or agency (but excluding those which by their terms are not applicable to and to not impose any obligation on Tenant, Landlord or the Leased Premises) and all covenants, restrictions and conditions now or hereafter of record which may be applicable to Tenant, to Landlord or to any of the Leased Premises, or to the use, manner of use, occupancy, possession, operation, maintenance, alteration, repair or reconstruction of any of the Leased Premises, even if compliance therewith (i) necessitates structural changes or improvements (including changes required to comply with the; " Americans with Disabilities Act") or results in interference with the use or enjoyment of any of the Leased Premises or (ii) requires Tenant to carry insurance other than as required by the provisions of this Lease. (r) "Lender" shall mean the entity identified "to Tenant as such in writing, which makes a Loan to Landlord, secured in whole or in part by a Mortgage and evidenced by a Note or Notes or which is the holder of a Mortgage and Note as a result of an assignment thereof, and when a Mortgage secures multiple Notes held by one or more noteholders, the trustee acting on behalf of such holders, provided such trustee has been identified as such in writing to Tenant. (s) "Loan" shall mean a loan made by a Lender to Landlord secured in whole or in part by a Mortgage and evidenced by a Note or Notes. (t) "Mortgage" shall mean a mortgage or similar security instrument hereafter executed covering the Leased Premises from Landlord to Lender. (u) "Note" or "Notes" shall mean a promissory note or notes hereafter executed from Landlord to Lender, which Note or Notes will be secured in whole or in part by a Mortgage and an assignment of leases and rents. (v) "Permitted Encumbrances" shall mean those covenants, restrictions, reservations, liens, conditions, encroachments, easements and other matters of title that affect the Leased Premises as of Landlord's acquisition thereof, excepting, however, any such matters arising from the acts of Landlord (such as liens arising as a result of judgments against Landlord). (w) "Prime Rate" shall mean the prime rate of interest as published in the Wall Street Journal from time to time. (x) "Proceeds" shall mean the entire proceeds paid by any third party insurer under any property casualty insurance maintained pursuant to Paragraph 13(a). (y) "Purchase Offer Event" shall mean Purchase Offer Event as defined in Paragraph 8(a) (z) "Requisition" shall mean any temporary condemnation or confiscation of the use or occupancy of any of the Leased Premises by any governmental authority, civil or military, whether pursuant to an agreement With such governmental authority in settlement of or under threat of any such requisition or confiscation, or otherwise. (aa) "Restoration" shall mean the restoration of the Leased Premises after any Taking or damage by casualty as nearly as possible to their value, condition and character existing immediately prior to such Taking or damage, including the actual expenses of Tenant. (bb) "State" shall mean the State or Commonwealth in which the Leased Premises are situated. (cc) "Takinng" shall mean any taking of any of the Leased Premises in or by condemnation or other eminent domain proceedings pursuant to any law, general or special, or by reason of any agreement with any condemnor in settlement of or under threat of any such condemnation or other eminent domain proceedings or by any other means, or any de facto condemnation. (dd) "Tangible Net Worth" shall mean Tenant's. equity (or capital, as applicable), less officer and affiliate receivables; less intangibles, in accordance with generally accepted accounting principles ("GAAP'). (ee ) "Taxes" shall mean taxes of every kind and nature (including real, ad valorem and personal property, income, franchise, withholding, profits and gross receipts taxes), .all charges and/or taxes for any easement or agreement maintained for the benefit of any of the Leased Premises, all general and special assessments, levies, permits, inspection and license fees, all utility charges, all ground rents, and all other public charges and/or taxes whether of a like or different nature, even if unforeseen or extraordinary , imposed upon or assessed, prior to or during the Term, against Landlord, Tenant or any of the Leased Premises as a result of or arising in respect of the .occupancy, leasing, use, maintenance, operation, management, repair or possession thereof, or any activity conducted on the Leased Premises, or the Basic Rent or Additional Rent, including without limitation, ~y gross income tax, sales tax, occupancy tax or excise tax levied by any governmental body on or with respect to such Basic Rent or Additional Rent. (ff) "Term" shall mean the initial term of this Lease, as extended pursuant to any renewal that has become effective. (gg) "Termination Date" shall mean the Termination Date as defined in Paragraph 12(b). (hh) "Trade Fixtures" shall mean the items of personality, which are owned by Tenant and used in the operation of the business conducted on the Leased Premises as described in Exhibit .'C" attached hereto. 2. DEMISE OF PREMISES. Landlord hereby demises and lets to Tenant and Tenant hereby takes and leases from Landlord for the Tenn. and upon the provisions hereinafter specified the following described property (collectively, the "Leased Premises") (i) the premises described in Exhibit " A " attached hereto and made a part hereof together with the easements, rights and appurtenances thereto belonging or appertaining (collectively, the "Land"); (ii) the buildings, structures, fixtures and other improvements constructed and to be constructed on the Land (collectively, the "Improvements"), together with all additions and accessions thereto, substitutions therefor and replacements thereof permitted by this Lease excepting therefrom Tenant's Trade Fixtures and all property that does not constitute real property under the laws of the State. 3. TERM. Tenant shall have and hold the Leased Premises for an initial term (the "Initial Term") commencing on the date hereof (the "Commencement Date") and ending on July 31,2018 (the "Expiration Date"). The Initial Term, any Extended Term (as defined below) and any renewal terms (as provided below) may be referred to collectively as the "Term". Provided the Lease shall not have been terminated pursuant to the provisions hereof, this Lease and the Term thereof shall be automatically extended for four (4) renewal terms of five (5) years each upon condition that Tenant may cancel any renewal term by giving notice, in accordance with the provisions of Paragraph 21, to Landlord at least six (6) months prior to the expiration of the then current Term. If, prior to such six (6) month period, Tenant does not give Landlord written notice of its intent to cancel the then applicable renewal term, Tenant's right to cancel such renewal term shall continue until ten (10) business days after Landlord has given Tenant written notice of Landlord's election to continue the renewal term, during which ten (10) business day period Tenant may exercise its right to cancel such renewal term whereupon the Teffi1 of this Lease shall be terminated as if such cancellation notice had been given prior to such six (6) month period described above. Upon the giving of such notice of cancellation by Tenant, this Lease and the Term thereof shall terminate and come to an end on the Expiration bate of the then current Term. Any such extension or renewal of the Term shall be subject to all of the provisions of this Lease, and all such provisions shall continue in full force and effect. In the event that Tenant exercises its option to cancel any renewal Term as hereinabove provided, then Landlord shall have the right in addition to any rights granted in Paragraph 27, during the remainder of the Term then in effect to (i) advertise the availability of the Leased Premises for sale or for reletting, and (ii) show the Leased Premises to prospective purchasers, lenders or tenants at such reasonable times during noffi1al business hours as Landlord may select. If Tenant shall timely give such notice of its election to cancel any renewal option, then all options with regard to subsequent extensions or renewals of the Term shall expire and be null and void. Notwithstanding the foregoing, Tenant shall have the right to extend the Initial Term of the Lease (the "Extension Option") at any time within the first five (5) years of the Initial Term by the period of time necessary to make the then remaining Initial Term extend for fifteen (15) years from the date of Tenant's exercise of the Extension Option (the "Extended Term"). At the end of such Extended Term, the Lease shall renew for the renewal terms as set forth above. Notwithstanding the provisions of Section 4 below, the Rent for the first five (5) years of the Extended Term (beginning on the date Tenant exercises the Extension Option and terminating on the 5th anniversary thereof) shall be the Rent amount in effect on the date Tenant exercises the Extension Option. After the expiration of such initial five (5) year period of the Extended Term, Rent shall escalate as set forth in Section 4 below, and the date Tenant exercised the Extension Option shall act as the Commencement Date for purposes of setting the Basic Rent Adjustment Date pursuant to Section 4.(b )(ii). 4. RENT (a) BASIC RENT. The initial Basic Rent will be as set forth in Exhibit "B" From and after the Commencement Date, Tenant shall pay the Basic Rent in equal monthly installments in advance on the .first day of each month (each a "Basic Rent "Payment Date") during each Lease year. If the Commencement Date is not the first day of a month, then the Basic Rent from the Commencement Date until the first day of the following month shall be prorated on a per diem basis at the rate of one thirtieth (1/30) of the monthly installment of the Basic Rent payable during the first Lease Year, and Tenant shall pay such prorated installment of the Basic Rent on the Commencement Date. All sums payable by Tenant under this Lease, including but not limited to, Basic Rent, Additional Rent (as hereinafter defined) or otherwise, shall be paid to Landlord in legal tender of the United States, without setoff, deduction or demand, by check, ACH transfer or direct deposit wire transfer of immediately available funds to the following bank account, or to such other party or address as Landlord may designate in writing: DEUTSCHE BANK TRUST COMPANY - AMERICAS Post Office Box 318 Church Street Station New York; New York 10008-0318 Credit to the Account of GE Capital BAF ABA #021001033 Account No.50-261-508 RE:# Notify: Susan Nunmaker at (425) 450-3516 Landlord's acceptance of Basic Rent of Additional Rent after it shall have become due and payable shall not excuse a delay upon any subsequent occasion or constitute a waiver of any of Landlord's rights hereunder. (b) BASIC RENT ESCALATION. (i) For the purpose of this Section, the following definitions shall apply: (A) the ten1i "Base Month" shall mean the calendar month which is five (5) years prior to the applicable Basic Rent Adjustment Date (as hereinafter defined) and (B) the term "Price Index" shall mean the "Consumer Price Index-United States City Average-All Urban Consumers-all items-not seasonally adjusted" published by the Bureau of Labor Statistics of the United States Department of Labor (1982-84 = 100), or, in the event such index is discontinue4 or no longer readily available, any renamed local index covering the metropolitan area in which the Premises are located or any other successor or substitute index appropriately adjusted (ii) Effective as of: (A) the fifth (5th) anniversary of the commencement Date; and (B) each fifth (5th) year anniversary date thereafter throughout the Term (each, a "Basic Rent Adjustment Date"), the Basic Rent then in effect shall immediately be increased by the lesser of (i) seven and one half percent (7.5%) of the then current Basic Rent or (ii) 200% of the amount by which the Price Index in effect immediately prior to the applicable Basic Rent Adjustment Date has increased over the Price Index in effect for the month preceding the Base Mont4; provided that in no event shall the Basic Rent be decreased on any Basic Rent Adjustment Date (but provided that the Basic Rent may remain the same). (iii) If the Price Index for the calendar month immediately preceding the applicable Basic Rent Adjustment Date is not available as of any Basic Rent Adjustment Date, then the calculation set forth in Subparagraph (ii) of this Section shall be made using the most current available Price Index (and re- calculated as soon as the Price Index for the calendar month immediately preceding the applicable Basic Rent Adjustment Date becomes available). In no event shall any adjustment made pursuant to this Section, or any decrease in the Price Index, ever result in a decrease in the Basic Rent (as previously increased). (c ) LATE :PAYMENT. If any installment of Basic Rent is not paid on the date due, Tenant shall pay Landlord interest on such overdue payment at-the Default Rate, accruing from the due date of such payment until the same is paid. (d) ADDITIONAL RENT. Tenant shall pay and discharge before the imposition of any fine, lien, interest or penalty may be added thereto for late payment thereof, as Additional Rent, all other an1ounts and obligations which Tenant assumes or agrees to payor discharge pursuant to this Lease, together with every fine, penalty, interest and cost which may be added by the party to whom such payment is due for nonpayment or late payment thereof. In the event of any failure by Tenant to payor discharge any of the foregoing, Landlord shall have all, rights, powers and remedies provided herein, by law or otherwise, in the event of nonpayment of Basic , Rent. (e) LATE FEE. If Tenant fails to make any payment of Basic Rent, Additional Rent or any other sum on or before the date that is five (5) days after Tenant's receipt of written notice from Landlord that the same is past due, then Tenant shall pay to Landlord a late charge of five percent (5%) of the amount of such payment; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate allowed by law. Such late charge shall constitute Additional Rent due hereunder without any notice or demand. . 5 NET LEASE: TRUE LEASE. (a) NET LEASE. It is the intention of the parties hereto that the obligations of Tenant hereunder shall be separate and independent covenants and agreements, and that Basic Rent Additional Rent and all other sums payable by Tenant hereunder shall continue to be payable in all events, and that the obligations of Tenant hereunder shall continue unaffected, unless the requirement to pay or perform the same shall have been terminated pursuant to an express provision of this Lease. This is a net Lease and Basic Rent Additional Rent and all other sums payable hereunder by Tenant shall be paid without notice or demand and without setoff, counterclaim, recoupment abatement suspension, deferment din1inution, deduction, reduction or defense, except as otherwise specifically set forth herein. This Lease shall not terminate and Tenant shall not have any right to terminate this Lease during the Term (except as otherwise expressly provided herein). Tenant agrees that except as otherwise expressly provided herein, it shall not take any action to terminate, rescind or avoid this Lease notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding-up or other proceeding affecting Landlord (ii) the exercise of any remedy, including foreclosure, under the Mortgage, (iii) any action with respect to this Lease (including, the disaffirmance hereof) which may be taken by Landlord under the Federal Bankruptcy 'Code or by any trustee, receiver or liquidator of Landlord or by any court under the Federal Bankruptcy Code or otherwise, (iv) the Taking of the Leased Premises or any portion thereof (except as specifically provided in Paragraph 12(b) below), (v) the prohibition or restriction of Tenant's use of the Leased Premises under any Legal Requirement or otherwise, (vi) the destruction of the Leased Premises or any portion thereof, (vii) the eviction of Tenant from possession of the Leased Premises, by paramount title or otherwise, or (viii) default by Landlord under any other agreement between Landlord and Tenant. Tenant waives all rights which are not expressly stated herein, but which may now or hereafter otherwise be conferred by law, to quit terminate or surrender this Lease or any of the Leased Premises; to any setoff, counterclaim, recoupment abatement suspension, deferment diminution, deduction, reduction or defense of or to Basic Rent Additional Rent or any other sums payable under this Lease, and for any statutory lien or offset right against Landlord or its property, each except as otherwise expressly provided herein. (b) TRUE LEASE. Landlord and Tenant agree that this Lease is a true lease and does not represent a :financing arrangement. Each party shall reflect the transaction represented hereby in all applicable books, records and reports (including income tax. filings) in a manner consistent with ,"true lease" treatment rather than "financing" treatment. (c ) UTILITIES. Tenant shall pay directly to the proper authorities charged with the collection thereof all charges for water, sewer, gas, oil, electricity, telephone and other utilities or services used or consumed on the Leased Premises during the Term, whether designated as a charge, tax, assessment, fee or otherwise, including, without limitation, water and sewer use charges and taxes, if any, all such charges to be paid as the same from time to tin1e become due. It is understood and agreed that Tenant shall make its own arrangements for the installation or provision of all such utilities and that Landlord shall be under no obligation to furnish any utilities to the Leas~ Premises and shall :not be liable for any interruption or failure in the supply of any such utilities to the Leased Premises. 6 TITLE AND CONDITION. (a) CONDITION. The Leased Premises are demised and let subject to the Permitted Encumbrances and all Legal Requirements and Insurance Requirements, including any existing violation of any thereof, without representation or warranty by Landlord; it being understood and agreed, however, that the recital of the Permitted Encumbrances herein shall not be construed as a revival of any thereof which for any reason may have expired. (b) NO REPRESENTATIONS Without limiting the effect of Landlord's covenant set forth in Paragraph 8( c ), the Landlord makes no, and expressly hereby denies any, representations or warranties regarding the condition or suitability of, or title to; the Leased, Premises. Tenant agrees that it takes the Leased Premises ''as is," without any such representation or warranty. (c) ASSIGGMENT OF GUARANTIES. Landlord hereby conditionally assigns, without recourse or warranty whatsoever, to Tenant, all warranties, guaranties and indemnities, if any, express or implied, and similar rights which Landlord may have against any manufacturer, seller, engineer, contractor or builder in respect of any of the Leased Premises, including, but not limited to, any rights and remedies" existing under contract or pursuant to the Uniform Commercial Code as adopted in the State (collectively, the "Guaranties"). Such assignment shall remain in effect so long as no Event of Default exists hereunder or until the termination of this Lease. Landlord shall also retain the right to enforce any Guaranties so assigned in the name of Tenant upon the occurrence of an Event of Default hereunder. Landlord hereby agrees to execute and deliver, at Tenant's sole cost and expense, such further documents, including powers of attorney, as Tenant may reasonably request (and which in the good faith judgment of Landlord, do not adversely affect a substantial general interest of Landlord), in order that Tenant may have the full benefit of the assignment effected or intended to be effected by this Paragraph 6(c). Upon the expiration or termination of this Lease, the Guaranties shall automatically revert to Landlord. The foregoing provision of reversion shall be self-operative and no further instrument of reassignment shall be required. In confirmation of such reassignment, Tenant shall execute and deliver promptly any certificate or other instrument that Landlord may request at Tenant's sole cost and expense. Any monies collected by Tenant under any of the Guaranties after the occurrence of and during the continuation of an Event of Default hereunder shall be held in trust by Tenant and promptly paid over to Landlord 7. TAXES Tenant shall, subject to the provisions of Paragraph 18 hereof relating to contests, before interest or penalties are due thereon, pay and discharge all Taxes. On or before the Commencement Date, Landlord shall notify the appropriate taxing authorities to deliver directly to Tenant all statements and invoices for the Taxes, effective as of the Commencement Date. Landlord shall cooperate with Tenant to the extent necessary to effectuate the foregoing notice and shall endeavor to promptly deliver to Tenant any bill or invoice it receives with respect to any Taxes. If Landlord fails to timely deliver to Tenant any bill or invoice it receives with respect to any Taxes within five (5) business days after Landlord's receipt of such bill or invoice or at least thirty (30) business days prior to the delinquency of such Taxes, whichever is later, Landlord shall be responsible for any and all interest, penalties or fees that result from the late payment of such Taxes by Tenant if such payment is late due to such delay in delivery of such bill or invoice to Tenant. As soon as practicable after the payment thereof, Tenant shall deliver to Landlord evidence of each such payment. To the extent that any such Taxes are imposed upon Landlord, at Landlord's option, Tenant shall either pay such Taxes directly to the taxing authority or reimburse Landlord for such Taxes. If the term expires or is terminated on a day other than the first day or the last day of a tax year, then Tenant's liability for Taxes for such tax year shall be apportioned by multiplying the amount of the Taxes for the full tax year by a fraction, the numerator of which is the number of days during such tax year falling within the Term hereof, and the denominator of which is three hundred sixty-five (365). Nothing herein shall obligate Tenant to pay, and the term "Taxes" shall exclude, federal, state or local (i} franchise, capital stock or similar taxes, if any, of Landlord, (ii) income, excess profits or other taxes, if any, of Landlord, determined on the basis of or measured by its net income, or (iii) any estate, inheritance, succession, gift, capital levy or similar taxes unless the taxes referred to in clauses (i) and (ii) above are in lieu of or a substitute for any other tax or assessment upon or with respect to any of the Leased Premises. which, if such other tax or assessment were in effect at the commencement of the Term, would be payable by Tenant. In the event that any assessment against any of the Leased Premises may be paid in installments, Tenant shall have the option to pay such assessment in installments; and in such event, Tenant shall be liable only for those installments (and all resulting interest thereon) that become due and payable prior to and in respect of the Term hereof Tenant shall prepare and :file all tax reports required by governmental authorities that relate to the Taxes. Tenant shall deliver to Landlord, within thirty (30) days of receipt of Landlord's request for the same, copies of all settlements and notices pertaining to the Taxes which may be issued by any governmental authority. 8 USE (a) USE. Tenant may use and occupy the Leased Premises for any lawful purpose. subject to the restrictions set forth in Section 8(b); provided, however, that in no event shall the Leased Premises be used as a bingo parlor, off-track betting or other gambling or gaming establishment, an Environmentally Hazardous Business or any pornographic use, including but not limited to the sale or rental of sexually explicit materials. "Environmentally Hazardous Business" shall mean (i) on site dry cleaning operations (exclusive of pickup and drop-off), (ii) gasoline service stations, (iii) auto repair, lubrication and servicing facilities, (iv) printing facilities using solvent-based inks or (v) any other business utilizing above-ground or underground storage tanks for purposes of storing gasoline, diesel fuel, other petroleum products, solvents or other substances regulated under Environmental Laws when stored in above-ground or underground storage tanks. The prohibition against any Environmentally Hazardous Business does not prohibit the use of the Premises for automobile sales with ancillary facilities for the repair, lubrication, inspection and servicing of automobiles, or underground storage tank systems used for fueling automobiles, provided such fuel is not offered for sale to the general public. In the event Tenant desires to either maintain facilities for the repair, lubrication, inspection and servicing of automobiles after the discontinuance of automobile sales on the Premises as a primary business or to operate a gasoline service station for the sale of petroleum products to the general public, Tenant shall provide Landlord with written notice requesting approval of such intended use. If Landlord does not notify Tenant in writing that Landlord gives its approval within thirty (30) days of receipt of such notice, such use shall be deemed a prohibited use under this Paragraph 8(a). If the Landlord sends notice within thirty (30) days denying such use or fails to respond to Tenant's request within such thirty (30) day period, then such denial or failure to approve shall be a "Purchase Offer Event" and Tenant may exercise its rights pursuant to Paragraph 8( d). In no event shall the Leased Premises be used for any purpose that shall violate any of the provisions of any recorded covenants, restrictions or agreements applicable to the Leased Premises. Tenant agrees that with respect to any such recorded covenants, restrictions or agreements, Tenant shall observe, perform and comply with and carry out the provisions thereof required therein to be observed and performed by Landlord. If Tenant shall desire to use the Leased Premises for any purpose prohibited or restricted by this Section 8, Landlord's prior written consent shall be required for such use, and Landlord may withhold such consent in its sole and absolute discretion. (b) RESTRICTIONS. Tenant shall not permit any unlawful occupation, business or trade; to be conducted on any of the Leased Premises and shall comply with all applicable Legal Requirements and Insurance Requirements. Tenant shall not use, occupy or permit any of the Leased Premises to be used or occupied, nor do or permit anything to be done in or on any of the Leased Premises, in a manner which would (i) violate any certificate of occupancy or equivalent certificate affecting any of the Leased Premises, (ii) make void or voidable any insurance which Tenant is required hereunder to maintain then in force with respect to any of the Leased Premises, (iii) affect in any manner the ability of Tenant to obtain any insurance which Tenant is required to furnish hereunder, (iv) cause any injury or damage to any of the Improvements unless pursuant to alterations permitted under Paragraph 11 hereof, (v) constitute a public or private nuisance or waste, or (vi) increase the use, handling, storage, transportation, generation, or disposal of Hazardous Materials on the Leased Premises; provided, however, the prohibition in Paragraph 8(b )(vi) does not limit the use of the Premises for automobile sales with ancillary facilities for the repair, lubrication, inspection and servicing of automobiles, or underground storage tank systems used for fueling automobiles, provided such fuel is not offered for sale to the general public. (c) QUIET ENJOYMENT. Subject to all of the provisions of this Lease, so long as no Event of Default exists hereunder, Landlord covenants that neither it nor any party claiming by, through or under it, shall do any act to disturb the peaceful and quiet occupation and enjoyment of the Leased Premises by Tenant. Landlord may enter upon and examine any of the Leased Premises at reasonable times after reasonable notice and during business hours and exercise any rights and privileges granted to Landlord under the provisions of this Lease. (d) PURCHASE OFFER. In the event of a Purchase Offer Event, Tenant may serve notice upon Landlord of its desire to purchase the Property and terminate this Lease on the date set forth in such notice (the "Purchase Date"). Tenant shdall, as part of such notice, inform Landlord of its offer to purchase the Leased Premises for its appraised value (the "Purchase Price") (to be determined as set forth below) plus all other amounts which may be due and owing to Landlord by reason of any default by Tenant in complying with its obligations under this Lease (the "Additions to Purchase Price"). Landlord shall reject or accept Tenant's purchase offer in writing within fifteen (15) days after receipt of such purchase offer. In the event Landlord accepts such purchase offer, Tenant and Landlord shall each select one independent and licensed MAI certified appraiser (the "Initial Appraisers") and the Initial Appraisers shall together select a third independent and licensed MAI certified appraiser to perform an appraisal of the Leased Premises. In the event Landlord accepts Tenant's purchase offer, title shall close thirty (30) days after the Purchase Date (the "Closing Date"), at such time and place as the parties hereto may agree upon, this Lease shall continue through the Closing Date (or, if applicable, the extended Closing Date hereinafter described) and Tenant shall pay the Purchase Price and Additions to Purchase Price by transferring immediately available federal funds to such account or accounts and in such bank or banks as Landlord shall designate, upon delivery of a special warranty deed conveying the Leased Premises and all other required documents. The special warranty deed shall convey a good and clear record and marketable title, free from encumbrances other than (i) Permitted Encumbrances, (ii) liens or encumbrances created or suffered through or by Tenant failing to observe or perform any of the terms, covenants or agreements herein provided to be observed and performed by Tenant, (iii) any installments of Taxes due and payable after the Closing Date, and (iv) this Lease. Such deed shall contain an agreement by grantee to observe and perform all of the covenants, conditions and restrictions contained in any instruments of record which were assumed by Landlord or deemed to have been assumed by Landlord on its acquisition of title. The Purchase Price and Additions to Purchase Price payable as hereinabove provided shall be charged or credited, as the case may be, on the Closing Date, to reflect adjustments of Basic Rent paid or payable to and including the Closing Date, apportioned as of the Closing Date. The acceptance of a deed by Tenant shall be deemed to be a full performance and discharge of every agreement and obligation on the part of Landlord to be performed pursuant to the provisions hereof. Tenant shall pay all conveyance, transfer, sales and like taxes required in connection with the purchase. If on the Closing Date, there may be any liens or encumbrances which Landlord is obligated to remove, Landlord shall use reasonable efforts to remove the same, and the Closing Date shall be extended for a reasonable period to permit Landlord to discharge such liens or encumbrances. Landlord shall not be obligated to discharge any such lien or encumbrance if Tenant's title insurance company shall issue affirmative insurance to the effect that the same shall not be collected from or enforced against the insured premises. If there be any liens or encumbrances against the Leased Premises which Landlord is obligated to remove (that is, any adverse title matters other than those to which Landlord's conveyance under special warranty deed may be subject as set forth in subparagraphs (i) through (iv) above), upon request made a reasonable time before the Closing Date, Landlord shall provide at the Closing separate funds for the foregoing, payable to the holder of such lien or encumbrances. 9. MAINTENANCE AND REPAIR (a) MAINTENANCE. Tenant shall at all times, including any Requisition period, put, keep and maintain the Leased Premises, including, without limitation, the roof, landscaping, walls (interior and exterior), footings, foundations, parking lot improvements and structural and mechanical components of the Leased Premises in good repair and appearance, and shall promptly make all repairs and replacements (substantially equivalent in quality and workmanship to the original work) of every kind and nature, whether foreseen or unforeseen, which may be required to be made upon or in connection with any of the Leased Premises in order to keep and maintain the Leased Premises in as good repair and appearance as they were as of the Commencement Date. Tenant shall do or cause others to do all shoring of the Leased Premises or of foundations and walls of the Improvements and every other act necessary or appropriate for preservation and safety thereof, by reason of or in connection with any excavation or other building operation upon any of the Leased Premises, whether or not Landlord shall, by reason of any Legal Requirements or Insurance Requirements, be required to take such action or be liable for failure to do so. Landlord shall not be required to make any repair, whether foreseen or unforeseen, or to maintain any of the Leased Premises in any way, and Tenant hereby expressly waives the right to make repairs at the expense of the Landlord, which right may otherwise be provided for in any law now or hereafter in effect. Nothing in the preceding sentence shall be deemed to preclude Tenant from being entitled to any Proceeds or Awards for Restoration pursuant to the terms of this Lease. Tenant shall, in all events, make all repairs for which it is responsible hereunder promptly, and all repairs shall be in a good, proper and workmanlike manner. If any such repair or maintenance constitutes an "Alteration" as defined herein, Paragraph 11 below shall govern Tenant's completion thereof with respect to notices to and/or consents from Landlord and. the requirement for supervision by an architect or engineer. (b ) FAILURE TO MAINTAIN. If Tenant shall be in default under any of the provisions of this Paragraph 9, Landlord may, after thirty (30) days notice to Tenant and the failure of Tenant to commence to cure during said period or to diligently prosecute such cure to completion once begun. but immediately upon notice in the event of an emergency (that is, imminent danger of injury to persons or property), do whatever is necessary to cure such default as may be reasonable under the circumstances for the account of and at the expense of Tenant. In the event of an emergency, before Landlord may avail itself of its rights under this Paragraph 9(b), Landlord shall give prior notice to Tenant of the situation (which notice may be given by phone or other available communication and need not be in writing as otherwise required by Section 21 below). All actual, reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and expenses, including appellate fees and expenses) so incurred by Landlord, together with interest thereon at the. Default Rate from the date of payment or incurring the. expense, shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord on demand Landlord and Tenant agree that, in the event of an emergency, expenditures which might otherwise be unreasonable (such as overtime) may nevertheless be reasonable under the circumstances (c) REPLACEMENTS. Tenant shall from time to time replace with other new or refurbished equipment or parts any of the mechanical systems or other equipment included in the Improvements which shall have become worn out, obsolete or unusable for the purpose for which it is intended, bee~ taken by a Condemnation as provided in Paragraph 12, or been lost, stolen, damaged or destroyed as provided in Paragraph 14. Tenant shall repair at its sole cost and expense all damage to the Leased Premises caused by the removal of equipment or any other personal property of Tenant at any time, including upon expiration or termination of the Lease. 10. LIENS Tenant shall not, directly or indirectly, create or permit to be created or to remain, and shall promptly discharge, any lien on any of the Leased Premises, on the Basic Rent, Additional Rent or on any other sums payable by Tenant under this Lease, other than the Mortgage (and any assignment of leases, rents, profits or collateral in connection therewith), the Permitted Encumbrances and any mortgage, lien, encumbrance or other charge created by or resulting from any act or omission by Landlord or those claiming by, through or under Landlord 11. ALTERATIONS. (a) AS IS CONDITION. Tenant acknowledges that it or its Affiliate owned and operated the Leased Premises immediately prior to the Commencement Date. Accordingly, Tenant shall accept possession of the Leased Premises in its ''as is" condition as of the Commencement Date. Landlord makes no warranty or representation, express or implied, with respect to the Leased Premises, either as to its fitness for use, its design or condition, or any particular use or purpose to which the Leased Premises may be fit, or otherwise, or as to quality of the material or workmanship therein, or the existence of any defects, latent or patent, it being agreed that all such risks are to be borne by Tenant. Landlord is under no obligation to make any alterations, expansions, additions, improvements, or betterments in or to the Leased Premises. (b) TENANT ALTERATIONS. Tenant shall not make or permit anyone to make any Alterations in or to the Leased Premises that would result after giving consideration to the completed Alteration, in a material diminution in the value of the Leased Premises without Landlord's prior written consent which consent may be withheld in Landlord's sole and absolute discretion. If the Alteration is structural in nature, such Alteration shall not be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Landlord agrees that Landlord's approval shall be (i) deemed unreasonable unless such structural Alteration causes a material diminution in the value of the Leased Premises or impairs the structural integrity of the Improvements and (ii) deemed granted in the event that Landlord does not respond to Tenant's notice of such Alteration within ten (10) business days. Tenant may make any other Alterations without the prior written consent of Landlord provided such Alterations comply with all of the provisions of the following sentence. All Alterations shall be performed in a good and workmanlike manner, and shall be expeditiously completed in compliance with all Legal Requirements, (i) all work done. in connection with any such Alterations shall comply with all Insurance Requirements, (ii) Tenant shall promptly pay all costs and expenses of any such Alterations, and shall discharge all liens tiled against any of the Leased Premises arising out of the work, and shall, upon notice from Landlord, furnish to Landlord copies of such evidence of payment of costs and expenses or of discharge or waiver of liens as Landlord may reasonably request, (iii) Tenant shall procure and pay for all permits and licenses required in connection with any such Alterations, (iv) all such Alterations shall be the property of Landlord and shall be subject to this Lease, (v) any Alterations that are structural in nature and the estimated cost of which in anyone instance exceeds Two Hundred Fifty Thousand Dollars ($250,000.00) shall be made under the supervision of a licensed architect or engineer in accordance with detailed plans and specifications which shall be submitted to Landlord prior to the commencement of the Alterations and (vi) any Alterations which are not structural in nature and the estimated cost of which in anyone instance exceeds Five Hundred Thousand Dollars ($500,000.00) shall be made under the supervision of a licensed architect or engineer in accordance with detailed plans and specifications which shall be given to Landlord within a reasonable time after completion. (c) REMOVAL OF ALTERATIONS. All Alterations to the Leased Premises made by Tenant during the Term shall be the property of Landlord and shall remain upon and be surrendered with the Leased Premises as a part thereof at the expiration or earlier termination of the Term; provided, however, that if there exists no Event of Default under this Lease, then Tenant shall have the right to remove, prior to the expiration or earlier termination of the Term, any Alterations consisting of movable furniture, furnishings and equipment installed in the Leased Premises, solely at the expense of Tenant. 12. CONDEMNATION. (a) CONDEMNATION PROCEEDINGS. In the event either party obtains knowledge of the institution of any proceeding for Condemnation, such party shall immediately notify the other of such proceeding. Tenant shall have the right to participate, at its own expense, in such proceedings and to negotiate on behalf of itself and Landlord in such proceedings; provided, however, Tenant shall not enter into any binding agreement or settlement without the prior consent of Landlord. Landlord agrees to cooperate with Tenant and to execute such documentation as may be reasonably necessary to allow Tenant to participate in such Condemnation proceedings. Landlord shall have the right to participate in such proceedings at its own expense. Subject to the provisions of this Paragraph 12 and Paragraph 15 hereof, Tenant hereby irrevocably assigns to Landlord any Award or payment in respect of any Condemnation of Landlord's interest in the Leased Premises, except that nothing in this Lease shall be deemed to require (i) the assignment to Landlord of any Award or payment on account of Tenant's leasehold interest hereunder, Tenant's Trade Fixtures or other tangible personal property, moving expenses and similar claims, if available, to the extent Tenant shall have a right to make a separate claim therefor against the condemnor or (ii) any act or circumstance that impairs Tenant's right to any such Award or payment. (b) TENANT TERMINATION. If (i) the entire Leased Premises or (ii) at least ten percent (10%) of that portion of the Land which has been paved for parking or on which the Improvements have been constructed, the loss of which even after Restoration would, in Tenant's reasonable business judgment, be substantially and materially adverse to the business operations of Tenant, shall be subject of a Taking by a duly constituted authority or agency having jurisdiction, then Tenant shall, not later than sixty (60) days after a Taking has occurred, serve notice upon Landlord ("Tenant's Termination Notice") of its intention to tern1inate this Lease on any Basic Rent Payment Date specified in such notice, which date (the "Termination Date") shall be no sooner than the first Basic Rent Payment Date occurring at least thirty (30) days after the date of Tenant's Termination Notice. Any land which cannot be used for the same purpose after a Taking as before a Taking (for example, land that must be converted to green space or used as setback area) shall be included within Land "lost" for purposes of this Section 12. (c) TRUSTEE. In the event of any taking of part of the Leased Premises which does not result in a termination of this Lease by Tenant pursuant to Paragraph 12(b) hereof, the Award resulting from such Taking shall be paid to a Trustee, which shall be a federally insured bank or other financial institution, selected by Landlord and Tenant (the "Trustee") pursuant to the requirements of Paragraph 15 and, promptly after such Taking, Tenant shall commence and diligently continue to perform the Restoration. Upon the payment to Trustee of the Award of a Taking which falls within the provisions of this subparagraph ( c ), the Trustee shall, to the extent received, make that portion of the Award equal to the cost of Restoration (the "Restoration Award") available to Tenant for performance of the Restoration, in accordance with the provisions of Paragraph 15, and the balance remaining (the "net surplus award") shall be the property of Landlord. In the event of a loss of at least ten percent (10%) of that portion of the Land which has been paved for parking or on which the Improvements have been constructed, following the making of the Award for such Taking and on completion of the Restoration by Tenant as herein provided, the monthly installment of Basic Rent for each month during the remaining Term hereof, commencing with the Basic Rent payment for the month after the month in which such Restoration is completed, shall be reduced by an amount such that the ratio of (a) the amount of the reduction to (b) the then current Basic Rent equals the ratio of (x) the amount of the Award paid to Landlord to (y) the pre-taking fair market value of the Leased .Premises (which in no event shall be less than the original purchase price paid by Landlord for the Leased Premises). In the event of a Taking of less than ten percent (10%) of that portion of the Land which has been paved for parking or on which the Improvements have been constructed, this Lease shall remain in full force and effect and there shall be no reduction in the amount of Basic Rent, Additional Rent or other payments due hereunder. In the event of a Requisition of all or any portion of the Leased Premises, Landlord shall apply the Award received from such Requisition, to the extent available, to the installments of Basic Rent, Additional Rent or other sums payable by Tenant hereunder due during such Requisition and Tenant shall pay the balance, if any, remaining thereafter. Upon the expiration of the Term, any portion of such Award that shall not previously have been credited to Tenant on account of the Basic Rent and Additional Rent shall be retained by Landlord. 13 INSURANCE. (a) TYPES OF COVERAGE. Tenant shall maintain at its sole cost and expense the following insurance on the Leased Premises: (i) Insurance against loss or damage to the Improvements under a "Special Form" Policy, in accordance with the requirements of Exhibit "D" attached hereto. (ii) Garage liability insurance including contractual liability or commercial genera1liabilityinsurance (collectively, "CGL"}against claims for bodily injury, death or property damage occurring on, in or about any of the Leased Premises, which insurance shall be written on a so-called "occurrence basis," and shall provide minimum protection with a combined single limit in an amount not less than Five Million Dollars ($5,000,000.00) (or in such. increased limits as are required from time to time to reflect declines from the Commencement Date in the purchasing power of the dollar as Landlord may reasonably determine ). (iii) Worker's compensation insurance covering all persons employed by Tenant on the Leased Premises in connection with any work done on or about any of the Leased Premises. (iv) Such builder's risk coverage as may be applicable under the Insurance Requirements. (b) SELF-INSURANCE. Notwithstanding the foregoing, during such time as no Event of Default is outstanding hereunder, and the Tangible Net Worth of Tenant is not less than Two Hundred Million Dollars ($200,000,000.00), Tenant may self-insure (either by use of deductibles or self-insured retention) the coverage referred to in Paragraph 13(a), provided that the self-insurance program of this subparagraph (b) does not violate any Legal Requirements applicable to the Leased Premises or Tenant. (c) COMPANY REQUIREMENTS. The insurance required by Paragraph 13(a) shall be written by companies having an AM. Best rating of at least A-/VIII during such time as Tenant is not entitled to self-insure in accordance with the provisions of Paragraph 13(b). All companies providing insurance required by Paragraph 13(a) shall be authorized to do an insurance business in the State unless otherwise agreed to by Landlord and Lender. The insurance policies shall be for a term of not less than one year, and shall (except for worker's compensation insurance) name Landlord (in its individual capacity, and as trustee under the Trust Agreement {as hereinafter defined), Tenant and any Lender as additional insured parties or loss payees, as applicable, as their respective interests may appear. If said insurance or any part hereof shall expire, be withdrawn, become void by breach of any condition thereof by Tenant or otherwise become void Tenant shall immediately obtain new or additional insurance reasonably satisfactory to Landlord and Lender. (d) REQUIRED CLAUSES. Each Property Insurance policy shall, to the extent applicable, contain standard non-contributory mortgagee clauses in favor of any Lender and shall also provide that any loss otherwise payable thereunder shall be payable notwithstanding (i) any act or omission of Landlord or Tenant which might, absent such provision, result in a forfeiture of all or a part of such insurance payment (ii) the occupation or use of any of the Leased Premises for purposes more hazardous than permitted by the provisions of such policy, (iii) any foreclosure or other action or proceeding taken by any Lender pursuant to any provision of the Mortgage upon the happening of an event of default therein, or (iv) any change in title or ownership of any of the Leased Premises. (e) PREMIUMS AND RENEWAL. Tenant shall pay as they become due all premiums for the insurance required by this Paragraph 13, shall renew or replace each policy and shall deliver to Landlord and Lender, a certificate or other evidence (reasonably satisfactory to Lender and Landlord) of the existing policy and the such renewal or replacement policy simultaneously with such renewal or replacement. In the event of Tenant's failure to comply with any of the foregoing requirements of this Paragraph 13, Landlord shall be entitled to procure such insurance. Any sums expended by Landlord in procuring such insurance shall be Additional Rent and shall be repaid by Tenant, together with interest thereon at the Default Rate from the time of payment by Landlord until fully paid by Tenant, immediately upon written demand therefor by Landlord. (f) BLANKET COVERAGE. Anything in this Paragraph 13 to the contrary notwithstanding, any insurance which Tenant is required to obtain pursuant to Paragraph 13(a) may be carried under a "blanket" policy or policies covering other properties or liabilities of Tenant, provided that such "blanket" policy or policies otherwise comply with the provisions of this Paragraph 13. 14 DAMAGE DESTRUCTION. (a) PAYMENT OF PROCEEDS. In the event of any casualty" loss exceeding Two Hundred Thousand Dollars ($200,000.00) during the Term hereof, Tenant shall give Landlord immediate notice thereof. Tenant shall adjust, collect and compromise any and all such claims, with the prior written consent of Landlord not to be unreasonably withheld or delayed, and Landlord shall have the right to join with Tenant therein at Landlord's expense. If the estimated cost of any Restoration shall be Five Hundred Thousand Dollars ($500,000.00) or less, all Proceeds recovered under any insurance required under Paragraph 13(a) as a result of such casualty shall be payable to Tenant, provided that Tenant at such time shall have a Tangible Net Worth of not less than Two Hundred Million Dollars ($200,000,000.00). In all other events, all Proceeds recovered under the insurance required under Paragraph 13(a), if any, as a result of a casualty shall be paid to the Trustee. If the Leased Premises shall be covered by a Mortgage, Lender, if it so desires, shall be the Trustee. Each insurer is hereby authorized and directed to make payment under said policies directly to such Trustee instead of to Landlord and Tenant jointly; and Tenant hereby appoints such Trustee as Tenant's attorney-in-fact to endorse any draft thereof for the purposes set forth in this Lease after approval by Tenant of such Trustee, if Trustee is other than Lender, such approval not to be unreasonably withheld or delayed. {b) RESTORATION BY TENANT. Except as set forth in Section 14(c), in the event of any casualty (whether or not insured against) resulting in damage to the Leased Premises or any part thereof, the Term shall nevertheless continue and there shall be no abatement or reduction of Basic Rent, Additional Rent or any other sums payable by Tenant hereunder. Except as otherwise provided in Paragraph 14(a) hereof, any Proceeds of such insurance payments shall be retained by the Trustee and, promptly after such casualty, Tenant shall commence and diligently continue to perform the Restoration to the Leased Premises. Upon payment to the Trustee of such Proceeds, if any, the Trustee shall make the Proceeds available to Tenant for use in performing the Restoration in accordance with the provisions of Paragraph 15. Tenant shall, whether or not the Proceeds are sufficient for the purpose or whether or not Tenant is self- insuring, promptly commence and complete the Restoration in accordance with all Insurance Requirements and Legal Requirements and the provisions of this Lease (including Tenant's making any desired Alterations allowed hereunder) and the Proceeds, if any, of such casualty loss shall thereupon be payable to Tenant, subject to the provisions of Paragraph 15 hereof. Notwithstanding the foregoing, in the event that any damage or destruction shall occur at. such time as Tenant is self- insuring, and so long as Tenant has a Tangible Net Worth of not less than Two Hundred Million Dollars ($200,000,000.00), Tenant shall proceed with Restoration as provided herein and shall not be required to pay to the Trustee the amount of the proceeds that would have been payable had such self-insurance program not been in effect. Funds so used by Tenant to restore the Leased Premises shall not be included in the definition of "Proceeds" or in the "Restoration Funds". (c) MAJOR CASUALTY. In the event of any major casualty loss to the Leased Premises during the last three (3) years of the then current Lease Term, Tenant shall have the option to terminate this Lease upon written notice to Landlord not less than thirty (30) days after the date of such casualty loss. For purposes of this section the term "major casualty loss" shall mean any casualty loss, the repair of which would cost at least twenty-five percent (25%) of the before casualty value of the Leased Premises. In such event, all Proceeds sha1l be payable to Landlord and Tenant shall pay to Landlord the amount of any deductibles and, in the event Tenant is self-insuring, Tenant shall pay to Landlord an amount equal to the amount of insurance proceeds that would have been payable had such self-insurance program not been in effect. 15. RESTORATION. Any Award or Proceeds (the aggregate of which and any interest earned thereon being herein defined as the "Restoration Fund") paid to the Trustee shall be disbursed by the Trustee in accordance with the following conditions: (a) At the time of any disbursement no Event of Default shall exist and no mechanics' or materialmen's liens shall have been :filed against the Leased Premises and remain undischarged and bonded. (b) If the cost of Restoration exceeds Five Hundred Thousand Dollars ($500,000.00), prior to commencement of the Restoration, Tenant shall provide the contracts, plans and specification for the Restoration to Landlord. (c) Each request for disbursement from the Restoration Fund shall be accompanied by a certificate of Tenant, signed by the President, Treasurer or any Vice President of Tenant, describing the completed Restoration work for which payment is requested, stating the cost incurred in connection therewith and stating that Tenant has not previously received payment for such work. The certificate to be delivered by Tenant upon completion of the Restoration work shall, in addition, state that the Restoration work has been completed and complies with the applicable requirements of this Lease and all Legal Requirements and Insurance Requirements. (d) Disbursements from the Restoration Fund shall be made from time to time in an amount not exceeding the cost of the Restoration work completed since the last disbursement upon receipt of (1) satisfactory evidence, including architects' certificates, of the stage of completion, of the estimated cost of completion and of performance of the Restoration work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications approved by Landlord, (2) waivers of the general contractor's lien, (3) a satisfactory bring down of title insurance, and (4) other evidence of cost and payment so that Landlord can verify that the amounts disbursed from time to time are represented by the Restoration work that is completed in place and free and clear of mechanics' lien enforcement actions. (e) The Trustee may retain ten percent (10%) from each disbursement of the Restoration Fund until the Restoration is fully completed and the Leased Premises are available for their intended use, in the reasonable judgement of the Lender, including the issuance of any necessary certificate of occupancy. (f) The Restoration Fund shall be kept in a separate interest-bearing account federally insured to the extent applicable by the Trustee or by Lender. . In the event of a casualty, prior to commencement of Restoration and at any time during Restoration, if the estimated cost of Restoration, as reasonably determined by Landlord and Tenant, exceeds the amount of the Restoration Fund, the amount of such excess shall be (i) paid by Tenant to the Trustee to be added to the Restoration Fund prior to any further disbursement from such Restoration Fund, (ii) funded at Tenant's own expense until the remaining Restoration Fund is sufficient for the completion of the Restoration, or (iii) in the event Tenant is self- insuring, paid by Tenant. In the event of a Taking, prior to commencement of Restoration and at any time during Restoration, if the estimated cost of Restoration, as reasonably determined by Tenant, exceeds the amount of the Restoration Fund, Tenant may terminate the Lease upon notice to Landlord; provided, however, Landlord shall have the option to pay the amount of such excess and continue the Term of the Lease. Except for the payment to Landlord of the net surplus award referred to in Paragraph 12(c), any sum in the Restoration, Fund which remains in the Restoration Fund upon the completion of Restoration shall be paid to Tenant. For purposes of determining the source of funds with respect. to the disposition of funds remaining after the completion of Restoration, the Proceeds of the Restoration Fund shall be deemed to be disbursed prior to any amount added by Tenant to the Restoration Fund. 16. SUBORDINATION TO FINANCING. (a) .SUBORDINATION OF LEASE. Subject to the following provisions of this Paragraph 16(a), Tenant agrees that this Lease shall be subject and subordinate to the lien of any Mortgage, and Tenant agrees, upon demand by Landlord or its Lender, without cost, to execute instruments as may be required to further effectuate or confirm such subordination, including, but not limited to a Subordination, Non-Disturbance and Attornment Agreement in the form attached as Exhibit "E" hereto. So long as no Event of Default shall be outstanding, Tenant's tenancy hereunder shall not be disturbed nor shall this Lease be affected by any default under such Mortgage, and in the event of a foreclosure or other enforcement of any such Mortgage, or sale in lieu thereof, the purchaser at such foreclosure sale shall be bound to Tenant for the Term of this Lease and any extensions thereof, the rights of Tenant hereunder shall expressly survive, and this Lease shall in all respects continue in full force and effect so long as no Event of Default by Tenant has occurred and is continuing, provided, however, that any such transferee shall not be (i) bound by any payment of Basic Rent or Additional Rent made more than one (1) month in advance, except prepayments in the nature of security for the performance by Tenant of its obligations under this Lease, but only to the extent such prepayments have been delivered to such transferee, (ii) bound by any amendment of this Lease made without the written consent of the holder of each Mortgage existing as of the date of such amendment, (iii) liable for damages for any breach, act or omission of any prior landlord, (iv) liable for any default by prior landlord under the Lease, or (v) subject to any offsets or defenses which Tenant might have against any prior landlord; provided, however, that after succeeding to Landlord's interest under this Lease, such transferee shall agree to perform in accordance with the terms of this Lease all obligations of Landlord arising after the date of transfer. So long as no Event of Default by Tenant has occurred and is continuing, Tenant shall not be named as a party defendant in any such foreclosure suit, except as may be required by law. Any Mortgage to which this Lease is now or hereafter subordinate shall provide, in effect, that during the time this Lease is in force (and provided that Tenant is not in default hereunder beyond applicable periods of notice and cure or, if Tenant is in such default, Landlord is not exercising its remedies hereunder), all Proceeds and Awards shall be permitted to be used for Restoration in accordance with the provisions of this Lease. (b) SUBORDINATION OF MORTGAGE. Notwithstanding the provisions of Paragraph 16(a) above, the holder of any Mortgage to which this Lease is subject and subordinate, as provided in said Paragraph 16(a) shall have the right, at its sole option, at any time, to subordinate and subject such Mortgage, in whole or in part, to this Lease by recording a unilateral declaration to such effect. (c) ATTORNMENT. At any time prior to the expiration of the Term, Tenant agrees, at the election and upon demand of any owner of the Leased Premises, or of any Lender who has granted nondisturbance to Tenant pursuant to Paragraph 16(a) above, to attorn, from time to time, to any such owner or Lender, upon the then executory terms and conditions of this Lease, for the remainder of the Term originally demised in this Lease and for any renewal term hereunder, provided that such owner or Lender shall then be entitled to possession of the Leased Premises subject to the provisions of this Lease. The provisions of this subdivision (c) shall inure to the benefit of any such owner or Lender, shall apply notwithstanding that, as a matter of law, this Lease may terminate upon the foreclosure of the Mortgage, shall be self- operative upon any such demand, and no further instrument shall be required to give effect to said provisions. 17. ASSIGNMENT SUBLEASING (a) ASSIGNMENT SUBLETTING Tenant shall have the right to assign (but not to mortgage or otherwise encumber) its interest in this Lease and sublet the Leased Premises or any part thereof, without obtaining the prior written consent of Landlord (but subject to the notice provisions of subsection (b) below), provided that Tenant remains fully liable under the terms and conditions of this Lease. Tenant shall not mortgage or encumber its interest under this Lease without the prior written consent of Landlord and Lender, which consent shall not be unreasonably withheld, conditioned or delayed, subject to their then-current underwriting criteria for similar properties and transactions. Tenant shall deliver to Landlord a fully-executed duplicate original of any such assignment, sublease, encumbrance or other transfer within ten (10) days after Tenant's execution thereof Any attempted assignment, transfer or other encumbrance of this Lease or an or any of Tenant's rights hereunder or interest herein not in accordance with this Paragraph 17 shall be void and of no force or effect Landlord's collection or acceptance of Basic Rent or Additional Rent from any assignee shall not be construed either as waiving or releasing Tenant from any of its liabilities or obligations under this Lease as a principal and not as a guarantor or surety. As security for this Lease, Tenant hereby assigns to Landlord the rent due from any sublessee of Tenant. For any period during which there exists an Event of Default hereunder, Tenant hereby authorizes each such sublessee to pay said rent directly to Landlord as Basic Rent or Additional Rent hereunder upon receipt of notice from Landlord specifying same. (b) NOTICE TO LANDLORD. If at any time during the Term hereof Tenant desires to assign, sublet or mortgage all or part of this Lease or the Leased Premises, Tenant shall give notice to Landlord in writing containing: the identity of the proposed assignee or other Party and a description of its business experience and financial condition; the terms of the proposed assignment, sublease, mortgage or other transaction; the commencement date of the proposed assignment, sublease or other transaction; and those portions of the Leased Premises proposed to be assigned, sublet or otherwise encumbered. Anything herein to the contrary notwithstanding, if a proposed assignee, sublessee, or a leasehold mortgagee shall be an entity or person with whom Landlord cannot legally do business pursuant to the USA Patriot Act, P.L. 107-56, Landlord shall so notify Tenant in writing, and Tenant shall not enter into the proposed transaction with such entity or person. (c) RESTRICTIONS AND OBLIGATIONS EXTEND TO TRANSFEREES. All restrictions and obligations imposed pursuant to this Lease on Tenant shall be deemed to extend to any subtenant, assignee, licensee, concessionaire pr other occupant or transferee, and Tenant shall cause such person or entity to comply with such restrictions and obligations. Any assignee shall be deemed to have assumed the obligations hereof as if such assignee had originally executed this Lease and at Landlord's request shall execute promptly a document confirming such assumption. Each sublease is subject to the condition that if the Term hereof is terminated or Landlord succeeds to. Tenant's interest in the Leased Premises by voluntary surrender or otherwise, at Landlord's option, the sublease shall not terminate as a matter of law and the subtenant shall be bound to Landlord for the balance of the term of such sublease and shall attorn to and recognize Landlord as its landlord under the then executory terms of such sublease. (d) DEVELOPMENT SPACE. Landlord recognizes that there may currently be constructed or Tenant may intend to construct new or redevelop existing leasable space (improved or unimproved) (the "Development Space") at the Leased Premises, which Development Space is or shall be either one or more separate parcels or buildings or buildings connected to the other Improvements but separated therefrom by a demising wall, for the specific purpose of generating sublease income to the Tenant. Any such Development Space shall be constructed at Tenant's sole cost and expense, and such construction shall be deemed an Alteration under 'this Lease and shall be performed in accordance with the terms of this Lease, however, Landlord agrees that Paragraph ll(b)(v) shall not apply to the construction of the Development Space. Landlord agrees for itself, its successors and assigns, promptly upon Tenant's request, to enter into a nondisturbance and attornment agreement with any Qualified Subtenant, as defined below~ of the Development Space upon the terms described below, pursuant to which Landlord shall agree, for so long as such Qualified Subtenant is not in default under its Qualified Sublease, as defined below, that the Qualified Sublease shall not be terminated as a result of any termination of this Lease and such Qualified Subtenant's use and occupancy of the premises demised pursuant to the Qualified Sublease shall not be disturbed by Landlord, and pursuant to which such Qualified Subtenant shall agree to attorn to Landlord or its successor a$ landlord under the Qualified Sublease upon any termination of this Lease. Said agreement shall further provide that nothing therein contained shall impose any obligation on the Landlord, the then owner or the Lender to (a) return or apply any security deposited under such sublease, unless such security shall be transferred and turned over to the Landlord, such then owner or Lender or its Successors, (b) expend any sums to make any installations or alterations provided to be made by the landlord under said sublease or reimburse the Tenant under said sublease for any installations or alterations made by it, (c) be liable for any act or omission of any prior landlord except that the foregoing shall not prevent any subtenant's exercising any right of termination as the result of any continuing default of the prior landlord relating to its repair, maintenance or service obligations under the Qualified Sublease, (d) be subject to any offsets or defense which such subtenant might have against any prior landlord, (e) be bound by any rent or additional rent which such subtenant might have paid for more than the current rent (which shall not be paid more than one month in advance) to any prior landlord, or (f) be bound by any amendment or modification of the sublease made without the prior written consent of Landlord, the terms of which amendment or modification if included in the original sublease would have prevented such sublease from meeting the criteria for a Qualified Sublease. Any Subtenant under a Qualified Sublease, as defined below, is a "Qualified Subtenant.". (e) DEFINITIONS, For purposes of paragraph 17 below, the following definitions shall apply: (i) The sublease for which Tenant requests nondisturbance as a Qualifying Sublease shall be the "Subject Sublease;" (ii) The proposed effective date of the Subject Sublease shall be the "Start Date;" (iii) Subleases previously qualified hereunder as "Qualifying Subleases" shall be "Existing Qualifying Subleases;" (iv) Of all Existing Qualifying Subleases and the Subject Sublease, the sublease with the longest term (including any renewal terms) shall be the "Benchmark Sublease;" (v) The last day of the term of the Benchmark Sublease shall be the "End Date" (vi) The portion of the Leased Premises not subject to any Existing Qualifying Sublease or proposed to be subject to the Subject Sublease shall be the "Prime Portion;" (vii) Each portion of the Leased Premises subject to any Existing Qualifying Sublease (or proposed to be subject to the Subject Sublease) other than the Benchmark Lease shall be a "Secondary Portion;" (viii) The Existing Qualifying Sublease burdening any Secondary Portion shall be the "Related Sublease" with respect to such Secondary Portion (and the Subject Sublease shall be the "Related Sublease" with respect to the Secondary Portion proposed to be burdened thereby) (ix) The "Present Value of a stream of rental income shal1 be the value of such stream of income discounted for the value of money discounted at the Discount Rate; and (x) The "Rental Value" of any Secondary Portion or the Prime Portion shall be the Present Value of the fair market rental value for the period of time at issue, as established by the written report of a qualified commercial real estate appraiser having at least ten years experience in the Lithia Springs, Georgia real estate market, employing consistent methodology, delivered to Landlord by Tenant at the time Tenant requests nondisturbance from Landlord hereunder. (f) OUALIFIED SUBLEASE With respect to any Development Space, "Qualified Sublease" shall be any sublease of the Development Space, or any portion thereof, (i) that requires the tenant thereunder to pay basic rent that does not decrease over time (including any possible decrease based upon an "escalator" of other adjustment mechanism), (ii) the term of which (including any renewal periods) does not extend beyond the last day of the last r enewal term which becomes effective hereunder, (iii) under which the tenant has not paid or is not required to pay any one-time rental payment or other "up-front" payment the effect of which is to front-end load the lease payments, (iv) the Present Value of the net rent payable under which, when. added to: (A) the Present Value of the net rent(s) payable (commencing on Start Date) under each Existing Qualifying; Sublease, (B) the Rental Value of the Prime Portion calculated for the period beginning with the Start Date and ending with the End Date, and (C) the aggregate Rental Value(s) of the Secondary Portions, each calculated for the period beginning with the expiration of its Related Sublease and ending with the End Date is at least equal to the Present Value of the rental rate payable hereunder for the period com1nencing on the Start Date and ending on the End Date, as if the rental rate hereunder continued through the End Date, if such is not the case, and (v) exculpates the Landlord, its successor and assigns (including any mortgagee of Landlord or purchaser at sale pursuant to foreclosure under any mortgage granted by Landlord from all personal liability whatsoever under the Qualified Sublease regardless of whether Landlord or such successor or assign becomes the landlord under the Qualified Sublease, and (vi) requires such Qualified Subtenant to maintain the nonstructural components of the premises demised thereunder in accordance with the maintenance standards set forth in this Lease. (vii) Upon the occurrence of an Event of Default under this Lease, Landlord shall have the right to collect and enjoy all rents and other sums of money payable under any sublease of any of the Leased Premises, and Tenant hereby irrevocably and unconditionally assigns such rents and money to Landlord, which assignment may be exercised upon and after (but not before) the occurrence of an Event of Default and any notice and opportunity to cure set forth herein. . 18. PERMITTED CONTESTS. Notwithstanding any provision of this Lease to the contrary, Tenant shall not be required to (i) pay any Tax, (ii) comply with any Legal Requirement, or (iii) discharge or remove any lien on the Leased Premises,-so long as Tenant shall contest, in good faith and at its expense, the existence, the amount or the validity thereof, the amount of the damages caused thereby, or the extent of its or Landlord's liability therefor, by appropriate proceedings which shall operate during the pendency thereof to prevent (v) the collection of, or other realization upon, the Tax or lien so contested, (w) the sale, forfeiture or loss of any of the Leased Premises, any Basic Rent or any Additional Rent to satisfy the same or to pay any damages caused by the violation of the same, (x) any interference with the use or occupancy of any of the Leased Premises, (y) any interference with the payment of any Basic Rent or any Additional Rent, and (z) the cancellation of any Property Insurance or other insurance policy. Landlord hereby appoints Tenant as its attorney- in-fact for the purpose of such contests and agrees to cooperate with Tenant and sign any documents reasonably required to assist Tenant with such contests. In no event shall Tenant pursue any contest with respect to any Tax, Legal Requirement, or lien referred to above in such manner that exposes Landlord to any criminal or material civil liability, penalty or sanction for which Tenant has not made provisions reasonably acceptable to Landlord and Lender Tenant shall be deemed to have made provisions reasonably acceptable to Landlord if Tenant shall have provided Landlord as security for such contest, an amount of cash or bond equal to-12S% of the amount being contested, or other security satisfactory in the reasonable opinion of Landlord, in assuring the payment, compliance, discharge, removal or other action including all costs, attorneys' fees, interest and penalties, in the event that the contest is unsuccessful. No such security shall be required if the amount involved in the contest shall not exceed one tenth (1/10th) of one percent (1% ) of the Tangible Net Worth of Tenant, as determined by its most recent publicly filed financial statements (10Q and 10K). While any such proceedings are pending and the required security is held by Landlord, Landlord shall not have the right to pay, remove or cause to be discharged the Tax, Legal Requirement or lien thereby being contested unless Landlord reasonably believes that any one or more of the conditions in subdivisions (v) through (z) of this paragraph shall not be prevented during the pendency of the contest. Tenant further agrees that each such contest shall be promptly and diligently prosecuted to a final conclusion; except that Tenant shall, so long as all of the conditions of the first sentence of this Paragraph 18 are at all times complied with, have the right to attempt to settle or compromise such contest through negotiations and, in any event, a1iyand all such contests shall be prosecuted to a final conclusion prior to the end of the Term hereof Tenant shall pay any and all judgments, decrees and costs (including costs incurred by Landlord).(including all attorneys' fees and expenses, including appellate fees and expenses) in connection with any such contest and shall, promptly after the final determination of such contest, fully pay and discharge the amounts which shall be levied, assessed charged or imposed or be determined to be payable therein or in connection therewith together with all penalties, fines, interest, costs and expenses thereof or in connection therewith, and perform all acts the performance of which shall be ordered or decreed as a result thereof 19. DEFAULT. The occurrence of anyone or more of the following events shall constitute an Event of Default under this Lease: (a) Tenant's failure to make when due any payment of Basic Rent, Additional Rent or other sum; provided, however, no Event, of Default shall be deemed to have occurred unless such failure continues for a period of five (5) business days after written notice thereof from Landlord. (b) Tenant's failure to duly perform and observe, or Tenant's Violation or breach of, any other provision hereof if such failure shall continue for a period of thirty (30) days after notice thereof is given by Landlord or Lender or if such failure cannot be cured within such period of thirty (30) days, such period shall be extended for such longer time as is reasonably necessary provided that Tenant has commenced to cure such default within said period of thirty (30) days and is actively, diligently and in good faith proceeding with continuity to remedy such failure; but in no event shall such cure period be longer than sixty (60) days, as may be extended by one (1) day for each day an event of force majeure exists; provided, however, that such cure period shall not prevent Landlord's availing itself of its rights to enter onto the Leased Premises and remedy any such failure (at Tenant's expense) if, in Landlord's sole reasonable discretion, such failure raises a life/safety issue with respect to the Leased Premises or its occupants or visitors, including but not limited to, a threat of personal injury or continuing physical injury to the Leased Premises or an emergency situation where a release, discharge, spill or leak of Hazardous Materials in violation of Paragraph 26 or a Violation of applicable Environmental Requirements constitutes more than a deminimus threat to human health, safety or the environment or is reasonably anticipated to materially adversely affect the value of the Leased Premises. (c) Tenant shall (i) voluntarily adjudicated a banlm1ptcy or insolvent, or (ii) consent to the appointment of a receiver or trustee for itself or for any of the Leased Premises, {iii) file a petition seeking relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, or (iv) make a general assignment for the benefit of creditors. (d) A court shall enter an order, judgment or decree appointing a receiver or trustee for Tenant, or for any of the Leased Premises or approving a petition .filed against Tenant, which seeks relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain in force, undischarged or unstayed, sixty (60) days after it is entered (e) Tenant shall in any insolvency proceedings be liquidated or dissolved or shall begin proceedings towards its liquidation or dissolution. (f) The estate or interest of tenant in any of the Leased Premises shall be levied upon or attached in any proceeding and such estate of interest is able to be sold, or transferred or such process shall not be vacated r discharged within sixty (60) days after such levy or attachment. (g) Any subletting, assignment transfer, mortgage or other encumbrance of the Leased Premises or this Lease not permitted by Paragraph 17. {h) A final, non-appealable judgment for the payment of money in excess of One Million Dollars ($1,000,000.00) riot fully covered by insurance is rendered against Tenant or any Affiliate conducting business at or from the leased premises, and the same has not been discharged vacated, bonded, appealed or stayed within thirty (30) days after rendering of the same or prior to levy and execution, whichever is earlier. (i) Any failure to maintain the insurance required pursuant to Paragraph 13 above, which failure continues for three (3) business days after Landlord gives written notice thereof to Tenant. (j) Tenant's failure to maintain the Leased Premises as required herein as a result of Tenant's abandonment of the Leased Premises. 20. LANDLORD'S REMEDIES. After the occurrence of an Event of Default by Tenant, Landlord shall have the right to exercise the following remedies: (a) Landlord may, at its option, continue this Lease in full force and effect, without terminating Tenant's right to possession of the Leased Premises, in which event Landlord shall have the right to collect Basic Rent and all other Additional Rent and charges when due. In the alternative, Landlord shall have the right to peaceably re-enter the Leased Premises without such re-entry being deemed a termination of the Lease or an acceptance by Landlord of a surrender thereof. Landlord shall also have the right, at its option, from time to time, without terminating this Lease, to relet the leased Premises, or any part thereof, with or without legal process, as the agent, and for the account, of Tenant upon such terms and conditions as Landlord may deem advisable (which terms may be materially different from the terms of this Lease), in which event the rents received on such reletting shall be applied (i) first to the reasonable and actual expenses :of such letting and collection, including, without limitation, necessary renovation and alterations of the Leased Premises, reasonable and actual attorneys' fees and any reasonable and actual real state commissions paid, and (ii) thereafter toward payment of all sums- due or to become due t Landlord hereunder. If a sufficient amount to pay such expenses and sums shall not be realized or secured, then Tenant shall pay Landlord any such deficiently monthly, and Landlord may bring an action therefor as such monthly deficiency shall arise. Landlord shall not, in any vent, be required to pay Tenant any sums received by Landlord on a reletting of the Leased Premises in excess of the Basic Rent provided in this Lease, but such excess shall reduce any acc ed present or future obligations of Tenant hereunder. Landlord's re-entry and reletting of the Leased Premises without termination of this Lease shall not preclude Landlord from subsequently terminating this Lease as set forth below. (b) Landlord may terminate this Lease by written notice to Tenant specifying a date therefor, which shall be no sooner than .(30) days following the date of such notice to Tenant, and this Lease shall then terminate o .the date so specified as if such date had been originally fixed as the expiration date of the Te .In the event of such termination, Landlord shall be entitled to recover from Tenant the worth at the time of the award of all of the following: (i) Any obligation hereunder which has accrued prior to the date of termination, plus (ii) The amount by which the unpaid Basic Rent and all other charges which would have accrued after termination until the time of award exceeds the amount of any sums which Landlord has (or Tenant proves that Landlord could reasonably have) received in mitigation, plus (iii) The amount by which the unpaid Basic Rent for the balance of the Term (excluding any unexercised option period or portions thereof) after the time of award exceeds the amount of such rental loss that Tenant demonstrates could be reasonably avoided by Landlord. Landlord shall not have any duty to mitigate its damages hereunder (including, but not limited to, any duty to relet or release the Leased Premises), regardless of the use of mitigation costs in the calculations described above. As used in this Paragraph 20(b) the term, "worth at the time of the award" shall be computed by allowing simple interest at the Default Rate for past due obligations, and employing a discount rate equal to the Discount Rate on anticipated future obligations, on the amount of the obligations payable on the date of such calculation In the event this Lease shall be terminated as provided above, by summary proceedings or otherwise, Landlord, its agents, servants or representatives may immediately or at any. thereafter peaceably re- enter and restore possession of the Leased Premises and remove all persons and property therefrom, by summary dispossession proceedings. (c) Landlord may recover from Tenant, and Tenant shall pay to Landlord upon demand, as Additional Rent hereunder such reasonable and actual expenses as Landlord may incur in recovering possession of the Leased remises, placing the same in good order and condition and repairing the same for reletting and all other reasonable and actual expenses, commissions and charges incurred by Landlord in exercising any remedy provided herein or as a result of any Event of Default by Tenant hereunder (including, without limitation, attorneys' fees), provided, however, that in no event shall Tenant be obligated to compensate Landlord for any speculative or consequential, damages caused by Tenant's failure to perform its obligations under this Lease. (d) The various rights and remedies reserved to Landlrod herein are cumulative, the rights and remedies described in Paragraphs 20(a)-(d) shall survive termination of this Lease and Landlord may pursue any and all such rights and remedies and any other rights and remedies available to Landlord under applicable law or equity, whether at the same time or otherwise (to the extent not inconsistent with specific provisions of this Lease); provided, however, that no remedy of termination shall be available to Landlord under this Lease except as expressly set forth in Paragraph 20(b ) after the occurrence of an Event of Default. Notwithstanding anything contained herein to the contrary, in the event of a non-monetary Event of Default only, Landlord expressly waives its right to forcibly dispossess Tenant from the Leased Premises, whether peaceably or otherwise, without judicial process, such that Landlord shall not be entitled to any "commercial lockout" or any other provisions of applicable law which permit landlords to dispossess tenants from commercial properties without the benefit of judicial review. No such waiver shall apply to a monetary Event of Default hereunder. Upon any termination of this Lease, Tenant shall be entitled to remove, at its sole cost and expense, its Inventory and Trade Fixtures from the Leased Premises. 21. NOTICES. All notices, demands, requests, consents, approvals, offers, statements and other instruments or communications required or permitted to be given pursuant to the provisions of this Lease (collectively "Notice" or "Notices") shall be in writing and shall be deemed to have been given for all purposes (i) three (3) days after having been sent by United States mail, by registered or certified mail, return receipt requested, postage prepaid, addressed to the other party at its address as stated below, or (ii) one (1) day after having been sent by Federal Express or other nationally recognized air courier service, to the addresses stated below: (a) LANDLORD. If to Landlord at the address set forth on the first page of this Lease, with copies to General Electric Capital Business Asset Funding Corporation, Attention Vice President and General Counsel. 10900 Northeast Fourth Street, Suite 500, Bellevue. Washington 98004, and to Hunter, Maclean, Exley & Dunn, P.C., 200 East Saint Julian Street, Savannah. Georgia 31401, Attention: Dorothea Summerell, Attorney-at-Law. (b) TENANT. If to Tenant, at the address set forth on the first page of this Lease, Attention: Real Estate Department, with copies to: the Corporate Secretary and to McGuire Woods L.L.P, One James Center, 901 East Cary Street, Richmond, Virginia 23219, Attn. T. Craig Harmon, Esq . If any Lender shall have advised Tenant by Notice. the manner aforesaid that it is the holder of a Mortgage and stating in said Notice its address for the receipt of Notices, then simultaneously with the giving of any Notice by Tenant to Landlord, Tenant shall serve one or more copies of such Notice upon Lender in the manner aforesaid. or the purposes of this Paragraph, any party may substitute its address by giving fifteen (15) days notice to the other party in the manner provided above. 22. MEMORANDUM OF LEASE. ESTOPEL CERTIFICATES. Tenant shall execute, deliver and record, file or register from time to time all such instruments as may be required by any present or future law in order to evidence the respective interests of Landlord and Tenant in any of the Leased Premises, and shall cause a memorandum of such Lease, and any supplement hereto or to such other instruments if any, as may be appropriate, to be recorded, filed or registered and rerecorded, refiled or re-registered in such manner and in such places as may be required by any present or future law in order to give public notice d protect the validity of this Lease. In the event of any discrepancy between the provisions of said recorded memorandum of this Lease or any other recorded instrument referring to this Lease and the provisions of this Lease, the provisions of this Lease shall prevail. Tenant shall, at any time and from time to time, upon not less than twenty (20) days prior written request by Landlord, execute, acknowledge and deliver to Landlord a statement in writing, executed by Tenant or, if other than an individual, by a President, Vice President or authorized general partner, principal officer or agent of Tenant certifying (i) that this Lease is unmodified and in effect (or, if three have been modifications, that this Lease is in full effect as modified, setting forth such modifications), (ii) the dates to which Basic Rent payable hereunder has been paid (iii) that no default by Landlord exists hereunder or specifying each such default; (iv) the remaining Term hereof, and (v) there are no proceedings pending or threatened against Tenant before or by any court or administrative agency which if adversely decided would materially and adversely affect the financial condition and operations of Tenant or if any such proceedings are pending or threatened to said party's knowledge, specifying and describing the same. It is intended that any such statements may be relied upon by Lender, the recipient of such statements or their assignees or by any prospective mortgagee or purchaser of the Leased Premises. 23. SURRENDER. Upon the expiration or earllier termination of this Lease, Tenant shall peaceably leave and surrender the Leased Premise (except as to any portion thereof with respect to which this Lease has previously terminated) to Landdlord in the same condition in which the Leased Premises were originally received from Landlord at the commencement of this Lease, except as to any repair or Alteration as permitted or required by any provision of this Lease, and except for ordinary wear and tear and damage by fire, casualty or condemnation but only to the extent Tenant is not required to repair the same hereunder. Tenant may remove at Tenant's sole cost and expense from the Leased Premises on or prior to the expiration or earlier termination of this Lease, Tenant's Trade Fixtures, Inventory and any personal property which is owned by Tenant or third parties other than Landlord, and Tenant at its expense shall, on or prior to such . expiration or earlier termination of this Lease, repair any damage caused by such removal. Tenant's Trade Fixtures and personal property not so removed at the expiration of the Term or within thirty (30) days after the earlier termination of the Term for any reason whatsoever shall become the property of Landlord, and Landlord max thereafter cause such property to be removed from the Leased Premises. Landlord shall not in any manner or to any extent be obligated to reimburse Tenant for any property that becomes the property of Landlord in the manner set forth in the proceeding sentence. Upon such expiration or earlier termination of the Term hereof no party shall have any further rights or obligations hereunder except as specifically provided herein. 24. NO MERGER OF TITLE. There shall be no merger of this Lease nor of the leasehold estate created by this Lease with the fee estate in or ownership of any of the Leased Premises by reason of the fact that the same person, corporation; firm or other entity may acquire or hold or own, directly or indirectly, (i) this Lease or the leasehold estate created by this Lease or any interest in this Lease or in such leasehold estate and i) the fee estate or ownership of any of the Leased premises or any interest in such fee estate or ownership. No such merger shall occur unless and until all persons, corporations, :firms and other entities having any interest in (x) this Lease or the leasehold estate created by this Lease an (y) the fee estate in or ownership of the Leased Premises including, without limitation; Lender's interest therein, or any part thereof sought to be merged shall join in a written instrument effecting such merger and shall duly record the same. 25. LANDLORD EXCULPATION. Anything contained herein to the contrary notwithstanding, any claim based on or in respect of any liability of Landlord under this Lease . shall be enforced only against the Landlord's interest in the Leased Premises and shall not be enforced against the Landlord individually or personally. 26. HAZARDOUS SUBSTANCES. (a) TENANT'S REDRESENTATIONS. As a material inducement for Landlord to enter into this Lease, Tenant represents and warrants that (i) except as may be permitted by applicable law, throughout the Term of this Lease (A) Tenant will not permit the release, discharge, disposal or spill of any Hazardous Materials (as defined below) in, on, under or migrating from the Leased Premises in concentrations. that exceed the applicable state, local or federal assessment, remediation or monitoring Environmental Requirements and (B) no part of the Leased Premises will be used by Tenant or others to generate, manufacture, refine, transport, treat, store, handle, dispose of, transfer, produce or process Hazardous Materials (but notwithstanding the foregoing, nothing in this Paragraph 26 shall prevent the storage, handling, and use to the extent necessary and customary in normal automobile sales and maintenance operations of petroleum products, automotive f1uid, and such other Hazardous Materials, provided that the same are used, handled, stored, labeled, and disposed of in accordance with applicable Environmental Requirements), and Tenant represents and warrants that it will at all, times comply with applicable Environmental Requirements governing Hazardous Materials and (ii) Tenant will not suffer or permit any activity in, fit or from all or any part of the Leased Premises that will cause or contribute to pollution (by petroleum or petroleum products, or otherwise) of the Leased Premises in whole or in part or any other property in concentrations requiring assessment, remediation or monitoring by Tenant, Landlord or their respective successors or assigns under the applicable federal, state or local Environmental Requirements. "Hazardous Materials" shall mean all materials which because of their quantity, concentration or physical, chemical or infectious characteristics may cause or pose a present or potential hazard to human health or the environment when improperly handled, treated, stored, transported, disposed of or otherwise managed. The term shall include (Without limitation) all petroleum, petroleum products, explosives, radioactive materials, hazardous wastes, hazardous or toxic substances, any material containing 1% or more asbestos by weight by any other substance or material now or hereafter defined as a '"hazardous" or "toxic"; substance, material or product by the U.S. Environmental Protection Agency or the state in which the Leased Premises is located under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the Resource Conservation and Recovery Act (RCRA), the Toxic Substances Control Act (TSCA), the Federal Water Pollution Control Act (FWPCA) or comparable state statutes and other Environmental Requirements (as defined below). Tenant shall comply fully with all Environmental Requirements. "Environmental Requirements" shall mean the above- referenced statutes and all other applicable laws (whether federa1,state or local) pertaining to the protection of human health and the environment, including (without limitation) employee and community right-to-know laws and all laws regarding the use,- generation, storage, transportation, treatment, disposal or other handling of Hazardous Materials. (b ) TENANT'S REMEDIATION. If during the Lease Term any Hazardous Materials are dumped, released, discharged, spilled or leaked onto or into the Leased Premises or found to be contaminating the Leased Premises (or if a party has reasonable cause to believe that such dumping, releasing, discharge, spilling or leak may have occurred or that such Hazardous Materials may be contaminating the Leased Premises), the party will notify the other party in writing ( except in cases of an emergency, in which event the party shall have the right to take action without written notice as provided herein) as to the matter in question. In such event or at any other time as may be. requested by Landlord, the parties will cooperate in having reasonable examinations, tests or investigations performed at Tenant's expense to determine the extent of the problem and nature of appropriate corrective action (or if Tenant fails to cause such examinations or investigations to be performed after notice of the required action Landlord will have the right to perform them on, Tenant's behalf and at Tenant's expense). If such examinations demonstrate that the Leased Premises is contaminated by Hazardous Materials at levels requiring remedial action under applicable laws, Tenant will have 30 days (or such longer time as may be reasonably necessary under the circumstances or such lesser time as may be required by emergency conditions, by law, regulation or judicial orders or by any governmental entity, whichever is sooner) after written notice from Landlord to remediate such contamination as required by applicable law and (to the extent necessary) to restore the Leased Premises to prior condition but with new non-Hazardous Materials, failing which Landlord may either terminate this Lease on written notice to Tenant or take all action deemed necessary by Landlord in Landlord's reasonable discretion to effect such elimination and (to the extent necessary) restoration. If Landlord elects the latter, upon request and as Additional Rent, Landlord will be entitled to receive from Tenant all reasonable costs and expenses in any way associated therewith, plus interest at the Default Rate. (c) TENANT;S INDEMNITY. Tenant, for itself, its successors and assigns, hereby agrees to defend, indemnify, hold harmless and reimburse Landlord, its successors and assigns, and any Lender .from, against and for any and all damages (excluding consequential damages other than for diminution in value), claims, demands, liabilities, losses, penalties and expenses (including, without limitation, court costs and reasonable attorneys' fees), including, without limitation, any diminution in the value of the Leased Premises, which are in any manner caused in whole or in part by the presence of any Hazardous Materials on or about the Leased Premises or the failure of Tenant or any subtenant, agent, employee or contractor of Tenant or the Leased Premises to comply with any Environmental Requirements, whether or not the same are known to or caused by Tenant and whether the same occur during the term of this Lease, any time prior to the term of this Lease or, with respect to any occurrence or condition on or about the Leased Premises which is caused by any condition, act or omission prior to the expiration of this Lease, after the term of the Lease, except to the extent of the gross negligence or willful misconduct of Landlord, its successors or assigns. This indemnity shall survive the termination, expiration or forfeiture of this Lease. (d) Landlord's Cooperation. Unless an Event of Default shall exist hereunder or Tenant shall not be diligently performing its obligations under subsections (b) and (c) above, Landlord agrees to cooperate with Tenant in connection with (i) any claim Landlord and/or Tenant may have against any third party for the cost of any remediation conducted or to be conducted on, in and under the Leased Premises or with respect to any damage caused to the Leased Premises, and (ii) any insurance covering such remediation and/or damage to the Leased Premises. Landlord hereby assigns to Tenant any and all rights, claims or causes of action Landlord may have with against such third party or in connection with such insurance to the extent of any sums paid by Tenant in fulfillment of its obligations under subsections (b) and (c) above except to the extent that such rights, claims, causes of action or insurance proceeds are necessary to fully compensate Landlord with respect to any such remediation or damage to the Leased Premises. Tenant "agrees to" pay all Landlord's out-of- pocket costs incurred by Landlord in connection with such cooperation. (e) UNDERGROUND STORAGE TANKS. Notwithstanding anything contained in Paragraph 26 to the contrary, but subject to the indemnity obligations set forth above, Tenant shall have the unqualified right to install, maintain and operate underground storage tanks to hold petroleum as necessary for normal retail automobile sales and maintenance operations provided that installation, maintenance and operation of such underground storage tanks are carried out in accordance with all Environmental Requirements. 27 ENTRY BY LANDLORD. Landlord and its authorized representatives shall have the right upon reasonable notice (which shall be not less than 48 hours except in the case of emergency) to enter the Leased Premises at all reasonable business hours (and at all other times in the event of an emergency) for (i) the purpose of inspecting the same or for the purpose of doing any work under Paragraph 9, and may take all such action thereon as may be necessary or appropriate for any such purpose (but nothing contained in this Lease or otherwise shall create or imply any duty upon the part of Landlord or Lender to make any such inspection or do any such work), and (ii) the purpose of showing the Leased Premises to prospective purchasers and mortgagees and, at any time Within six (6) months prior to the expiration of the Term of this Lease, for the purpose of showing the same to prospective tenants. No such entry shall constitute an eviction of Tenant but any such entry shall be done by Landlord in such reasonable manner as to minimize any disruption of Tenant's business operation on the Leased Premises. 28. STATEMENTS. Tenant shall submit to Landlord (i) within forty five (45) days of the end of each of the first three (3) fiscal quarters of each fiscal year of Tenant, quarterly balance sheets and income and cash flow statements for Tenant (the "Quarterly Statements'), each audited by an independent certified public accountant; (ii) within ninety (90) days of the end of each fiscal year of Tenant, audited financial statements for Tenant (the "Annual Statements"), audited by an independent certified public accountant. Quarterly 10Qs of Tenant as filed with the Securities and Exchange Commission shall satisfy the requirements contained in (i) herein. Copies of Tenant's 10ks filed with the Securities and Exchange Commission will satisfy the requirement contain in (ii) herein. The obligations of Tenant herein shall continue whether or not this Lease shall have been assigned. 29. NO USURY. The intention of the parties being to conform strictly to the usury laws now in force in the State, whenever any provision herein provides for payment by Tenant to Landlord of interest-at a rate in excess of the legal right permitted to be charged. in such State, such interest rate herein provided to be paid shall be deemed reduced to such legal interest rate. 30. BROKER. Landlord and Tenant represent and warrant to each other that neither party negotiated with any broker in connection with this Lease and that this Lease was negotiated directly by Landlord and Tenant. Each party hereby agrees to indemnify the other against all claims, damages, costs and expenses incurred by the indemnified party as a result of the breach of the foregoing representation or warranty by the indemnifying party. 31. WAIVER OF LANDLORD'S LIEN. Landlord hereby waives any Landlord's lien or similar lien upon Trade Fixtures and any inventory of Tenant, regardless of whether such lien is created or otherwise. Landlord agrees, at the request of Tenant, to execute a waiver of any such Landlord's or similar lien for the benefit of any present or future holder of a security interest in or lessor of any Trade Fixtures or any inventory of Tenant Landlord acknowledges and agrees in the future to acknowledge (in a written form reasonably satisfactory to Tenant) to such persons and entities at such times and for such purposes as Tenant may reasonably request that the Trade Fixtures are Tenant's property and not part of the Improvements (regardless of whether or to what extent such Trade Fixtures are affixed to the Improvements) or otherwise subject to the terms of this Lease. 32. NO WAIVER: CONSENTS. No delay or failure by either party to enforce its rights hereunder shall be construed as a waiver, modification or relinquishment thereof Any consent or approval required by any party under this Lease shall be deemed given if such party does not respond within ten (10) business days after notice. Except to the extent any provision herein specifically provides that a party has sole or absolute discretion, the consent or approval of any party herein shall not be unreasonably withheld, conditioned or delayed. 33 SEPARABILITY .If any term of provision of this Lease or the application thereof to any provision of this Lease or the application thereof to any persons or circumstances shall to any extent be invalid and unenforceable, the remainder of this Lease, or the application of such term or provision to person or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and shall be enforced to the extent permitted by law. 34. INDEMNIFICATION. Tenant agrees to defend, pay, protect, indemnify, save and hold harmless Landlord and Lender from and against any and all liabilities, losses, damages, penalties. costs, expenses {including reasonable attorneys' fees and expenses), causes of action, suits, claims, demands or judgments of any nature whatsoever, howsoever caused, arising from any of the Leased Premises or the use, non-use, occupancy, condition, design, construction, maintenance, repair or rebuilding of any of, or otherwise relating to, the Leased Premises, and any injury to or death of any person or persons or any loss of or damage to any property, real or personal, in any manner arising therefrom connected therewith or occurring thereon (collectively, "Losses"), whether or not Landlord has or should have knowledge or notice of the defect or conditions, if any, causing or contributing to said Loss. In case any action or proceeding is brought against Landlord or Lender by reason of any such Loss, Tenant covenants upon written notice from Landlord or Lender requesting the same to defend Landlord and Lender in such action, with the expenses of such defense paid by Tenant, and Landlord or Lender will cooperate and assist in the defense of such action or proceeding if reasonably requested to do so by Tenant. The obligations of Tenant under this Paragraph 34 shall survive any termination of this Lease with respect to Losses identified in reasonable detail by the Claim Deadline, as defined below. The "Claim Deadline" shall be: (x) to the extent of any indemnification obligation arising as a result of the claim by a third party against Landlord or Lender, or the claim of a third party against the Leased Premises, the date that is 30 days after the later of (i) the expiration of the period during which such third party claim may be brought under the applicable statute of limitations or (ii) the date which is two (2) years after the expiration or earlier termination of this Lease; (y) except as set forth in (z) below, with respect to any indemnification obligation of Tenant not described in subparagraph (a) above, the day that is two (2) year's after the expiration or earlier termination of this Lease; (z) with respect to any indemnification obligation of Tenant under Section 26 above, there shall be no Claim Deadline. 35 EASEMENTS, AONING AND ENTITLEMENTS (a) EASEMENTS. Landlord agrees to enter into with Tenant, at Tenant's expense including payment of Landlord's reasonable attorneys' fees, such easements, covenants, waivers, approvals or restrictions for customary and standard utilities, parking or other matters as desirable for operation of the Leased Premises (collectively, "Easement") as requested by Tenant, subject to Landlord's approval of such Easement, which approval shall not be unreasonably withheld or delayed; provided, however, that no such Easement shall result in any diminution in the value or utility of the Leased Premises and further provided that no such Easement shall render the use of the Leased Premises dependent upon any other property or condition the use of the Leased Premises upon the use of any other property, each of which Tenant shall certify to Landlord in writing delivered with Tenant's request with respect to such Easement. Tenant's request shall also include Tenant's written undertaking acknowledging that Tenant shall remain liable hereunder as a principal and not merely as a surety or guarantor notwithstanding the establishment of any Easement. If Landlord shall fail to approve or disapprove any such Easement within a period of thirty (30) days from receipt of Tenant's request for approval of the same, then Landlord shall be deemed to have approved such Easement. (b) ENTITLEMENTS. Landlord agrees to allow Tenant, at Tenant's expense including payment of Landlord's reasonable attorneys' fees, if any, to seek such zoning variances, special use permits and other such entitlements as are desirable for operation of the Leased Premises (collectively, "Entitlements"); provided, however, that no such Entitlement shall result in any diminution in the value or utility of the Leased Premises and further provided that no such Entitlement shall restrict the use of -the Leased Premises ( other than those restrictions that relate only to Tenant's use of the Leased Premises, or that are, by their terms, effective only for so long as Tenant occupies the Leased Premises). Landlord hereby appoints Tenant as Landlord's attorney in fact for the purpose of executing any applications or other documentation with respect to any such Entitlements. Tenant acknowledges that Tenant shall remain liable under such Entitlements as a principal and not merely as a surety or guarantor notwithstanding the establishment of any Entitlement. 36. HEADINGS. The paragraph and section headings in this Lease are used only for convenience in finding the subject matters and are not part of this Lease or to be used in determining the intent of the parties or otherwise interpreting this Lease. 37 MODIFICATIONS. This Lease may be modified, amended, discharged or waived only by an agreement in writing signed by the party against whom enforcement of any such modification, amendment, discharge or waiver is sought. 38. SUCCESSORS. ASSIGNS. The covenants of this Lease shall run with the Land and bind Tenant, the heirs, distributes, personal representatives, successors and permitted assigns of Tenant and all present and subsequent encumbrances and subtenants of any of the Leased Premises, and shall inure to the benefit of and bind Landlord, its successors and assigns. In the event there is more than one Tenant, the obligation of each shall be joint and several. The term "Landlord" as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners of the Leased Premises in possession at the time in question and in the event of any transfer or transfers of the title of the Leased Premises, the Landlord herein named (and in case of any subsequent transfers or Conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer and conveyance of all personal liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed. 39. COUNTEMARTS. This Lease may be executed in several counterparts, which together shall be deemed one and the same instrument. 40. GOVERNING LAW. This Lease shall be governed by and construed according to the laws of the State. 41. WAIVER OF JURY TRIAL LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL UNDER THE LAWS OF THE STATE OF GEORGIA OR OTHERWISE OF ANY CLAIM: OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY , THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS AMONG TENANT OR LANDLORD RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTE:MPLATED BY THIS LEASE OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED AMONG LANDLORD AND TENANT THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAYBE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, .BREACH OF DUTY CLAIM:S AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS LEASE OR ANY RELATED TRANSACTIONS. IN THE EVENT OF LITIGATION, THIS LEASE MA Y BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 42. ATTORNEYS' FEES. In the event of any action or proceeding by either party against the other under this Lease, the prevailing party shall be entitled to recover for the fees of its attorneys in such action or proceeding, including costs of appeal, if any, in such amount as the court may adjudge reasonable as attorneys' fees. 43. EXPANSION REIMBURSEMENT AGREEMENT. Landlord and Tenant have entered into an Expansion Reimbursement Agreement, dated of even date herewith, with respect to the Property. Landlord and Tenant hereby agree that in the event an amendment or modification to this Lease is required pursuant to the terms of the Expansion Reimbursement Agreement, Landlord and Tenant shall cooperate in good faith to enter into an amendment or modification to this Lease as so required. 44. EXCULRATION OF TRUSTEE. It is expressly agreed, anything herein or elsewhere to the contrary notwithstanding, that each and all of the representations, warranties, covenants, undertakings and agreements made herein or elsewhere on the part of the Landlord are made and intended not as personal representations, warranties, covenants, undertakings and agreements by Wilmington Trust FSB, a federal savings bank {"FSB"), or for the purpose or with the intent of binding FSB personally, but are made and intended for the purpose of binding only the Trust Estate (as such term in defined in the Trust Agreement, dated as of November 1,2002, as amended and supplemented (the "Trust Agreement") between General Electric Capital Business Asset Funding Corporation, a Delaware corporation, and Wilmington Trust Company, a Delaware banking corporation, and FSB), and this Agreement is being executed and delivered by FSB not in its own right but solely in the exercise of the powers expressly conferred upon it as trustee under the Trust Agreement; and no personal liability or personal responsibility is assumed by or shall at any time be asserted or enforceable against FSB on account of this Agreement or . any representation, warranty, covenant, undertaking or agreement of the Landlord, either expressed or implied herein or elsewhere, all such personal liability, if any, being expressly waived and released by the other parties hereto and by all persons or entities claiming by, through or under any of them, and that all recourse against FSB under this Agreement shall be limited solely to the Trust Estate. [See next page for signatures. ] IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be executed under seal as of the day and year first above written. LANDLORD: WILMINGTON TRUST FSB, a federal savings bank, not in its individual capacity, but solely as co-trustee of the GECBAF REAL ESTATE TRUST 2002-N under Trust Agreement dated as of November 1, 2002, as amended By: /s/ James D Nesci Its: Vice President TENANT: CARMAX, INC. By: /s/ Thomas W Reedy, Jr. Its: Thomas W Reedy, Jr., Vice President and Treasurer EXHIBITS EXHIBIT "A" LEASED PREMISES EXHIBIT "B" INITIAL BA E RENT EXHIBIT "C" TRADE FIXTURES EXHIBIT "D" HAZARD INSURANCE REQUIREMENTS EXHIBIT "E" FORM OF SUBORDJNATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Exhibit A LEASED PREMISES ALL THAT TRACT or parcel of land lying and being in Land Lots 421 and 482 of the 18th District of Douglas and Cobb Counties, Georgia, and being more particularly described as follows: COMMENCING at the intersection of the northerly right of way of Thornton Road (290 foot right of way) and the west line of Land Lot 482; thence south 50 degrees 55 minutes 15 seconds & east for 41.76 feet, to a 1/2 inch rebar set, and the Point of Beginning; thence departing the right of way of Thornton Road, north 25 degrees 55 minutes 10 seconds east, for 1,140.63 feet, to a 1/2 inch rebar on the southerly bank of Carroll Creek; thence continuing along said line, north 25 degrees 55 minutes 10 seconds east, a distance of 11.52 feet; to the centerline of Carroll Creek; thence along the centerline of Carroll Creek the following bearing and distances: south 78 degrees 11 minutes 32 seconds east, for 56.74 feet; thence north 83 degrees 11 minutes 55 .seconds east, for 184.43 feet; thence south 47 degrees 35 minutes 48 seconds east, for 342.71 feet; thence north 61 degrees 34 minutes 57 seconds east, for 46.11 feet; .thence south 30 degrees , 29 minutes 28 seconds east, for 159.12 feet; thence south 78 degrees 35 minutes 46 seconds east, for 229.72 feet, to the east line of Land Lot 421; thence departing the centerline of Carroll Creek and continuing along the easterly line of Land lots 421 and 482, south 07 degrees 36 minutes 22 seconds west, for 2276 feet, to a 1/2 inch rebar; thence south 07 degrees 36 minutes 22 seconds west, for 231.54 feet, to a metal fence post in concrete cut off at ground level; thence departing the easterly line of Land Lot 482, south 66 degrees 36 minutes 20 seconds west, for 1,286.85 feet, to a 1/2 inch rebar on the northerly right of way of Thornton Road (290 foot right of way); thence continuing along the northerly right of way of Thornton Road the following bearings and distances; north 48 degrees 41 minutes 08 seconds west, for 46.51 feet; thence north 49 degrees 46 minutes 25 seconds west, for 103.93 feet; thence north 50 degrees 55 minutes 15 seconds west, for 16.51 feet, to the Point of Beginning, containing 806,639 square feet, or 18.518 acres, more or less, as shown on ALTNACSM Land title Survey for Gar-Max Auto Superstores, Inc.; General Electric Capital. Business Asset Funding Corporation, a Delaware corporation, its successors of assigns, and Chicago title Insurance Company, made by Greenhome & O'Mara, Inc., bearing the seal of Julian D. Grace, Ga. RL.S. No.2679, dated May 30,2003. EX-31.1 7 ex31-121.txt Exhibit 31.1 CERTIFICATIONS I, Robert P. Johnson, certify that: 1. I have reviewed this annual report on Form 10-KSB of AEI Income & Growth Fund XXI Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge; the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal control over financial reporting; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: March 18, 2005 /s/ Robert P Johnson Robert P.Johnson, President AEI Fund Management XXI, Inc. Managing General Partner EX-31.2 8 ex31-221.txt Exhibit 31.2 CERTIFICATIONS I, Patrick W. Keene, certify that: 1. I have reviewed this annual report on Form 10-KSB of AEI Income & Growth Fund XXI Limited Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge; the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal control over financial reporting; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Dated: March 18, 2005 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner EX-32 9 ex32-21.txt Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AEI Income & Growth Fund XXI Limited Partnership (the "Partnership") on Form 10-KSB for the period ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Robert P. Johnson, President of AEI Fund Management XXI, Inc., the Managing General Partner of the Partnership, and Patrick W. Keene, Chief Financial Officer of AEI Fund Management XXI, Inc., each certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Robert P Johnson Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner March 18, 2005 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner March 18, 2005 COVER 10 filename10.txt March 30, 2005 Securities and Exchange Commission 450 Fifth Street Northwest Washington, D.C. 20549-1004 RE: AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP FILE NO. 0-29274 TO WHOM IT MAY CONCERN: Pursuant to the requirements of the Securities Exchange Act of 1934, we are transmitting herewith the attached Form 10KSB for AEI Income & Growth Fund XXI Limited Partnership Commission File number: 0-29274. Sincerely, AEI Fund Managment Patrick W. Keene Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----