-----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, OB94CExQATdsL8FpUnZVMSTZvni2moqSbgdCiFs89r1wOAFuB6sxN2pa9KIfqNPV 5L34zNRkmRsaI2m7i1C3cw== 0000931755-06-000004.txt : 20061114 0000931755-06-000004.hdr.sgml : 20061114 20061114103646 ACCESSION NUMBER: 0000931755-06-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20061114 DATE AS OF CHANGE: 20061114 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-85076 FILM NUMBER: 061211975 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 10QSB 1 q213-06.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Quarter Ended: September 30, 2006 Commission file number: 0-29274 AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP (Exact Name of Small Business Issuer as Specified 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) Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No [X] Transitional Small Business Disclosure Format: Yes No [X] AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP INDEX PART I. Financial Information Item 1. Balance Sheet as of September 30, 2006 and December 31, 2005 Statements for the Periods ended September 30, 2006 and 2005: Income Cash Flows Changes in Partners' Capital Notes to Financial Statements Item 2. Management's Discussion and Analysis Item 3. Controls and Procedures PART II. Other Information Item 1. Legal Proceedings Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits Signatures AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP BALANCE SHEET SEPTEMBER 30, 2006 AND DECEMBER 31, 2005 (Unaudited) ASSETS 2006 2005 CURRENT ASSETS: Cash and Cash Equivalents $ 887,032 $ 862,160 Receivables 1,231 2,232 ----------- ----------- Total Current Assets 888,263 864,392 ----------- ----------- INVESTMENTS IN REAL ESTATE: Land 5,882,375 5,766,615 Buildings and Equipment 11,682,286 11,488,937 Accumulated Depreciation (1,794,343) (1,630,529) ----------- ----------- 15,770,318 15,625,023 Real Estate Held for Sale 1,367,589 1,795,224 ----------- ----------- Net Investments in Real Estate 17,137,907 17,420,247 ----------- ----------- Total Assets $18,026,170 $18,284,639 =========== =========== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Payable to AEI Fund Management, Inc. $ 34,274 $ 10,510 Distributions Payable 524,665 583,254 Unearned Rent 46,409 32,784 ----------- ----------- Total Current Liabilities 605,348 626,548 ----------- ----------- PARTNERS' CAPITAL: General Partners 11,775 14,148 Limited Partners, $1,000 per Unit; 24,000 Units authorized and issued; 22,802 Units outstanding 17,409,047 17,643,943 ----------- ----------- Total Partners' Capital 17,420,822 17,658,091 ----------- ----------- Total Liabilities and Partners' Capital $18,026,170 $18,284,639 =========== =========== 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 PERIODS ENDED SEPTEMBER 30 (Unaudited) Three Months Ended Nine Months Ended 9/30/06 9/30/05 9/30/06 9/30/05 RENTAL INCOME $ 364,634 $ 358,930 $1,105,081 $1,044,027 EXPENSES: Partnership Administration - Affiliates 59,667 67,527 171,669 189,640 Partnership Administration and Property Management - Unrelated Parties 5,243 9,255 31,782 30,830 Depreciation 105,387 103,514 312,029 301,038 ---------- ---------- ---------- ---------- Total Expenses 170,297 180,296 515,480 521,508 ---------- ---------- ---------- ---------- OPERATING INCOME 194,337 178,634 589,601 522,519 OTHER INCOME: Interest Income 24,119 9,236 44,052 33,652 ---------- ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 218,456 187,870 633,653 556,171 Income from Discontinued Operations 232,197 48,163 711,894 145,413 ---------- ---------- ---------- ---------- NET INCOME $ 450,653 $ 236,033 $1,345,547 $ 701,584 ========== ========== ========== ========== NET INCOME ALLOCATED: General Partners $ 4,506 $ 2,360 $ 13,455 $ 7,016 Limited Partners 446,147 233,673 1,332,092 694,568 ---------- ---------- ---------- ---------- $ 450,653 $ 236,033 $1,345,547 $ 701,584 ========== ========== ========== ========== INCOME PER LIMITED PARTNERSHIP UNIT: Continuing Operations $ 9.48 $ 8.15 $ 27.51 $ 24.13 Discontinued Operations 10.09 2.09 30.91 6.31 ---------- ---------- ---------- ---------- Total $ 19.57 $ 10.24 $ 58.42 $ 30.44 ========== ========== ========== ========== Weighted Average Units Outstanding 22,802 22,819 22,802 22,819 ========== ========== ========== ========== 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 NINE-MONTH PERIODS ENDED SEPTEMBER 30 (Unaudited) 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,345,547 $ 701,584 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 332,954 363,129 Gain on Sale of Real Estate (568,422) 0 Decrease in Receivables 1,001 13,316 Increase (Decrease) in Payable to AEI Fund Management, Inc. 23,764 (14,429) Increase in Unearned Rent 13,625 66,569 ----------- ----------- Total Adjustments (197,078) 428,585 ----------- ----------- Net Cash Provided By Operating Activities 1,148,469 1,130,169 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in Real Estate (1,667,348) (3,347,879) Proceeds from Sale of Real Estate 2,185,156 0 ----------- ----------- Net Cash Provided By (Used For) Investing Activities 517,808 (3,347,879) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in Distributions Payable (58,589) (302,438) Distributions to Partners (1,582,816) (1,530,303) ----------- ----------- Net Cash Used For Financing Activities (1,641,405) (1,832,741) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24,872 (4,050,451) CASH AND CASH EQUIVALENTS, beginning of period 862,160 5,295,303 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 887,032 $ 1,244,852 =========== =========== 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 PERIODS ENDED SEPTEMBER 30 (Unaudited) Limited Partnership General Limited Units Partners Partners Total Outstanding BALANCE, December 31, 2004 $ 25,818 $18,799,339 $18,825,157 22,819.45 Distributions (15,303) (1,515,000) (1,530,303) Net Income 7,016 694,568 701,584 -------- ----------- ----------- ---------- BALANCE, September 30, 2005 $ 17,531 $17,978,907 $17,996,438 22,819.45 ======== =========== =========== ========== BALANCE, December 31, 2005 $ 14,148 $17,643,943 $17,658,091 22,802.45 Distributions (15,828) (1,566,988) (1,582,816) Net Income 13,455 1,332,092 1,345,547 -------- ----------- ----------- ---------- BALANCE, September 30, 2006 $ 11,775 $17,409,047 $17,420,822 22,802.45 ======== =========== =========== ========== The accompanying Notes to Financial Statements are an integral part of this statement. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2006 (Unaudited) (1) The condensed statements included herein have been prepared by the Partnership, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results of operations for the interim period, on a basis consistent with the annual audited statements. The adjustments made to these condensed statements consist only of normal recurring adjustments. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Partnership's latest annual report on Form 10-KSB. (2) 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 called 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. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (2) Organization - (Continued) 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. 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. (3) Reclassification - Certain items in the prior year's financial statements have been reclassified to conform to 2006 presentation. These reclassifications had no effect on Partners' capital, net income or cash flows. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (4) Investments in Real Estate - In February 2005, Winn-Dixie Montgomery, Inc., the tenant of the Winn-Dixie store in Panama City, Florida, and its parent company, Winn-Dixie, Inc., filed for Chapter 11 bankruptcy reorganization. Rents are current and the Partnership expects to continue to receive all scheduled rents in future months unless the Lease is rejected by Winn-Dixie. On June 29, 2006, Winn-Dixie issued a press release announcing that it filed its proposed Plan of Reorganization with the bankruptcy court. If the Plan is confirmed by the court, Winn-Dixie expects to emerge from Chapter 11 protection later this year. Under the proposed Plan, Winn-Dixie would assume the lease for this store. If the Lease is assumed, 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 September 30, 2006, the book value of this property was $853,370. On January 14, 2005, the Partnership purchased a 40% interest in a Jared Jewelry store in Auburn Hills, Michigan for $1,466,048. 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. On March 18, 2005, the Partnership purchased a 20% interest in a CarMax auto superstore in Lithia Springs, Georgia for $1,885,231. 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. On September 21, 2006, the Partnership purchased a 62% interest in an Applebee's restaurant in Johnstown, Pennsylvania for $1,667,348. The property is leased to B.T. Woodlipp, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $121,340. The remaining interest in the property was purchased by AEI Income & Growth Fund XXII Limited Partnership, an affiliate of the Partnership. (5) Payable to AEI Fund Management, Inc. - AEI Fund Management, Inc. performs the administrative and operating functions for the Partnership. The payable to AEI Fund Management represents the balance due for those services. This balance is non-interest bearing and unsecured and is to be paid in the normal course of business. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (6) Discontinued Operations - During the first nine months of 2006, the Partnership sold 23.8159% of the Eckerd drug store in Utica, New York, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,319,252, which resulted in a net gain of $250,379. The cost and related accumulated depreciation of the interests sold was $1,100,359 and $31,486, respectively. The Partnership is attempting to sell its remaining 16.1841% interest in the property. At September 30, 2006 and December 31, 2005, the property was classified as Real Estate Held for Sale with a book value of $726,351 and $1,795,224, respectively. During the first nine months of 2006, the Partnership sold 46.0736% of the Children's World daycare center in Kimberly, Wisconsin, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $865,904, which resulted in a net gain of $318,043. The cost and related accumulated depreciation of the interests sold was $625,790 and $77,929, respectively. Subsequent to September 30, 2006, the Partnership sold an additional 16.4811% of the Children's World daycare center in Kimberly, Wisconsin to an unrelated third party. The Partnership received net sale proceeds of approximately $309,000, which resulted in a net gain of approximately $113,000. The cost and related accumulated depreciation of the interest sold was $223,853 and $27,876, respectively. The Partnership is attempting to sell its remaining 37.4453% interest in the property. At September 30, 2006, the property was classified as Real Estate Held for Sale with a book value of $641,238. During the first nine months of 2006 and 2005, the Partnership distributed $472,737 and $467,043 of net sale proceeds to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $20.53 and $20.26 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. AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Continued) (6) Discontinued Operations - (Continued) 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 periods ended September 30: Three Months Ended Nine Months Ended 9/30/06 9/30/05 9/30/06 9/30/05 Rental Income $ 37,802 $ 69,689 $ 165,337 $ 209,068 Property Management Expenses 0 (829) (940) (1,564) Depreciation 0 (20,697) (20,925) (62,091) Gain on Disposal of Real Estate 194,395 0 568,422 0 --------- ---------- --------- --------- Income from Discontinued Operations $ 232,197 $ 48,163 $ 711,894 $ 145,413 ========= ========== ========= ========= ITEM 2.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. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) 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. 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 nine months ended September 30, 2006 and 2005, the Partnership recognized rental income from continuing operations of $1,105,081 and $1,044,027, respectively. In 2006, rental income increased due to additional rent received from three property acquisitions in 2005 and 2006, rent increases on three properties and income received from a permanent easement on one property. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) For the nine months ended September 30, 2006 and 2005, the Partnership incurred Partnership administration expenses from affiliated parties of $171,669 and $189,640, 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 $31,782 and $30,830, 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 nine months ended September 30, 2006 and 2005, the Partnership recognized interest income of $44,052 and $33,652, respectively. In 2006, interest income increased due to the Partnership having more money invested in a money market account due to property sales. In February 2005, Winn-Dixie Montgomery, Inc., the tenant of the Winn-Dixie store in Panama City, Florida, and its parent company, Winn-Dixie, Inc., filed for Chapter 11 bankruptcy reorganization. Rents are current and the Partnership expects to continue to receive all scheduled rents in future months unless the Lease is rejected by Winn-Dixie. On June 29, 2006, Winn- Dixie issued a press release announcing that it filed its proposed Plan of Reorganization with the bankruptcy court. If the Plan is confirmed by the court, Winn-Dixie expects to emerge from Chapter 11 protection later this year. Under the proposed Plan, Winn-Dixie would assume the lease for this store. If the Lease is assumed, 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 September 30, 2006, the book value of this property was $853,370. 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 nine months ended September 30, 2006, the Partnership recognized income from discontinued operations of $711,894, representing rental income less property management expenses and depreciation of $143,472 and gain on disposal of real estate of $568,422. For the nine months ended September 30, 2005, the Partnership recognized income from discontinued operations of $145,413, representing rental income less property management expenses and depreciation. During the first nine months of 2006, the Partnership sold 23.8159% of the Eckerd drug store in Utica, New York, in five separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $1,319,252, which resulted in a net gain of $250,379. The cost and related accumulated depreciation of the interests sold was $1,100,359 and $31,486, respectively. The Partnership is attempting to sell its remaining 16.1841% interest in the property. At September 30, 2006 and December 31, 2005, the property was classified as Real Estate Held for Sale with a book value of $726,351 and $1,795,224, respectively. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) During the first nine months of 2006, the Partnership sold 46.0736% of the Children's World daycare center in Kimberly, Wisconsin, in two separate transactions, to unrelated third parties. The Partnership received total net sale proceeds of $865,904, which resulted in a net gain of $318,043. The cost and related accumulated depreciation of the interests sold was $625,790 and $77,929, respectively. Subsequent to September 30, 2006, the Partnership sold an additional 16.4811% of the Children's World daycare center in Kimberly, Wisconsin to an unrelated third party. The Partnership received net sale proceeds of approximately $309,000, which resulted in a net gain of approximately $113,000. The cost and related accumulated depreciation of the interest sold was $223,853 and $27,876, respectively. The Partnership is attempting to sell its remaining 37.4453% interest in the property. At September 30, 2006, the property was classified as Real Estate Held for Sale with a book value of $641,238. 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 nine months ended September 30, 2006, the Partnership's cash balances increased $24,872 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. During the nine months ended September 30, 2005, the Partnership's cash balances decreased $4,050,451 as a result of 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 increased from $1,130,169 in 2005 to $1,148,469 in 2006 as a result of an increase in total rental and interest income in 2006 and a decrease in Partnership administration and property management expenses in 2006, which were partially offset by net timing differences in the collection of payments from the tenants 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 nine months ended September 30, 2006, the Partnership generated cash flow from the sale of real estate of $2,185,156. During the nine months ended September 30, 2006 and 2005, the Partnership expended $1,667,348 and $3,347,879, respectively, to invest in real properties (inclusive of acquisition expenses) as the Partnership reinvested cash generated from property sales completed in 2004 and 2006. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) On January 14, 2005, the Partnership purchased a 40% interest in a Jared Jewelry store in Auburn Hills, Michigan for $1,466,048. 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. On March 18, 2005, the Partnership purchased a 20% interest in a CarMax auto superstore in Lithia Springs, Georgia for $1,885,231. 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. On September 21, 2006, the Partnership purchased a 62% interest in an Applebee's restaurant in Johnstown, Pennsylvania for $1,667,348. The property is leased to B.T. Wooolipp, Inc. under a Lease Agreement with a primary term of 20 years and annual rental payments of $121,340. The remaining interest in the property was purchased by AEI Income & Growth Fund XXII Limited Partnership, an affiliate of the Partnership. 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 nine months ended September 30, 2006 and 2005, the Partnership declared distributions of $1,582,816 and $1,530,303, respectively, which were distributed 99% to the Limited Partners and 1% to the General Partners. The Limited Partners received distributions of $1,566,988 and $1,515,000 and the General Partners received distributions of $15,828 and $15,303 for the periods, respectively. In September and December 2005, the Partnership declared special distributions of $303,030 and $176,768, respectively, of net sale proceeds. In June and September 2006, the Partnership declared special distributions of $237,374 and $118,182, respectively, of net sale proceeds, which resulted in higher distributions for the first nine months of 2006, when compared to the first nine months of 2005. During the first nine months of 2006 and 2005, the Partnership distributed $472,737 and $467,043 of net sale proceeds to the Limited and General Partners as part of their quarterly distributions, which represented a return of capital of $20.53 and $20.26 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS. (Continued) The Partnership may acquire Units from Limited Partners who have tendered their Units to the Partnership. Such Units may be acquired at a discount. The Partnership 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 2006, the Partnership did not redeem any Units from the Limited Partners. During 2005, four Limited Partners redeemed a total of 17 Partnership Units for $9,222 in accordance with the Partnership Agreement. The Partnership acquired these Units using Net Cash Flow from operations. In prior years, a total of 54 Limited Partners redeemed 1,180.55 Partnership Units for $939,802. 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 $93 in 2005. 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 3. 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. PART II - OTHER INFORMATION ITEM 1.LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or of which the Partnership's property is subject. ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (a) 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. (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. During the period covered by this report, the Partnership did not purchase any Units. ITEM 3.DEFAULTS UPON SENIOR SECURITIES None. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5.OTHER INFORMATION None. PART II - OTHER INFORMATION (Continued) ITEM 6.EXHIBITS 10.1 Assignment and Assumption of Purchase and Sale Agreement dated September 11, 2006 between the Partnership, AEI Income & Growth Fund XXII Limited Partnership and AEI Fund Management, Inc. relating to the Property at 425 Galleria Drive, Johnstown, Pennsylvania. 10.2 Net Lease Agreement dated September 21, 2006 between the Partnership, AEI Income & Growth Fund XXII Limited Partnership and B.T. Woodlipp, Inc. relating to the Property at 425 Galleria Drive, Johnstown, Pennsylvania. 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. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 6, 2006 AEI Income & Growth Fund XXI Limited Partnership By: AEI Fund Management XXI, Inc. Its: Managing General Partner By: /s/ Robert P Johnson Robert P. Johnson President (Principal Executive Officer) By: /s/ Patrick W Keene Patrick W. Keene Chief Financial Officer (Principal Accounting Officer) EX-10.1 3 aplbspa.txt EXECUTION COPY ASSIGNMENT AND ASSUMPTION OF PURCHASE AGREEMENT This Assignment and Assumption of Purchase Agreement is made and entered into as of the 11th day of September, 2006, by AEI FUND MANAGEMENT, INC., a Minnesota corporation ("AEI"), to AEI INCOME & GROWTH FUND 24 LLC, a Delaware limited liability company ("AEI 24"); AEI FUND MANAGEMENT XVII, INC., a Minnesota corporation ("AEI XVII"); AEI INCOME & GROWTH FUND 26 LLC, a Delaware limited liability company ("AEI 26"); AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP, a Minnesota limited partnership ("AEI XXI"); AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP, a Minnesota limited partnership ("AEI XXII"); AEI ACCREDITED INVESTOR FUND V LP, a Minnesota limited partnership ("AEI V"); AEI ACCREDITED INVESTOR FUND 2002 LIMITED PARTNERSHIP, a Minnesota limited partnership ("AEI 2002"). RECITALS A. AEI is named as the "Purchaser" in that certain Purchase and Sale Agreement executed by and between APPLE INDIANA II LLC, APPLE PENNSYLVANIA LLC, APPLE WASHINGTON LLC, each a Delaware limited liability company, and B.T. WOODLIPP, INC., a Pennsylvania corporation (collectively, "Seller") and dated July 10, 2006 (the "Purchase Agreement"), and has entered into the Purchase Agreement for the sole purpose of purchasing the real property located at the following addresses: 1) 8310 East 96th Street, Fishers, Indiana ("Premises A") 2) 109 South Memorial Drive, New Castle, Indiana ("Premises B") 3) 2659 East Main Street, Plainfield, Indiana ("Premises C") 4) 1516 South Washington Street, Crawfordsville, Indiana ("Premises D") 5) 7345 East Washington Street, Indianapolis, Indiana ("Premises E") 6) 425 Galleria Drive, Johnstown, Pennsylvania ("Premises F") 7) 850 Chippewa Town Center Drive, Beaver Falls, Pennsylvania ("Premises G") 8) 130 River Road, Sequim, Washington ("Premises H") 9) 1441 D Street Northeast, Auburn, Washington ("Premises I") B. AEI desires to assign its right, title and interest in the Purchase Agreement to AEI 24 with respect to the sale and purchase of Premises A; to AEI XVII with respect to the sale and purchase of Premises B; to AEI XVII with respect to the sale and purchase of Premises C; to AEI XVII with respect to the sale and purchase of Premises D; to AEI 26 and AEI XVII with respect to the sale and purchase of Premises E; to AEI XXI and AEI XXII with respect to the sale and purchase of Premises F; to AEI V with respect to the sale and purchase of Premises G; to AEI 2002 with respect to the sale and purchase of Premises H; and to AEI V with respect to the sale and purchase of Premises I. NOW, THEREFORE, in consideration of the above recitals, and good and valuable consideration received, AEI, sells, assigns, transfers, sets over and delivers unto AEI 24; AEI XVII; AEI 26; AEI XXI; AEI XXII; AEI V; and AEI 2002 all of its right, title and interest in and to the Purchase Agreement and AEI 24; AEI XVII; AEI 26; AEI XXI; AEI XXII; AEI V; and AEI 2002 assumes all of AEI's right, title and interest in and to the Purchase Agreement. IN WITNESS WHEREOF, the undersigned has caused this Assignment and Assumption of Purchase Agreement to be executed as of the date and year first above written. (Signature Pages to Follow) AEI FUND MANAGEMENT, INC., a Minnesota corporation By:/s/ Robert P Johnson Name: 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 Name: Robert P. Johnson Its: President AEI FUND MANAGEMENT XVII, INC., a Minnesota corporation By: /s/ Robert P Johnson Name: Robert P. Johnson Its: President AEI INCOME & GROWTH FUND 26 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 Its: President 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 Name: Robert P. Johnson Its: President AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP, 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 Its: President AEI ACCREDITED INVESTOR FUND V LP, a Minnesota limited partnership By: AEI Fund Management XVIII, Inc., a Minnesota corporation, its General Partner By: /s/ Robert P Johnson Name: Robert P. Johnson Its: President AEI ACCREDITED INVESTOR FUND 2002 LIMITED PARTNERSHIP, a Minnesota limited partnership By: AEI Fund Management XVIII, Inc., a Minnesota corporation, its General Partner By: /s/ Robert P Johnson Name: Robert P. Johnson Its: President APPLE INDIANA II LLC, APPLE PENNSYLVANIA LLC, APPLE WASHINGTON LLC, and B.T. WOODLIPP, INC., as Seller and AEI FUND MANAGEMENT, INC., as Purchaser PURCHASE AND SALE AGREEMENT Dated: As of July 10, 2006 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 1 ARTICLE II PURCHASE AND SALE; LEASEBACK 4 ARTICLE III [INTENTIONALLY OMITTED] 7 ARTICLE IV DUE DILIGENCE 7 ARTICLE V CLOSING 11 ARTICLE VI CLOSING ADJUSTMENTS 15 ARTICLE VII COVENANTS OF SELLER 15 ARTICLE VIII REPRESENTATIONS AND WARRANTIES 16 ARTICLE IX NOTICES 21 ARTICLE X CONFIDENTIALITY 22 ARTICLE XI DAMAGE AND DESTRUCTION 22 ARTICLE XII CONDEMNATION 24 ARTICLE XIII DEFAULT BY PURCHASER OR SELLER 25 ARTICLE XIV MISCELLANEOUS PROVISIONS 26 EXHIBITS AND SCHEDULES EXHIBIT A LEGAL DESCRIPTIONS EXHIBIT B ESCROW AGREEMENT EXHIBIT C FORM OF LEASE EXHIBIT D FOREIGN INVESTORS REAL PROPERTY TAX ACT CERTIFICATION AND AFFIDAVIT EXHIBIT E WIRE TRANSFER INSTRUCTIONS EXHIBIT F DUE DILIGENCE DOCUMENTS SCHEDULE 4.3 PORTFOLIO VALUE PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT is entered into as of the 10th day of July, 2006, by and among APPLE INDIANA II LLC, APPLE PENNSYLVANIA LLC, APPLE WASHINGTON LLC, each, a Delaware limited liability company, and B.T. WOODLIPP, INC., a Pennsylvania corporation (collectively, the "SELLER"), and AEI FUND MANAGEMENT, INC., a Minnesota corporation (the "PURCHASER"). W I T N E S S E T H WHEREAS, Seller is the owner of fourteen (14) sites described in EXHIBIT A attached hereto (collectively, the "LAND"), together with all buildings, fixtures and other improvements erected thereon (collectively, the "BUILDINGS" and each a "BUILDING") in the states of Indiana, Pennsylvania and Washington on which Seller operates a franchised restaurant (each such site together with the Building thereon and the other items set forth in SECTION 2.3 with respect thereto is called a "PROPERTY" and all are collectively called the "PROPERTIES"); and WHEREAS, Seller has agreed to sell to Purchaser all of Seller's right, title and interest in the Land, the Buildings, and all other items included within the term "Properties" in Section 2.3; and WHEREAS, Purchaser has agreed to purchase the Properties from Seller; and WHEREAS, Purchaser has agreed to lease to Seller, and Seller has agreed to lease from Purchaser, the Properties; and WHEREAS, the parties desire to set forth their respective rights and obligations with respect to the transactions contemplated herein. NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows: ARTICLE I DEFINITIONS Section 1.1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings indicated below: "ADJOURNED CLOSING DATE" has the meaning given to such term in Section 4.1. "AGREEMENT" means this Purchase and Sale Agreement, including all Exhibits and Schedules hereto. "BUILDINGS" has the meaning given to such term in the first "WHEREAS" clause of this Agreement. "BUSINESS DAY" has the meaning given to such term in Section 2.2. If any event under this Agreement is to occur, or a time period is to expire, on a date which is not a business day, such event shall occur or time period shall expire on the next succeeding business day. "CASUALTY PROPERTY" has the meaning given to such term in Section 11.1(b). "CLOSING" means the consummation of the transactions described in Article II in accordance with the terms of this Agreement. "CLOSING DATE" means either the Scheduled Closing Date or the Adjourned Closing Date. "CODE" means the Internal Revenue Code of 1986, as amended. "COMMITMENTS" has the meaning given to such term in Section 4.1(a). "DEEDS" has the meaning given to such term in Section 5.2(a). "DEFECT" has the meaning given to such term in Section 8.3(c). "DEPOSIT" has the meaning given to such term in Section 2.2(a). "DILIGENCE CURE PERIOD" has the meaning given to such term in Section 4.6. "DILIGENCE OBJECTION" has the meaning given to such term in Section 4.6. "DUE DILIGENCE DEFAULT" has the meaning given to such term in Section 4.7. "DUE DILIGENCE PERIOD" means the period commencing on the date hereof, and ending at 11:59 p.m., Central time, on , 2006, which date is forty-five (45) days after the Effective Date. "EFFECTIVE DATE" shall mean for all purposes in this Agreement the date on which this Agreement is executed by the last of Purchaser and Seller. "ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, ordinances, rules or regulations or judicial or administrative decisions, orders, or decrees relating to health, safety, pollution or protection of the environment or workplace, including, without limitation, relating to Hazardous Substances. "ENVIRONMENTAL REPORTS" has the meaning given to such term in Section 4.6. "ESCROW AGENT" has the meaning given to such term in Section 2.2(a). "EXCLUDED PROPERTY" has the meaning given to such term in Section 2.3. "FIRPTA AFFIDAVIT" has the meaning given to such term in Section 5.2(c). "FRANCHISOR" has the meaning given to such term in Section 2.3. "HAZARDOUS SUBSTANCES" means any pollutants, contaminants, wastes, toxic or hazardous or extremely hazardous substances, or other materials (including, without limitation, petroleum or any by-products or fractions thereof, lead, asbestos and asbestos-containing materials, and polychlorinated biphenyls) that are regulated by, or may form the basis of liability under, any Environmental Laws. "LAND" has the meaning given to such term in the first "WHEREAS" clause of this Agreement. "LEASE" has the meaning given to such term in Section 2.4. "LEASE GUARANTY" has the meaning given to such term in Section 2.4. "NOTICES" has the meaning given to such term in Section 9.1. "PERMITTED ENCUMBRANCES" has the meaning given to such term in Section 3.1. "PROPERTIES" has the meaning given to such term in Section 2.3. "PROPERTY" has the meaning given to such term in the first "WHEREAS" clause of this Agreement. "PURCHASE PRICE" has the meaning given to such term in Section 2.2. "PURCHASER" has the meaning given to such term in the preamble to this Agreement, and any permitted assignees of the Purchaser pursuant to Section 14.5 hereof. "REPRESENTATIVES" means, with respect to any person or entity, such person's or entity's agents or representatives, including, without limitation, its directors, officers, members, employees, affiliates, partners, agents, contractors, engineers, attorneys, accountants, consultants, brokers or financial advisors. "SCHEDULED CLOSING DATE" has the meaning given to such term in Section 5.1. "SELLER" has the meaning given to such term in the preamble to this Agreement. Although the term "Seller" is used collectively to refer to all of the entities that own the Properties, the covenants, representations, warranties and obligations of Seller under this Agreement are not intended to be joint and several, but rather each of such entities shall be responsible for the covenants, representations, warranties and obligations relating only to those of the Properties owned by such entity. The Properties are owned by each respective Seller entity as specified on Schedule 4.3 hereto. "SELLER KNOWLEDGE INDIVIDUAL" has the meaning given to such term in Section 8.1. "SELLER'S BANK SYNDICATE" means Bank of America, N.A., as administrative agent, Bank of America, N.A., SunTrust Bank, Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services Inc., GE Capital Franchise Finance Corporation, National City Bank of Pennsylvania, Wells Fargo Bank, N.A., and ING Capital LLC, and their respective successors and/or assigns. "SELLER'S DILIGENCE NOTICE" has the meaning given to such term in Section 4.6. "SELLER'S TITLE NOTICE" has the meaning given to such term in Section 4.3. "SURVEYS" has the meaning given to such term in Section 4.1(a). "SURVIVING REPRESENTATIONS" has the meaning given to such term in Section 8.3(a). "SURVIVAL PERIOD" has the meaning given to such term in Section 8.5. "TAKING" has the meaning given to such term in Section 12.1. "TAKING PROPERTY" has the meaning given to such term in Section 12.1(b). "TITLE COMPANY" means Chicago Title Insurance Company. "TITLE CURE PERIOD" has the meaning given to such term in Section 4.1(a). "TITLE OBJECTIONS" has the meaning given to such term in Section 4.1(a). "TITLE POLICY" has the meaning given to such term in Section 4.5. "TRANSFER TAXES" has the meaning given to such term in Section 5.5(a). ARTICLE II PURCHASE AND SALE; LEASEBACK Section 2.1. PURCHASE AND SALE. Subject to the terms and provisions set forth in this Agreement, on the Closing Date: (a) Seller shall transfer the Properties to Purchaser, and (b) Purchaser shall pay the Purchase Price to Seller as provided in Section 2.2. Section 2.2. PAYMENT OF THE PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") for the Properties is Forty Million One Hundred Nine Thousand One Hundred Thirteen Dollars ($40,109,113), subject to reduction as hereinafter provided in this Agreement, and shall be payable by Purchaser as follows: (a) A deposit (the "DEPOSIT") in the amount of Two Hundred Thousand Dollars ($200,000), payable simultaneously with the execution of this Agreement by wire transfer, in immediately available Federal Funds, to the escrow account of Chicago Title Insurance Company located at 171 N. Clark, Chicago, Illinois 60601, as escrow agent (the "Escrow Agent") in accordance with the wiring instructions attached hereto as Exhibit E. The Deposit shall be held by Escrow Agent in accordance with the terms of that certain Escrow Agreement of even date herewith between Seller, Purchaser and Escrow Agent in the form of Exhibit B attached hereto. The Deposit shall be delivered as provided in this Agreement. (b) Within five (5) days after the later of: (y) the expiration of the Due Diligence Period, unless Purchaser has timely delivered a notice of termination of this Agreement under Section 4.7(b), or (z) the date upon which Seller has waived in writing the condition set forth in Section 5.9(a)(iv), Purchaser shall increase the amount of the Deposit by depositing with Escrow Agent an additional One Hundred Thousand Dollars ($100,000) in immediately available Federal Funds, which amount shall be added to and become a part of the Deposit hereunder. (c) The balance of the Purchase Price, in the amount of Thirty- nine Million Eight Hundred Nine Thousand One Hundred Thirteen Dollars ($39,809,113), subject to reduction as provided in this Agreement, payable on the Closing Date by wire transfer, in immediately available Federal Funds, to the account of Escrow Agent. (d) If the Closing shall occur, Escrow Agent shall be instructed to deliver the proceeds of the Deposit, including the interest on the Deposit, to Seller to be credited against the Purchase Price. If the Closing shall not occur and this Agreement shall be terminated, then the interest earned on the Deposit shall be paid to the party entitled to receive the Deposit as provided in this Agreement. The party receiving such interest shall take such interest into account for purposes of determining its federal income tax liability, if any, and shall pay any income taxes thereon. As used in this Agreement, the term "BUSINESS DAY" means every day other than Saturdays, Sundays, all days observed by the federal or Illinois State government as legal holidays and all days on which commercial banks in Illinois are required by law to be closed. Section 2.3. SCOPE OF SALE. As used in this Agreement, the term "PROPERTIES" shall mean all of the following: (a) the Land; (b) all of the Buildings; (c) all easements, covenants, servitudes and other rights now belonging or appertaining or appurtenant to, or comprising a part of, the Land, and all right, title and interest of the Seller in and to strips or gores adjacent to the Land and any land lying in the bed of any street, road, avenue or alley, open or closed, in front of or behind or otherwise adjoining the Land and to the center line thereof; (d) all fixtures, equipment and machinery (including, without limitation, all of the lighting, electrical, mechanical, plumbing and heating, ventilation and air conditioning systems), exclusive of the Excluded Property, used in connection with the Land and the Buildings and the operation, management, maintenance or occupation of the Properties (as opposed to the operation of Seller's business); (e) if available, certificates of occupancy and all licenses (excluding liquor licenses), permits, approvals and authorizations, if any, which are customarily required to be transferred to evidence Seller's ownership of the Properties (as opposed to the operation of Seller's business); and (f) all right, title and interest of Seller in and to all warranties, indemnity agreements and bonds with respect to any portion of the Land, the Buildings or any other portions of the Properties. (g) all of Seller's rights under any contract or agreement in Seller's possession (other than those relating to Excluded Property), including without limitation, maintenance contracts, service contracts, property management contracts, equipment leases, or warranties relating to the operation of the Properties; (h) all of Seller's right, title and interest in and to any drawings, plans, building permits, surveys and certificates of occupancy relating to the Properties, and all licenses and permits relating to the ownership thereof; and (i) all records in Seller's possession relating to Seller's ownership of the Properties, including without limitation all records regarding real estate taxes, assessments, insurance, maintenance, repairs, capital improvements and services. As used in this Agreement, the term "EXCLUDED PROPERTY" shall mean (i) all fixtures, furniture, furnishings, equipment (other than floor and wall coverings, fixtures which are built- ins or constitute an integral part of the Building, the walk-in cooler, heat, air condition and ventilation systems, electrical, mechanical and plumbing systems), Kitchen Equipment (as hereinafter defined), inventory, merchandise, goods, chattels, trade fixtures, signage, appliances display cases, supplies, tools, machinery, security systems, computer software or other personal property (including, without limitation, trade fixtures in, on, around or affixed to any Property), (ii) fixtures, furniture, furnishings, equipment, supplies, tools, machinery, security systems, computer software, signage and other personal property (including, without limitation, trade fixtures in, on, around or affixed to any Property) which displays the name, trade name, trademark, service mark, logo, insignia, slogan, emblem or symbol of Applebee's International Inc.'s ("FRANCHISOR") or of the tenant under the Lease, and (iii) all licenses, permits, approvals and authorizations, if any, which are required in connection with the operation of Seller's business, including, without limitation, all liquor licenses. The Excluded Property described in SUBSECTIONS (i) and (ii) above shall be and at all times remain the property of Seller regardless of whether the same is affixed to the Buildings or the manner in which the same is affixed (unless permanently affixed) and regardless of whether the same is regarded as a fixture or as property of the owner of the Building by operation of law or otherwise unless, however, such fixtures and equipment cannot be removed without substantial damage to any Building which cannot be easily repaired. As used herein the term "Kitchen Equipment" shall include, without limitation, kitchen fixtures (except for sanitary plumbing fixtures), counters, stainless steel equipment, ranges, ovens, display cases and refrigeration equipment (excluding the walk-in cooler). Section 2.4. LEASEBACK. On the Closing Date, immediately following conveyance of title to the Properties to Seller, Purchaser shall lease to Seller and Seller shall lease from Purchaser, the Properties, pursuant to a separate lease for each Property, in the form attached hereto as Exhibit C, as the same may be modified if and to the extent necessary to make them enforceable under the laws of the state in which each applicable Property is located or to include statutorily required provisions (each, a "Lease", and collectively, the "Leases"), each of which shall be guaranteed by Apple American Group LLC, a Delaware limited liability company ("AAG"), pursuant to the terms and conditions of the lease guaranty, the form of which is attached to the Lease (the "Lease Guaranty"). Seller and Purchaser shall negotiate in good faith during the Due Diligence Period to agree upon a mutually acceptable form of Landlord's Agreement which will be attached as Exhibit B to the Lease. ARTICLE III [INTENTIONALLY OMITTED] ARTICLE IV DUE DILIGENCE Section 4.1. SURVEY AND TITLE OBJECTIONS. (a) On or before the date of this Agreement, Purchaser has received (i) from the Title Company commitments to issue an owner's title insurance policy with respect to each of the Properties together with legible copies of all recorded exceptions set forth therein (collectively, the "COMMITMENTS"), and (ii) from Seller copies of the existing surveys in Seller's possession for the Properties (which Seller shall, prior to the Closing Date, have certified to Purchaser and its lender at Seller's cost) (the "SURVEYS"). Seller shall deliver a signed Affidavit required by the Title Company in order to provide sufficient endorsements to enable the Title Company to issue the title policies in the form required hereunder within ten (10) days after the Effective Date. If a Commitment discloses the existence of an easement affecting a Property which was recorded after the date of an existing Survey and is not located on such Survey, Seller shall have such Survey updated at its cost to reflect the location of such easement. Within the first twenty-five (25) days of the Due Diligence Period, Purchaser shall deliver to Seller notice of any liens, covenants, conditions, restrictions, encumbrances and noted violations revealed by the Commitments or the Surveys to which Purchaser objects and is not required hereunder to accept (the "TITLE OBJECTIONS"). Any items to which Purchaser does not timely object shall be deemed to be permitted encumbrances ("PERMITTED ENCUMBRANCES"). Notwithstanding the foregoing, Purchaser shall not be obligated to object to any mortgage, deed of trust, mechanics lien, or similar lien to pay money (collectively, "MONETARY LIENS"), and any such item will be deemed to be objected to and shall not be a Permitted Encumbrance. All Monetary Liens shall be satisfied or released at Closing. For purposes hereof the term "MONETARY LIEN" shall not mean or include assessments under any local improvement or special benefit district. Purchaser shall not be entitled to object to, and shall be deemed to have approved, any item which will be extinguished upon the transfer of the Properties. Notwithstanding anything to the contrary contained herein, if Seller is unable to eliminate any Title Objections (other than Monetary Liens) by the Scheduled Closing Date, Seller may, upon prior notice to Purchaser, adjourn the Scheduled Closing Date (such adjourned Closing Date is herein referred to as the "ADJOURNED CLOSING DATE"), for a period (the "TITLE CURE PERIOD") reasonably determined to be necessary by Seller in order to cure Title Objections but in any event not later than thirty (30) days after the Scheduled Closing Date. (b) Seller shall also have the right to invoke the aforesaid mechanism and adjourn the Scheduled Closing Date to an Adjourned Closing Date if additional time is needed in order to secure either the consents referred in Section 5.9(a)(iv) or the prepayment of any mortgage or deed of trust loan secured by the Properties, by providing Purchaser at least five (5) business days prior notice of the date of the Adjourned Closing Date, which for purposes of this Section 4.1(b) can be no later than thirty (30) days after the Scheduled Closing Date, which date shall be "time of the essence" with respect to both parties' obligation to close on such Adjourned Closing Date. Section 4.2. [Intentionally Omitted] Section 4.3. NO ACTIONS. (a) Except as set forth in Section 4.3(b) in no event shall Seller be required to bring any action or institute any proceeding, or to incur any costs or expenses, in order to attempt to eliminate any Title Objection. Seller shall notify Purchaser within ten (10) days after receipt of Purchaser's notice of any Title Objection ("Seller's Title Notice") whether or not Seller intends to make reasonable efforts to cure the Title Objection in question (failing which, Seller shall be deemed to have elected not to cure the Title Objection in question). Within ten (10) days after receipt of Seller's Title Notice stating that Seller will not cure any Title Objection (or within ten (10) days of the end of Seller's ten (10) day period if Seller failed to send a Seller's Title Notice), or, if Seller notified Purchaser in Seller's Title Notice that Seller will cure the Title Objection, within five (5) days after any subsequent notice from Seller that Seller is unable to, or unwilling to, cure the Title Objection in question, Purchaser shall notify Seller that Purchaser shall either (i) accept the Properties subject to such objection to title without abatement of the Purchase Price, in which event (x) such objection to title shall be deemed to be, for all purposes, a Permitted Encumbrance, (y) Purchaser shall close hereunder notwithstanding the existence of same, and (z) Seller shall have no obligations whatsoever after the expiration of Due Diligence Period with respect to Seller's failure to cause such objection to title to be eliminated, or (ii) elect to eliminate the Property affected by such Title Objection from the terms of this Agreement in which case this Agreement shall be of no further force or effect with respect only to such Property, except for those rights and obligations expressly stated to survive expiration or termination of this Agreement, and the Purchase Price shall be reduced by the value allocated to such Property as set forth on Schedule 4.3 attached hereto. Such election under subpart (ii) of the immediately preceding sentence shall be deemed a "DUE DILIGENCE DEFAULT" under the provisions of Section 4.7 hereof. (b) Notwithstanding the provisions of Section 4.3(a), Seller shall be obligated, at Closing to discharge all Monetary Liens affecting any Property. Seller shall have no obligation to discharge any restrictive covenants, declarations, easements or other similar instruments which are executed and acknowledged by Seller after the date hereof and prior to the Closing Date and recorded against any of the Properties to the extent such restrictive covenants, declarations, easements or other similar instruments were entered into by Seller after obtaining Purchaser's prior written consent thereto, which consent shall not be unreasonably withheld, conditioned or delayed. Section 4.4. SELLER AFFIDAVITS. Seller shall deliver to the Title Company a commercially reasonable form of owner's affidavit if and to the extent required in connection with the issuance of extended coverage title policies. Section 4.5. TITLE INSURANCE. It is contemplated that, at the Closing, the Title Company shall issue to Purchaser, or be irrevocably committed to issue to Purchaser, an ALTA owner's form title insurance policy with extended coverage issued by the Title Company (each, a "TITLE POLICY", and collectively, the "TITLE POLICIES") with respect to each Property, in the aggregate amount of the Purchase Price, allocated for each Property in accordance with the amounts set forth on Schedule 4.3 insuring that good and marketable title to the Properties is vested in Purchaser in accordance with this Agreement. Purchaser shall be entitled to request that the Title Company provide such additional endorsements to the Title Policy as Purchaser may reasonably require, provided that (a) such additional endorsements shall be at no cost to, and shall impose no additional liability on Seller, (b) Purchaser shall obtain commitments for any such endorsements through a pro forma policy issued by the Title Company prior to the end of the Due Diligence Period, and, if Purchaser is unable to obtain such endorsements as set forth in such pro forma policy at Closing, Purchaser shall not be obligated to proceed to close with respect to the affected Property or Properties, the Purchase Price shall be reduced by the value allocated to such Property or Properties as set forth on Schedule 4.3 attached hereto, and (c) the Closing on the remaining Property or Properties shall not be delayed as a result of Purchaser's election. Section 4.6. OTHER DILIGENCE OBJECTIONS. Upon reasonable prior notice to Seller, Purchaser shall have the opportunity from the Effective Date until the date of Closing to physically inspect the Properties, and Purchaser or Purchaser's agents, contractors and representatives shall have the right from and after the Effective Date to enter upon and make inspections and studies of and tests on the Properties at all reasonable times. Such inspections, studies and tests may include, but not be limited to, engineering studies, tests and Phase I environmental assessments (collectively, the "Studies"). The Studies shall (i) be conducted in a manner as not to physically damage the Properties or unreasonably interfere with the usual operation of the Properties by Seller and (ii) in no event include sampling of any environmental media (including, without limitation, air, soil and/or groundwater), provided that, if any Phase I environmental assessment shall recommend further environmental testing, including, without limitation, invasive testing and soil sampling, Purchaser may engage in such testing only if (A) Purchaser provides reasonable prior notice of such testing to Seller, (B) Purchaser provides Seller insurance certificates naming Seller as an additional insured and containing such types of insurance and limits that Seller may reasonably require, (C) such testing does not unreasonably interfere with the business of Seller conducted on the Properties, (D) Purchaser shall immediately repair any damage caused by such testing and restore the Property to the condition in which it existed immediately prior to such damage at Purchaser's sole cost and expense and (E) Purchaser indemnifies and holds Seller and Seller's Representatives harmless from and against any and all loss, cost, damage, liens, claims, liabilities or expenses (including, but not limited to, reasonable attorneys' fees, court costs and disbursements) incurred by Seller or any of Seller's Representatives arising from or by reason of such testing. Seller shall provide to Purchaser all information reasonably requested by Purchaser which is available to Seller with respect to the Properties to assist Purchaser in the Studies. On or before the date of this Agreement (unless otherwise provided on Exhibit F), Seller has delivered updated Phase I reports for each of the Properties to Purchaser (the "ENVIRONMENTAL REPORTS") and Seller has delivered or made available to Purchaser for its review the materials described on Exhibit F attached hereto (the "DUE DILIGENCE DOCUMENTS"). During the Due Diligence Period, Purchaser may obtain structural assessments and appraisals of the Properties (at Purchaser's sole cost and expense), and shall deliver to Seller notice of any environmental condition, structural condition or other matter, including those based upon the Due Diligence Documents (including, without limitation, an appraised value which is less than the amount allocated to a Property on Schedule 4.3 hereto) with respect to any Property which materially and adversely affects such Property (a "DILIGENCE OBJECTION"); PROVIDED, HOWEVER, that any Diligence Objection relating to any environmental condition shall be delivered to Seller within the first twenty-five (25) days of the Due Diligence Period. Within ten (10) days after receipt of a Diligence Objection, Seller shall notify Purchaser ("SELLER'S DILIGENCE NOTICE") whether or not Seller elects to cure such Diligence Objection (failing which, Seller shall be deemed to have elected not to cure the Diligence Objection in question). If Seller elects to cure such Diligence Objection, Seller may adjourn the Closing Date for a period reasonably determined to be necessary by Seller in order to cure the Diligence Objection (the "DILIGENCE CURE PERIOD"), which shall not be later than thirty (30) days after the Scheduled Closing Date. Within ten (10) days after receipt of Seller's Diligence Notice stating that Seller will not cure any Diligence Objection (or within ten (10) days of the end of Seller's ten (10) day period if Seller failed to send a Seller's Diligence Notice), or, if Seller notified Purchaser in Seller's Diligence Notice that Seller will cure any Diligence Objection within five (5) days after any subsequent notice from Seller that Seller is unable or unwilling to cure the Diligence Objection in question, Purchaser shall notify Seller that Purchaser shall either (i) accept the applicable Property subject to such Diligence Objection without abatement of the Purchase Price, and (x) Purchaser shall close hereunder notwithstanding the existence of the same, and (y) Seller shall have no obligations whatsoever after the Due Diligence Period with respect to Seller's failure to cause such Diligence Objection to be eliminated, or (ii) eliminate the Property affected by such Diligence Objection from the terms of this Agreement in which case this Agreement shall be of no further force or effect with respect to such Property, except for those rights and obligations expressly stated to survive expiration or termination of this Agreement, and the Purchase Price shall be reduced by the amount allocated to such Property as set forth on Schedule 4.3 attached hereto. Such election under subpart (ii) of the immediately preceding sentence shall be deemed a "DUE DILIGENCE DEFAULT" under the provisions of Section 4.7 hereof. Section 4.7. DUE DILIGENCE DEFAULT; TERMINATION RIGHT; LIMITED REIMBURSEMENT RIGHT. (a) During the Due Diligence Period, Purchaser may provide notice to Seller that Purchaser elects to eliminate up to five (5) Properties from the terms and provisions of this Agreement for reasons of a Title Objection under Section 4.3, or a Diligence Objection under Section 4.6 (each, a "DUE DILIGENCE DEFAULT"). If Purchaser timely provides notice of such Due Diligence Default in accordance with the provisions of Section 4.3 and Section 4.6, then the Properties for which notice of such Due Diligence Default was provided by Purchaser to Seller shall be eliminated from the terms and provisions of this Agreement and this Agreement shall be of no further force and effect with respect to such Properties only, other than those rights and obligations expressly stated to survive expiration or termination of this Agreement, but this Agreement shall remain in full force and effect with respect to all of the other Properties. (b) Anything contained in this Agreement to the contrary notwithstanding, if Purchaser determines at any time prior to the expiration of the Due Diligence Period that the Properties are not satisfactory to Purchaser for any reason or no reason, in Purchaser's sole discretion, then Purchaser may terminate this Agreement in its entirety by delivering written notice of termination to Seller prior to the end of the Due Diligence Period. If Purchaser so terminates this Agreement, the Escrow Agent shall return the Deposit to Purchaser (together with all interest thereon), and neither party shall have any further rights, duties or obligations hereunder except with respect to the provisions of this Agreement which expressly survive the termination of this Agreement. (c) If Purchaser terminates this Agreement following Seller's election not to cure, or Seller's failure to cure, Diligence Objections (other than objections relating to financial performance or valuation of the Properties) for at least five (5) Properties and such Diligence Objections could have been cured by Seller using commercially reasonable efforts, then Seller shall be obligated to reimburse Purchaser for Purchaser's actual out-of- pocket costs and expenses (including the cost of third-party reports, travel expenses and reasonable attorneys' fees and expenses) reasonably incurred by Purchaser in connection with this Agreement; PROVIDED, HOWEVER, the amount of such reimbursement shall not exceed Fifty Thousand Dollars ($50,000.00), in the aggregate. Section 4.8. FRANCHISOR AND BANK SYNDICATE APPROVAL, CONSENT. During the Due Diligence Period, Seller shall use commercially reasonable efforts to obtain Franchisor's and Seller's Bank Syndicate's approval of the Lease and consent to this transaction. ARTICLE V CLOSING Section 5.1. CLOSING. The Closing shall be held on the date which is ten (10) days following expiration of the Due Diligence Period (the "SCHEDULED CLOSING DATE"), or such other date as Seller may set for the Closing if it elects to extend said date pursuant to Section 4.1, Section 4.6, Section 11.1(b) or Section 12.1(b) as the Adjourned Closing Date. The Closing on the Scheduled Closing Date or the Adjourned Closing Date, as applicable, shall commence at 9:30 a.m. Central time, at the offices of the Title Company or at such other location as Seller and Purchaser shall mutually designate. Section 5.2. SELLER'S CLOSING ITEMS. Unless otherwise provided in this Section 5.2, at the Closing, Seller shall execute, deliver, furnish or provide to Purchaser, or cause to be executed, delivered, furnished or provided to Purchaser, the following (in such reasonable number of original counterparts as Purchaser may request): (a) special or limited warranty deeds in form reasonably satisfactory to Purchaser and the Title Company for each of the Land and Buildings, conveying good and marketable (as required by this Agreement) fee title thereto, subject to the Permitted Encumbrances applicable to each Property (the "DEEDS"); (b) the Lease Guaranty with respect to each Property; (c) a "non-foreign person" certification from Seller pursuant to Section 1445 of the Code in the form attached hereto as Exhibit D (the "FIRPTA Affidavit"); (d) the affidavits and other similar documents contemplated by Section 4.4; (e) if available and to the extent in Seller's possession, a certificate of occupancy (or copy thereof to the extent available); (f) copies of all permits, approvals, warranties, guaranties, indemnity agreements, variances, approvals and licenses, in connection with the ownership, occupancy, maintenance or operation of the Properties, to the extent Seller is in possession; (g) such other documents as may be reasonably necessary or appropriate as requested by Purchaser to effect the consummation of the transactions that are the subject of this Agreement (including, without limitation, a Subordination, Non Disturbance and Attornment Agreement and a Tenant Estoppel Certificate in the form of those attached as exhibits to the Lease); (h) the Title Policy, or an irrevocable commitment to issue the Title Policy (and any endorsements for which commitments have been obtained by Purchaser prior to the end of the Due Diligence Period), for each Property, dated as of the filing of the Deed for such Property, issued by the Title Company, and insuring Purchaser's good and marketable title in the amount of the Purchase Price allocable to such Property, subject only to the Permitted Encumbrances applicable to such Property; (i) a Bill of Sale and Assignment, duly executed by Seller, conveying title to all of the portions of the Properties described in Section 2.3(d), (e), (f) and (g) hereof, if, and to the extent assignable, to Purchaser; (j) a Certificate of Seller confirming that all representations and warranties of Seller in this Agreement are true and correct in all material respects as of the Closing Date; (k) certificates of insurance with respect to each Property showing the insurance coverages required under the Leases and names Purchaser as an additional insured and/or loss payee two (2) business days prior to Closing; (l) a Closing Statement; and (m) written confirmation from AAG that it has no right to acquire any interest in the Properties. Section 5.3. PURCHASER'S CLOSING ITEMS. At the Closing, Purchaser shall execute, deliver, furnish or provide to Seller, or cause to be executed, delivered, furnished or provided to Seller, the following: (a) the balance of the Purchase Price in the manner required by Section 2.2(b); (b) consents to collateral lease assignments and estoppel agreements and any other document reasonably required by Seller's Bank Syndicate or Franchisor, in form and substance reasonably acceptable to the parties hereto; (c) such other documents as may be reasonably necessary or appropriate as requested by Seller to effect the consummation of the transactions that are the subject of this Agreement; (d) a Certificate of Purchaser confirming that all representations and warranties of Purchaser in this Agreement are true and correct in all material respects as of the Closing Date; and (e) a Closing Statement. Section 5.4. DOCUMENTS JOINTLY EXECUTED BY SELLER AND PURCHASER. At the Closing, Seller and Purchaser shall each execute and deliver the following documents: (a) any requisite transfer tax returns provided for in Section 5.5, to be delivered to the Title Company; (b) the Leases and Lease Memorandum for the Properties; (c) the documentation necessary to comply with Section 5.7; (d) subject to satisfaction of the conditions to Closing contained in this Agreement and such letter, a letter of direction to the Escrow Agent to disburse the Deposit and the balance of the Purchase Price to Seller, record the Deeds and Lease Memoranda, and take all other actions necessary to effect the Closing; and (e) such other documents as may be reasonably necessary or appropriate to effect the consummation of the transactions that are the subject of this Agreement. Section 5.5. TRANSFER AND RECORDATION TAXES. (a) All recording fees, recording taxes, intangibles taxes, transfer taxes and sales taxes, if any, imposed in connection with the conveyance of the Properties pursuant to this Agreement as required by the laws of each respective jurisdiction in which the Properties are located (the "Transfer Taxes") shall be paid by Seller. (b) Seller and Purchaser shall each execute and/or acknowledge the returns or statements required if any, in connection with the Transfer Taxes, and any other taxes referred to in this Section 5.5 or otherwise applicable to the transactions contemplated by this Agreement, and shall deliver same, together with the check or checks of Seller in payment thereof which are required of Seller, to the Title Company on the Closing Date. All such tax payments shall be made by certified or bank check payable directly to the order of the appropriate governmental officer, or in such manner as the Title Company shall reasonably require and accept. (c) The provisions of this Section 5.5 shall survive the Closing. Section 5.6. TITLE INSURANCE AND DILIGENCE COSTS. The costs of examination of title (including all UCC, tax and other searches) and title premiums for the issuance by the Title Company of ALTA owner's form title insurance policies with extended coverage (and including survey endorsements) insuring Purchaser's fee interest in the Properties, shall be paid by Seller. The cost of obtaining survey affidavits and certifications required hereunder, including, without limitation, affidavits regarding no new improvements, shall be paid by Seller. The cost of the Phase I reports previously delivered to Purchaser, any updates to correct inaccuracies in such reports, and the certification thereof to Purchaser shall be paid by Seller. The costs of all other diligence items, including, but not limited to, appraisals, structural and engineering reports and condemnation and zoning investigations, additional surveys (excluding the Surveys described in Section 4.1), and additional environmental reports or studies obtained by Purchaser shall be paid by Purchaser. The provisions of this Section 5.6 shall survive the Closing. Section 5.7. 1099 COMPLIANCE. Seller and Purchaser shall execute, acknowledge and deliver to the other party such instruments, and take such other actions, as such other party may reasonably request in order to comply with Section 6045(e) of the Code, or any successor provision or any regulations promulgated pursuant thereto, insofar as the same requires reporting of information in respect of real estate transactions. The parties designate the Title Company as the responsible party for reporting this information as required by law. The provisions of this Section 5.7 shall survive the Closing. Section 5.8. ATTORNEYS' FEES. Seller and Purchaser shall each bear the costs of their respective counsel in connection with the sale and purchase of the Properties. At Closing, Seller shall provide a credit to Purchaser against the Purchase Price in an amount equal to the lesser of: (a) Four Thousand Dollars ($4,000.00) for each Property conveyed to Purchaser at Closing, or (b) the total amount of attorneys' fees incurred by Purchaser in connection with this transaction. At least two (2) business days prior to Closing, Purchaser shall provide to Seller copies of invoices (or other evidence of payment) verifying the total amount of attorneys' fees incurred by Purchaser in this transaction. Section 5.9. CLOSING CONDITIONS. (a) The obligation of Seller to consummate the transaction contemplated by this Agreement shall be conditioned on the following conditions, as of the Closing Date: (i) all representations and warranties of Purchaser in this Agreement are true and correct in all material respects as of the Closing Date, except to the extent that any such representations and warranties expressly relate to an earlier date; (ii) Purchaser shall have performed, in all material respects, all of its obligations under this Agreement; (iii) Purchaser has not filed nor has become the subject of a bankruptcy proceeding; and (iv) Seller's Bank Syndicate and Franchisor shall have consented to the transactions contemplated by this Agreement (including, without limitation, approval of the Lease) within five (5) days prior to the Closing Date. (b) The obligation of Purchaser to consummate the transaction contemplated by this Agreement shall be conditioned on the following conditions, as of the Closing Date: (i) all representations and warranties of Seller are true and correct in all material respects as of the Closing Date, except to the extent that any such representations and warranties expressly relate to an earlier date; (ii) Seller shall have performed, in all material respects, all of its obligations under this Agreement; (iii) neither any Seller nor AAG has filed nor has become the subject of a bankruptcy proceeding; and (iv) Seller's Bank Syndicate and Franchisor shall have consented to the transactions contemplated by this Agreement (including, without limitation, approval of the Lease) within five (5) days prior to the Closing Date. (c) If the Closing shall not occur solely as a result of the failure of the condition set forth in Section 5.9(a)(iv), Section 5.9(b)(iii) or Section 5.9(b)(iv) above, the Deposit (and any interest earned thereon) shall be returned to Purchaser and upon Purchaser's request therefor, Seller shall reimburse Purchaser for all of Purchaser's actual out-of-pocket costs and expenses (including, without limitation, the cost of third-party reports, travel expenses and reasonable attorneys' fees and expenses) reasonably incurred by Purchaser in connection with this Agreement, within ten (10) days of Seller's receipt of an invoice for such costs and expenses; Provided, However, the amount of such reimbursement shall not exceed One Hundred Fifty Thousand Dollars ($150,000), in the aggregate. Section 5.10. PRICE ALLOCATION. Purchaser and Seller hereby agree to allocate the Purchase Price among the Properties in the manner set forth on Schedule 4.3 under the column labeled "Purchase Price - Amt," or on such other basis as the parties may mutually agree to in writing prior to Closing. ARTICLE VI CLOSING ADJUSTMENTS Section 6.1. CLOSING ADJUSTMENTS. Seller and Purchaser acknowledge and agree that there shall be no closing adjustments, because of the execution and delivery of the Lease at closing and that payments usually adjusted will be paid by Seller or the tenant under the Lease. ARTICLE VII COVENANTS OF SELLER Section 7.1. COVENANTS. During the period from the date hereof until the Closing Date, Seller shall (i) operate, maintain and manage the Properties in a manner consistent with current practice, (ii) not enter into any leases, license agreements or other agreements which would be an encumbrance on any of the Properties, (iii) maintain casualty and liability insurance in commercially reasonable amounts, and (iv) notify Purchaser promptly after Seller is notified or becomes aware of (A) any litigation regarding any of the Properties, (B) any event or condition which would cause any representation or warranty of Seller contained herein to no longer be true and correct in any material respect, or (C) any event or condition which would cause any condition to Purchaser's obligations in Section 5.9(b) to not be satisfied in any material respect. ARTICLE VIII REPRESENTATIONS AND WARRANTIES Section 8.1. REPRESENTATIONS AND WARRANTIES BY SELLER. Seller hereby represents and warrants to Purchaser as of the date hereof that, except as identified on Schedule 8.1, which Seller shall complete and deliver to Purchaser within ten (10) days following the Effective Date: (a) Seller is a limited liability company, duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in each state where the Properties are located; (b) Seller has the legal right, power and authority to enter into this Agreement and the Leases and to perform all of its obligations hereunder, and the execution and delivery of this Agreement and the Leases and the performance by Seller of its obligations hereunder and thereunder, (x) has been duly authorized, and (y) will not conflict with, or result in a breach of, any of the terms, conditions and provisions of its organizational and governance documents or any law, statute, rule or regulation, or order, judgment, writ, injunction or decree of any court or governmental instrumentality, or any contract, agreement or instrument to which it is a party or by which it is bound, or to which it or any portion of its property is subject and (z) will not require the consent, approval, authority or order of any court or governmental agency that has not been previously obtained in writing or delivered to the Purchaser; (c) Seller has not received written notice of any pending condemnation, eminent domain or similar proceedings with respect to the Properties, and has no actual knowledge that any such proceedings are threatened or contemplated; (d) Seller is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code; (e) neither Seller nor AAG has (i) commenced a voluntary case, or to Seller's knowledge, had entered against it a petition for relief under any federal bankruptcy act or similar petition order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors, (ii) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator, or similar official in any federal, state or foreign judicial or nonjudicial proceeding, to hold, administer and/or liquidate all or substantially all of its asset, or (iii) made an assignment for the benefit of creditors; (f) the Properties are not subject to any agreements of sale, or any options or other rights of third parties to acquire any interest therein (other than pursuant to this Agreement and the rights of Franchisor under its franchise agreements with AAG); (g) there are no adverse or other parties in possession of the Properties, or of any part thereof, except Seller, and to Seller's knowledge no party has been granted, and there does not currently exist, any license, lease or other right relating to the possession of the Properties, or any part thereof other than as set forth in Seller's agreements with Franchisor; (h) Seller is not a party to any litigation, arbitration or administrative proceeding, and no litigation, arbitration or administrative proceeding is pending or, to Seller's knowledge, threatened: (A) in which Seller is adverse to any person or entity having or claiming any past, present or future interest in any of the Properties, (B) which affects or questions Seller's title to or current use of any of the Properties or Seller's ability to perform its obligations under this Agreement, or (C) otherwise relating to any claim for damages for personal injury or property damage arising from or at any Property; (i) except as disclosed in the Environmental Reports (i) to Seller's knowledge, no Property contains any Hazardous Substances in violation of any applicable Environmental Laws, (ii) Seller has not received any notice of, and has no actual knowledge that, any administrative agency or other governmental authority has determined that there has been (or is investigating whether there is) a presence at, release or threat of release from, or placement on or in, any Property of any Hazardous Substances, or any Hazardous Substance in violation of any applicable Environmental Laws, and (iii) to Seller's knowledge, no underground storage tanks are located on any Property; (j) to Seller's knowledge, Seller has not received written notice of any breach of any reciprocal easement agreement, development agreement, operating agreement or similar agreement affecting the Property which has not been cured; (k) Seller has not received written notice from any governmental or regulatory agency of any material violation of any law, regulation or statutory requirement with respect to the physical condition of any Building, or the operation of Seller's business thereon, which has not been cured; (l) Neither Seller nor, to the best of Seller's knowledge, any of Seller's members, are an entity or person: (i) that is listed in the Annex to, or is otherwise subject to the provisions of Executive Order 13224 issued on September 24, 2001 ("EO13224"); (ii) whose name appears on the United States Treasury Department's Office of Foreign Assets Control ("OFAC") most current list of "SPECIFICALLY DESIGNATED NATIONAL AND BLOCKED PERSONS" (which list may be published from time to time in various mediums including, but not limited to, the OFAC website, http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf); (iii) who commits, threatens to commit or supports "TERRORISM," as that term is defined in EO13224; (iv) is subject to sanctions of the United States government or is in violation of any federal, state, municipal or local laws, statutes, codes, ordinances, orders, decrees, rules or regulations relating to terrorism or money laundering, including, without limitation, EO13224 and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001; or (v) who is otherwise affiliated with any entity or person listed above (any and all parties or persons described in subsections (i) - (v) above are herein referred to as a "PROHIBITED PERSON"). Neither Seller nor its members shall knowingly: (A) conduct any business, nor engage in any transaction or dealing, with any Prohibited Person, including, but not limited to, the making or receiving of any contribution of funds, goods, or services, to or for the benefit of a Prohibited Person; or (B) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in EO13224; and (m) the Properties are not now in whole or in part under lease to any person, nor are there any equipment leases or service contracts (other than those relating to Excluded Property or those which can be cancelled upon sixty (60) days or less notice without penalty) relating to the Properties to which Seller is a party; (n) The historical financial statements provided to Purchaser by Seller are consistent with those internally prepared by Seller and to Seller's knowledge are true, accurate and complete. (o) To the Seller's knowledge, the Properties are suitable for use and operation of a typical Applebee's restaurant. (p) To the Seller's knowledge, no Property contains any latent defect, construction structural design or engineering defect and no state of repair exists which would in the aggregate, as to any Property, cost more than $200,000 to correct or repair. Any and all uses of the phrase, "TO SELLER'S ACTUAL KNOWLEDGE" or other references to Seller's knowledge in this Agreement shall mean the actual knowledge of Lorin M. Cortina (the "SELLER KNOWLEDGE INDIVIDUAL") as to a fact at the time given. The actual or constructive knowledge of any other individual or entity shall not be imputed to the Seller Knowledge Individual. Section 8.2. REPRESENTATIONS AND WARRANTIES BY PURCHASER. Purchaser hereby represents and warrants to Seller as of the date hereof that: (a) Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota; (b) Purchaser has the legal right, power and authority to enter into this Agreement and perform all its obligations hereunder, and the execution and delivery of this Agreement and the performance by Purchaser of its obligations hereunder, (x) has been duly authorized, and (y) will not conflict with, or result in a breach of, any of the terms, conditions and provisions of its organizational and governance documents or any law, statute, rule or regulation, or order, judgment, writ, injunction or decree of any court or governmental instrumentality, or any contract, agreement or instrument to which Purchaser is a party or by which it is bound, or to which it or any portion of its property is subject and (z) will not require the consent, approval, authority or order of any court or governmental agency that has not been previously obtained in writing and delivered to Seller; (c) Purchaser, either directly or through its shareholders or affiliates, has sufficient capital or net worth to meet the obligations of Purchaser under this Agreement, including payment of the Purchase Price; and (d) Neither Purchaser nor, to the best of Purchaser's knowledge, any of Purchaser's shareholders, is an entity or person: (i) that is listed in the Annex to, or is otherwise subject to the provisions of Executive Order 13224 issued on September 24, 2001 ("EO13224"); (ii) whose name appears on the United States Treasury Department's Office of Foreign Assets Control ("OFAC") most current list of "SPECIFICALLY DESIGNATED NATIONAL AND BLOCKED PERSONS" (which list may be published from time to time in various mediums including, but not limited to, the OFAC website, http://www.treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf); (iii) who commits, threatens to commit or supports "terrorism," as that term is defined in EO13224; (iv) is subject to sanctions of the United States government or is in violation of any federal, state, municipal or local laws, statutes, codes, ordinances, orders, decrees, rules or regulations relating to terrorism or money laundering, including, without limitation, EO13224 and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001; or (v) who is otherwise affiliated with any entity or person listed above (any and all parties or persons described in subsections (i) - (v) above are herein referred to as a "PROHIBITED PERSON"). Purchaser covenants and agrees that neither Purchaser nor any of its shareholders shall knowingly: (A) conduct any business, nor engage in any transaction or dealing, with any Prohibited Person, including, but not limited to, the making or receiving of any contribution of funds, goods, or services, to or for the benefit of a Prohibited Person; or (B) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in EO13224. Section 8.3. ACKNOWLEDGMENTS OF PURCHASER. Purchaser acknowledges and agrees for the benefit of Seller that: (a) Except as otherwise expressly stated in this Agreement or in any agreement or instrument executed and delivered by Seller to Purchaser contemporaneously herewith or at the Closing, including, by way of example, but not limited to representations and warranties set forth in Section 8.1 of this Agreement (hereinafter collectively referred to in this Section 8.3 as the "SURVIVING REPRESENTATIONS"), Seller hereby expressly disclaims any and all representations and warranties of any kind or character, express or implied, written or oral, with respect to the Properties, and Purchaser agrees to accept the Properties "AS IS, WHERE IS, WITH ALL FAULTS". Without limiting the generality of the preceding sentence or any other disclaimer set forth herein, Seller and Purchaser hereby agree that, except for the Surviving Representations, Seller has not made and is not making any representations or warranties, express or implied, written or oral, as to (a) the nature or condition, physical or otherwise, of any Property or any aspect thereof, including, without limitation, any warranties of habitability, suitability, merchantability or fitness for a particular use or purpose, or the absence of latent or other defects in any Property, (b) the nature or quality of construction, structural design or engineering of the improvements or the state of repair or lack of repair of any of the improvements, (c) the quality of the labor or materials included in the improvements, (d) any soil, surface water or groundwater conditions, drainage conditions, topographical features, access to public rights-of-way, availability of utilities or other conditions or circumstances which affect or may affect any Property or any use to which any Property may be put, (e) any conditions which affect or may affect any Property with respect to any particular purpose, use, development potential or otherwise, (f) the area, size, shape, configuration, location, capacity, quantity, quality, cash flow, expenses or value of any Property or any part thereof, (g) the nature or extent of title to any Property, or any easement, servitude, right-of-way, possession, lien, encumbrance, license, reservation, condition or otherwise that may affect title to any Property, (h) any environmental, geological, structural, or other condition or hazard or the absence thereof heretofore, now or hereafter affecting in any manner any Property, including but not limited to, the presence or absence of any Hazardous Substances on, in, under, migrating to or from or adjacent to any Property, (i) the compliance of any Property or the operation or use of any Property with any applicable restrictive covenants, or with any laws, ordinances or regulations of any governmental body (including specifically, without limitation, any zoning laws or regulations, any building codes, any Environmental Laws, and the Americans with Disabilities Act of 1990, 42 U.S.C. 12101, et seq.). The provisions of this Section 8.3 shall be binding on Purchaser and shall survive the Closing. (b) Purchaser has been given the opportunity to inspect the Properties, the leases, contracts and other materials (including, without limitation, title materials and financial reports) relating to the Properties that Purchaser deemed necessary to inspect and review in connection with the transaction contemplated by this Agreement, and Purchaser has had the opportunity to retain such environmental consultants, structural engineers and other experts as it deemed necessary to inspect the Properties and review such materials. Purchaser is relying on its own investigation and the advice of its experts regarding the Properties, and upon its review of leases, contracts, and other materials, and not on any representations or warranties of Seller (other than the Surviving Representations). Purchaser acknowledges that Seller makes absolutely no representations or warranties with respect to the accuracy or completeness of any information, reports or other materials delivered to Purchaser except as may be expressly set forth in the Surviving Representations or elsewhere in this Agreement or in the instruments executed and delivered at Closing. (c) Anything contained in this Agreement to the contrary notwithstanding, if a breach, inaccuracy, incompleteness or nonfulfillment ("Defect") of any warranty, representation or covenant of Seller or of any condition to Purchaser's obligations hereunder, contained in this Agreement, occurs and such Defect is known to Purchaser at or prior to the Closing, Purchaser's sole remedy with respect thereto shall be either (x) to waive its right to object to such Defect and cause the Closing to occur without abatement, credit against or reduction of the Purchase Price by any amount whatsoever, in which event Seller shall have no further liability or responsibility to Purchaser with respect to any such Defect or (y) to notify Seller in writing of such Defect prior to the Closing Date and, at Purchaser's option, either, (i) if such Defect is not cured by Seller prior to the Closing Date, to terminate this Agreement in which case the Deposit (together with any interest thereon) shall be returned to Purchaser and Seller shall have no further liability to Purchaser except by reason of such Defect, if applicable, as provided in Section 13.2 or (ii) whether or not Seller undertakes to cure such Defect, proceed to Closing without abatement, credit against or reduction of the Purchase Price by any amount whatsoever, in which event, Seller shall have no further liability or responsibility to Purchaser with respect to any such Defect. Section 8.4. NO FINANCING CONTINGENCY. Purchaser acknowledges and agrees that its obligations under this Agreement shall not be subject to any financing contingency. Section 8.5. DAMAGES FOR BREACH OF REPRESENTATIONS. In the event of a material breach with respect to any representation or warranty made by Seller or Purchaser under this Agreement, the non-breaching party shall be entitled to pursue a claim with respect to such breach if and only if (i) written notice of such breach is given to the breaching party on or prior to the expiration of the applicable Survival Period for such breach, which notice must contain a reasonably detailed description of the facts relating to the claimed breach and (ii) the liability and losses arising out of such breach, when aggregated with all other breaches, if any, of representations and warranties under this Agreement, shall exceed Two Hundred Fifty Thousand Dollars ($250,000). For purposes of this Section 8.5, "SURVIVAL PERIOD" shall mean a period of one (1) year commencing on the day following the Closing Date. The provisions of this Section 8.5 shall survive the Closing. Seller and Purchaser acknowledge and agree that, except to the extent any losses, costs or damages are incurred by such party resulting from any fraudulent misrepresentation by the other party, Purchaser's and Seller's sole and exclusive remedy with respect to any and all claims based upon, resulting from or arising out of the breach of any representation or warranty of the other party contained in this Agreement shall be pursuant to the provisions of this Article VIII. All claims for damages shall be limited to actual damages and shall not include lost profits or consequential damages whether arising in contract, tort (including negligence and strict liability), warranty, statute or otherwise. ARTICLE IX NOTICES Section 9.1. NOTICES. All notices, demands, requests, approvals or other communications ("NOTICES") required to be given or which may be given hereunder shall be in writing and shall be given by personal delivery with receipt acknowledged or by United States registered or certified mail, return receipt requested, postage prepaid, by Federal Express or other reputable national overnight courier service or by facsimile transmission, and shall be deemed given when received or refused at the following addresses: If to Seller: APPLE AMERICAN GROUP LLC 225 Bush Street, Suite 1470 San Francisco, California 94104 Attn.: Lorin M. Cortina Facsimile No.: (415) 835-0223 With copies to: Dennis E. McLean, Esq. Davis Wright Tremaine LLP 1501 4th Avenue, Suite 2600 Seattle, Washington 98101 Facsimile No.: (206) 470-3623 If to Purchaser: AEI Fund Management, Inc. 1300 Wells Fargo Place 30 Seventh Street East St. Paul, Minnesota 55101 Attn.: George J. Rerat Facsimile No.: (651) 225-8144 With copies to: Winthrop & Weinstine P.A. 225 South Sixth Street Suite 350 Minneapolis, Minnesota 55402 Attn.: Jeffrey L. Leclerc Facsimile No.: (612) 604-6887 Each party may designate a change of address (or additional or substitute parties for notice) by notice to the other party, given at least fifteen (15) days before such change of address is to become effective. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. ARTICLE X CONFIDENTIALITY Section 10.1. CONFIDENTIALITY. Purchaser acknowledges and agrees that until the Closing it shall be bound by all of the terms and conditions of that certain confidentiality letter agreement between AAG and AEI Fund Management, Inc. dated as of February 27, 2006. Between the date hereof through and including the Closing Date, Purchaser and Seller shall not (and shall each use reasonable efforts to cause their respective Representatives, including, without limitation, financial institutions not to) disclose, make known, divulge, disseminate or communicate the Purchase Price or any of the terms of this Agreement or this transaction or any agreement, document or understanding pertinent to the instant transaction without the consent of the other party, except (i) as required by law, (ii) to their respective Representatives involved in the transaction or their respective businesses, (iii) to Purchaser's prospective lenders or investors, (iv) to Seller's lender or investors, (v) to Franchisor, or (vi) as necessary to enforce the provisions of this Agreement or to pursue any claim or action arising hereunder. Neither AAG nor Seller, on the one hand, nor Purchaser, on the other hand, shall make any public announcements, including, without limitation, any press releases, pertaining in any way to this Agreement and documents or transactions contemplated hereby without the prior consent of Purchaser, Seller and AAG, except as required by law. Notwithstanding the foregoing or any contrary agreement or understanding, the parties (and each of their respective employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and U.S. federal income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to them relating to such U.S. federal income tax treatment and U.S. federal income tax structure. Section 10.2. SURVIVAL. The provisions of Section 10.1 shall survive the termination of this Agreement. ARTICLE XI DAMAGE AND DESTRUCTION Section 11.1. EFFECT OF DAMAGE. If all or any part of any Property is damaged by fire or other casualty occurring following the date hereof and prior to the Closing Date, whether or not such damage affects a material part of any Property, (a) if the estimated cost of repair or restoration with respect to any one Property is less than or equal to Two Hundred Thousand Dollars ($200,000) or twenty percent (20%) or less of the parking spaces of any Property are damaged, neither party shall have the right to terminate this Agreement and the parties shall nonetheless consummate this transaction in accordance with this Agreement, without any abatement of the Purchase Price or any liability or obligation on the part of Seller by reason of said destruction or damage and without any extension of the Closing Date. In such event, Seller shall make a claim for and have the right to collect any casualty insurance proceeds received under the casualty insurance policies in effect with respect to the Properties on account of said physical damage or destruction and Seller shall promptly proceed to perform the requisite repairs and rebuild the Building to substantially the same condition as it existed prior to the occurrence of such fire or other casualty, it being contemplated that insurance proceeds will be assigned to Seller, and that Seller, will be responsible for the amount of any deductible (but the completion of such repairs and restoration shall not be in condition to Purchaser's obligation to close so long as the Lease for such Property specifically provides that the Tenant shall pay rent during the pendency of such repairs and the Tenant is not otherwise able to terminate the Lease by reason of such damage); and (b) if the estimated cost of repair or restoration with respect to any one (1) Property exceeds Two Hundred Thousand Dollars ($200,000) or more than twenty (20%) of the parking spaces for any Property are destroyed (in either case, a "CASUALTY PROPERTY"), Seller or Purchaser, shall have the option, exercisable within thirty (30) days after the occurrence of such fire or other casualty and such party's receipt of such factual information regarding the casualty and availability of insurance proceeds as is reasonably sufficient to enable such party to make an informed decision about whether or not to proceed to Closing, to eliminate such Casualty Property from the sale contemplated by this Agreement in which event the Purchase Price shall be reduced by the amount allocated to such Casualty Property on Schedule 4.3 attached hereto and this Agreement shall be deemed canceled and of no further force or effect with respect to the Casualty Property only, except for those rights and obligations expressly stated to survive expiration or termination of this Agreement, and neither party shall have any further rights or liabilities against or to the other with respect to the Casualty Property. Any Casualty Property eliminated by Purchaser from the sale contemplated hereunder shall not be deemed a Due Diligence Default for purposes of Section 4.7 of this Agreement. If a fire or other casualty described in this subsection (b) shall occur and neither party shall have elected to eliminate such Casualty Property from the transaction contemplated by this Agreement, then in such event, irrespective of the cost of repair or restoration exceeding Two Hundred Thousand Dollars ($200,000) or whether more than twenty percent (20%) of the parking spaces for any Property are destroyed, the Closing Date with respect to such Casualty Property (but not the other Properties) shall be adjourned for a period of time reasonably determined to be necessary by Seller to make the repair or restoration, but in any event not later than November 30, 2006. Section 11.2. ESTIMATES. The estimated cost to repair and/or restore contemplated in Section 11.1 above shall be established by estimates obtained by Seller from independent contractors, subject to Purchaser's review and reasonable approval of the same and the provisions of Section 11.3 below. Section 11.3. DISPUTES. Any disputes under this Article XI as to the cost of repair or restoration shall be resolved by expedited arbitration before a single arbitrator acceptable to both Seller and Purchaser in their reasonable judgment in accordance with the expedited commercial arbitration rules then obtaining of the American Arbitration Association. ARTICLE XII CONDEMNATION Section 12.1. EFFECT OF CONDEMNATION. If, prior to the Closing Date, any part of any Property is taken, or if Seller shall receive an official notice from any governmental authority having eminent domain power over any of the Properties of its intention to take, by eminent domain proceeding, all or any portion of any of the Properties (in either case, a "Taking"), then: (a) if such Taking with respect to any Property is less than or equal to Two Hundred Thousand Dollars ($200,000), does not affect more than twenty percent (20%) of the parking spaces of any Property and otherwise would not allow for termination of the Lease or reduction, abatement or offset of rent under the Lease if such Taking occurred during the Term of the Lease, does not impair Seller's ability to conduct its business at the Properties, and will not result in the Property violating any federal, state or local law, regulation or ordinance, neither party shall have any right to terminate this Agreement, and the parties shall nonetheless consummate this transaction in accordance with this Agreement, without any abatement of the Purchase Price or any liability or obligation on the part of Seller by reason of such Taking and without any extension of the Closing Date; PROVIDED, HOWEVER, that Purchaser and Seller shall be entitled to make a claim for any award or other proceeds of such Taking , and Seller may receive and keep the portion of such proceeds or award necessary to restore the Property in order to operate the Seller's business on the Property. The net proceeds of any such award after such restoration shall be delivered to Purchaser; and (b) if such Taking with respect to any Property is more than Two Hundred Thousand Dollars ($200,000), affects more than twenty percent (20%) of the parking spaces of any Property, would allow for termination of the Lease if such taking occurred during the Term of the Lease or reduction, abatement or offset of rent under the Lease, or impairs Seller's ability to operate its business at any Property or results in the Property violating any federal, state or local law, regulation or ordinance (a "TAKING PROPERTY"), either Seller or Purchaser, shall have the option, exercisable within thirty (30) days after such Taking or notice that such Taking will occur and such party's receipt of such factual information regarding the Taking and the availability of awards or other proceeds of such Taking as is reasonably sufficient to enable such party to make an informed decision about whether or not to proceed to Closing, to exclude such Taking Property from the sale contemplated by this Agreement in which case the Purchase Price shall be reduced by the amount allocated to such Taking Property on Schedule 4.3 attached hereto and this Agreement shall be deemed canceled and of no further force or effect with respect to the Taking Property only, except for those rights and obligations expressly stated to survive expiration or termination of this Agreement, and neither party shall have any further rights or liabilities against or to the other with respect to the Taking Property. Any Taking Property eliminated by Purchaser from the sale contemplated hereunder shall not be deemed a Due Diligence Default for purposes of Section 4.7 of this Agreement. If a Taking described in this subsection (b) shall occur and neither party shall have elected to eliminate such Taking Property from the transaction contemplated by this Agreement, then Purchaser and Seller shall consummate this transaction in accordance with this Agreement, without any abatement of the Purchase Price or any liability or obligation on the part of Seller by reason of such Taking; provided, however, that Seller may receive and keep the portion of any award or other proceeds of such Taking necessary to restore the Property in order to operate the Seller's business thereon, the net proceeds of any such award after such restoration shall be delivered to Purchaser, and the Closing Date with respect to such Property (but not the other Properties) shall be adjourned for a period of time reasonably determined to be necessary by Seller to make the repair or restoration, but in no event later than November 30, 2006. (c) Any disputes under this ARTICLE XII as to whether the Taking is less than or equal to Two Hundred Thousand Dollars ($200,000), affects more than twenty percent (20%) of the Parking Spaces for any Property or impairs Seller's ability to conduct its business at such Property shall be resolved by expedited arbitration before a single arbitrator acceptable to both Seller and Purchaser in their reasonable judgment in accordance with the expedited commercial arbitration rules then obtaining of the American Arbitration Association. ARTICLE XIII DEFAULT BY PURCHASER OR SELLER Section 13.1. PURCHASER DEFAULT. If Purchaser shall default in the payment of the Purchase Price or if Purchaser shall default in the performance of any of its other obligations to be performed on the Closing Date, Seller shall have the right, as its sole and exclusive remedy by reason thereof (in lieu of prosecuting an action for damages or proceeding with any other legal course of conduct, the right to bring such actions or proceedings being expressly and voluntarily waived by Seller, to the extent legally permissible, following and upon advice of its counsel), to terminate this Agreement and to retain the Deposit (and any interest earned thereon). Section 13.2. SELLER DEFAULT. If Seller shall default in any of its obligations to be performed on the Closing Date, Purchaser, as its sole remedies by reason thereof (in lieu of prosecuting an action for damages or proceeding with any other legal course of conduct, the right to bring such actions or proceedings being expressly and voluntarily waived by Purchaser, to the extent legally permissible, following and upon advice of its counsel), shall have the right: (i) to seek to obtain specific performance of Seller's obligations hereunder, provided that any action for specific performance shall be commenced within one hundred and twenty (120) days after such default, and if Purchaser prevails thereunder, Seller shall reimburse Purchaser for all reasonable legal fees, court costs and all other reasonable costs of such action; or (ii) to terminate this Agreement and receive a return of the Deposit (together with any interest earned thereon), in which event Seller shall reimburse Purchaser on demand for all of Purchaser's out-of-pocket costs and expenses (including, without limitation, the cost of third-party reports, travel expenses and reasonable attorneys' fees and expenses) reasonably incurred in connection with this Agreement (but in no event shall the amount of such reimbursement exceed Fifty Thousand Dollars ($50,000) in the aggregate), it being understood that if Purchaser fails to commence an action for specific performance within one hundred and twenty (120) days after such default, Purchaser shall be deemed to have elected the remedy under this subpart (ii). If Purchaser elects or is deemed to have elected the remedy set forth in subpart (ii) of the immediately preceding sentence, then upon return and delivery of the Deposit, this Agreement shall terminate and neither party hereto shall have any further rights or obligations hereunder, except for those rights and obligations expressly stated to survive expiration or termination of this Agreement. Section 13.3. SURVIVAL. The provisions of this ARTICLE XIII shall survive the termination hereof. ARTICLE XIV MISCELLANEOUS PROVISIONS Section 14.1. SEVERABILITY. Each part of this Agreement is intended to be severable. If any term, covenant, condition or provision hereof is unlawful, invalid, or unenforceable for any reason whatsoever, this Agreement shall be construed without such term, covenant, condition or provision. Section 14.2. RIGHTS CUMULATIVE; WAIVERS. The rights of each of the parties under this Agreement are cumulative and may be exercised as often as any party considers appropriate. The rights of any of the parties hereunder shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing executed by all of the parties hereto. Failure to exercise or any delay in exercising any of such rights also shall not operate as a waiver or variation of that or any other such right. Defective or partial exercise of any of such rights shall not preclude any other or further exercise of that or any other such right. No act or course of conduct or negotiation on the part of any party shall in any way preclude such party from exercising any such right or constitute a suspension or any variation of any such right. Section 14.3. HEADINGS. The headings contained in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. Section 14.4. CONSTRUCTION. Unless the context otherwise requires, singular nouns and pronouns, when used herein, shall be deemed to include the plurals of such nouns or pronouns and pronouns of one gender shall be deemed to include the equivalent pronouns of the other gender. Section 14.5. ASSIGNMENT. Purchaser may assign its rights to purchase any Property under this Agreement to one or more persons or entities controlling, controlled by or under common control with, or managed by, Purchaser or AEI Fund Management, Inc., and may delegate its rights to purchase any Property hereunder to any such persons or entities. Except as provided in the immediately preceding sentence, Purchaser shall not assign its rights under this Agreement to any other party without the prior written consent of Seller. No assignment hereunder shall release Purchaser from its obligations under this Agreement. Section 14.6. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which taken together shall constitute one and the same Agreement. Section 14.7. GOVERNING LAW. This Agreement shall be construed, and the rights and obligations of Seller and Purchaser hereunder shall be determined, in accordance with the laws of the State of Indiana. Section 14.8. JURISDICTION; VENUE. For the purposes of any suit, action or proceeding involving this Agreement, the parties hereto hereby expressly submit to the jurisdiction of all federal and state courts sitting in Indianapolis, Indiana, and consent that any order, process, notice of motion or other application to or by any such court or a judge thereof may be served within or without such court's jurisdiction by registered mail or by personal service, provided that a reasonable time for appearance is allowed, and the parties hereto agree that such court shall have exclusive jurisdiction over any such suit, action or proceeding commenced under this Agreement. Each party hereby irrevocably waives any objection that it may have now or hereafter to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any federal or state court sitting in Indianapolis, Indiana, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Section 14.9. WAIVER OF TRIAL BY JURY. The parties hereto waive any right to a trial by jury of any dispute arising under or relating to this Agreement. Section 14.10. BROKERS AND ADVISORS. Seller and Purchaser each warrants and represents to the other that it has not dealt or negotiated with any broker in connection with the sale of the Properties as provided by this Agreement. Seller and Purchaser each hereby agrees to indemnify, defend and hold the other harmless from all loss, cost, damage or expense (including reasonable attorneys' fees) incurred by the other as a result of any claim arising out of the acts of the indemnifying party (or others on its behalf) for a commission, finder's fee or similar compensation made by any broker, finder or any party who claims to have dealt with such party. The provisions of this Section 14.10 shall survive the Closing and the termination of this Agreement. Section 14.11. INTEGRATION. This Agreement sets forth the entire agreement and understanding of the parties hereto with respect to the specific matters agreed to herein and supersedes all prior agreements or understandings between the parties with respect to the matters contained herein. The parties hereto acknowledge that no oral or other agreements, understandings, representations or warranties exist with respect to this Agreement or with respect to the obligations of the parties hereto under this Agreement, except those specifically set forth in this Agreement. Section 14.12. AMENDMENTS. This Agreement may not be changed, modified or terminated, except by an instrument in writing signed by the parties hereto. Section 14.13. FURTHER ASSURANCES; COOPERATION. The parties will execute, acknowledge and deliver all and every such further acts, deeds, conveyances, assignments, notices, transfers and assurances as may be reasonably required for the better assuring, conveying, assigning, transferring and confirming unto Purchaser the Properties and for carrying out the intentions or facilitating the consummation of the transactions contemplated by this Agreement. In furtherance thereof, the parties hereto shall cooperate with each other to effectuate the transactions contemplated by this Agreement and to minimize transaction costs. The provisions of this Section 14.13 shall survive the Closing. Section 14.14. NO RECORDING. Neither this Agreement nor any memorandum hereof may be recorded without first obtaining Seller's prior written consent thereto. Section 14.15. TRANSACTION CHARACTERIZATION. (a) It is the intent of the parties that the conveyance of the Properties to Purchaser be an absolute conveyance in effect as well as form, and the instruments of conveyance to be delivered at Closing are not intended to serve or operate as a mortgage, equitable mortgage, security agreement, trust conveyance or financing or trust arrangement of any kind, nor as a preference or fraudulent conveyance against any creditors of Seller. After the execution and delivery of the instruments of conveyance described in Section 5.2, Seller will have no legal or equitable interest or any other claim or interest in the Properties other than as set forth in the Lease. Furthermore, the parties intend for the Lease to be a true operating lease and not a transaction creating a financing lease, capital lease, equitable mortgage, mortgage, deed of trust, security interest or other financing arrangement, and the economic realities of the Lease are those of a true lease. (b) Notwithstanding the existence of the Lease, none of the parties shall contest the validity, enforceability or characterization of the sale and purchase of the Properties by Purchaser pursuant to this Agreement as an absolute conveyance, and both parties shall take reasonable action to support the intent expressed herein that the purchase of the Properties by Purchaser pursuant to this Agreement provides for an absolute conveyance and does not create a joint venture, partnership, equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs. The provisions of this Section 14.15 shall survive the Closing. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first referenced above. SELLER: APPLE INDIANA II LLC APPLE PENNSYLVANIA LLC By:Apple American Group LLC, By:Apple American Group LLC, its Managing Member its Managing Member By: /s/ Lorin Cortina By: /s/ Lorin Cortina Name: Lorin Cortina Name: Lorin Cortina Title: EVP/CFO Title: EVP/CFO APPLE WASHINGTON LLC B.T. WOODLIPP, INC. By:Apple American Group LLC, its Managing Member By: /s/ Lorin Cortina By:/s/ Lorin Cortina Name: Lorin Cortina Name: Lorin Cortina Title: EVP/CFO Title: EVP/CFO PURCHASER: AEI FUND MANAGEMENT, INC. By:/s/ Robert P Johnson Name: Robert P Johnson Title: President EXHIBIT A LEGAL DESCRIPTIONS E. WASHINGTON PARCEL 1: Part of the East Half of the Southwest Quarter of Section 1, Township 15 North, Range 4 East of the Second Principal Meridian, Warren Township, Marion County, Indiana, more particularly described as follows: Commencing at a brass plug marking the intersection of the centerline of Washington Street (U.S. 40) with the West line of the of the East Half of the Southwest Quarter of Section 1, Township 15 North, Range 4 East; thence on said centerline North 86 degrees 26 minutes 34 seconds East (assumed bearing) 675.10 feet to an angle point in said centerline; thence continuing on said centerline North 86 degrees 27 minutes 34 seconds East 34.90 feet; thence deflecting 90 degrees 00 minutes 00 seconds right South 03 degrees 32 minutes 26 seconds East 40.00 feet to the South right-of-way line of said Washington Street per I.S.H.C. Federal Aid Project No. 13, Sec. F and A3 (1938) Sheet No. 13, being the POINT OF BEGINNING of the herein described real estate; thence on said 40-foot right-of-way line North 86 degrees 27 minutes 34 seconds East 178.26 feet to the East line of land described in a deed to Venture Stores, Inc., recorded as Instrument No. 92-37757 in the Office of the Recorder of Marion County, Indiana; thence on the East line of said land, parallel with the West line of said East Half South 00 degrees 00 minutes 50 seconds East 254.88 feet; thence North 89 degrees 58 minutes 36 seconds West 206.33 feet to the point of curvature of a non- tangent curve concave Northeasterly, having a radius of 39.99 feet and a central angle of 78 degrees 11 minutes 50 seconds; thence Northwesterly on said curve, an arc distance of 54.58 feet (said arc being subtended by a chord which bears North 49 degrees 30 minutes 04 seconds West 50.44 feet) to a non-tangent line; thence North 00 degrees 03 minutes 17 seconds East 152.34 feet; thence parallel with said right-of-way line North 86 degrees 26 minutes 34 seconds East 19.73 feet; thence parallel with the West line of said East Half North 00 degrees 00 minutes 50 seconds West 39.32 feet to the South right-of-way line of said Washington Street per Indiana State Highway Department Project No. 246 (23) 1955, Sheet 10; thence on said right-of-way line North 86 degrees 26 minutes 34 seconds East 13.02 feet to an angle point; thence on said right-of way line North 86 degrees 27 minutes 34 seconds East 34.89 feet; thence North 03 degrees 32 minutes 26 seconds West 15.00 feet to the POINT OF BEGINNING. PARCEL 2: A non-exclusive easement for ingress and egress as set out in an agreement recorded September 27, 1996 as Instrument No. 96-134926 in the Office of the Recorder of Marion County, Indiana, described as follows: A strip of ground over a part of the East Half of the Southwest Quarter of Section 1, Township 15 North, Range 4 East of the Second Principal Meridian, Warren Township, Marion County, Indiana, more particularly described as follows: Commencing at a brass plug marking the intersection of the centerline of Washington Street (U.S. 40) with the West line of the East Half of the Southwest Quarter of Section 1, Township 15 North, Range 4 East; thence on said centerline an assumed bearing of North 86 degrees 26 minutes 34 seconds East 595.76 feet; thence South 00 degrees 03 minutes 17 seconds West 55.11 feet to a point on the Southerly right-of-way line of Washington Street as established on I.S.H.C. Project No. 13, Sections F and A3, (1938), Sheet 13, said point being the POINT OF BEGINNING of the herein described real estate; thence on said right-of-way line North 86 degrees 26 minutes 34 seconds East 50.10 feet; thence South 00 degrees 03 minutes 17 seconds West 191.87 feet to the point of curvature of a non-tangent curve concave Northeasterly, having a radius of 39.99 feet and a central angle of 78 degrees 11 minutes 50 seconds; thence Southeasterly on said curve, an arc distance of 54.58 feet (said arc being subtended by a chord which bears South 49 degrees 30 minutes 04 seconds East 50.44 feet) to a non-tangent line; thence South 89 degrees 58 minutes 36 seconds East 206.33 feet to the East line of said land described in a deed to Venture Stores, Incorporated, recorded in Instrument No. 92-37757 in the Office of the Recorder of Marion County, Indiana; thence on the East line of said land South 00 degrees 00 minutes 50 seconds East 31.00 feet; thence North 89 degrees 58 minutes 36 seconds West 294.74 feet; thence North 00 degrees 03 minutes 17 seconds West 267.57 feet to said right-of-way line and the POINT OF BEGINNING. PARCEL 3: A non-exclusive easement for ingress and egress as set out in an agreement recorded April 1, 1992, as Instrument No. 92-37761, in the Office of the Recorder of Marion County, Indiana. PARCEL 4: Non-exclusive easements as set out in that certain Outlot, Construction, Operation, Maintenance and Reciprocal Easement Agreement recorded September 27, 1996, as Instrument No. 96- 134926, in the Office of the Recorder of Marion County, Indiana. FISHERS PARCEL 1: Out Lot "D" of the Replat of Lots 1 and 2 of the Replat of Block "L" in North By Northeast Business Park - Section One, as per replat thereof, recorded as Instrument No 95-58716, in Plat Cabinet No. 1, Slide No. 619, in the Office of the Recorder of Hamilton County, Indiana. PARCEL 2: A non-exclusive easement for access as set forth and described in Access Easement, recorded November 8,1995 as Instrument No. 95- 60012 in the Office of the Recorder of Hamilton County, Indiana. PARCEL 3: Non-exclusive easements for access, utilities and drainage as created in a Declaration of Covenants And Restrictions For North By Northeast Business Park recorded May 30, 1989 as Instrument No. 89-10815, as amended by First Amendment recorded July 23,1997 as Instrument No. 97-29691 as modified by the Modification recorded September 10, 1997 as Instrument No. 97-37871 in the Office of the Recorder of Hamilton County, Indiana. EX-10.2 4 jhntwnls.txt LEASE BETWEEN AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP and AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP as Landlord, and B.T. WOODLIPP, INC. as Tenant Dated as of September 21, 2006 (Johnstown, Pennsylvania) TABLE OF CONTENTS Page 1. BASIC PROVISIONS 1 2. LEASING AGREEMENT; TERM 2 3. RENT 3 4. TAXES 5 5. ENVIRONMENTAL MATTERS 6 6. COMPLIANCE WITH REQUIREMENTS 8 7. COVENANT AGAINST LIENS 9 8. USE AND ENJOYMENT 9 9. TENANT'S PROPERTY; LIEN WAIVER 12 10. ALTERATIONS; MAINTENANCE AND REPAIR 13 11. CONDEMNATION AND CASUALTY DAMAGE 14 12. INSURANCE 17 13. ASSIGNMENT AND SUBLETTING 19 14. INDEMNIFICATION 21 15. DEFAULT; REMEDIES 23 16. SURRENDER OF PREMISES 27 17. SUBORDINATION AND ATTORNMENT 28 18. ESTOPPEL CERTIFICATES 29 19. NOTICES 30 20. LEASEHOLD FINANCING 30 21. RIGHT OF FIRST REFUSAL 31 22. [INTENTIONALLY OMITTED] 32 23. GUARANTY 32 24. MISCELLANEOUS 33 LEASE THIS LEASE ("Lease") dated September 21, 2006 ("Effective Date"), is made and entered into by and between AEI INCOME & GROWTH FUND XXI LIMITED PARTNERSHIP, a Minnesota limited partnership, and AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP, a Minnesota limited partnership (collectively, the "Landlord"), and B.T. WOODLIPP, INC., a Pennsylvania corporation ("Tenant"). 1. BASIC PROVISIONS 1.1 PREMISES ADDRESS: 425 Galleria Drive. Johnstown, PA 15904 1.2 LANDLORD NAME AND ADDRESS: AEI INCOME & GROWTH FUND XXI. LIMITED PARTNERSHIP and AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP 1300 Wells Fargo Place 30 Seventh Street East St. Paul, Minnesota 55101 1.3 TENANT NAME AND ADDRESS: B.T. WOODLIPP, INC. 6200 Oak Tree Boulevard, Suite 250 Independence, OH 44131 Attn: Chief Financial Officer 1.4 LEASE DATE: September 21, 2006 1.5 TERM: Twenty (20) Lease Years 1.6 OPTIONS TO EXTEND: One (1) period of five (5) Lease Years and one (1) period of four (4) Lease Years and eleven (11) months 1.7 EXHIBITS: Exhibit A - Land Legal Description Exhibit B - Landlord Agreement Exhibit C - Memorandum of Lease Exhibit D - Guaranty of Lease Exhibit E - Subordination, Non-Disturbance and Attornment Agreement 1 2. LEASING AGREEMENT; TERM 2.1. LEASING AGREEMENT. Landlord leases to Tenant and Tenant leases from Landlord upon and subject to the terms and conditions set forth in this Lease certain real estate consisting of approximately 3.1 acres of land, as legally described in attached Exhibit A, together with all easements, rights and appurtenances thereto, including, but not limited to all of Landlord's rights, if any, to use any common areas, parking, access drives and sidewalks in any center of which the real estate may be a part (the "LAND"). The Land is commonly known as 425 Galleria Drive, Johnstown, ("City"), Cambria County, Pennsylvania. The Land, together with the restaurant and other related improvements now or hereafter thereon ("IMPROVEMENTS"), are referred to in this Lease as the "PREMISES." The Premises are leased subject to all restrictions, covenants, encumbrances and other matters of record on the date of this Lease. 2.2. TERM. The term of this Lease ("Term") shall commence ("COMMENCEMENT DATE") on the Effective Date and, unless extended or earlier terminated as provided herein, shall expire ("EXPIRATION DATE") at midnight on the last day of the twentieth (20th) "Lease Year" thereafter. "LEASE YEAR" shall mean and refer to that period of twelve (12) full consecutive calendar months beginning with the first full calendar month of the Term and each subsequent period of twelve (12) consecutive calendar months during the Term, provided that if the Term commences on other than the first day of a calendar month, then the initial fractional month of the Term plus the next succeeding twelve (12) full calendar months shall constitute the first Lease Year of the Term and provided, further, that if this Lease is terminated prior to the Expiration Date, the last Lease Year may contain less than twelve (12) full calendar months. 2.3. EXTENSION OF THE TERM. Provided that this Lease is in full force and effect and no Event of Default has occurred and is continuing, Tenant shall have the option to extend the Term for up to one (1) period of five (5) Lease Years and one (1) additional period of four (4) Lease Years and eleven (11) months each upon all of the provisions of this Lease, which extension options shall automatically be deemed exercised two hundred seventy (270) days prior to the then current Expiration Date without the requirement for any further notice; provided, however, that Tenant shall have the right to terminate this Lease (and void any such automatic extension and all remaining extension options) effective as of any then current Expiration Date by giving written notice thereof to Landlord not less than two hundred seventy (270) days before such then current Expiration Date; and provided, further, that this Lease shall not be automatically extended (and Tenant shall be deemed to have given written notice of non-renewal) if on the date which is two hundred seventy (270) days prior to the then current Expiration Date an Event of Default has occurred and is continuing, and in such event this Lease shall terminate on the then current Expiration Date. If and each time this Lease is so extended, the word "TERM" shall be deemed to include the five (5) year extension period with respect to which the option has been exercised and the term "EXPIRATION DATE" shall mean the last day of such five (5) year extension period. 2.4. PREMISES LEASED "AS-IS". LANDLORD HEREBY LEASES AND WILL LEASE AND TENANT TAKES AND WILL TAKE THE PREMISES "AS IS," AND TENANT ACKNOWLEDGES THAT LANDLORD (WHETHER ACTING AS LANDLORD HEREUNDER OR IN ANY OTHER CAPACITY) HAS NOT MADE AND WILL NOT MAKE, NOR SHALL LANDLORD BE DEEMED TO HAVE MADE, ANY WARRANTY OR 2 REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE PREMISES, INCLUDING WITHOUT LIMITATION ANY WARRANTY OR REPRESENTATION AS TO ITS FITNESS FOR USE, PURPOSE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, OR AS TO VALUE, COMPLIANCE WITH SPECIFICATIONS, LOCATION, USE, CONDITION, MERCHANTABILITY, QUALITY, DESCRIPTION, DURABILITY OR OPERATION , IT BEING AGREED THAT ALL RISKS INCIDENT THERETO ARE TO BE BORNE BY TENANT. TENANT ACKNOWLEDGES THAT THE PREMISES ARE OF ITS SELECTION AND TO ITS SPECIFICATIONS, AND THAT THE PREMISES HAVE BEEN INSPECTED BY TENANT AND ARE SATISFACTORY TO IT. IN THE EVENT OF ANY DEFECT OR DEFICIENCY IN ANY OF THE PREMISES OF ANY NATURE, WHETHER PATENT OR LATENT, LANDLORD SHALL NOT HAVE ANY RESPONSIBILITY OR LIABILITY WITH RESPECT THERETO OR FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY IN TORT). THE PROVISIONS OF THIS SECTION 2.4 HAVE BEEN NEGOTIATED, AND THE FOREGOING PROVISIONS ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE PREMISES, ARISING PURSUANT TO STATUTE, JUDICIAL DECISION, THE UNIFORM COMMERCIAL CODE OR ANY OTHER LAW, RULE, REGULATION OR ORDER NOW OR HEREAFTER IN EFFECT OR OTHERWISE. Tenant acknowledges and agrees that Tenant has examined the title to the Premises prior to the execution and delivery of this Lease and has found such title to be satisfactory for the purposes contemplated by this Lease. 2.5. TRUE LEASE. Landlord and Tenant intend for this Lease to be a true lease and not a transaction creating a financing arrangement. Each party shall take all reasonable steps to reflect the transaction represented hereby in all applicable books, records and reports (including, without limitation, income tax filings) in a manner consistent with "true lease" treatment rather than "financing" treatment. 2.6. NON-TERMINABLE. Except as and to the extent expressly set forth in Section 2.3 (with respect to non-renewal of this Lease) and in Article-11 of this Lease, Tenant shall have no right to terminate this Lease. Tenant shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting Landlord or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. 3. RENT 3.1. BASE RENT. Tenant shall pay to Landlord as annual base rent ("BASE RENT") the amount set forth in column (b) below for the corresponding Lease Years set forth in column (a) below: (a) LEASE YEAR (b) ANNUAL BASE RENT (c) MONTHLY BASE RENT 3 1-5 $195,710.00 $16,309.17 6-10 $210,388.25 $17,532.35 11-15 $226,167.37 $18,847.28 16-20 $243,129.92 $20,260.83 21-25* $261,364.67 $21,780.39 26-end** $280,967.02 $23,413.92 [an asterisk (*) indicates an extension period; the number of asterisks corresponds to the Respective extension period.] Base Rent shall be paid to Landlord in monthly installments ("MONTHLY BASE RENT") in the respective amounts set forth in column (c) above in advance on the first day of each month for which the same is due during the Term. Rent for any partial month shall be prorated on a per diem basis. 3.2. PAYMENT. All charges and costs payable by Tenant to Landlord or any other third party pursuant to this Lease in addition to Base Rent shall be considered "ADDITIONAL RENT". Base Rent and Additional Rent are sometimes referred to collectively as "RENT." Except as otherwise specifically provided in this Lease, all Rent shall be paid by Tenant to Landlord without notice, demand, offset, abatement, reduction or deduction by check payable to Landlord and sent to Landlord at the address indicated in Section 1.2 or to such other person, entity or place as Landlord may from time to time designate by notice to Tenant. If required by Landlord, Tenant shall make payments of Monthly Base Rent to Landlord by wire transfer in immediately available federal funds to such account in such bank as Landlord may designate from time to time upon not less than thirty (30) days' notice to Tenant, which account shall be the same account to which Tenant and/or Tenant's affiliates who lease other properties from Landlord named herein (or its affiliates) wire transfer payments of Monthly Base Rent for at least nine (9) other properties. Monthly Base Rent for the period from and including the Commencement Date through and including the last day of the first full calendar month of the Term shall be paid in advance on the Commencement Date. 3.3. LATE PAYMENTS. If Tenant shall fail to make payment of any installment of Base Rent or any Additional Rent payable to Landlord (rather than to a third party) within ten (10) days after the date when each such payment is due, Tenant shall pay to Landlord interest at a rate equal to the Default Rate (as hereinafter defined) on the amount unpaid computed from the date such payment of Base Rent or Additional Rent was due to and including the date of payment thereof (but only with respect to amounts payable directly to Landlord or that are not otherwise subject to an interest or similar charge that will be treated as Base Rent or Additional Rent hereunder). Further, if any installment of Monthly Base Rent is not paid within fifteen (15) days after the date the same is due, Tenant shall pay to Landlord, on demand, as Additional Rent, a late charge (the "LATE CHARGE") equal to four percent (4%) of such overdue installment of Monthly Base Rent. 4 3.4. NET LEASE. This is a net lease and Base Rent, Additional Rent and, except as otherwise expressly set forth herein, all other sums payable hereunder by Tenant shall be paid without defense (other than defense of prior payment), notice, demand, setoff, counterclaim, recoupment, abatement, suspension, deferment, diminution, deduction or reduction. During the Term of this Lease, Tenant shall be obligated to pay and shall be liable for all costs and expenses associated with or arising from the use, operation, maintenance, repair or improvements of the Premises (regardless of whether such costs and expenses are charged or imposed against Landlord or Tenant). 4. TAXES 4.1. As used in this Lease, the term "PREMISES TAXES" shall mean all real estate, personal property, ad valorem and other taxes and assessments, general and special, and all other governmental charges levied, assessed or imposed on or with respect to the Premises or which arise from the ownership, leasing, use, occupancy or possession of all or any portion of the Premises. Without limitation of the foregoing, it is hereby specifically agreed that "Premises Taxes" include all taxes and other governmental charges assessed or levied (i) on or with respect to any Base Rent or Additional Rent payable under this Lease, (ii) with respect to any period prior to or during the Term, and (iii) any interest, penalties, fines and other amounts charged for late payment or non-payment of any Premises Taxes. Notwithstanding the foregoing, Premises Taxes shall not include (A) any taxes or assessments imposed on or with respect to Tenant's Property (as defined in Section 9.1), (B) any income, franchise or other taxes measured by Landlord's income or profit from the Premises on a net basis, other than any sales, use, rent, occupancy or similar taxes on or with respect to Base Rent or Additional Rent, or (C) any gifts, estate or other transfer taxes imposed on Landlord. 4.2. PAYMENT. (a) Tenant shall pay Premises Taxes to the appropriate governmental authority before delinquency and before any interest, penalties or fines may be charged with respect thereto and shall deliver a copy of all paid tax bills to Landlord promptly upon request. (b) If any Premises Taxes relate to a fiscal period which is partly within and partly outside of the period for which Tenant is responsible, the amount thereof shall be prorated so that Tenant will be responsible for that portion which relates to the period prior to and after the Commencement Date and through the Expiration Date and Landlord will be responsible for the portion after the Expiration Date. (c) Any refunds (including any accrued interest) of Premises Taxes applicable to the period prior to and during the Term shall be the property of Tenant and to the extent received by Landlord shall be paid over to Tenant promptly after receipt thereof. Any refund of Premises Taxes shall be deemed a reduction of Additional Rent hereunder. 4.3. CONTEST. Subject to the provisions hereof, Tenant, at its own expense, may contest Premises Taxes in any manner permitted by law, in Tenant's name, and, whenever necessary, in Landlord's name and Landlord will cooperate at Tenant's sole cost and expense 5 with Tenant and execute any documents reasonably required for such purpose. Any such contest shall be conducted by Tenant in good faith and at its sole cost and expense, by appropriate proceedings which shall operate during the pendency thereof to prevent (i) the collection of, or other realization upon, the Premises Taxes so contested, (ii) the sale, forfeiture or loss of the Premises, any Base Rent or any Additional Rent to satisfy the same, (iii) any interference with the use or occupancy of any of the Premises, and (iv) any interference with the payment of any Base Rent or the portion of any Additional Rent that does not represent the Premises Taxes being contested under this Section 4.3. In no event shall Tenant pursue any contest with respect to any Premises Taxes in any manner that exposes Landlord to (a) criminal liability, penalty or sanction, (b) any civil liability, penalty or sanction for which Tenant has not made provisions reasonably acceptable to Landlord, or (c) defeasance of its interest the Premises. Tenant agrees that each such contest shall be diligently prosecuted to a final conclusion. Tenant shall pay and save Landlord harmless from and against any and all losses, judgments, decrees and costs (including, without limitation, attorneys' 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. 5. ENVIRONMENTAL MATTERS 5.1. DEFINITIONS. For purposes of this Lease the following terms shall have the following meanings: (a) "ENVIRONMENTAL LAWS" - all present and future laws, statutes, rules, regulations, orders and other requirements of any federal, state, local or other governmental authority relating to the environment, environmental protection or regulation, the emission, disposal or discharge or the actual or threatened release into the environment of pollutants or contaminants or to any Hazardous Substance or HS Activity. Without limitation of the foregoing, Environmental Laws include each of the following, as enacted as of the date hereof or as hereafter amended: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601, et seq.; the Resource Conversation and Recovery Act of 1976, 42 U.S.C. 6901, et seq.; the Toxic Substance Control Act, 15 U.S.C. 2601, et seq.; the Water Pollution Control Act (also knows as the Clean Water Act), 33 U.S.C. 1251, et seq.; the Clean Air Act, 42 U.S.C. 7401, et seq.; and the Hazardous Materials Transportation Act, 49 U.S.C. 5101, et seq., and any similar state laws. (b) "HAZARDOUS SUBSTANCE" - any substance defined or classified in any Environmental Laws as a toxic or hazardous chemical, waste, material or substance, or as a pollutant or contaminant (including, without limitation, petroleum or any by-product or fractions thereof, lead, asbestos and asbestos containing materials, polychlorinated byphenyls and radioactive or explosive materials); and any substance which if present requires investigation or remediation under any Environmental Law or results in liability thereunder for exposure thereto or discharge thereof. 6 (c) "HS ACTIVITY" - the generation, manufacture, handling, transportation, usage, treatment, release, discharge, removal, storage or disposal of any Hazardous Substance. 5.2. TENANT OBLIGATIONS. (a) On or after the Commencement Date, Tenant (i) shall not conduct or knowingly permit any HS Activity in, on or from the Premises or knowingly allow any Hazardous Substances on the Premises, in each case, in violation of any Environmental Laws, and (ii) shall comply or cause compliance with all Enviromnental Laws applicable to Tenant's use or occupancy of the Premises, and shall cause the Premises to comply with all Environmental Laws; in each case specifically including, but not limited to, any condition existing on the Commencement Date, except to the extent such violation results from, or compliance is required as a result of, any act of Landlord or any act or omission of any other person other than Tenant and its members, managers, affiliates, officers, directors, employees, contractors, representatives, agents, assignees or subtenants (collectively, "TENANT'S PARTIES") (the obligations of Tenant under the preceding clauses (i) and (ii) are called "Tenant's Compliance Obligation"). Tenant shall promptly give notice to Landlord if Tenant becomes aware of any action, claim, suit or proceeding relating to a violation or alleged violation of any Environmental Laws filed or threatened against Tenant or the Premises. If, at any time during the Term, Hazardous Substances shall exist in or on the Premises to which Tenant's Compliance Obligation applies, then Tenant shall, or shall cause responsible third parties to, promptly commence and diligently implement all investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (collectively, "REMEDIAL WORK") to the extent required by Environmental Laws, and in compliance with all Environmental Laws, all at Tenant's sole cost and expense. (b) Tenant agrees to indemnify, defend and hold harmless Landlord, any Landlord Lender and their respective managers, partners, members, officers, directors, shareholders, employees and agents ("LANDLORD INDEMNITEES") from and against any and all claims, demands, actions, liabilities, damages, assessments, losses, fines, penalties, costs and expenses, including remediation, clean-up and detoxification costs and reasonable attorneys' fees, arising from or related to any breach or violation by Tenant of its obligations set forth in Section 5.2(a). The provisions of Section 5.2 shall survive the expiration or termination of this Lease. (c) Upon Landlord's request, at any time after the occurrence and during the continuance of an Event of Default or at such other time as Landlord has reasonable grounds to believe that Tenant is in violation of Tenant's Compliance Obligation, Tenant shall cause an inspection or audit of the Premises by an environmental engineer or other appropriate consultant reasonably approved by Landlord to determine the presence or absence of Hazardous Substances on the Premises. If Tenant fails to effectuate the commencement of such inspection or audit within thirty (30) days after such request or fails to deliver a written report of such inspection or audit to Landlord within sixty (60) days after such request, Landlord may order the same, and Tenant hereby grants to Landlord and its respective employees, contractors and agents access to the Premises 7 upon prior reasonable notice to undertake such inspection or audit, provided that such inspection or audit does not interfere with the conduct of Tenant's business on the Premises, Landlord provides Tenant certificates of insurance naming Tenant as an additional insured and containing such types of insurance and limits as Tenant reasonably requires, Landlord promptly repairs any damage caused by such testing and restores the Premises to the condition in which it existed immediately prior to such damage at Landlord's sole cost and expense, and Landlord shall indemnify Tenant if and to the extent required under Section 14.2 hereof for all loss, cost, damage, liens, claims, liabilities or expenses (including, but not limited to, reasonable attorneys' fees, court costs and disbursements) incurred by Tenant arising from or by reason of such inspection or audit. The cost of such inspection or audit shall be paid (i) by Tenant if such inspection or audit shall confirm a violation of Tenant's Compliance Obligation or (ii) by Landlord if such inspection or audit does not confirm a violation of Tenant's Compliance Obligation. (d) Landlord and Tenant expressly agree that, notwithstanding anything to the contrary set forth in this Lease (including, but not limited to, the provisions of Section 14.1 hereof), except in the case of Tenant's obligations expressly set forth under Sections 5.2(a), (b) and (c) hereof, Tenant shall have no obligation under this Lease (i) to defend, indemnify or hold harmless Landlord or Landlord Indemnitees with respect to any Hazardous Substance, Environmental Laws or HS Activity, (ii) to engage any environmental engineer or appropriate consultant with respect to any Hazardous Substance, Environmental Laws or HS Activity, (iii) to conduct any audit or inspection of the Premises with respect to any Hazardous Substance, Environmental Laws or HS Activity, (iv) to comply or cause compliance with any Environmental Laws, or (v) to perform or cause performance of any Remedial Work with respect to any Hazardous Substance, Environmental Laws or HS Activity. 5.3. LANDLORD OBLIGATIONS. On or after the Commencement Date, Landlord shall not conduct any HS Activity on, about or from the Premises. Landlord shall promptly give notice to Tenant if Landlord becomes aware of any action, claim, suit or proceeding relating to a violation or alleged violation of any Environmental Laws filed or threatened against Landlord or the Premises or if Landlord has received notice or has actual knowledge of any HS Activity on the Premises caused by a person other than Tenant or any Tenant Party. 6. COMPLIANCE WITH REQUIREMENTS 6.1. COMPLIANCE WITH LAW. During the Term, Tenant shall comply, and shall cause the Premises to comply, in all material respects with and shall correct any violation of any laws, statutes, ordinances and other legal and insurance requirements, whether now or hereafter in force, applicable to the Premises or Tenant's use or occupancy of the Premises, including without limitation, the Occupational Safety and Health Act, as amended ("OSHA"), the Americans with Disabilities Act of 1990, as amended ("ADA"), and, subject to Section 5.2, all Environmental Laws. Tenant shall procure, maintain and comply, and shall cause the Premises to comply, with any and all permits, approvals, licenses and other governmental authorizations required for the lawful use, operation, maintenance and any "Alteration" (hereinafter defined) of the Premises. 8 6.2. COMPLIANCE WITH PERMITTED ENCUMBRANCES. Tenant agrees that with respect to all easements, conditions, covenants, restrictions, encumbrances or agreements now affecting the Premises or which are hereafter created by or consented to by Tenant (collectively, the "PERMITTED ENCUMBRANCES"), Tenant shall observe, perform and comply with, and cause the Premises to comply with, and carry out and perform all of the obligations therein which are to be observed and performed by the owner or any occupant of the Premises thereunder, and shall pay all assessments, fees, costs and expenses required to be paid by the owner or any occupant of the Premises thereunder. 7. COVENANT AGAINST LIENS 7.1. LIENS. Tenant shall not cause, suffer or permit any mechanic's, materialmen's judgment or other lien ("LIEN") to be filed against the Premises (other than any Lien arising due to any act or omission of Landlord or its agents); provided that nothing herein shall be deemed to limit the rights of Tenant Lender under Section 20.2 hereof. If any Lien shall be filed against all or any portion of the Premises (other than any Lien arising due to any act or omission of Landlord or its agents), (i) Tenant shall give notice thereof to Landlord within ten (10) business days after the date on which Tenant first becomes aware of the filing of any such Lien, and (ii) within forty-five (45) days after first becoming aware of such filing, (but in any event before any enforcement action to foreclose is taken with respect to such Lien), Tenant, at its sole cost and expense, shall cause the Lien to be discharged of record or bonded over by any statutory bonding procedure sufficient to prevent foreclosure or other enforcement of such Lien, and shall deliver notice thereof to Landlord, failing which Landlord shall have the right, but shall not be obligated, to discharge the Lien without investigating the validity or amount thereof. Tenant shall reimburse Landlord on demand for any reasonable amounts so paid or incurred by Landlord, including reasonable expenses and attorneys' fees incurred in connection therewith. Notice is hereby given that Landlord shall not be liable for any labor, services or materials furnished or to be furnished to Tenant, or to anyone holding any of the Premises through or under Tenant, and that no mechanic's, materialman's or other Liens for any such labor, services or materials shall attach to or affect the interest of Landlord in and to any of the Premises. 8. USE AND ENJOYMENT 8.1. USE. (a) Unless otherwise approved in writing by Landlord, during the Term the Premises shall be used only for the operation of an Applebee's Restaurant, including without limitation, ancillary carry-out food service and the sale of beer, wine and other alcoholic beverages, or, if a change in use is requested by Franchisor, any other restaurant which may be affiliated with or franchised by Franchisor. The Premises shall be attractive in appearance and Tenant shall conduct its business in a lawful and reputable manner. Tenant shall not commit waste on the Premises and shall not occupy or use the Premises or permit the same to be used or occupied for any purpose or in any manner that violates any applicable legal or govermnental requirement. 9 (b) Tenant shall continuously operate a business pursuant to Section 8.1(a) from the Premises during the Term of this Lease; provided, however, that Tenant may temporarily cease its operations at the Premises for (i) restoration, alteration and repair obligations pursuant to the terms of its Franchise Agreement; (ii) the performance of Alterations permitted under this Lease; or (iii) as a result of any emergency, casualty or event of force majeure. (c) All garbage, trash and refuse generated from the operation of the business conducted on the Premises shall be placed in appropriate garbage receptacles and, at Tenant's sole cost and expense, removed from the Premises with sufficient frequency so as to avoid any accumulation thereof outside of such receptacles. 8.2. EXTERIOR SIGNS, AWNINGS AND CANOPIES. Tenant, at its sole cost and expense, may at any time and from time to time during the Term install, alter, and/or replace any and all exterior signs, awnings and/or canopies as Tenant may determine, so long as they are in compliance with all applicable laws and all Permitted Encumbrances. Tenant, at its sole cost and expense, shall obtain all necessary permits for all signs, awnings and canopies on the Premises and shall maintain the same in good condition and repair. 8.3. UTILITIES. Tenant shall arrange and contract, in its name, for and pay when due all charges for water, gas, electricity, cable TV, telephone, trash removal, scavenger service and other utility services used or consumed on the Premises by Tenant or its agents during the Term, all of which shall be separately metered and billed to Tenant. 8.4. QUIET ENJOYMENT. Landlord covenants with Tenant that Tenant, upon paying Rent to Landlord and performing Tenant's other covenants in this Lease, shall and may peaceably and quietly have, hold, occupy, possess and enjoy the Premises during the Term without any interference from Landlord or anyone claiming by, through or under Landlord. 8.5. SIGNAGE RIGHTS, PARKING, ACCESS, EASEMENTS. Landlord covenants with Tenant that Landlord shall not engage in any action, or grant any rights which affect parking at the Premises, access to the Premises, means of ingress and egress to and from the Premises, visibility to or from the Premises, Tenant's signage at the Premises or rights to the roof of the Premises, any telecommunications equipment or utilities which service the Premises, Tenant's air rights and any other rights to which Tenant may be entitled pursuant to any easement agreements or similar agreements affecting the Premises without Tenant's prior written consent, which may be granted or withheld in Tenant's sole discretion but shall not be unreasonably withheld if such action will not materially adversely affect the conduct of Tenant's business at the Premises. Landlord agrees to deliver to Tenant copies of any notices Landlord receives with respect to the aforementioned rights. Landlord agrees that so long as no Event of Default shall have occurred and be continuing, upon request by Tenant (and only after all documentation reasonably required to consummate the relevant transaction shall have been provided to Landlord), Landlord shall (i) enter into, modify or grant such easements, covenants, waivers, approvals or restrictions for utilities, parking or other matters as Tenant may desire for the operation of the Premises (including, without limitation, consenting to site and common area changes affecting access, parking, tenant mix and the like and approving uses or users of the other properties in the vicinity of the Premises which Tenant reasonably believes will have a positive impact on its business at 10 the Premises) (collectively, "EASEMENTS"), or (ii) dedicate or transfer, minor non-essential unimproved portions of the Premises for road, highway or other public purposes to the extent such dedications or transfers are consistent with commercially reasonable development or operation of the Premises or, in Tenant's reasonable judgment, will have a positive impact on its business at the Premises (the "DEDICATIONS"); provided, that Landlord shall be obligated to take such action only if (A) any such Easements or Dedications do not adversely affect the value of the Premises (other than to a de minimis extent), do not unreasonably render the use of the Premises dependent upon any other property or unreasonably condition the use of the Premises upon the use of any other property, and do not adversely affect (other than to a de minimis extent) the use, or visibility of, or access to, the Premises, (B) Tenant advises Landlord of the amount of the consideration, if any, being paid for such Easements or Dedications and that Tenant considers such consideration, if any, to be fair under the circumstance and that such consideration, if any, shall be paid to Landlord, (C) Tenant acknowledges in writing that for so long as this Lease is in effect, Tenant will perform all obligations, if any, of Landlord under the applicable instrument and Tenant will remain obligated under this Lease and AAG (if the Guaranty is then in effect) acknowledges in writing that AAG will remain obligated under the Guaranty, in each case in accordance with their respective terms, and (D) Tenant pays all out-of-pocket costs and expenses incurred by Landlord in connection with said Easements or Dedications including, without limitation reasonable attorneys' fees. Subject to the foregoing clauses (A) through (D), Landlord shall cooperate with Tenant's efforts to enter into any Dedications or Easements. If Tenant shall submit a request to Landlord for Landlord's cooperation in connection with any such Easement or Dedication which requires Landlord's approval or execution of any document, Landlord shall (x) approve such Easement or Dedication, and execute and deliver to Tenant all documents required in connection therewith, within ten (10) days of receiving Tenant's request for approval, or (y) disapprove Tenant's request in a written notice with a detailed explanation of its objections delivered to Tenant within ten (10) days of receiving Tenant's request for approval. If Landlord fails to respond within such ten (10) day period, Tenant's request with respect to such Easement or Dedication shall be deemed to be approved by Landlord hereunder and Tenant is hereby authorized and empowered to execute and deliver on behalf of Landlord, as Landlord's attorney-in-fact, all instruments and documents required in connection therewith. If Landlord timely disapproves of a Tenant request under this Section 8.5, then Tenant may elect, by delivering written notice to Landlord, to resolve the matter by expedited arbitration in accordance with this paragraph. Landlord and Tenant shall mutually select a single arbitrator within ten (10) days after delivery of Tenant's notice of arbitration hereunder. If the parties cannot agree upon an arbitrator within such period, then either party may request that a qualified arbitrator be appointed by the office of the American Arbitration Association located nearest to the Premises. Following selection or appointment, the arbitrator shall meet jointly with representatives of Landlord and Tenant within twenty (20) days to consider the parties' positions on the disputed issue and the arbitrator shall render a written decision within two (2) business days following such meeting. The decision of the arbitrator shall be final, binding on the parties and nonappealable. The arbitration shall otherwise be conducted in accordance with the American Arbitration Association's rules for expedited dispute resolution in effect at the time. The non- prevailing party in any such arbitration shall pay the arbitrator's fee and expenses. 11 8.6. WARRANTIES, GUARANTIES AND INDEMNITIES. Landlord assigns to Tenant, without recourse or warranty whatsoever, all warranties, guaranties and indemnities, express or implied, and similar rights which Landlord may have against any manufacturer, seller (other than the Seller under the Purchase and Sale Agreement from whom Landlord acquired the Premises), engineer, contractor or builder with respect to the Premises, including, but not limited to, any rights and remedies existing under contract or pursuant to the Uniform Commercial Code (collectively, the "guaranties"). Such assignment shall remain in effect during the Term. Landlord hereby agrees to execute and deliver at Tenant's expense such further documents, including powers of attorney (which shall contain indemnity agreements from Tenant to Landlord which shall be in form reasonably satisfactory to Landlord), as Tenant may reasonably request in order that Tenant may have the full benefit of the assignment of guaranties effected or intended to be effected by this Section 8.6. Upon the occurrence of a termination of this Lease, the guaranties shall automatically revert to Landlord. 9. TENANT'S PROPERTY; LIEN WAIVER 9.1. TENANT'S PROPERTY. Landlord agrees that all (i) fixtures, furniture, furnishings, equipment (other than floor and wall coverings, fixtures which are "built-ins" or constitute an integral part of the Building, the walk-in cooler, heat, air conditioning and ventilation systems, electrical, mechanical and plumbing systems, all of which are owned by and are the property of Landlord), Kitchen Equipment (as hereinafter defined), inventory, merchandise, goods, chattels, trade fixtures, signage, appliances display cases, supplies, tools, machinery, security systems, computer software or other personal property of Tenant (including, without limitation, trade fixtures in, on, around or affixed to the Premises), (ii) fixtures, furniture, furnishings, equipment, supplies, tools, machinery, security systems, computer software, signage and other personal property (including, without limitation, trade fixtures in, on, around or affixed to the Premises) which display the name, trade name, trademark, service mark, logo, insignia, slogan, emblem or symbol of Applebee's International Inc.'s ("Franchisor") or of Tenant ("Distinctive Property"), and (iii) all licenses, permits, approvals and authorizations, if any, which are required in connection with the operation of Tenant's business, including, without limitation, all liquor licenses, at any time located on the Premises (collectively, "Tenant's Property"), shall be and at all times remain the property of Tenant regardless of whether the same (x) is affixed to the Improvements on the Land or the manner in which the same is affixed (unless permanently affixed) or (y) may now or hereafter be regarded as a fixture or as property of Landlord by operation of law or otherwise, unless, however, such fixtures and equipment cannot be removed without substantial damage to any Improvements which cannot be easily repaired. As used herein the term "Kitchen Equipment" shall include, without limitation, kitchen fixtures (except for sanitary plumbing fixtures), counters, stainless steel equipment, ranges, ovens, display cases and refrigeration equipment (excluding the walk-in cooler). Tenant shall have the right at any time and from time to time during the Term and, subject to the provisions of Section 16.2 below, within fifteen (15) days after the end of the Term to remove any Tenant's Property from the Premises. 9.2. WAIVER OF LANDLORD'S LIEN. Tenant contemplates financing from time to time some or all of Tenant's Property with a lender or vendor ("TE Lender") who will require a security interest therein (those items of Tenant's Property which are subject to such security interest being referred to collectively as "Financed Personalty"). Landlord hereby disclaims 12 and waives any and all liens or right which Landlord may have to claim a lien against the Tenant's Property for nonpayment of Rent or otherwise and agrees to execute and deliver promptly upon request a waiver with respect thereto. 10. ALTERATIONS; MAINTENANCE AND REPAIR 10.1. ALTERATIONS. (a) ALTERATIONS. For purposes of this Lease, any physical improvement, addition, enhancement or change with respect to all or any portion of the Premises is referred to as an "ALTERATION." Tenant or Franchisor shall have the right at any time and from time to time during the Term to make or cause to be made any Alteration in or to the Premises (i) without Landlord's consent, if such Alteration consists of the demolition of the Building and reconstruction of a new prototypical building so long as: (A) the new building is constructed in compliance with applicable codes and Permitted Exceptions, (B) Tenant continues to pay Rent, (C) construction is completed within nine (9) months following demolition of the Building, subject to extension for force majeure events, (D) Landlord has approved in advance the construction budget (which shall include a contingency) for the new building, such approval not to be unreasonably withheld, delayed or conditioned, and (E) either (y) in the case where the Guaranty is in full force and effect prior to demolition Tenant has provided Landlord with a commercially reasonable completion bond for the project or such other assurance of performance as Landlord may reasonably accept, or (z) prior to demolition the Tenant deposits with Landlord cash (the "Deposit") sufficient to construct the building and improvement pursuant to the approved budget, with the Deposit being disbursed pursuant to the Landlord's then current construction disbursement procedures; (ii) without Landlord's consent, if such Alteration is performed in order to comply with any of Tenant's agreements with Franchisor and such Alteration does not adversely affect any structural component of the Building, and (iii) in the case of any Alteration other than those permitted under clause (ii) above, with Landlord's prior consent, which consent shall not be unreasonably withheld provided that such Alteration does not (A) diminish the value of the Premises (including, by way of example only, but without limitation, by diminishing the utility of the Improvements for use as a restaurant or diminishing the useful life of the Improvements, except to a de minimis extent, or (B) adversely affect any structural component of the Building. Every Alteration shall be made in accordance with all applicable laws, legal requirements and the Permitted Encumbrances. If Tenant shall submit a request to Landlord for Landlord's approval of an Alteration which requires Landlord's approval, Landlord shall (x) approve such Alteration proposed by Tenant within twenty-one (21) days of receiving Tenant's proposal and request for approval or (y) disapprove Tenant's proposal in writing with a detailed explanation of its objections within twenty-one (21) days of receiving Tenant's proposal and request for approval. If Tenant submits a proposal to Landlord and Landlord disapproves such proposal within the twenty-one (21) day time period, Tenant may submit another proposal with modifications thereto made in response to Landlord's objections and Landlord shall so approve or disapprove same within seven (7) days after submission of such modified proposal. If Landlord does not approve or disapprove any proposal or modified proposal in writing with a detailed explanation of its objections within the applicable seven (7) or twenty-one (21) 13 day period, Tenant may submit to Landlord a reminder notice, which shall state that Landlord's failure to disapprove the applicable proposal within seven (7) days after receipt of such reminder notice shall be deemed to constitute Landlord's approval thereof. If Landlord does not disapprove such proposal or modified proposal in writing with a detailed explanation of Landlord's objections to Tenant's modifications within seven (7) days after receipt of Tenant's reminder notice, Landlord shall be deemed to have approved the Alterations proposed by Tenant. (b) In connection with any Alteration: (i) the Alterations to be made will be constructed using materials of a quality and workmanship at least as good as the original work; (ii) all such Alterations shall be performed in a good and workmanlike manner, and shall be performed diligently in a commercially reasonable time period subject to force majeure in compliance with all laws, legal requirements and the terms of all Permitted Encumbrances; (iii) all work done in connection with any such Alteration shall comply in all material respects with all requirements of any insurance policies in effect with respect to the Premises (the "Insurance Requirements"); (iv) Tenant shall pay when due all costs and expenses of any such Alteration, and shall discharge all liens filed against any of the Premises arising out of the same; (v) Tenant shall procure and pay for all permits and licenses required in connection with any such Alteration; (vi) all such Alterations shall be the property of Landlord and shall be subject to this Lease (except for any Alteration which constitutes Tenant's Property); and (vii) all Alterations shall be made under the supervision of an architect or engineer selected by Tenant and in accordance with plans and specifications which shall be submitted to Landlord prior to the commencement of the Alterations; provided, however, Landlord shall have no right to approve such architect, engineer, plans or specifications, except as expressly set forth in Section 10.1(a). 10.2. MAINTENANCE AND REPAIR. During the Term, Tenant at its sole cost and expense, agrees to make all necessary repairs and replacements to the Improvements as often as required to keep and maintain the Premises in good and safe condition and repair. Notwithstanding any provision to the contrary, Tenant's obligations under this Section shall not include making any repair or improvement necessitated by the act of Landlord, its agents, employees or servants. If Tenant shall default in its obligations under this Section 10.2, Landlord may, after thirty (30) days written notice to Tenant and failure by Tenant to perform any necessary repairs and replacements to the Improvements within such thirty (30) day period, enter the Premises to commence such repairs or replacement. All reasonable sums incurred by Landlord in connection with any such repair or replacement shall constitute Additional Rent payable by Tenant under this Lease and shall be paid by Tenant to Landlord within ten (10) days of Tenant's receipt of a detailed invoice for such charges. 11. CONDEMNATION AND CASUALTY DAMAGE 11.1. SUBSTANTIAL TAKING. If all or substantially all of the Premises is taken or appropriated for any public or quasi-public use or purpose by any lawful power or authority by the exercise of the right of eminent domain or by virtue of condemnation or other similar proceedings, including a deed given in lieu thereof ("Taking"), other than a temporary Taking for a period of one (1) year or less, this Lease shall terminate as of the date possession is required 14 by the condemning authority and Rent and all other charges and costs payable hereunder shall be adjusted and paid to the effective date of termination. 11.2. OTHER TAKING. (a) If there shall be a Taking, other than a temporary Taking for a period of one (1) year or less, of (i) a portion of the Building, (ii) twenty percent (20%) or more of the parking area of the Premises, or (iii) any material part of a driveway or roadway necessary for access to the Premises, and in Tenant's reasonable judgment such Taking under clauses (i), (ii) or (iii), would render the Premises (or the remainder thereof) unsuitable for the conduct of Tenant's business, Tenant shall have the right to terminate this Lease as of the date possession is required by the condemning authority by giving notice to that effect to Landlord within sixty (60) days after notice to Tenant of the date such possession is required. In such event, Rent and all other charges and costs payable hereunder shall be adjusted and paid to the effective date of termination. (b) If only a portion of the Premises is subject to a Taking and Tenant is not entitled to or shall not exercise its right to terminate this Lease pursuant to Section 11.2(a), this Lease shall continue in full force and effect, and there shall be no abatement or reduction of Rent payable hereunder. Tenant shall make any and all repairs and restorations to the remainder of the Premises to the extent necessary to render the same a complete architectural unit suitable for Tenant's use. 11.3. COMPENSATION. (a) In the event that all or any portion of the Premises is subject to a Taking, Landlord and Tenant shall cooperate to maximize the amount of the recovery from the condemning authority. If the recovery from the condemning authority is paid into a common fund or paid only to Landlord, such recovery shall be allocated as follows and in the following priority: (i) so long as no Event of Default shall have occurred and be continuing, to Tenant for the cost of any repairs required pursuant to Section 11.2(b), subject, however, to the provisions of Section 11.3(b) hereof; (ii) to Landlord, that portion allocable to Land which is taken; (iii) to Landlord, that portion allocable to Improvements which are taken; (iv) to Tenant, that portion allocable to Tenant's Property or Tenant's relocation and moving expenses; and (v) to Landlord, the balance. Notwithstanding the foregoing, all proceeds from a temporary Taking shall be (A) paid to Tenant if this Lease is not terminated and (B) equitably allocated between Landlord and Tenant as of the date of termination if this Lease is terminated. The provisions of this Section shall survive any termination of this Lease pursuant to Sections 11.1 or 11.2(a). (b) If the proceeds from a Taking, and the estimated costs of repairs to be performed by Tenant pursuant to Section 11.2(b), exceeds One Hundred Twenty-five Thousand Dollars ($125,000.00), then such proceeds shall be held by Landlord or Landlord's Lender, and Landlord shall cause the proceeds to be paid out from time to time to Tenant as the work progresses, subject to each of the following conditions: (i) Each request for payment shall be made on not less than ten (10) business days' prior notice to Landlord, and shall be accompanied by an officer's certificate stating (A) that no Event of Default exists under this Lease and (B) that the sum requested is validly required to reimburse Tenant for payments by Tenant 15 to complete the repair work, or is validly due to the contractor, subcontractors, materialmen, laborers, engineers, architects or other persons rendering services or materials for the work (giving a brief description of such services and materials). At the time of disbursement, no Event of Default shall have occurred and be continuing. (ii) Each request for payment shall be accompanied by waivers of lien reasonably satisfactory to Landlord covering that part of the work for which payment or reimbursement has been made as of the date shown on the current request. (iii) Landlord shall release to Tenant the amount requested by Tenant, subject to the amount retained by Landlord in accordance with subsection (iv) below, within ten (10) business days of Tenant's satisfaction of the items set forth in subsection (i) and (ii) above. Disbursements shall be made not more frequently than once every thirty (30) days. (iv) Except and to the extent that Tenant is already retaining a like amount from its contractors, Landlord (or Landlord Lender) may retain ten percent (10%) of the proceeds as retainage until the repairs and restoration are substantially complete. (v) Proceeds held by Landlord in accordance with this Section shall be held in an interest bearing account and any interest earned on the proceeds shall be a part of the proceeds, and shall be disbursed in accordance with this Lease. Landlord shall take any interest earned into account for purposes of determining its federal income tax liability, if any, and shall pay any income taxes thereon. 11.4. CASUALTY DAMAGE. (a) If the Improvements or any portion thereof are damaged or destroyed by fire or other casualty ("Casualty"), and this Lease is not terminated pursuant to Section 11.4(b) below, Tenant shall, promptly and diligently repair such damage and restore the Improvements as nearly as possible to the condition which existed prior to the occurrence of such Casualty or to any comparable or improved condition consistent with Tenant's or Franchisor's then-current store design and this Lease shall remain in full force and effect and Tenant shall continue to pay Rent. Tenant promptly shall commence and diligently pursue to completion the repair, restoration and replacement of the damaged or destroyed Improvements, due allowance being made for time needed to obtain permits, adjust insurance and for delay on account of events of force majeure. Such repair, restoration and replacement shall be performed in accordance with all applicable laws, legal requirements and Permitted Encumbrances. Tenant shall be responsible for the repair or replacement of any Tenant's Property damaged by such Casualty. As used in this Lease the word "destroyed" shall mean completely destroyed above the foundation, or so substantially damaged as to require demolition to the foundation, or such other severity of damage as may be established or imposed by 16 applicable governmental law or ordinance which, if suffered, would constitute total destruction or require demolition before repair or reconstruction may commence. (b) If the Improvements or any portion thereof is damaged or destroyed (i) during the last two (2) Lease Years of the Term (or the Term as then extended) to the extent of twenty-five percent (25%) or more of the replacement value thereof (exclusive of the foundation) immediately prior to such Casualty; or (ii) by a cause or peril which is not covered by the property insurance required to be carried pursuant to Section 12.1(b) (excluding any cause or peril arising from any act of Tenant or any of its members, managers, officers, directors, employees, contractors, agents, representatives, subtenants or assignees) or other insurance which is then customarily being carried by a commercially reasonable prudent operator of a facility similar to the Premises; then Tenant shall have the right to terminate this Lease by giving notice to that effect ("Termination Notice") to Landlord within one hundred twenty (120) days after the occurrence of the Casualty, in which event termination shall be effective as of the date of such Casualty if the Building is destroyed and otherwise as of the date Tenant vacates the Premises following such Casualty. (c) If this Lease is terminated pursuant to this Section 11.4, Rent and all other charges and costs payable hereunder shall be adjusted and paid to the effective date of termination, and all proceeds of any insurance with respect to the Premises (exclusive of Tenant's Property, which shall be paid to Tenant) shall be paid to Landlord. 12. INSURANCE 12.1. BY TENANT. Tenant, at its sole cost and expense, shall obtain and maintain (or cause to be obtained and maintained, as the case may be) the following insurance during the Term: (a) Commercial general public liability insurance with limits of not less than Five Million and No/100 Dollars ($5,000,000.00) per occurrence. (b) All-risk property insurance covering all Improvements constituting part of the Premises, including the Building, all Alterations and other improvements (excluding Tenant's Property), in an amount not less than one hundred percent (100%) of the replacement cost thereof, including (i) ordinance or law coverage including any amounts necessary to replace the undamaged portion of the Building, to cover cost increases arising from changes in building codes or other ordinances or laws and to cover costs of debris removal, and (ii) boiler and machinery coverage; (c) Property insurance covering Tenant's Property in such amounts as Tenant deems necessary or desirable; (d) A liquor liability policy with limits of not less than Five Million and No/100 Dollars ($5,000,000.00) per occurrence and Five Million and No/100 Dollars ($5,000,000.00) in the aggregate; 17 (e) Workers' compensation and employer's liability insurance as required by applicable law; (f) Insurance against loss or damage from explosion of any steam or pressure boilers or similar apparatus located in or about the Improvements in an amount not less than the actual replacement cost of the Improvements and equipment located within the Improvements; (g) If any portion of the improvements is located in an area designated by the Federal Emergency Management Association as having special flood and mud slide hazards, flood insurance in the maximum available amount; and (h) Loss of rent insurance in amounts sufficient to compensate Landlord for all Base Rent, Additional Rent and other amounts payable hereunder for a period of not less than twelve (12) months, the amount of such coverage to be adjusted annually to reflect the Base Rent, Additional Rent and other amounts payable during the succeeding twelve (12) month period. 12.2. GENERAL REQUIREMENTS. All insurance (and renewals thereof) required by this Article shall be issued by responsible insurance carriers authorized to do business in the State in which the Premises is located and having a claims paying ability rating of not less than "A-" by Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. Each policy (and any renewal thereof) shall expressly provide that it shall not be cancelled or changed without at least thirty (30) days' prior written notice to all parties insured or named therein. The insurance described in Sections 12.1(a) and (d) shall include Landlord and Landlord's Lender, if any, as additional insureds. The insurance provided under Sections 12.1(b), (f) and (g) shall name Landlord each Landlord Lender as a loss payee with respect to any losses, and any proceeds paid to Landlord thereunder shall be held and disbursed by Landlord on the same terms as those set forth in Section 11.3 (except that proceeds from losses of less than One Hundred Twenty-five Thousand Dollars ($125,000) shall be paid to Tenant; provided that no Event of Default has occurred and is continuing). In the event of any Tenant financing, the interest of Landlord and Landlord's Lender, if any, under the property insurance described in Sections 12.1(b), (f) and (g) shall be senior to the interest of any Tenant Lender. All of the insurance required by this Article shall be primary and noncontributing with any insurance which may be carried by the Landlord, shall afford coverage for all claims based on any act, omission, event or condition which occurs or arises during the policy period, and may be obtained by endorsement on blanket policy(ies) of insurance carried and maintained by Tenant. Upon issuance and each renewal thereof, Tenant shall deliver to Landlord a certificate thereof and reasonable evidence of paid premium, failing which Landlord shall have the right from time to time after no less than ten (10) days' notice (except that if any insurance required under Section 12.1 has lapsed, no prior notice shall be necessary) to effect such insurance for no more than one (1) year and all premiums paid by Landlord shall be reimbursed by Tenant upon written demand. The amount of insurance coverage required in Sections 12.1(a) and (d) above each shall be subject to increase from time to time (but not more frequently than once every five (5) years) and upon not less than ninety (90) days prior notice therefor from Landlord to Tenant; provided that (y) such additional coverage is comparable and not more than that commonly carried by owners of similar properties in the metropolitan vicinity of the Premises, and (z) such 18 additional coverage is available at commercially reasonable rates. Landlord shall have no interest in any insurance proceeds Tenant receives for Tenant's Property and Landlord shall sign all documents which are necessary or appropriate in connection with the settlement of any claim or loss by Tenant with respect to Tenant's Property. 12.3. MUTUAL WAIVER OF SUBROGATION. Tenant agrees to have all policies of fire and extended coverage insurance now or hereafter carried by it with respect to the Improvements endorsed with a clause substantially as follows: "This insurance shall not be invalidated should the insured waive in writing prior to a loss any or all rights of recovery against any party for loss occurring to the property described herein." The obligation to obtain such an endorsement shall be subject to the availability thereof at commercially reasonable rates. Landlord and Tenant hereby waive all claims for recovery from each other for any loss or damage to it or any of its property insured under valid and collectible insurance policies to the extent of the proceeds collected under such insurance policies. 13. ASSIGNMENT AND SUBLETTING 13.1. CONSENT REQUIRED. Except as provided in Section 13.2 below and Tenant financing pursuant to Article 20 below, Tenant shall not sell, encumber, assign or transfer this Lease or any interest herein, nor sublet all or any part of the Premises without the prior written consent of Landlord which shall not be unreasonably withheld, conditioned or delayed so long as such proposed assignee or subtenant is a capable operator of a restaurant facility and has a financial condition and creditworthiness sufficient to meet the financial obligations of Tenant under this Lease. With respect to an assignment or subletting for which Landlord's consent is required, the following provisions shall apply: (i) there shall be submitted to Landlord current financial information and information regarding the business reputation and experience regarding the proposed assignee/sublessee; (ii) the business reputation and experience of the proposed assignee or sublessee (or the principals or owners thereof) shall meet or exceed generally acceptable commercial standards for like properties; (iii) in the case of an assignment, the proposed assignee shall agree in writing to assume and abide by all terms and provisions of this Lease from and after the date of such assignment; and (iv) no Event of Default shall have occurred and be continuing. Landlord agrees to respond within twenty (20) days after receipt of Tenant's written request for Landlord's consent (together with the information specified above and other information reasonably requested by Landlord) to a proposed assignment or sublet and submission of the financial information and business qualifications of the proposed assignee/sublessee pursuant to clauses (i) and (ii) above. Any disapproval shall be explained in writing. If Landlord fails to respond or explain its disapproval by the expiration of said twenty (20) day period, Tenant may give to Landlord a reminder notice stating that Landlord's failure to respond within ten (10) days after receipt of such reminder notice shall be deemed to constitute 19 Landlord's approval of the transaction in question, and if Landlord shall fail to respond or explain its disapproval within ten (10) days after receipt of such reminder notice, the transaction which is the subject of Tenant's notice to Landlord shall be deemed approved. Consent by Landlord to any assignment or subletting shall not waive the necessity for consent to any subsequent assignment or subletting for which Landlord's consent is required by this Section. 13.2. PERMITTED TRANSFER. Tenant shall have the right, without any cost, fee or payment to Landlord (other than as set forth in Section 13.4 below), to sublet any portion of the Premises, or to transfer and assign Tenant's right, title and interest in this Lease, without Landlord's prior written consent, to the following persons and entities in the following events (each, a "Permitted Transfer"): (i) to Franchisor or Franchisor's affiliate; (ii) to another licensed franchisee of Franchisor; (iii) to a parent, subsidiary, affiliate or division of Tenant, Apple American Group LLC ("AAG") or their respective investors; (iv) to any entity that acquires, by merger, consolidation or otherwise, all or substantially all of the ownership interests in and control of, Tenant or AAG (provided that no Event of Default shall have occurred and be continuing) or of Franchisor; or (v) to any entity that acquires all or substantially all of Tenant's assets (excluding the Distinctive Property) or AAG's assets (provided that no Event of Default shall have occurred and be continuing). A direct or indirect transfer of all or any interest in AAG shall not be deemed a sale, encumbrance, assignment or transfer of this Lease or any interest herein. A direct or indirect transfer by AAG of all or any interest in Tenant shall not be deemed a sale, encumbrance, assignment or transfer of this Lease or any interest therein; provided, that the transferee is a party to whom, if the lessee's interest in this Lease were transferred to such party, such transfer would constitute a Permitted Transfer. For purposes of this Section 13.2, references to Tenant, Franchisor and AAG shall be deemed to include their respective successors and assigns. 13.3. GENERAL PROVISIONS. In the case of any sublease or assignment of this Lease, Tenant shall submit an executed copy of the sublease or assignment instrument to Landlord. Notwithstanding anything to the contrary which may be provided in this Lease, (a) the Tenant making any assignment or sublease shall not be released from any liability under this Lease as a result of any assignment or sublease made pursuant to Section 13.1, and (b) the Tenant assigning all of its right, title and interest under this Lease (and any predecessor Tenant that has not theretofore been released) shall be released from all future liability under this Lease in connection with any assignment of all of such assigning Tenant's right, title and interest in this Lease described in subsections (i), (ii), (iv) and (v) of Section 13.2, provided that (i) the assignee of an assignment or transfer described in subsections (i), (ii), and (v) of Section 13.2 assumes all obligations under this Lease pursuant to an assignment and assumption agreement in the form attached as Schedule 1 to the Guaranty attached as Exhibit D hereto, and (ii) if the Tenant making the assignment is not the originally named Tenant hereunder, such assigning Tenant (and any predecessor Tenant that has not theretofore been released) shall not be released in the case of an assignment or transfer of such assigning Tenant's right, title and interest in this Lease to (X) any entity that acquires, by merger, consolidation or otherwise, all or substantially all of the ownership interests in and control of, such assigning Tenant pursuant to subsection (iv) of Section 13.2 above other than with respect to Franchisor or Franchisor's affiliate, or (Y) any entity that acquires all or substantially all of such assigning Tenant's assets pursuant to subsection (v) of Section 13.2 above, unless the assignee or transferor will directly or indirectly hold, after giving effect to such assignment or transfer, all or substantially all of the assets of the 20 originally named Tenant hereunder. Landlord shall not be entitled to any consideration in connection with any assignment or sublet. Unless expressly released pursuant to the provisions of this Section 13.3, a Tenant which assigns, subleases or otherwise transfers its interest in this Lease or the Premises shall remain fully liable for all of the obligations, duties and liabilities of the Tenant under this Lease following any such assignment, sublease or other transfer. 13.4. COSTS AND FEES. Tenant shall not be obligated to reimburse Landlord for any cost, fee or payment incurred by Landlord or Landlord's Lender in connection with any requests for approval of an assignment of this Lease or any sublease of the Premises other than reasonable costs and expenses incurred by Landlord and Landlord Lender (including, without limitation, reasonable attorneys' fees and disbursements); provided, however, that if the assigning Tenant is Franchisor, a Franchisor affiliate or an authorized franchisee of Franchisor (other than the originally named Tenant hereunder), no such cost, fee or payment shall be due or payable by such entity. 14. INDEMNIFICATION 14.1. INDEMNIFICATION OF LANDLORD. (i) TENANT AGREES TO DEFEND, PAY, PROTECT, INDEMNIFY, SAVE AND HOLD HARMLESS LANDLORD AND LANDLORD'S INDEMNITEES (AS DEFINED IN SECTION 5.2(B) ABOVE) FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, PENALTIES, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES AND DISBURSEMENTS), CAUSES OF ACTION, SUITS, CLAIMS, DEMANDS OR JUDGMENTS OF ANY NATURE WHATSOEVER, HOWSOEVER CAUSED, ARISING OR ALLEGED TO ARISE FROM THE PREMISES OR THE USE, NON-USE, OCCUPANCY, CONDITION, CONSTRUCTION, MAINTENANCE, REPAIR OR REBUILDING OF THE PREMISES, ANY BREACH OF THIS LEASE ON THE PART OF TENANT OR LANDLORD'S ENFORCEMENT OF THE PROVISIONS OF THIS LEASE, 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, AND ANY CLAIMS, DEMANDS, CAUSES OF ACTION, SUITS OR JUDGMENTS BY THIRD PARTIES RESULTING FROM VIOLATIONS OR ALLEGED VIOLATIONS BY TENANT OR ANY SUBTENANT OF ANY PROVISION OF THIS LEASE, ANY LEGAL REQUIREMENT, ANY OTHER LEASE OR AGREEMENT RELATING TO THE PREMISES, OR ANY OTHER CONTRACT OR AGREEMENT TO WHICH TENANT OR ANY SUBTENANT IS A PARTY, WHETHER OR NOT LANDLORD OR LANDLORD'S LENDER HAS OR SHOULD HAVE KNOWLEDGE OR NOTICE OF THE DEFECT OR CONDITIONS, IF ANY, CAUSING OR CONTRIBUTING TO SAID INJURY, DEATH, LOSS, DAMAGE, LIABILITY, PENALTY, COST, EXPENSE, CAUSE OF ACTION, SUIT, DEMAND, JUDGMENT OR OTHER CLAIM; EXCEPT TO THE EXTENT THAT ANY 21 SUCH LIABILITY, LOSS, DAMAGE, PENALTY, COST, EXPENSE, CAUSE OF ACTION, SUIT, CLAIM, DEMAND OR JUDGMENT IS THE RESULT OF THE WILLFUL MISCONDUCT OR NEGLIGENCE OF LANDLORD OR ANY LANDLORD INDEMNITEE. IN CASE ANY ACTION OR PROCEEDING IS BROUGHT AGAINST LANDLORD OR ANY LANDLORD'S INDEMNITEE BY REASON OF ANY SUCH CLAIM AGAINST WHICH TENANT HAS AGREED TO DEFEND, PAY, PROTECT, INDEMNIFY, SAVE AND HOLD HARMLESS PURSUANT TO THE PRECEDING SENTENCE, TENANT COVENANTS UPON NOTICE FROM LANDLORD OR ANY LANDLORD'S INDEMNITEE TO RESIST SUCH ACTION OR PROCEEDING AND DEFEND LANDLORD AND LANDLORD'S INDEMNITEE IN SUCH ACTION OR PROCEEDING, WITH THE EXPENSES OF SUCH DEFENSE PAID BY TENANT, AND LANDLORD WILL COOPERATE AND ASSIST IN THE DEFENSE OF SUCH ACTION OR PROCEEDING IF REASONABLY REQUESTED SO TO DO BY TENANT. (ii) The obligations of Tenant under this Section 14.1 shall survive the termination or expiration of this Lease. 14.2. INDEMNIFICATION OF TENANT. (i) LANDLORD AGREES TO DEFEND, PAY, PROTECT, INDEMNIFY, SAVE AND HOLD HARMLESS TENANT, ANY TENANT LENDER, AND THEIR RESPECTIVE MEMBERS AND ITS AND THEIR RESPECTIVE MEMBERS, MANAGERS, OFFICERS, EMPLOYEES, DIRECTORS, SHAREHOLDERS AND AGENTS ("TENANT INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES, LOSSES, DAMAGES, PENALTIES, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES AND DISBURSEMENTS), CAUSES OF ACTION, SUITS, CLAIMS, DEMANDS OR JUDGMENTS OF ANY NATURE WHATSOEVER, HOWSOEVER CAUSED, ARISING OR ALLEGED TO ARISE FROM ANY BREACH OF THIS LEASE ON THE PART OF THE LANDLORD OR TENANT'S ENFORCEMENT OF THE PROVISIONS OF THIS LEASE, 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 FROM OR CONNECTED WITH LANDLORD'S BREACH OF THIS LEASE OR TENANT'S ENFORCEMENT OF THE PROVISIONS OF THIS LEASE OR OCCURRING ON THE PREMISES TO THE EXTENT CAUSED BY THE WILLFUL MISCONDUCT OR NEGLIGENCE OF LANDLORD OR ANY LANDLORD INDEMNITEE. IN CASE ANY ACTION OR PROCEEDING IS BROUGHT AGAINST TENANT OR TENANT'S INDEMNITEE BY REASON OF ANY SUCH CLAIM AGAINST WHICH LANDLORD HAS AGREED TO DEFEND, PAY, PROTECT, INDEMNIFY, SAVE AND HOLD HARMLESS PURSUANT TO THE PRECEDING SENTENCE, LANDLORD COVENANTS UPON NOTICE FROM TENANT OR TENANT'S INDEMNITEE TO RESIST SUCH ACTION 22 OR PROCEEDING AND DEFEND TENANT AND TENANT'S INDEMNITEE IN SUCH ACTION OR PROCEEDING, WITH THE EXPENSES OF SUCH DEFENSE PAID BY LANDLORD, AND TENANT WILL COOPERATE AND ASSIST IN THE DEFENSE OF SUCH ACTION OR PROCEEDING IF REASONABLY REQUESTED SO TO DO BY LANDLORD. (ii)The obligations of Landlord under this Section 14.2 shall survive the termination or expiration of this Lease. 15. DEFAULT; REMEDIES 15.1. DEFAULT BY TENANT. Each of the following shall constitute an Event of Default (herein so called) by Tenant under this Lease: (i) Tenant fails to pay any installment of Base Rent in full under this Lease within five (5) days after notice from Landlord that such payment was not received when due; (ii) Tenant fails to pay any installment of Additional Rent in full under this Lease within ten (10) days after notice from Landlord that such payment was not received when due; (iii) Tenant fails to observe or perform any other provision of this Lease required to be observed or performed by Tenant and does not cure such failure within thirty (30) days after notice thereof from Landlord; provided, that if such default is not capable of being cured within thirty (30) days and Tenant promptly commences such cure, said thirty (30) day period shall be extended so long as Tenant diligently and continuously pursues such cure; (iv) Tenant or any guarantor of Tenant's obligations under this Lease (a "Guarantor") makes a general assignment for the benefit of creditors; (v) A receiver or trustee of Tenant or any Guarantor or any of their respective assets is appointed by entry of an order by a court of competent jurisdiction and the same is not vacated, discharged or dismissed within sixty (60) days thereafter; (vi) A petition for relief is filed by Tenant or any Guarantor under any bankruptcy or insolvency law seeking a plan of reorganization or arrangement under any law relating to bankruptcy, or any such petition is filed against Tenant or any Guarantor and same is not dismissed, discharged or vacated within sixty (60) days thereafter; (vii) The interest of Tenant in the Premises is sold under execution or other legal process; (viii) Tenant fails to maintain any insurance required under Section 12.1 of this Lease within five (5) days after notice from Landlord of such failure; or 23 (ix) Tenant assigns this Lease or subleases any portion of the Premises in violation of Section 13 of this Lease. 15.2. LANDLORD'S REMEDIES. (a) Upon the occurrence of an Event of Default under Section 15.1, Landlord shall have the following rights and remedies, subject to the rights of Franchisor or Tenant Lender under the provisions of Section 15.3 and Section 20.2: (i) To terminate this Lease and Tenant's right of possession of the Premises by giving notice of such election to Tenant, in which event (A) Tenant shall immediately surrender possession thereof to Landlord, failing which Landlord may re-enter and take possession of the Premises and expel or remove Tenant and any other occupant(s) thereof in accordance with applicable law ("Reentry"), and (B) Tenant shall have no further claim thereon or hereunder; (ii) To terminate Tenant's right of possession of the Premises without terminating this Lease by giving notice of such election to Tenant, in which event (A) Tenant shall immediately surrender possession thereof to Landlord, failing which Landlord may exercise the right of Reentry, and (B) Landlord shall have the right to occupy the Premises for and on account of Tenant and to collect any unpaid rentals and other charges which have or may thereafter become due and payable; (iii) To exercise the rights described in clause (ii) above and thereafter elect to terminate this Lease and all of Tenant's rights in or to the Premises by giving notice of such election to Tenant; or (iv) To exercise any other right or remedy now or hereafter existing by law or in equity. (b) If Landlord reenters the Premises under clause (a)(ii) above, such reentry or any action, in unlawful detainer or otherwise, to obtain possession of the Premises shall not be deemed to be an election by Landlord to terminate this Lease, or Tenant's liability to pay rent or other charges thereafter accruing, or Tenant's liability for damages under any provisions hereof, unless Landlord elects to terminate this Lease by written notice to that effect given to Tenant. Tenant covenants that the service by Landlord of any notice pursuant to the unlawful detainer statutes of the State in which the Premises is located and the surrender of possession pursuant to such notice shall not be deemed to be a termination of this Lease, unless Landlord elects to the contrary by written notice to that effect given to Tenant at the time of or after the service of any such statutory notice. If Landlord reenters or takes possession of the Premises as aforesaid, Landlord shall have the right, subject to the provisions of this Lease, including without limitation, the provisions of Section 16.2, to remove therefrom all or any part of the personal property located therein and may dispose of or place the same in storage at a public warehouse at the expense and risk of Tenant; provided, however, that Landlord shall not be obligated to remove and/or dispose of any such personal property. 24 (c) If Landlord elects to reenter the Premises under clause (a)(ii) above and takes possession of the Premises, Landlord may, but except to the extent required by applicable law or court order, shall not be obligated to, relet the Premises for a term, rate and upon such other provisions as Landlord deems appropriate. If Landlord so reenters and takes possession of the Premises, Landlord may decorate, repair and alter the Premises to the extent Landlord deems appropriate for purposes of such reletting. If Landlord is unable to so relet the Premises, then Tenant shall pay to Landlord monthly on the first day of each month during the period that Tenant's right to possession is terminated, a sum equal to the Rent due under this Lease for that month. If the Premises are relet, Landlord shall apply the rents therefrom first to payment of Landlord's expenses incurred by reason of Tenant's default, second, to payment of Landlord's expenses of reletting, including without limitation, brokerage fees and reasonable attorneys' fees, and third, to payment of Rent due from Tenant under this Lease. All sums expended and concessions granted to any new tenant shall be amortized on a straight -line basis over the term of the new lease and Tenant's liability therefor shall be limited to that portion attributable to the unexpired term of this Lease. If the sums received from such reletting are insufficient to satisfy the payment of Rent due from Tenant under this Lease for any month, Tenant shall remain liable for the deficiency. If the sums received from such reletting exceed the Rent otherwise due from Tenant for any month, Tenant shall have no rights thereto except that such excess amounts shall be applied against Rent subsequently due under this Lease. No such reletting by Landlord shall be considered to be (A) for Landlord's own account unless and until Landlord notifies Tenant that this Lease has been terminated, and (B) an acceptance of Tenant's surrender of the Premises unless and until Landlord so notifies Tenant. (d) In the event of any termination of this Lease or repossession of any of the Premises after the occurrence of an Event of Default, Tenant shall pay to Landlord Base Rent, Additional Rent and all other sums required to be paid by Tenant to and including the date of such termination or repossession and, thereafter, Tenant shall, until the end of what would have been the Term in the absence of such termination or repossession, and whether or not any of the Premises shall have been relet, be liable to Landlord for and shall pay to Landlord as liquidated and agreed current damages: (i) Base Rent, Additional Rent and all other sums which would be payable under this Lease by Tenant in the absence of such termination or repossession, less (ii) the net proceeds, if any, of any reletting pursuant to Section 15.2(c), after deducting from such proceeds all of Landlord's reasonable expenses in connection with such reletting (including without limitation, all reasonable repossession costs, brokerage commissions, legal expenses, attorneys' fees, costs of Alteration and expenses of preparation for reletting). Tenant hereby agrees to be and remain liable for all sums aforesaid and Landlord may recover such damages from Tenant and institute and maintain successive actions or legal proceedings against Tenant for the recovery of such damages. Nothing herein contained shall be deemed to require Landlord to wait to begin such action or other legal proceedings until the date when the Term would have expired had there been no such Event of Default. (e) At any time after such termination of this Lease pursuant to Section 15.2(a)(i) or pursuant to law, whether or not Landlord shall have recovered any 25 amounts under Section 15.2(c) or 15.2(d), Landlord, at its option, shall be entitled to recover from Tenant and Tenant shall pay to Landlord, on demand, as and for liquidated and agreed final damages for Tenant's default, (i) the amount by which the Base Rent and all Additional Rent reserved hereunder for the unexpired portion of the Term demised herein as if the Lease had not expired or been terminated exceeds the then fair and reasonable rental value of the Premises for the same period, discounted to present worth at the prime rate (as defined in Section 24.6), minus any such monthly deficiencies previously recovered from Tenant for such unexpired portion of the Term demised herein under Section 15.2(c), plus (ii) all reasonable legal fees and other costs and expenses incurred by Landlord as a result of Tenant's default under this Lease and the exercise of any rights and remedies hereunder. (f) If any statute or rule of law governing a proceeding in which such liquidated final damages provided for in Section 15.2(e) are to be proved shall validly limit the amount thereof to an amount less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such statute or rule of law. (g) Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy at law or in equity. No right or remedy conferred upon or reserved to Landlord in this Lease is intended to be exclusive of any other right or remedy; and each and every right and remedy shall be cumulative and in addition to any other right or remedy contained in this Lease. No delay or failure by Landlord or Tenant to enforce its rights under this Lease shall be construed as a waiver, modification or relinquishment thereof. Tenant waives any rights of redemption granted by any laws if Tenant is evicted or dispossessed, or if Landlord obtains possession of the Premises by reason of the violation by Tenant of any of the terms of this Lease. 15.3. FRANCHISOR RIGHTS. (a) Landlord agrees to send a copy of any notice of default required or permitted to be given to Tenant under this Lease simultaneously to Franchisor at the last address for Franchisor furnished to Landlord by Franchisor in writing; provided, that the failure to send such notice shall not limit Tenant's default or Landlord's remedies with respect thereto, or make Landlord liable for any damages. If Franchisor has received timely notice of such default, (provided, that the failure to send such notice shall not limit Tenant's default or Landlord's remedies with respect thereto or impose any liability upon Landlord therefor), Landlord agrees and consents to the curing of any default of Tenant hereunder by Franchisor, provided that such cure is made by Franchisor within the time set forth in Section 15.1 for Tenant's cure (provided, that Franchisor shall have an additional fifteen (15) days to cure a default under Sections 15.1(i) and (ii), so long as Franchisor notifies Landlord within the cure periods set forth in such Sections that Franchisor will cure such defaults). If Franchisor elects to cure any Tenant default hereunder, Franchisor shall give notice to that effect to Landlord and Tenant simultaneously with such cure. (b) Notwithstanding anything to the contrary stated herein, if an Event of Default has occurred (including the expiration of any applicable cure period), Landlord 26 agrees to give notice thereof to Franchisor ("Termination Notice") and Landlord will not terminate the Lease (as permitted hereunder) on account of such Event of Default for a period of thirty (30) days, during which time Franchisor shall have the right to lease the Premises upon the same terms and conditions as this Lease, such election to be made by notice to that effect ("Franchisor Notice") from Franchisor to Landlord prior to the end of said 30-day period. If Franchisor exercises such right by giving the Franchisor Notice to Landlord by the time and in the manner set forth in the immediately preceding sentence, then (i) Franchisor and Landlord shall promptly execute and deliver a written instrument to that effect; (ii) Franchisor shall become the tenant under this Lease with all of the rights and obligations of tenant commencing upon, first accruing and effective only from and after the date of the Franchisor Notice; provided, that Tenant shall not dispute such action by Franchisor and shall acknowledge its approval of such action by Franchisor; (iii) Franchisor shall have no liability, responsibility or obligation to pay or otherwise cure any default of Tenant existing prior the effective date of exercise by Franchisor of its rights in this subsection; provided, that if Franchisor has received notice from Landlord of any Event of Default of Tenant under Sections 15.1(i) or (ii), Franchisor shall pay any Rent due and payable by Tenant accruing after the date Franchisor receives notice of any such Event of Default; and (iv) nothing contained herein shall restrict, limit, terminate, waive or otherwise affect Landlord's rights against Tenant or any guarantor on account of Tenant's default. If Franchisor fails to exercise such right on or before the expiration of said thirty (30) day period, Landlord may pursue any rights and remedies that it may have against Tenant on account of Tenant's Event of Default hereunder. Nothing contained in this Section shall be deemed to obligate Franchisor to assume this Lease, to become the tenant hereunder or to take possession of the Premises. (c) In the event that Franchisor becomes the tenant under this Lease pursuant to the provisions of subsection (b) or an assignment under Section 13.2 above, Franchisor shall have the right at any time thereafter upon prior notice to, but without the prior consent of Landlord, to assign this Lease and all of its right, title and interest as Tenant hereunder to an authorized franchisee of Franchisor. In the event of such an assignment, Franchisor shall be released from all liabilities and obligations of Tenant first accruing from and after the effective date of said assignment provided that such assignee franchisee assumes in writing the obligations of Tenant under this Lease and a copy thereof is furnished to Landlord. 16. SURRENDER OF PREMISES 16.1. CONDITION. Upon the expiration or earlier termination of this Lease or the termination of Tenant's right of possession of the Premises only, Tenant shall surrender the Premises to Landlord in a clean, safe, good and tenantable condition, free of debris and with all "grease traps" and similar devices cleaned and in good working condition, ordinary wear and tear and, if this Lease is terminated pursuant to Section 11.4(b), damage by Casualty excepted. All building apparatus and equipment (other than Tenant's Property) then located on the Premises and all Alterations and other improvements to the Premises made during the Term, whether by Tenant or others, shall remain on the Premises and shall be considered part of the Premises. Tenant shall deliver all keys therefor to Landlord at the place then fixed for the 27 payment of Rent and shall make known to Landlord the combination for all locks on safes, cabinets and vaults in the Premises. 16.2. REMOVAL OF TENANT'S PROPERTY. Upon the expiration or earlier termination of this Lease or the termination of Tenant's right of possession of the Premises only, Tenant shall have the right, at its sole cost and expense, for a period of fifteen (15) days thereafter to remove Tenant's Property, Distinctive Property and the Financed Personalty, respectively, from the Premises, provided that Tenant shall pay to Landlord Rent due under Article 3 hereof for the actual number of days which elapse during such fifteen (15) day period until the Tenant's Property, Distinctive Property and the Financed Personalty, as applicable, are removed from the Premises. If and to the extent that Tenant fails to remove any of such property by the expiration of said fifteen (15) day period, Landlord agrees that Tenant Lender, TE Lender and Franchisor each shall have the right for a period of forty (45) days thereafter to remove the same from the Premises, provided, that Tenant shall pay to Landlord Rent due hereunder for the actual number of days which elapse until Tenant Lender, TE Lender or Franchisor remove the same from the Premises during such forty five (45) day period. If and to the extent that any such property remains on the Premises on the sixtieth (60th) day after such termination, the same shall be deemed abandoned, and at Landlord's option shall become the property of Landlord and may be sold or disposed of as Landlord may determine; provided, however, that Landlord shall not use, suffer or permit the use of any Distinctive Property unless the attributes or features thereof associated with Tenant or Franchisor are removed or obliterated. Any and all damage to the Building caused by or resulting from the removal of Tenant's Property, Distinctive Property or Financed Personalty shall promptly be repaired at no cost or expense to Landlord and Tenant shall be liable for such cost and expense unless such repairs are made by Tenant, Franchisor or TE Lender, as the case may be. 17. SUBORDINATION AND ATTORNMENT 17.1. SUBORDINATION. This Lease and the rights of Tenant hereunder are expressly subject and subordinate to the lien of any mortgage or deed of trust constituting a lien on Landlord's fee interest in the Premises ("Landlord Mortgage") and any renewals, extensions, modifications, consolidations and replacements thereof, which now or hereafter affect all or any portion of the Premises (except to the extent that any such instrument expressly provides that this Lease is superior to it); provided that the holder of the Landlord Mortgage ("Landlord Lender") agrees in writing not to disturb Tenant, Tenant's right to possession and use of the Premises and Tenant's rights under this Lease so long as there shall be no Event of Default on behalf of Tenant hereunder. Tenant agrees to execute and deliver to Landlord and any Landlord Lender at any time and from time to time all such documents reasonably requested by Landlord or Landlord's Lender, which are reasonably acceptable to Tenant and Tenant's Lender, to confirm or effect such subordination including, without limitation, an SNDA substantially in the form attached as Exhibit E, together with such changes as Lender may reasonably require; provided that such Landlord Lender agrees to recognize this Lease and the rights of Tenant set forth herein for so long as there shall be no Event of Default on behalf of Tenant hereunder. Notwithstanding any foreclosure or sale under any Landlord Mortgage (or transfer by deed in lieu thereof), this Lease shall remain in full force and effect in accordance with its terms. Landlord and any Landlord Lender shall execute within ten (10) days after request any documentation reasonably required by any TE Lender or Tenant Lender, which are reasonably acceptable to Landlord and any 28 Landlord Lender, to confirm the priority of such lender's interests. Notwithstanding the provisions of this Section 17.1, the holder of any Landlord Mortgage to which this Lease is subject and subordinate shall have the right, at its sole option, at any time, to subordinate and subject the Landlord Mortgage, in whole or in part, to this Lease by recording a unilateral declaration to such effect. Tenant hereby agrees that any Landlord Lender shall not be bound to the terms of any material modification or amendment of this Lease entered into after the date of such Landlord Mortgage, unless such Landlord Lender has consented to such material modification or amendment. Tenant hereby agrees that after the date of such Landlord Mortgage, Tenant shall not pay to Landlord any installment of Base Rent more than one (1) month in advance of the due date thereof, unless Landlord Lender shall consent to such prepayment. 17.2. ATTORNMENT. In the event of the foreclosure of any Landlord Mortgage by voluntary agreement or otherwise, or the commencement of any judicial action seeking such foreclosure, Tenant will become the tenant of and attorn to and recognize such Landlord Lender or purchaser in foreclosure as Tenant's landlord under this Lease without change in the provisions of this Lease. Upon request by such successor in interest, Tenant will execute and deliver an instrument confirming such attornment, which will recognize this Lease and the rights of Tenant set forth herein and shall provide that such successor in interest will not disturb Tenant in its use of the Premises in accordance with this Lease unless there is an Event of Default continuing hereunder and such successor in interest would be entitled to exercise such remedy under Section 15.2 hereof. 18. ESTOPPEL CERTIFICATES 18.1. ESTOPPEL CERTIFICATES. Within fifteen (15) days after written request from Landlord or Tenant to the other, such other party shall execute and deliver an estoppel certificate signed by an officer of such party and certifying: the Commencement Date and expiration date of the Term; the date to which Rent has been paid; the amount of Rent then being paid; that this Lease is in full force and effect and has not been modified, amended or assigned (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect); that to such party's knowledge there are no defaults by the other party under this Lease, nor to such party's knowledge any existing condition upon which the giving of notice or lapse of time or both would constitute a default (or, if such exist, stating the nature thereof); that such party has received no notice from any insurance company of any defects or inadequacies of the Premises; that such party has no options or rights other than as set forth in this Lease; and such other factual matters as the requesting party may reasonably request. Failure to deliver such statement within said fifteen (15) day period shall be conclusive upon the party to whom the request was directed that this Lease is in full force and effect, without modification except as may be represented by the requesting party in the draft estoppel presented, that to such party's knowledge there are no uncured defaults in the requesting party's performance, and that all other statements required to be made in the estoppel letter are conclusively made. 29 19. NOTICES 19.1. NOTICES. All notices required or permitted to be given under this Lease shall be in writing and shall be deemed given on the date when personally delivered or, if earlier, the next business day if sent by recognized overnight air courier, or two (2) business days (or, if earlier, when actually received) after being deposited in the United States Mail, postage prepaid, properly addressed, certified mail, return receipt requested, as follows: TO LANDLORD: At the address set forth in Section 1.2, With a copy to: Winthrop & Weinstine P.A. 225 South Sixth Street Suite 350 Minneapolis, Minnesota 55402 Attention: Jeffrey L. Leclerc And a copy to: AEI Fund Management, Inc. Attn: Lease Management Dept. 1300 Wells Fargo Place 30 Seventh Street East St. Paul, MN 55101 TO TENANT At the address set forth in Section 1.3, Attention: Chief Financial Officer With a copy to: Peter B. Loughman, Esq. 155 North Michigan Avenue, Suite 600 Chicago, Illinois 60601 TO FRANCHISOR: Applebee's International, Inc. International, Inc. 4551 West 107th Street, Suite 100 Overland Park, Kansas 66207 Attention: General Counsel Each entity or person entitled to receive notice or a copy thereof pursuant to this Lease ("Addressee") at any time and from time to time may change its address for notice purposes by giving notice of such change to all other Addressees in any manner specified above at least fifteen (15) days before such change of address is to become effective. 20. LEASEHOLD FINANCING 20.1. LEASEHOLD FINANCING. Tenant shall have the right at any time and from time to time during the Term with notice to, but without the consent or approval of Landlord, to grant a mortgage or other security interest ("Leasehold Mortgage") in Tenant's interest in this Lease (the leasehold estate created hereby), and all of Tenant's Property, all upon the condition that all rights acquired under any such Leasehold Mortgage shall be subject to each and all of the covenants, conditions, terms and restrictions set forth in this Lease. Tenant Lender's foreclosure 30 on the Leasehold Mortgage shall not terminate this Lease or affect any of the covenants, conditions, terms and restrictions set forth in this Lease as obligations of Tenant. 20.2. TENANT LENDER. If Landlord is provided written notice of a Leasehold Mortgage and the name and address for notice of the holder of a Leasehold Mortgage (the "Tenant Lender"), then the rights of such Tenant Lender shall include the following, which shall be binding on Landlord (and any Landlord Lender). Upon recordation of the Leasehold Mortgage and for so long thereafter as the Leasehold Mortgage remains unsatisfied: (i) Landlord agrees to deliver a copy of any notice of default given to Tenant under this Lease simultaneously to Tenant Lender at its last address furnished to Landlord in writing; provided, that the failure to send such notice shall not limit Tenant's default or Landlord's remedies against Tenant with respect thereto (other than such remedies as would prevent the exercise of Tenant Lender's rights under this Section 20.2), or impose any liability upon Landlord for any damages therefrom; (ii) Landlord agrees that Tenant Lender shall have the right, but shall not be obligated, to cure any default of Tenant hereunder, provided that such cure is made by Tenant Lender within the time provided to Tenant pursuant to Section 15.1 (provided, that such Tenant Lender shall have an additional fifteen (15) days to cure a default under Sections 15.1(i) and 15.1(ii), so long as Tenant Lender notifies Landlord within the cure periods set forth in such Sections that it will cure such defaults); (iii) if Tenant Lender elects to cure any default of Tenant hereunder, (A) Tenant Lender shall give notice to that effect to Landlord and Tenant simultaneously with such cure, and (B) Landlord consents to and shall accept such cure with the same force and effect as if made by Tenant; (iv) Landlord and Tenant each agree not to cancel or surrender this Lease (other than due to a default by a party which was not cured within the applicable cure period after notice was given to Tenant and Tenant Lender) or amend the provisions of this Lease without the prior written consent of Tenant Lender, which consent shall not be unreasonably withheld or delayed; and (v) if Landlord terminates the Lease due to an Event of Default which Tenant Lender is unable to cure (e.g., Tenant bankruptcy), and Tenant Lender elects by written notice to Landlord within forty-five (45) days thereafter to continue this Lease, Landlord agrees to enter into a new lease with Tenant Lender on the same terms and conditions as set forth in this Lease for the balance of the original Term, including any remaining extension options, provided, that the Tenant Lender shall pay to Landlord at the time of the execution and delivery of the new lease all sums which would at the time of the execution and delivery of the new lease be due pursuant to this Lease but for such termination, and shall agree in writing to cure and shall cure all other defaults of Tenant capable of being cured by Tenant Lender then existing under this Lease within a reasonable period of time after entering into such new Lease. Landlord agrees promptly to execute and deliver such documents as Tenant Lender reasonably may request which are reasonably acceptable to Landlord and any Landlord Lender to evidence the provisions of this Section 20.2, including the Landlord Agreement in the form attached hereto as Exhibit B. 21. RIGHT OF FIRST REFUSAL 21.1. RIGHT OF FIRST REFUSAL TO PURCHASE. (a) If at any time after the first anniversary of the Commencement Date Landlord shall receive a bona fide written offer to purchase the Premises from a third party which is not affiliated with Landlord, which offer Landlord is willing to accept 31 ("Outside Contract"), Landlord shall give written notice ("Sale Notice") thereof, together with a copy of such Outside Contract, to Tenant. Tenant shall have a right of first refusal ("Refusal Right") to purchase the Premises that is the subject of the Outside Contract in accordance with the terms and provisions thereof. If Tenant desires to exercise the Refusal Right, Tenant shall deliver written notice to that effect to Landlord within twenty (20) days after receipt of the Sale Notice ("Refusal Period"). If Tenant exercises the Refusal Right by the time and in the manner set forth in this subsection, Landlord and Tenant shall promptly execute a contract which includes the same material terms and conditions as the Outside Contract ("Sale Contract") and Tenant shall deposit when due any earnest money deposit required thereunder. If Tenant does not execute a Sale Contract within fifteen (15) days after Tenant's receipt of such Sale Contract from Landlord, signed on behalf of Landlord, or if Tenant defaults in its obligations under such Sale Contract, then Landlord shall be free to consummate the sale pursuant to the Outside Contract (or another contract on substantially similar terms and conditions). (b) If Tenant does not exercise the Refusal Right by the time and in the manner set forth in subsection (a) above, then (i) the Refusal Right shall remain in full force and effect, but not with respect to the proposed sale pursuant to the Outside Contract, and (ii) Landlord shall be free to consummate the sale pursuant to the Outside Contract. If within one hundred eighty (180) days after the expiration of the Refusal Period Landlord does not consummate the sale pursuant to the Outside Contract, the Refusal Right shall again be applicable, and Landlord shall not thereafter sell the Premises pursuant to the Outside Contract without first offering Tenant the Refusal Right pursuant to this Section 21.1. (c) The rights granted to Tenant under this Section 21 shall not survive the expiration or termination of this Lease. (d) The provisions of this Section 21 shall not apply and Tenant shall not have any Refusal Right (i) with respect to the sale, conveyance, assignment or other transfer (A) to any person controlling, controlled by, or under common control with Landlord or any of its direct or indirect owners, (B) by gift, descent or devise, or (C) to any sale (or conveyance in lieu thereof) by foreclosure or enforcement of a lien or security interest, or (ii) at any time that an Event of Default has occurred and is continuing. Any conveyance of the Premises to Tenant pursuant to this Section 21 shall be "as-is" with respect to the physical condition of the Premises. 22. [INTENTIONALLY OMITTED] 23. GUARANTY 23.1. Simultaneously with the execution of this Lease, Tenant shall cause to be delivered to Landlord a guaranty in the form attached hereto as Exhibit D (the "Guaranty"), pursuant to which AAG shall guaranty Tenant's obligations hereunder. 32 24. MISCELLANEOUS 24.1. LANDLORD'S INTERESTS. (a) The term "Landlord" as used herein shall mean only the owner or owners, at the time in question, of the fee title to the Premises. In the event of an assignment or transfer of this Lease by Landlord for other than security purposes, Landlord shall cause its assignee or transferee to assume the provisions of this Lease and Landlord shall deliver notice of such assignment or transfer and a copy of the effective instrument of transfer to Tenant. Tenant shall be entitled to continue to pay rent and give all notices to Landlord until Tenant has received the foregoing from Landlord. From and after a sale of the Premises, Landlord shall be released from all liability toward Tenant arising from this Lease because of any act, occurrence or omission of Landlord's successors occurring after the transfer of Landlord's interest in this Lease, provided Landlord's purchaser or assignee expressly assumes Landlord's duties and covenants under this Lease. Nothing herein shall be deemed to relieve Landlord of any liability for its acts, omissions or obligations occurring or accruing up to and including the date of such transfer. (b) 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 Landlord's interest in the Premises and shall not be enforced against Landlord individually or personally. (c) Landlord shall have the right to sell, assign or transfer its interest in the Premises without any prior notice to or consent of Tenant, subject to compliance with the provisions of Section 21 of this Lease, if applicable. 24.2. SEVERABILITY. If any provision of this Lease or the application thereof to any person or circumstance shall be invalid or unenforceable under applicable law, such event shall not affect, impair or render invalid or unenforceable the remainder or any other provision of this Lease, nor shall it affect the application of any provision of this Lease to other persons or circumstances. 24.3. ENTIRE AGREEMENT. This Lease and the Exhibits attached hereto set forth the entire agreement between Landlord and Tenant concerning the Premises and there is no other agreement, oral or written, between them other than this Lease. This Lease supersedes and revokes all previous negotiations, arrangements, letters of intent, offers to lease, lease proposals and information conveyed, whether orally or in writing, between the parties or their respective representatives. 24.4. TIME. Time is of the essence of this Lease and the performance of all obligations under this Lease. 24.5. BINDING EFFECT. This Lease shall be binding upon and inure to the benefit of Landlord, Tenant and their respective successors and assigns. 33 24.6. DEFAULT RATE. All amounts owing to one party from the other party under this Lease for which a date of payment is not expressly fixed shall be paid within ten (10) days after the date the party to whom such amount is payable delivers to the other party appropriate statements of account. As used in this Lease, the words "Default Rate" shall mean interest at the rate of four percent (4%) per annum in excess of the "prime rate" from time to time announced in The Wall Street Journal or if such publication ceases to publish a prime rate then as announced by a comparable publication. The Default Rate of interest shall be computed from the date on which any payment is due from either party to the other through and including the date paid. 24.7. FORCE MAJEURE. Neither Landlord nor Tenant shall be considered in default of any of the terms, covenants and conditions of this Lease on its part to be performed, if it fails to timely perform same and such failure is due in whole or in part to any strike, lockout, labor trouble (whether legal or illegal), civil disorder, restrictive governmental laws and regulations, riots, insurrections, war, accidents, casualties, acts of God, acts caused directly or indirectly by the other party hereto (or such party's agent, employees or invitees) or any other cause beyond its control. A party shall be entitled to an extension of time equal to one (1) day for each day of delay due to force majeure. The foregoing shall not apply to, excuse or be invoked to justify any delay in the payment of Rent or any other sum of money due from one party payable to the other party. 24.8. NO WAIVER. No provision of this Lease shall be deemed to have been waived by either party unless such waiver is in writing signed by such party. 24.9. CAPTIONS. The captions and headings in this Lease are inserted only as a matter of convenience and do not define, limit, expand or describe the scope or intent of such provisions. 24.10. SURVIVAL. The following obligations of Landlord and Tenant shall survive the expiration or earlier termination of this Lease: (a) any obligation permitted in this Lease to be performed after the end of the Term; (b) any obligation not reasonably susceptible of performance prior to the end of the Term; and (c) any other obligation expressly stated to survive termination. 24.11. APPLICABLE LAW. This Lease and the rights and obligations of Landlord and Tenant hereunder shall be governed by and construed in accordance with the laws and judicial decisions in effect in the State in which the Premises are located. 24.12. AMENDMENT. No amendment to the provisions of this Lease shall be effective or enforceable unless made in writing and signed by Landlord and Tenant. 24.13. APPROVALS; CONSENTS. Every approval and consent provided for in this Lease shall be made in writing. 24.14. RIGHTS AND REMEDIES. All rights and remedies granted or referred to in this Lease shall be distinct, separate and cumulative and none shall exclude any other right or remedy of either party set forth in this Lease or available at law or in equity. 34 24.15. HOLDOVER. If Tenant retains possession of the Premises after the expiration of the Term without the express written consent of Landlord, the monthly Base Rent payable by Tenant for each month of the period of such holding over shall be an amount equal to one hundred twenty-five percent (125%) of the monthly Base Rent in effect immediately preceding such holdover period; provided, however, that no payment of such increased monthly Rent by Tenant shall be deemed to extend or renew the Term. In the event that Landlord gives written consent to Tenant to remain in occupancy beyond the expiration of the Term, such occupancy shall be construed to be a renewal of this Lease for a month-to-month tenancy upon all of the terms and conditions set forth in this Lease, except that, unless otherwise provided in Landlord's consent, monthly Base Rent payable by Tenant for any such period of holdover tenancy shall be at the rate equal to one hundred percent (100%) of the monthly Base Rent in effect immediately preceding such holdover period. 24.16. MEMORANDUM. Landlord and Tenant agree to complete, execute, deliver and record in the county in which the Premises are located a short form memorandum of this Lease substantially in the form and substance attached hereto as Exhibit C ("Memorandum"). Tenant shall pay all fees, taxes, costs and expenses to record the Memorandum. 24.17. NO THIRD-PARTY RIGHTS. The terms and provisions of this Lease shall not be deemed to confer any rights upon, nor obligate Landlord or Tenant to, any person or entity other than the parties hereto, except for any Landlord Lender, Tenant Lender, TE Lender and Franchisor if and to the extent specifically provided herein. 24.18. LANDLORD AND FRANCHISOR ACCESS. Upon not less than twenty-four (24) hours' prior notice (except in the case of an emergency), Landlord may enter upon the Premises during Tenant's non-peak business hours for purposes of inspection and showing the Premises to prospective purchasers or lenders. When entering the Premises, Landlord, its agents, employees and/or contractors (a) shall identify themselves to Tenant's personnel immediately upon entering the Premises, and (b) shall not, in any way, materially or unreasonably affect, interrupt or interfere with Tenant's use, business or operations on the Premises or obstruct the visibility of or access to the Premises. Landlord and Tenant (i) acknowledge that Franchisor, its personnel and agents have the right to enter upon the Premises for certain purposes under the Franchise Agreement, and (ii) agree not to interfere with or prevent such entry by Franchisor, its personnel and agents. 24.19. DUE AUTHORITY. (a) Landlord represents and warrants to Tenant as follows: (i) that Landlord is a corporation created, validly existing and in good standing under Minnesota law; (ii) that Landlord has full right, power and authority to enter into and to perform its obligations under this Lease and that no consent or approval of any third parties is necessary in order to do so or that all such consents and approvals have been obtained; and (iii) that this Lease, when signed by Landlord, is a legal, valid and binding obligation of Landlord enforceable in accordance with its terms. (b) Tenant represents and warrants to Landlord as follows: (i) that Tenant is a limited liability company created, validly existing and in good standing under Delaware 35 law; (ii) that Tenant has full right, power and authority to enter into and to perform its obligations under this Lease and that, except as otherwise specifically provided herein, no consent or approval of any third parties is necessary in order to do so; and (iii) that this Lease, when signed by Tenant, is a legal, valid and binding obligation of Tenant enforceable in accordance with its terms. 24.20. RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be deemed to constitute a partnership or joint venture between Landlord and Tenant. The relationship of Landlord and Tenant shall only be deemed to be one of landlord and tenant. 24.21. PREPARATION AND SIGNING OF LEASE. This Lease has been negotiated and reviewed by Landlord, Tenant and their respective attorneys and/or professional advisors, all of whom intend and believe this Lease to be the product of all of their joint efforts, that it contains the entire agreement between Landlord and Tenant and as such should not and shall not be interpreted or construed in favor of or against either Landlord or Tenant merely because of the efforts of one party or the other in preparing this Lease. The submission of this Lease for review or execution does not constitute a reservation of or option for the rights conferred herein. This Lease shall become effective only if and when executed and delivered by both Landlord and Tenant. 24.22. BROKER. Landlord and Tenant each warrant and represent to the other that it has not dealt with any real estate broker, salesperson or finder in connection with this Lease. Landlord and Tenant each agree to indemnify, defend and hold the other party harmless from and against any and all liabilities and claims for commissions and fees arising out of a breach of its representation and warranty set forth herein. 24.23. SEPARABILITY. Each and every covenant and agreement of Tenant contained in this Lease is, and shall be construed to be, a separate and independent covenant and agreement, and the breach of any covenant or agreement by Landlord shall not discharge or relieve Tenant from its obligation to perform the same. 24.24. MULTIPLE COUNTERPARTS. To facilitate execution, this Lease may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature or acknowledgment of, or on behalf of, each party, or that the signature of all persons required to bind any party, or the acknowledgment of such party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Lease to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, and the respective acknowledgments of, each of the parties hereto. Any signature or acknowledgment page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures or acknowledgments thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature or acknowledgment pages. 24.25. BUSINESS DAYS. All references to "business days" contained herein are references to normal working business days, i.e., Monday through Friday of each calendar week, exclusive of federal and national bank holidays. In the event that any event hereunder is to occur, or a time 36 period is to expire, on a date which is not a business day, such event shall occur or such time period shall expire on the next succeeding business day. 24.26. INTERPRETATION. When the context in which words are used in this Lease indicates that such is the intent, words in the singular number shall include the plural and vice versa, and words in the masculine gender shall include the feminine and neuter genders and vice versa. Further, references to "person" or "persons" in this Lease shall mean and include any natural person and any corporation, partnership, joint venture, limited liability company, trust or other entity whatsoever. As used herein, the term "including" shall mean "including, but not limited to". 24.27. 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 Premises by reason of the fact that the same person, corporation, firm or other entity may acquire or hold or own, directly or indirectly, (a) this Lease or the leasehold estate created by this Lease or any interest in this Lease or in such leasehold estate and (b) the fee estate or ownership of any of the 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 (i) this Lease or the leasehold estate created by this Lease and (ii) the fee estate in or ownership of the Premises or any part thereof sought to be merged shall join in a written instrument effecting such merger and shall duly record the same. 24.28. FINANCIAL REPORTING. During the Term of this Lease, Tenant will deliver or cause to be delivered to Landlord the following financial information at the following times, all of which shall be reasonably true and correct: (a) During any twelve (12) month period and at Landlord's request but in no event more that two (2) times per year, unless such request is required in order for Landlord to obtain financing and in such event, when reasonably necessary, within thirty (30) days of said request, the most recent quarterly and year-to-date consolidated balance sheets and income and cash flow statements for the Tenant and for AAG and the accompanying unit level profit and loss statements for each Premises for that period; and (b) Within one hundred and twenty (120) days after the end of each fiscal year of Tenant and AAG, annual consolidated balance sheets and income and cash flow statements for the Tenant and for AAG for the immediately preceding fiscal year, all in reasonable detail and prepared in accordance with generally accepted accounting principles, consistently applied, including unit level profit and loss statements for that period for the Premises. The annual financial statements which are to be delivered as provided above shall have been prepared and certified by an independent certified public accountant. All other financial statements to be delivered pursuant to this Section 24.28 shall be un-audited and certified to Landlord to be reasonably true and correct by the Tenant's controller or other officer. Landlord shall have the right, upon reasonable advance notice, to meet with appropriate officers of Tenant and AAG to discuss their respective affairs and finances and the financial information delivered pursuant hereto. 37 24.29. MULTIPLE PERSONS OR ENTITIES. In the event that either party shall consist of more than one person or entity, (i) the obligations of such multiple persons or entities shall be joint and several, and (ii) the first notice with respect to a particular matter received by the other party from any one of the multiple persons or entities shall be final and binding on both parties, unless the party with multiple persons or entities previously has designated one among them as the representative of all, in which event only a notice from such representative shall be final and binding on both parties. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 38 IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first above written. LANDLORD: 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 Name: Robert P Johnson Its: President AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP, 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 Its: President TENANT: B.T. WOODLIPP, INC., a Pennsyl nia corporation By: /s/ Lorin M Cortina Lorin M Cortina Executive Vice President 39 STATE OF MINNESOTA ) ) SS. COUNTY OF HENNEPIN ) On this day of September, 2006, before me, the undersigned, a Notary Public in and for said State, personally Robert P. Johnson, personally known to me to be the person who executed the within instrument 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, on behalf of said corporation. [Notary seal] /s/ Jennifer L Schreiner Notary Public STATE OF MINNESOTA ) ) ss. COUNTY OF HENNEPIN ) On this day of September, 2006, before me, the undersigned, a Notary Public in and for said State, personally Robert P. Johnson, personally known to me to be the person who executed the within instrument as the President of AEI Fund Management XXI, Inc., a Minnesota corporation, the general partner of AEI Income & Growth Fund XXII Limited Partnership, a Minnesota limited partnership, on behalf of said corporation. [Notary seal] /s/ Jennifer L Schreiner Notary Public 40 STATE OF ILLINOIS ) SS. COUNTY OF COOK I Belinda Loza , a Notary Public in and for said County, in the State aforesaid, DO HEREBY CERTIFY, that LORIN M. CORTINA, personally known to me to be the Executive Vice President of B.T. WOODLIPP, INC., a Pennsylvania corporation ("Company"), and personally known to me to be the same person whose name is subscribed to the foregoing instrument as such Executive Vice President, appeared before me this day in person and acknowledged that he signed and delivered the said instrument as his own free and voluntary act, and as the free and voluntary act and deed of said Company, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this 21st day of September, 2006. [Notary Seal] /s/ Belinda Loza Notary Public 41 EXHIBIT A Land Legal Description All that certain parcel of land situate in the Township of Richland, County of Cambria, Commonwealth of Pennsylvania, being Parcel F-14 in the Plan of Minor Subdivision of Remaining Tract F for Johnstown Zamias Limited Partnership as recorded in the Recorder's Office of Cambria County, Pennsylvania, in Plan Book Volume 7, Page 375, being bounded and described as follows: Beginning at a concrete monument at a corner common to Parcel F-13 and being on the Western legal right-of-way line of Township Road 737; thence along said legal right-of-way line the following: South 31 14' 57" West, a distance of 180.00 feet to a concrete monument; South 58 45' 03 " East, a distance of 13.00 feet to a concrete monument; South 31 14' 57" West, a distance of 199.40 feet to a concrete monument; and Southwest along a curve to the right having a radius of 1,482.39 feet, a central angle of 01 28' 53" and an arc length of 38.33 feet to a concrete monument at a corner common to Tract G; thence along the lines of Tract G the following: North 35 15' 03" West, a distance of 112.86 feet to a concrete monument; North 03 15' 03" West, a distance of 228.00 feet to a concrete monument; South 86 44' 57" West, a distance of 175.00 feet to a concrete monument; North 03 15' 03" West, a distance of 88.00 feet to a concrete monument; thence North 20 14' 57" East, a distance of 32.00 feet to a concrete monument; and North 58 45' 03" West, a distance of 100.08 feet to a concrete monument on the legal right-of-way for limited access line for Route 219; thence along the legal right-of-way for limited access line, North 42 35' 42" East, a distance of 183.59 feet to an iron pin at a corner common to Parcel F-13; thence along the line of Parcel F-13, South 58 45' 03" East, a distance of 483.29 feet to the point of beginning. Being further Identified as Parcel No. 50-4-191. Together with the right, title and interest in the land described in Declaration of Easements made by Johnstown Zamias Limited Partnership, dated June 17, 1991 and recorded in Deed Book Volume 1252, page 672; as amended by Amended and Restated Declaration of Easements, dated August 7, 1992 and recorded in Deed Book Volume 1270, page 303; and Map recorded in Map Book Volume 8, page 107. PARCEL NO.: 50-4-191 PROPERTY ADDRESS: 425 Galleria Drive Johnstown, PA 15904 42 EX-31.1 5 ex31-1.txt Exhibit 31.1 CERTIFICATIONS I, Robert P. Johnson, certify that: 1. I have reviewed this quarterly report on Form 10-QSB 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: November 6, 2006 /s/ Robert P Johnson Robert P. Johnson, President AEI Fund Management XXI, Inc. Managing General Partner EX-31.2 6 ex31-2.txt Exhibit 31.2 CERTIFICATIONS I, Patrick W. Keene, certify that: 1. I have reviewed this quarterly report on Form 10-QSB 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: November 6, 2006 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner EX-32 7 ex32.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 Quarterly Report of AEI Income & Growth Fund XXI Limited Partnership (the "Partnership") on Form 10-QSB for the period ended September 30, 2006, 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 November 6, 2006 /s/ Patrick W Keene Patrick W. Keene, Chief Financial Officer AEI Fund Management XXI, Inc. Managing General Partner November 6, 2006 -----END PRIVACY-ENHANCED MESSAGE-----