UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10‑K
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended July 28, 2017
OR
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from_______________ to______________
Commission file number: 000‑25225
Cracker Barrel Old Country Store, Inc.
(Exact name of registrant as specified in its charter)
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Tennessee
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62‑0812904
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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305 Hartmann Drive
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37087-4779
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Lebanon, Tennessee
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(Zip code)
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(Address of principal executive offices)
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Registrant’s telephone number, including area code: (615) 444-5533
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock (Par Value $.01)
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The NASDAQ Stock Market LLC
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Rights to Purchase Series A Junior Participating
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(NASDAQ Global Select Market)
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Preferred Stock (Par Value $0.01)
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☑
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☐
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Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☑
The aggregate market value of voting stock held by nonaffiliates of the registrant as of January 27, 2017 (the last business day of the registrant’s most recently completed second fiscal quarter) was $3,779,685,850.
As of September 14, 2017, there were 24,055,682 shares of common stock outstanding.
Documents Incorporated by Reference
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Document from which Portions
are Incorporated by Reference
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Part of Form 10‑K
into which incorporated
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1.
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Proxy Statement for Annual Meeting of
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Part III
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Shareholders to be held November 16, 2017
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(the “2017 Proxy Statement”)
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2
INTRODUCTION
General
This report contains references to years 2017, 2016 and 2015, which represent our fiscal years ended July 28, 2017, July 29, 2016 and July 31, 2015, respectively. All of the discussion in this report should be read with, and is qualified in its entirety by, the Consolidated Financial Statements and the notes thereto. All amounts other than share and certain statistical information (e.g., number of stores) are in thousands unless the context clearly indicates otherwise. Similarly, references to a year or quarter are to our fiscal year or quarter unless expressly noted or the context clearly indicates otherwise.
Forward-Looking Statements/Risk Factors
Except for specific historical information, many of the matters discussed in this Annual Report on Form 10-K, as well as other documents incorporated herein by reference, may express or imply projections of items such as revenues or expenditures, estimated capital expenditures, compliance with debt covenants, plans and objectives for future operations, store economics, inventory shrinkage, growth or initiatives, expected future economic performance or the expected outcome or impact of pending or threatened litigation. These and similar statements regarding events or results that Cracker Barrel Old Country Store, Inc. (the “Company”) expects will or may occur in the future are forward-looking statements that, by their nature, involve risks, uncertainties and other factors which may cause our actual results and performance to differ materially from those expressed or implied by such forward-looking statements. All forward-looking information is provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these risks, uncertainties and other factors. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “trends,” “assumptions,” “target,” “guidance,” “outlook,” “opportunity,” “future,” “plans,” “goals,” “objectives,” “expectations,” “near-term,” “long-term,” “projection,” “may,” “will,” “would,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” “regular,” “should,” “projects,” “forecasts” or “continue” (or the negative or other derivatives of each of these terms) or similar terminology. We believe the assumptions underlying any forward-looking statements are reasonable; however, any of the assumptions could be inaccurate, and therefore, actual results may differ materially from those projected in or implied by the forward-looking statements. In addition to the risks of ordinary business operations, and those discussed or described in this report or in information incorporated by reference into this report, factors and risks that may result in actual results differing from this forward-looking information include, but are not limited to, those contained in Part I, Item 1A of this report below, as well as the factors described under “Critical Accounting Estimates” in Part II, Item 7 of this report below or, from time to time, in our filings with the Securities and Exchange Commission (“SEC”), press releases and other communications.
Readers are cautioned not to place undue reliance on forward-looking statements made in this report, since the statements speak only as of the report’s date. Except as may be required by law, we have no obligation or intention to publicly update or revise any of these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events. Readers are advised, however, to consult any future public disclosures that we may make on related subjects in reports that we file with or furnish to the SEC or in our other public disclosures.
PART I
OVERVIEW
Cracker Barrel Old Country Store, Inc. (“we,” “us,” “our” or the “Company,” which reference, unless the context requires otherwise, also includes our direct and indirect wholly-owned subsidiaries), is principally engaged in the operation and development of the Cracker Barrel Old Country Store® concept (“Cracker Barrel”). We are headquartered in Lebanon, Tennessee and were originally founded in 1969. We are organized under the laws of the State of Tennessee.
We maintain a website at crackerbarrel.com. We make available free of charge through our website our periodic and other reports filed with or furnished to the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. Information on our website is not deemed to be incorporated by reference into this Annual Report on Form 10-K or any other filings that we make from time to time with the SEC.
Cracker Barrel Old Country Store Concept
As of September 14, 2017, we operated 645 Cracker Barrel stores in 44 states. None of our stores are franchised. Our stores are intended to appeal to both the traveler and the local customer, and we believe they have consistently been a consumer favorite. We pride ourselves on our consistent quality, value and friendly service.
Store Format: The format of our stores consists of a trademarked rustic old country-store design offering a full-service restaurant menu that features home-style country food and a wide variety of decorative and functional items such as rocking chairs, holiday and seasonal gifts and toys, apparel, cookware and foods. All stores are freestanding buildings. Store interiors are subdivided into a dining room occupying approximately 26% of the total interior store space, a gift shop occupying approximately 22% of such space and the balance primarily consisting of kitchen, storage and training areas. Our stores have stone fireplaces and are decorated with antique‑style furnishings and other authentic and nostalgic items, reminiscent of and similar to those found and sold in the past in traditional old country stores. The front porch of each store features rows of the signature Cracker Barrel rocking chairs that can be used by guests while waiting for a table in our dining room or after enjoying a meal and are sold by the gift shop. The kitchens contain modern food preparation and storage equipment allowing for flexibility in menu variety and development.
Products: Our restaurants, which generated approximately 80% of our total revenue in 2017, offer home-style country cooking featuring many of our own recipes that emphasize authenticity and quality. Our restaurants serve breakfast, lunch and dinner daily. Menu items are moderately priced. The restaurants do not serve alcoholic beverages.
Breakfast items can be ordered at any time throughout the day and include juices, eggs, pancakes, fruit and yogurt parfaits, bacon, country ham, sausage, grits, and a variety of biscuit specialties, such as gravy and biscuits and country ham and biscuits. Lunch and dinner items include country ham, chicken and dumplings, chicken fried chicken, meatloaf, country fried steak, pork chops, fish, steak, roast beef, vegetable plates, a variety of salads, sandwiches, soups, fresh side items and specialty items such as pinto beans and turnip greens. We also offer lower calorie breakfast, lunch and dinner items, which are full of flavor but with fewer calories. Additionally, we may from time to time feature new items as off-menu specials or in test menus at certain locations to evaluate possible ways to enhance customer interest and identify potential future additions to the menu. We offer weekday lunch specials, which include some of our favorite entrées in lunch-sized portions. Our menu also features weekday and weekend dinner specials that showcase a popular dinner entrée. There is some variation in menu pricing and content in different regions of the country for both breakfast and lunch/dinner. The average check per guest during 2017 was $10.19, which represents a 1.6% increase over the prior year. We served an average of approximately 7,000 restaurant guests per week in a typical store in 2017.
The following table highlights the price ranges for our meals in 2017:
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Price Range
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Breakfast
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$
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3.39 to $11.99
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Lunch and Dinner
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$
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4.49 to $16.69
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The following table highlights each day-part’s percentage of restaurant sales in 2017:
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Percentage of
Restaurant
Sales in 2017
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Breakfast Day-Part (until 11:00 a.m.)
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24
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%
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Lunch Day-Part (11:00 a.m. to 4:00 p.m.)
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39
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%
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Dinner Day-Part (4:00 p.m. to close)
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37
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%
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We also offer items for sale in our gift shops that are featured on, or related to, the restaurant menu, such as pies, cornbread mix, coffee, syrups and pancake mixes. Our gift shops, which generated approximately 20% of our total revenue in 2017, offer a wide variety of decorative and functional items such as rocking chairs, seasonal gifts, apparel, toys, music CDs, cookware and various other gift items, as well as various candies, preserves and other food items.
The following table highlights the five categories which accounted for the largest shares of our retail sales in 2017:
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Percentage of
Retail Sales in
2017
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Apparel and Accessories
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30
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%
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Food
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18
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%
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Décor
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13
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%
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Toys
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11
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%
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Bed and Bath
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8
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%
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Our typical gift shop features approximately 4,800 stock keeping units. A selection of the food items are sold under the “Cracker Barrel Old Country Store” brand name. We believe that we achieve high retail sales per square foot of retail selling space (approximately $427 per square foot in 2017) as compared to mall stores both by offering appealing merchandise and by having a significant source of customers who are typically our restaurant guests.
We also sell certain licensed food products under the “CB Old Country Store” brand name in the grocery store and retail channels. These licensed food products currently include ham, bacon, deli meat, jerky, summer sausage, baking mix and gravy mix.
Product Development and Merchandising: We maintain a product development department, which develops new and improved menu items either in response to shifts in customer preferences or to create customer interest. We use a formal development and testing process, which includes guest research and in-store market tests to ensure products brought to market have a greater likelihood of meeting our goals. Menu-driven growth is built through three areas: enhancements to our current core menu offerings, the addition of new core menu offerings and limited time offer promotions we call seasonal events. Our merchandising department selects and develops products for our gift shop. We are focused on driving retail sales by converting those customers who come to us for a restaurant visit. Our assortment includes core and seasonal themes. Our seasonal themes are designed to create interest and excitement in our stores by providing our guests with additional choices. Our licensees develop new licensed food products under our direction for consideration and approval.
Store Management and Quality Controls: At each store, our store management typically consists of one general manager, four associate managers and one retail manager. Our store management is responsible for an average of 104 employees operating two shifts. The relative complexity of operating one of our stores requires an effective management team at the individual store level. To motivate store managers to improve sales and operational performance, we maintain bonus plans designed to provide store managers with an opportunity to share in the profits of their store. The bonus plans also reward managers who achieve specific operational targets. Each store is assigned to both a restaurant and a retail district manager which each report to a regional vice president.
To ensure that individual stores are operated at a high level of quality, we focus significant attention on the selection and training of store managers. The store management recruiting and training program begins with an evaluation and screening process. In addition to multiple interviews and verification of background and experience, we conduct assessments designed to identify those applicants most likely to be best suited to manage store operations. Candidates who successfully pass this screening process are then required to complete a training program. The restaurant manager training program consists of three weeks of training at our home office and five weeks of in-store training. The retail manager training program consists of two weeks of training at our home office and three weeks of in-store training. We believe that our training programs develop managers who can effectively deliver a great employee and guest experience through the leadership and execution of our operating systems. These programs allow new managers the opportunity to become familiar with our operations, culture, management objectives, controls and evaluation criteria before assuming management responsibility. We provide our managers and hourly employees with ongoing training through various development courses taught through a blended learning approach, including a mix of hands-on, traditional classroom, written and cloud-based training. Each store is equipped with dedicated training computers and cloud-based proprietary eLearning instruction programs. Additionally, each store typically has an employee training coordinator who oversees the training of the store’s hourly employees.
Purchasing and Distribution: We negotiate directly with food vendors as to specification, price and other material terms of most food purchases. We have a contract with an unaffiliated distributor with custom distribution centers in Lebanon, Tennessee; McKinney, Texas; Gainesville, Florida; Elkton, Maryland; Kendallville, Indiana; and Ft. Mill, South Carolina. We purchase the majority of our food products and restaurant supplies on a cost‑plus basis through this unaffiliated distributor. The distributor is responsible for placing food orders, warehousing and delivering food products to our stores. Deliveries are generally made once per week to individual stores. Produce is purchased through a national program and is delivered three times a week through a network of approximately fifty independent produce suppliers. Fluid dairy is delivered three times a week through approximately fifty regional dairies, the majority of which are under the ownership of two separate companies.
The following table highlights the five food categories which accounted for the largest shares of our food purchasing expense in 2017:
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Percentage of
Food Purchases
in 2017
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Beef
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14
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%
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Dairy (including eggs)
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12
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%
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Fruits and vegetables
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12
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%
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Poultry
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11
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%
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Pork
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10
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%
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Each of these categories includes several individual items. The single food item within these categories that accounted for the largest share of our food purchasing expense in 2017 was chicken tenders at approximately 5% of total food purchases. Dairy, fruits and vegetables are purchased through numerous vendors, including local vendors. Eggs are purchased through three vendors. We purchase our pork through five vendors, poultry through eight vendors and beef through nine vendors. Should any food items from a particular vendor become unavailable, we generally believe that these food items could be obtained, or alternative products substituted, in sufficient quantities from other sources at competitive prices to allow us to avoid any material adverse effects that could be caused by such unavailability.
We purchase the majority of our retail items (approximately 80% in 2017) directly from domestic and international vendors and warehouse, or crossdock, such items at our retail distribution center in Lebanon, Tennessee, which we lease. The distribution center fulfills retail item orders generated by our automated replenishment system and generally ships the retail orders once a week to the individual stores by a third-party dedicated freight line. Certain retail items, not centrally purchased and warehoused at the distribution center, are drop-shipped directly by our vendors to individual stores.
Approximately one-third of our 2017 retail items were purchased directly from vendors in the People’s Republic of China. We have relationships with several foreign buying agencies to source product, monitor quality control and supplement product development.
Operational and Inventory Controls: Our information technology and telecommunications systems and various analytical tools are used to evaluate store operating information and provide management with reports to support prompt detection of unusual variances in food costs, labor costs or operating expenses. Management also monitors individual store restaurant and retail sales on a daily basis and closely monitors sales mix, sales trends, operational costs and inventory levels. The information generated by the information technology and telecommunication systems, analysis tools and monitoring processes is used to manage the operations of each store, replenish retail inventory levels and facilitate retail purchasing decisions. These systems and processes also are used in the development of forecasts, budget analyses and planning.
Guest Satisfaction: We are committed to providing our guests a home-style, country-cooked meal, and a variety of retail merchandise served and sold with genuine hospitality in a comfortable environment. Our commitment to offering guests a quality experience begins with our employees. Our mission statement, “Pleasing People,” embraces guests and employees alike, and our employees are trained on the importance of that mission in a culture of mutual respect. We also are committed to staffing each store with an experienced management team to ensure attentive guest service and consistent food quality. Through the regular use of guest surveys and store visits by district managers and operational vice presidents, management receives valuable feedback that is used in our ongoing efforts to improve the stores and to demonstrate our continuing commitment to pleasing our guests. We have a guest-relations call center that takes comments and suggestions from guests and forwards them to operations or other management for information and follow up. We use Internet and interactive voice response systems to monitor operational performance and guest satisfaction at all stores on an ongoing basis. We have public notices in our menus, on our website and posted in our stores informing customers and employees about how to contact us by Internet or toll-free telephone number with questions, complaints or concerns regarding services or products. We conduct training on how to gather information and investigate and resolve customer concerns. This is accompanied by comprehensive training for all store employees on our public accommodations policy and commitment to “Pleasing People.”
Marketing: We employ multiple media to reach and engage our guests. Outdoor advertising (i.e., billboards and state department of transportation signs) is the largest advertising vehicle we use to reach our traveling and local guests. In 2017, we had over 1,600 billboards and this expenditure accounts for approximately one-third of total advertising spend annually. We believe we are among the top billboard advertisers in the restaurant industry. Our use of non-billboard media has increased in recent years as we look to build market awareness for local occasions. This increased support has used broadcast television, national cable and digital support. In 2017, we ran media in each quarter. We continued to increase our efforts in the digital space to drive preference and engagement with the brand. We now have properties on multiple social media sites, an e-commerce platform and our brand site. Our exclusive music program drives awareness for the brand and builds cultural relevance and affinity with our guests. We plan to continue to have multiple releases each year with specific promotional support for each release. In 2017, we spent approximately 2.9% of our revenues on advertising.
Store Development: We opened six new stores in 2017. We plan to open eight to nine new stores during 2018. As of September 14, 2017, approximately 83% of our stores are located along interstate highways. Our remaining stores are located off-interstate or near tourist destinations. We believe we should pursue development of both interstate locations and off-interstate locations to capitalize on the strength of our brand associated with travelers on the interstate highway system and by locating in certain local markets where our guests live and work, including locations outside of our existing core markets and in states where we currently do not operate.
Of the 645 stores open as of September 14, 2017, we own the land and buildings for 418, while the other 227 properties are either ground leases or ground and building leases. Land costs for stores opened during 2017 averaged $596 per site if owned. Building, site improvement, furniture, equipment and related development costs for stores opened during 2017 averaged $3,942. Pre-opening costs averaged $544 per store in 2017.
Our current store prototype is approximately 9,000 square feet, including approximately 2,100 square feet of retail selling space, and has dining room seating for approximately 180 guests. Our capital investment in new stores may differ in the future due to changes in our store prototype, building design specifications, site location and site characteristics.
Holler & Dash Concept
In 2016, the Company launched its new fast casual concept, Holler & Dash Biscuit HouseTM. The concept offers biscuit-inspired entrées and a unique portfolio of alcoholic and non-alcoholic beverage options. We opened two new locations in 2017. We plan to open three to four new locations in 2018. At September 14, 2017, five Holler & Dash locations were open - all leased properties in Alabama, Florida, Tennessee and Georgia. The new concept is a smaller footprint and has operating hours limited to the breakfast and lunch day parts.
EMPLOYEES
As of July 28, 2017, we employed approximately 73,000 people, of whom 529 were in advisory and supervisory capacities, 3,547 were in-store management positions and 38 were officers. Many store personnel are employed on a part‑time basis. None of our employees is represented by any union, and management considers its employee relations to be good.
COMPETITION
The restaurant and retail industries are intensely competitive with respect to the type and quality of food, retail merchandise, price, service, location, personnel, concept, attractiveness of facilities and effectiveness of advertising and marketing. We compete with a significant number of national and regional restaurant and retail chains, some of which have greater resources than us, as well as locally owned restaurants and retail stores. We also face growing competition from the supermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes from the deli section; fast casual restaurants; quick-service restaurants; and highly promotional casual and family dining restaurants. We expect competition to continue in all of these areas, which could cause consumers to choose less expensive alternatives. The restaurant and retail businesses are also often affected by changes in consumer taste and preference; national, regional or local economic conditions; demographic trends; traffic and weather patterns; the type, number and location of competing restaurants and retailers; and consumers’ discretionary purchasing power. In addition, factors such as inflation, increased food, labor and benefits costs and the lack of experienced management and hourly employees may adversely affect the restaurant and retail industries in general and our stores in particular. We believe we compete effectively and have successfully differentiated ourselves from many of our competitors in the restaurant and retail industries through a unique brand and guest experience, which offers a diversified full service menu and a large variety of nostalgic and unique retail items. For further information regarding competition, see Item 1A. Risk Factors.
RAW MATERIALS SOURCES AND AVAILABILITY
Essential restaurant supplies and raw materials are generally available from several sources. Generally, we are not dependent upon single sources of supplies or raw materials. However, in our stores, certain branded items are single source products or product lines. Our ability to maintain consistent quality throughout our store system depends in part upon our ability to acquire food products and related items from reliable sources. When the supply of certain products is uncertain or prices are expected to rise significantly, we may enter into purchase contracts or purchase bulk quantities for future use.
Adequate alternative sources of supply, as well as the ability to adjust menus if needed, are believed to exist for substantially all of our restaurant products. Our retail supply chain generally involves longer lead-times and, often, more remote sources of product, including the People’s Republic of China, and most of our retail product is distributed to our stores through a single distribution center. Although disruption of our retail supply chain could be difficult to overcome, we continuously evaluate the potential for disruptions and ways to mitigate such disruptions should they occur.
ENVIRONMENTAL MATTERS
Federal, state and local environmental laws and regulations have not historically had a significant impact on our operations; however, we cannot predict the effect of possible future environmental legislation or regulations on our operations.
TRADEMARKS
We deem the various Cracker Barrel trademarks and service marks that we own to be of substantial value. Our policy is to obtain federal registration of trademarks and other intellectual property whenever possible and to pursue vigorously any infringement of our trademarks and service marks.
RESEARCH AND DEVELOPMENT
While research and development is important to us, these expenditures have not been material due to the nature of the restaurant and retail industries.
SEASONAL ASPECTS
Historically, our revenue and profits have been lower in the first and third fiscal quarters and higher in the second and fourth fiscal quarters. We attribute these variations primarily to the holiday shopping season and the summer vacation and travel season. Our gift shop sales, which are made substantially to our restaurant guests, historically have been highest in our second quarter, which includes the holiday shopping season. Historically, interstate tourist traffic and the propensity to dine out have been much higher during the summer months, thereby generally contributing to higher profits in the Company’s fourth quarter. We also generally open additional new stores throughout the year. Therefore, the results of operations for any interim period cannot be considered indicative of the operating results for an entire year.
WORKING CAPITAL
In the restaurant industry, substantially all sales are either for cash or third-party credit card. Therefore, like many restaurant companies, we are able to, and often do operate with negative working capital. Restaurant inventories purchased through our principal food distributor are on terms of net zero days, while other restaurant inventories purchased locally generally are financed through trade credit at terms of 30 days or less. Because of our gift shop, which has a lower product turnover than the restaurant, we carry larger inventories than many other companies in the restaurant industry. Retail inventories are generally financed through trade credit at terms of 60 days or less. These various trade terms are aided by rapid product turnover of the restaurant inventory. Employees generally are paid on weekly or semi-monthly schedules in arrears of hours worked except for bonuses that are paid either quarterly or annually in arrears. Many other operating expenses have normal trade terms and certain expenses, such as certain taxes and some benefits, are deferred for longer periods of time.
Investing in our securities involves a degree of risk. Persons buying our securities should carefully consider the risks described below and the other information contained in this Annual Report on Form 10-K and other filings that we make from time to time with the SEC, including our consolidated financial statements and accompanying notes. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows could be materially adversely affected. In any such case, the trading price of our securities could decline and you could lose all or part of your investment.
General economic, business and societal conditions as well as those specific to the restaurant or retail industries that are largely out of our control may adversely affect our business, financial condition and results of operations.
Our business results depend on a number of industry-specific and general economic factors, many of which are beyond our control. These factors include consumer income, interest rates, inflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends and other matters that influence consumer confidence and spending. The full-service dining sector of the restaurant industry and the retail industry are affected by changes in national, regional and local economic conditions, seasonal fluctuation of sales volumes, consumer preferences, including changes in consumer tastes and dietary habits and the level of consumer acceptance of our restaurant concept and retail merchandise, and consumer spending patterns.
Discretionary consumer spending, which is critical to our success, is influenced by general economic conditions and the availability of discretionary income. Global economic factors and a weak economic recovery have reduced consumer confidence and affected consumers’ ability or desire to spend disposable income. A deterioration in the economy or other economic conditions affecting disposable consumer income, such as unemployment levels, reduced home values, investment losses, inflation, business conditions, fuel and other energy costs, consumer debt levels, lack of available credit, consumer confidence, interest rates, tax rates and changes in tax laws, may adversely affect our business by reducing overall consumer spending or by causing customers to reduce the frequency with which they shop and dine out or to shift their spending to our competitors or to products sold by us that are less profitable than other product choices, all of which could result in lower revenues, decreases in inventory turnover, greater markdowns on inventory, and a reduction in profitability due to lower margins.
In addition, many of the factors discussed above, along with the current economic environment and the related impact on available credit, may affect us and our suppliers and other business partners, landlords, and customers in an adverse manner, including, but not limited to, reducing access to liquid funds or credit (including through the loss of one or more financial institutions that are a part of our revolving credit facility), increasing the cost of credit, limiting our ability to manage interest rate risk, increasing the risk of bankruptcy of our suppliers, landlords or counterparties to or other financial institutions involved in our revolving credit facility and our derivative and other contracts, increasing the cost of goods to us, and other adverse consequences which we are unable to fully anticipate.
We also cannot predict the effects of actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against any foreign state or group located in a foreign state or heightened security requirements on the economy or consumer confidence in the United States. Any of these events could also affect consumer sentiment and confidence that in turn affect consumer spending patterns or result in increased costs for us due to security measures.
Unfavorable changes in the factors described above or in other business and economic conditions affecting our customers could increase our costs, reduce traffic in some or all of our locations or impose practical limits on pricing, any of which could lower our profit margins and have a material adverse effect on our financial condition and results of operations.
There can be no assurance that the economic conditions that have adversely affected the restaurant and retail industries, and the capital, credit and real estate markets generally or us in particular will remain static in 2018, or thereafter, in which case we could experience declines in revenues and profits, and could face capital and liquidity constraints or other business challenges.
We face intense competition, and if we are unable to continue to compete effectively, our business, financial condition and results of operations would be adversely affected.
The restaurant and retail industries are intensely competitive, and we face many well-established competitors. We compete within each market with national and regional restaurant and retail chains and locally-owned restaurants and retailers. Competition from other regional or national restaurant and retail chains typically represents the more important competitive influence, principally because of their significant marketing and financial resources. We also face competition as a result of the convergence of grocery, deli, retail and restaurant services, particularly in the supermarket industry. Moreover, our competitors can harm our business even if they are not successful in their own operations by taking away customers or employees through aggressive and costly advertising, promotions or hiring practices. We compete primarily on the quality, variety and perceived value of menu and retail items. The number and location of stores, the growth of e-commerce, type of concept, quality and efficiency of service, attractiveness of facilities and effectiveness of advertising and marketing programs also are important factors. We anticipate that intense competition will continue with respect to all of these factors. We also compete with other restaurant chains and other retail businesses for quality site locations, management and hourly employees, and competitive pressures could affect both the availability and cost of these important resources. If we are unable to continue to compete effectively, our business, financial condition and results of operations would be adversely affected.
The price and availability of food, ingredients, retail merchandise and utilities used by our stores could adversely affect our revenues and results of operations.
We are subject to the general risks of inflation, and our operating profit margins and results of operations depend significantly on our ability to anticipate and react to changes in the price, quality and availability of food and other commodities, ingredients, retail merchandise, utilities and other related costs over which we have limited control. Fluctuations in economic conditions, weather, demand and other factors affect the availability, quality and cost of the ingredients and products that we buy. Some climatologists predict that the long-term effects of climate change may result in more severe, volatile weather, which could result in greater volatility in product supply and price. Furthermore, many of the products that we use and their costs are interrelated. Changes in global demand for corn, wheat and dairy products could cause volatility in the feed costs for poultry and livestock. The effect of, introduction of, or changes to tariffs or exchange rates on imported retail products or food products could increase our costs and possibly affect the supply of those products. In addition, food safety concerns, widespread outbreaks of livestock and poultry diseases, such as, among other things, the Avian Flu, and product recalls, all of which are out of our control, and, in many instances, unpredictable, could also increase our costs and possibly affect the supply of livestock and poultry products. Our operating margins are also affected, whether as a result of general inflation or otherwise, by fluctuations in the price of utilities such as natural gas and electricity, on which our locations depend for much of their energy supply. Our inability to anticipate and respond effectively to one or more adverse changes in any of these factors could have a significant adverse effect on our results of operations. In addition, because we provide a moderately-priced product, we may not seek to or be able to pass along price increases to our customers sufficient to completely offset cost increases.
Our plans depend significantly on our strategic priorities and business initiatives designed to enhance our menu and retail offerings, support our brand, improve operating margins and improve the efficiencies and effectiveness of our operations. Failure to achieve or sustain these plans could adversely affect our results of operations.
We have had, and expect to continue to have, priorities and initiatives in various stages of testing, evaluation and implementation, upon which we expect to rely to improve our results of operations and financial condition. These priorities and initiatives include, but are not limited to, tiered menu pricing, evolving our marketing messaging to support the brand, improving the quality and breadth of retail assortments, re-engineering store processes to reduce costs and improve store margins, applying technology to improve the employee and guest experience, expanding our store footprint, focusing on our new fast casual concept, and extending the brand beyond our existing stores, including initiatives to sell licensed products through grocery and other retail channels and through evaluating strategic transactions such as joint ventures and acquisitions. It is possible that our focus on these priorities and initiatives and constantly changing consumer preferences could cause unintended changes to our current results of operations. Additionally, many of these initiatives are inherently risky and uncertain in their application to our business in general, even when tested successfully on a more limited scale. It is possible that successful testing can result partially from resources and attention that cannot be duplicated in broader implementation. Testing and general implementation also can be affected by other risk factors described herein that reduce the results expected. Successful system-wide implementation across hundreds of stores and involving tens of thousands of employees relies on consistency of training, stability of workforce, ease of execution and the absence of offsetting factors that can adversely influence results. Failure to achieve successful implementation of our initiatives could adversely affect our results of operations.
We are dependent upon attracting and retaining qualified employees while also controlling labor costs.
Our performance is dependent on attracting and retaining a large and growing number of qualified store employees. Availability of staff varies widely from location to location. Many staff members are in entry-level or part-time positions, typically with high rates of turnover. Even though recent trends in employee turnover have been favorable, if store management and staff turnover were to increase, we could suffer higher direct costs associated with recruiting, training and retaining replacement personnel. Management turnover as well as general shortages in the labor pool can cause our stores to be operated with reduced staff, which negatively affects our ability to provide appropriate service levels to our customers. Competition for qualified employees exerts upward pressure on wages paid to attract such personnel, resulting in higher labor costs, together with greater recruiting and training expenses.
Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, minimum wage legislation, health care legislation, payroll taxes and changing demographics. Many of our employees are hourly workers whose wages are affected by increases in the federal or state minimum wage or changes to tip credits. Tip credits are the amounts an employer is permitted to assume an employee receives in tips when the employer calculates the employee’s hourly wage for minimum wage compliance purposes. Increases in minimum wage levels and changes to the tip credit have been made and continue to be proposed at both federal and state levels. As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. If competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline.
Our reliance on certain significant vendors, particularly for foreign-sourced retail products, subjects us to numerous risks, including possible interruptions in supply, which could adversely affect our business.
Our ability to maintain consistent quality throughout our operations depends in part upon our ability to acquire specified food and retail products and supplies in sufficient quantities. Partly because of our size, finding qualified vendors and accessing food, retail products, supplies and certain outsourced services in a timely and efficient manner is a significant challenge that typically is more difficult with respect to goods or services sourced outside the United States. In some cases, we may have only one supplier for a product or service. Our dependence on single-source suppliers subjects us to the possible risks of shortages, interruptions and price fluctuations, and possible litigation when we change vendors because of performance issues. Global economic factors and the weak economic recovery continue to put significant pressure on suppliers, with some suppliers facing financial distress and others attempting to rebuild profitability, all of which tends to make the supply environment more expensive. If any of these vendors is unable to fulfill its obligations, or if we are unable to find replacement suppliers in the event of a supply disruption, we could encounter supply shortages and/or incur higher costs to secure adequate supplies, either of which could materially harm our business.
Additionally, we use a number of products that are or may be manufactured in a number of foreign countries. In addition to the risk presented by the possible long lead times to source these products, our results of operations may be materially affected by risks such as:
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fluctuating currency exchange rates or control regulations;
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foreign government regulations;
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import/export restrictions and product testing regulations;
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foreign political and economic instability;
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disruptions due to labor stoppages, strikes or slowdowns, or other disruptions, involving our vendors or the transportation and handling industries; and
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tariffs, trade barriers and other trade restrictions by the U.S. government on products or components shipped from foreign sources.
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Possible shortages or interruptions in the supply of food items, retail merchandise and other supplies to our stores caused by inclement weather, natural disasters such as droughts, floods and earthquakes, the inability of our vendors to obtain credit in a tightened credit market or other conditions beyond our control could adversely affect the availability, quality and cost of the items we buy and the operations of our stores. Our inability to effectively manage supply chain risk could increase our costs and limit the availability of products that are critical to our store operations. If we temporarily close a store or remove popular items from a store’s menu or retail product assortment, that store may experience a significant reduction in revenue during the time affected by the shortage or thereafter as a result of our customers changing their dining and shopping habits.
Health concerns, government regulation relating to the consumption of food products and widespread infectious diseases could affect consumer preferences and could negatively affect our results of operations.
The sale of food and prepared food products for human consumption involves the risk of injury to our customers. Such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling and transportation phases. Additionally, many of the food items on our menu contain beef and chicken. The preferences of our customers toward beef and chicken could be affected by health concerns about the consumption of beef or chicken or health concerns and publicity concerning food quality, illness and injury generally. In recent years there has been publicity concerning E. coli bacteria, hepatitis A, “mad cow” disease, “foot-and-mouth” disease, salmonella, the bird/Avian Flu, peanut and other food allergens, and other public health concerns affecting the food supply, including beef, chicken, pork, dairy and eggs. In addition, if a regional or global health pandemic occurs, depending upon its location, duration and severity, our business could be severely affected. In the event a health pandemic occurs, customers might avoid public places, and local, regional or national governments might limit or ban public gatherings to halt or delay the spread of disease. A regional or global health pandemic might also adversely affect our business by disrupting or delaying production and delivery of materials and products in our supply chain and by causing staffing shortages in our stores. In addition, government regulations or the likelihood of government regulation could increase the costs of obtaining or preparing food products. A decrease in guest traffic to our stores, a change in our mix of products sold or an increase in costs as a result of these health concerns either in general or specific to our operations, could result in a decrease in sales or higher costs to our stores that would materially harm our business.
Our risks are heightened because of our single retail distribution facility and our potential inability or failure to execute on a comprehensive business continuity plan following a major disaster at or near our corporate facility could adversely affect our business.
The majority of our retail inventory is shipped into, stored at and shipped out of a single warehouse located in Lebanon, Tennessee. All of the decorative fixtures used in our stores are shipped into, stored at and shipped out of a separate warehouse that is also located in Lebanon, Tennessee. A natural disaster affecting either of these warehouses could materially adversely affect our business. Additionally, our corporate systems and processes and support for our restaurant and retail operations are centralized on one campus in Tennessee. We have disaster recovery procedures and business continuity plans in place to address most events and back up and offsite locations for recovery of electronic and other forms of data and information. However, if we are unable to implement our disaster recovery and business continuity plans, we may experience delays in recovery of data, failure to support field operations, tardiness in required reporting and compliance and the inability to perform vital corporate functions which could adversely affect our business.
Our ability to manage our retail inventory levels and changes in merchandise mix may adversely affect our business.
The long lead times required for a substantial portion of our retail merchandise and the risk of product damages or non-compliance with required specifications could affect the amount of inventory we have available for sale. Additionally, our success depends on our ability to anticipate and respond in a timely manner to changing consumer demand and preferences for merchandise. If we misjudge the market, we may overstock unpopular products and be forced to take significant markdowns, which could reduce our gross margin. Conversely, if we underestimate demand for our merchandise we may experience inventory shortages resulting in lost revenues. Any of these factors could have an adverse effect on our results of operations, cash flows from operations and our financial condition.
If we fail to execute our business strategy, which includes our ability to find new store locations and open new stores that are profitable, our business could suffer.
One of the means of achieving our growth objectives is opening and operating new and profitable stores. This strategy involves numerous risks, and we may not be able to open all of our planned new stores and the new stores that we open may not be profitable or as profitable as our existing stores.
A significant risk in executing our business strategy is locating, securing and profitably operating an adequate supply of suitable new store sites. Competition for suitable store sites and operating personnel in our target markets is intense, and there can be no assurance that we will be able to find sufficient suitable locations, or negotiate suitable purchase or lease terms, for our planned expansion in any future period. Recently, our target markets have been expanded to include markets that are outside of our existing core markets and in states where we currently do not have existing operations, which increases the risk of executing our business strategy. The recession and current economic conditions have reduced commercial development activity and limited the availability of attractive sites for new stores. New stores typically experience an adjustment period before sales levels and operating margins normalize, and even sales at successful newly-opened stores generally do not make a significant contribution to profitability in their initial months of operation. Our ability to open and operate new stores successfully also depends on numerous other factors, some of which are beyond our control, including, among other items discussed in other risk factors, the following: our ability to control construction and development costs of new stores; our ability to manage the local, state or other regulatory approvals and permits, zoning and licensing processes in a timely manner; our ability to appropriately train employees and staff the stores; consumer acceptance of our stores in new markets; our ability to manage construction delays related to the opening of a new store. Delays or failures in opening new stores, or achieving lower than expected sales in new stores, or drawing a greater than expected proportion of sales in new stores from existing stores, could materially adversely affect our business strategy and could have an adverse effect on our business and results of operations.
A material disruption in our information technology, network infrastructure and telecommunication systems could adversely affect our business and results of operations.
We rely extensively on our information technology across our operations, including, but not limited to, point of sales processing, supply chain management, retail merchandise allocation and distribution, labor productivity and expense management Our business depends significantly on the reliability and capacity of our information technology systems to process these transactions, summarize results, manage and report on our business and our supply chain. Our information technology systems are subject to damage or interruption from power outages, computer, network, cable system, Internet and telecommunications failures, computer viruses, security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. If our information technology and telecommunication systems are damaged or cease to function properly, we may have to make a significant investment to repair or replace them, and we could suffer loss of critical data and interruptions or delays in our operations in the interim. Any material interruption in our information technology and telecommunication systems could adversely affect our business or results of operations.
A privacy breach could adversely affect our business.
The protection of customer, employee and company data is critical to us. We are subject to laws relating to information security, privacy, cashless payments, consumer credit, and fraud. Additionally, an increasing number of government and industry groups have established laws and standards for the protection of personal and health information. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements. Compliance with these requirements may result in cost increases due to necessary system changes and the development of new administrative processes. In addition, customers and employees have a high expectation that we will adequately protect their personal information. For example, in connection with credit and debit card sales, we transmit confidential card information. Third parties may have the technology or know-how to breach the security of this customer information, and our security measures and those of our technology vendors may not effectively prohibit others from obtaining improper access to this information. If we fail to comply with the laws and regulations regarding privacy and security or experience a security breach, we could be exposed to risks of data loss, fines, a loss of the ability to process credit and debit card payments, litigation and serious disruption of our operations. Additionally, any resulting negative publicity could significantly harm our reputation.
Our capital structure contains significant indebtedness, which may decrease our flexibility, increase our borrowing costs and adversely affect our liquidity. In addition, we cannot provide any guaranty of future cash dividend payments or that we will be able to actively repurchase our common stock pursuant to a share repurchase program.
Our consolidated indebtedness and our leverage ratio may have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing borrowing costs. There are various financial covenants and other restrictions in our revolving credit facility. If we fail to comply with any of these requirements, the related indebtedness (and other unrelated indebtedness) could become due and payable prior to its stated maturity. A default under our credit agreement may also significantly affect our ability to obtain additional or alternative financing. For example, the lenders’ ongoing obligation to extend credit under the revolving credit facility is dependent upon our compliance with these covenants and restrictions.
Our ability to make scheduled interest payments or to refinance our obligations with respect to indebtedness will depend on our operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. Our inability to refinance our indebtedness when necessary or to do so upon attractive terms would materially and adversely affect our liquidity and results of operations.
In recent years, we have increased the quarterly cash dividends on our common stock and, in 2015, 2016 and 2017, we also declared special dividends on our common stock. Any determination to pay cash dividends on our common stock in the future will be based primarily upon our financial condition, results of operations, business requirements and our Board of Directors’ conclusion that the declaration of cash dividends is in the best interest of our shareholders and is in compliance with all laws and agreements applicable to the payment of dividends. Furthermore, there can be no assurance that we will be able to actively repurchase our common stock and we may discontinue plans to repurchase common stock at any time.
Our advertising is heavily dependent on billboards, which are highly regulated; and our evolving marketing strategy involves increased advertising and marketing costs that could adversely affect our results of operations.
Historically, we have relied upon billboards as our principal method of advertising. A number of states in which we operate restrict highway signage and billboards. Because many of our stores are located on the interstate highway system, our business is highly related to highway travel. Thus, signage or billboard restrictions or loss of existing signage or billboards could adversely affect our visibility and ability to attract customers.
Additionally, as we continue to evolve our marketing strategy, we are increasingly utilizing more traditional and higher cost methods of advertising, such as national cable television, radio and online and digital media. These types of advertising, their effects upon our revenues and, in turn, our profits, are uncertain. Additionally, if our competitors increased their spending on advertising and promotions, we could be forced to substantially increase our advertising, media or marketing expenses. If we did so or if our current advertising and promotion programs become less effective, we could experience a material adverse effect on our results of operations.
Unfavorable publicity could harm our business. In addition, our failure to recognize, respond to and effectively manage the impact of social media could materially impact our business.
Multi-unit businesses such as ours can be adversely affected by publicity resulting from complaints or litigation alleging poor food quality, poor service, food-borne illness, product defects, personal injury, adverse health effects (including obesity) or other concerns stemming from one or a limited number of our stores. Even when the allegations or complaints are not valid, unfavorable publicity relating to a limited number of our stores, or only to a single store, could adversely affect public perception of the entire brand. Additionally, negative publicity from online social network postings may also result from actual or alleged incidents taking place in our stores. Adverse publicity and its effect on overall consumer perceptions of food safety or customer service could have a material adverse effect on our business, financial condition and results of operations.
Our business is somewhat seasonal and also can be affected by extreme weather conditions and natural disasters.
Historically, our highest sales and profits have occurred during the second and fourth quarters, which include the holiday shopping season and the summer vacation and travel season. Retail sales historically have been seasonally higher between Thanksgiving and Christmas. Therefore, the results of operations for any quarter or period of less than one year cannot be considered indicative of the operating results for an entire year.
Additionally, extreme weather conditions in the areas where our stores are located can adversely affect our business. For example, frequent or unusually heavy snowfall, ice storms, rain storms, floods, droughts or other extreme weather conditions over a prolonged period could make it difficult for our customers to travel to our stores and can disrupt deliveries of food and supplies to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions. For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer season could render a portion of our retail inventory incompatible with those unseasonable conditions. Reduced sales from extreme or prolonged unseasonable weather conditions could adversely affect our business. These risks may be exacerbated in the future as some climatologists predict that the long-term effects of climate change may result in more severe, volatile weather.
In addition, natural disasters such as hurricanes, tornadoes and earthquakes, or a combination of these or other factors, could severely damage or destroy one or more of our stores, warehouses or suppliers located in the affected areas, thereby disrupting our business operations for a more extended period of time.
Individual store locations are affected by local conditions that could change and adversely affect the carrying value of those locations.
The success of our business depends on the success of individual locations, which in turn depends on stability of or improvements in operating conditions at and around those locations. Our revenues and expenses can be affected significantly by the number and timing of the opening of new stores and the closing, relocating and remodeling of existing stores. We incur substantial pre-opening expenses each time we open a new store and other expenses when we close, relocate or remodel existing stores. The expenses of opening, closing, relocating or remodeling any of our stores may be higher than anticipated. An increase in such expenses could have an adverse effect on our results of operations. Also, as demographic and economic patterns (e.g., highway or roadway traffic patterns, concentrations of general retail or hotel activity, local population densities or increased competition) change, current locations may not continue to be attractive or profitable. Possible declines in neighborhoods where our stores are located or adverse economic conditions in areas surrounding those neighborhoods could result in reduced revenues in those locations. The occurrence of one or more of these events could have a material adverse effect on our revenues and results of operations as well as the carrying value of our individual locations.
Our expansion into new geographic markets may present increased risks due to our relative unfamiliarity with these markets.
Some of our new store locations may be located in areas where we have lower market presence and, as a result, less or no meaningful business experience than in our traditional, existing markets. Those new markets may have different competitive conditions, consumer tastes and discretionary spending patterns than our traditional, existing markets, which may cause our new store locations to be less successful than restaurants in our existing markets. An additional risk of expanding into new markets is the potential for lower or lacking market awareness of our brand in those areas. Stores opened in new markets may open at lower average weekly sales volumes than stores opened in existing markets and may have higher store-level operating expense ratios than in existing markets. Sales at stores opened in new markets may take longer to reach average unit volume and margins, if at all, thereby affecting our overall profitability.
We are subject to a number of risks relating to federal, state and local regulation of our business, including the areas of minimum wage increases, health care reform and environmental matters, and an insufficient or ineffective response to government regulation may increase our costs and decrease our profit margins.
The restaurant industry is subject to extensive federal, state and local laws and regulations, including those relating to food safety, minimum wage and other labor issues (such as unionization), health care, menu labeling and building and zoning requirements and those relating to the preparation and sale of food as well as certain retail products. The development and operation of our stores depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. We are also subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards, federal and state laws governing our relationships with employees (including the Fair Labor Standards Act of 1938, the Immigration Reform and Control Act of 1986, the Patient Protection and Affordable Care Act, the Health Care and Education Reconciliation Act of 2010 and applicable requirements concerning minimum wage, overtime, healthcare coverage, family leave, medical privacy, tip credits, working conditions, safety standards and immigration status), federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990. In addition, we are subject to a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission and disposal of hazardous materials. We also face risks from new and changing laws and regulations relating to gift cards, nutritional content, nutritional labeling, product safety and menu labeling. Compliance with these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.
Increases in state or federal minimum wage rates, including recent proposals to increase state or federal minimum wage rates and index future increases to inflation, or other changes in these laws could increase our labor costs. Our ability to respond to minimum wage increases by increasing menu prices will depend on the responses of our competitors and customers. Our distributors and suppliers also may be affected by higher minimum wage and benefit standards and tracking costs, which could result in higher costs for goods and services supplied to us.
The Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010, was enacted in 2010 and, in June 2012, the U.S. Supreme Court upheld the constitutionality of the law except for certain parts related to the expansion of Medicaid. Although we cannot predict with certainty the financial and operational impacts the law will have on us, such changes could affect our business, financial condition and results of operations. The law requires restaurant companies such as ours to disclose calorie information on their menus. We do not expect to incur any material costs from compliance with this provision of the law, but cannot anticipate the changes in guest behavior that could result from the implementation of this provision, which could have an adverse effect on our sales or results of operations.
There also has been increasing focus by U.S. and foreign governmental authorities on environmental matters, such as climate change, the reduction of greenhouse gases and water consumption. This increased focus may lead to new initiatives directed at regulating an as yet unspecified array of environmental matters, such as the emission of greenhouse gases, where “cap and trade” initiatives could effectively impose a tax on carbon emissions. Legislative, regulatory or other efforts to combat climate change or other environmental concerns could result in future increases in taxes, the cost of raw materials, transportation and utilities, which could decrease our operating profits and necessitate future investments in facilities and equipment.
The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations could increase our compliance and other costs of doing business and therefore have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with these laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings. Also, the failure to obtain and maintain required licenses, permits and approvals could adversely affect our operating results. Typically, licenses must be renewed annually and may be revoked, suspended or denied renewal for cause at any time if governmental authorities determine that our conduct violates applicable regulations, which could adversely affect our business and results of operations.
Failure to maximize or to successfully assert our intellectual property rights could adversely affect our business and results of operations.
We rely on trademark, trade secret and copyright laws to protect our intellectual property rights. We cannot guarantee that these intellectual property rights will be maximized or that they can be successfully asserted. There is a risk that we will not be able to obtain and perfect our own, or, where appropriate, license intellectual property rights necessary to support new product introductions or other brand extensions. We cannot be sure that these rights, if obtained, will not be invalidated, circumvented or challenged in the future. Our failure to perfect or successfully assert our intellectual property rights could make us less competitive and could have an adverse effect on our business and results of operations.
We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in business and increased costs; our use of third party technologies has increased and if we are unable to maintain our rights to these technologies our business may be harmed.
Some of our business processes are currently outsourced to third parties. Such processes include distribution of food and retail products to our store locations, credit and debit card authorization and processing, gift card tracking and authorization, employee payroll card services, health care and workers’ compensation insurance claims processing, wage and related tax credit documentation and approval, guest satisfaction survey programs, employee engagement surveys and externally hosted business software applications. We cannot ensure that all providers of outsourced services are observing proper internal control practices, such as redundant processing facilities, and there are no guarantees that failures will not occur. Failure of third parties to provide adequate services could have an adverse effect on our financial condition and results of operations.
We rely on certain technology licensed from third parties and may be required to license additional technology in the future for use in managing our Internet sites and providing services to our guests and employees. These third-party technology licenses may not continue to be available to us on acceptable terms or at all. The inability to enter into and maintain these technology licenses could adversely affect our business.
Litigation may adversely affect our business, financial condition and results of operations.
Our business is subject to the risk of litigation by employees, guests, suppliers, shareholders, governmental agencies, competitors or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. These actions and proceedings may involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour violations and employment discrimination; guest discrimination; food safety issues, including poor food quality, food-borne illness, food tampering, food contamination, and adverse health effects from consumption of various food products or high-calorie foods (including obesity); other personal injury; trademark and patent infringement; violation of the federal securities laws; or other concerns. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that could decrease guest or consumer acceptance of our brand, regardless of whether the allegations are valid or we ultimately are found liable. Litigation could adversely impact our operations and our ability to expand our brand in other ways as well. As a result, litigation may adversely affect our business, financial condition and results of operations.
The loss of key executives or difficulties in recruiting and retaining qualified personnel could jeopardize our future growth and success.
We have assembled a senior management team which has substantial background and experience in the restaurant and retail industries. Our future growth and success depends substantially on the contributions and abilities of our senior management and other key personnel, and we design our compensation programs to attract and retain key personnel and facilitate our ability to develop effective succession plans. If we fail to attract or retain senior management or other key personnel, our succession planning and operations could be materially and adversely affected. We must continue to recruit, retain and motivate management and other employees sufficiently to maintain our current business and support our projected growth. A loss of key employees or a significant shortage of high quality store employees could jeopardize our ability to meet our business goals.
Our current insurance programs may expose us to unexpected costs, which could have a material adverse effect on our financial condition and results of operations.
Our insurance coverage is structured to include deductibles, self-insured retentions, limits of liability, stop loss limits and similar provisions that we believe prudent based on our operations. However, there are types of losses we may incur against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of terrorism and some natural disasters, including floods. If we incur such losses, our business could suffer. In addition, we self-insure a significant portion of expected losses under our workers’ compensation, general liability and group health insurance programs. Unanticipated changes in the actuarial assumptions and management estimates underlying our reserves for these losses, including unexpected increases in medical and indemnity costs, could result in materially different amounts of expense than expected under these programs.
Our annual and quarterly operating results may fluctuate significantly and could fall below the expectations of investors and securities analysts due to a number of factors, some of which are beyond our control, resulting either in volatility or a decline in the price of our securities.
Our business is not static – it changes periodically as a result of many factors, including, among other items discussed in other risk factors, the following:
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increases and decreases in guest traffic, average weekly sales, restaurant and retail sales and restaurant profitability;
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the rate at which we open new stores, the timing of new store openings and the related high initial operating costs;
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changes in advertising and promotional activities and expansion into new markets; and
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impairment of long-lived assets and any loss on store closures.
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Our quarterly operating results and restaurant and retail sales may fluctuate as a result of any of these or other factors. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year, and restaurant and retail sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. In such event, the price of our securities could fluctuate dramatically over time or could decrease generally.
Failure of our internal control over financial reporting could adversely affect our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with the United States generally accepted accounting principles (“GAAP”). Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud. The identification of a material weakness could indicate a lack of controls adequate to generate accurate financial statements that, in turn, could cause a loss of investor confidence and decline in the market price of our common stock. We cannot assure you that we will be able to timely remediate any material weaknesses that may be identified in future periods or maintain all of the controls necessary for continued compliance. Likewise, we cannot assure you that we will be able to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies.
Our reported results can be affected adversely and unexpectedly by the implementation of new, or changes in the interpretation of existing, accounting principles or financial reporting requirements.
Our financial reporting complies with GAAP, and GAAP is subject to change over time. If new rules or interpretations of existing rules require us to change our financial reporting (including the upcoming lease accounting changes and the proposed adoption of international financial reporting standards in the United States), our reported results of operations and financial condition could be affected substantially, including requirements to restate historical financial reporting.
Our business could be negatively affected as a result of actions of activist shareholders.
The Lion Fund II, L.P., an affiliate of Biglari Holdings Inc. (“BH”), the owner of Steak N Shake and Western Sizzlin’ restaurants, is the beneficial owner of approximately 19.7% of our outstanding common stock as of June 7, 2017 (based on Schedule 13D/A filed with the SEC on June 12, 2017 by BH). In the past, BH and its affiliates have nominated candidates for election to our board of directors at our annual meetings of shareholders, resulting in proxy contests, and called publicly for special meetings of shareholders to consider other proposals. While BH and its affiliates have not nominated director candidates for election at our 2017 Annual Meeting of Shareholders, the actions of BH and its affiliates or another activist shareholder in the future could adversely affect our business because:
| · |
responding to public proposals, special meeting requests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our management and employees;
|
| · |
perceived uncertainties as to our future direction may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and
|
| · |
pursuit of an activist shareholder’s agenda may adversely affect our ability to effectively implement our business strategy and create additional value for our shareholders.
|
Provisions in our charter, Tennessee law and our shareholder rights plan may discourage potential acquirers of the Company.
Our charter documents contain provisions that may have the effect of making it more difficult for a third party to acquire or attempt to acquire control of the Company. In addition, we are subject to certain provisions of Tennessee law that limit, in some cases, our ability to engage in certain business combinations with significant shareholders. In addition, we have adopted a shareholder rights plan, which provides, among other things, that when specified events occur, our shareholders will be entitled to purchase from us shares of junior preferred stock. The shareholder rights plan will expire on April 9, 2018. The preferred stock purchase rights are triggered ten days after the date of a public announcement that a person or group acting in concert has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of our outstanding common stock. The preferred stock purchase rights would cause dilution to a person or group that attempts to acquire the Company on terms that do not satisfy the requirements of a qualifying offer under the shareholder rights plan or are otherwise not approved by our Board of Directors.
These provisions, either alone or in combination with each other, give our current directors and executive officers a substantial ability to influence the outcome of a proposed acquisition of the Company. These provisions would apply even if an acquisition or other significant corporate transaction was considered beneficial by some of our shareholders. If a change in control or change in management is delayed or prevented by these provisions, the market price of our securities could decline.
None.
Our home office headquarters and warehouse facilities are located on approximately 90 acres of land owned by the Company in Lebanon, Tennessee. We use approximately 245,000 square feet of office space for our home office headquarters and decorative fixtures warehouse. We also lease our retail distribution center, which consists of approximately 370,000 square feet of warehouse facilities and an additional approximately 14,000 square feet of office and maintenance space.
In addition to the various corporate facilities, we have five owned properties for future development, a motel used for housing management trainees and for the general public, and four parcels of excess real property and improvements that we intend to sell.
In addition to the properties mentioned above, we own or lease the following store properties (including both our 645 Cracker Barrel Old Country Store locations and five locations for our Holler & Dash brand) as of September 14, 2017:
|
State
|
Owned
|
Leased
|
State
|
Owned
|
Leased
|
|
|
Tennessee
|
37
|
15
|
Oklahoma
|
6
|
2
|
|
|
Florida
|
40
|
19
|
New Jersey
|
2
|
4
|
|
|
Texas
|
33
|
18
|
Wisconsin
|
5
|
0
|
|
|
Georgia
|
31
|
17
|
Colorado
|
3
|
1
|
|
|
North Carolina
|
24
|
16
|
Kansas
|
3
|
1
|
|
|
Kentucky
|
22
|
14
|
Massachusetts
|
0
|
4
|
|
|
Alabama
|
21
|
11
|
New Mexico
|
3
|
1
|
|
|
Virginia
|
19
|
13
|
Utah
|
4
|
0
|
|
|
Ohio
|
22
|
9
|
Idaho
|
2
|
1
|
|
|
Indiana
|
22
|
7
|
Iowa
|
3
|
0
|
|
|
South Carolina
|
14
|
12
|
Connecticut
|
1
|
1
|
|
|
Pennsylvania
|
9
|
14
|
Montana
|
2
|
0
|
|
|
Illinois
|
19
|
2
|
Nebraska
|
1
|
1
|
|
|
Missouri
|
14
|
3
|
Nevada
|
0
|
2
|
|
|
Michigan
|
13
|
3
|
Delaware
|
0
|
1
|
|
|
Mississippi
|
10
|
4
|
Maine
|
0
|
1
|
|
|
Arizona
|
2
|
11
|
Minnesota
|
1
|
0
|
|
|
Arkansas
|
5
|
7
|
New Hampshire
|
1
|
0
|
|
|
Louisiana
|
8
|
2
|
North Dakota
|
1
|
0
|
|
|
Maryland
|
3
|
6
|
Oregon
|
0
|
1
|
|
|
New York
|
8
|
1
|
Rhode Island
|
0
|
1
|
|
|
West Virginia
|
3
|
6
|
South Dakota
|
1
|
0
|
|
|
Total
|
418
|
232
|
We believe that our properties are suitable, adequate, well-maintained and sufficient for the operations contemplated. See “Operations” and “Store Development” in Item 1 of this Annual Report on Form 10-K for additional information on our properties.
The Company and its subsidiaries are party to various legal and regulatory proceedings and claims incidental to their business in the ordinary course. In the opinion of management, based upon information currently available, the ultimate liability with respect to these proceedings and claims will not materially affect the Company’s consolidated results of operations or financial position.
Pursuant to Instruction 3 to Item 401(b) of Regulation S‑K and General Instruction G(3) to Form 10‑K, the following information is included in Part I of this Form 10‑K.
The following table sets forth certain information concerning our executive officers:
|
Name
|
Age
|
Position with the Company
|
|
|
Sandra B. Cochran
|
59
|
President and Chief Executive Officer
|
|
|
Jill M. Golder
|
55
|
Senior Vice President and Chief Financial Officer
|
|
|
Beverly K. Carmichael
|
58
|
Senior Vice President and Chief People Officer
|
|
|
Laura A. Daily
|
53
|
Senior Vice President, Retail
|
|
|
Nicholas V. Flanagan
|
51
|
Senior Vice President, Operations
|
|
|
Donald H. Hoffman
|
60
|
Senior Vice President, Marketing
|
|
|
Richard M. Wolfson
|
51
|
Senior Vice President, General Counsel and Secretary
|
|
|
Doug Couvillion
|
53
|
Senior Vice President, Sourcing and Supply Chain
|
|
|
Jeffrey M. Wilson
|
42
|
Vice President, Corporate Controller and Principal Accounting Officer
|
The following information summarizes the business experience of each of our executive officers for at least the past five years:
Ms. Cochran has been employed with us since 2009 and assumed her current position as President and Chief Executive Officer in September 2011, when she also became a member of our Board of Directors. Prior to September 2011, Ms. Cochran served as our President and Chief Operating Officer since November 2010 and as our Executive Vice President and Chief Financial Officer from April 2009 to November 2010. Before joining us in April 2009, she was the Chief Executive Officer of Books-A-Million, Inc. Ms. Cochran has 24 years of experience in the retail industry and eight years of experience in the restaurant industry.
Ms. Golder has been employed with us since April 2016 and assumed the responsibilities of Senior Vice President and Chief Financial Officer in June 2016. Prior to April 2016, she served as Executive Vice President and Chief Financial Officer of Ruby Tuesday, Inc. since June 2014, and as Senior Vice President, Finance from April 2013 to June 2014. Prior to her tenure with Ruby Tuesday, Inc., she was Chief Financial Officer of Cooper’s Hawk Winery & Restaurants from December 2012 to April 2013. Before joining Cooper’s Hawk Winery & Restaurants, Ms. Golder spent 23 years at Darden Restaurants, Inc., where she held progressively more responsible positions in finance, including Senior Vice President of Finance. Ms. Golder has almost 30 years of experience in the restaurant industry.
Ms. Carmichael has been employed with us in her current capacity since January 2014. Previously, she was with Frisco, Texas-based Star HR LLC, a human resource consulting firm, which she founded in 2010 and served as President. From 2009 to 2011, she served as an adjunct professor and advisor in the masters of business administration program in the Price College of Business for the University of Oklahoma. Ms. Carmichael was Executive Vice President Human Resources and Chief People Officer of Ticketmaster from 2006 to 2009. She has over 20 years of human resources leadership experience.
Ms. Daily has been employed with us as Senior Vice President, Retail since May 2012. Prior to May 2012, she served as Vice President for Ballard Designs, an Internet and catalog home furnishings retailer that is part of HSN, Inc., where she was in charge of all merchandising and trends for the company. She has over 24 years of experience as a merchant with a number of retail organizations.
Mr. Flanagan has been employed with us since 2004 and assumed his current position in November 2010. From 2004 to 2010, he served in various capacities including Vice President of Restaurant Operations. Mr. Flanagan has over 28 years of experience in the restaurant industry.
Mr. Hoffman has been employed with us since November 2015 and assumed his current position in April 2017. Prior to April 2017, Mr. Hoffman served as Vice President, Marketing. Before joining us in November 2015, Mr. Hoffman spent 20 years at DDB Worldwide Communications Group, where he held various positions including Executive Vice President. Mr. Hoffman has almost 30 years of marketing and communications experience.
Mr. Wolfson has been employed with us in his current capacity since July 2017. From January 2006 to April 2017, he served as Vice President, General Counsel and Corporate Secretary at CLARCOR Inc., a publicly traded (NYSE:CLC) industrial company. From 2001 to 2006, he was a partner of the InterAmerican Group, an advisory services and private equity firm. Mr. Wolfson has over 25 years of legal experience.
Mr. Couvillion has been employed with us since 2001 and assumed his current position in November 2016. From 2001 to 2016, he served in various capacities including Vice President of Supply Chain and Quality Assurance and Corporate Controller and Principal Accounting Officer. Mr. Couvillion has 23 years of experience in the restaurant industry and 16 years of experience in the retail industry.
Mr. Wilson has been employed with us since 2007 and assumed his current position in June 2015. From 2007 to 2015, he served in various capacities including Vice President, Operations Analysis. Mr. Wilson has 20 years of experience in the restaurant industry and six years of experience in the retail industry.
PART II
| ITEM 5. |
Our common stock is traded on the NASDAQ Global Select Market (“Nasdaq”) under the symbol “CBRL.” There were 7,503 shareholders of record as of September 14, 2017.
The following table indicates the high and low sales prices of our common stock, as reported by Nasdaq, and dividends declared and paid for the quarters indicated.
|
Fiscal Year 2017
|
Fiscal Year 2016
|
|||||||||||||||||||||||||||||||
|
Prices
|
Dividends
Declared
|
Dividends
Paid
|
Prices
|
Dividends
Declared
|
Dividends
Paid
|
|||||||||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||||||||||||||||||
|
First
|
$
|
162.33
|
$
|
130.15
|
$
|
1.15
|
$
|
1.15
|
$
|
155.97
|
$
|
117.95
|
$
|
1.10
|
$
|
4.10
|
||||||||||||||||
|
Second
|
175.04
|
131.74
|
1.15
|
1.15
|
141.94
|
118.01
|
1.10
|
1.10
|
||||||||||||||||||||||||
|
Third
|
169.07
|
154.79
|
1.15
|
1.15
|
156.65
|
124.80
|
1.10
|
1.10
|
||||||||||||||||||||||||
|
Fourth
|
170.50
|
154.46
|
4.70
|
4.65
|
172.89
|
144.00
|
4.40
|
4.35
|
||||||||||||||||||||||||
See Note 5 to Consolidated Financial Statements with respect to dividend restrictions.
See the table labeled “Equity Compensation Plan Information” to be contained in the 2017 Proxy Statement, incorporated by reference in Part III, Item 12 of this Annual Report on Form 10-K.
Part III, Item 12 of this Annual Report on Form 10-K is incorporated herein by this reference.
Unregistered Sales of Equity Securities
There were no equity securities sold by the Company during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
On September 22, 2016, our Board of Directors approved the repurchase of up to $25,000 of our common stock, with such authorization to expire on October 6, 2017 to the extent it remains unused. We did not repurchase any of our common stock in the fourth quarter ended July 28, 2017.
|
(Dollars in thousands except percentages and share data)
For each of the fiscal years ended
|
||||||||||||||||||||
|
July 28,
2017
|
July 29,
2016
|
July 31,
2015(a)
|
August 1,
2014(b)
|
August 2,
2013
|
||||||||||||||||
|
Selected Income Statement Data:
|
||||||||||||||||||||
|
Total revenue
|
$
|
2,926,289
|
$
|
2,912,351
|
$
|
2,842,284
|
$
|
2,683,677
|
$
|
2,644,630
|
||||||||||
|
Net income
|
201,899
|
189,299
|
163,903
|
132,128
|
117,265
|
|||||||||||||||
|
Net income per share:
|
||||||||||||||||||||
|
Basic
|
8.40
|
7.91
|
6.85
|
5.55
|
4.95
|
|||||||||||||||
|
Diluted
|
8.37
|
7.86
|
6.82
|
5.51
|
4.90
|
|||||||||||||||
|
Dividends declared per share
|
8.15
|
7.70
|
7.10
|
3.25
|
2.25
|
|||||||||||||||
|
Dividends paid per share
|
8.10
|
10.65
|
4.00
|
3.00
|
1.90
|
|||||||||||||||
|
As Percent of Total Revenue:
|
||||||||||||||||||||
|
Cost of goods sold (exclusive of depreciation and rent)
|
30.5
|
%
|
31.9
|
%
|
32.5
|
%
|
32.5
|
%
|
32.3
|
%
|
||||||||||
|
Labor and related expenses
|
34.8
|
34.6
|
34.9
|
36.0
|
36.5
|
|||||||||||||||
|
Other store operating expenses
|
19.2
|
19.0
|
18.4
|
18.9
|
18.2
|
|||||||||||||||
|
Store operating income
|
15.5
|
14.5
|
14.2
|
12.6
|
13.0
|
|||||||||||||||
|
General and administrative expenses
|
4.8
|
4.9
|
5.2
|
4.8
|
5.4
|
|||||||||||||||
|
Operating income
|
10.7
|
9.6
|
9.0
|
7.8
|
7.6
|
|||||||||||||||
|
Income before income taxes
|
10.2
|
9.1
|
8.4
|
7.1
|
6.3
|
|||||||||||||||
|
Selected Balance Sheet Data:
|
||||||||||||||||||||
|
Working capital (deficit)
|
$
|
(16,971
|
)
|
$
|
(13,077
|
)
|
$
|
11,213
|
$
|
(14,789
|
)
|
$
|
(13,873
|
)
|
||||||
|
Total assets
|
1,521,942
|
1,497,664
|
1,576,208
|
1,432,248
|
1,388,306
|
|||||||||||||||
|
Long-term debt
|
400,000
|
400,000
|
400,000
|
375,000
|
400,000
|
|||||||||||||||
|
Long-term interest rate swap liability
|
6,833
|
22,070
|
8,704
|
3,239
|
11,644
|
|||||||||||||||
|
Other long-term obligations
|
129,353
|
126,608
|
133,594
|
123,221
|
120,073
|
|||||||||||||||
|
Shareholders’ equity
|
544,507
|
526,443
|
538,268
|
528,641
|
484,026
|
|||||||||||||||
|
Selected Cash Flow Data:
|
||||||||||||||||||||
|
Purchase of property and equipment, net
|
$
|
110,108
|
$
|
113,360
|
$
|
90,490
|
$
|
90,564
|
$
|
73,961
|
||||||||||
|
Share repurchases
|
--
|
14,653
|
--
|
12,473
|
3,570
|
|||||||||||||||
|
Selected Other Data:
|
||||||||||||||||||||
|
Common shares outstanding at end of year
|
24,055,682
|
23,956,134
|
23,975,755
|
23,821,227
|
23,795,327
|
|||||||||||||||
|
Stores open at end of year
|
649
|
641
|
637
|
631
|
624
|
|||||||||||||||
|
Average Unit Volumes(c):
|
||||||||||||||||||||
|
Restaurant
|
$
|
3,646
|
$
|
3,651
|
$
|
3,581
|
$
|
3,415
|
$
|
3,390
|
||||||||||
|
Retail
|
892
|
926
|
904
|
873
|
869
|
|||||||||||||||
|
Comparable Store Sales(d):
|
||||||||||||||||||||
|
Period to period increase (decrease) in comparable store sales:
|
||||||||||||||||||||
|
Restaurant
|
0.2
|
%
|
2.2
|
% |
5.1
|
%
|
0.7
|
%
|
3.1
|
%
|
||||||||||
|
Retail
|
(3.7
|
)
|
2.7
|
3.6
|
0.4
|
2.9
|
||||||||||||||
|
Number of stores in comparable base
|
632
|
623
|
621
|
609
|
596
|
|||||||||||||||
| (a) |
We incurred approximately $3,500 in costs related to a litigation matter, which are included in general and administrative expenses. Our debt refinancing in the second quarter of fiscal 2015 resulted in additional interest expense of $412 related to the write-off of deferred financing costs.
|
| (b) |
We incurred $4,313 in costs related to the November 2013 proxy contest and April 2014 special shareholders’ meeting, which are included in general and administrative expenses.
|
| (c) |
Average unit volumes include sales of all stores.
|
| (d) |
Comparable store sales consist of sales of stores open at least six full quarters at the beginning of the year and are measured on comparable calendar weeks.
|
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. MD&A should be read in conjunction with the Consolidated Financial Statements and notes thereto. Readers should also carefully review the information presented under the section entitled “Risk Factors” and other cautionary statements in this report. All dollar amounts (other than per share amounts) reported or discussed in this MD&A are shown in thousands. References in MD&A to a year or quarter are to our fiscal year or quarter unless expressly noted or the context clearly indicates otherwise.
This overview summarizes the MD&A, which includes the following sections:
| · |
Executive Overview – a general description of our business, the restaurant and retail industries, our key performance indicators and the Company’s performance in 2017.
|
| · |
Results of Operations – an analysis of our consolidated statements of income for the three years presented in our Consolidated Financial Statements.
|
| · |
Liquidity and Capital Resources – an analysis of our primary sources of liquidity, capital expenditures and material commitments.
|
| · |
Critical Accounting Estimates – a discussion of accounting policies that require critical judgments and estimates.
|
EXECUTIVE OVERVIEW
Cracker Barrel Old Country Store, Inc. (the “Company,” “our” or “we”) is a publicly traded (Nasdaq: CBRL) company that, through its operations and those of certain subsidiaries, is principally engaged in the operation and development of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept. Each Cracker Barrel store consists of a restaurant with a gift shop. The restaurants serve breakfast, lunch and dinner. The gift shop offers a variety of decorative and functional items specializing in rocking chairs, holiday gifts, toys, apparel and foods. As of September 14, 2017, the Company operated 645 Cracker Barrel stores located in 44 states.
Restaurant and Retail Industries
Our stores operate in both the restaurant and retail industries in the United States. The restaurant and retail industries are highly competitive with respect to quality, variety and price of the food products and retail merchandise offered. We compete with a significant number of national and regional restaurant and retail chains. Additionally, there are many segments within the restaurant industry, such as family dining, casual dining, full-service, fast casual and quick service, which often overlap and provide competition for widely diverse restaurant concepts. We operate in the full-service segment of the restaurant industry. Competition also exists in securing prime real estate locations for new stores, in hiring qualified employees, in advertising, in the attractiveness of facilities and with competitors having similar menu offerings or convenience. The restaurant and retail industries are often affected by changes in consumer taste and preference; national, regional or local economic conditions; demographic trends; traffic patterns; the type, number and location of competing restaurants and retailers; and consumers’ discretionary purchasing power.
Additionally, economic, seasonal and weather conditions affect the restaurant and retail industries. Adverse economic conditions and unemployment rates affect consumer discretionary income and dining and shopping habits. Historically, interstate tourist traffic and the propensity to dine out have been much higher during the summer months, thereby contributing to higher profits in our fourth quarter. Retail sales, which are made substantially to our restaurant guests, are strongest in the second quarter, which includes the holiday shopping season. Severe weather also affects restaurant and retail sales adversely from time to time.
Key Performance Indicators
Management uses a number of key performance measures to evaluate our operational and financial performance, including the following:
Comparable store restaurant and retail sales and restaurant guest traffic consist of sales and calculated number of guests, respectively, of stores open at least six full quarters at the beginning of the year and are measured on comparable calendar weeks. This measure excludes the impact of new store openings.
Retail conversion is the percentage of restaurant guest traffic that make a retail purchase. Management uses retail conversion as its metric to analyze a store’s ability to convert restaurant traffic into a retail sales occasion.
Average check per guest is an indicator which management uses to analyze the dollars spent per guest in our stores on restaurant purchases. This measure aids management in identifying trends in guest preferences as well as the effectiveness of menu price increases and other menu changes.
Store operating margins are defined as total revenue less cost of goods sold (exclusive of depreciation and rent), labor and other related expenses and other store operating expenses, all as a percentage of total revenue. Management uses this indicator as a primary measure of operating profitability.
Company Performance in 2017
Management believes that the Cracker Barrel brand remains one of the strongest and most differentiated brands in the restaurant industry.
Our long-term strategy includes the following:
| · |
Enhancing the Core business by increasing our brand’s relevance to customers in order to drive guest traffic and sales in both restaurant and retail across demographic groups and generations and improving our business model to reduce operating costs and further drive margins;
|
| · |
Expanding the Footprint in new and developing markets while expanding our store opening pipeline to accelerate future growth; and
|
| · |
Extending the Brand by optimizing on long-term drivers, such as Holler & Dash Biscuit HouseTM, to further drive shareholder value.
|
Our first strategic priority, which is to Enhance the Core business, encompasses the key sales and traffic drivers of our business, including menu innovation, retail merchandising, and marketing programs, as well as our cost-saving initiatives. During 2017, we introduced several seasonal menu entrées. These included entrées like a French Dip Sandwich Platter, Mushroom Braised Pot Roast, and Peppermill Steak and Eggs Breakfast. We also expanded our off-premise platform through our holiday Heat ‘n Serve program, adding new holiday opportunities for the family-sized meal to be picked up in store and enjoyed at home. We are focused on continuing to grow our off-premise platform in the future. Within advertising, we strengthened the Cracker Barrel brand connection to our guests through multiple channels, including new television and radio messaging, focused digital media outreach, new billboard messaging and creative, and memorable exclusive music programs. Our retail teams merchandised our stores with collections offering broad generational appeal and unique product assortments as we continue to introduce newness into our merchandise assortments. During 2017, we achieved cost reductions and increased our operating income margin through initiatives which targeted labor productivity, food waste and utility expense.
Our second strategic priority is to Expand the Cracker Barrel Footprint with new store openings outside of our core markets. We opened six new Cracker Barrel Old Country Store locations during the year, continuing our westward expansion with new store openings in Las Vegas, Nevada and Portland, Oregon.
Our third strategic priority is to Extend the Brand outside of the Cracker Barrel store. We further developed our fast casual brand, Holler & Dash Biscuit House, with two store openings.
Additionally, during 2017, we increased shareholder return by growing our regular quarterly dividend to $1.20 per share. Also reflecting our commitment to a balanced approach to capital allocation, we declared a special dividend of $3.50 per share.
We believe that our continued focus on our long-term strategy contributed to our revenue growth during the year, positive comparable store restaurant sales for the year and higher operating margin and profit as compared to the prior year.
RESULTS OF OPERATIONS
The following table highlights operating results over the past three years:
|
Relationship to Total Revenue
|
||||||||||||
|
2017
|
2016
|
2015
|
||||||||||
|
Total revenue
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||||
|
Cost of goods sold (exclusive of depreciation and rent)
|
30.5
|
31.9
|
32.5
|
|||||||||
|
Labor and other related expenses
|
34.8
|
34.6
|
34.9
|
|||||||||
|
Other store operating expenses
|
19.2
|
19.0
|
18.4
|
|||||||||
|
Store operating income
|
15.5
|
14.5
|
14.2
|
|||||||||
|
General and administrative
|
4.8
|
4.9
|
5.2
|
|||||||||
|
Operating income
|
10.7
|
9.6
|
9.0
|
|||||||||
|
Interest expense
|
0.5
|
0.5
|
0.6
|
|||||||||
|
Income before income taxes
|
10.2
|
9.1
|
8.4
|
|||||||||
|
Provision for income taxes
|
3.3
|
2.6
|
2.6
|
|||||||||
|
Net income
|
6.9
|
6.5
|
5.8
|
|||||||||
Total Revenue
The following table highlights the key components of revenue for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Revenue in dollars:
|
||||||||||||
|
Restaurant
|
$
|
2,351,212
|
$
|
2,323,199
|
$
|
2,269,610
|
||||||
|
Retail
|
575,077
|
589,152
|
572,674
|
|||||||||
|
Total revenue
|
$
|
2,926,289
|
$
|
2,912,351
|
$
|
2,842,284
|
||||||
|
Total revenue percentage increase
|
0.5
|
%
|
2.5
|
%
|
5.9
|
%
|
||||||
|
Total revenue by percentage relationships:
|
||||||||||||
|
Restaurant
|
80.3
|
%
|
79.8
|
%
|
79.9
|
%
|
||||||
|
Retail
|
19.7
|
%
|
20.2
|
%
|
20.1
|
%
|
||||||
|
Comparable number of stores
|
632
|
623
|
621
|
|||||||||
|
Comparable store averages per store:
|
||||||||||||
|
Restaurant
|
$
|
3,669
|
$
|
3,670
|
$
|
3,569
|
||||||
|
Retail
|
890
|
925
|
894
|
|||||||||
|
Total
|
$
|
4,559
|
$
|
4,595
|
$
|
4,463
|
||||||
|
Restaurant average weekly sales (1)
|
$
|
70.1
|
$
|
70.2
|
$
|
68.9
|
||||||
|
Retail average weekly sales (1)
|
17.1
|
17.8
|
17.4
|
|||||||||
(1) Average weekly sales are calculated by dividing net sales by operating weeks and include all stores.
Total revenue benefited from the opening of eight new stores in 2017 and six new stores in both 2016 and 2015.
The following table highlights comparable store sales* results over the past two years:
|
Period to Period
Increase (Decrease)
|
||||||||
|
2017 vs 2016
(632 Stores)
|
2016 vs 2015
(623 Stores)
|
|||||||
|
Restaurant
|
0.2
|
%
|
2.2
|
%
|
||||
|
Retail
|
(3.7
|
)
|
2.7
|
|||||
|
Restaurant & Retail
|
(0.6
|
)
|
2.3
|
|||||
*Comparable store sales consist of sales of stores open at least six full quarters at the beginning of the year and are measured on comparable calendar weeks.
Our comparable store restaurant sales increase from 2016 to 2017 resulted from a higher average check of 1.6%, primarily attributable to a 1.8% average menu price increase, partially offset by a decrease in guest traffic of 1.4%. Our comparable store restaurant sales increase from 2015 to 2016 resulted from a higher average check of 3.5%, primarily attributable to a 2.8% average menu price increase, partially offset by a decrease in guest traffic of 1.3%.
Our comparable store retail sales decrease from 2016 to 2017 resulted primarily from the decrease in guest traffic and lower performance in apparel and accessories, bed and bath, and toys merchandise categories. Our comparable store retail sales increase from 2015 to 2016 resulted primarily from strong performance in apparel and accessories, media, and food merchandise categories partially offset by a planned reduction in the toys merchandise category.
Cost of Goods Sold (Exclusive of Depreciation and Rent)
The following table highlights the components of cost of goods sold in dollar amounts for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Cost of Goods Sold:
|
||||||||||||
|
Restaurant
|
$
|
595,186
|
$
|
627,713
|
$
|
630,417
|
||||||
|
Retail
|
296,107
|
300,463
|
293,754
|
|||||||||
|
Total Cost of Goods Sold
|
$
|
891,293
|
$
|
928,176
|
$
|
924,171
|
||||||
The following table highlights restaurant cost of goods sold as a percentage of restaurant revenue for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Restaurant Cost of Goods Sold
|
25.3
|
%
|
27.0
|
%
|
27.8
|
%
|
||||||
The decrease from 2016 to 2017 was primarily the result of food commodity deflation of 4.6%, our menu price increase referenced above and lower food waste. Lower food waste accounted for 0.1% in restaurant cost of goods sold as a percentage of restaurant revenue. The decrease from 2015 to 2016 was the result of food commodity deflation of 0.4% and our menu price increase referenced above partially offset by a shift to higher cost menu items. Higher cost menu items accounted for 0.1% in restaurant cost of goods sold as a percentage of restaurant revenue.
We presently expect the rate of commodity deflation to be approximately 1.5% in 2018 as compared to 2017.
The following table highlights retail cost of goods sold as a percentage of retail revenue for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Retail Cost of Goods Sold
|
51.5
|
%
|
51.0
|
%
|
51.3
|
%
|
||||||
The increase in retail cost of goods sold as a percentage of retail revenue in 2017 as compared to 2016 resulted primarily from higher markdowns, lower initial margin and an increase in the provision for obsolete inventory partially offset by higher retail credits.
|
2016 to 2017
Increase (Decrease) as a
Percentage of Total Revenue
|
||||
|
Markdowns
|
0.4
|
%
|
||
|
Lower initial margin
|
0.2
|
%
|
||
|
Provision for obsolete inventory
|
0.1
|
%
|
||
|
Retail credits
|
(0.3
|
%)
|
||
The decrease in retail cost of goods sold as a percentage of retail revenue in 2016 as compared to 2015 resulted from higher initial margin and lower freight costs partially offset by higher markdowns and an increase in the provision for obsolete inventory.
|
2015 to 2016
(Decrease) Increase as a
Percentage of Total Revenue
|
||||
|
Higher initial margin
|
(0.8
|
%)
|
||
|
Freight
|
(0.1
|
%)
|
||
|
Markdowns
|
0.5
|
%
|
||
|
Provision for obsolete inventory
|
0.1
|
%
|
||
Labor and Related Expenses
Labor and other related expenses include all direct and indirect labor and related costs incurred in store operations. The following table highlights labor and other related expenses as a percentage of total revenue for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Labor and other related expenses
|
34.8
|
%
|
34.6
|
%
|
34.9
|
%
|
||||||
The year-to-year percentage change from 2016 to 2017 resulted primarily from the following:
|
2016 to 2017
Increase (Decrease) as a
Percentage of Total Revenue
|
||||
|
Store hourly labor
|
0.1
|
%
|
||
|
Store management compensation
|
0.1
|
%
|
||
|
Employee health care expenses
|
(0.1
|
%)
|
||
The increase in store hourly labor in 2017 as compared to 2016 resulted primarily from wage inflation partially offset by improvements in productivity resulting from the continuation of our cost-saving initiatives.
The increase in store management compensation in 2017 as compared to 2016 was primarily the result of an increase in variable costs resulting from a higher rate of vacancy in management headcounts.
The decrease in employee health care expenses in 2017 as compared to 2016 resulted primarily from lower claims activity.
The year-to-year percentage change from 2015 to 2016 resulted from the following:
|
2015 to 2016
(Decrease) as a Percentage
of Total Revenue
|
||||
|
Store bonus expense
|
(0.2
|
%)
|
||
|
Payroll taxes
|
(0.1
|
%)
|
||
Lower store bonus expense in 2016 as compared to 2015 was driven by lower performance against financial objectives in 2016 as compared to the prior year.
The decrease in payroll tax expense as a percentage of total revenue in 2016 as compared to 2015 resulted primarily from lower unemployment tax rates.
Other Store Operating Expenses
Other store operating expenses include all store-level operating costs, the major components of which are utilities, operating supplies, repairs and maintenance, depreciation and amortization, advertising, rent, credit card fees, real and personal property taxes, general insurance and costs associated with our store manager conference. The following table highlights other store operating expenses as a percentage of total revenue for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Other store operating expenses
|
19.2
|
%
|
19.0
|
%
|
18.4
|
%
|
||||||
The year-to-year percentage change from 2016 to 2017 resulted from the following:
|
2016 to 2017
Increase (Decrease) as a
Percentage of Total Revenue
|
||||
|
Depreciation
|
0.3
|
%
|
||
|
Advertising
|
0.1
|
%
|
||
|
Maintenance
|
(0.2
|
%)
|
||
The increase in depreciation expense as a percentage of total revenue for 2017 as compared to 2016 resulted from higher capital investments in 2016 and the capital additions in 2017.
The increase in advertising expense as a percentage of total revenue for 2017 as compared to 2016 is consistent with our planned increase in advertising spend for 2017.
Lower maintenance expense as a percentage of total revenue for 2017 as compared to 2016 resulted primarily from reduced spending on building repairs.
The year-to-year percentage change from 2015 to 2016 resulted from the following:
|
2015 to 2016
Increase (Decrease) as a
Percentage of Total Revenue
|
||||
|
Advertising
|
0.3
|
%
|
||
|
Maintenance
|
0.2
|
%
|
||
|
Supplies
|
0.1
|
%
|
||
|
Depreciation
|
0.1
|
%
|
||
|
Store manager conference expense
|
0.1
|
%
|
||
|
Utilities
|
(0.2
|
%)
|
||
The increase in advertising expense as a percentage of total revenue for 2016 as compared to 2015 is consistent with our planned increase in advertising spend for 2016.
Higher maintenance expense as a percentage of total revenue for 2016 as compared to 2015 resulted primarily from expenses associated with the preventative maintenance and related repair of certain building components and kitchen equipment.
The increase in supplies expense as a percentage of total revenue for 2016 as compared to 2015 resulted primarily from a higher volume of purchases in certain categories.
The increase in depreciation expense as a percentage of total revenue for 2016 as compared to 2015 resulted from higher capital expenditures in 2016 as compared to 2015.
In the first quarter of 2016, we held a bi-annual manager conference and training event which was attended by our store operations management team. We did not hold a manager’s conference and training event in 2015.
The decrease in utilities expense from 2015 to 2016 resulted primarily from lower natural gas prices and usage and lower electricity costs. Lower electricity costs resulted primarily from our LED lighting installation initiative.
General and Administrative Expenses
The following table highlights general and administrative expenses as a percentage of total revenue for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
General and administrative expenses
|
4.8
|
%
|
4.9
|
%
|
5.2
|
%
|
||||||
The year-to-year percentage changes from 2016 to 2017 and from 2015 to 2016 both resulted primarily from lower incentive compensation. Lower incentive compensation in 2017 as compared to 2016 and in 2016 as compared to 2015 was driven by lower performance against financial objectives as compared to each prior year period.
Interest Expense
The following table highlights interest expense for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Interest expense
|
$
|
14,271
|
$
|
14,052
|
$
|
16,679
|
||||||
The year-to-year increase from 2016 to 2017 resulted primarily from higher weighted average interest rates. The year-to-year decrease from 2015 to 2016 resulted primarily from lower weighted average interest rates and the non-recurrence of $412 in deferred financing costs as a result of our debt refinancing in 2015.
Provision for Income Taxes
The following table highlights the provision for income taxes as a percentage of income before income taxes (“effective tax rate”) for the past three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Effective tax rate
|
32.4
|
%
|
28.9
|
%
|
31.2
|
%
|
||||||
The increase in our effective tax rate from 2016 to 2017 resulted primarily from lower Work Opportunity Tax Credit collections in 2017 than in the prior year and a reduction in certain reserves for uncertain tax positions in 2016. The decrease in our effective tax rate from 2015 to 2016 resulted primarily from a reduction during 2016 of our reserves for uncertain tax positions.
We presently expect our effective tax rate for 2018 to be between 31% and 32%.
LIQUIDITY AND CAPITAL RESOURCES
The following table presents a summary of our cash flows for the last three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Net cash provided by operating activities
|
$
|
320,767
|
$
|
271,378
|
$
|
334,055
|
||||||
|
Net cash used in investing activities
|
(109,605
|
)
|
(112,515
|
)
|
(88,614
|
)
|
||||||
|
Net cash used in financing activities
|
(201,127
|
)
|
(273,352
|
)
|
(99,347
|
)
|
||||||
|
Net increase (decrease) in cash and cash equivalents
|
$
|
10,035
|
$
|
(114,489
|
)
|
$
|
146,094
|
|||||
Our primary sources of liquidity are cash generated from our operations and our borrowing capacity under our revolving credit facility. Our internally generated cash, along with cash on hand at July 29, 2016, was sufficient to finance all of our growth, dividend payments, working capital needs and other cash payment obligations in 2017.
We believe that cash at July 28, 2017, along with cash expected to be generated from our operating activities and the borrowing capacity under our revolving credit facility, will be sufficient to finance our continuing operations, our continuing expansion plans, our expected share repurchases and our expected dividend payments for 2018.
Cash Generated from Operations
The increase in net cash flow provided by operating activities from 2016 to 2017 primarily reflected the timing of payments for income taxes, higher net income, the timing of payroll payments as compared to prior year due to our fiscal year end dates and lower incentive compensation payments made in 2017 as a result of the prior year’s performance partially offset by the decrease in accounts payable. The decrease in accounts payable reflected the results of conversion to more electronic invoice methods and lower accounts payable related to retail inventory. The decrease in net cash flow provided by operating activities from 2015 to 2016 primarily reflected the timing of payments for accounts payable and income taxes and the change in retail inventories.
Capital Expenditures
The following table presents our capital expenditures (purchase of property and equipment), net of proceeds from insurance recoveries, for the last three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Capital expenditures, net of proceeds from insurance recoveries
|
$
|
110,108
|
$
|
113,360
|
$
|
90,490
|
||||||
Our capital expenditures consisted primarily of capital investments for existing stores, new store locations and strategic initiatives. The increases in capital expenditures from 2016 to 2017 and from 2015 to 2016 both resulted primarily from capital for existing stores, as well as an increase in the number of new store locations.
We estimate that our capital expenditures during 2018 will be between $150,000 to $160,000. This estimate includes the acquisition of sites and construction costs of eight to nine new Cracker Barrel stores and three to four new Holler & Dash Biscuit HouseTM locations that we plan to open during 2018, as well as acquisition and construction costs for store locations to be opened in 2019. We also expect to increase capital expenditures for technology and strategic initiatives, which are intended to improve the guest experience and improve margins. We intend to fund our capital expenditures with cash generated by operations and borrowings under our revolving credit facility, as necessary.
Borrowing Capacity and Debt Covenants
In 2015, we entered into a five-year $750,000 revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility replaced a term loan totaling $181,250 and a $218,750 revolving credit facility (“Prior Credit Facility”).
The following table highlights our borrowing capacity and outstanding borrowings under the Revolving Credit Facility, our standby letters of credit and our borrowing availability under the Revolving Credit Facility as of July 28, 2017:
|
July 28, 2017
|
||||
|
Borrowing capacity under the Revolving Credit Facility
|
$
|
750,000
|
||
|
Less: Outstanding borrowings under the Revolving Credit Facility
|
400,000
|
|||
|
Less: Standby letters of credit*
|
9,655
|
|||
|
Borrowing availability under the Revolving Credit Facility
|
$
|
340,345
|
||
*Our standby letters of credit relate to securing reserved claims under workers’ compensation insurance and reduce our borrowing availability under the Revolving Credit Facility.
We did not borrow or make any debt payments in 2017 or 2016. In 2015, we both borrowed and paid down $6,250 under our Prior Credit Facility.
See “Material Commitments” below and Note 5 to our Consolidated Financial Statements for further information on our long-term debt.
The Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio. We presently are and expect to remain in compliance with the Revolving Credit Facility’s financial covenants for the remaining term of the facility.
Dividends, Share Repurchases and Share-Based Compensation Awards
Our Revolving Credit Facility imposes restrictions on the amount of dividends we are permitted to pay and the amount of shares we are permitted to repurchase. Under the Revolving Credit Facility, provided there is no default existing and the total of our availability under the Revolving Credit Facility plus our cash and cash equivalents on hand is at least $100,000 (the “cash availability”), we may declare and pay cash dividends on shares of our common stock and repurchase shares of our common stock (1) in an unlimited amount if at the time the dividend or the repurchase is made our consolidated total leverage ratio is 3.00 to 1.00 or less and (2) in an aggregate amount not to exceed $100,000 in any fiscal year if our consolidated total leverage ratio is greater than 3.00 to 1.00 at the time the dividend or repurchase is made; notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, cash availability is at least $100,000, we may declare and pay cash dividends on shares of our common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends declared in the fourth quarter of the immediately preceding fiscal year multiplied by four.
During each of the first three quarters of 2017, we declared a regular quarterly dividend of $1.15 per share of our common stock. Each of these dividends was paid in the immediately following quarter. Additionally, during the fourth quarter of 2017, we increased our regular quarterly dividend by 4.3% by declaring a dividend of $1.20 per share and declared a special dividend of $3.50 per share. The special dividend was paid on July 28, 2017 to shareholders of record on July 14, 2017. The regular quarterly dividend was paid on August 4, 2017 to shareholders of record on July 14, 2017. Both special dividends of $3.00 and $3.25 per share of common stock declared in the fourth quarters of 2015 and 2016, respectively, were paid in 2016.
The following table highlights the dividends per share we paid for the last three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Dividends per share paid
|
$
|
8.10
|
$
|
10.65
|
$
|
4.00
|
||||||
Our current criteria for share repurchases are that they be accretive to expected net income per share and are within the limits imposed by our Revolving Credit Facility. Subject to the limits imposed by our credit facility, in each of 2017, 2016 and 2015, we were authorized by our Board of Directors to repurchase shares at the discretion of management up to $25,000. We did not repurchase any shares of our common stock in 2017 and 2015. In 2016, we repurchased 100,000 shares of our common stock in the open market at an aggregate cost of $14,653.
In 2017, 2016 and 2015, related tax withholding payments on certain share-based compensation awards exceeded proceeds received from the exercise of stock options which resulted in a net use of cash of $6,896, $5,779 and $4,816, respectively.
Working Capital
In the restaurant industry, substantially all sales are either for cash or third-party credit card. Like many other restaurant companies, we are able to, and often do, operate with negative working capital. Restaurant inventories purchased through our principal food distributor are on terms of net zero days, while other restaurant inventories purchased locally are generally financed through trade credit at terms of 30 days or less. Because of our gift shop, which has a lower product turnover than the restaurant, we carry larger inventories than many other companies in the restaurant industry. Retail inventories are generally financed through trade credit at terms of 60 days or less. These various trade terms are aided by rapid turnover of the restaurant inventory. Employees generally are paid on weekly or semi-monthly schedules in arrears for hours worked except for bonuses that are paid either quarterly or annually in arrears. Many other operating expenses have normal trade terms and certain expenses such as certain taxes and some benefits are deferred for longer periods of time.
The following table highlights our working capital (deficit):
|
2017
|
2016
|
2015
|
||||||||||
|
Working capital (deficit)
|
$
|
(16,971
|
)
|
$
|
(13,077
|
)
|
$
|
11,213
|
||||
The change in working capital at July 28, 2017 compared to July 29, 2016 primarily reflected the timing of payments for income taxes, an increase in deferred revenue related to the sale of our gifts cards and higher payroll accruals due to the timing of payments partially offset by lower accounts payable and an increase in cash. The decrease in accounts payable reflected the results of conversion to more electronic invoice methods and lower accounts payable related to retail inventory. The increase in cash resulted primarily from cash generated by operations partially offset by spending for capital expenditures and the payment of dividends. The change in working capital at July 29, 2016 compared to July 31, 2015 primarily reflected a decrease in cash from operations partially offset by a decrease in our dividend payable and the timing of payments for income taxes.
Off-Balance Sheet Arrangements
Other than various operating leases, which are disclosed more fully in “Material Commitments” below and Notes 2 and 9 to our Consolidated Financial Statements, we have no other material off-balance sheet arrangements.
Material Commitments
Our contractual cash obligations and commitments as of July 28, 2017, are summarized in the tables below:
|
Payments due by Years
|
||||||||||||||||||||
|
Contractual Obligations (a)
|
Total
|
2018
|
2019-2020
|
2021-2022
|
After 2022
|
|||||||||||||||
|
Revolving Credit Facility(b)
|
$
|
400,000
|
$
|
--
|
$
|
400,000
|
$
|
--
|
$
|
--
|
||||||||||
|
Operating leases (c)
|
707,158
|
65,253
|
101,400
|
60,365
|
480,140
|
|||||||||||||||
|
Purchase obligations (d)
|
49,661
|
37,953
|
10,970
|
738
|
--
|
|||||||||||||||
|
Other long-term obligations (e)
|
38,269
|
242
|
5,000
|
333
|
32,694
|
|||||||||||||||
|
Total contractual cash obligations
|
$
|
1,195,088
|
$
|
103,448
|
$
|
517,370
|
$
|
61,436
|
$
|
512,834
|
||||||||||
|
Amount of Commitment Expirations by Years
|
||||||||||||||||||||
|
Total
|
2018
|
2019-2020
|
2021-2022
|
After 2022
|
||||||||||||||||
|
Revolving Credit Facility(b)
|
$
|
750,000
|
$
|
--
|
$
|
750,000
|
$
|
--
|
$
|
--
|
||||||||||
|
Standby letters of credit(f)
|
9,655
|
9,655
|
--
|
--
|
--
|
|||||||||||||||
|
Guarantees (g)
|
952
|
235
|
471
|
246
|
--
|
|||||||||||||||
|
Total commitments
|
$
|
760,607
|
$
|
9,890
|
$
|
750,471
|
$
|
246
|
$
|
--
|
||||||||||
|
(a)
|
At July 28, 2017, the entire liability for uncertain tax positions (including penalties and interest) is classified as a long-term liability. At this time, we are unable to make a reasonably reliable estimate of the amounts and timing of payments in individual years because of uncertainties in the timing of the effective settlement of tax positions. As such, the liability for uncertain tax positions of $26,859 is not included in the contractual cash obligations and commitments table above.
|
| (b) |
Our Revolving Credit Facility expires on January 8, 2020. Even though the Revolving Credit Facility expires in 2020, we have the intent and ability to refinance our debt to maintain a sufficient amount of outstanding borrowings during the terms of our interest rate swaps that expire in 2021 and 2024. Using projected interest rates, we anticipate having interest payments of $13,374, $25,268, $24,334 and $21,864 in 2018, 2019-2020, 2021-2022 and after 2022, respectively. The projected interest rates for our swapped portion of our outstanding borrowings are our fixed rates under our interest rate swaps (see Note 6 to the Consolidated Financial Statements) plus our current credit spread of 1.00%. The projected interest rate for our unswapped portion of our outstanding borrowings is the average of the three-year and five-year swap rates at July 28, 2017 of 1.77% plus our current credit spread of 1.00%. Based on our outstanding borrowings under our Revolving Credit Facility, our standby letters of credit at July 28, 2017 and our current unused commitment fee as defined in the Revolving Credit Facility, our unused commitment fees in 2018 and 2019-2020 would be $516 and $740, respectively; however, the actual amount will differ based on actual usage of the Revolving Credit Facility in those years.
|
| (c) |
Includes base lease terms and certain optional renewal periods for which, at the inception of the lease, it is reasonably assured that we will exercise.
|
| (d) |
Purchase obligations consist of purchase orders for food and retail merchandise; purchase orders for capital expenditures, supplies, other operating needs and other services; and commitments under contracts for maintenance needs and other services. We have excluded contracts that do not contain minimum purchase obligations. We excluded long-term agreements for services and operating needs that can be cancelled within 60 days without penalty. We included long-term agreements and certain retail purchase orders for services and operating needs that can be cancelled with more than 60 days notice without penalty only through the term of the notice. We included long-term agreements for services and operating needs that only can be cancelled in the event of an uncured material breach or with a penalty through the entire term of the contract. Because of the uncertainties of seasonal demands and promotional calendar changes, our best estimate of usage for food, supplies and other operating needs and services is ratably over either the notice period or the remaining life of the contract, as applicable, unless we had better information available at the time related to each contract.
|
| (e) |
Other long-term obligations include our Non-Qualified Savings Plan ($31,196, with a corresponding long-term asset to fund the liability; see Note 12 to the Consolidated Financial Statements), Deferred Compensation Plan ($1,741) and our long-term incentive plans ($5,332).
|
| (f) |
Our standby letters of credit relate to securing reserved claims under workers’ compensation insurance and reduce our borrowing availability under the Revolving Credit Facility.
|
|
(g)
|
Consists solely of guarantees associated with lease payments for two properties. We are not aware of any non-performance under these arrangements that would result in us having to perform in accordance with the terms of these guarantees.
|
Recent Accounting Pronouncements Adopted and Not Yet Adopted
See Note 2 to the accompanying Consolidated Financial Statements for a discussion of recent accounting guidance adopted and not yet adopted. The adopted accounting guidance discussed in Note 2 did not have a significant impact on our consolidated financial position or results of operations. The Company either expects that the accounting guidance not yet adopted will not have a significant impact on the Company’s consolidated financial position or results of operations or is currently evaluating the impact of adopting the accounting guidance.
CRITICAL ACCOUNTING ESTIMATES
We prepare our Consolidated Financial Statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We base our estimates and judgments on historical experience, current trends, outside advice from parties believed to be experts in such matters and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. However, because future events and their effects cannot be determined with certainty, actual results could differ from those assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2 to the Consolidated Financial Statements. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. Critical accounting estimates are those that:
| · |
management believes are most important to the accurate portrayal of both our financial condition and operating results; and
|
| · |
require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
|
We consider the following accounting estimates to be most critical in understanding the judgments that are involved in preparing our Consolidated Financial Statements:
| · |
Impairment of Long-Lived Assets and Provision for Asset Dispositions
|
| · |
Insurance Reserves
|
| · |
Retail Inventory Valuation
|
| · |
Tax Provision
|
| · |
Share-Based Compensation
|
| · |
Legal Proceedings
|
Management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.
Impairment of Long-Lived Assets and Provision for Asset Dispositions
We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying value of the asset to the undiscounted future cash flows expected to be generated by the asset. If the total expected future cash flows are less than the carrying amount of the asset, the carrying value is written down, for an asset to be held and used, to the estimated fair value or, for an asset to be disposed of, to the fair value, net of estimated costs of disposal. Any loss resulting from impairment is recognized by a charge to income. Judgments and estimates that we make related to the expected useful lives of long-lived assets and future cash flows are affected by factors such as changes in economic conditions and changes in operating performance. The accuracy of such provisions can vary materially from original estimates and management regularly monitors the adequacy of the provisions until final disposition occurs.
We have not made any material changes in our methodology for assessing impairments during the past three years and we do not believe that there is a reasonable likelihood that there will be a material change in the estimates or assumptions used by us to assess impairment of long-lived assets. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and fair values of long-lived assets, we may be exposed to losses that could be material.
Insurance Reserves
We self-insure a significant portion of our expected workers’ compensation and general liability programs. In 2015, we purchased insurance for individual workers’ compensation claims that exceeded $250, $500 or $1,000 depending on the state in which the claim originates. Beginning in 2016, we purchase insurance for individual workers’ compensation claims that exceed $250, $750 or $1,000 depending on the state in which the claim originated. We purchase insurance for individual general liability claims that exceed $500. We record a reserve for workers’ compensation and general liability for all unresolved claims and for an estimate of incurred but not reported (“IBNR”) claims. These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of our third quarter and is adjusted by the actuarially determined losses and actual claims payments for the fourth quarter. Additionally, we perform limited scope actuarial studies on a quarterly basis to verify and/or modify our reserves. The reserves and losses in the actuarial study represent a range of possible outcomes within which no given estimate is more likely than any other estimate. As such, we record the losses in the lower end of that range and discount them to present value using a risk-free interest rate based on projected timing of payments. We also monitor actual claims development, including incurrence or settlement of individual large claims during the interim periods between actuarial studies as another means of estimating the adequacy of our reserves.
Our group health plans combine the use of self-insured and fully-insured programs. Benefits for any individual (employee or dependents) in the self-insured group health program are limited. We record a liability for the self-insured portion of our group health program for all unpaid claims based upon a loss development analysis derived from actual group health claims payment experience. We also record a liability for unpaid prescription drug claims based on historical experience. The majority of our fully-insured health insurance plans for calendar 2014 contained a retrospective feature which could increase or decrease premiums based on actual claims experience.
Our accounting policies regarding insurance reserves include certain actuarial assumptions and management judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices. We have not made any material changes in the accounting methodology used to establish our insurance reserves during the past three years and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate the insurance reserves. However, changes in these actuarial assumptions or management judgments in the future may produce materially different amounts of expense that would be reported under these insurance programs.
Retail Inventory Valuation
Cost of goods sold includes the cost of retail merchandise sold at our stores utilizing the retail inventory method (“RIM”). Under RIM, the valuation of our retail inventories is at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value of our inventories. Inherent in the RIM calculation are certain significant management judgments and estimates, including initial markons, markups, markdowns and shrinkage, which may significantly impact the gross margin calculation as well as the ending inventory valuation.
Inventory valuation provisions are included for retail inventory obsolescence and retail inventory shrinkage. Retail inventory is reviewed on a quarterly basis for obsolescence and adjusted as appropriate based on assumptions made by management and judgment regarding inventory aging and future promotional activities. Cost of goods sold includes an estimate of shrinkage that is adjusted upon physical inventory counts. Annual physical inventory counts are conducted throughout the third quarter based upon a cyclical inventory schedule. An estimate of shrinkage is recorded for the time period between physical inventory counts by using a three-year average of the physical inventories’ results on a store-by-store basis.
We have not made any material changes in the methodologies, estimates or assumptions related to our merchandise inventories during the past three years and do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions in the future. However, actual obsolescence or shrinkage recorded may produce materially different amounts than we have estimated.
Tax Provision
We must make estimates of certain items that comprise our income tax provision. These estimates include effective state and local income tax rates, employer tax credits for items such as FICA taxes paid on employee tip income and the Work Opportunity credit, as well as estimates related to certain depreciation and capitalization policies. Our estimates are made based on current tax laws, the best available information at the time of the provision and historical experience.
We recognize (or derecognize) a tax position taken or expected to be taken in a tax return in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained (or not sustained) upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement.
We file our income tax returns many months after our year end. These returns are subject to audit by various federal and state governments years after the returns are filed and could be subject to differing interpretations of the tax laws. We then must assess the likelihood of successful legal proceedings or reach a settlement with the relevant taxing authority. Although we believe that the judgments and estimates used in establishing our tax provision are reasonable, an unsuccessful legal proceeding or a settlement could result in material adjustments to our Consolidated Financial Statements and our consolidated financial position.
Share-Based Compensation
Our share-based compensation primarily consists of nonvested stock awards and units and performance-based market stock units (“MSU Grants”). Share-based compensation expense is recognized based on the grant date fair value and the achievement of performance conditions for certain awards. We recognize share-based compensation expense on a straight-line basis over the requisite service period, which is generally the award’s vesting period, or the date on which retirement eligibility is achieved, if shorter.
Compensation expense is recognized for only the portion of our share-based compensation awards that are expected to vest. Therefore, an estimated forfeiture rate is derived from historical employee termination behavior and is updated annually. The forfeiture rate is applied on a straight-line basis over the service (vesting) period and we update the estimated forfeiture rate to actual at each reporting period.
Our share-based compensation awards accrue dividends. Dividends will be forfeited for any share-based compensation awards that do not vest.
The fair value of our nonvested stock awards which accrue dividends is equal to the market price of our stock at the date of the grant. Our nonvested stock awards are time vested except for awards under our long-term incentive plans which also contain performance conditions. At each reporting period, we reassess the probability of achieving the performance conditions under our long-term incentive plans. Determining whether the performance conditions will be achieved involves judgment and the estimate of expense for nonvested stock awards may be revised periodically based on changes in our determination of the probability of achieving the performance conditions. Revisions are reflected in the period in which the estimate is changed. If any performance conditions are not met, no shares will be granted, no compensation will ultimately be recognized and, to the extent previously recognized, compensation expense will be reversed.
In addition to providing the requisite service, MSU Grants contain both a market condition, total shareholder return, and a performance condition. Total shareholder return is defined as the change in our stock price plus dividends paid during the performance period. The number of shares awarded at the end of the performance period will vary in direct proportion to a target number of shares set at the beginning of the period, up to a maximum of 150% of target, based on the change in our cumulative total shareholder return over the period. The probability of the actual shares expected to be awarded is considered in the grant date valuation; therefore, the expense will not be adjusted to reflect the actual units awarded. However, if the performance condition is not met, no shares will be granted, no compensation will ultimately be recognized and, to the extent previously recognized, compensation expense will be reversed.
The fair value of our MSU Grants was determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. The Monte-Carlo simulation model uses the average prices for the 60 consecutive calendar days beginning 30 days prior to and ending 30 days after the first business day of the performance period. This model also incorporates the following ranges of assumptions:
| · |
The expected volatility is a blend of implied volatility based on market-traded options on our stock and historical volatility of our stock over the period commensurate with the three-year performance period.
|
| · |
The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period.
|
| · |
The expected dividend yield is assumed to be zero since the award holders are entitled to any dividends paid over the performance period.
|
We update the historical and implied components of the expected volatility assumption when new grants are made. No MSU Grants were awarded in 2017.
Beginning in 2017, we adopted long-term incentive plans that award nonvested stock units based upon relative total shareholder return. In addition to requiring the requisite service, these nonvested stock units contain both a market condition based on relative total shareholder return and a performance condition based on operating income. Relative total shareholder return is defined as increases in our stock price plus dividends paid during the performance period as compared to the total shareholder return of a group of peer companies determined by the Compensation Committee. The number of shares awarded at the end of the performance period for each nonvested stock unit may range from 75% to 125% of the target award. The probability of the actual shares expected to be awarded is considered in the grant date valuation; therefore, the expense will not be adjusted to reflect the actual units awarded. However, if the performance condition is not met, no shares will be granted, no compensation will ultimately be recognized and, to the extent previously recognized, compensation expense will be reversed.
The fair value of these nonvested stock units was determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. The Monte-Carlo simulation model uses the average prices for the 60 consecutive calendar days beginning 30 days prior to and ending 30 days after the first business day of the performance period. This model also incorporates the following ranges of assumptions:
| · |
The expected volatility is the historical volatility of our stock and the members of the peer group over the period commensurate with the performance period.
|
| · |
The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the performance period.
|
| · |
The expected dividend yield is assumed to be zero since the award holders are entitled to any dividends paid over the performance period.
|
We update the expected volatility assumption when new grants are made.
We have not made any material changes in our estimates or assumptions used to determine share-based compensation during the past three years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to determine share-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based compensation expense that could be material.
Legal Proceedings
We are parties to various legal and regulatory proceedings and claims incidental to our business from time to time. We review outstanding claims and proceedings internally and with external counsel, as necessary and appropriate, to assess probability of loss and for the ability to estimate loss. These assessments are re-evaluated each quarter or as new information becomes available to determine whether a reserve should be established or if any existing reserve should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded reserve. Although we believe that the judgments and estimates used in establishing our legal reserves are reasonable, an unsuccessful legal proceeding or a settlement could result in material adjustments to our Consolidated Financial Statements and our consolidated financial position.
We are exposed to market risk, such as changes in interest rates and commodity prices. We do not hold or use derivative financial instruments for trading purposes.
Interest Rate Risk. We have interest rate risk relative to our outstanding borrowings under our revolving credit facility. At both July 28, 2017 and July 29, 2016, our outstanding borrowings totaled $400,000 (see Note 5 to our Consolidated Financial Statements). Loans under our credit facility bear interest, at our election, either at the prime rate or LIBOR plus a percentage point spread based on certain specified financial ratios. Our policy has been to manage interest cost using a mix of fixed and variable rate debt (see Notes 5, 6 and 9 to our Consolidated Financial Statements). To manage this risk in a cost efficient manner, we have entered into interest rate swaps. A summary of our interest rate swaps at July 28, 2017 is as follows:
|
Trade Date
|
Effective Date
|
Term
(in Years)
|
Notional Amount
|
Fixed
Rate
|
|||||||||
|
March 18, 2013
|
May 3, 2015
|
3
|
$
|
50,000
|
1.51
|
%
|
|||||||
|
April 22, 2013
|
May 3, 2015
|
3
|
25,000
|
1.30
|
%
|
||||||||
|
April 25, 2013
|
May 3, 2015
|
3
|
25,000
|
1.29
|
%
|
||||||||
|
June 18, 2014
|
May 3, 2015
|
4
|
120,000
|
2.51
|
%
|
||||||||
|
June 24, 2014
|
May 3, 2015
|
4
|
90,000
|
2.51
|
%
|
||||||||
|
July 1, 2014
|
May 5, 2015
|
4
|
90,000
|
2.43
|
%
|
||||||||
|
January 30, 2015
|
May 3, 2019
|
2
|
80,000
|
2.15
|
%
|
||||||||
|
January 30, 2015
|
May 3, 2019
|
2
|
60,000
|
2.16
|
%
|
||||||||
|
January 30, 2015
|
May 4, 2021
|
3
|
120,000
|
2.41
|
%
|
||||||||
|
January 30, 2015
|
May 3, 2019
|
2
|
60,000
|
2.15
|
%
|
||||||||
|
January 30, 2015
|
May 4, 2021
|
3
|
80,000
|
2.40
|
%
|
||||||||
The notional amount for the interest rate swap entered into on June 18, 2014 increases by $40,000 each May over the four-year term of the interest rate swap until the notional amount reaches $160,000 in May 2018. The notional amounts for the interest rate swaps entered into on June 24, 2014 and July 1, 2014 increase by $30,000 each May over the four-year terms of the interest rate swaps until the notional amounts each reach $120,000 in May 2018.
At July 28, 2017 and July 29, 2016, our outstanding borrowings were swapped at a weighted average interest rate of 3.21% and 3.10%, respectively, which are the weighted average fixed rates of our interest rate swaps plus our current credit spread. See Note 6 to our Consolidated Financial Statements for further discussion of our interest rate swaps.
Commodity Price Risk. Many of the food products that we purchase are affected by commodity pricing and are, therefore, subject to price volatility caused by market conditions, weather, production problems, delivery difficulties and other factors which are outside our control and which are generally unpredictable.
The following table highlights the five food categories which accounted for the largest shares of our food purchases in 2017 and 2016:
|
Percentage of Food Purchases
|
||||||||
|
2017
|
2016
|
|||||||
|
Beef
|
14
|
%
|
15
|
%
|
||||
|
Dairy (including eggs)
|
12
|
%
|
13
|
%
|
||||
|
Fruits and vegetables
|
12
|
%
|
12
|
%
|
||||
|
Poultry
|
11
|
%
|
11
|
%
|
||||
|
Pork
|
10
|
%
|
11
|
%
|
||||
Other categories affected by the commodities markets, such as grains and seafood, may each account for as much as 8% of our food purchases. While some of our food items are produced to our proprietary specifications, our food items are based on generally available products, and if any existing suppliers fail, or are unable to deliver in quantities required by us, we believe that there are sufficient other quality suppliers in the marketplace that our sources of supply can be replaced as necessary to allow us to avoid any material adverse effects that could be caused by such unavailability. We also recognize, however, that commodity pricing is extremely volatile and can change unpredictably even over short periods of time. Changes in commodity prices would affect us and our competitors generally, and depending on the terms and duration of supply contracts, sometimes simultaneously. We enter into contracts for certain of our products in an effort to minimize volatility of supply and pricing. In many cases, or over the longer term, we believe we will be able to pass through some or much of the increased commodity costs by adjusting our menu pricing. From time to time, competitive circumstances, or judgments about consumer acceptance of price increases, may limit menu price flexibility, and in those circumstances, increases in commodity prices can result in lower margins.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Cracker Barrel Old Country Store, Inc.
Lebanon, Tennessee
We have audited the accompanying consolidated balance sheets of Cracker Barrel Old Country Store, Inc. and its subsidiaries (the “Company”) as of July 28, 2017 and July 29, 2016, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three fiscal years in the period ended July 28, 2017. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Cracker Barrel Old Country Store, Inc. and its subsidiaries as of July 28, 2017 and July 29, 2016, and the results of their operations and their cash flows for each of the three fiscal years in the period ended July 28, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of July 28, 2017, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 22, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.
|
/s/ Deloitte & Touche LLP
|
|
Nashville, Tennessee
|
|
September 22, 2017
|
CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED BALANCE SHEETS
|
(In thousands except share data)
|
||||||||
|
ASSETS
|
July 28, 2017
|
July 29, 2016
|
||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
161,001
|
$
|
150,966
|
||||
|
Accounts receivable
|
18,116
|
19,389
|
||||||
|
Income taxes receivable
|
4,265
|
16,184
|
||||||
|
Inventories
|
156,367
|
152,308
|
||||||
|
Prepaid expenses and other current assets
|
16,047
|
14,573
|
||||||
|
Deferred income taxes
|
3,061
|
2,320
|
||||||
|
Total current assets
|
358,857
|
355,740
|
||||||
|
Property and Equipment:
|
||||||||
|
Land
|
306,105
|
303,416
|
||||||
|
Buildings and improvements
|
837,804
|
814,176
|
||||||
|
Buildings under capital leases
|
3,289
|
3,289
|
||||||
|
Restaurant and other equipment
|
604,413
|
572,551
|
||||||
|
Leasehold improvements
|
326,750
|
306,489
|
||||||
|
Construction in progress
|
15,087
|
11,924
|
||||||
|
Total
|
2,093,448
|
2,011,845
|
||||||
|
Less: Accumulated depreciation and amortization of capital leases
|
995,351
|
931,656
|
||||||
|
Property and equipment – net
|
1,098,097
|
1,080,189
|
||||||
|
Other assets
|
64,988
|
61,735
|
||||||
|
Total
|
$
|
1,521,942
|
$
|
1,497,664
|
||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
|
Current Liabilities:
|
||||||||
|
Accounts payable
|
$
|
118,395
|
$
|
132,493
|
||||
|
Taxes withheld and accrued
|
36,725
|
37,561
|
||||||
|
Accrued employee compensation
|
70,945
|
61,187
|
||||||
|
Accrued employee benefits
|
26,759
|
27,928
|
||||||
|
Deferred revenues
|
72,376
|
64,028
|
||||||
|
Dividend payable
|
30,639
|
29,706
|
||||||
|
Other current liabilities
|
19,989
|
15,914
|
||||||
|
Total current liabilities
|
375,828
|
368,817
|
||||||
|
Long-term debt
|
400,000
|
400,000
|
||||||
|
Long-term interest rate swap liability
|
6,833
|
22,070
|
||||||
|
Other long-term obligations
|
129,353
|
126,608
|
||||||
|
Deferred income taxes
|
65,421
|
53,726
|
||||||
Commitments and Contingencies (Notes 9 and 15)
|
Shareholders’ Equity:
|
||||||||
|
Preferred stock – 100,000,000 shares of $.01 par value authorized; 300,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued
|
--
|
--
|
||||||
|
Common stock – 400,000,000 shares of $.01 par value authorized; 2017 – 24,055,682 shares issued and outstanding; 2016 – 23,956,134 shares issued and outstanding
|
241
|
240
|
||||||
|
Additional paid-in capital
|
55,659
|
51,462
|
||||||
|
Accumulated other comprehensive loss
|
(4,229
|
)
|
(13,740
|
)
|
||||
|
Retained earnings
|
492,836
|
488,481
|
||||||
|
Total shareholders’ equity
|
544,507
|
526,443
|
||||||
|
Total
|
$
|
1,521,942
|
$
|
1,497,664
|
||||
See Notes to Consolidated Financial Statements.
CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
(In thousands except share data)
Fiscal years ended
|
||||||||||||
|
July 28, 2017
|
July 29, 2016
|
July 31, 2015
|
||||||||||
|
Total revenue
|
$
|
2,926,289
|
$
|
2,912,351
|
$
|
2,842,284
|
||||||
|
Cost of goods sold (exclusive of depreciation and rent)
|
891,293
|
928,176
|
924,171
|
|||||||||
|
Labor and other related expenses
|
1,017,124
|
1,006,188
|
992,382
|
|||||||||
|
Other store operating expenses
|
563,300
|
554,534
|
523,307
|
|||||||||
|
Store operating income
|
454,572
|
423,453
|
402,424
|
|||||||||
|
General and administrative expenses
|
141,414
|
142,982
|
147,544
|
|||||||||
|
Operating income
|
313,158
|
280,471
|
254,880
|
|||||||||
|
Interest expense
|
14,271
|
14,052
|
16,679
|
|||||||||
|
Income before income taxes
|
298,887
|
266,419
|
238,201
|
|||||||||
|
Provision for income taxes
|
96,988
|
77,120
|
74,298
|
|||||||||
|
Net income
|
$
|
201,899
|
$
|
189,299
|
$
|
163,903
|
||||||
|
Net income per share - basic
|
$
|
8.40
|
$
|
7.91
|
$
|
6.85
|
||||||
|
Net income per share - diluted
|
$
|
8.37
|
$
|
7.86
|
$
|
6.82
|
||||||
|
Basic weighted average shares outstanding
|
24,031,810
|
23,945,041
|
23,918,368
|
|||||||||
|
Diluted weighted average shares outstanding
|
24,118,288
|
24,074,273
|
24,048,924
|
|||||||||
See Notes to Consolidated Financial Statements.
CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
(In thousands)
Fiscal years ended
|
||||||||||||
|
July 28, 2017
|
July 29, 2016
|
July 31, 2015
|
||||||||||
|
Net income
|
$
|
201,899
|
$
|
189,299
|
$
|
163,903
|
||||||
|
Other comprehensive income (loss) before income tax expense (benefit):
|
||||||||||||
|
Change in fair value of interest rate swaps
|
15,402
|
(16,188
|
)
|
1,641
|
||||||||
|
Income tax expense (benefit)
|
5,891
|
(6,173
|
)
|
633
|
||||||||
|
Other comprehensive income (loss), net of tax
|
9,511
|
(10,015
|
)
|
1,008
|
||||||||
|
Comprehensive income
|
$
|
211,410
|
$
|
179,284
|
$
|
164,911
|
||||||
See Notes to Consolidated Financial Statements.
CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands except share data)
|
Common Stock
|
Additional
Paid-In
|
Accumulated
Other
Comprehensive
|
Retained
|
Total
Shareholders’
|
||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Loss
|
Earnings
|
Equity
|
|||||||||||||||||||
|
Balances at August 1, 2014
|
23,821,227
|
$
|
238
|
$
|
39,969
|
$
|
(4,733
|
)
|
$
|
493,167
|
$
|
528,641
|
||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||
|
Net income
|
--
|
--
|
--
|
--
|
163,903
|
163,903
|
||||||||||||||||||
|
Other comprehensive income, net of tax
|
--
|
--
|
--
|
1,008
|
--
|
1,008
|
||||||||||||||||||
|
Total comprehensive income
|
--
|
--
|
--
|
1,008
|
163,903
|
164,911
|
||||||||||||||||||
|
Cash dividends declared - $7.10 per share
|
--
|
--
|
--
|
--
|
(171,383
|
)
|
(171,383
|
)
|
||||||||||||||||
|
Share-based compensation
|
--
|
--
|
16,210
|
--
|
--
|
16,210
|
||||||||||||||||||
|
Issuance of share-based compensation awards, net of shares withheld for employee taxes
|
154,528
|
2
|
(4,818
|
)
|
--
|
--
|
(4,816
|
)
|
||||||||||||||||
|
Tax benefit realized upon exercise of share-based compensation awards
|
--
|
--
|
4,705
|
--
|
--
|
4,705
|
||||||||||||||||||
|
Purchases and retirement of common stock
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||
|
Balances at July 31, 2015
|
23,975,755
|
240
|
56,066
|
(3,725
|
)
|
485,687
|
538,268
|
|||||||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||
|
Net income
|
--
|
--
|
--
|
--
|
189,299
|
189,299
|
||||||||||||||||||
|
Other comprehensive income, net of tax
|
--
|
--
|
--
|
(10,015
|
)
|
--
|
(10,015
|
)
|
||||||||||||||||
|
Total comprehensive income
|
--
|
--
|
--
|
(10,015
|
)
|
189,299
|
179,284
|
|||||||||||||||||
|
Cash dividends declared - $7.70 per share
|
--
|
--
|
--
|
--
|
(186,505
|
)
|
(186,505
|
)
|
||||||||||||||||
|
Share-based compensation
|
--
|
--
|
13,202
|
--
|
--
|
13,202
|
||||||||||||||||||
|
Issuance of share-based compensation awards, net of shares withheld for employee taxes
|
80,379
|
1
|
(5,780
|
)
|
--
|
--
|
(5,779
|
)
|
||||||||||||||||
|
Tax benefit realized upon exercise of share-based compensation awards
|
--
|
--
|
2,626
|
--
|
--
|
2,626
|
||||||||||||||||||
|
Purchases and retirement of common stock
|
(100,000
|
)
|
(1
|
)
|
(14,652
|
)
|
--
|
--
|
(14,653
|
)
|
||||||||||||||
|
Balances at July 29, 2016
|
23,956,134
|
240
|
51,462
|
(13,740
|
)
|
488,481
|
526,443
|
|||||||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||
|
Net income
|
--
|
--
|
--
|
--
|
201,899
|
201,899
|
||||||||||||||||||
|
Other comprehensive income, net of tax
|
--
|
--
|
--
|
9,511
|
--
|
9,511
|
||||||||||||||||||
|
Total comprehensive income
|
--
|
--
|
--
|
9,511
|
201,899
|
211,410
|
||||||||||||||||||
|
Cash dividends declared - $8.15 per share
|
--
|
--
|
--
|
--
|
(197,544
|
)
|
(197,544
|
)
|
||||||||||||||||
|
Share-based compensation
|
--
|
--
|
8,458
|
--
|
--
|
8,458
|
||||||||||||||||||
|
Issuance of share-based compensation awards, net of shares withheld for employee taxes
|
99,548
|
1
|
(6,897
|
)
|
--
|
--
|
(6,896
|
)
|
||||||||||||||||
|
Tax benefit realized upon exercise of share-based compensation awards
|
--
|
--
|
2,636
|
--
|
--
|
2,636
|
||||||||||||||||||
|
Purchases and retirement of common stock
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||
|
Balances at July 28, 2017
|
24,055,682
|
$
|
241
|
$
|
55,659
|
$
|
(4,229
|
)
|
$
|
492,836
|
$
|
544,507
|
||||||||||||
See Notes to Consolidated Financial Statements.
CRACKER BARREL OLD COUNTRY STORE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(In thousands)
Fiscal years ended
|
||||||||||||
|
July 28, 2017
|
July 29, 2016
|
July 31, 2015
|
||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$
|
201,899
|
$
|
189,299
|
$
|
163,903
|
||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
86,319
|
78,223
|
72,955
|
|||||||||
|
Loss on disposition of property and equipment
|
5,585
|
7,146
|
6,872
|
|||||||||
|
Share-based compensation
|
8,458
|
13,202
|
16,210
|
|||||||||
|
Excess tax benefit from share-based compensation
|
(2,636
|
)
|
(2,626
|
)
|
(4,705
|
)
|
||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Accounts receivable
|
1,273
|
(1,339
|
)
|
4,654
|
||||||||
|
Income taxes receivable
|
14,555
|
(13,558
|
)
|
2,973
|
||||||||
|
Inventories
|
(4,059
|
)
|
750
|
12,368
|
||||||||
|
Prepaid expenses and other current assets
|
(1,274
|
)
|
(406
|
)
|
(2,170
|
)
|
||||||
|
Other assets
|
(4,344
|
)
|
130
|
(1,659
|
)
|
|||||||
|
Accounts payable
|
(14,098
|
)
|
(624
|
)
|
34,640
|
|||||||
|
Taxes withheld and accrued
|
(836
|
)
|
(1,500
|
)
|
2,800
|
|||||||
|
Accrued employee compensation
|
9,752
|
(6,246
|
)
|
6,485
|
||||||||
|
Accrued employee benefits
|
(1,169
|
)
|
211
|
1,667
|
||||||||
|
Deferred revenues
|
8,348
|
5,048
|
9,155
|
|||||||||
|
Other current liabilities
|
4,470
|
(3,705
|
)
|
4,034
|
||||||||
|
Other long-term obligations
|
3,461
|
(6,269
|
)
|
11,090
|
||||||||
|
Deferred income taxes
|
5,063
|
13,642
|
(7,217
|
)
|
||||||||
|
Net cash provided by operating activities
|
320,767
|
271,378
|
334,055
|
|||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Purchase of property and equipment
|
(110,591
|
)
|
(114,022
|
)
|
(90,855
|
)
|
||||||
|
Proceeds from insurance recoveries of property and equipment
|
483
|
662
|
365
|
|||||||||
|
Proceeds from sale of property and equipment
|
503
|
845
|
1,876
|
|||||||||
|
Net cash used in investing activities
|
(109,605
|
)
|
(112,515
|
)
|
(88,614
|
)
|
||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Proceeds from issuance of long-term debt
|
--
|
--
|
406,250
|
|||||||||
|
(Taxes withheld) and proceeds from issuance of share-based compensation awards, net
|
(6,896
|
)
|
(5,779
|
)
|
(4,816
|
)
|
||||||
|
Principal payments under long-term debt and other long-term obligations
|
--
|
--
|
(406,250
|
)
|
||||||||
|
Purchases and retirement of common stock
|
--
|
(14,653
|
)
|
--
|
||||||||
|
Deferred financing costs
|
--
|
--
|
(3,537
|
)
|
||||||||
|
Dividends on common stock
|
(196,867
|
)
|
(255,546
|
)
|
(95,699
|
)
|
||||||
|
Excess tax benefit from share-based compensation
|
2,636
|
2,626
|
4,705
|
|||||||||
|
Net cash used in financing activities
|
(201,127
|
)
|
(273,352
|
)
|
(99,347
|
)
|
||||||
|
Net increase (decrease) in cash and cash equivalents
|
10,035
|
(114,489
|
)
|
146,094
|
||||||||
|
Cash and cash equivalents, beginning of year
|
150,966
|
265,455
|
119,361
|
|||||||||
|
Cash and cash equivalents, end of year
|
$
|
161,001
|
$
|
150,966
|
$
|
265,455
|
||||||
|
Supplemental disclosure of cash flow information:
|
||||||||||||
|
Cash paid during the year for:
|
||||||||||||
|
Interest, net of amounts capitalized
|
$
|
12,847
|
$
|
12,752
|
$
|
15,356
|
||||||
|
Income taxes
|
78,092
|
84,868
|
69,948
|
|||||||||
|
Supplemental schedule of non-cash investing and financing activities:
|
||||||||||||
|
Capital expenditures accrued in accounts payable
|
$
|
6,743
|
$
|
6,379
|
$
|
5,800
|
||||||
|
Change in fair value of interest rate swaps
|
15,402
|
(16,188
|
)
|
1,641
|
||||||||
|
Change in deferred tax asset for interest rate swaps
|
(5,891
|
)
|
6,173
|
(633
|
)
|
|||||||
|
Dividends declared but not yet paid
|
31,296
|
30,625
|
99,678
|
|||||||||
See Notes to Consolidated Financial Statements.
CRACKER BARREL OLD COUNTRY STORE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
|
1.
|
Description of the Business
|
Cracker Barrel Old Country Store, Inc. and its affiliates (collectively, in the Notes, the “Company”) are principally engaged in the operation and development in the United States (“U.S.”) of the Cracker Barrel Old Country Store® (“Cracker Barrel”) concept.
|
2.
|
Summary of Significant Accounting Policies
|
GAAP – The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
Fiscal year – The Company’s fiscal year ends on the Friday nearest July 31st and each quarter consists of thirteen weeks unless noted otherwise. References in these Notes to a year or quarter are to the Company’s fiscal year or quarter unless noted otherwise.
Principles of consolidation – The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions and balances have been eliminated.
Cash and cash equivalents – The Company’s policy is to consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts receivable – Accounts receivable represent their estimated net realizable value. Accounts receivable are written off when they are deemed uncollectible.
Inventories – Inventories are stated at the lower of cost or market. Cost of restaurant inventory is determined by the first‑in, first‑out (“FIFO”) method. Retail inventories are valued using the retail inventory method (“RIM”) except at the retail distribution center which uses average cost. Approximately 75% to 85% of retail inventories are valued using RIM and the remaining retail inventories are valued using an average cost method. See Note 4 for additional information regarding the components of inventory.
Valuation provisions are included for retail inventory obsolescence, retail inventory shrinkage, returns and amortization of certain items. Cost of goods sold includes an estimate of retail inventory shrinkage that is adjusted upon physical inventory counts. Annual physical inventory counts are conducted throughout the third quarter based upon a cyclical inventory schedule. An estimate of shrinkage is recorded for the time period between physical inventory counts by using a three-year average of the physical inventories’ results on a store-by-store basis.
Property and equipment – Property and equipment are stated at cost. For financial reporting purposes, depreciation and amortization on these assets are computed by use of the straight‑line and double‑declining balance methods over the estimated useful lives of the respective assets, as follows:
|
Years
|
||||
|
Buildings and improvements
|
30-45
|
|||
|
Buildings under capital leases
|
15-25
|
|||
|
Restaurant and other equipment
|
2-10
|
|||
|
Leasehold improvements
|
1-35
|
|||
Accelerated depreciation methods are generally used for income tax purposes.
Total depreciation expense and depreciation expense related to store operations for each of the three years are as follows:
|
2017
|
2016
|
2015
|
||||||||||
|
Total depreciation expense
|
$
|
85,912
|
$
|
77,816
|
$
|
72,390
|
||||||
|
Depreciation expense related to store operations*
|
79,214
|
71,382
|
66,754
|
|||||||||
*Depreciation expense related to store operations is included in other store operating expenses in the Consolidated Statements of Income.
Gain or loss is recognized upon disposal of property and equipment. The asset and related accumulated depreciation and amortization amounts are removed from the accounts.
Maintenance and repairs, including the replacement of minor items, are charged to expense and major additions to property and equipment are capitalized.
Impairment of long-lived assets – The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying value of the asset to the undiscounted future cash flows expected to be generated by the asset. If the total expected future cash flows are less than the carrying value of the asset, the carrying value is written down, for an asset to be held and used, to the estimated fair value or, for an asset to be disposed of, to the fair value, net of estimated costs of disposal. Any loss resulting from impairment is recognized by a charge to income.
Derivative instruments and hedging activities – The Company is exposed to market risk, such as changes in interest rates and commodity prices. The Company has interest rate risk relative to its outstanding borrowings, which bear interest at the Company’s election either at the prime rate or LIBOR plus a percentage point spread based on certain specified financial ratios under its revolving credit facility (see Note 5). The Company’s policy has been to manage interest cost using a mix of fixed and variable rate debt. To manage this risk in a cost efficient manner, the Company uses derivative instruments, specifically interest rate swaps.
Companies may elect whether or not to offset related assets and liabilities and report the net amount on their financial statements if the right of setoff exists. Under a master netting agreement, the Company has the legal right to offset the amounts owed to the Company against amounts owed by the Company under a derivative instrument that exists between the Company and a counterparty. When the Company is engaged in more than one outstanding derivative transaction with the same counterparty and also has a legally enforceable master netting agreement with that counterparty, its credit risk exposure is based on the net exposure under the master netting agreement. If, on a net basis, the Company owes the counterparty, the Company regards its credit exposure to the counterparty as being zero.
The Company does not hold or use derivative instruments for trading purposes. The Company also does not have any derivatives not designated as hedging instruments and has not designated any non-derivatives as hedging instruments. See Note 6 for additional information on the Company’s derivative and hedging activities.
Segment reporting – Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Using these criteria, the Company manages its business on the basis of one reportable operating segment (see Note 8 for additional information regarding segment reporting).
Revenue recognition – The Company records revenue from the sale of products as they are sold. The Company provides for estimated returns based on return history and sales levels. The Company’s policy is to present sales in the Consolidated Statements of Income on a net presentation basis after deducting sales tax.
Unredeemed gift cards and certificates – Unredeemed gift cards and certificates represent a liability of the Company related to unearned income and are recorded at their expected redemption value. No revenue is recognized in connection with the point-of-sale transaction when gift cards or gift certificates are sold. For those states that exempt gift cards and certificates from their escheat laws, the Company makes estimates of the ultimate unredeemed (“breakage”) gift cards and certificates in the period of the original sale and amortizes this breakage over the redemption period that other gift cards and certificates historically have been redeemed by reducing its liability and recording revenue accordingly. For those states that do not exempt gift cards and certificates from their escheat laws, the Company records breakage in the period that gift cards and certificates are remitted to the state and reduces its liability accordingly. Any amounts remitted to states under escheat or similar laws reduce the Company’s deferred revenue liability and have no effect on revenue or expense while any amounts that the Company is permitted to retain are recorded as revenue.
Insurance – The Company self-insures a significant portion of its workers’ compensation and general liability programs. In 2015, the Company purchased insurance for individual workers’ compensation claims that exceeded $250, $500 or $1,000 depending on the state in which the claim originated. Beginning in 2016, the Company purchases insurance for individual workers’ compensation claims that exceed $250, $750 or $1,000 depending on the state in which the claim originates. The Company purchases insurance for individual general liability claims that exceed $500.
The Company records a reserve for workers’ compensation and general liability for all unresolved claims and for an estimate of incurred but not reported claims (“IBNR”). These reserves and estimates of IBNR claims are based upon a full scope actuarial study which is performed annually at the end of the Company’s third quarter and is adjusted by the actuarially determined losses and actual claims payments for the fourth quarter. Additionally, the Company performs limited scope actuarial studies on a quarterly basis to verify and/or modify the Company’s reserves. The reserves and losses in the actuarial study represent a range of possible outcomes within which no given estimate is more likely than any other estimate. As such, the Company records the losses at the lower end of that range and discounts them to present value using a risk-free interest rate based on projected timing of payments. The Company also monitors actual claims development, including incurrence or settlement of individual large claims during the interim periods between actuarial studies as another means of estimating the adequacy of its reserves.
The Company’s group health plans combine the use of self-insured and fully-insured programs. Benefits for any individual (employee or dependents) in the self-insured program are limited. The Company records a liability for the self-insured portion of its group health program for all unpaid claims based upon a loss development analysis derived from actual group health claims payment experience. The Company also records a liability for unpaid prescription drug claims based on historical experience. The majority of the Company’s fully-insured plans for calendar 2014 contained a retrospective feature which could increase or decrease premiums based on actual claims experience.
Store pre-opening costs – Start-up costs of a new store are expensed when incurred, with the exception of rent expense under operating leases, in which the straight-line rent includes the pre-opening period during construction, as explained further under the “Leases” section in this Note.
Leases – The Company’s leases are classified as either capital or operating leases. The Company has ground leases and office space leases that are recorded as operating leases. The Company also leases its advertising billboards which are recorded as operating leases. A majority of the Company’s lease agreements provide renewal options and some of these options contain rent escalation clauses. Additionally, some of the leases have rent holiday and contingent rent provisions. During rent holiday periods, which include the pre-opening period during construction, the Company has possession of and access to the property, but is not obligated to, and normally does not, make rent payments. Contingent rent is determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability and corresponding rent expense when it is probable sales have been achieved in amounts in excess of the specified levels.
The liabilities under these leases are recognized on the straight-line basis over the shorter of the useful life, with a maximum of 35 years, or the related lease life. The Company uses a lease life that generally begins on the date that the Company becomes legally obligated under the lease, including the rent holiday periods, and generally extends through certain renewal periods that can be exercised at the Company’s option, for which at the inception of the lease, it is reasonably assured that the Company will exercise those renewal options. This lease period is consistent with the period over which leasehold improvements are amortized.
Advertising – The Company expenses the costs of producing advertising the first time the advertising takes place. Other advertising costs are expensed as incurred.
Advertising expense for each of the three years was as follows:
|
2017
|
2016
|
2015
|
||||||||||
|
Advertising expense
|
$
|
83,623
|
$
|
79,409
|
$
|
68,665
|
||||||
Share-based compensation – The Company’s share-based compensation consists of nonvested stock awards and units and performance-based market stock units (“MSU Grants”). Share-based compensation is recorded in general and administrative expenses in the Consolidated Statements of Income. Share-based compensation expense is recognized based on the grant date fair value and the achievement of performance conditions for certain awards. The Company recognizes share-based compensation expense on a straight-line basis over the requisite service period, which is generally the award’s vesting period, or to the date on which retirement eligibility is achieved, if shorter.
Certain nonvested stock awards and units and the Company’s MSU Grants contain performance conditions. Compensation expense for performance-based awards is recognized when it is probable that the performance criteria will be met. If any performance goals are not met, no compensation expense is ultimately recognized and, to the extent previously recognized, compensation expense is reversed.
If a share-based compensation award is modified after the grant date, incremental compensation expense is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Incremental compensation expense for vested awards is recognized immediately. For unvested awards, the sum of the incremental compensation expense and the remaining unrecognized compensation expense for the original award on the modification date is recognized over the modified service period.
Additionally, the Company’s policy is to issue shares of common stock to satisfy exercises of share-based compensation awards.
Income taxes – The Company’s provision for income taxes includes employer tax credits for FICA taxes paid on employee tip income and other employer tax credits are accounted for by the flow-through method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company recognizes (or derecognizes) a tax position taken or expected to be taken in a tax return in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained (or not sustained) upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company recognizes, net of tax, interest and estimated penalties related to uncertain tax positions in its provision for income taxes. See Note 13 for additional information regarding income taxes.
Comprehensive income – Comprehensive income includes net income and the effective unrealized portion of the changes in the fair value of the Company’s interest rate swaps.
Net income per share – Basic consolidated net income per share is computed by dividing consolidated net income to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted consolidated net income per share reflects the potential dilution that could occur if securities, options or other contracts to issue common stock were exercised or converted into common stock and is based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares related to stock options, nonvested stock awards and units and MSU Grants issued by the Company are calculated using the treasury stock method. The outstanding stock options, nonvested stock awards and units and MSU Grants issued by the Company represent the only dilutive effects on diluted consolidated net income per share. See Note 14 for additional information regarding net income per share.
Use of estimates – Management of the Company has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods to prepare these Consolidated Financial Statements in conformity with GAAP. Management believes that such estimates have been based on reasonable and supportable assumptions and that the resulting estimates are reasonable for use in the preparation of the Consolidated Financial Statements. Actual results, however, could differ from those estimates.
Recent Accounting Pronouncements Adopted
Debt Issuance Costs
In April 2015, the Financial Accounting Standards Board (“FASB”) issued accounting guidance which requires debt issuance costs to be presented in the balance sheet as a reduction of the related debt liability rather than as an asset. This accounting guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those years on a retrospective basis. Since this accounting guidance does not pertain to debt issuance costs related to revolving debt agreements, this accounting guidance did not have a significant impact on the Company’s consolidated financial position or results of operations upon adoption in the first quarter of 2017.
Recent Accounting Pronouncements Not Yet Adopted
Revenue Recognition
In May 2014, the FASB issued accounting guidance which clarifies the principles for recognizing revenue and provides a comprehensive model for revenue recognition. Revenue recognition should depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This accounting guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. Early application is permitted for fiscal years beginning after December 15, 2016. A company may apply this accounting guidance either retrospectively or using the cumulative effect transition method. The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2019.
Inventory
In July 2015, the FASB issued accounting guidance which requires companies to measure certain inventory at the lower of cost and net realizable value. This accounting guidance does not apply to inventories measured by using either the last-in, first-out method or the retail inventory method. This accounting guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years on a prospective basis. The Company does not expect that the adoption of this accounting guidance in the first period of 2018 will have a significant impact on the Company’s consolidated financial position or results of operations.
Deferred Taxes
In November 2015, in order to simplify the presentation of deferred income taxes, the FASB issued accounting guidance which requires deferred tax liabilities and assets to be classified as noncurrent in the balance sheet. This accounting guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. This accounting guidance may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. Other than the revised balance sheet presentation of deferred tax liabilities and assets, the Company does not expect that the adoption of this accounting guidance in the first quarter of 2018 on a prospective basis will have a significant impact on the Company’s financial position or results of operations.
Leases
In February 2016, the FASB issued accounting guidance which requires the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The accounting guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years on a modified retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2020.
Recognition of Breakage for Certain Prepaid Stored-Value Products
In March 2016, in order to address diversity in practice related to the derecognition of a prepaid stored-value product liability, the FASB issued accounting guidance requiring breakage for prepaid stored-value product liabilities to be accounted for consistent with the breakage guidance in the revenue recognition standard (see “Revenue Recognition” above). This accounting guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. This accounting guidance may be applied either on a modified retrospective basis or on a retrospective basis. Early application is permitted. The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2019.
Share-Based Payments
In March 2016, the FASB issued accounting guidance in order to simplify certain aspects of the accounting and presentation of share-based payments, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This accounting guidance is effective for fiscal periods beginning after December 15, 2016, and interim periods within those years. This guidance may be applied either on a prospective basis, retrospective basis or a modified retrospective basis depending on the specific accounting topic covered in the accounting guidance. The Company does not expect that the adoption of this accounting guidance in the first quarter of 2018 will have a significant impact on the Company’s consolidated financial position or results of operations.
Modification of Share-Based Payment Awards
In May 2017, the FASB issued accounting guidance to provide clarity, reduce the diversity in practice and to simplify the accounting guidance related to a change to the terms or conditions of a share-based payment award. This new standard provides guidance for evaluating which changes to the terms or conditions of a share-based payment award are substantive and require modification accounting to be applied. This accounting guidance is effective for fiscal periods beginning after December 15, 2017, and interim periods within those years on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adopting this accounting guidance in the first quarter of 2019.
|
3.
|
Fair Value Measurements
|
Fair value for certain of the Company’s assets and liabilities is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, a three level hierarchy for inputs is used. These levels are:
| · |
Quoted Prices in Active Markets for Identical Assets (“Level 1”) – quoted prices (unadjusted) for an identical asset or liability in an active market.
|
| · |
Significant Other Observable Inputs (“Level 2”) – quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
|
| · |
Significant Unobservable Inputs (“Level 3”) – unobservable and significant to the fair value measurement of the asset or liability.
|
The Company’s assets and liabilities measured at fair value on a recurring basis at July 28, 2017 were as follows:
|
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
|
Cash equivalents*
|
$
|
82,524
|
$
|
--
|
$
|
--
|
$
|
82,524
|
||||||||
|
Interest rate swap asset (see Note 6)
|
--
|
32
|
--
|
32
|
||||||||||||
|
Deferred compensation plan assets**
|
31,196
|
--
|
--
|
31,196
|
||||||||||||
|
Total assets at fair value
|
$
|
113,720
|
$
|
32
|
$
|
--
|
$
|
113,752
|
||||||||
|
Interest rate swap liability (see Note 6)
|
$
|
--
|
$
|
6,880
|
$
|
--
|
$
|
6,880
|
||||||||
|
Total liabilities at fair value
|
$
|
--
|
$
|
6,880
|
$
|
--
|
$
|
6,880
|
||||||||
The Company’s assets and liabilities measured at fair value on a recurring basis at July 29, 2016 were as follows:
|
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
|
Cash equivalents*
|
$
|
76,084
|
$
|
--
|
$
|
--
|
$
|
76,084
|
||||||||
|
Interest rate swap asset (see Note 6)
|
--
|
--
|
--
|
--
|
||||||||||||
|
Deferred compensation plan assets**
|
27,764
|
--
|
--
|
27,764
|
||||||||||||
|
Total assets at fair value
|
$
|
103,848
|
$
|
--
|
$
|
--
|
$
|
103,848
|
||||||||
|
Interest rate swap liability (see Note 6)
|
$
|
--
|
$
|
22,250
|
$
|
--
|
$
|
22,250
|
||||||||
|
Total liabilities at fair value
|
$
|
--
|
$
|
22,250
|
$
|
--
|
$
|
22,250
|
||||||||
*Consists of money market fund investments.
**Represents plan assets invested in mutual funds established under a Rabbi Trust for the Company’s non-qualified savings plan and is included in the Consolidated Balance Sheets as other assets (see Note 12).
The Company’s money market fund investments and deferred compensation plan assets are measured at fair value using quoted market prices. The fair values of the Company’s interest rate swap assets and liabilities are determined based on the present value of expected future cash flows. Since the Company’s interest rate swap values are based on the LIBOR forward curve, which is observable at commonly quoted intervals for the full terms of the swaps, it is considered a Level 2 input. Nonperformance risk is reflected in determining the fair value of the interest rate swaps by using the Company’s credit spread less the risk-free interest rate, both of which are observable at commonly quoted intervals for the terms of the swaps. Thus, the adjustment for nonperformance risk is also considered a Level 2 input.
The fair values of accounts receivable and accounts payable at July 28, 2017 and July 29, 2016, approximate their carrying amounts because of their short duration. The fair value of the Company’s variable rate debt, based on quoted market prices, which are considered Level 1 inputs, approximates its carrying amounts at July 28, 2017 and July 29, 2016.
4. Inventories
Inventories were comprised of the following at:
|
July 28, 2017
|
July 29, 2016
|
|||||||
|
Retail
|
$
|
119,446
|
$
|
114,610
|
||||
|
Restaurant
|
20,252
|
21,522
|
||||||
|
Supplies
|
16,669
|
16,176
|
||||||
|
Total
|
$
|
156,367
|
$
|
152,308
|
||||
5. Debt
On January 8, 2015, the Company entered into a five-year $750,000 revolving credit facility (the “Revolving Credit Facility”). At both July 28, 2017 and July 29, 2016, the Company had $400,000 in outstanding borrowings under the Revolving Credit Facility.
At July 28, 2017, the Company had $9,655 of standby letters of credit, which reduce the Company’s borrowing availability under the Revolving Credit Facility (see Note 15). At July 28, 2017, the Company had $340,345 in borrowing availability under the Revolving Credit Facility.
In accordance with the Revolving Credit Facility, outstanding borrowings bear interest, at the Company’s election, either at LIBOR or prime plus a percentage point spread based on certain specified financial ratios. At July 28, 2017 and July 29, 2016, the Company’s outstanding borrowings were swapped at a weighted average interest rates of 3.21% and 3.10%, respectively (see Note 6 for information on the Company’s interest rate swaps).
The Revolving Credit Facility contains customary financial covenants, which include maintenance of a maximum consolidated total leverage ratio and a minimum consolidated interest coverage ratio. At July 28, 2017 and July 29, 2016, the Company was in compliance with all debt covenants.
The Revolving Credit Facility also imposes restrictions on the amount of dividends the Company is permitted to pay and the amount of shares the Company is permitted to repurchase. Under the Revolving Credit Facility, provided there is no default existing and the total of the Company’s availability under the Revolving Credit Facility plus the Company’s cash and cash equivalents on hand is at least $100,000 (the “cash availability”), the Company may declare and pay cash dividends on shares of its common stock and repurchase shares of its common stock (1) in an unlimited amount if at the time such dividend or repurchase is made the Company’s consolidated total leverage ratio is 3.00 to 1.00 or less and (2) in an aggregate amount not to exceed $100,000 in any fiscal year if the Company’s consolidated total leverage ratio is greater than 3.00 to 1.00 at the time the dividend or repurchase is made; notwithstanding (1) and (2), so long as immediately after giving effect to the payment of any such dividends, cash availability is at least $100,000, the Company may declare and pay cash dividends on shares of its common stock in an aggregate amount not to exceed in any fiscal year the product of the aggregate amount of dividends declared in the fourth quarter of the immediately preceding fiscal year multiplied by four.
6. Derivative Instruments and Hedging Activities
For each of the Company’s interest rate swaps, the Company has agreed to exchange with a counterparty the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. The interest rates on the portion of the Company’s outstanding debt covered by its interest rate swaps are fixed at the rates in the table below plus the Company’s credit spread. The Company’s credit spread at July 28, 2017 and July 29, 2016 was 1.00% and 1.25%, respectively. All of the Company’s interest rate swaps are accounted for as cash flow hedges.
A summary of the Company’s interest rate swaps at July 28, 2017 is as follows:
|
Trade Date
|
Effective Date
|
Term
(in Years)
|
Notional Amount
|
Fixed
Rate
|
|||||||||
|
March 18, 2013
|
May 3, 2015
|
3
|
$
|
50,000
|
1.51
|
%
|
|||||||
|
April 22, 2013
|
May 3, 2015
|
3
|
25,000
|
1.30
|
%
|
||||||||
|
April 25, 2013
|
May 3, 2015
|
3
|
25,000
|
1.29
|
%
|
||||||||
|
June 18, 2014
|
May 3, 2015
|
4
|
120,000
|
2.51
|
%
|
||||||||
|
June 24, 2014
|
May 3, 2015
|
4
|
90,000
|
2.51
|
%
|
||||||||
|
July 1, 2014
|
May 5, 2015
|
4
|
90,000
|
2.43
|
%
|
||||||||
|
January 30, 2015
|
May 3, 2019
|
2
|
80,000
|
2.15
|
%
|
||||||||
|
January 30, 2015
|
May 3, 2019
|
2
|
60,000
|
2.16
|
%
|
||||||||
|
January 30, 2015
|
May 4, 2021
|
3
|
120,000
|
2.41
|
%
|
||||||||
|
January 30, 2015
|
May 3, 2019
|
2
|
60,000
|
2.15
|
%
|
||||||||
|
January 30, 2015
|
May 4, 2021
|
3
|
80,000
|
2.40
|
%
|
||||||||
The notional amount for the interest rate swap entered into on June 18, 2014 increases by $40,000 each May over the four-year term of the interest rate swap until the notional amount reaches $160,000 in May 2018. The notional amounts for the interest rate swaps entered into on June 24, 2014 and July 1, 2014 increase by $30,000 each May over the four-year terms of the interest rate swaps until the notional amounts each reach $120,000 in May 2018.
The estimated fair values of the Company’s derivative instruments were as follows:
|
(See Note 3)
|
Balance Sheet Location
|
July 28, 2017
|
July 29, 2016
|
||||||
|
Interest rate swaps
|
Prepaid expenses and other current assets
|
$
|
32
|
$
|
--
|
||||
|
Interest rate swaps
|
Other current liabilities
|
$
|
47
|
$
|
180
|
||||
|
Interest rate swaps
|
Long-term interest rate swap liability
|
6,833
|
22,070
|
||||||
|
Total liabilities
|
$
|
6,880
|
$
|
22,250
|
|||||
*These interest rate swap assets and liabilities are recorded at gross at both July 28, 2017 and July 29, 2016 since there were no offsetting assets and liabilities under the Company’s master netting agreements.
The estimated fair values of the Company’s interest rate swap assets and liabilities incorporate the Company’s non-performance risk. The adjustment related to the Company’s non-performance risk at July 28, 2017 and July 29, 2016 resulted in reductions of $103 and $1,035, respectively, in the total fair value of the interest rate swap assets and liabilities. The offset to the interest rate swap assets and liabilities is recorded in accumulated other comprehensive loss (“AOCL”), net of the deferred tax assets, and will be reclassified into earnings over the term of the underlying debt. As of July 28, 2017, the estimated pre-tax portion of AOCL that is expected to be reclassified into earnings over the next twelve months is $2,538. Cash flows related to the interest rate swaps are included in interest expense and in operating activities.
The following table summarizes the pre-tax effects of the Company’s derivative instruments on AOCL for each of the three years:
|
Amount of Income (Loss) Recognized
in AOCL on Derivatives (Effective
Portion)
|
||||||||||||
|
2017
|
2016
|
2015
|
||||||||||
|
Cash flow hedges:
|
||||||||||||
|
Interest rate swaps
|
$
|
15,402
|
$
|
(16,188
|
)
|
$
|
1,641
|
|||||
The following table summarizes the changes in AOCL, net of tax, related to the Company’s interest rate swaps for the years ended July 28, 2017, July 29, 2016 and July 31, 2015:
|
July 28,
2017
|
July 29,
2016
|
July 31,
2015
|
||||||||||
|
Beginning AOCL balance
|
$
|
(13,740
|
)
|
$
|
(3,725
|
)
|
$
|
(4,733
|
)
|
|||
|
Other comprehensive income (loss) before reclassifications
|
12,082
|
(6,683
|
)
|
5,955
|
||||||||
|
Amounts reclassified from AOCL into earnings
|
(2,571
|
)
|
(3,332
|
)
|
(4,947
|
)
|
||||||
|
Other comprehensive income (loss), net of tax
|
9,511
|
(10,015
|
)
|
1,008
|
||||||||
|
Ending AOCL balance
|
$
|
(4,229
|
)
|
$
|
(13,740
|
)
|
$
|
(3,725
|
)
|
|||
The following table summarizes the pre-tax effects of the Company’s derivative instruments on income for each of the three years:
|
Location of Loss Reclassified from
AOCL into Income (Effective Portion)
|
Amount of Loss Reclassified from AOCL into
Income (Effective Portion)
|
||||||||||||
|
2017
|
2016
|
2015
|
|||||||||||
|
Cash flow hedges:
|
|||||||||||||
|
Interest rate swaps
|
Interest expense
|
$
|
4,163
|
$
|
5,395
|
$
|
8,052
|
||||||
The following table summarizes the amounts reclassified out of AOCL related to the Company’s interest rate swaps for the years ended July 28, 2017, July 29, 2016 and July 31, 2015:
|
Affected Line Item in
the Consolidated
|
|||||||||||||
|
Details about AOCL
|
July 28, 2017
|
July 29, 2016
|
July 31, 2015
|
Statement of Income
|
|||||||||
|
Loss on cash flow hedges:
|
|||||||||||||
|
Interest rate swaps
|
$
|
(4,163
|
)
|
$
|
(5,395
|
)
|
$
|
(8,052
|
)
|
Interest expense
|
|||
|
Tax benefit
|
1,592
|
2,063
|
3,105
|
Provision for income taxes
|
|||||||||
|
$
|
(2,571
|
)
|
$
|
(3,332
|
)
|
$
|
(4,947
|
)
|
Net of tax
|
||||
Any portion of the fair value of the interest rate swaps determined to be ineffective will be recognized currently in earnings. No ineffectiveness has been recorded in 2017, 2016 and 2015.
|
7.
|
Share Repurchases
|
In each of 2017, 2016 and 2015, subject to a maximum amount of $25,000 and the limits imposed by its credit facility, the Company was authorized to repurchase shares at management’s discretion. The Company did not repurchase any shares of its common stock in 2017 and 2015. In 2016, the Company repurchased 100,000 shares of its common stock in the open market at an aggregate cost of $14,653.
|
8.
|
Segment Information
|
Cracker Barrel stores represent a single, integrated operation with two related and substantially integrated product lines. The operating expenses of the restaurant and retail product lines of a Cracker Barrel store are shared and are indistinguishable in many respects. Accordingly, the Company manages its business on the basis of one reportable operating segment. All of the Company’s operations are located within the United States.
Total revenue was comprised of the following at:
|
2017
|
2016
|
2015
|
||||||||||
|
Restaurant
|
$
|
2,351,212
|
$
|
2,323,199
|
$
|
2,269,610
|
||||||
|
Retail
|
575,077
|
589,152
|
572,674
|
|||||||||
|
Total revenue
|
$
|
2,926,289
|
$
|
2,912,351
|
$
|
2,842,284
|
||||||
|
9.
|
Leases
|
As of July 28, 2017, the Company operated 231 stores in leased facilities and also leased certain land, a retail distribution center and advertising billboards.
Rent expense under operating leases, including the sale-leaseback transactions discussed below, for each of the last three years was:
|
Year
|
Minimum
|
Contingent
|
Total
|
|||||||||
|
2017
|
$
|
75,000
|
$
|
252
|
$
|
75,252
|
||||||
|
2016
|
74,405
|
263
|
74,668
|
|||||||||
|
2015
|
72,877
|
252
|
73,129
|
|||||||||
The following is a schedule by year of the future minimum rental payments required under the Company’s operating leases as of July 28, 2017:
|
Year
|
Total
|
|||
|
2018
|
$
|
65,253
|
||
|
2019
|
53,102
|
|||
|
2020
|
48,298
|
|||
|
2021
|
29,993
|
|||
|
2022
|
30,372
|
|||
|
Later years
|
480,140
|
|||
|
Total
|
$
|
707,158
|
||
Sale-Leaseback Transactions
In 2009, the Company completed sale-leaseback transactions involving 15 of its owned stores and its retail distribution center. Under the transactions, the land, buildings and improvements at the locations were sold and leased back for terms of 20 and 15 years, respectively. Equipment was not included. The leases include specified renewal options for up to 20 additional years.
The Company leases 65 of its stores pursuant to a sale-leaseback transaction which closed in 2000. Under the transaction, the land, buildings and building improvements at the locations were sold and leased back for a term of 21 years. The leases for these stores include specified renewal options for up to 20 additional years and have certain financial covenants related to fixed charge coverage for the leased stores. At July 28, 2017 and July 29, 2016, the Company was in compliance with these covenants.
|
10.
|
Share-Based Compensation
|
Stock Compensation Plans
The Company’s employee compensation plans are administered by the Compensation Committee of the Company’s Board of Directors (the “Committee”). The Committee is authorized to determine, at time periods within its discretion and subject to the direction of the Board of Directors, which employees will be granted awards, the number of shares covered by any awards granted, and within applicable limits, the terms and provisions relating to the exercise and vesting of any awards.
The Company has one active compensation plan, the 2010 Omnibus Incentive Compensation Plan (the “2010 Omnibus Plan”), for employees and non-employee directors which authorizes the granting of nonvested stock awards and units, performance-based MSU Grants, stock options and other types of share-based awards. The Company also has stock options outstanding under one other compensation plan in which no future grants may be made.
The 2010 Omnibus Plan allows the Committee to grant awards for an aggregate of 1,500,000 shares of the Company’s common stock. However, this share reserve is increased by shares awarded under this and prior plans which are forfeited, expired, settled for cash and shares withheld by the Company in payment of a tax withholding obligation. Additionally, this share reserve was decreased by shares granted from prior plans after July 30, 2010 until December 1, 2010. At July 28, 2017, the number of shares authorized for future issuance under the Company’s active plan is 1,044,309.
The following table summarizes the number of outstanding awards under each plan at July 28, 2017:
|
2010 Omnibus Plan
|
131,575
|
|||
|
2002 Omnibus Incentive Compensation Plan
|
4,000
|
|||
|
Total
|
135,575
|
Types of Share-Based Awards
Nonvested Stock Awards
Nonvested stock awards consist of the Company’s common stock, generally accrue dividend equivalents and vest over 1–5 years. The fair value of the Company’s nonvested stock awards which accrue dividends is equal to the market price of the Company’s stock at the date of the grant. Dividends are forfeited for any nonvested stock awards that do not vest.
The Company’s nonvested stock awards include its long-term performance plans which were established by the Committee for the purpose of rewarding certain officers with shares of the Company’s common stock if the Company achieved certain performance targets. The stock awards under the long-term performance plans are calculated or estimated based on achievement of financial performance measures.
The following table summarizes the performance periods and vesting periods for the Company’s nonvested stock awards under its long-term performance plans at July 28, 2017:
|
Long-Term Performance Plan (“LTPP”)
|
Performance Period
|
Vesting Period
(in Years)
|
|
2017 LTPP
|
2017 – 2018
|
2 or 3
|
|
2016 LTPP
|
2016 – 2017
|
2 or 3
|
The following table summarizes the shares that have been accrued under the 2017 LTPP and 2016 LTPP at July 28, 2017:
|
2017 LTPP
|
13,704
|
|||
|
2016 LTPP
|
28,797
|
|||
A summary of the Company’s nonvested stock activity as of July 28, 2017, and changes during 2017 are presented in the following table:
|
Nonvested Stock
|
Shares
|
Weighted-Average Grant
Date Fair Value
|
||||||
|
Unvested at July 29, 2016
|
40,437
|
$
|
112.52
|
|||||
|
Granted
|
94,432
|
154.63
|
||||||
|
Vested
|
(102,852
|
)
|
142.93
|
|||||
|
Forfeited
|
--
|
--
|
||||||
|
Unvested at July 28, 2017
|
32,017
|
$
|
139.04
|
|||||
The following table summarizes the total fair value of nonvested stock that vested for each of the three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Total fair value of nonvested stock
|
$
|
14,700
|
$
|
8,418
|
$
|
8,152
|
||||||
Nonvested Stock Units
Beginning in 2017, the Company adopted long-term incentive plans that award nonvested stock units based upon relative total shareholder return. The number of nonvested stock units that will ultimately be awarded and will vest at the end of the applicable three-year performance period is based on relative total shareholder return, which is defined as increases in the Company’s stock price plus dividends paid during the performance period as compared to the total shareholder return of a group of peer companies determined by the Committee. The number of shares awarded at the end of the performance period for each nonvested stock unit may range from 75% to 125% of the target award. The probability of the actual shares expected to be earned is considered in the grant date valuation; therefore, the expense will not be adjusted to reflect the actual units earned. In addition to a service requirement, the vesting of the nonvested stock units is also subject to the achievement of a specified level of operating income during the performance period. If this performance goal is not met, no nonvested stock units will be awarded and no compensation expense will be recorded.
The fair value of the nonvested stock units is determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model uses the average prices for the 60 consecutive calendar days beginning 30 days prior to and ending 30 days after the first business day of the performance period. This model also incorporates the following ranges of assumptions:
| · |
The expected volatilities are the historical volatilities of the Company’s stock and the members of the peer group over the period commensurate with the three-year performance period.
|
| · |
The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period. The risk-free rates for the nonvested stock units granted in 2017 ranged from 1.0% to 1.4%.
|
| · |
The expected dividend yield is assumed to be zero since the award holders are entitled to any dividends paid over the performance period.
|
Dividends accrue on the nonvested stock units. Dividends will be forfeited for nonvested stock units that do not vest.
At July 28, 2017, 3,025 nonvested stock units were accrued.
Performance-Based Market Stock Units
The number of MSU Grants that will ultimately be awarded and will vest at the end of the applicable three-year performance period for each annual plan is based on total shareholder return, which is defined as the change in the Company’s stock price plus dividends paid during the performance period. The number of shares awarded at the end of the performance period will vary in direct proportion to a target number of shares set at the beginning of the period, up to a maximum of 150% of target, based on the change in the Company’s cumulative total shareholder return over the performance period. The probability of the actual shares expected to be earned is considered in the grant date valuation; therefore, the expense will not be adjusted to reflect the actual units earned. In addition to a service requirement, the vesting of the MSU Grants is also subject to the achievement of a specified level of operating income during the performance period. If this performance goal is not met, no MSU Grants will be awarded and no compensation expense will be recorded.
The fair value of the MSU Grants is determined using the Monte-Carlo simulation model, which simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model uses the average prices for the 60 consecutive calendar days beginning 30 days prior to and ending 30 days after the first business day of the performance period. This model also incorporates the following ranges of assumptions:
| · |
The expected volatility is a blend of implied volatility based on market-traded options on the Company’s stock and historical volatility of our stock over the period commensurate with the three-year performance period.
|
| · |
The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period.
|
| · |
The expected dividend yield is assumed to be zero since the award holders are entitled to any dividends paid over the performance period.
|
The following assumptions were used in determining the fair value for the Company’s MSU Grants:
|
Year Ended
|
||||||||
|
July 29, 2016
|
July 31, 2015
|
|||||||
|
Dividend yield***
|
--
|
--
|
||||||
|
Expected volatility
|
23% - 24
|
%
|
21
|
%
|
||||
|
Risk-free interest rate range
|
0.9% - 1.0
|
%
|
1.0
|
%
|
||||
***Dividends accrue on the 2015 and 2016 MSU Grants. Dividends will be forfeited for any MSU Grants that do not vest. No MSU Grants were awarded in 2017.
The following table summarizes the shares that have been accrued under the 2015 MSU Grants and 2016 MSU Grants at July 28, 2017:
|
Shares
|
||||
|
2015 MSU Grants
|
39,467
|
|||
|
2016 MSU Grants
|
14,565
|
|||
Stock Options
Prior to 2012, stock options were granted with an exercise price equal to the market price of the Company’s stock on the grant date; those option awards generally vest at a cumulative rate of 33% per year beginning on the first anniversary of the grant date and expire ten years from the date of grant. No stock options were granted in 2015, 2016 or 2017.
A summary of the Company’s stock option activity as of July 28, 2017, and changes during 2017 are presented in the following table:
|
Fixed Options
|
Shares
|
Weighted-
Average
Price
|
Weighted-Average
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Outstanding at July 29, 2016
|
12,683
|
$
|
32.71
|
|||||||||||||
|
Granted
|
--
|
--
|
||||||||||||||
|
Exercised
|
(8,683
|
)
|
32.64
|
|||||||||||||
|
Forfeited
|
--
|
--
|
||||||||||||||
|
Canceled
|
--
|
--
|
||||||||||||||
|
Outstanding at July 28, 2017
|
4,000
|
$
|
32.86
|
0.33
|
$
|
490
|
||||||||||
|
Exercisable
|
4,000
|
$
|
32.86
|
0.33
|
$
|
490
|
||||||||||
The following table summarizes the total intrinsic values of options exercised during each of the three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Total intrinsic values of options exercised*
|
$
|
1,070
|
$
|
917
|
$
|
4,652
|
||||||
*The intrinsic value for stock options is defined as the difference between the current market value and the grant price.
Compensation Expense
The following table highlights the components of share-based compensation expense for each of the three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Nonvested stock awards and units
|
$
|
6,654
|
$
|
10,277
|
$
|
13,243
|
||||||
|
MSU Grants
|
1,804
|
2,925
|
2,967
|
|||||||||
|
Total compensation expense
|
$
|
8,458
|
$
|
13,202
|
$
|
16,210
|
||||||
The following table highlights the total unrecognized compensation expense related to nonvested stock awards, nonvested stock units and MSU Grants and the weighted-average periods over which the expense is expected to be recognized as of July 28, 2017:
|
Nonvested
Stock Awards
|
Nonvested
Stock Units
|
MSU Grants
|
||||||||||
|
Total unrecognized compensation
|
$
|
2,692
|
$
|
770
|
$
|
862
|
||||||
|
Weighted-average period in years
|
2.12
|
2.01
|
1.02
|
|||||||||
The following table highlights the total income tax benefit recognized in the Consolidated Statements of Income for each of the three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Total income tax benefit
|
$
|
2,740
|
$
|
3,819
|
$
|
5,056
|
||||||
During 2017, the Company issued 99,548 shares of its common stock resulting from the vesting of share-based compensation awards and stock option exercises. Related tax withholding payments on certain share-based compensation awards exceeded proceeds received from the exercise of stock options which resulted in a net reduction to shareholders’ equity of $6,896. The excess tax benefit realized upon exercise of share-based compensation awards was $2,636.
|
11.
|
Shareholder Rights Plan
|
On April 9, 2015, the Company’s Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 per share, and adopted a shareholder rights plan, as set forth in the Rights Agreement dated as of April 9, 2015 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. The dividend was payable on April 20, 2015 to the shareholders of record as of the close of business on April 20, 2015. The Rights Agreement replaced the Company’s previous shareholder rights plan adopted in 2012 (the “2012 Plan”), and it became effective immediately following the expiration of the 2012 Plan at the close of business on April 9, 2015. The 2012 Plan and the preferred share purchase rights issued thereunder expired by their own terms and shareholders of the Company were not entitled to any payment as a result of the expiration of the 2012 Plan.
The Rights
The Rights initially trade with, and are inseparable from, the Company’s common stock. The Rights are evidenced only by the balances indicated in the book-entry account system of the transfer agent for the Company’s common stock or, in the case of certificated shares, the certificates that represent such shares of common stock. New Rights will accompany any new shares of common stock the Company issues after April 20, 2015 until the earlier of the Distribution Date, redemption of the Rights by the Board of Directors or the final expiration date of the Rights Agreement, each as described below.
Exercise Price
Each Right will allow its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock (“Preferred Share”) for $600.00, once the Rights become exercisable. This portion of a Preferred Share will give the shareholder approximately the same dividend and liquidation rights as would one share of common stock. Prior to exercise, the Right does not give its holder any dividend, voting, or liquidation rights.
Exercisability
The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” by obtaining beneficial ownership of 20% or more of the Company’s outstanding common stock.
Shares held by affiliates and associates of an Acquiring Person, and Notional Common Shares (as defined in the Rights Agreement) held by counterparties to a Derivatives Contract (as defined in the Rights Agreement) with an Acquiring Person, will be deemed to be beneficially owned by the Acquiring Person. Certain synthetic interests in securities created by derivative positions – whether or not such interests are considered to be ownership of the underlying common stock or are reportable for purposes of Regulation 13D of the Securities Exchange Act – are treated as beneficial ownership of the number of shares of the Company’s common stock equivalent to the economic exposure created by the derivative.
The date when the Rights become exercisable is the “Distribution Date.” Until the Distribution Date, the common stock certificates will evidence the Rights, and any transfer of shares of common stock will constitute a transfer of Rights. After that date, the Rights will separate from the common stock and will be evidenced by book-entry credits or by Rights certificates that the Company will mail to all eligible holders of common stock. Any Rights held by an Acquiring Person will be void and may not be exercised.
At July 28, 2017, none of the Rights were exercisable.
Consequences of a Person or Group Becoming an Acquiring Person
If a person or group becomes an Acquiring Person, after the Distribution Date, each Right will generally entitle the holder, except the Acquiring Person or any associate or affiliate thereof, to acquire, for the exercise price of $600.00 per Right (subject to adjustment as provided in the Rights Agreement), shares of the Company’s common stock (or, in certain circumstances, Preferred Shares) having a market value equal to twice the Right’s then-current exercise price. In addition, if, the Company is later acquired in a merger or similar transaction after the Distribution Date, each Right will generally entitle the holder, except the Acquiring Person or any associate or affiliate thereof, to acquire, for the exercise price of $600.00 per Right (subject to adjustment as provided in the Rights Agreement), shares of the acquiring corporation having a market value equal to twice the Right’s then-current exercise price.
Preferred Share Provisions
Each one one-hundredth of a Preferred Share, if issued:
| · |
will not be redeemable.
|
| · |
will entitle holders to quarterly dividend payments of $0.01 per share, or an amount equal to the dividend paid on one share of common stock, whichever is greater.
|
| · |
will entitle holders upon liquidation either to receive $1.00 per share or an amount equal to the payment made on one share of common stock, whichever is greater.
|
| · |
will have the same voting power as one share of common stock.
|
| · |
if shares of the Company’s common stock are exchanged via merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to the payment made on one share of common stock.
|
The value of one one-hundredth of a Preferred Share will generally approximate the value of one share of common stock.
Redemption
The Board of Directors may redeem the Rights for $0.01 per Right at any time before any person or group becomes an Acquiring Person. If the Board of Directors redeems any Rights, it must redeem all of the Rights. Once the Rights are redeemed, the only right of the holders of Rights will be to receive the redemption price of $0.01 per Right. The redemption price will be adjusted if the Company has a stock split or stock dividends of its common stock.
Qualifying Offer Provision
The Rights would also not interfere with all-cash, fully financed tender offers for all shares of common stock that remain open for a minimum of 60 business days, are subject to a minimum condition of a majority of the outstanding shares and provide for a 20-business day “subsequent offering period” after consummation (such offers are referred to as “qualifying offers”). In the event the Company receives a qualifying offer and the Board of Directors has not redeemed the Rights prior to the consummation of such offer, the consummation of the qualifying offer shall not cause the offeror or its affiliates or associates to become an Acquiring Person, and the Rights will immediately expire upon consummation of the qualifying offer.
Exchange
After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the Company’s outstanding common stock, the Board of Directors may extinguish the Rights by exchanging one share of common stock or an equivalent security for each Right, other than Rights held by the Acquiring Person.
Anti-Dilution Provisions
The Board of Directors may adjust the purchase price of the Preferred Shares, the number of Preferred Shares issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Preferred Shares or common stock. No adjustments to the Exercise Price of less than 1% will be made.
Amendments
The terms of the Rights Agreement may be amended by the Board of Directors without the consent of the holders of the Rights. After a person or group becomes an Acquiring Person, the Board of Directors may not amend the agreement in a way that adversely affects holders of the Rights.
Expiration
The Rights will expire on April 9, 2018.
|
12.
|
Employee Savings Plans
|
The Company sponsors a qualified defined contribution retirement plan (“401(k) Savings Plan”) covering salaried and hourly employees who have completed ninety days of service and have attained the age of twenty-one. This plan allows eligible employees to defer receipt of up to 50% of their compensation, as defined in the plan. The Company also sponsors a non-qualified defined contribution retirement plan (“Non-Qualified Savings Plan”) covering highly compensated employees, as defined in the plan. This plan allows eligible employees to defer receipt of up to 50% of their base compensation and 100% of their eligible bonuses, as defined in the plan.
Contributions under both plans may be invested in various investment funds at the employee’s discretion. Such contributions, including the Company’s matching contributions described below, may not be invested in the Company’s common stock. In 2017, 2016 and 2015, the Company matched 25% of employee contributions for each participant in either plan up to a total of 6% of the employee’s compensation. Employee contributions vest immediately while Company contributions vest 20% annually beginning on the first anniversary of a contribution date and are vested 100% on the fifth anniversary of such contribution date.
At the inception of the Non-Qualified Savings Plan, the Company established a Rabbi Trust to fund the plan’s obligations. The market value of the trust assets for the Non-Qualified Savings Plan of $31,196 is included in other assets and the related liability to the participants of $31,196 is included in other long-term obligations in the Consolidated Balance Sheets. Company contributions under both plans are recorded as either labor and other related expenses or general and administrative expenses in the Consolidated Statements of Income.
The following table summarizes the Company’s contributions for each plan for each of the three years:
|
2017
|
2016
|
2015
|
||||||||||
|
401(k) Savings Plan
|
$
|
2,501
|
$
|
2,528
|
$
|
2,364
|
||||||
|
Non-Qualified Savings Plan
|
291
|
296
|
234
|
|||||||||
|
13.
|
Income Taxes
|
The components of the provision for income taxes for each of the three years were as follows:
|
2017
|
2016
|
2015
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$
|
83,743
|
$
|
62,054
|
$
|
71,386
|
||||||
|
State
|
7,567
|
6,447
|
6,050
|
|||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
4,696
|
12,477
|
(6,178
|
)
|
||||||||
|
State
|
982
|
(3,858
|
)
|
3,040
|
||||||||
|
Total provision for income taxes
|
$
|
96,988
|
$
|
77,120
|
$
|
74,298
|
||||||
A reconciliation of the Company’s provision for income taxes and income taxes based on the statutory U.S. federal rate of 35% was as follows:
|
2017
|
2016
|
2015
|
||||||||||
|
Provision computed at federal statutory income tax rate
|
$
|
104,611
|
$
|
93,247
|
$
|
83,370
|
||||||
|
State and local income taxes, net of federal benefit
|
5,856
|
1,427
|
6,378
|
|||||||||
|
Employer tax credits for FICA taxes paid on employee tip income
|
(11,543
|
)
|
(11,048
|
)
|
(10,681
|
)
|
||||||
|
Other employer tax credits
|
(2,814
|
)
|
(7,326
|
)
|
(5,058
|
)
|
||||||
|
Other-net
|
878
|
820
|
289
|
|||||||||
|
Total provision for income taxes
|
$
|
96,988
|
$
|
77,120
|
$
|
74,298
|
||||||
Significant components of the Company’s net deferred tax liability consisted of the following at:
|
July 28, 2017
|
July 29, 2016
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Compensation and employee benefits
|
$
|
10,110
|
$
|
13,937
|
||||
|
Deferred rent
|
18,270
|
17,183
|
||||||
|
Accrued liabilities
|
13,233
|
12,466
|
||||||
|
Insurance reserves
|
12,401
|
11,444
|
||||||
|
Inventory
|
4,411
|
4,368
|
||||||
|
Other
|
2,767
|
8,718
|
||||||
|
Deferred tax assets
|
$
|
61,192
|
$
|
68,116
|
||||
|
Deferred tax liabilities:
|
||||||||
|
Property and equipment
|
$
|
100,373
|
$
|
97,695
|
||||
|
Inventory
|
10,906
|
9,803
|
||||||
|
Other
|
12,273
|
12,024
|
||||||
|
Deferred tax liabilities
|
123,552
|
119,522
|
||||||
|
Net deferred tax liability
|
$
|
62,360
|
$
|
51,406
|
||||
The Company believes that adequate amounts of tax, interest and penalties have been provided for potential tax uncertainties; these amounts are included in other long-term liabilities in the Consolidated Balance Sheets. As of July 28, 2017 and July 29, 2016, the Company’s gross liability for uncertain tax positions, exclusive of interest and penalties, was $20,731 and $21,899, respectively. Summarized below is a tabular reconciliation of the beginning and ending balance of the Company’s total gross liability for uncertain tax positions exclusive of interest and penalties:
|
July 28, 2017
|
July 29, 2016
|
July 31, 2015
|
||||||||||
|
Balance at beginning of year
|
$
|
21,899
|
$
|
25,507
|
$
|
22,832
|
||||||
|
Tax positions related to the current year:
|
||||||||||||
|
Additions
|
4,003
|
4,860
|
3,994
|
|||||||||
|
Reductions
|
--
|
--
|
--
|
|||||||||
|
Tax positions related to the prior year:
|
||||||||||||
|
Additions
|
582
|
2,186
|
118
|
|||||||||
|
Reductions
|
(2,966
|
)
|
(6,896
|
)
|
(227
|
)
|
||||||
|
Settlements
|
(1,027
|
)
|
(2,324
|
)
|
(204
|
)
|
||||||
|
Expiration of statute of limitations
|
(1,760
|
)
|
(1,434
|
)
|
(1,006
|
)
|
||||||
|
Balance at end of year
|
$
|
20,731
|
$
|
21,899
|
$
|
25,507
|
||||||
If the Company were to prevail on all uncertain tax positions, the reversal of this accrual would be a tax benefit to the Company and impact the effective tax rate. The following table highlights the amount of uncertain tax positions, exclusive of interest and penalties, which, if recognized, would affect the effective tax rate for each of the three years:
|
2017
|
2016
|
2015
|
||||||||||
|
Uncertain tax positions
|
$
|
13,475
|
$
|
14,234
|
$
|
16,579
|
||||||
The Company had $6,128, $5,497 and $9,754 in interest and penalties accrued as of July 28, 2017, July 29, 2016, and July 31, 2015, respectively.
The Company recognized accrued interest and penalties related to unrecognized tax benefits of $631, $(4,256) and $1,194 in its provision for income taxes on July 28, 2017, July 29, 2016 and July 31, 2015, respectively. The increase from 2016 to 2017 and the decrease from 2015 to 2016 both are attributable to the Company’s revaluation of select reserves and audit settlements in 2016.
In many cases, the Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing authorities. Based on the outcome of these examinations or as a result of the expiration of the statutes of limitations for specific taxing jurisdictions, it is reasonably possible that the related uncertain tax positions taken regarding previously filed tax returns could decrease from those recorded as liabilities for uncertain tax positions in the Company’s financial statements at July 28, 2017 by approximately $3,000 to $4,000 within the next twelve months. At July 28, 2017, the Company was subject to income tax examinations for its U.S. federal income taxes after 2013 and for state and local income taxes generally after 2013.
|
14.
|
Net Income Per Share and Weighted Average Shares
|
The following table reconciles the components of diluted earnings per share computations:
|
2017
|
2016
|
2015
|
||||||||||
|
Net income per share numerator
|
$
|
201,899
|
$
|
189,299
|
$
|
163,903
|
||||||
|
Net income per share denominator:
|
||||||||||||
|
Basic weighted average shares outstanding
|
24,031,810
|
23,945,041
|
23,918,368
|
|||||||||
|
Add potential dilution:
|
||||||||||||
|
Stock options, nonvested stock awards and MSU Grants
|
86,478
|
129,232
|
130,556
|
|||||||||
|
Diluted weighted average shares outstanding
|
24,118,288
|
24,074,273
|
24,048,924
|
|||||||||
|
15.
|
Commitments and Contingencies
|
The Company and its subsidiaries are party to various legal and regulatory proceedings and claims incidental to their business in the ordinary course. In the opinion of management, based upon information currently available, the ultimate liability with respect to these proceedings and claims will not materially affect the Company’s consolidated results of operations or financial position.
The Company maintains insurance coverage for various aspects of its business and operations. The Company has elected, however, to retain all or a portion of losses that occur through the use of various deductibles, limits and retentions under its insurance programs. This situation may subject the Company to some future liability for which it is only partially insured, or completely uninsured. The Company intends to mitigate any such future liability by continuing to exercise prudent business judgment in negotiating the terms and conditions of its contracts. See Note 2 for a further discussion of insurance and insurance reserves.
Related to its insurance coverage, the Company is contingently liable pursuant to standby letters of credit as credit guarantees to certain insurers. As of July 28, 2017, the Company had $9,655 of standby letters of credit related to securing reserved claims under workers’ compensation insurance. All standby letters of credit are renewable annually and reduce the Company’s borrowing availability under its Revolving Credit facility (see Note 5).
As of July 28, 2017, the Company is secondarily liable for lease payments associated with two properties. The Company is not aware of any non-performance under these lease arrangements that would result in the Company having to perform in accordance with the terms of these guarantees, and therefore, no provision has been recorded in the Consolidated Balance Sheets for amounts to be paid in case of non-performance by the third party by the primary obligor under such lease agreements.
The Company enters into certain indemnification agreements in favor of third parties in the ordinary course of business. The Company believes that the probability of incurring an actual liability under other indemnification agreements is sufficiently remote so that no liability has been recorded in the Consolidated Balance Sheet.
|
16.
|
Quarterly Financial Data (Unaudited)
|
Quarterly financial data for 2017 and 2016 are summarized as follows:
|
1st Quarter
|
2nd Quarter
|
3rd Quarter
|
4th Quarter
|
|||||||||||||
|
2017
|
||||||||||||||||
|
Total revenue
|
$
|
709,971
|
$
|
772,682
|
$
|
700,410
|
$
|
743,226
|
||||||||
|
Store operating income
|
109,832
|
117,513
|
107,478
|
119,749
|
||||||||||||
|
Income before income taxes
|
72,068
|
79,058
|
68,089
|
79,672
|
||||||||||||
|
Net income
|
48,355
|
52,727
|
46,924
|
53,893
|
||||||||||||
|
Net income per share – basic
|
2.01
|
2.19
|
1.95
|
2.24
|
||||||||||||
|
Net income per share – diluted
|
2.01
|
2.19
|
1.95
|
2.23
|
||||||||||||
|
2016
|
||||||||||||||||
|
Total revenue
|
$
|
702,629
|
$
|
764,002
|
$
|
700,136
|
$
|
745,584
|
||||||||
|
Store operating income
|
99,627
|
106,032
|
103,419
|
114,375
|
||||||||||||
|
Income before income taxes
|
61,764
|
66,956
|
63,592
|
74,107
|
||||||||||||
|
Net income
|
40,865
|
48,242
|
49,169
|
51,023
|
||||||||||||
|
Net income per share – basic
|
1.71
|
2.02
|
2.05
|
2.13
|
||||||||||||
|
Net income per share – diluted
|
1.70
|
2.01
|
2.04
|
2.12
|
||||||||||||
None.
Our management, with the participation of our principal executive and financial officers, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that, as of July 28, 2017, our disclosure controls and procedures were effective.
There have been no changes (including corrective actions with regard to significant deficiencies and material weaknesses) during the quarter ended July 28, 2017 in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). We maintain a system of internal controls that is designed to provide reasonable assurance in a cost-effective manner as to the fair and reliable preparation and presentation of the consolidated financial statements, as well as to safeguard assets from unauthorized use or disposition.
Our control environment is the foundation for our system of internal control over financial reporting and is embodied in our Corporate Governance Guidelines, our Financial Code of Ethics, and our Code of Business Conduct and Ethics, all of which may be viewed on our website. They set the tone for our organization and include factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policies and procedures, which are reviewed, modified and improved as changes occur in business conditions and operations. Neither our disclosure controls and procedures nor our internal controls, however, can or will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion based on this evaluation. We have concluded that our internal control over financial reporting was effective as of July 28, 2017, based on these criteria.
In addition, Deloitte & Touche LLP, an independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting, which is included herein.
|
/s/Sandra B. Cochran
|
|
|
Sandra B. Cochran
|
|
|
President and Chief Executive Officer
|
|
/s/Jill M. Golder
|
|
|
Jill M. Golder
|
|
|
Senior Vice President and Chief Financial Officer
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Cracker Barrel Old Country Store, Inc.
Lebanon, Tennessee
We have audited the internal control over financial reporting of Cracker Barrel Old Country Store, Inc. and its subsidiaries (the “Company”) as of July 28, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 28, 2017, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended July 28, 2017, and our report dated September 22, 2017 expressed an unqualified opinion on those consolidated financial statements.
|
/s/ Deloitte & Touche LLP
|
|
Nashville, Tennessee
|
|
September 22, 2017
|
None
PART III
The information required by this Item with respect to directors of the Company is incorporated herein by this reference to the following sections of the 2017 Proxy Statement: “Board of Directors and Committees,” “Proposal 1: Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Certain Relationships and Related Transactions—Code of Ethics.” The information required by this Item with respect to executive officers of the Company is set forth in Part I of this Annual Report on Form 10-K under the heading “Executive Officers of the Registrant.”
The information required by this Item is incorporated herein by this reference to the following sections of the 2017 Proxy Statement: “Executive Compensation” and “Board of Directors and Committees—Compensation of Directors.” The “Compensation Committee Report” set forth in the section of the 2017 Proxy Statement entitled “Executive Compensation” is deemed to be “furnished” and is not, and shall not be deemed to be, “filed” for purposes of Section 18 of the Exchange Act.
| ITEM 12. |
The information required by this Item is incorporated herein by this reference to the sections entitled “Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 2017 Proxy Statement.
The information required by this Item is incorporated herein by this reference to the sections entitled “Certain Relationships and Related Transactions” and “Director Independence” in the 2017 Proxy Statement.
The information required by this Item is incorporated herein by this reference to the sections entitled “Fees Paid to Auditors” and “Audit Committee Report” in the 2017 Proxy Statement. No other portion of the section of the 2017 Proxy Statement entitled “Audit Committee Report” is, nor shall it be deemed to be, incorporated by reference into this Annual Report on Form 10-K.
PART IV
|
(a)
|
List of documents filed as part of this report:
|
|
1.
|
All financial statements – see Item 8.
|
|
|
2.
|
All schedules have been omitted since they are either not required or not applicable, or the required information is included.
|
|
|
3.
|
The exhibits listed in the accompanying Index to Exhibits immediately prior to the signature page to this Annual Report on Form 10-K.
|
|
Exhibit
|
|
|
Amended and Restated Charter of Cracker Barrel Old Country Store, Inc. (1)
|
|
|
Amended and Restated Bylaws of Cracker Barrel Old Country Store, Inc. (2)
|
|
|
Credit Agreement, dated as of January 8, 2015, among Cracker Barrel Old Country Store, Inc., the Subsidiary Guarantors named therein, the Lenders party thereto, and Wells Fargo Bank, National Association as Administrative Agent and Collateral Agent (3)
|
|
|
Rights Agreement, dated as of April 9, 2015, between Cracker Barrel Old Country Store, Inc. and American Stock Transfer & Trust Company, LLC, as rights agent (4)
|
|
|
Form of Stock Option Award under the CBRL Group, Inc. 2002 Omnibus Incentive Compensation Plan† (5)
|
|
|
Master Lease, dated July 31, 2000, between Country Stores Property I, LLC, as Lessor, and Cracker Barrel Old Country Store, Inc., as Lessee, for lease of 21 Cracker Barrel Old Country Store® sites (6)
|
|
|
Master Lease, dated July 31, 2000, between Country Stores Property I, LLC, as Lessor, and Cracker Barrel Old Country Store, Inc., as Lessee, for lease of nine Cracker Barrel Old Country Store® sites (filed herewith)
|
|
|
Master Lease, dated July 31, 2000, between Country Stores Property II, LLC, as Lessor, and Cracker Barrel Old Country Store, Inc., as Lessee, for lease of 23 Cracker Barrel Old Country Store® sites (filed herewith)
|
|
|
Master Lease, dated July 31, 2000, between Country Stores Property III, LLC, as Lessor, and Cracker Barrel Old Country Store, Inc., as Lessee, for lease of 12 Cracker Barrel Old Country Store® sites (filed herewith)
|
|
|
Cracker Barrel Old Country Store, Inc. Amended and Restated Stock Option Plan (as amended to date)† (7)
|
|
|
Cracker Barrel Old Country Store, Inc. Corporate Policy—Severance Benefits Policy (as amended to date)† (8)
|
|
|
Cracker Barrel Old Country Store, Inc. 2002 Omnibus Incentive Compensation Plan (as amended to date)† (9)
|
|
|
Cracker Barrel Old Country Store, Inc. 2010 Omnibus Stock and Incentive Plan† (10)
|
|
|
Cracker Barrel Old Country Store, Inc. Form of Performance-Based Stock Unit Award† (11)
|
|
|
Cracker Barrel Old Country Store, Inc. Non-Qualified Savings Plan (as amended to date)† (12)
|
|
|
Cracker Barrel Old Country Store, Inc. Deferred Compensation Plan† (13)
|
|
|
Amendment to Deferred Compensation Plan†(14)
|
|
|
Executive Employment Agreement with Sandra B. Cochran, dated as of September 26, 2013† (15)
|
|
|
Cracker Barrel Old Country Store, Inc. Form of Restricted Stock Award Notice† (16)
|
|
|
Cracker Barrel Old Country Store, Inc. and Subsidiaries FY 2015 Long-Term Incentive Program† (17)
|
|
|
Form of Change in Control and Severance Agreement between Cracker Barrel Old Country Store, Inc. and certain of its named officers† (18)
|
|
|
Change in Control and Severance Agreement with Nicholas V. Flanagan, dated May 22, 2015† (filed herewith)
|
|
|
Retirement Agreement with Lawrence E. Hyatt, dated as of September 25, 2015† (19)
|
|
|
Cracker Barrel Old Country Store, Inc. and Subsidiaries FY 2016 Long-Term Incentive Program† (20)
|
|
|
Change in Control and Severance Agreement with Jill Golder, dated April 28, 2016† (21)
|
|
|
Cracker Barrel Old Country Store, Inc. and Subsidiaries FY 2017 Annual Bonus Plan† (22)
|
|
|
Cracker Barrel Old Country Store, Inc. and Subsidiaries FY 2017 Long-Term Incentive Program† (23)
|
|
|
Subsidiaries of the Registrant (filed herewith)
|
|
|
Consent of Independent Registered Public Accounting Firm - Deloitte & Touche LLP (filed herewith)
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
|
101.INS
|
XBRL Instance Document (filed herewith)
|
|
101.SCH
|
XBRL Taxonomy Extension Schema (filed herewith)
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase (filed herewith)
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase (filed herewith)
|
|
(1)
|
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on April 10, 2012 (Commission File No. 000-25225).
|
|
(2)
|
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on February 24, 2012 (Commission File No. 000-25225).
|
|
(3)
|
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on January 9, 2015.
|
|
(4)
|
Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on April 9, 2015.
|
|
(5)
|
Incorporated by reference to Exhibit 10(l) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 29, 2005 (Commission File No. 000-25225).
|
|
(6)
|
Incorporated by reference to Exhibit 10(r) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 28, 2000 (Commission File No. 000-25225).
|
|
(7)
|
Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act for the quarterly period ended January 30, 2009 (Commission File No. 000-25225).
|
|
(8)
|
Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act for the quarterly period ended May 1, 2009 (Commission File No. 000-25225).
|
|
(9)
|
Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed under the Exchange Act for the quarterly period ended January 29, 2010 (Commission File No. 000-25225).
|
|
(10)
|
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on December 7, 2010 (Commission File No. 000-25225).
|
|
(11)
|
Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the Exchange Act on December 7, 2010 (Commission File No. 000-25225).
|
|
(12)
|
Incorporated by reference to Exhibit 10(aa) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 29, 2011 (Commission File No. 000-25225).
|
|
(13)
|
Incorporated by reference to Exhibit 10(bb) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 29, 2011 (Commission File No. 000-25225).
|
|
(14)
|
Incorporated by reference to Exhibit 10(cc) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended July 29, 2011 (Commission File No. 000-25225).
|
|
(15)
|
Incorporated by reference to Exhibit 10(dd) to the Company’s Annual Report on Form 10-K filed under the Exchange Act for the fiscal year ended August 2, 2013.
|
|
(16)
|
Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed under the Exchange Act on July 31, 2013.
|
|
(17)
|
Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the Exchange Act on October 7, 2014.
|
|
(18)
|
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on May 22, 2015.
|
|
(19)
|
Incorporated by reference to Exhibit 10(z) to the Company’s Annual Report on Form 10-K filed under the Exchange Act on September 29, 2015.
|
|
(20)
|
Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the Exchange Act on September 30, 2015.
|
|
(21)
|
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on April 29, 2016.
|
|
(22)
|
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed under the Exchange Act on October 28, 2016.
|
|
(23)
|
Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed under the Exchange Act on October 28, 2016.
|
|
†Denotes management contract or compensatory plan, contract or arrangement.
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 22nd day of September, 2017.
|
CRACKER BARREL OLD COUNTRY STORE, INC.
|
||
| By: | ||
|
/s/Sandra B. Cochran
|
||
|
Sandra B. Cochran,
|
||
|
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities on this 22nd day of September, 2017.
|
Name
|
Title |
|
/s/Sandra B. Cochran
Sandra B. Cochran
|
President, Chief Executive Officer and Director
|
|
/s/Jill M. Golder
Jill M. Golder
|
Senior Vice President and Chief Financial Officer (Principal Financial Officer)
|
|
/s/Jeffrey M. Wilson
Jeffrey M. Wilson
|
Vice President, Corporate Controller (Principal Accounting Officer)
|
|
/s/Thomas H. Barr
Thomas H. Barr
|
Director
|
|
/s/James W. Bradford
James W. Bradford
|
Director and Chairman of the Board
|
|
/s/Meg G. Crofton
Meg G. Crofton
|
Director
|
|
/s/Glenn A. Davenport
Glenn A. Davenport
|
Director
|
|
/s/Richard J. Dobkin
Richard J. Dobkin
|
Director
|
|
/s/Norman E. Johnson
Norman E. Johnson
|
Director
|
|
/s/William W. McCarten
William W. McCarten
|
Director
|
|
/s/Coleman H. Peterson
Coleman H. Peterson
|
Director
|
|
/s/Andrea M. Weiss
Andrea M. Weiss
|
Director
|
75
Exhibit 10(d)
MASTER LEASE
THIS MASTER LEASE (this "Lease") is made as of July 21, 2000 (the "Effective Date"), by and between COUNTRY STORES PROPERTY I, LLC, a Delaware limited liability company ("Lessor"), whose address is c/o U.S. Realty Advisors, LLC, 1370 Avenue of the Americas, New York, New York 10019, and CRACKER BARREL OLD COUNTRY STORE, INC., a Tennessee corporation ("Lessee"), whose address is P.O. Box 787, 305 Hartmann Drive, Lebanon, Tennessee 37088-0787.
WITNESSETH:
THAT, in consideration of the mutual covenants and agreements herein contained, Lessor and Lessee hereby covenant and agree as follows:
1. Certain Defined Terms. The following terms shall have the following meanings for all purposes of this Lease:
"Acknowledgement" means the Acknowledgement of Lease Assignment dated as of the date of this Lease among Lessor, Lessee, Lender and Remainderman. A duplicate original Acknowledgement will be executed and recorded in the applicable real property records for each Property.
"ADA'' is defined in Section 16.C.
"Additional Rental is defined in Section 5.B.
"Affiliate" means any Person which directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, "controls", "under common control with" and "controlled by" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise.
"Aggregate Base Annual Rental means, collectively, the Base Annual Rental and the Related Base Annual Rental.
"Aggregate Fixed Charge Coverage Ratio” shall have the meaning set forth in Section 8.A.
"Aggregate Gross Sales" means, collectively, the Gross Sales and the Related Gross Sales.
"Aggregate Purchase Price" means, collectively, the Purchase Price and the Related Purchase Price.
"Applicable Percentage" means the percentage set forth in Schedule I to the Sale- Leaseback Agreement with respect to the applicable Property, which percentage shall be adjusted as appropriate by Lessor to reflect the release of individual Properties from this Lease.
"Applicable Regulations" means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of each Governmental Authority having jurisdiction over Lessee and/or any of the Properties, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements and all applicable standards of the National Board of Fire Underwriters and the ADA, in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment applicable to Lessee.
"Approved Institution" means any domestic federal or state charted commercial bank located in any of the cities listed on the attached Schedule II and having, at the time of selection, (i) a long-term deposit or long-term unsecured debt rating of at least AA or its equivalent issued by Standard & Poors Rating Group, Moody's Investors Service, Inc., any successor to such agencies or any other nationally recognized credit rating agency, and (ii) combined capital and surplus in excess of $100,000,000.00.
"Base Annual Rental means $2,179,673.64.
"Base Monthly Rental means an amount equal to 1/12 of the applicable Base Annual Rental.
"Business Day" means a day on which national banks are not required or authorized to remain closed.
"Capital Lease" is defined in Section 8.A.
"Casualty" is defined in Section 21.A.
"Casualty Substitution Offer" is defined in Section 21.C.
"Casualty/Condemnation Substitution" is defined in Section 55.A(i).
"Casualty Termination Payment" is defined in Section 21.C.
"Confidential Information" means, except as otherwise contemplated by Section 59, all proprietary or confidential or nonpublic information relating to restaurant and retail operations, menu and recipe, marketing, business strategy, trade secrets relating to or used by Lessee or its Affiliates in their businesses or being developed for their use, capital structure and financial matters, including, without limitation, Store Income Statements, forecasts and projections.
"Condemnation Substitution Offer" is defined in Section 21.G.
"Condemnation Termination Payment" is defined in Section 21.G.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended.
"Debt" is defined in Section 8.A.
"Deeds" is defined in the Sale-Leaseback Agreement.
"De Minimis Amounts" shall mean (i) with respect to any presence, Release or Threatened Release of Hazardous Materials, those quantities of Hazardous Materials in any form or combination of forms, which do not constitute a violation requiring regulation or remediation under any Environmental Laws in the state in which the affected Property is located, and (ii) with respect to the use or storage of Hazardous Materials in or upon any of the Properties, those quantities of Hazardous Materials customarily employed in the ordinary course of, or associated with, the operation of a Permitted Facility and used or stored in compliance with Environmental Laws.
"Default Rate" means 18% per annum or the highest rate permitted by law, whichever is less.
"Depreciation and Amortization" is defined in Section 8.A.
"Disclosures" is defined in Section 8.C.
"Early Substitution Date" is defined in Section 55.A.
"Early Substitution Termination Date" is defined in Section 55.A.
"Economic Substitution" is defined in Section 55.A(ii).
"Economic Substitution Offer" is defined in Section 57(i).
"Economic Termination Payment" is defined in Section 57(ii).
"Effective Date" is defined in the Preamble.
"Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding any of the Properties, whether or not yet discovered, which could or does result in any damage, loss, cost, expense, claim, demand, order or liability to or against Lessee or Lessor by any third party (including, without limitation, any Governmental Authority), including, without limitation, any condition resulting from the operation of Lessee's business and/or the operation of the business of any other property owner or operator in the vicinity of any of the Properties and/or any activity or operation formerly conducted by any Person on or off any of the Properties.
"Environmental Insurer" means American International Specialty Lines Insurance Company or such other insurer providing Environmental Policies reasonably acceptable to Lessor.
"Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to Hazardous Materials and/or the protection of human health or the environment, by reason of a Release or a Threatened Release of Hazardous Materials or relating to liability for or costs of Remediation or prevention of Releases. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations, rulings, orders or decrees promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a Governmental Authority of the environmental condition of the property; requiring notification or disclosure of Releases or other environmental condition of any of the Properties to any Governmental Authority or other Person, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements relating to Hazardous Materials in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to Hazardous Materials; and relating to wrongful death, personal injury, or property or other damage in connection with the physical condition or use of any of the Properties by reason of the presence of Hazardous Materials in, on, under or above any of the Properties.
"Environmental Liens" is defined in Section 16.D(viii).
"Environmental Policies" means the environmental insurance policy or policies, as applicable, issued by Environmental Insurer to Lessor with respect to the Properties, which Environmental Policies shall be in form and substance satisfactory to Lessor in its sole discretion.
"Equipment Payment Amount" is defined in Section 8.A.
"Event of Default" is defined in Section 23.
"Fair Market Value" is defined in Section 56.
"FCCR Period' means the twelve month period of time immediately preceding the date on which Lessee gives written notice to Lessor that Lessee is proposing to substitute a Substitute Property as permitted by Section 55.A.
"FCCR Property" means, collectively, the Properties and the Related Properties.
"Fiscal Year" is defined in Section 8.A.
"GAAP" means generally accepted accounting principles in the United States, at the time at which the information affected by these principles was prepared, consistently applied.
"Governmental Authority" means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority of the United States or the state in which the particular Property is located or any political subdivision thereof.
"Gross Sales" means the gross sales, excluding sales tax, arising from all business conducted at all of the Properties by Lessee during the period of determination, as shown on Lessee's Store Income Statements.
"Guarantor" means CBRL Group, Inc., a Tennessee corporation.
"Guaranty" means that certain Unconditional Guaranty of Payment and Performance dated as of the date of this Lease to be executed by Guarantor with respect to the obligations of Lessee under this Lease, as the same may be amended from time to time.
"Hazardous Materials" means (i) any toxic substance or hazardous waste, substance, solid waste, or related material, or any pollutant or contaminant; (ii) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (iii) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," "hazardous wastes," "regulated substances" or words of similar import under any Environmental Laws; and (iv) any other chemical, material, gas or substance the exposure to or release of which is or becomes prohibited, limited or regulated by any Governmental Authority that asserts or may assert jurisdiction over any of the Properties or the operations or activity at any of the Properties, or any chemical, material, gas or substance that does or is likely to pose a hazard to the health and/or safety of the occupants of any of the Properties or the owners and/or occupants of property adjacent to or surrounding any of the Properties.
"Indemnified Parties" means Lessor, Remainderman, and Lender and their directors, officers, shareholders, trustees, beneficial owners, partners, members, and any directors, officers, shareholders, trustees, beneficial owners, partners, members of any beneficial owners, partners or members of Lessor, Remainderman or Lender, and all employees, agents, servants, representatives, contractors, subcontractors, Affiliates, subsidiaries, participants, successors and assigns of any of the foregoing, including, without limitation, any successors by merger, consolidation or acquisition of all or a substantial portion of the assets and business of Lessor, Remainderman or Lender, as applicable.
"Initial Term" means the period of the Lease Term commencing on the Effective Date and ending on July 31, 2021, or such earlier date that this Lease is terminated.
"Interest Expense" is defined in Section 8.A.
"Lease Term" is defined in Section 4.
''Lease Year" means the 12-month period commencing on August 1, 2000 and ending on July 31, 2001 and each successive 12-month period thereafter.
"Lender" means FFCA Funding Corporation, a Delaware corporation, its successors and assigns, any successor lender in connection with any loan secured by Lessor's interest in any of the Properties, and any servicer of any loan secured by Lessor's interest in any of the Properties, including, without limitation, Franchise Finance Corporation of America, a Delaware corporation.
"Lessor's Total Investment" means $19,903,435.00.
"Letter of Credit" means a letter of credit substantially in the form attached to this Lease as Exhibit C issued by an Approved Institution in accordance with the terms of Section 23.A(ix)(2) of this Lease.
"Loan Agreement" means the Loan Agreement dated as of the date of this Lease in effect between Lessor and Lender, as such agreement may be amended from time to time and any and all replacements or substitutions thereof.
"Loan Documents" means, collectively, the Loan Agreement, the Notes, the Mortgages and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, all as amended and supplemented and any and all replacements or substitutions thereof.
"Losses" means any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, attorneys' fees, court costs and other costs of defense).
"Material Adverse Effect" means any act, omission or event which would:
(x) prevent Lessee from performing its obligations under this Lease or any of the other Sale-Leaseback Documents;
(y) have the effect of reducing Guarantor's net worth as determined m accordance with GAAP below $680,000,000.00; or
(z) prevent the operation of any of the Properties as a Permitted Facility or expose Lessor or any other Indemnified Party to potential criminal liability or civil liability which is not insured or indemnified against pursuant to this Lease.
"Material Casualty" means the occurrence of damage or destruction to the improvements located on a Property the cost of which to restore is at least equal to 40% of the then current replacement cost of such improvements and the restoration of which cannot reasonably be completed with 120 days from the occurrence of such damage or destruction, both as reasonably determined by Lessee.
"Material Taking" means a Taking of the whole of any of the Properties, other than for temporary use, or a Taking of any of the Properties (other than for temporary use) which will: (i) materially impair access to such Property in Lessee's reasonable judgment; (ii) either result in the loss of 10% or more of the parking spaces at such Property or the loss of such parking spaces as would result in the Property being reasonably incapable of satisfying the parking requirements under Applicable Regulations either by the addition or replacement of parking spaces; or (iii) result in the permanent closure or removal of such portion of the improvements located on such Property as to make uneconomical the continued use of the remainder of such Property as a Permitted Facility.
"Maturity Date" means August 1, 2020.
"Maximum Allowed Annual Rental means, for any Fiscal Year in which Lessee has failed to satisfy the Aggregate Fixed Charge Coverage Ratio requirement, an amount equal to (x) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 4% of Aggregate Gross Sales, divided by (y) 1.25.
"Memorandum" means the Memorandum of Master Lease dated as of the date of this Lease between Lessor and Lessee with respect to the Properties. A duplicate original Memorandum will be executed and recorded in the applicable real property records for each Property. Each Memorandum will contain exhibits with the addresses and store identification numbers for all of the Properties and the legal description for the applicable Property.
"Mortgages" means, collectively, the Mortgages, Deeds of Trust or Deeds to Secure Debt, Assignments of Rents and Leases, Security Agreements and Fixture Filings dated as of even date herewith executed by Lessor for the benefit of Lender with respect to the Properties, as such instruments may be amended, restated and/or supplemented from time to time and any and all replacements or substitutions thereof.
"Net Income" is defined in Section 8.A.
"Net Restoration Amount" is defined in Section 21.K.
"Net Sublease Rents" means all rents received by Lessor during the applicable Fiscal Year pursuant to any subleases contemplated by Section 26 of this Lease, less those operating expenses incurred by Lessor, if any, pursuant to the terms and conditions of such subleases with respect to the affected Properties.
"Non-Disturbance and Attornment Agreement" is defined in Section 24.
"Notes" means, collectively, the Promissory Notes dated as of the date of this Lease executed by Lessor and payable to Lender with respect to the Properties, as such notes may be amended, restated and/or substituted from time to time.
"Operating Lease Expense" is defined in Section 8.A.
"Option Notice" is defined in Section 56.
"Participation" means the granting of any participations in any document evidencing loan obligations set forth in the Loan Agreement or any of the Loan Documents or any or all servicing rights with respect thereto.
"Partial Casualty" is defined in Section 21.K.
"Partial Taking" is defined in Section 21.K.
"Pending Actions" means the legal proceedings described in Guarantor's Quarterly Report on Form 10-Q with respect to its fiscal quarter ended April 28, 2000 filed with the United States Securities and Exchange Commission.
"Permitted Facility" means a Cracker Barrel Old Country Store restaurant; provided, however, up to four of the Properties in the aggregate may be operated as a Logan's Roadhouse restaurant or as another nationally or regionally recognized restaurant concept.
"Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity.
"Personalty" means all machinery, appliances, furniture, equipment, trade fixtures, ceiling fans and rods and other personal property owned or leased by Lessee from time to time situated on or used in connection with the Properties; provided, however, the term "Personalty" shall not include the HVAC, supply fans, air ducts, plumbing and electrical fixtures and lighting poles, all of which items are intended to be fixtures as such term is used within the definition of "Properties".
"Prepayment Charges" means, for purposes of this Lease, an amount equal to any prepayment premium or charge or the "Yield Maintenance Payment" (as defined below), or any other cost or expense imposed on Lessor by the applicable Lender in connection with the payment of the applicable Note(s) or promissory note(s) prior to the Maturity Date. While the Notes are outstanding, the Prepayment Charge shall equal the Yield Maintenance Payment, and the Prepayment Charge payable under any promissory note(s) executed subsequent to the satisfaction of the Notes shall not exceed the Yield Maintenance Payment.
"Prepayment of Rent" is defined in Section 23.A(ix).
"Properties" means, collectively, the parcels of real estate described by address, Lessor Number and Unit Number in Exhibit A attached hereto and legally described in Exhibit A-1 attached hereto, all rights, privileges and appurtenances associated therewith, and all buildings, structures, fixtures (but not trade fixtures) and other improvements (excluding Personalty) now or hereafter located on such real estate (whether or not affixed to such real estate).
"Property" means any one of the Properties.
"Proprietary Confidential Information" means all Confidential Information other than financial information delivered to Lessor and/or Lender pursuant to the Sale-Leaseback Agreement and/or this Lease, which financial information includes, without limitation, the Store Income Statements.
"Purchase Period'' is defined in Section 56.
"Purchase Price" means $19,226,644.89.
"Option Notice" is defined in Section 56.
"Questionnaires" is defined in the Sale-Leaseback Agreement.
"Reinvestment Rate" means an interest rate equal to the then current yield of U.S. treasury securities having a weighted average life to maturity closest to the Maturity Date.
"Rejectable Substitution Offer" is defined in Section 55.A.
"Related Base Annual Rental means the "Base Annual Rental" as defined in the Related Sale-Leaseback Agreement.
"Related Gross Sales" means the "Gross Sales" as defined in the Related Sale-Leaseback Agreement.
"Related Lease" means the "Lease" as defined in the Related Sale-Leaseback Agreement.
"Related Properties" means the "Properties" as defined in the Related Sale-Leaseback Agreement.
"Related Purchase Price" means the "Purchase Price" as defined in the Related Sale- Leaseback Agreement.
"Related Sale-Leaseback Agreement" means that certain Sale-Leaseback Agreement dated as of the date of this Lease among Lessor, certain Affiliates of Lessor and Lessee other than the Sale-Leaseback Agreement.
"Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or leaching of Hazardous Materials in, on, under, to or from the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any of the Properties except in De Minimis Amounts.
"Remainderman" means CS Remainder I, LLC, a Delaware limited liability company, which owns a remainder interest in the Properties, together with its successors and assigns.
"Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Materials, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto in connection with a remediation and any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials in connection with a remediation.
"Rent Adjustment Amount" means an amount equal to the difference between (x) the Aggregate Base Annual Rental then in effect, and (y) the Maximum Allowed Annual Rental.
"Sale-Leaseback Agreement means that certain Sale-Leaseback Agreement dated as of the date hereof among Lessor, Lessee, CBOCS West, Inc., a Nevada corporation, CBOCS Michigan, Inc., a Michigan corporation, and CBOCS Texas Limited Partnership, a Texas limited partnership, with respect to the Properties.
"Sale-Leaseback Documents" means the Sale-Leaseback Agreement, this Lease, the Memorandum, the Guaranty, the Deeds, the Acknowledgement, the Tripartite Agreement and all other documents executed in connection therewith.
"Securitization" means one or more sales, dispositions, transfers or assignments by Lender or any Affiliate of Lender to a special purpose corporation, trust or other entity identified by Lender or any Affiliate of Lender of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any Affiliate of Lender (and, to the extent applicable, the subsequent sale, transfer or assignment of such notes to another special purpose corporation, trust or other entity identified by Lender or any Affiliate of Lender), and the issuance of bonds, certificates, notes or other instruments evidencing interests in pools of such loans, whether in connection with a permanent asset securitization or a sale of loans in anticipation of a permanent asset securitization. Each Securitization shall be undertaken in accordance with all requirements which may be imposed by the investors or the rating agencies involved in each such sale, disposition, transfer or assignment or which may be imposed by applicable securities, tax or other laws or regulations, including, without limitation, laws relating to Lender's status as a real estate investment trust.
"Store Income Statements" means the operating statements prepared for each of the Properties in the form attached as Exhibit E to this Lease and otherwise containing such detail as is necessary to determine Lessee's compliance with the provisions of Section 8.A of this Lease. Lessee may prepare the operating statements for the Properties in a form other than that set forth on Exhibit E provided the form Lessee uses contains the same information detailed on the attached Exhibit E and contains such detail as is necessary to determine Lessee's compliance with the provisions of Section 8.A of this Lease.
"Substitute Documents" is defined in Section 55.B(viii).
"Substitute Property" means one or more parcels of real estate substituted for any of the Properties in accordance with the requirements of Section 55, together with all rights, privileges and appurtenances associated therewith, and all buildings, structures, fixtures (but not trade fixtures) and other improvements located thereon (excluding Personalty). For purposes of clarity, where two or more parcels of real property comprise a Substitute Property, such parcels shall be aggregated and deemed to constitute the Substitute Property for all purposes of this Lease.
"Substitute Property Permitted Exceptions" is defined in Section 55.B(i)(5).
"Successor Lessor" is defined in Section 24.
"Taking" is defined in Section 21.A.
"Temporary Taking" is defined in Section 21.I.
"Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any of the Properties which may result from such Release.
"Title Company" means Lawyers Title Insurance Corporation, or such other nationally recognized title insurance company reasonably acceptable to Lessor.
"Transfer" means any sale, transfer or assignment of any document evidencing loan obligations set forth in the Loan Agreement or any of the Loan Documents, or any or all servicing rights with respect thereto.
"Tripartite Agreement" means the Tripartite Agreement dated as of the date of this Agreement among Lessor, Lessee and Remainderman.
"Yield Maintenance Payment" means an amount equal to the positive difference between (a) the present value, computed at the Reinvestment Rate, of the stream of monthly principal and interest payments in effect under the applicable Note(s) as of the Effective Date from the date of prepayment through the Maturity Date, and (b) the outstanding principal balance of such Note(s) as of the date of prepayment; provided, however, if such difference is a negative number, the Yield Maintenance Payment shall be zero.
2. Demise of Properties. In consideration of the rentals and other sums to be paid by Lessee and of the other terms, covenants and conditions on Lessee's part to be kept and performed, Lessor hereby leases to Lessee, and Lessee hereby takes and hires, the Properties. The Properties are leased to Lessee "AS IS" and "WHERE IS" without representation or warranty by Lessor and subject to the rights of parties in possession, to the existing state of title, any state of facts which an accurate survey or physical inspection might reveal, and all Applicable Regulations now or hereafter in effect. Lessee has examined each of the Properties and title to each of the Properties and has found all of the same satisfactory for all of Lessee's purposes.
3. Characterization of Lease. A. Lessor and Lessee intend that:
(i) this Lease constitutes a single master lease ·of all, but not less than all, of the Properties and that Lessor and Lessee have executed and delivered this Lease with the understanding that this Lease constitutes a unitary, unseverable instrument pertaining to all, but not less than all, of the Properties, and that neither this Lease nor the duties, obligations or rights of Lessee may be allocated or otherwise divided among the Properties by Lessee;
(ii) this Lease is a "true lease" and not a financing lease, capital lease, mortgage, equitable mortgage, deed of trust, trust agreement, security agreement or other financing or trust arrangement, and the economic realities of this Lease are those of a true lease; and
(iii) the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein.
B. Lessor and Lessee acknowledge and agree that the Lease Term, including any term extensions provided for in this Lease, is less than 90% of the expected remaining economic life of each of the Properties.
C. Lessee and Lessor each waive any claim or defense based upon the characterization of this Lease as anything other than a true lease and irrevocably waive any claim or defense which asserts that the Lease is anything other than a true lease. Lessee and Lessor covenant and agree that they will not assert that this Lease is anything but a true lease. Lessee and Lessor each stipulate and agree not to challenge the validity, enforceability or characterization of the lease of the Properties as a true lease and further stipulate and agree that nothing contained in this Lease creates or is intended to create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like. Lessee and Lessor each shall support the intent of the parties that the lease of the Properties pursuant to this Lease is a true lease and does not create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs.
D. Lessee and Lessor each waive any claim or defense based upon the characterization of this Lease as anything other than a master lease of all of the Properties and irrevocably waive any claim or defense which asserts that the Lease is anything other than a master lease. Lessee and Lessor each covenant and agree that it will not assert that this Lease is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties. Lessee and Lessor each stipulate and agree not to challenge the validity, enforceability or characterization of the lease of the Properties as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties. Lessee and Lessor each shall support the intent of the parties that this Lease is a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties, if, and to the extent that, any challenge occurs.
E. Lessee represents and warrants to Lessor that (i) the Base Annual Rental is the fair market value for the use of the Properties and was agreed to by Lessor and Lessee on that basis, and (ii) the execution, delivery and performance by Lessee of this Lease does not constitute a transfer of all or any part of the Properties, except for the leasehold interest and rights in and to the Properties created by this Lease.
F. The expressions of intent, the waivers, the representations and warranties, the covenants, the agreements and the stipulations set forth in this Section are a material inducement to Lessor's entering into this Lease.
4. Lease Term. The Lease Term for all of the Properties shall commence as of the Effective Date and shall expire on July 31, 2021, unless terminated sooner as provided in this Lease and as may be extended for one initial period of ten years and two subsequent periods of five years each as set forth in Section 27 below. The time period during which this Lease shall actually be in effect is referred to herein as the "Lease Term."
5. Rental and Other Payments. A. If the Effective Date is a date other than the first day of the month, Lessee shall pay Lessor on the Effective Date the Base Monthly Rental prorated on the basis of the ratio that the number of days from the Effective Date through the last day in the month containing the Effective Date bears to the number of days in such month. Thereafter, on or before the first day of each succeeding calendar month, Lessee shall pay Lessor in advance the Base Monthly Rental.
B. All sums of money required to be paid by Lessee under this Lease which are not specifically referred to as rent ("Additional Rental") shall be considered rent although not specifically designated as such. Lessor shall have the same remedies for nonpayment of Additional Rental as those provided herein for the nonpayment of Base Annual Rental.
6. Representations and Warranties of Lessor. The representations and warranties of Lessor contained in this Section are being made to induce Lessee to enter into this Lease and Lessee has relied and will continue to rely upon such representations and warranties. Lessor represents and warrants to Lessee as of the Effective Date as follows:
A. Organization, Authority and Status of Lessor. (i) Lessor has been duly organized and is validly existing and in good standing under the laws of the State of Delaware. All necessary corporate or other appropriate formal action has been taken to authorize the execution, delivery and performance by Lessor of this Lease and the other documents, instruments and agreements provided for herein.
(ii) The Person who has executed this Lease on behalf of Lessor is duly authorized so to do.
B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms, subject to general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect affecting the enforcement of creditors rights generally.
C. Absence of Breaches or Defaults. Lessor is not in breach or default under any document, instrument or agreement to which Lessor is a party or by which Lessor, any of the Properties or any of Lessor's property is subject or bound, which breach or default would have a material adverse effect on Lessor or the Properties. The authorization, execution, delivery and performance of this Lease and the other documents, instruments and agreements provided for herein will not result in any breach of or default under any document, instrument or agreement to which Lessor is a party or by which Lessor, any of the Properties or any of Lessor's property is subject or bound, which breach or default would have a material adverse effect on Lessor or the Properties. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order known to Lessor and the remedies for such violation would not have a material adverse effect on Lessor or the Properties.
7. Representations and Warranties of Lessee. The representations and warranties of Lessee contained in this Section are being made to induce Lessor to enter into this Lease and Lessor has relied, and will continue to rely, upon such representations and warranties. Lessee represents and warrants to Lessor as of the Effective Date as follows:
A. Organization, Authority and Status of Lessee. (i) Lessee has been duly organized or formed, is validly existing and in good standing under the laws of its state of incorporation or formation and is qualified to do business in each jurisdiction in which any of the Properties are located. All necessary corporate action has been taken to authorize the execution, delivery and performance by Lessee of this Lease and of the other documents, instruments and agreements provided for herein. Lessee is not a "foreign corporation", "foreign partnership", "foreign trust", "foreign limited liability company" or "foreign estate", as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder. Lessee's United States tax identification number is correctly set forth on the signature page of this Lease.
(ii) The Person who has executed this Lease on behalf of Lessee is duly authorized to do so.
B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms, subject to general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect affecting the enforcement of creditors rights generally.
C. Litigation. There are no suits, actions, proceedings or investigations pending, or, to the best of its knowledge, threatened against or involving Lessee, Guarantor or any of the Properties before any arbitrator or Governmental Authority, including, without limitation, the Pending Actions, which might reasonably result in any Material Adverse Effect.
D. Absence of Breaches or Defaults. Neither Lessee nor Guarantor is in default under any document, instrument or agreement to which Lessee or Guarantor is a party or by which Lessee, Guarantor, any of the Properties or any of Lessee's or Guarantor's property is subject or bound, which default could reasonably be expected to result in any Material Adverse Effect. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not result in any breach of or default under any document, instrument or agreement to which Lessee or Guarantor is a party or by which Lessee, Guarantor, any of the Properties or any of Lessee's or Guarantor's property is subject or bound, which breach or default could reasonably be expected to result in any Material Adverse Effect. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order, which violation could reasonably be expected to result in any Material Adverse Effect.
E. Liabilities of Lessor. Lessee is not liable for any indebtedness for money borrowed by Lessor and has not guaranteed any of the debts or obligations of Lessor.
8. Covenants. Lessee covenants to Lessor for so long as this Lease is in effect as follows:
A. Aggregate Fixed Charge Coverage Ratio. Lessee shall maintain an Aggregate Fixed Charge Coverage Ratio at all of the FCCR Properties in the aggregate of at least 1.25:1, calculated as of the last day of each fiscal year of Lessee (each, a "Fiscal Year"). For purposes of this Lease, the term "Aggregate Fixed Charge Coverage Ratio" shall mean with respect to the twelve month period of time ending on the date of calculation, the ratio calculated for such period of time of (a) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 4% of Aggregate Gross Sales, to (b) the sum of the Operating Lease Expense and the Equipment Payment Amount.
For purposes of this Section 8, the following terms shall be defined as set forth below:
"Capital Lease" shall mean any lease of any property (whether real, personal or mixed) by Lessee with respect to one or more of the FCCR Properties which lease would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of Lessee. The term "Capital Lease" shall not include any operating lease or this Lease.
"Debt" shall mean, as directly related to all of the FCCR Properties and the period of determination, (i) obligations of Lessee to pay debt service in respect of indebtedness of Lessee for borrowed money, (ii) obligations of Lessee evidenced by bonds, indentures, notes or similar instruments, (iii) obligations of Lessee to pay the deferred purchase price of property or services, (iv) obligations of Lessee under leases which should be, in accordance with GAAP, recorded as Capital Leases, and (v) obligations of Lessee under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. The term "Debt" shall not include Lessor's debt with respect to the FCCR Properties or otherwise.
"Depreciation and Amortization" shall mean with respect to all of the FCCR Properties the depreciation and amortization accruing during any period of determination with respect to Lessee as determined in accordance with GAAP. The term "Depreciation and Amortization" shall not include Lessor's depreciation and amortization with respect to the FCCR Properties or otherwise.
"Equipment Payment Amount" shall mean for any period of determination the sum of all amounts payable during such period of determination under all (i) leases entered into by Lessee for Personalty located at one or more of the FCCR Properties and (ii) all loans made to Lessee secured by Lessee's interest in the Personalty located at one or more of the FCCR Properties.
"Interest Expense" shall mean for any period of determination, the sum of all interest accrued or which should be accrued in respect of all Debt of Lessee directly attributable to one or more of the FCCR Properties and all business operations thereon during such period (including interest attributable to Capital Leases), as determined in accordance with GAAP.
"Net Income" shall mean with respect to all of the period of determination, the gross income of Lessee allocable to all of the FCCR Properties less all operating expenses allocable to all of the FCCR Properties. In determining the amount of Net Income, (i) adjustments shall be made for nonrecurring gains and losses allocable to the period of determination, (ii) deductions shall be made for, among other things, Depreciation and Amortization, Interest Expense and Operating Lease Expense allocable to the period of determination, (iii) charges for related entity services, financings, mark-ups on purchases and other similar charges which are of a nature historically accounted for in Lessee's Store Income Statements shall be excluded, and (iv) no deductions shall be made for (x) income taxes or charges equivalent to income taxes allocable to the period of determination, as determined in accordance with GAAP, or (y) corporate overhead expense allocable to the period of determination. All Net Sublease Rents received by Lessee pursuant to subleases contemplated by Section 26 of this Lease shall be included within ''Net Income" for purposes of the determination of the Aggregate Fixed Charge Coverage Ratio.
"Operating Lease Expense" shall mean the lease payments incurred by Lessee under any operating leases with respect to one or more of the FCCR Properties (including this Lease) and the business operations thereon during the period of determination, as determined in accordance with GAAP.
B. Nonconsolidation Covenants. (i) Lessee will not assume liability for any indebtedness for money borrowed by Lessor and does not, and will not, guarantee any of the debts or obligations of Lessor. Lessee will not hold itself out as being liable for any obligations or indebtedness of Lessor.
(ii) Lessee shall not and shall use its best efforts to cause its Affiliates not to hold Lessor out to the public or to any individual creditors as being a unified entity with assets and liabilities in common with Lessee.
(iii) Lessee shall conduct its business so as not to mislead others as to the separate identity of Lessor, and particularly will avoid the appearance of conducting business on behalf of Lessor. Without limiting the generality of the foregoing, no oral and written communications of Lessee, including, without limitation, letters, invoices, purchase orders, contracts, statements and loan applications, will be made in the name of Lessor which to the extent that to do otherwise would materially bear upon the maintenance of Lessor's separate identity.
(iv) Lessee will not act in Lessor's name.
(v) Where necessary and appropriate, Lessee shall disclose the independent business status of Lessor to creditors of Lessee, if any.
(vi) The resolutions, agreements and other instruments of Lessee, if any, underlying the transactions described in this Lease will be maintained by Lessee.
(vii) All transactions between Lessee and Lessor will be no less fair to each party than they could obtain on an arm's-length basis.
(viii) The books, records and accounts of Lessee shall at all times be maintained in a manner permitting the assets and liabilities of Lessor to be easily separated and readily ascertained from those of Lessee.
(ix) Lessee will not direct, or otherwise control, the ongoing business decisions of Lessor.
(x) Lessee will not file or cause to be filed a voluntary or involuntary petition in bankruptcy on behalf of or against Lessor.
C. Transfer, Participation and Securitization Covenants . (i) Lessee agrees to cooperate in good faith with Lessor and Lender in connection with any Transfer, Participation and/or Securitization of any of the Notes, Mortgages and/or any of the Loan Documents, or any or all servicing rights with respect thereto, including, without limitation, (x) providing all current public documents, financial and other data required to be filed with the United States Securities and Exchange Commission with respect to Lessee and the Store Income Statements (collectively, the "Disclosures"); provided, however, Lessee shall not be required to make Disclosures of any Confidential Information or any information which has not previously been made public except as required by applicable federal or state securities laws; and (y) amending the terms of this Lease to the extent necessary so as to satisfy the reasonable requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfer, Participation or Securitization, so long as such amendments would not materially and adversely affect the economic terms of this Lease or Lessee. Lessor and Lender shall prepare, at the expense of Lessor and Lender, all documents evidencing such amendments, provided that Lessee shall be responsible for the payment of its attorneys' fees incurred in connection with reviewing and finalizing such documents.
(ii) Lessee consents to Lessor and Lender providing the Disclosures, as well as any other information which Lessor and Lender may now have or hereafter acquire with respect to the Properties or the financial condition of Lessee to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or Securitization, as applicable. Lessee, Lessor and Lender shall pay their own attorneys' fees and other out-of-pocket expenses incurred in connection with the performance of its obligations under this Section 8.C.
D. Compliance Certificate. Within 90 days after the end of each Fiscal Year, Lessee shall deliver to Lessor such compliance certificates as Lessor may reasonably require in order to establish that Lessee is in compliance in all material respects with all of the obligations, duties and covenants imposed on Lessee pursuant to this Lease.
9. Rentals To Be Net to Lessor. The Base Annual Rental payable hereunder shall be net to Lessor, so that this Lease shall yield to Lessor the rentals specified during the Lease Term, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Properties shall be performed and paid by Lessee.
10. Taxes and Assessments. Lessee shall pay, prior to the earlier of delinquency or the accrual of interest on the unpaid balance, all taxes and assessments of every type or nature assessed against, imposed upon or arising with respect to Lessor (assuming that the Properties are the only real property owned by Lessor and that Lessor is not engaged in any business other than the ownership, leasing and financing of the Properties and any other matters ancillary thereto), any of the Properties, this Lease, the rental or other payments due under this Lease or Lessee during the Lease Term which affect in any manner the net return realized by Lessor under this Lease, including, without limitation, the following:
A. All taxes and assessments upon any of the Properties or any part thereof and upon any Personalty, whether belonging to Lessor or Lessee, or any tax or charge levied in lieu of such taxes and assessments;
B. All taxes, charges, license fees and or similar fees imposed by reason of the use of any of the Properties by Lessee; and
C. All excise, transaction, privilege, license, sales, use and other taxes upon the rental or other payments due under this Lease, the leasehold estate of either party or the activities of either party pursuant to this Lease.
Notwithstanding the foregoing, but without limiting the preceding obligation of Lessee to pay all taxes which are imposed on the rental or other payments due under this Lease, in no event will Lessee be required to pay any net income taxes or taxes in lieu of income taxes (i.e., taxes which are determined taking into account deductions arising from depreciation, interest, taxes and ordinary and necessary business expenses) or franchise taxes (unless imposed in lieu of other taxes that would otherwise be the obligation of Lessee wider this Lease, including, without limitation, any "gross receipts tax" or any similar tax based upon gross income or receipts of Lessor which does not take into account deductions arising from depreciation, interest, truces and/or ordinary or necessary business expenses) of Lessor, any transfer taxes of Lessor, or any tax imposed with respect to the sale, exchange or other disposition by Lessor, in whole or in part, of any of the Properties or Lessor's interest in this Lease (other than transfer or recordation taxes imposed in connection with the transfer of any of the Properties to Lessee, the substitution of a Substitute Property or the termination of this Lease pursuant to the provisions of this Lease).
All taxing authorities shall be instructed to send all tax and assessment invoices to Lessee and Lessee shall promptly provide Lessor and Lender with copies of all tax and assessment invoices received by Lessee. Upon request, Lessee shall also provide Lessor and Lender with evidence that such invoices were paid in a timely fashion. Lessee may, at its own expense, contest or cause to be contested (in the case of any item involving more than $50,000.00, after prior written notice to Lessor), by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any item specified in this Section 10 or any lien therefor, provided that (i) such proceeding shall suspend the collection thereof .from the applicable Properties or any interest therein, (ii) neither such Properties nor any interest therein would be in any danger of being sold, forfeited or lost by reason of such proceedings, (iii) no Event of Default has occurred, and (iv) Lessee shall have deposited with Lessor adequate reserves for the payment of the taxes, together with all interest and penalties thereon, unless paid in full under protest, or Lessee shall have furnished the security as may be required in the proceeding or as may be reasonably required by Lessor to ensure payment of any contested taxes. So long as an Event of Default shall not have occurred and be continuing, any amount recovered as a result of retroactive tax contests with respect to taxes or assessments payable during the Lease Term shall be paid to Lessee. Lessor shall, at the request of Lessee, execute or join in the execution of any instruments or documents reasonably requested by Lessee in connection with any contest or proceeding contemplated by this Section 10, but Lessee shall be solely responsible for the payment of all costs and expenses incurred by Lessor or Lessee in connection with such contests and proceedings.
11. Utilities. Lessee shall contract, in its own name, for and pay when due all charges for the connection and use of water, gas, electricity, telephone, garbage collection, sewer use and other utility services supplied to the Properties during the Lease Term. Under no circumstances shall Lessor be responsible for providing any utility service to the Properties. Unless an Event of Default shall have occurred and be continuing, Lessor will not take any action to interrupt the utility service to the Properties.
12. Insurance. Throughout the Lease Term, Lessee shall maintain, or cause a permitted sublessee as contemplated by Section 26 to maintain, with respect to each of the Properties, at its sole expense, the following types and amounts of insurance (which may be included under a blanket insurance policy if all the other terms hereof are satisfied):
A. Insurance against loss, damage or destruction by fire and other casualty, including theft, vandalism and malicious mischief, flood (for each of the Properties which is in a location designated by the Federal Emergency Management Administration as a Special Flood Hazard Area), earthquake (for each of the Properties which is in an area commonly subject to destructive earthquakes within recorded history), boiler explosion (for each of the Properties with a boiler), plate glass breakage, sprinkler damage (for each of the Properties which has a sprinkler system), all matters covered by a standard extended coverage endorsement, all matters covered by a special coverage endorsement commonly known as an "all-risk" endorsement and such other risks as Lessor may reasonably require consistent with reasonably prudent business practices for similar types of properties, insuring each of the Properties for not less than 100% of their full insurable replacement cost.
B. Commercial general liability and property damage insurance, including a products liability clause, covering Lessor, Remainderman and Lessee against bodily injury liability, property damage liability and automobile bodily injury and property damage liability, including without limitation any liability arising out of the ownership, maintenance, repair, condition or operation of the Properties or, to the extent covered by a customary commercial general liability policy, adjoining ways, streets or sidewalks and, if applicable, insurance covering Lessor, Remainderman and Lessee against liability arising from the sale of liquor, beer or wine on the Properties. Such insurance policy or policies shall contain a broad form contractual liability endorsement under which the insurer agrees to insure Lessee's obligations Under Section 19 hereof to the extent insurable, and a "severability of interest" clause or endorsement which precludes the insurer from denying the claim of Lessee, Remainderman or Lessor because of the negligence or other acts of the other, shall be in amounts of not less than $1,000,000.00 per injury and occurrence with respect to any insured liability, whether for personal injury or property damage, or such higher limits as Lessor or Remainderman may reasonably request from time to time, and shall be of form and substance satisfactory to Lessor and Remainderman.
C. Business income interruption insurance or rental interruption insurance, when applicable, as requested by Lessor, equal to 100% of the Base Annual Rental for a period of not less than 12 months.
D. State worker's compensation insurance, or self insurance where permitted by applicable law, in the statutorily mandated limits, employer's liability insurance with limits not less than $500,000 or such greater amount as Lessor or Remainderman may from time to time reasonably require and such other insurance as may be necessary to comply with applicable laws.
E. Such other insurance as may from time to time be reasonably required by Lessor, Remainderman or Lender consistent with prudent business practices for similar types of properties in order to protect their respective interests with respect to the Properties.
All insurance policies shall:
(i) Provide for a waiver of subrogation by the insurer as to claims against Lessor, Remainderman, Lender and their respective employees and agents;
(ii) Provide that any ''no other insurance" clause in the insurance policy shall exclude any policies of insurance maintained by Lessor, Remainderman or Lender and that the insurance policy shall not be brought into contribution with insurance maintained by Lessor, Remainderman or Lender;
(iii) Contain a standard without contribution mortgage clause endorsement in favor of Lender and naming such other parties as additional named insureds as may be designated by Lessor provided such parties have either a direct or indirect ownership interest in the Properties or Lessor, or are managers, asset managers, agents or independent contractors of Lessor or any entity or person which has an ownership interest in Lessor;
(iv) Provide that the policy of insurance shall not be terminated, cancelled or substantially modified without at least thirty (30) days' prior written notice to Lessor, Remainderman, Lender and to any other party covered by any standard mortgage clause endorsement;
(v) Provide that the insurer shall not have the option to restore the applicable Properties if Lessor or Lessee elects to terminate this Lease in accordance with the terms hereof;
(vi) Be issued by insurance companies licensed to do business in the states in which the Properties are located and which are rated A:VI or better by AM. Best's Insurance Guide or are otherwise reasonably approved by Lessor and Remainderman; and
(vii) Provide that the insurer shall not deny a claim nor shall the insurance be cancelled, invalidated or suspended by (1) any action, inaction, conduct or negligence of Lessor, Remainderman, Lender or any other party covered by any standard mortgage clause endorsement, Lessee, anyone acting for Lessee or any subtenant or other occupant of any of the Properties, (2) occupancy or use of any of the Properties for purposes more hazardous than permitted by such policies, (3) any foreclosure or other proceedings relating to any of the Properties or change in title to or ownership of any of the Properties, or (4) any breach or violation by Lessee or any other person of any warranties, declarations or conditions contained in such policies or the applications for such policies.
It is expressly understood and agreed that the foregoing minimum limits of insurance coverage shall not limit the liability of Lessee for its acts or omissions as provided in this Lease. All insurance policies (with the exception of worker's compensation insurance to the extent not available under statutory law), shall designate Lessor, Remainderman and Lender as additional named insureds as their interests may appear and shall be payable as set forth in Section 21 hereof. All such policies shall be written as primary policies, with deductibles not to exceed 10% of the amount of coverage; provided, however, (i) Lessee shall be permitted to maintain deductibles on replacement value property insurance in an amount not to exceed $100,000.00 per Property, and (ii) at all times while Guarantor maintains a net worth determined in accordance with GAAP of at least $280,000,000.00 and Guarantor has a solicited long term debt rating (or, if Guarantor does not have a solicited long term debt rating, a corporate rating) of (a) BB or better by Standard & Poors Rating Group, or any successor thereto, or (b) ba2 or better by Moody's Investors Service, Inc., Lessee may self-insure or maintain deductibles on genera] liability insurance in an amount not to exceed $250,000.00 per occurrence per Property. Any other policies, including any policy now or hereafter carried by Lessor, Remainderman or Lender, shall serve as excess coverage. Lessee shall procure policies for all insurance for periods of not less than one year and shall provide to Lessor, Remainderman and Lender certificates of insurance or, upon the request of Lessor, Remainderman or Lender, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Lease is in effect at all times. If Lessee in good faith desires to change its insurance carrier or, not more often than once in any Lease Year, change to a policy year ending on a different calendar date, Lessor will not unreasonably withhold its consent to Lessee maintaining the preceding insurance policies for a period of less than one year solely as a result of the transition of such insurance policies to the replacement carrier or the revised ending date. Lessor further agrees that, to the extent it has requested and received duplicate originals of the insurance policies required by this Lease, Lessee shall not be required to subsequently provide duplicate originals of such insurance policies unless any of the coverages provided in any such policies change or the carrier of any such policy changes, in which event Lessee shall only be required to provide (without limiting Lessee's obligation to deliver certificates of insurance as contemplated by this Section), upon the request of Lessor, duplicate originals of those portions of the policies which have changed and/or those policies for which the carrier has changed. In the event of any transfer by Lessor of Lessor's interest in any of the Properties or any financing or refinancing of Lessor's interest in any of the Properties,or by Remainderman of Remainderman's interest in any of the Properties, Lessee shall, upon not less than ten (10) Business Days prior written notice, deliver to Lessor and Remainderman or any Lender providing such financing or refinancing, as applicable, certificates of all insurance required to be maintained by Lessee hereunder naming such transferee or such Lender, as applicable, as an additional named insured to the extent required herein effective as of the date of such transfer, financing or refinancing.
13. Tax and Insurance Impound. Upon the occurrence of an Event of Default resulting from the failure of Lessee to perform any monetary obligation due under this Lease, including, without limitation, the failure to pay Base Annual Rental, Additional Rental and/or taxes, assessments and/or insurance premiums as contemplated by this Lease, Lessor may require Lessee to pay to Lessor sums which will provide an impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and/or insurance premiums for each of the Properties. Upon such requirement, Lessor will estimate the amounts needed for such purposes and will notify Lessee to pay the same to Lessor in equal monthly installments, as nearly as practicable, in addition to all other sums due under this Lease. Should additional funds be required at any time, Lessee shall pay the same to Lessor on demand. Lessee shall advise Lessor of all taxes and insurance bills which are due and shall cooperate fully with Lessor in assuring that the same are paid timely. Lessor may deposit all impounded funds in accounts insured by any federal or state agency. Interest or other gains from such funds, if any, shall, so long as no Event of Default shall have occurred and be continuing, be the sole property of Lessee. Interest or other gains from such funds, if any, shall, if, subsequent to Lessor requiring Lessee to establish such impound account, an Event of Default shall have occurred and be continuing, be the sole property of Lessor. Upon the occurrence and during the continuance of an Event of Default, Lessor may apply all impounded funds against any sums due from Lessee to Lessor. Lessor shall give to Lessee an annual accounting showing all credits and debits to and from such impounded funds received from Lessee. Nothing in this Section 13 shall be interpreted as a waiver by Lessor of any rights Lessor may have under this Lease upon the occurrence and during the continuance of an Event of Default.
14. Payment of Rental and Other Sums. All rental and other sums which Lessee is required to pay hereunder shall be the unconditional obligation of Lessee and shall be payable in full when due without any setoff, abatement, deferment, deduction or counterclaim whatsoever. Upon execution of this Lease, Lessee shall establish arrangements whereby payments of the Base Monthly Rental and impound payments, if any, are transferred by wire or other means directly from Lessee's bank account to such account as Lessor may designate. Any delinquent payment (that is, any payment not made within five Business Days after the date when due) shall, in addition to any other remedy of Lessor, incur a late charge of 5% (which late charge is intended to compensate Lessor for the cost of handling and processing such delinquent payment and should not be considered interest) and bear interest at the Default Rate, such interest to be computed from and including the date such payment was due through and including the date of the payment; provided, however, in no event shall Lessee be obligated to pay late charges and interest in amounts that exceed the limitations imposed by applicable law then in effect.
15. Use. Except as set forth below, each of the Properties shall be used solely for the operation of a Permitted Facility in accordance with the standards of operations then in effect on a system-wide basis, and for no other pu1pose. Lessee shall promptly notify Lessor of a change of use of any of the Properties from any restaurant concept included within the definition of Permitted Facility to another restaurant concept included within the definition of Permitted Facility. Lessee shall occupy the Properties promptly following the Effective Date and, except as set forth below and except during periods when any of the Properties is untenantable by reason of Casualty or Taking (provided, however, during all such periods while any of the Properties is untenantable, Lessee shall strictly comply with the terms and conditions of Section 21 of this Lease), Lessee shall at all times during the Lease Term occupy each of the Properties and shall diligently conduct its business on each of the Properties as a Permitted Facility. Lessee may cease diligent operation of business at any of the Properties for a period not to exceed 180 days; provided, however, Lessee may not cease diligent operation at more than four of the Properties at any one time and Lessee may only cease operation once with respect to each Property within any five-year period during the Lease Term. Notwithstanding the foregoing, so long as an Event of Default has not otherwise occurred and is continuing under this Lease, up to two of the Properties then subject to this Lease may be closed for an indefinite period of time without such closure constituting an Event of Default under this Lease. If Lessee does discontinue operation as permitted by this Section 15, Lessee shall (i) give written notice to Lessor within 10 Business Days after Lessee elects to cease operation, (ii) provide adequate protection and maintenance of any such Properties during any period of vacancy, (iii) comply with all Applicable Regulations and otherwise comply with the terms and conditions of this Lease other than the continuous use covenant set forth in this Section 15, and (iv) pay all costs necessary to restore such Properties to their condition on the day operation of the business ceased at such time as such Properties are reopened for Lessee's business operations or other substituted use approved by Lessor as contemplated below. Notwithstanding anything herein to the contrary, Lessee shall pay the Base Monthly Rental as provided herein during any period in which Lessee discontinues operation.
Lessee shall not, by itself or through any assignment, sublease or other type of transfer, convert any of the Properties to a use other than a Permitted Facility during the Lease Term without Lessor's consent, which consent shall not be unreasonably withheld or delayed. Lessor may consider any or all of the following in determining whether to grant its consent, without being deemed to be unreasonable: (i) whether the rental paid to Lessor would be equal to or greater than the anticipated rental assuming continued existing use, (ii) whether the converted use will be consistent with the highest and best use of the Properties, and (iii) whether the converted use will increase Lessor's risks or decrease the value of the Properties.
16. Compliance with Laws, Restrictions, Covenants and Encumbrances.
A. Lessee's use and occupation of each of the Properties, and the condition thereof, shall, at Lessee's sole cost and expense, comply fully with all Applicable Regulations and all restrictions, covenants and encumbrances of record applicable to such Property. In addition to the other requirements of this Section 16, Lessee shall, at all times throughout the Lease Term, comply with all Applicable Regulations, including, without limitation, in connection with any maintenance, repairs and replacements of the Properties undertaken by Lessee as required by Section 17 of this Lease.
B. Lessee will use its reasonable best efforts to not permit any act or condition to exist on or about any of the Properties (excluding acts committed by third parties not within the control of Lessee) which will increase any insurance rate thereon, except when such acts are required in the normal course of its business and Lessee shall pay for such increase.
C. Without limiting the generality of the other provisions of this Section 16, Lessee agrees that it shall be responsible for complying in all applicable respects with the Americans with Disabilities Act of 1990, as such act may be amended from time to time, and all regulations promulgated thereunder (collectively, the ''ADA"), as it affects the Properties, including, without limitation, making required "readily achievable" changes to remove any architectural or communications barriers, and providing auxiliary aides and services within the Properties. Lessee further agrees that any and all alterations made to the Properties during the Lease Term will comply with the applicable requirements of the ADA. All plans for alterations which must be submitted to Lessor under the provisions of Section 18 must include a statement from a licensed architect or engineer certifying that he or she has reviewed the plans, and that the plans comply with all applicable provisions of the ADA. Any subsequent approval or consent to the plans by Lessor shall not be deemed to be a representation of Lessor's part that the plans comply with the ADA, which obligation shall remain with Lessee. Lessee agrees that it will defend, indemnify and ho]d harmless the Indemnified Parties from and against any and all Losses caused by, incurred or resulting from Lessee's failure to comply with its obligations under this Section 16.C.
D. Lessee represents and warrants to Lessor as of the Effective Date, to Lessee's knowledge and except as disclosed in the Questionnaires:
(i) None of the Properties nor Lessee, in connection with its occupancy, use or operation of the Properties, are in violation of any Environmental Laws except for such noncompliance which could not reasonably be expected to have a Material Adverse Effect, or subject to any pending or threatened investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws that could reasonably be expected to have a Material Adverse Effect.
(ii) All permits, licenses or similar authorizations to construct, occupy, operate or use any buildings, improvements, fixtures and equipment forming a part of any of the Properties required to be obtained by reason of any Environmental Laws have been obtained, except for such permits, licenses or authorizations the failure of which to obtain could not reasonably be expected to have a Material Adverse Effect.
(iii) Except in De Minimis Amounts, no Hazardous Materials have been used, handled, manufactured, generated, produced, stored, treated, processed, transferred, disposed of or otherwise Released in, on, under, from or about any of the Properties, which have not been properly remediated in accordance with all applicable Environmental Laws, or which could not reasonably be expected to have a Material Adverse Effect.
(iv) The Properties do not contain Hazardous Materials, other than in De Minimis Amounts, or underground storage tanks.
(v) There is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with any of the Properties, except for such non-compliance which could not reasonably be expected to have a Material Adverse Effect.
(vi) Lessee has not received any written notice or other communication from any Person (including but not limited to a Governmental Authority) relating to Hazardous Materials or Remediation thereof, of possible liability of any Person pursuant to any Environmental Law, other Environmental Conditions in connection with any of the Properties, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing, in each case with respect to a condition or event that could reasonably be expected to have a Material Adverse Effect.
(vii) Lessee has truthfully and fully provided to Lessor, in writing, any and all information relating to Environmental Conditions in, on, under or from the Properties that is known to Lessee and that is contained in Lessee's files and records, including but not limited to any environmental investigations relating to Hazardous Materials in, on, under or from any of the Properties.
(viii All uses and operations on or of the Properties, whether by Lessee or any other Person, have been in compliance with all Environmental Laws and permits issued pursuant thereto, except for such non-compliance which could not reasonably be expected to have a Material Adverse Effect; and the Properties have been kept free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law (the "Environmental Liens").
E. Lessee covenants to Lessor during the Lease Term that: (i) the Properties shall not be in violation of or subject to any investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws except for such violations or investigations or inquiries which relate to Hazardous Materials in De Minimis Amounts, and if any such investigation or inquiry is initiated, Lessee shall promptly notify Lessor; (ii) all uses and operations on or of each of the Properties, whether by Lessee or any other Person, shall be in compliance with all applicable Environmental Laws and permits issued pursuant thereto, except for such noncompliance which relates to Hazardous Materials in De Minimis Amounts; (iii) there shall be no Releases in, on, under or from any of the Properties, except in De Minimis Amounts; (iv) there shall be no Hazardous Materials in, on, or under any of the Properties, except in De Minimis Amounts; (v) Lessee shall keep each of the Properties free and clear of all Environmental Liens, whether due to any act or omission of Lessee or any other Person; (vi) Lessee shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to subsection F below, including but not limited to providing all relevant information and making knowledgeable persons within the control of Lessee available for interviews; (vii) in the event of any alleged or known Release, Lessee shall, at its sole cost and expense, perform any environmental site assessment or other investigation of Environmental Conditions in connection with any of the Properties as may be reasonably requested by Lessor (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and share with Lessor the reports and other results thereof, and Lessor and the other Indemnified Parties shall be entitled to rely on such reports and other results thereof; (viii) Lessee shall, at its sole cost and expense, comply with all reasonable written requests of Lessor to (1) reasonably effectuate Remediation of any condition (including but not limited to a Release) in, on, under or from any of the Properties; (2) comply with any Environmental Law; (3) comply with any applicable directive from any Governmental Authority, or engage in appropriate alternative remedial activities if approved by such Governmental Authority; and (4) take any other reasonable action necessary or appropriate for protection of human health or the environment on the Properties; (ix) Lessee shall, upon obtaining such information, promptly notify Lessor in writing of (A) any Releases or threatened Releases in, on, under, from or migrating towards any of the Properties which could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts; (B) any non-compliance with any Environmental Laws related in any way to any of the Properties, which non-compliance could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts; (C) any actual or potential Environmental Lien; (D) any required or proposed Remediation of Environmental Conditions relating to any of the Properties; and (E) any written or oral notice or other communication of which Lessee becomes aware from any source whatsoever (including but not limited to a Governmental Authority) relating in any way to Hazardous Materials or Remediation thereof which could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts, possible liability of any Person pursuant to any Environmental Law, other Environmental Conditions in connection with any of the Properties, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Section.
F. Lessor, Lender and any other Person designated by Lessor, including but not limited to any receiver, any representative of a Governmental Authority, and any environmental consultant, shall, after five Business Days' prior written notice to Lessee (except that in the event of an emergency no such prior notice shall be required), have the right, but not the obligation, to enter upon the Properties at all reasonable times (including, without limitation, in connection with any Securitization, Participation or Transfer or in connection with a proposed sale or conveyance of any of the Properties or a proposed financing or refinancing secured by any of the Properties or in connection with the exercise of any remedies set forth in this Lease, the Mortgages or the other Loan Documents, as applicable) to assess any and all aspects of the environmental condition of the Properties and their use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in the sole and absolute discretion of the party conducting the assessment) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing; provided, however, that any such persons (except in emergencies) shall use reasonable efforts to undertake any such assessments or investigations so as to minimize the impact on Lessee's business operations at the Properties. Lessee shall cooperate with and provide access to Lessor, Lender and any other Person designated by Lessor. Any such assessment and investigation shall be at Lessor's sole cost and expense unless at the time of any such assessment or investigation Lessor has a reasonable basis for believing that a Release has occurred on a Property or an Event of Default has occurred and is continuing, in which case Lessee shall be responsible for the cost of any such assessment or investigation. Unless an Event of Default shall have occurred and be continuing, upon completion of any assessments or testing pursuant to this Section 16.F (i) the Properties shall be restored to their condition at the time of commencement of testing, including, without limitation, the repair of any damage to the Properties as a result of such testing and (ii) Lessor shall indemnify, defend and hold Lessee harmless from and against any costs (including, without limitation, reasonable attorneys' fees and expenses), claims, loss or damages resulting from any assessments or testing pursuant to this Section 16.F (excluding claims, losses or damages suffered by Lessee as a result of Lessee's gross negligence or willful misconduct).
G. Lessee shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless each of the Indemnified Parties for, from and against any and all Losses (excluding Losses for which Lessor has agreed to indemnify, defend and hold harmless Lessee pursuant to Sections 16.F and 22 and Losses suffered by an Indemnified Party directly arising out of such Indemnified Party's gross negligence or willful misconduct; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease) and costs of Remediation (whether or not performed voluntarily), engineers' fees, environmental consultants' fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (i) any presence of any Hazardous Materials in, on, above, or under any of the Properties; (ii) any past or present Release or Threatened Release in, on, above, under or from any of the Properties; (iii) any activity by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control. management, abatement, removal, handling, transfer or transportation to or from any of the Properties of any Hazardous Materials at any time located in, under, on or above any of the Properties; (iv) any activity by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties in connection with any actual or proposed Remediation of any Hazardous Materials at any time located in, under, on or above any of the Properties, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (v) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with any of the Properties or operations thereon, including but not limited to any failure by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties to comply with any order of any Governmental Authority in connection with any Environmental Laws; (vi) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering any of the Properties; (vii) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Section; (viii) any past, present or threatened injury to, destruction of or loss of natural resources in violation of Environmental Laws in any way connected with any of the Properties, including but not limited to costs to investigate and assess such injury, destruction or loss; (ix) any acts of Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials owned or possessed by Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, at any facility or incineration vessel owned or operated by another Person and containing such or similar Hazardous Materials; (x) any acts of Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, in accepting any Hazardous Materials for transport to disposal or treatment facilities, incineration vessels or sites selected by Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, from which there is a Release, or a Threatened Release of any Hazardous Materials which causes the incurrence of costs for Remediation; (xi) any personal injury, wrongful death, or property damage arising under any statutory or common law or tort law theory, including but not limited to damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity, on or near any of the Properties; and (xii) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Section.
H. The obligations of Lessee and the rights and remedies of Indemnified Parties under Sections 16.D through 16.G shall survive the termination, expiration and/or release of this Lease.
17. Condition of Properties; Maintenance. Lessee, at its own expense, will maintain all parts of each of the Properties in good repair and sound condition, except for ordinary wear and tear and any Casualties and Takings (but without limiting Lessee's obligations under the terms and conditions of Section 21 of this Lease with respect to Casualties and Takings), and will take all action and will make all structural and non- structural, foreseen and unforeseen and ordinary and extraordinary changes and repairs or replacements which may be required to keep all parts of each of the Properties in good repair and sound condition.Lessee waives any right to (i) require Lessor to maintain, repair or rebuild all or any part of any of the Properties or (ii) make repairs at the expense of Lessor, pursuant to any Applicable Regulations at any time in effect.
18. Waste; Alterations and Improvements. Lessee shall not commit actual or constructive waste upon any of the Properties. Lessee shall not alter the exterior, structural, plumbing or electrical elements of any of the Properties in any manner without the consent of Lessor, which consent shall not be unreasonably withheld or conditioned (it being understood and agreed that to the extent Lessor is required to obtain the approval of Lender with respect to any such alterations, Lessor shall in no event be deemed to have unreasonably withheld Lessor's approval thereof if Lender shall not have given its approval if required); provided, however, Lessee may undertake nonstructural alterations to any of the Properties costing less than $100,000.00 without Lessor's consent. If Lessor's consent is required hereunder and Lessor consents to the making of any such alterations, the same shall be made according to plans and specifications approved by Lessor and subject to such other conditions as Lessor shall reasonably require. All alterations shall be made by Lessee at Lessee's sole expense by licensed contractors and in accordance with all applicable laws governing such alterations. Any work at any time commenced by Lessee on any of the Properties shall be prosecuted diligently to completion, shall be of good workmanship and materials and shall comply fully with all the terms of this Lease. Upon completion of any alterations, at Lessor's request Lessee shall promptly provide Lessor with (i) evidence of full payment to all laborers and materialmen contributing to the alterations, (ii) to the extent Lessee was required to prepare plans and specifications for such alterations, an architect's certificate certifying the alterations to have been completed in conformity with the plans and specifications, (iii) a certificate of occupancy (if the alterations are of such a nature as would require the issuance of a certificate of occupancy), and (iv) any other documents or information reasonably requested by Lessor. Any addition to or alteration of any of the Properties shall automatically be deemed a part of the Properties and belong to Lessor, and Lessee shall execute and deliver to Lessor such instruments as Lessor may require to evidence the ownership by Lessor of such addition or alteration. Lessee shall execute and file or record, as appropriate, a "Notice of Non-Responsibility," or any equivalent notice permitted under applicable law in the states where the applicable Properties are located.
19. Indemnification. Lessee shall indemnify, protect, defend and hold harmless each of the Indemnified Parties from and against any and all Losses (excluding losses for which Lessor has agreed to indemnify, defend and hold Lessee harmless pursuant to Section 22, and Losses suffered by an Indemnified Party arising out of the gross negligence or willful misconduct of such Indemnified Party; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of the Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease) caused by, incurred or resulting from Lessee's operations of or relating in any manner to any of the Properties, whether relating to their original design or construction, latent defects, alteration, maintenance, use by Lessee or any person thereon, supervision or otherwise, or from any breach of, default under, or failure to perform, any Term or provision of this Lease by Lessee, its officers, employees, agents or other persons, or to which any Indemnified Party is subject because of Lessor's or Remainderman's interest in any of the Properties, including, without limitation, Losses arising from (1) any accident, injury to or death of any person or loss of or damage to property occurring in, on or about any of the Properties or portion thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways, (2) any use, non-use or condition in, on or about, or possession, alteration, repair, operation, maintenance or management of, any of the Properties or any portion thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways, (3) any representation or warranty made herein by Lessee or in any certificate delivered in connection with this Lease being false or misleading in any material respect as of the date of such representation or warranty was made, (4) performance of any labor or services or the furnishing of any materials or other property in respect to any of the Properties or any portion thereof, (5) any taxes, assessments or other charges which Lessee is required to pay under Section 10, (6) any lien, encumbrance or claim arising on or against any of the Properties or any portion thereof under any Applicable Regulation or otherwise which Lessee is obligated hereunder to remove and discharge, or the failure to comply with any Applicable Regulation, (7) the claims of any invitees, patrons, licensees or subtenants of all or any portion of any of the Properties or any Person acting through or under Lessee or otherwise acting under or as a consequence of this Lease or any sublease, (8) any act or omission of Lessee or its agents, contractors, licensees, subtenants or invitees pertaining to this Lease, (9) any contest referred to in Section 10, and (10) the sale of liquor, beer or wine on any of the Properties. It is expressly understood and agreed that Lessee's obligations under this Section shall survive the expiration or earlier Termination of this Lease for any reason.
20. Quiet Enjoyment. So long as Lessee shall pay the rental and other sums herein provided and no Event of Default shall have occurred and be continuing, Lessee shall have, subject and subordinate to Lessor's rights herein, the right to the peaceful and quiet occupancy of the Properties. Notwithstanding the foregoing, however, in no event shall Lessee be entitled to bring any action against Lessor to enforce its rights under this Lease if an Event of Default shall have occurred and be continuing.
21. Condemnation or Destruction.
A. Notice of Taking or Casualty. In the event of a taking of all or any part of any of the Properties for any public or quasi-public purpose by any lawful power or authority by exercise of the right of condemnation or eminent domain or by agreement between Lessor, Lessee and those authorized to exercise such right ("Taking") or the commencement of any proceedings or negotiations which might result in a Taking or any damage to or destruction of any of the Properties or any part thereof as a result of a fire or other casualty (a "Casualty"), Lessee will promptly give written notice thereof to Lessor, generally describing the nature and extent of such Taking, proceedings, negotiations or Casualty and including copies of any documents or notices received in connection therewith. Thereafter, Lessee shall promptly send Lessor copies of all correspondence and pleadings relating to any such Taking, proceedings, negotiations or Casualty.
B. Assignment of Awards, Insurance Proceeds and Payments. Except as set forth below, in the event of (i) a Material Taking or (ii) a Material Casualty, Lessor shall be entitled to receive the entire award, insurance proceeds or payment in connection therewith without deduction for any estate vested in Lessee by this Lease. Lessee hereby expressly assigns to Lessor all of its right, title and interest in and to every such award, insurance proceeds or payment and agrees that Lessee shall not be entitled to any award, insurance proceeds or payment for the value of Lessee's leasehold interest in this Lease. With respect to a Material Taking, Lessee shall be entitled to claim and receive any award or payment from the condemning authority expressly granted for the taking of Personalty, the interruption of its business and moving expenses, but only if such claim or award does not adversely affect or interfere with the prosecution of Lessor's claim for the Material Taking or otherwise reduce the amount recoverable by Lessor for the Material Taking. With respect to a Material Casualty, Lessee shall be entitled to claim and receive any insurance proceeds with respect to the Personalty, the interruption of its business and moving expenses, but only if such claim or proceeds does not adversely affect or interfere with the prosecution of Lessor's claim for the Material Casualty or otherwise reduce the amount recoverable by Lessor for the Material Casualty.
C. Material Casualty. Within 60 days of a Material Casualty at any Property, Lessee shall have the option, but not the obligation, to either:
(i) deliver a rejectable offer to Lessor (a "Casualty Substitution Offer") to substitute a Substitute Property for the affected Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment (a "Casualty Termination Payment") to Lessor to terminate this Lease with respect to the affected Property in an amount equal to the sum of (x) the Applicable Percentage for the affected Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term, and (y) the Prepayment Charge corresponding to the affected Property. All Casualty Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of a Casualty Substitution Offer satisfying the requirements of Section 55 to accept or reject that offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of the offer within such time period shall be deemed to constitute Lessor's acceptance of that Casualty Substitution Offer. If the Mortgage corresponding to the affected Property is still outstanding, any rejection of the Casualty Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Casualty Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Casualty Substitution Offer within such 120-day period).
D. Acceptance or Rejection of Casualty Offer. If Lessor accepts the Casualty Substitution Offer or is deemed to have accepted the Casualty Substitution Offer or if any rejection of the Casualty Substitution Offer by Lessor is not consented to in writing by Lender as provided in this Section 21, then, within 180 days of that Material Casualty, Lessee shall complete the substitution, subject, however, to the satisfaction of each of the applicable terms and conditions set forth in this Section 21 and Section 55. Upon such substitution (i) Lessee shall be entitled to claim and receive the net award resulting from the Material Casualty, after payment of all costs and expenses incurred by Lessor and Lender in connection with that Material Casualty, and (ii) all obligations of either party under this Lease and otherwise with respect to the Property being replaced shall cease as of the closing of the substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the closing of the substitution shall survive the termination of this Lease with respect to that Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Casualty Substitution Offer and, as long as the Mortgage corresponding to the Property subject to the Casualty Substitution Offer is still outstanding, such rejection is consented to by Lender as provided in Section 21, or if the Material Casualty shall occur after the commencement of any extension options exercised pursuant to Section 27, then (i) the net award resulting from that Material Casualty shall be paid to and belong to Lessor, (ii) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (iii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, (iv) Lessee shall pay Lessor an amount equal to the insurance deductible applicable to that Material Casualty, as applicable, and (v) provided Lessee shall have paid Lessor all sums described in the preceding subitems (ii) and (iv), all obligations of either party with respect to that Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to that Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such Termination shall survive the Termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
B. Casualty Termination Payment. If Lessee makes a Casualty Termination Payment within 60 days of a Material Casualty, (1) Lessor shall be entitled to receive the net award resulting from such Material Casualty, (2) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (3) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, (4) Lessee shall pay Lessor an amount equal to the insurance deductible applicable to such Material Casualty, as applicable, and (5) provided Lessee shall have paid Lessor all sums described in the preceding subitems (2) and (4), all obligations of either party under this Lease and otherwise with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without] imitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the Termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
F. Lease Continuation.Upon the occurrence of any Casualty or Taking, Lessee shall take all steps necessary to ensure that the affected Property is secure and does not pose any threat or risk of harm to third parties, adjoining property owners or occupants. If such Casualty or Taking is not a Material Casualty or Material Taking, or if such Casualty or Taking is a Material Casualty or Material Taking, as applicable, but Lessee does not elect to make a Casualty Substitution Offer or Casualty Termination Payment or Condemnation Substitution Offer or Condemnation Termination Payment, as applicable, in connection with such Material Casualty or Material Taking, then, in any such event, (A) this Lease shall remain in full force and effect, (B) all Base Annual Rental, Additional Rental and other sums and obligations due under this Lease shall continue unabated, and (C) Lessee shall promptly commence and diligently prosecute restoration of the affected Property to the same condition, as nearly as practicable, as the condition of such affected Property prior to the occurrence of such Casualty or Taking, as applicable, in compliance with all Applicable Regulations and the Terms and conditions of this Lease, including, without limitation, the terms and conditions of Section 18 hereof.Unless Lessee shall elect to make a Casualty Substitution Offer, Casualty Termination Payment, Condemnation Substitution Offer or Condemnation Termination Payment, as applicable, following the occurrence of a Material Casualty or Material Taking, respectively, then, subject to such reasonable conditions for disbursement as may be imposed by Lessor, Lessor shall, upon the occurrence of any Casualty or Condemnation, promptly make available to Lessee in installments as restoration progresses an amount up to, but not exceeding, the amount of any insurance proceeds, award, compensation or damages actually received by Lessor (after deducting all costs, fees and expenses incident to the collection thereof (the "Material Restoration Amount"), upon request of Lessee accompanied by evidence reasonably satisfactory to Lessor that such amount has been paid or is due and payable and is properly a part of such costs and that Lessee has complied with the terms of Section 18 above in connection with the restoration. Prior to the disbursement of any portion of the Material Restoration Amount, Lessee shall provide evidence reasonably satisfactory to Lessor of the payment of restoration expenses by Lessee·up to the amount of the insurance deductible applicable to such Material Casualty or Material Taking. Lessor shall be entitled to keep any portion of the Material Restoration Amount which may be in excess of the cost of restoration, and Lessee shall bear all additional costs, fees and expenses of such restoration in excess of the Material Restoration Amount.
G. Material Taking. Within 30 days of a Material Talking affecting any Property, Lessee shall either:
(i) deliver a rejectable offer to Lessor (a "Condemnation Substitution Offer") to substitute a Substitute Property for the affected Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment (a "Condemnation Termination Payment") to Lessor to terminate this Lease with respect to the affected Property in an amount equal to the Applicable Percentage for that Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term. All Condemnation Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of a Condemnation Substitution Offer satisfying the requirements of Section 55 to accept or reject that offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of that offer within such time period shall be deemed to constitute Lessor's acceptance of the Condemnation Substitution Offer. If the Mortgage corresponding to the affected Property is still outstanding, any rejection of the Condemnation Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Condemnation Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Condemnation Substitution Offer within such 120-day period).
H. Acceptance or Rejection of Condemnation Offer. If Lessor accepts the Condemnation Substitution Offer or is deemed to have accepted the Condemnation Substitution Offer or if any rejection of the Condemnation Substitution Offer by Lessor is not consented to in writing by Lender, then, within 180 days of that Material Condemnation, Lessee shall complete the substitution, subject, however, to the satisfaction of each of the applicable terms and conditions set forth in this Section 21 and Section 55. Upon such substitution (i) Lessee shall be entitled to claim and receive the net award resulting from the Material Taking, after payment of all costs and expenses incurred by Lessor and Lender in connection with such Material Taking, and (ii) all obligations of either party under this Lease and otherwise with respect to the Property being replaced shall cease as of the closing of the substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the closing of the substitution shall survive the termination of this Lease with respect to the affected Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Condemnation Substitution Offer and, as long as the Mortgage corresponding to the Property subject to the Condemnation Substitution Offer is still outstanding, such rejection is consented to by Lender as provided in Section 21 or if the Material Taking shall occur after the commencement of any extension options exercised pursuant to Section 27, then (i) the net award resulting from that Material Taking shall be paid to and belong to Lessor, (ii) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (iii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, and (iv) provided Lessee shall have paid Lessor all sums described in the preceding subitem (ii), all obligations of either party hereunder with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
I. Taking Termination Payment. In the event Lessee makes a Condemnation Termination Payment with.in 30 days of a Material Taking, (1) Lessor shall be entitled to receive the net award resulting from such Material Taking, (2) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (3) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, and (4) provided Lessee shall have paid Lessor all sums described in the preceding subitem (2), all obligations of either party hereunder with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
J. Temporary Taking. In the event of a Taking of all or any part of any of the Properties for a temporary use ("Temporary Taking"), this Lease shall remain in full force and effect without any reduction of Base Annual Rental, Additional Rental or any other sum payable hereunder. Except as provided below, Lessee shall be entitled to the entire award for a Temporary Taking, whether paid by damages, rent or otherwise, unless the period of occupation and use by the condemning authorities shall extend beyond the date of expiration of this Lease, in which case the award made for such Taking shall be apportioned between Lessor and Lessee as of the date of such expiration. At the termination of any such Temporary Taking, Lessee will, at its own cost and expense and pursuant to the terms of Section 18 above, promptly commence and complete the restoration of the Property affected by the Temporary Taking; provided, however, Lessee shall not be required to restore the affected Property if the Lease Term shall expire prior to, or within one year after, the date of termination of the Temporary Taking, and in that event Lessor shall be entitled to recover the entire award relating to the Temporary Taking.
K. Partial Taking or Partial Casualty. In the event of a Taking which is not a Material Taking or a Temporary Taking ("Partial Taking") or of a Casualty which is not a Material Casualty (a "Partial Casualty"), all awards, compensation or damages shall be paid to Lessor, and Lessor shall have the option to (i) terminate this Lease with respect to the Property affected, provided that Lessor shall have obtained Lender's prior written consent, by notifying Lessee within 60 days after Lessee gives Lessor notice of the Partial Taking or Partial Casualty, or (ii) continue this Lease in effect, which election may be evidenced by either a written notice from Lessor to Lessee or Lessor's failure to notify Lessee in writing that Lessor has elected to terminate this Lease with respect to the affected Property within such 60-day period.
Lessee shall have a period of 60 days after Lessor's notice that it has elected to terminate this Lease with respect to the affected Property during which to elect to continue this Lease with respect to the affected Property on the terms herein provided. If Lessor elects to terminate this Lease with respect to the affected Property and Lessee does not elect to continue this Lease with respect to the affected Property or shall fail during its 60-day period to notify Lessor of Lessee's intent to continue this Lease with respect to that Property, then this Lease shall terminate with respect to the affected Property as of the last day of the month during which Lessee's 60-day period expired. Lessee shall then immediately vacate and surrender the affected Property, all obligations of either party under this Lease or otherwise with respect to that Property shall cease as of the date of termination (provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay Base Annual Rental, Additional Rental and all other sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the date of termination shall survive such termination) and Lessor may retain all such awards, compensation or damages. The Lease shall continue in full force and effect with respect to all other Properties.
If Lessor elects not to terminate this Lease with respect to the affected Property, or if Lessor elects to terminate this Lease with respect to the affected Property but Lessee elects to continue this Lease with respect to the affected Property, then this Lease shall continue in full force and effect on the following Terms: (i) all Base Annual Rental, Additional Rental and other sums and obligations due under this Lease shall continue unabated, and (ii) Lessee shall promptly commence and diligently prosecute restoration of the affected Property to the same condition, as nearly as practicable, as prior to such Partial Taking or Partial Casualty as reasonably approved by Lessor. In that case, Lessor shall promptly make available in installments as restoration progresses an amount up to but not exceeding the amount of any award, compensation or damages received by Lessor after deducting all costs, fees and expenses incident to the collection thereof (the ''Net Restoration Amount"), upon request of Lessee accompanied by evidence reasonably satisfactory to Lessor that such amount has been paid or is due and payable and is properly a part of such costs and that Lessee has complied with the Terms of Section 18 above in connection with the restoration. Lessor shall be entitled to keep any portion of the Net Restoration Amount which may be in excess of the cost of restoration, and Lessee shall bear all additional costs, fees and expenses of such restoration in excess of the Net Restoration Amount. If this Lease is terminated with respect to any Property as a result of a Partial Casualty, simultaneously with such termination Lessee shall pay Lessor an amount equal to the insurance deductible applicable to such Partial Casualty.
L. Adjustment of Losses. Any loss under any property damage insurance required to be maintained by Lessee shall be adjusted by Lessor and Lessee. Any award relating to a Taking shall be adjusted by Lessor or, at Lessor's election, Lessee. Notwithstanding the foregoing or any other provisions of this Section 21 to the contrary, if at the time of any Taking or any Casualty or at any time thereafter an Event of Default shall have occurred and be continuing, Lessor is hereby authorized and empowered but shall not be obligated, in the name and on behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any, for an award on account of such Taking or for insurance proceeds on account of such Casualty and to collect such award or proceeds and apply the same, after deducting all costs, fees and expenses incident to the collection thereof, to the curing of such default and any other then existing default under this Lease and/or to the payment of any amounts owed by Lessee to Lessor under this Lease, in such order, priority and proportions as Lessor in its discretion shall deem proper.
M. Payment of Costs and Expenses. Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with the conveyance of a Property to Lessee pursuant to this Section 21, including, without limitation, to the extent applicable, the cost of title insurance, survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and recording fees, taxes imposed on Lessor as a result of such conveyance, taxes imposed in connection with the transfer of a Property to Lessee or the termination of this Lease with respect to a Property pursuant to the provisions of this Section 21, Lessee's attorneys' fees and the reasonable attorneys' fees and expenses of counsel to Lessor and Lender.
N. No Limitation. Notwithstanding the foregoing, nothing in this Section 21 shall be construed as limiting or otherwise adversely affecting the representations, warranties, covenants and characterizations set forth in Lease, including, without limitation, those provisions set forth in Section 3 of this Lease.
22. Inspection. Lessor and its authorized representatives shall have the right, upon giving not less than five Business Days' prior written notice to Lessee (except that in the event of an emergency no such prior notice shall be required), to enter any of the Properties or any part thereof at reasonable times and inspect the same and make photographic or other evidence concerning Lessee's compliance with the terms of this Lease. Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of any of the Properties and any other loss occasioned by such entry so long as Lessor shall have used reasonable efforts not to unreasonably interrupt Lessee's normal business operations. Lessor hereby covenants and agrees to indemnify, defend and hold Lessee harmless from and against any and all losses, liabilities, damages, costs, expenses, suits, judgments and claims arising from injury or damage during the Lease Term to person or property caused by the act or acts, omissions or commissions of Lessor or any of its authorized representatives with respect to, or growing out of, any actions of Lessor pursuant to this Section 22 (except to the extent of Lessee's gross negligence or willful misconduct; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to Lessor solely by reason of the Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease). Lessee shall keep and maintain at the Properties or Lessee's corporate headquarters full, complete and appropriate books of account and records of Lessee's business relating to the Properties. Lessee's books and records shall be open at all reasonable times during regular business hours for inspection by Lessor, Lender and their respective auditors or other authorized representatives and shall show such information as is reasonably necessary to determine compliance with Lessee's obligations under this Lease.
23. Default, Remedies and Measure of Damages. A. Each of the following shall be an event of default under this Lease (each, an "Event of Default"):
(i) If any representation or warranty of Lessee set forth in this Lease is false in any respect as of the Effective Date, or if Lessee knowingly renders any statement or account which is false as and when made in any manner which could reasonably be expected to result in damages to Lessor;
(ii) If any rent or other monetary sum due under this Lease is not paid within 5 Business Days from the date when due; provided, however, notwithstanding the occurrence of such an Event of Default, Lessor shall not be entitled to exercise its remedies set forth below unless and until Lessor shall have given Lessee written notice thereof and a period of 5 Business Days from the delivery of such written notice shall have elapsed without such Event of Default being cured;
(iii) If Lessee fails to pay, prior to delinquency, any taxes, assessments or other charges, the failure of which to pay will result in the imposition of a lien against any of the Properties or the rental or other payments due under this Lease or a claim against Lessor, unless Lessee is contesting such taxes, assessments or other charges in accordance with the provisions of Section 10 of this Lease; provided, however, notwithstanding the occurrence of such an Event of Default, Lessor shall not be entitled to exercise its remedies set forth below unless and until Lessor shall have given Lessee written notice thereof and a period of 5 Business Days from the delivery of such written notice shall have elapsed without such Event of Default being cured;
(iv) If Lessee or Guarantor becomes insolvent within the meaning of the Code, files or notifies Lessor that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, hereinafter, an "Action"), becomes the subject of either a petition under the Code or an Action which is not dissolved within 90 days after filing, or is not generally paying its undisputed debts as the same become due;
(v) If Lessee vacates or abandons any of the Properties other than in accordance with the provisions of Section 15 of this Lease;
(vi) If Lessee fails to observe or perform any of the other covenants (except with respect to a breach of the Aggregate Fixed Charge Coverage Ratio, which breach is addressed in subitem (ix) below), conditions or obligations of this Lease; provided, however, if any such failure does not involve the payment of any monetary sum, is not willful or intentional, does not place any rights or property of Lessor in immediate jeopardy, and is within the reasonable power of Lessee to promptly cure after receipt of written notice thereof, then such failure shall not constitute an Event of Default hereunder, except as otherwise expressly provided herein, unless and until Lessor shall have given Lessee written notice thereof and a period of 30 days shall have elapsed, during which period Lessee may correct or cure such failure, and upon Lessee's failure to complete such correction or cure, an Event of Default shall be deemed to have occurred hereunder without further written notice or demand of any kind being required. If such failure cannot reasonably be corrected or cured within such 30-day period, and Lessee is diligently pursuing a correction or cure of such failure, then Lessee shall have a reasonable period to correct or cure such failure beyond such 30-day period, which shall in no event exceed 90 days after receiving written notice of such failure from Lessor. If Lessee shall fail to correct or cure such failure within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further written notice or demand of any kind being required;
(vii) If there is an "Event of Default" or a breach or default, after the passage of all applicable notice and cure or grace periods, under any other Sale-Leaseback Document, including, without limitation, the Guaranty;
(viii) If a final, nonappealable judgment is rendered by a court against Lessee in an amount of $25,000,000.00 or more (which is not covered by insurance) individually or in the aggregate or which prevents the operation of any of the Properties as a Permitted Facility, and in either event is not discharged (or provision made for such discharge by settlement or otherwise; provided, however, any such settlement must not prevent the operation of any of the Properties as a Permitted Facility and Lessee's failure to perform the terms of such settlement must not prevent the operation of any of the Properties as a Permitted Facility) or bonded over within 60 days from the date of entry thereof;
(ix) If there is a breach of the Aggregate Fixed Charge Coverage Ratio requirement and Lessor shall have given Lessee written notice thereof; provided, however, Lessee shall have the option, but not the obligation, to cure such breach by completing either of the following within a period of 30 days from the delivery of such written notice:
(1) prepay Aggregate Base Monthly Rental in an amount (the "Prepayment Amount") equal to the product of (x) the Aggregate Purchase Price multiplied by (y) a fraction, the numerator of which is the Rent Adjustment Amount and the denominator is the Aggregate Base Annual Rental then in effect. In the event that Lessee shall elect to prepay the Aggregate Base Monthly Rental in an amount equal to the Prepayment Amount, then the Aggregate Base Monthly Rental commencing on the next scheduled payment date following such prepayment shall be reduced in an amount equal to the Rent Adjustment Amount divided by 12, which reduction shall be allocated toward the Base Annual Rental and the Related Base Annual Rental based on the ratio of the Purchase Price or Related Purchase Price, as applicable, to the Aggregate Purchase Price; or
(2) deliver to Lessor a letter of credit in favor of Lessor (or, at Lessor's written direction, in favor of, or as designated by, Lender) in the form attached to this Lease as Exhibit C issued by an Approved Institution (the "Letter of Credit") in an amount equal to the lesser of (x) the Prepayment Amount and (y) an amount equal to the product of (aa) the Rent Adjustment Amount divided by 12 and (bb) the number of months remaining in the Initial Term (excluding any free rent period); provided, however, Lessee may not provide a Letter of Credit to cure a breach of the Aggregate Fixed Charge Coverage Ratio requirement if the aggregate amount of all Letters of Credit delivered to Lessor exceeds the Aggregate Base Annual Rental. Such Letter of Credit shall be maintained in effect until the cure of the breach of the Aggregate Fixed Charge Coverage Ratio which was the basis for the Letter of Credit being provided. If (x) an Event of Default shall have occurred and be continuing, Lessor shall have the right to present such Letter of Credit for payment and apply such proceeds toward the Aggregate Base Annual Rental then due and payable under this Lease, and (y) if a substitute or replacement Letter of Credit issued by an Approved Institution for such Letter of Credit in the amount of such Letter of Credit is not provided to Lessor at least 30 days prior to the scheduled expiration date of such Letter of Credit, Lessor shall have the right to present such Letter of Credit for payment at any time within such 30 day period and the proceeds of such Letter of Credit shall be held by Lessor as security for the payment of the Aggregate Base Annual Rental due and payable under this Lease and the Related Lease. The Letter of Credit shall provide that Lessor can only present the Letter of Credit for payment as contemplated by the preceding subitems (x) and (y) and the corresponding subitems of Section 23.A(ix)(2) of the Related Lease. Upon Lessee's cure of the Aggregate Fixed Charge Coverage Ratio breach which was the basis for such Letter of Credit being provided, Lessor shall release the Letter of Credit to the Approved Institution or, if Lessor is holding the proceeds of such Letter of Credit, deliver such proceeds to Lessee. To the extent the proceeds of such Letter of Credit are applied toward the Aggregate Base Annual Rental as contemplated in this subitem (2), such proceeds shall be allocated toward the Base Annual Rental and the Related Base Annual Rental based on the ratio of the Purchase Price or Related Purchase Price, as applicable, to the Aggregate Purchase Price.
At Lessor's written direction, Lessee agrees to cause the Approved Institution to issue two Letters of Credit in favor of, or as designated by, Lender instead of a single Letter of Credit as contemplated by the preceding paragraph provided that the aggregate amount of the two Letters of Credit does not exceed the amount of the single Letter of Credit. Subsequent to the issuance of such Letters of Credit, all references in this subitem (2) to a Letter of Credit shall mean both Letters of Credit.
Notwithstanding the foregoing, if, within a 30 day period after the delivery of Lessor's written notice to Lessee of Lessee's breach of the Aggregate Fixed Charge Coverage Ratio requirement, Lessee provides evidence satisfactory to Lessor that the Aggregate Fixed Charge Coverage Ratio is at least 1.25:1 for the twelve calendar month period immediately preceding the delivery to Lessor of such evidence, no Event of Default shall be deemed to have occurred as a result of such breach of the Aggregate Fixed Charge Coverage Ratio requirement.
(x) If Lessee shall fail to sign any instrument or certificate in accordance with the provisions of Sections 24 or 25 of this Lease and such failure shall not be cured within 5 Business Days following written notice from Lessor.
(xi) If Lessee shall fail to maintain insurance in accordance with the requirements of Section 12 and such failure continues for 5 Business days following written notice from Lessor.
B. Upon the occurrence of an Event of Default, with or without notice or demand, except the notice prior to default required under certain circumstances by Section 23.A or such other notice as may be required by statute and cannot be waived by Lessee (all other notices being hereby waived), Lessor shall be entitled to exercise, at its option, concurrently, successively, or in any combination, all remedies available at law or in equity, including without limitation, any one or more of the following:
(i) To terminate this Lease, whereupon Lessee's right to possession of the Properties shall cease and this Lease, except as to Lessee's liability, shall be terminated.
(ii) To reenter and take possession of any or all of the Properties and, to the extent permissible, all licenses, permits and other rights or privileges of Lessee pertaining to the use and operation of any or all of the Properties and to expel Lessee and those claiming under or through Lessee, without being deemed guilty in any manner of trespass or becoming liable for any loss or damage resulting therefrom, without resort to legal or judicial process, procedure or action. No notice from Lessor hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Lessor to terminate this Lease unless such notice specifically so states. If Lessee shall, after default, voluntarily give up possession of any of the Properties to Lessor, deliver to Lessor or its agents the keys to any of the Properties, or both, such actions shall be deemed to be in compliance with Lessor's rights and the acceptance thereof by Lessor or its agents shall not be deemed to constitute a termination of this Lease. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice.
(iii) If Lessee has not removed the Personalty within 20 Business Days after written notice from Lessor to Lessee and repaired all damage to the Properties caused by such removal, Lessor shall have the immediate right to seize all Personalty located on or at any or all of the Properties and cause the same to be stored in a public warehouse or elsewhere at Lessee's sole expense, without becoming liable for any loss or damage resulting therefrom and without resorting to legal or judicial process, procedure or action.
(iv) To. bring an action against Lessee for any damages sustained by Lessor.
(v) To relet any or all of the Properties or any part thereof for such term or Terms (including a term which extends beyond the original Lease Term), at such rentals and upon such other Terms as Lessor, in its sole discretion, may determine, with all proceeds received from such reletting being applied to the rental and other sums due from Lessee in such order as Lessor may, in its sole discretion, determine, which other sums include, without limitation, all repossession costs, brokerage commissions, reasonable attorneys' fees and expenses, employee expenses, alteration, remodeling and repair costs and expenses of preparing for such reletting. Except to the extent required by applicable law, Lessor shall have no obligation to relet any of the Properties or any part thereof and shall in no event be liable for refusal or failure to relet any of the Properties or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon such reletting, and no such refusal or failure shall operate to relieve Lessee of any liability under this Lease or otherwise to affect any such liability. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice.
(vi) (x) To recover from Lessee all rent and other monetary sums then due and owing under this Lease; and (y) to accelerate and recover from Lessee the present value (discounted at the rate of 6% per annum) of all rent and other monetary sums scheduled to become due and owing under this Lease after the date of such breach for the entire original scheduled Lease Term; provided, however, in no event shall such recovery be less than the sum of (i) the product of the percentage specified on Schedule m attached hereto which corresponds to the month in which such Event of Default first occurred multiplied by the sum of Lessor's Total Investment for all of the Properties which are then subject to this Lease plus (ii) the sum of the Prepayment Charges corresponding to all of the Properties which are then subject to this Lease.
(vii) To recover from Lessee all reasonable costs and expenses, including reasonable attorneys' fees, court costs, expert witness fees, costs of tests and analyses, travel and accommodation expenses, deposition and trial transcripts, copies and other similar costs and fees, paid or incurred by Lessor as a result of such breach, regardless of whether or not legal proceedings are actually commenced.
(viii) To immediately or at any time thereafter, and with or without notice, at Lessor's sole option but without any obligation to do so, correct such breach or default and charge Lessee all costs and expenses incurred by Lessor therein. Any sum or sums so paid by Lessor, together with interest at the Default Rate, shall be deemed to be Additional Rental hereunder and shall be immediately due from Lessee to Lessor. Any such acts by Lessor in correcting Lessee's breaches or defaults hereunder shall not be deemed to cure said breaches or defaults or constitute any waiver of Lessor's right to exercise any or all remedies set forth herein.
(ix) To immediately or at any time thereafter, and with or without notice, except as required herein, set off any money of Lessee held by Lessor wider this Lease against any sum owing by Lessee or Guarantor hereunder.
(x) To seek any equitable relief available to Lessor, including, without limitation, the right of specific performance.
All powers and remedies given by this Section 23.B to Lessor, subject to applicable law, shall be cumulative and not exclusive of one another or of any other right or remedy or of any other powers and remedies available to Lessor under this Lease, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements of Lessee contained in this Lease, and no delay or omission of Lessor to exercise any right or power accruing upon the occurrence of any Event of Default shall impair any other or subsequent Event of Default or impair any rights or remedies consequent thereto. Every power and remedy given by this Section 23.B or by law to Lessor may be exercised from time to time, and as often as may be deemed expedient, by Lessor, subject at all times to Lessor's right in its sole judgment to discontinue any work commenced by Lessor or change any course of action undertaken by Lessor.
If Lessee shall fail to observe or perform any of its obligations under this Lease or in the event of an emergency, then, without waiving any Event of Default which may result from such failure or emergency, Lessor may, but without any obligation to do so, take all actions, including, without limitation, entry upon any or all of the Properties to perform Lessee's obligations, immediately and without notice in the case of an emergency and upon five Business Days' prior written notice to Lessee in all other cases. All expenses incurred by Lessor in connection with performing such obligations, including, without limitation, reasonable attorneys' fees and expenses, together with interest at the Default Rate from the date any such expenses were incurred by Lessor until the date of payment by Lessee, shall constitute Additional Rental and shall be paid by Lessee to Lessor upon demand.
24. Liens; Mortgages, Subordination, Nondisturbance and Attornment. Lessor's interest in this Lease and/or any of the Properties shall not be subordinate to any liens or encumbrances placed upon any of the Properties by or resulting from any act of Lessee, and nothing herein contained shall be construed to require such subordination by Lessor. Lessee shall keep the Properties free from any liens for work performed, materials furnished or obligations incurred by Lessee.NOTICE IS HEREBY GIVEN THAT, EXCEPT AS OTHERWISE CONSENTED TO BY LESSOR PURSUANT TO SECTION 26, LESSEE IS NOT AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST, SECURITY INTEREST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF ANY OF THE PROPERTIES OR LESSEE'S LEASEHOLD INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION WHICH IS NOT APPROVED BYLESSORSHALLBEVOID.FURTHERMORE,ANYSUCHPURPORTED TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH LESSOR'S RELATIONSHIP WITH LESSEE AND LESSOR'S OWNERSHIP OF THE PROPERTIES.
This Lease at all times shall automatically be subordinate to the Mortgages and to the lien of any and all mortgages, deeds of trust, deeds to secure debt and trust deeds now or hereafter placed upon any of the Properties by Lessor, and Lessee covenants and agrees to execute and deliver, upon demand, such further instruments subordinating this Lease to the lien of the Mortgages and any or all such mortgages, deeds of trust, deeds to secure debt or trust deeds as shall be desired by Lessor, or any present or proposed mortgagees or lenders under deeds of trust, deeds to secure debt or trust deeds, upon the condition that (a) Lessee shall have the right to remain in possession of the Properties under the terms of this Lease, notwithstanding any default in the Mortgages or any or all such mortgages, deeds of trust, deeds to secure debt or trust deeds or after foreclosure of any or all such Mortgages, mortgages, deeds of trust, deeds to secure debt or trust deeds, so long as an Event of Default shall not have occurred and be continuing and (b) the holders of the Mortgages and any and all mortgages, deeds of trust, deeds to secure debt and trust deeds now or hereafter placed upon any of the Properties by Lessor execute an agreement substantially in the form attached to this Lease as Exhibit D, but with such modifications as may be reasonably required consistent with then customary lending practices, in recordable form wherein the holder(s) of said indebtedness agree not to disturb Lessee's possession, deprive Lessee of any rights or increase Lessee's obligations under this Lease ("Non-Disturbance and Attornment Agreement"). The Non-Disturbance and Attornment Agreement shall provide that the mortgagee, beneficiary or trustee named in such mortgage, deed of trust, deed to secure debt or trust deed shall, subject to the terms of this Section 24, recognize this Lease and acknowledge that, so long as an Event of Default shall not have occurred and be continuing, a foreclosure or acceptance of a deed in lieu of foreclosure or the exercise of any other rights under such mortgage, deed of trust, deed to secure debt or trust deed shall not extinguish or otherwise diminish or disturb the rights of Lessee as set forth in this Lease. Lessee acknowledges and agrees that the execution and delivery by Lender of the Acknowledgement satisfies the obligation of Lessor to deliver a Non-Disturbance and Attornment Agreement with respect to the obligations of Lessor to Lender under the Mortgages encumbering the Properties executed as of the date of this Lease.
If any mortgagee, receiver, Lender or other secured party elects to have this Lease and the interest of Lessee hereunder be superior to any of the Mortgages or any such mortgage, deed of trust, deed to secure debt or trust deed and evidences such election by notice given to Lessee, then this Lease and the interest of Lessee hereunder shall be deemed superior to any such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed, whether this Lease was executed before or after such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed and in that event such mortgagee, receiver, Lender or other secured party shall have the same rights with respect to this Lease as if it had been executed and delivered prior to the execution and delivery of such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed and had been assigned to such mortgagee, receiver, Lender or other secured party.
Although the foregoing provisions shall be self-operative and no future instrument of subordination shall be required, upon request by Lessor, Lessee shall execute and deliver whatever instruments may be reasonably required for such purposes.
Lessee shall send written notice to any Lender of Lessor having a recorded lien upon any of the Properties or any part thereof of which Lessee has been notified in writing of any breach or default by Lessor of any of its obligations under this Lease concurrently with the sending of such notice to Lessor, and Lessee shall give such Lender at least 60 days beyond any notice period to which Lessor might be entitled to cure such default before Lessee may exercise any remedy with respect thereto.
25. Estoppel Certificate. At any time, but not more often than twice every 12 months, Lessee shall, promptly and in no event later than 10 days after a request from Lessor or Lender, execute, acknowledge and deliver to Lessor or Lender a certificate in the form supplied by Lessor, Lender or any present or proposed mortgagee or purchaser designated by Lessor, certifying the following: (i) that Lessee has accepted the Properties (or, if Lessee has not done so, that Lessee has not accepted the Properties, and specifying the reasons therefor); (ii) that this Lease is in full force and effect and has not been modified (or if modified, setting forth all modifications), or, if this Lease is not in full force and effect, the certificate shall so specify the reasons therefor; (iii) the commencement and expiration dates of the Lease Term, including the terms of any extension options of Lessee; (iv) the date to which the rentals have been paid under this Lease and the amount thereof then payable; (v) whether there are then any existing defaults by Lessor in the performance of its obligations under this Lease, and, if there are any such defaults, specifying the nature and extent thereof; (vi) that no notice has been received by Lessee of any default under this Lease which has not been cured, except as to defaults specified in the certificate; (vii) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of Lessee; (viii) that neither Lessor nor Lender has actual involvement in the management or control of decision making related to the operational aspects or the day-to-day operations of the Properties; and (ix) any other information reasonably requested by Lessor or Lender consistent with then customary leasing or lending practices.
26. Assignment; Subletting. A. Lessor shall have the right to sell or convey all, but not less than all, of the Properties or to assign its right, title and interest as Lessor under this Lease in whole, but not in part. In the event of any such sale or assignment other than a security assignment, provided Lessee receives written notice that such purchaser or assignee has assumed all of Lessor's obligations under this Lease, Lessee shall attorn to such purchaser or assignee and Lessor shall be relieved, from and after the date of such transfer or conveyance, of liability for the performance of any obligation of Lessor contained herein, except for obligations or liabilities accrued prior to such assignment or sale.
B. Lessee acknowledges that Lessor has relied both on the business experience and creditworthiness of Lessee and upon the particular purposes for which Lessee intends to use the Properties in entering into this Lease. Without the prior written consent of Lessor, and except as expressly set forth in this Section 26.B: (i) Lessee shall not assign, transfer, convey, pledge or mortgage this Lease or any interest therein, whether by operation of law or otherwise; (ii) no interest in Lessee shall be assigned, transferred, conveyed, pledged or mortgaged, whether by operation of law or otherwise, including, without limitation, a dissolution of Lessee or a transfer of any of the voting stock of Lessee; and (iii) Lessee shall not sublet all or any part of any of the Properties except as set forth in Section 26.C. It is expressly agreed that Lessor may withhold or condition such consent based upon such matters as Lessor may in its reasonable discretion determine, including, without limitation, the experience and creditworthiness of any assignee, the assumption by any assignee of all of Lessee's obligations hereunder by undertakings enforceable by Lessor, payment to Lessor of any rentals owing under a sublease which are in excess of the rentals owing hereunder, the transfer to any assignee of all necessary licenses and franchises to continue operating the Properties for the purposes herein provided, receipt of such representations and warranties from any assignee as Lessor may reasonably request, including such matters as its organization, existence, good standing and finances and other matters, whether or not similar in kind. At the time of any assignment of this Lease which is approved by Lessor, the assignee shall assume all of the obligations of Lessee under this Lease pursuant to Lessor's standard form of assumption agreement. No such assignment nor any subletting of any of the Properties shall relieve Lessee of its obligations respecting this Lease. Any assignment, transfer, conveyance, pledge or mortgage in violation of this Section 26.B shall be voidable at the sole option of Lessor. Notwithstanding the foregoing, but subject to the conditions set forth in the following sentence, the prior written consent of Lessor shall not be required for the assignment by Lessee of this Lease to an Affiliate of Lessee, or the transfer of the voting stock of Lessee by Guarantor to an Affiliate of Lessee in a single transaction or a series of transactions, provided that in either event such Affiliate is a corporation, partnership or limited liability company whose voting stock, partnership interests or membership interests, as applicable, are owned entirely, directly or indirectly, by Guarantor. Lessee's right to complete an assignment or transfer contemplated by the preceding sentence shall be subject to the satisfaction of the following conditions precedent at the time of the proposed assignment or transfer:
(1) no Event of Default shall have occurred and be continuing;
(2) Lessee shall provide Lessor with written notice of such proposed assignment or transfer at least 30 days prior to the anticipated date of such assignment or transfer;
(3) Lessee, such Affiliate and Guarantor shall execute such documents, take such actions and deliver such opinions of counsel and other evidence of authority as Lessor may reasonably require to evidence the obligations of Lessee and, to the extent applicable, such Affiliate, as lessee, under this Lease and Guarantor under the Guaranty notwithstanding the completion of such assignment or transfer; and
(4) Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with any such assignment or transfer, including, without limitation, the reasonable attorneys' fees and expenses of Lessor and Lender.
C. Without otherwise limiting any of the terms and conditions of this Section or Section 24 of this Lease, (i) Lessee shall have the right to transfer any of its assets to an Affiliate of Lessee, other than its leasehold interests in the Properties and any other assets used in connection with or related to the operation of the Properties, and (ii) the voting stock, partnership interests or membership interests, as applicable, of such Affiliate may be pledged to a third-party financial institution as security for the performance of obligations due such institution, subject to the satisfaction of the following conditions: (x) no Event of Default shall have occurred and be continuing, (y) such Affiliate is a corporation, partnership or limited liability company whose voting stock, partnership interests or membership interests, as applicable, are owned entirely, directly or indirectly, by Guarantor, and (z) such Affiliate shall have executed and delivered to Lessor an unconditional guaranty of payment and performance with respect to the obligations of Lessee under this Lease, which unconditional guaranty shall be substantially in the form of the Guaranty.
D. Notwithstanding the foregoing, but subject to the conditions set forth in the following sentence, Lessee shall have the right to sublease: (i) any of the Properties to a wholly- owned subsidiary or Affiliate of Lessee, plus (ii) an aggregate of four of the Properties at any time (in addition to the Properties subleased pursuant to the preceding item (i)) without the consent of Lessor or Lender. Lessee's right to sublease the Properties as contemplated by the preceding sentence shall be subject to the following conditions:
(1) no Event of Default shall have occurred and be continuing;
(2) any such sublease shall be subordinate to this Lease and Lessee shall remain liable under this Lease notwithstanding such sublease; and
(3) the Properties subject to such subleases shall be used as Permitted Facilities and shall otherwise be operated and maintained in accordance with the terms and conditions of this Lease.
Within 10 Business Days after the execution of each such sublease, Lessee shall provide Lessor with a notice of such sublease and a photocopy of the fully executed sublease.
27. Option To Extend; New Lease. A. Lessor and Lessee acknowledge and agree that the Lease Term, including any term extensions provided for in this Lease, is less than 90% of the expected remaining economic life of each of the Properties. Lessee, provided no Event of Default has occurred and is continuing at the time of exercise or at the expiration of the Lease Term or, if applicable, the preceding extension of the Lease Term, shall have the option to continue this Lease in effect for one initial additional period of 10 years and 2 successive periods of 5 years each in accordance with the terms and provisions of this Lease then in effect, except that the Base Annual Rental during each extension period shall be an amount set forth on the attached Exhibit B. Lessor and Lessee agree that the Base Annual Rental during each extension period represents the then fair market rental value of the Properties.
Lessee may only exercise the first extension option by giving notice to Lessor of Lessee's intention to do so not later than July 31, 2019. If the first extension option is exercised by Lessee, Lessee may only exercise the second extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2030. If the first two extension options are exercised, Lessee may only exercise the third extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2035.
B. In addition, provided no Event of Default shall have occurred and be continuing, Lessee shall also have the right, by notice delivered to Lessor not later than July 31, 2019, to enter into a new master lease with Lessor, to commence at the end of the Initial Term, for not less than 13 of the Properties. In the event Lessee elects to enter into such new master lease, the Base Annual Rental under such new master lease shall equal the product of (i) the aggregate Applicable Percentage for the Properties included within such new master lease multiplied by the Purchase Price, and (ii) the "Rent Factor'' set forth on the attached Exhibit B. Such new master lease shall be for a 10 year primary term, have two (2) five-year renewal options and otherwise be on the same terms and conditions as this Lease. Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with the execution of such new master lease, including, without limitation, Lessee's attorneys' fees and reasonable attorneys' fees and expenses of counsel to Lessor and Lender.
28. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Lease shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) the next Business Day after transmission, if delivered facsimile, (c) the next Business Day, if delivered by express overnight delivery service, or {d) the fifth Business Day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below:
|
If to Lessee:
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Cracker Barrel Old Country Store, Inc.
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305 Hartmann Drive
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||||
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P.O. Box 787
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||||
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Lebanon, TN 37088-0787
|
||||
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Attention: Chief Financial Officer:
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||||
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Telephone:
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(615) 443-9574
|
|||
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Facsimile:
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(615) 443-9818
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|||
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With a copy to:
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||||
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General Counsel
|
||||
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Cracker Barrel Old Country Store, Inc.
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||||
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305 Hartmann Drive
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||||
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P.O. Box 787
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||||
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Lebanon, TN 37088-0787
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||||
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Telephone:
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(615) 443-9180
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|||
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Facsimile:
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(615) 443-9818
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|||
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With a copy to Guarantor:
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||||
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CBRL Group, Inc.
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||||
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Attention: General Counsel
|
||||
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305 Hartmann Drive
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||||
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P.O. Box 787
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||||
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Lebanon, TN 37088-0787
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||||
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Telephone:
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(615) 443-9180 | |||
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If to Lessor:
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Facsimile:
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(615) 443-9818
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||
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Country Stores Property I, LLC
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||||
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c/o U.S. Realty Advisors LLC
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||||
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1370 Avenue of the Americas
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||||
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New York, NY 10019
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||||
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Attention: Mr. David M. Ledy
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||||
| Telephone: |
(212) 581-4540
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|||
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With a copy to:
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Facsimile:
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(212) 581-4950
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||
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Proskauer Rose LLP
|
||||
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1585 Broadway
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||||
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New York, NY 10036
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||||
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Attention:
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Kenneth S. Hilton, Esq. | |||
| Telephone: |
(212) 969-3000
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|||
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Facsimile:
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(212) 969-2900
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|||
or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. No such notices, consents, approvals or other communications shall be valid unless Lender receives a duplicate original thereof at the following address:
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Dennis L. Ruben, Esq.
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||||
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Executive Vice President, General Counsel and Secretary
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||||
| FFCA Funding Corporation | ||||
| 17207 North Perimeter Drive | ||||
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Scottsdale, AZ 85255
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||||
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Telephone:
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(480) 585-4500
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|||
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Telecopy:
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(480) 585-2226
|
|||
or to such other address or such other person as Lender may from time to time specify to Lessor and Lessee in a notice delivered in the manner provided above.
29. Holding Over. If Lessee remains in possession of any of the Properties after the expiration of the Lease Term, Lessee, at Lessor's option and within Lessor's sole discretion, may be deemed a tenant on a month-to-month basis and shall continue to pay rentals and other sums in the amounts herein provided, except that the Base Monthly Rental shall be automatically doubled, and to comply with all the terms of this Lease; provided, however, nothing herein nor the acceptance of rent by Lessor shall be deemed a consent to such holding over. Lessee shall defend, indemnify, protect and hold the Indemnified Parties harmless from and against any and all Losses resulting from Lessee's failure to surrender possession upon the expiration of the Lease Term, including, without limitation, any claims made by any succeeding lessee. The Terms of this Section 29 shall survive the expiration of the Lease Term.
30. Removal of Personalty. At the expiration of the Lease Term, and if Lessee is not then in breach hereof, Lessee may remove all Personalty from the Properties. Lessee shall repair any damage caused by such removal and shall leave the Properties broom clean and in good and working condition and repair inside and out, except for normal wear and tear and any Casualty and any Taking for which the terms of this Lease do not require Lessee to restore. Any property of Lessee left on the Properties on the 10th Business Day following the expiration of the Lease Term shall automatically and immediately become the property of Lessor. At the expiration of the Lease Term, and if Lessee is not then in breach of this Lease, Lessor agrees that Lessee, at Lessee's sole expense, may, within nine Business Days after such expiration, make such modifications and alterations, including removal of all distinctive physical and structural features associated with the trade dress of Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™ units, as may be necessary to distinguish the Property so clearly from its former appearance and from other Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™, as to prevent any possibility that the public will associate the Property with Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™ units, and any confusion created by such association. (Such modifications and alterations shall include, but not be limited to, removing or covering the distinctive decor and color scheme on all walls, counters, fixtures and furnishings, as well as the exterior of the Property.).
31. Financial Statements. (a) Lessee shall provide Lessor with copies of each Quarterly Report on Form 10-Q, Annual Report on Form 10-K and Current Report on Form 8-K of Guarantor, promptly and in any event within 5 Business Days after the filing of such reports (if any) with the United States Securities and Exchange Commission. If Guarantor ceases to be required to file such reports, or if for any other reason such reports are not filed, with the United States Securities and Exchange Commission, Lessee shall provide Lessor the following reports: (i) within 60 days after the end of each of the first 3 fiscal quarters of each fiscal year of Guarantor, copies of the unaudited consolidated balance sheets of Guarantor and its consolidated subsidiaries as at the end of the fiscal quarter of Guarantor and the related unaudited statements of earnings and cash flows, in each case for the fiscal quarter and for the period from the beginning of such fiscal year through the end of such fiscal quarter of Guarantor, prepared in accordance with GAAP throughout the periods reflected therein and certified (subject to year end adjustments and the omission of footnotes) by the chief financial officer or chief accounting officer of Guarantor, and (ii) as soon as possible and in any event within 120 days after the end of each fiscal year of Guarantor, a copy of the audited consolidated balance sheet of Guarantor and its consolidated subsidiaries as at the end of that fiscal year and the related statements of earnings, stockholders' equity and cash flows of Guarantor and its consolidated subsidiaries for that fiscal year, setting forth in each case, in comparative form, the corresponding figures for the preceding fiscal year of Guarantor and prepared in accordance with GAAP throughout the periods reflected therein, certified by a firm of independent certified public accountants selected by Guarantor. In the event that Lessee's property and business at the Properties is ordinarily consolidated with other business for financial statement purposes, separate non-GAAP statements shall be prepared showing the sales, profits and losses, assets and liabilities pertaining to each of the Properties with the basis for allocation of overhead or other charges being clearly set forth.
(a) Within 60 days after the end of each of the first 3 fiscal quarters of each year of Lessee and within 120 days after the end of each fiscal year of Lessee, Lessee shall deliver to Lessor and Lender a Store Income Statement for each of the Properties.
32. Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, acts of God, enemy or hostile governmental action, civil commotion, fire or other casualty beyond the control of the party obligated to perform shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to rental and other monies to be paid by Lessee pursuant to this Lease and any indemnification obligations imposed upon Lessee under this Lease.
33. Time Is of the Essence. Time is of the essence with respect to each and every provision of this Lease in which time is a factor.
34. Liability Limitation. (a) Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessor, that (i) there shall be absolutely no personal liability on the part of Lessor, its successors or assigns and the trustees, members, partners, shareholders, officers, directors, employees and agents of Lessor and its successors or assigns, to Lessee with respect to any of the terms, covenants and conditions of this Lease, (ii) Lessee waives all claims, demands and causes of action against the trustees, members, partners, shareholders, officers, directors, employees and agents of Lessor and its successors or assigns in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, and (iii) Lessee shall look solely to the Properties for the satisfaction of each and every remedy of Lessee in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, or any other matter in connection with this Lease or the Properties, such exculpation of liability to be absolute and without any exception whatsoever.
(b) Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessee, that, except as set forth in this subsection below, (i) there shall be absolutely no personal liability on the part of the shareholders, officers, directors, employees and agents of Lessee and its successors or assigns with respect to any of the terms, covenants and conditions of this Lease, and (ii) Lessor waives all claims, demands and causes of action against the shareholders, officers, directors, employees and agents of Lessee and its successors or assigns in the event of any breach by Lessee of any of the terms, covenants and conditions of this Lease to be performed by Lessee, such exculpation of liability to be absolute and without any exception whatsoever, except that such waiver and exculpation shall not extend to Losses incurred by any of the Indemnified Parties as a result of fraud or intentional misrepresentations by any of the shareholders, officers, directors, employees and agents of Lessee and its successors and assigns, or limit the ability of the Indemnified Parties to seek recovery from such shareholders, officers, directors, employees and agents of Lessee and its successors and assigns as a result of such fraud or intentional misrepresentation.
35. Consent of Lessor, (a) Except as specified otherwise in specific Sections of this Lease, Lessor's consent to any request of Lessee may be conditioned or withheld in Lessor's sole discretion. Lessor shall have no liability for damages resulting from Lessor's failure to give any consent, approval or instruction reserved to Lessor, Lessee's sole remedy in any such event being an action for injunctive relief.
(b) It is understood and agreed that to the extent Lessor is required to obtain the consent, approval, agreement or waiver of Lender with respect to a matter for which Lessor's approval has been requested under this Lease, Lessor shall in no event be deemed to have unreasonably withheld Lessor's consent, approval, agreement or waiver thereof if Lender shall not have given its approval if required.
36. Waiver and Amendment. No provision of this Lease shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. No acceptance by Lessor of an amount less than the monthly rent and other payments stipulated to be due under this Lease shall be deemed to be other than a payment on account of the earliest such rent or other payments then due or in arrears nor shall any endorsement or statement on any check or letter accompanying any such payment be deemed a waiver of Lessor's right to collect any unpaid amounts or an accord and satisfaction.
37. Successors Bound. Except as otherwise specifically provided herein, the terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of the respective heirs, successors, executors, administrators and assigns of each of the parties hereto.
38. No Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation of this Lease, shall not result in a merger of Lessor's and Lessee's estates, and shall, at the option of Lessor, either terminate any or all existing subleases or subtenancies, or operate as an assignment to Lessor of any or all of such subleases or subtenancies.
39. Captions. Captions are used throughout this Lease for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. References to a particular "Section" herein shall mean such Section of this Lease unless specific reference is also made to another instrument or agreement.
40. Severability. The provisions of this Lease shall be deemed severable. If any part of this Lease shall be held unenforceable by any court of competent jurisdiction, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed herein.
41. Characterization. A. It is the intent of the parties hereto that the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein. None of the agreements contained herein, is intended, nor shall the same be deemed or construed, to create a partnership between Lessor and Lessee, to make them joint venturers, to make Lessee an agent, legal representative, partner, subsidiary or employee of Lessor, nor to make Lessor in any way responsible for the debts, obligations or losses of Lessee.
B. Lessor and Lessee acknowledge and warrant to each other that each has been represented by independent counsel and has executed this Lease after being fully advised by said counsel as to its effect and significance. This Lease shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Whenever in this Lease any words of obligation or duty are used, such words or expressions shall have the same force and effect as though made in the form of a covenant.
42. Easements. During the Lease Term, Lessor agrees to grant such utility, access or other similar easements on, over and above any of the Properties as Lessee may reasonably request provided that such easements will not materially interfere with Lessor's ownership of such Properties.
43. Bankruptcy. A. As a material inducement to Lessor executing this Lease, Lessee acknowledges and agrees that Lessor is relying upon (i) the financial condition and specific operating experience of Lessee and Lessee's obligation to use each of the Properties specifically in accordance with system-wide requirements imposed from time to time on Permitted Facilities, (ii) Lessee's timely performance of all of its obligations under this Lease notwithstanding the entry of an order for relief under the Code for Lessee and (iii) all Events of Default under this Lease as to all Properties being cured promptly and this Lease being assumed within 60 days of any order for relief entered under the Code for Lessee, or this Lease being rejected within that 60-day period and the Properties surrendered to Lessor.
Accordingly, in consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, Lessee hereby agrees that:
(i) All obligations that accrue under this Lease (including the obligation to pay rent), from and after the date that an Action is commenced shall be timely performed exactly as provided in this Lease and any failure to so perform shall be harmful and prejudicial to Lessor;
(ii) Any and all obligations under this Lease that become due from and after the date that an Action is commenced and that are not paid as required by this Lease shall, in the amount of such rents, constitute administrative expense claims allowable under the Code with priority of payment at least equal to that of any other actual and necessary expenses incurred after the commencement of the Action;
(iii) Any extension of the time period within which Lessee may assume or reject this Lease without an obligation to cause all obligations coming due under this Lease from and after the date that an Action is commenced to be performed as and when required under this Lease shall be harmful and prejudicial to Lessor;
(iv) Any time period designated as the period within which Lessee must cure all defaults and compensate Lessor for all pecuniary losses which extends beyond the date of assumption of this Lease shall be harmful and prejudicial to Lessor;
(v) Any assignment of this Lease must result in all terms and conditions of this Lease being assumed by the assignee without alteration or amendment, and any assignment which results in an amendment or alteration of the terms and conditions of this Lease without the express written consent of Lessor shall be harmful and prejudicial to Lessor;
(vi) Any proposed assignment of this Lease to an assignee:
(a) that will not use the Properties specifically in accordance with a franchise, license and/or area development agreement with the franchisor of Permitted Facilities,
(b) that does not possess financial condition, operating performance and experience characteristics equal to or better than the financial condition, operating performance and experience of Lessee as of the Effective Date, or
(c) that does not provide guarantors of the Lease obligations with financial condition equal to or better than the financial condition of Guarantor as of the Effective Date,
shall be harmful and prejudicial to Lessor;
(vii) The rejection (or deemed rejection) of this Lease for any reason whatsoever shall constitute cause for immediate relief from the automatic stay provisions of the Code, and Lessee stipulates that such automatic stay shall be lifted immediately and possession of the Properties will be delivered to Lessor immediately without the necessity of any further action by Lessor; and
(viii) This Lease shall at all times be treated as consistent with the specific characterizations set forth in Section 3 of this Lease, and assumption or rejection of this Lease shall be (a) in its entirety, (b) for all of the Properties, and (c) in strict accordance with the specific Terms and conditions of this Lease.
B. No provision of this Lease shall be deemed a waiver of Lessor's rights or remedies under the Code or applicable law to oppose any assumption and/or assignment of this Lease, to require timely performance of Lessee's obligations under this Lease, or to regain possession of the Properties as a result of the failure of Lessee to comply with the terms and conditions of this Lease or the Code.
C. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor under this Lease, whether or not expressly denominated as such, shall constitute "rent" for the purposes of the Code.
D. For purposes of this Section 43 addressing the rights and obligations of Lessor and Lessee in the event that an Action is commenced, the term "Lessee" shall include Lessee's successor in bankruptcy, whether a trustee, Lessee as debtor in possession or other responsible Person.
44. No Offer. No contractual or other rights shall exist between Lessor and Lessee with respect to the Properties until both have executed and delivered this Lease, notwithstanding that deposits may have been received by Lessor and notwithstanding that Lessor may have delivered to Lessee an unexecuted copy of this Lease. The submission of this Lease to Lessee shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for Lessee to lease or otherwise create any interest on the part of Lessee in the Properties.
45. Other Documents. Each of the parties agrees to sign such other and further documents as may be reasonably necessary or appropriate to carry out the intentions expressed in this Lease.
46. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Lease, to the extent permitted by law, the prevailing party shall be entitled to recover all of its reasonable attorneys' fees and other costs in addition to any other relief to which it may be entitled. In addition, Lessor shall, upon demand, be entitled to all reasonable attorneys' fees and all other costs incurred in the preparation and service of any notice or demand hereunder, whether or not a legal action is subsequently commenced. References in this Lease to attorneys' fees and/or costs shall mean both the fees and costs of independent counsel retained by either party with respect to the matter and the fees and costs of their in-house counsel incurred in connection with the matter.
47. Entire Agreement. This Lease and any other instruments or agreements referred) to herein, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements except as herein provided. Without limiting the foregoing, Lessee specifically acknowledges that neither Lessor nor any agent, officer, employee or representative of Lessor has made any representation or warranty regarding the projected profitability of the business to be conducted on the Properties. Furthermore, Lessee acknowledges that Lessor did not prepare or assist in the preparation of any of the projected figures used by Lessee in analyzing the economic viability and feasibility of the business to be conducted by Lessee at the Properties.
48. Forum Selection; Jurisdiction; Venue; Choice of Law. Lessee acknowledges that this Lease was partially negotiated in the State of Arizona, this Lease was executed and delivered in the State of Arizona, all payments under this Lease will be delivered in the State of Arizona (unless otherwise directed by Lessor or its successors) and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. Except for purposes of any action or proceeding concerning the creation of this Lease and the rights and remedies of Lessor with respect to the Properties (which actions or proceedings shall be conducted in the state where the affected Property is located), for purposes of all other actions or proceedings arising out of this Lease, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Lessee and Lessor consent that they may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, each of Lessee and Lessor waive and agree not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. The creation of this Lease and the rights and remedies of Lessor with respect to the Properties, as provided herein and by the laws of the states in which the Properties are located, as applicable, shall be governed by and construed in accordance with the internal laws of the states in which the Properties are located, as applicable, without regard to principles of conflicts of law.With respect to other provisions of this Lease, this Lease shall be governed by the internal laws of the State of Arizona, without regard to its principles of conflicts of law. Nothing contained in this Section 48 shall limit or restrict the right of Lessor or Lessee to commence any proceeding in the federal or state courts located in the states in which the Properties are located to the extent Lessor or Lessee deems such proceeding necessary or advisable to exercise remedies available under this Lease.
49. Counterparts. This Lease may be executed in one or more counterparts, each of which shall be deemed an original.
50. Memorandum of Master Lease, Concurrently with the execution of this Lease, Lessor and Lessee are executing the Memorandum to be recorded in the applicable real property records with respect to each of the Properties.
5 l. No Brokerage. Lessor and Lessee each represent and warrant to each other that it has had no conversation or negotiations with any broker concerning the leasing of the Properties. Each of Lessor and Lessee agrees to defend, protect, indemnify, save and keep harmless the other, against and from all liabilities, claims, losses, costs, damages and expenses, including reasonable attorneys' fees, arising out of, resulting from or in connection with its breach of the foregoing warranty and representation.
52. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. LESSOR AND LESSEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALLISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTERARISING OUT OF OR IN CONNECTIONWITH THISLEASE, THE RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF ANY OF THE PROPERTIES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, LESSEE AND LESSOR EACH HEREBY .KNOWINGLY,VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER PARTY AND ANY OF ITS AFFILIATES, OFFICERS,DIRECTORS,MEMBERSOREMPLOYEESORANYOFTHEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY RESPECTIVE ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY ONE PARTY AGAINSTTHE OTHER OR ANY OF ITS AFFILIATES, OFFICERS, DIRECTORS,MEMBERSOREMPLOYEESORANYOFTHEIRRESPECTIVE SUCCESSORSWITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO, EXCEPT THAT SUCH WAIVER ON THE PART OF LESSOR SHALL NOT BE DEEMED TO OTHERWISE LIMIT, REDUCE OR PRECLUDE IN ANY WAY LESSOR'S REMEDIES PURSUANT TO SECTION 23 HEREOF. THE WAIVER BY EACH PARTY OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
53. Reliance By Lender. Lessee acknowledges and agrees that Lender may rely on all of the representations, warranties and covenants set forth in this Lease, that Lender is an intended third-party beneficiary of such representations, warranties and covenants and that Lender shall have all rights and remedies available at law or in equity as a result of a breach of such representations, warranties and covenants, including to the extent applicable, the right of subrogation.
54. Document Review. In the event Lessee makes any request upon Lessor requiring Lessor, Lender or the attorneys of Lessor or Lender to review and/or prepare (or cause to be reviewed and/or prepared) any documents, plans, specifications or other submissions in connection with or arising out of this Lease, then Lessee shall reimburse Lessor or its designee promptly upon Lessor's demand therefor for all reasonable out-of-pocket costs and expenses incurred by Lessor in connection with such review and/or preparation plus a reasonable processing and review fee.
55. Substitution. A. Subject to the fulfillment of all of the conditions set forth in the following Section 55.B, Lessee shall have the right to deliver a rejectable offer to Lessor (each, a "Rejectable Substitution Offer") to substitute a Substitute Property for a Property if:
(i) the terms of Sections 21.C or 21.D of this Lease permit such substitution (each, a "Casualty/Condemnation Substitution"); or
(ii) the terms of Section 57 of this Lease permit such substitution (each, an "Economic Substitution").
Each Rejectable Substitution Offer shall identify the proposed Substitute Property in reasonable detail and contain a certificate executed by a duly authorized officer of Lessee pursuant to which Lessee shall certify that in Lessee's good faith judgment such proposed Substitute Property satisfies as of the date of such notice, or will satisfy as of the date of the closing of such substitution, all of the applicable conditions to substitution set forth in this Section 55. Lessee agrees to deliver to Lessor all of the diligence information and materials contemplated by the provisions of Section 55.B of this Lease within 30 days after the delivery to Lessor of a Rejectable Substitution Offer.
Lessor shall have 120 days from the delivery of a Rejectable Substitution Offer notice satisfying the requirements of the preceding paragraph to deliver to Lessee written notice of its election to either accept or reject the Rejectable Substitution Offer. Lessor's failure to deliver such notice within such time period shall be deemed to constitute Lessor's acceptance of the Rejectable Substitution Offer. If the Mortgage corresponding to the Property to be replaced is still outstanding, any rejection of the Rejectable Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within such 120-day period. If Lessor accepts the Rejectable Substitution Offer or is deemed to have accepted the Rejectable Substitution Offer or if Lender does not consent in writing to any rejection of the Rejectable Substitution Offer by Lessor as provided in this Section 55, then Lessee shall complete such substitution, subject, however, to the satisfaction of each of the applicable Terms and conditions set forth in this Section 55.
If Lessor rejects the Rejectable Substitution Offer and Lessee has satisfied the applicable requirements for substitution set forth in this Section 55, and such rejection is consented to by Lender as provided in this Section 55, then:
(X) if such rejected Rejectable Substitution Offer was made with respect to a Casualty/Condemnation Substitution, the provisions of the next to last paragraphs of either Section 21.D or Section 21.H, as applicable, shall apply; and
(Y) if such rejected Rejectable Substitution Offer was made with respect to a Economic Substitution, this Lease shall Terminate with respect to the Property which Lessee proposed to replace on the next scheduled Base Monthly Rental payment date (the "Early Substitution Termination Date") provided Lessee has paid to Lessor all Base Annual Rental, Additional Rental and all other sums and obligations then due and payable under this Lease as of such Early Substitution Termination Date.
On the Early Substitution Termination Date, and provided Lessee shall have paid to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease as of the Early Substitution Date:
(i) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect; and
(ii) all obligations of Lessor and Lessee shall cease as of the Early Substitution Termination Date with respect to such Property; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19 of this Lease) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the Early Substitution Termination Date shall survive the termination of this Lease with respect to such Property or otherwise. This Lease shall, however, continue in full force and effect with respect to all other Properties.
B. The substitution of a Substitute Property for a Property pursuant to the preceding Section 55.A shall be subject to the fulfillment of all of the following Terms and conditions:
(i) The Substitute Property must:
(1) be a Permitted Facility, in good condition and repair, ordinary wear and tear excepted, and located in the same state as the Property to be replaced or in another state acceptable to Lessor in Lessor's sole discretion;
(2) have a Fixed Charge Coverage Ratio (with the definitions of Section 8.A being deemed to be modified, as contemplated in the following sentence, to provide for a calculation of a "Fixed Charge Coverage Ratio" for the Substitute Property only) for the FCCR Period greater than the Fixed Charge Coverage Ratio for the Property to be replaced for such FCCR Period. For purposes of this subitem (2), the definitions set forth in Section 8.A of this Lease with respect to the calculation of the Aggregate Fixed Charge Coverage Ratio shall be deemed modified as applicable to provide for the calculation of a Fixed Charge Coverage Ratio for each Property on an individual basis rather than on an aggregate basis with the other Properties, including, without limitation, modifying the definitions of Debt, Depreciation and Amortization and Net Income to apply only to the Property for which such calculation is being made, and the Operating Lease Expense with respect to this Lease for each such Property shall equal the Applicable Percentage for each Property multiplied by the Base Annual Rental then in effect;
(3) have a fair market value no less than the greater of the then fair market value of the Property being replaced or the fair market value of such Property as of the Effective Date (in each case, determined without regard to this Lease, but assuming that while this Lease has been in effect, Lessee has complied with all of the terms and conditions of this Lease), as determined by Lessor, and consented to by Lender, utilizing the same valuation method as used in connection with the closing of the transaction described in the Sale-Leaseback Agreement, which was based upon the sum of(x) the fair market value of the land comprising such Property and (y) the replacement cost of the improvements located thereon;
(4) have improvements which have a remaining useful life substantially equivalent to, or better than, that of the improvements located at the Property to be replaced; and
(5) be conveyed to Lessor (or, if directed by Lessor, to Lessor and a person designated to acquire the remainderman interest) by special or limited warranty deed, free and clear of all liens and encumbrances, except such matters as are reasonably acceptable to Lessor (the "Substitute Property Permitted Exceptions");
(ii) Lessor shall have inspected and approved the Substitute Property utilizing Lessor's customary site inspection and underwriting approval criteria. Lessee shall have reimbursed Lessor and Lender for all of their reasonable costs and expenses incurred with respect to such proposed substitution, including, without limitation, Lessor's third-party and/or in-house site inspectors' costs and expenses with respect to the proposed Substitute Property. Lessee shall be solely responsible for the payment of all costs and expenses resulting from such proposed substitution, regardless of whether such substitution is consummated, including, without limitation, the cost of title insurance and endorsements for both Lessor and Lender, survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and recording fees, the cost of environmental policies or endorsements to the Environmental Policies as applicable, income and transfer taxes imposed on Lessor as a result of such substitution and the reasonable attorneys' fees and expenses of counsel to Lessee, Lessor and Lender;
(iii) Lessor shall have received a preliminary title report and irrevocable commitment to insure title by means of an ALTA extended coverage owner's policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the proposed Substitute Property is located) for the proposed Substitute Property issued by Title Company and committing to insure Lessor's good and marketable title in the proposed Substitute Property, subject only to the Substitute Property Permitted Exceptions and containing endorsements substantially comparable to those required by Lessor at the Closing (as defined in the Sale-Leaseback Agreement) and Lender shall have received such title report and irrevocable commitment to insure its first priority lien encumbering the proposed Substitute Property as Lender shall reasonably require;
(iv) Lessor shall have received a current ALTA survey of the proposed Substitute Property, the form of which shall be comparable to those received by Lessor at the Closing and sufficient to cause the standard survey exceptions set forth in the title policy referred to in the preceding subsection to be deleted;
(v) Lessor shall have received an environmental insurance policy with respect to the proposed Substitute Property, or to the extent applicable, an endorsement to the Environmental Policies, the form and substance of which shall be satisfactory to Lessor in its sole discretion;
(vi) Lessee shall deliver, or cause to be delivered, with respect to Lessee and the Substitute Property, opinions of Counsel (as defined in the Sale-Leaseback Agreement) in form and substance comparable to those received at Closing (but also addressing such matters unique to the Substitute Property as may be reasonably required by Lessor);
(vii) no Event of Default shall have occurred and be continuing under any of the Sale-Leaseback Documents;
(viii) Lessee shall have executed such documents as may be reasonably required by Lessor as a result of such substitution, including amendments to this Lease and the Memorandum (the "Substitute Documents"), all of which documents shall be in form and substance reasonably satisfactory to Lessor;
(ix) the representations and warranties set forth in the Substitute Documents, this Lease and the Sale-Leaseback Agreement applicable to the proposed Substitute Property shall be true and correct in all material respects as of the date of substitution, and Lessee shall have delivered to Lessor an officer's certificate certifying to that effect;
(x) Lessee shall have delivered to Lessor certificates of insurance showing that insurance required by the Substitute Documents is in full force and effect;
(xi) Lessor shall have obtained an endorsement to the policy of residual value insurance issued to Lessor and Lender in connection with the transaction described in the Sale-Leaseback Agreement with respect to the proposed Substitute Property, which endorsement shall be in form and substance reasonably satisfactory to Lessor and Lender; and
(xii) Lender shall have consented to the substitution of the proposed Substitute Property.
C. Upon satisfaction of the foregoing conditions set forth in Section 55.B and provided Lessor has accepted the Rejectable Substitution Offer:
(i) the proposed Substitute Property shall be deemed substituted for the Property to be replaced;
(ii) the Substitute Property shall be referred to herein as a "Property" and included within the definition of "Properties";
(iii) the Substitute Documents shall be dated as of the date of the substitution; and
(iv) Lessor shall convey fee simple insurable title to the Property to be replaced to Lessee or a designee of Lessee "as-is" by special or limited warranty deed, subject to all matters of record (except for the Mortgage corresponding to the Property to be replaced and any other consensual liens granted by Lessor other than those granted by Lessor at the request of Lessee, which shall be released at or before the delivery of such special or limited warranty deed) and all other matters to which Lessee has consented to or for which Lessee is obligated to satisfy under the terms of this Lease, and without representation or warranty.
56. Option To Purchase Properties. Lessee shall have the option, but not the obligation, which option is to be exercised no later than July 31, 2019, to elect to purchase all of the Properties then subject to this Lease for 100% of their Fair Market Value (as defined below}, less closing and transaction costs in an amount not to exceed 5% of such Fair Market Value. Lessor shall have the right, but not the obligation, to accept Lessee's offer. Lessee shall elect such option by giving written notice (the "Option Notice") to Lessor of its intention to do so, and the closing of such purchase must occur within 180 days prior to the end of the Initial Term (the "Purchase Period'').
The term "Fair Market Value" means the fee simple fair market value of all of the Properties determined as follows: within 90 days of Lessor's receipt of the Option Notice, Lessor shall, at Lessee's sole expense, retain an independent MAI appraiser to prepare an appraisal of the fee simple fair market value of the Properties, including any additions or renovations thereto. In determining the fair market value of the Properties, the appraiser shall utilize the cost, income and sales comparison approaches to value. In utilizing the income approach, the appraiser shall determine the "leased fee" value of the Properties, which shall be arrived at by considering (i) the income that would be produced by this Lease through the end of the fully extended Lease Term, and (ii) any other factors relating to such approach which the appraiser shall deem relevant in his sole discretion, including, without limitation, determining the residual value of the Properties following the expiration of the Lease Term. If within 20 days after being notified of the result of such appraisal Lessee elects to reject that appraisal, then the first appraisal shall become null and void and Lessor shall nominate to Lessee a list of not less than three independent MAI appraisers who are experienced with appraising property similar to the Properties, and Lessee shall select one such appraiser. Within 10 days of such selection, Lessor shall retain such appraiser to prepare an appraisal of the Properties in the same manner described above, and the resulting determination of such appraiser shall be the "Fair Market Value" of the Properties for purposes of this Section 56.
Upon exercise of this option, Lessor and Lessee shall open an escrow account with a recognized title insurance or trust company selected by Lessor. Such escrow shall be subject to the standard escrow instructions of the escrow agent, to the extent they are not inconsistent herewith. At or before the close of escrow, Lessor shall deliver to the escrow agent its special warranty deeds conveying to Lessee all of Lessor's right, title and interest in the Properties free and clear of all liens and encumbrances except liens for taxes and assessments and easements, covenants and restrictions of record which were attached to the Properties as of the Effective Date, attached during the Lease Term through Lessee's action or inaction, as applicable, have been granted by Lessor in lieu of a taking by the power of eminent domain or the like, have been approved by Lessee, or which do not materially adversely affect the use of the Properties as Permitted Facilities. In the event Lessor is unable to convey title as required, Lessee shall have the right to accept such title as Lessor can convey, seek specific performance or elect not to consummate its exercise of the option, in which case the option shall lapse and this Lease shall remain in full force and effect. Both Lessor and Lessee agree to execute such instruments, and take such actions, as may be reasonably necessary or appropriate to consummate the sale of the Properties in the manner herein provided. Simultaneously with the closing of the option, Lessor shall prepay the outstanding principal balance of the Notes and all other sums due under the Loan Documents and cause the Mortgages to be released.
All costs of the exercise of the option set forth in this Section, including, without limitation, escrow fees, title insurance fees, recording costs or fees, attorneys' fees (including those of Lessor), appraisal fees, stamp taxes and transfer fees, shall be borne by Lessee. Lessee shall continue to pay and perform all of its obligations under this Lease until the close of escrow, which in no event shall occur after the date of the expiration of the Initial Term. The purchase price paid by Lessee in exercising this option shall be paid to Lessor or to such Person as Lessor may direct at closing in immediately available funds. Lessee shall not have the right to exercise this option or consummate the exercise thereof if at the time of exercise or consummation an Event of Default shall have occurred and be continuing or if any condition shall exist which upon the giving of notice or the passage of time, or both, would constitute an Event of Default.
The failure of Lessee to consummate the purchase of the Properties as contemplated herein shall not release Lessee from its obligations under this Lease and the Lease shall remain in full force and effect until the expiration of the Lease Term or applicable extension period. The escrow shall close within the Purchase Period or Lessee's option to purchase the Properties shall terminate. The closing date may be extended for a reasonable period of time to permit Lessor to cure title defects or to permit either party to cure any other defects or defaults provided each party is diligently seeking to cure such defect or default and Lessee continues to perform its obligations hereunder.
Lessee may not sell, assign, transfer, hypothecate or otherwise dispose of the option granted herein or any interest therein, except in conjunction with a permitted assignment of Lessee's entire interest herein and then only to the assignee thereof. Any attempted assignment of this option which is contrary to the Terms of this paragraph shall be deemed to be a default under this Lease and the option granted herein shall be void.
57. Economic Infeasability. During the period of time commencing with the third anniversary of the Effective Date and ending at the end of the Initial Term, but provided that no Event of Default shall have occurred and be continuing, Lessee shall have the option, but not the obligation, with respect to each Property with a "Fixed Charge Coverage Ratio" (determined on a per Property basis as contemplated by Section 55.B(i)(2)) for the 12 calendar months immediately preceding such third anniversary equal to or less than 1.1:1, to either:
(i) make a rejectable offer to Lessor (an "Economic Substitution Offer") to substitute a Substitute Property for such Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment to Lessor (an "Economic Termination Payment") to terminate this Lease with respect to such Property in an amount equal to the sum of (x) the Applicable Percentage for such Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term, and (y) the Prepayment Charge corresponding to such Property; provided, however, Lessee may not exercise the rights set forth in this Section 57 with respect to more than six of the Properties in the aggregate. All Economic Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of an Economic Substitution Offer satisfying the requirements of Section 55.A to accept or reject such offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of such offer within such time period shall be deemed to constitute Lessor's acceptance of such Economic Substitution Offer. If the Mortgage corresponding to such Property is still outstanding, any rejection of the Economic Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender, and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Economic Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Economic Substitution Offer within such 120-day period).
If Lessor accepts the Economic Substitution Offer or is deemed to have accepted the Economic Substitution Offer or if any rejection of the Economic Substitution Offer by Lessor is not consented to in writing by Lender, then, within 120 days of the delivery of such Economic Substitution Offer, Lessee shall complete such substitution, subject, however, to the satisfaction of each of the applicable Terms and conditions set forth in this Section 57. Upon such substitution all obligations of either party hereunder with respect to the Property being replaced shall cease as of the closing of such substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the closing of such substitution shall survive the Termination of this Lease with respect to such Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Economic Substitution Offer and such rejection is consented to by Lender, then (i) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (ii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect, and (iii) provided Lessee shall have paid Lessor all sums described in the preceding subitem (i), all obligations of either party hereunder shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to such Termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If the event Lessee makes an Economic Termination Payment as contemplated above, (1) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (2) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect, and (3) provided Lessee shall have paid Lessor all sums described in the preceding subitem (1), all obligations of either party hereunder with respect to such Property shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
58. State Specific Provisions; Limitation of Interest and Late Charge. (a) The provisions and/or remedies which are set forth on Schedule I shall be deemed a part of and included within the terms and conditions of this Lease.
(b) Notwithstanding anything to the contrary contained in this Lease with respect to the payment by Lessee to Lessor of interest at the Default Rate or otherwise and/or any late charges, Lessee shall not be required to pay any such interest or late charges in excess of the limitation imposed by applicable law prescribing maximum rates of interest then in effect.
59. Confidential Information. (a) Confidential Information may be disclosed to Lessor and Lender and their respective authorized employees, agents and representatives, lenders, purchasers, transferees, assignees, servicers, participants, investors, analysts and Governmental Authorities with regulatory authority over Lender and selected rating agencies with a need to know (collectively, the "Permitted Recipients"), orally or in writing, by inspection or by permissive observation, or in any other way, but no disclosure will allow the Permitted Recipients to further disclose the Confidential Information or to use it except as permitted by this Lease. Confidential Information does not include:
(i) information which was in the public domain, publicly available and publicly known at the time of disclosure, including, without limitation, the reports filed with the SEC as contemplated by Section 8.A of the Sale-Leaseback Agreement and Section 31 of this Lease,
(ii) information which subsequently becomes public knowledge as a result of a disclosure by Lessee, or in any way not involving any breach of this Lease by Lessor, as of the date of its becoming public, or
(iii) information which Lessor or Lender obtains from sources other than Lessee or its Affiliates in any manner not involving any breach of this Section by Buyer or Lender.
(b) Lessee grants to the Permitted Recipients the nonexclusive right to review and use the Confidential information in order to understand the operations of Lessee and its Affiliates in connection with the transactions contemplated by this Lease. Except as otherwise contemplated by subsection (c) below:
(i) the Confidential Information may not be used for any other purpose or by any other Person, and the Confidential Information may not be copied, reproduced, or disseminated except as permitted in this Lease;
(ii) Lessor may possess, review, analyze, and use the Confidential Information only while, and only in connection with, its discussions and negotiations with respect to the purchase of the Properties; and
(iii) except to any Permitted Recipient, Lessor will not reveal, allow the release or discovery of, or disclose the Confidential Information, or any part of it, to any person, firm, corporation, or any other entity or individual without specific prior written consent from Lessee.
The foregoing prohibitions on disclosure and release apply whether or not the Confidential Information may be classified as a trade secret. Lessor will in good faith treat the Confidential Information with at least the same care that Lessee and other similar businesses use in the protection of their own undisclosed and proprietary information, and the Confidential Information will be disclosed to Permitted Recipients. Lessor will, and will require Lender to, advise such Permitted Recipients who are necessarily given access to Confidential Information of its confidential and proprietary nature and of the existence and importance of this Lease and use reasonable efforts to protect the secrecy of such Confidential Information and to comply with the nondisclosure terms of this Lease, and Lessor will and will require Lender to, require that each Permitted Recipient of Proprietary Confidential Information enter into a customary and commercially reasonable written confidentiality agreement pursuant to which they will agree not to disclose such Proprietary Confidential Information in violation of the provisions of this Section 59.
All tangible records and memorializations of Confidential Information are the exclusive property of Lessee. Upon assignment by Lessor or any termination of this Lease, Lessor will immediately cease all use of the Confidential Information in any way. All Confidential Information then in the possession of Lessor shall be immediately returned to Lessee or its duly authorized representative, and Lessor agrees to use reasonable efforts to return to Lessee all Confidential Information then in the possession of Lender.
(c) Notwithstanding the foregoing, nothing in this Section 59 shall limit or prevent:
(i) Lessor and/or Lender from utilizing Confidential Information delivered to Lessor or Lender pursuant to the Sale-Leaseback Agreement or this Lease, including, without limitation, Store Income Statements delivered to Lessor or Lender pursuant to the Sale-Leaseback Agreement or Section 31 of this Lease, subject to the requirements of this Section 59;
(ii) Lender from disclosing, distributing and/or making Confidential Information available to any Permitted Recipient as necessary in connection with any Transfer, Participation and/or Securitization as contemplated by Section 8.C of this Lease provided that Lessor shall require Lender to (1) advise each such Permitted Recipient of the confidential nature of such Confidential Information, (2) require that each Permitted Recipient of Proprietary Confidential Information enter into a customary and commercially reasonable written confidentiality agreement as contemplated by Section 59(b), and (3) request, to the extent reasonably practicable, that each Permitted Recipient of Confidential Information which is not Propriety Confidential Information enter into a customary and commercially reasonable written confidentiality agreement pursuant to which they will agree not to disclose such Confidential Information in violation of the provisions of this Section 59;
(iii) Lessor and/or Lender from utilizing Confidential Information in connection with the exercise of Lessor's rights and remedies under this Lease following the occurrence and during the continuance of an Event of Default;
(iv) Lessor and/or Lender from disclosing Confidential Information as required by court order or subpoena or as otherwise required by any Governmental Authority under applicable law; and/or
(v) Lessor from delivering any such Confidential Information to prospective purchasers or mortgagees of Lessor's interest in the Properties or in Lessor, and their respective attorney's, consultants, representatives or agents, provided that (x) in the case of prospective purchasers, Lessor shall obtain a commercially reasonable written confidentiality agreement from any such prospective purchaser pursuant to which such prospective purchaser will agree not to disclose any such Confidential Information in violation of the provisions of this Section 59, and (y) in the case of prospective mortgagees, Lessor shall advise such mortgagees of the confidential nature of such Confidential Information and shall request that such mortgagee enter into a commercially reasonable written confidentiality agreement pursuant to which such mortgagee will agree not to disclose such Confidential Information in violation of the provisions of this Section 59.
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of the date first above written.
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LESSOR:
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COUNTRY STORES PROPERTY I, LLC,
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a Delaware limited liability company
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By
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Country Stores Equity I, LLC, a Delaware limited
liability company, its member
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| By: | /s/ Jamie Elliott | |
| Printed Name: | Jamie Elliott |
| Its: | Vice President | |
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LESSEE:
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CRACKERBARRELOLDCOUNTRY
STORE INC., a Tennessee corporation
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| By: | /s/ James F. Blackstock | |
| Printed Name: | James F. Blackstock |
| Its: | Senior Vice President | |
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Lessee's Tax Identification Number: 62-0812904
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STATE OF ARIZONA
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] ss.
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COUNTY OF MARICOPA
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I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that Jamie Elliot:, whose name as Vice President of Country Stores Equity I, LLC a Delaware limited liability company, member of Country Stores Property I, LLC, a Delaware limited liability company, on behalf of the limited liability company, is signed to the foregoing Master Lease, and who is known to me, acknowledged before me on this day that, being informed of the contents of the Master Lease, [s]he, as such officer and with full authority, executed the same voluntarily for and as the act of the corporation and limited liability company.
Given under my hand and official seal this 28 day of July, 2000.
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/s/ Susan M. Goldberg
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Notary Public
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My Commission Expires:
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July 17, 2002
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STATE OF ARIZONA
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] ss.
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COUNTY OF MARICOPA
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I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that James F. Blackstock, name Sr. Vice President of Cracker Barrel Old Country Store, Inc., a Tennessee corporation, on behalf of the corporation, is signed to the foregoing Master Lease, and who is known to me, acknowledged before me on this day that, being informed of the contents of the Master Lease, [s]he, as such officer and with full authority, executed the same voluntarily for and as the act of the corporation and limited liability company.
Given under my hand and official seal this 28day of July, 2000.
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/s/ Susan M. Goldberg
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Notary Public
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My Commission Expires:
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July 17, 2002
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Exhibit 10(e)
MASTER LEASE
THIS MASTER LEASE (this "Lease") is made as of July 21, 2000 (the "Effective Date"), by and between COUNTRY STORES PROPERTY II, LLC, a Delaware limited liability company ("Lessor"), whose address is c/o U.S. Realty Advisors, LLC, 1370 Avenue of the Americas, New York, New York 10019, and CRACKER BARREL OLD COUNTRY STORE, INC., a Tennessee corporation ("Lessee"), whose address is P.O. Box 787, 305 Hartmann Drive, Lebanon, Tennessee 37088-0787.
WITNESSETH:
THAT, in consideration of the mutual covenants and agreements herein contained, Lessor and Lessee hereby covenant and agree as follows:
1. Certain Defined Terms. The following terms shall have the following meanings for all purposes of this Lease:
"Acknowledgement" means the Acknowledgement of Lease Assignment dated as of the date of this Lease among Lessor, Lessee, Lender and Remainderman. A duplicate original Acknowledgement will be executed and recorded in the applicable real property records for each Property.
"ADA'' is defined in Section 16.C.
"Additional Rental is defined in Section 5.B.
"Affiliate" means any Person which directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, "controls", "under common control with" and "controlled by" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise.
"Aggregate Base Annual Rental means, collectively, the Base Annual Rental and the Related Base Annual Rental.
"Aggregate Fixed Charge Coverage Ratio” shall have the meaning set forth in Section 8.A.
"Aggregate Gross Sales" means, collectively, the Gross Sales and the Related Gross Sales.
"Aggregate Purchase Price" means, collectively, the Purchase Price and the Related Purchase Price.
"Applicable Percentage" means the percentage set forth in Schedule I to the Sale- Leaseback Agreement with respect to the applicable Property, which percentage shall be adjusted as appropriate by Lessor to reflect the release of individual Properties from this Lease.
"Applicable Regulations" means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of each Governmental Authority having jurisdiction over Lessee and/or any of the Properties, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements and all applicable standards of the National Board of Fire Underwriters and the ADA, in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment applicable to Lessee.
"Approved Institution" means any domestic federal or state charted commercial bank located in any of the cities listed on the attached Schedule II and having, at the time of selection, (i) a long-term deposit or long-term unsecured debt rating of at least AA or its equivalent issued by Standard & Poors Rating Group, Moody's Investors Service, Inc., any successor to such agencies or any other nationally recognized credit rating agency, and (ii) combined capital and surplus in excess of $100,000,000.00.
"Base Annual Rental means $5,553,565.08.
"Base Monthly Rental means an amount equal to 1/12 of the applicable Base Annual Rental.
"Business Day" means a day on which national banks are not required or authorized to remain closed.
"Capital Lease" is defined in Section 8.A.
"Casualty" is defined in Section 21.A.
"Casualty Substitution Offer" is defined in Section 21.C.
"Casualty/Condemnation Substitution" is defined in Section 55.A(i).
"Casualty Termination Payment" is defined in Section 21.C.
"Confidential Information" means, except as otherwise contemplated by Section 59, all proprietary or confidential or nonpublic information relating to restaurant and retail operations, menu and recipe, marketing, business strategy, trade secrets relating to or used by Lessee or its Affiliates in their businesses or being developed for their use, capital structure and financial matters, including, without limitation, Store Income Statements, forecasts and projections.
"Condemnation Substitution Offer" is defined in Section 21.G.
"Condemnation Termination Payment" is defined in Section 21.G.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended.
"Debt" is defined in Section 8.A.
"Deeds" is defined in the Sale-Leaseback Agreement.
"De Minimis Amounts" shall mean (i) with respect to any presence, Release or Threatened Release of Hazardous Materials, those quantities of Hazardous Materials in any form or combination of forms, which do not constitute a violation requiring regulation or remediation under any Environmental Laws in the state in which the affected Property is located, and (ii) with respect to the use or storage of Hazardous Materials in or upon any of the Properties, those quantities of Hazardous Materials customarily employed in the ordinary course of, or associated with, the operation of a Permitted Facility and used or stored in compliance with Environmental Laws.
"Default Rate" means 18% per annum or the highest rate permitted by law, whichever is less.
"Depreciation and Amortization" is defined in Section 8.A.
"Disclosures" is defined in Section 8.C.
"Early Substitution Date" is defined in Section 55.A.
"Early Substitution Termination Date" is defined in Section 55.A.
"Economic Substitution" is defined in Section 55.A(ii).
"Economic Substitution Offer" is defined in Section 57(i).
"Economic Termination Payment" is defined in Section 57(ii).
"Effective Date" is defined in the Preamble.
"Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding any of the Properties, whether or not yet discovered, which could or does result in any damage, loss, cost, expense, claim, demand, order or liability to or against Lessee or Lessor by any third party (including, without limitation, any Governmental Authority), including, without limitation, any condition resulting from the operation of Lessee's business and/or the operation of the business of any other property owner or operator in the vicinity of any of the Properties and/or any activity or operation formerly conducted by any Person on or off any of the Properties.
"Environmental Insurer" means American International Specialty Lines Insurance Company or such other insurer providing Environmental Policies reasonably acceptable to Lessor.
"Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to Hazardous Materials and/or the protection of human health or the environment, by reason of a Release or a Threatened Release of Hazardous Materials or relating to liability for or costs of Remediation or prevention of Releases. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations, rulings, orders or decrees promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a Governmental Authority of the environmental condition of the property; requiring notification or disclosure of Releases or other environmental condition of any of the Properties to any Governmental Authority or other Person, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements relating to Hazardous Materials in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to Hazardous Materials; and relating to wrongful death, personal injury, or property or other damage in connection with the physical condition or use of any of the Properties by reason of the presence of Hazardous Materials in, on, under or above any of the Properties.
"Environmental Liens" is defined in Section 16.D(viii).
"Environmental Policies" means the environmental insurance policy or policies, as applicable, issued by Environmental Insurer to Lessor with respect to the Properties, which Environmental Policies shall be in form and substance satisfactory to Lessor in its sole discretion.
"Equipment Payment Amount" is defined in Section 8.A.
"Event of Default" is defined in Section 23.
"Fair Market Value" is defined in Section 56.
"FCCR Period' means the twelve month period of time immediately preceding the date on which Lessee gives written notice to Lessor that Lessee is proposing to substitute a Substitute Property as permitted by Section 55.A.
"Fiscal Year" is defined in Section 8.A.
"GAAP" means generally accepted accounting principles in the United States, at the time at which the information affected by these principles was prepared, consistently applied.
"Governmental Authority" means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority of the United States or the state in which the particular Property is located or any political subdivision thereof.
"Gross Sales" means the gross sales, excluding sales tax, arising from all business conducted at all of the Properties by Lessee during the period of determination, as shown on Lessee's Store Income Statements.
"Guarantor" means CBRL Group, Inc., a Tennessee corporation.
"Guaranty" means that certain Unconditional Guaranty of Payment and Performance dated as of the date of this Lease to be executed by Guarantor with respect to the obligations of Lessee under this Lease, as the same may be amended from time to time.
"Hazardous Materials" means (i) any toxic substance or hazardous waste, substance, solid waste, or related material, or any pollutant or contaminant; (ii) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (iii) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," "hazardous wastes," "regulated substances" or words of similar import under any Environmental Laws; and (iv) any other chemical, material, gas or substance the exposure to or release of which is or becomes prohibited, limited or regulated by any Governmental Authority that asserts or may assert jurisdiction over any of the Properties or the operations or activity at any of the Properties, or any chemical, material, gas or substance that does or is likely to pose a hazard to the health and/or safety of the occupants of any of the Properties or the owners and/or occupants of property adjacent to or surrounding any of the Properties.
"Indemnified Parties" means Lessor, Remainderman, and Lender and their directors, officers, shareholders, trustees, beneficial owners, partners, members, and any directors, officers, shareholders, trustees, beneficial owners, partners, members of any beneficial owners, partners or members of Lessor, Remainderman or Lender, and all employees, agents, servants, representatives, contractors, subcontractors, Affiliates, subsidiaries, participants, successors and assigns of any of the foregoing, including, without limitation, any successors by merger, consolidation or acquisition of all or a substantial portion of the assets and business of Lessor, Remainderman or Lender, as applicable.
"Initial Term" means the period of the Lease Term commencing on the Effective Date and ending on July 31, 2021, or such earlier date that this Lease is terminated.
"Interest Expense" is defined in Section 8.A.
"Lease Term" is defined in Section 4.
''Lease Year" means the 12-month period commencing on August 1, 2000 and ending on July 31, 2001 and each successive 12-month period thereafter.
"Lender" means FFCA Funding Corporation, a Delaware corporation, its successors and assigns, any successor lender in connection with any loan secured by Lessor's interest in any of the Properties, and any servicer of any loan secured by Lessor's interest in any of the Properties, including, without limitation, Franchise Finance Corporation of America, a Delaware corporation.
"Lessor's Total Investment" means $50,711,730.00.
"Letter of Credit" means a letter of credit substantially in the form attached to this Lease as Exhibit C issued by an Approved Institution in accordance with the terms of Section 23.A(ix)(2) of this Lease.
"Loan Agreement" means the Loan Agreement dated as of the date of this Lease in effect between Lessor and Lender, as such agreement may be amended from time to time and any and all replacements or substitutions thereof.
"Loan Documents" means, collectively, the Loan Agreement, the Notes, the Mortgages and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, all as amended and supplemented and any and all replacements or substitutions thereof.
"Losses" means any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, attorneys' fees, court costs and other costs of defense).
"Material Adverse Effect" means any act, omission or event which would:
(x) prevent Lessee from performing its obligations under this Lease or any of the other Sale-Leaseback Documents;
(y) have the effect of reducing Guarantor's net worth as determined m accordance with GAAP below $680,000,000.00; or
(z) prevent the operation of any of the Properties as a Permitted Facility or expose Lessor or any other Indemnified Party to potential criminal liability or civil liability which is not insured or indemnified against pursuant to this Lease.
"Material Casualty" means the occurrence of damage or destruction to the improvements located on a Property the cost of which to restore is at least equal to 40% of the then current replacement cost of such improvements and the restoration of which cannot reasonably be completed with 120 days from the occurrence of such damage or destruction, both as reasonably determined by Lessee.
"Material Taking" means a Taking of the whole of any of the Properties, other than for temporary use, or a Taking of any of the Properties (other than for temporary use) which will: (i) materially impair access to such Property in Lessee's reasonable judgment; (ii) either result in the loss of 10% or more of the parking spaces at such Property or the loss of such parking spaces as would result in the Property being reasonably incapable of satisfying the parking requirements under Applicable Regulations either by the addition or replacement of parking spaces; or (iii) result in the permanent closure or removal of such portion of the improvements located on such Property as to make uneconomical the continued use of the remainder of such Property as a Permitted Facility.
"Maturity Date" means August 1, 2020.
"Maximum Allowed Annual Rental means, for any Fiscal Year in which Lessee has failed to satisfy the Aggregate Fixed Charge Coverage Ratio requirement, an amount equal to (x) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 4% of Aggregate Gross Sales, divided by (y) 1.25.
"Memorandum" means the Memorandum of Master Lease dated as of the date of this Lease between Lessor and Lessee with respect to the Properties. A duplicate original Memorandum will be executed and recorded in the applicable real property records for each Property. Each Memorandum will contain exhibits with the addresses and store identification numbers for all of the Properties and the legal description for the applicable Property.
"Mortgages" means, collectively, the Mortgages, Deeds of Trust or Deeds to Secure Debt, Assignments of Rents and Leases, Security Agreements and Fixture Filings dated as of even date herewith executed by Lessor for the benefit of Lender with respect to the Properties, as such instruments may be amended, restated and/or supplemented from time to time and any and all replacements or substitutions thereof.
"Net Income" is defined in Section 8.A.
"Net Restoration Amount" is defined in Section 21.K.
"Net Sublease Rents" means all rents received by Lessor during the applicable Fiscal Year pursuant to any subleases contemplated by Section 26 of this Lease, less those operating expenses incurred by Lessor, if any, pursuant to the terms and conditions of such subleases with respect to the affected Properties.
"Non-Disturbance and Attornment Agreement" is defined in Section 24.
"Notes" means, collectively, the Promissory Notes dated as of the date of this Lease executed by Lessor and payable to Lender with respect to the Properties, as such notes may be amended, restated and/or substituted from time to time.
"Operating Lease Expense" is defined in Section 8.A.
"Option Notice" is defined in Section 56.
"Participation" means the granting of any participations in any document evidencing loan obligations set forth in the Loan Agreement or any of the Loan Documents or any or all servicing rights with respect thereto.
"Partial Casualty" is defined in Section 21.K.
"Partial Taking" is defined in Section 21.K.
"Pending Actions" means the legal proceedings described in Guarantor's Quarterly Report on Form 10-Q with respect to its fiscal quarter ended April 28, 2000 filed with the United States Securities and Exchange Commission.
"Permitted Facility" means a Cracker Barrel Old Country Store restaurant; provided, however, up to four of the Properties in the aggregate may be operated as a Logan's Roadhouse restaurant or as another nationally or regionally recognized restaurant concept.
"Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity.
"Personalty" means all machinery, appliances, furniture, equipment, trade fixtures, ceiling fans and rods and other personal property owned or leased by Lessee from time to time situated on or used in connection with the Properties; provided, however, the term "Personalty" shall not include the HVAC, supply fans, air ducts, plumbing and electrical fixtures and lighting poles, all of which items are intended to be fixtures as such term is used within the definition of "Properties".
"Prepayment Charges" means, for purposes of this Lease, an amount equal to any prepayment premium or charge or the "Yield Maintenance Payment" (as defined below), or any other cost or expense imposed on Lessor by the applicable Lender in connection with the payment of the applicable Note(s) or promissory note(s) prior to the Maturity Date. While the Notes are outstanding, the Prepayment Charge shall equal the Yield Maintenance Payment, and the Prepayment Charge payable under any promissory note(s) executed subsequent to the satisfaction of the Notes shall not exceed the Yield Maintenance Payment.
"Prepayment of Rent" is defined in Section 23.A(ix).
"Properties" means, collectively, the parcels of real estate described by address, Lessor Number and Unit Number in Exhibit A attached hereto and legally described in Exhibit A-1 attached hereto, all rights, privileges and appurtenances associated therewith, and all buildings, structures, fixtures (but not trade fixtures) and other improvements (excluding Personalty) now or hereafter located on such real estate (whether or not affixed to such real estate).
"Property" means any one of the Properties.
"Proprietary Confidential Information" means all Confidential Information other than financial information delivered to Lessor and/or Lender pursuant to the Sale-Leaseback Agreement and/or this Lease, which financial information includes, without limitation, the Store Income Statements.
"Purchase Period'' is defined in Section 56.
"Purchase Price" means $48,987,344.35.
"Option Notice" is defined in Section 56.
"Questionnaires" is defined in the Sale-Leaseback Agreement.
"Reinvestment Rate" means an interest rate equal to the then current yield of U.S. treasury securities having a weighted average life to maturity closest to the Maturity Date.
"Rejectable Substitution Offer" is defined in Section 55.A.
"Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or leaching of Hazardous Materials in, on, under, to or from the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any of the Properties except in De Minimis Amounts.
"Remainderman" means CS Remainder II, LLC, a Delaware limited liability company, which owns a remainder interest in the Properties, together with its successors and assigns.
"Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Materials, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto in connection with a remediation and any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials in connection with a remediation.
"Rent Adjustment Amount" means an amount equal to the difference between (x) the Aggregate Base Annual Rental then in effect, and (y) the Maximum Allowed Annual Rental.
"Sale-Leaseback Agreement means that certain Sale-Leaseback Agreement dated as of the date hereof among Lessor, Lessee, CBOCS West, Inc., a Nevada corporation, CBOCS Michigan, Inc., a Michigan corporation, and CBOCS Texas Limited Partnership, a Texas limited partnership, with respect to the Properties.
"Sale-Leaseback Documents" means the Sale-Leaseback Agreement, this Lease, the Memorandum, the Guaranty, the Deeds, the Acknowledgement, the Tripartite Agreement and all other documents executed in connection therewith.
"Securitization" means one or more sales, dispositions, transfers or assignments by Lender or any Affiliate of Lender to a special purpose corporation, trust or other entity identified by Lender or any Affiliate of Lender of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any Affiliate of Lender (and, to the extent applicable, the subsequent sale, transfer or assignment of such notes to another special purpose corporation, trust or other entity identified by Lender or any Affiliate of Lender), and the issuance of bonds, certificates, notes or other instruments evidencing interests in pools of such loans, whether in connection with a permanent asset securitization or a sale of loans in anticipation of a permanent asset securitization. Each Securitization shall be undertaken in accordance with all requirements which may be imposed by the investors or the rating agencies involved in each such sale, disposition, transfer or assignment or which may be imposed by applicable securities, tax or other laws or regulations, including, without limitation, laws relating to Lender's status as a real estate investment trust.
"Store Income Statements" means the operating statements prepared for each of the Properties in the form attached as Exhibit E to this Lease and otherwise containing such detail as is necessary to determine Lessee's compliance with the provisions of Section 8.A of this Lease. Lessee may prepare the operating statements for the Properties in a form other than that set forth on Exhibit E provided the form Lessee uses contains the same information detailed on the attached Exhibit E and contains such detail as is necessary to determine Lessee's compliance with the provisions of Section 8.A of this Lease.
"Substitute Documents" is defined in Section 55.B(viii).
"Substitute Property" means one or more parcels of real estate substituted for any of the Properties in accordance with the requirements of Section 55, together with all rights, privileges and appurtenances associated therewith, and all buildings, structures, fixtures (but not trade fixtures) and other improvements located thereon (excluding Personalty). For purposes of clarity, where two or more parcels of real property comprise a Substitute Property, such parcels shall be aggregated and deemed to constitute the Substitute Property for all purposes of this Lease.
"Substitute Property Permitted Exceptions" is defined in Section 55.B(i)(5).
"Successor Lessor" is defined in Section 24.
"Taking" is defined in Section 21.A. "
Temporary Taking" is defined in Section 21.I.
"Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any of the Properties which may result from such Release.
"Title Company" means Lawyers Title Insurance Corporation, or such other nationally recognized title insurance company reasonably acceptable to Lessor.
"Transfer" means any sale, transfer or assignment of any document evidencing loan obligations set forth in the Loan Agreement or any of the Loan Documents, or any or all servicing rights with respect thereto.
"Tripartite Agreement" means the Tripartite Agreement dated as of the date of this Agreement among Lessor, Lessee and Remainderman.
"Yield Maintenance Payment" means an amount equal to the positive difference between (a) the present value, computed at the Reinvestment Rate, of the stream of monthly principal and interest payments in effect under the applicable Note(s) as of the Effective Date from the date of prepayment through the Maturity Date, and (b) the outstanding principal balance of such Note(s) as of the date of prepayment; provided, however, if such difference is a negative number, the Yield Maintenance Payment shall be zero.
2. Demise of Properties. In consideration of the rentals and other sums to be paid by Lessee and of the other terms, covenants and conditions on Lessee's part to be kept and performed, Lessor hereby leases to Lessee, and Lessee hereby takes and hires, the Properties. The Properties are leased to Lessee "AS IS" and "WHERE IS" without representation or warranty by Lessor and subject to the rights of parties in possession, to the existing state of title, any state of facts which an accurate survey or physical inspection might reveal, and all Applicable Regulations now or hereafter in effect. Lessee has examined each of the Properties and title to each of the Properties and has found all of the same satisfactory for all of Lessee's purposes.
3. Characterization of Lease. A. Lessor and Lessee intend that:
(i) this Lease constitutes a single master lease ·of all, but not less than all, of the Properties and that Lessor and Lessee have executed and delivered this Lease with the understanding that this Lease constitutes a unitary, unseverable instrument pertaining to all, but not less than all, of the Properties, and that neither this Lease nor the duties, obligations or rights of Lessee may be allocated or otherwise divided among the Properties by Lessee;
(ii) this Lease is a "true lease" and not a financing lease, capital lease, mortgage, equitable mortgage, deed of trust, trust agreement, security agreement or other financing or trust arrangement, and the economic realities of this Lease are those of a true lease; and
(iii) the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein.
B. Lessor and Lessee acknowledge and agree that the Lease Term, including any term extensions provided for in this Lease, is less than 90% of the expected remaining economic life of each of the Properties.
C. Lessee and Lessor each waive any claim or defense based upon the characterization of this Lease as anything other than a true lease and irrevocably waive any claim or defense which asserts that the Lease is anything other than a true lease. Lessee and Lessor covenant and agree that they will not assert that this Lease is anything but a true lease. Lessee and Lessor each stipulate and agree not to challenge the validity, enforceability or characterization of the lease of the Properties as a true lease and further stipulate and agree that nothing contained in this Lease creates or is intended to create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like. Lessee and Lessor each shall support the intent of the parties that the lease of the Properties pursuant to this Lease is a true lease and does not create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs.
D. Lessee and Lessor each waive any claim or defense based upon the characterization of this Lease as anything other than a master lease of all of the Properties and irrevocably waive any claim or defense which asserts that the Lease is anything other than a master lease. Lessee and Lessor each covenant and agree that it will not assert that this Lease is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties. Lessee and Lessor each stipulate and agree not to challenge the validity, enforceability or characterization of the lease of the Properties as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties. Lessee and Lessor each shall support the intent of the parties that this Lease is a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties, if, and to the extent that, any challenge occurs.
E. Lessee represents and warrants to Lessor that (i) the Base Annual Rental is the fair market value for the use of the Properties and was agreed to by Lessor and Lessee on that basis, and (ii) the execution, delivery and performance by Lessee of this Lease does not constitute a transfer of all or any part of the Properties, except for the leasehold interest and rights in and to the Properties created by this Lease.
F. The expressions of intent, the waivers, the representations and warranties, the covenants, the agreements and the stipulations set forth in this Section are a material inducement to Lessor's entering into this Lease.
4. Lease Term. The Lease Term for all of the Properties shall commence as of the Effective Date and shall expire on July 31, 2021, unless terminated sooner as provided in this Lease and as may be extended for one initial period of ten years and two subsequent periods of five years each as set forth in Section 27 below. The time period during which this Lease shall actually be in effect is referred to herein as the "Lease Term."
5. Rental and Other Payments. A. If the Effective Date is a date other than the first day of the month, Lessee shall pay Lessor on the Effective Date the Base Monthly Rental prorated on the basis of the ratio that the number of days from the Effective Date through the last day in the month containing the Effective Date bears to the number of days in such month. Thereafter, on or before the first day of each succeeding calendar month, Lessee shall pay Lessor in advance the Base Monthly Rental.
B. All sums of money required to be paid by Lessee under this Lease which are not specifically referred to as rent ("Additional Rental") shall be considered rent although not specifically designated as such. Lessor shall have the same remedies for nonpayment of Additional Rental as those provided herein for the nonpayment of Base Annual Rental.
6. Representations and Warranties of Lessor. The representations and warranties of Lessor contained in this Section are being made to induce Lessee to enter into this Lease and Lessee has relied and will continue to rely upon such representations and warranties. Lessor represents and warrants to Lessee as of the Effective Date as follows:
A. Organization, Authority and Status of Lessor. (i) Lessor has been duly organized and is validly existing and in good standing under the laws of the State of Delaware. All necessary corporate or other appropriate formal action has been taken to authorize the execution, delivery and performance by Lessor of this Lease and the other documents, instruments and agreements provided for herein.
(ii) The Person who has executed this Lease on behalf of Lessor is duly authorized so to do.
B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms, subject to general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect affecting the enforcement of creditors rights generally.
C. Absence of Breaches or Defaults. Lessor is not in breach or default under any document, instrument or agreement to which Lessor is a party or by which Lessor, any of the Properties or any of Lessor's property is subject or bound, which breach or default would have a material adverse effect on Lessor or the Properties. The authorization, execution, delivery and performance of this Lease and the other documents, instruments and agreements provided for herein will not result in any breach of or default under any document, instrument or agreement to which Lessor is a party or by which Lessor, any of the Properties or any of Lessor's property is subject or bound, which breach or default would have a material adverse effect on Lessor or the Properties. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order known to Lessor and the remedies for such violation would not have a material adverse effect on Lessor or the Properties.
7. Representations and Warranties of Lessee. The representations and warranties of Lessee contained in this Section are being made to induce Lessor to enter into this Lease and Lessor has relied, and will continue to rely, upon such representations and warranties. Lessee represents and warrants to Lessor as of the Effective Date as follows:
A. Organization, Authority and Status of Lessee. (i) Lessee has been duly organized or formed, is validly existing and in good standing under the laws of its state of incorporation or formation and is qualified to do business in each jurisdiction in which any of the Properties are located. All necessary corporate action has been taken to authorize the execution, delivery and performance by Lessee of this Lease and of the other documents, instruments and agreements provided for herein. Lessee is not a "foreign corporation", "foreign partnership", "foreign trust", "foreign limited liability company" or "foreign estate", as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder. Lessee's United States tax identification number is correctly set forth on the signature page of this Lease.
(ii) The Person who has executed this Lease on behalf of Lessee is duly authorized to do so.
B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms, subject to general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect affecting the enforcement of creditors rights generally.
C. Litigation. There are no suits, actions, proceedings or investigations pending, or, to the best of its knowledge, threatened against or involving Lessee, Guarantor or any of the Properties before any arbitrator or Governmental Authority, including, without limitation, the Pending Actions, which might reasonably result in any Material Adverse Effect.
D. Absence of Breaches or Defaults. Neither Lessee nor Guarantor is in default under any document, instrument or agreement to which Lessee or Guarantor is a party or by which Lessee, Guarantor, any of the Properties or any of Lessee's or Guarantor's property is subject or bound, which default could reasonably be expected to result in any Material Adverse Effect. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not result in any breach of or default under any document, instrument or agreement to which Lessee or Guarantor is a party or by which Lessee, Guarantor, any of the Properties or any of Lessee's or Guarantor's property is subject or bound, which breach or default could reasonably be expected to result in any Material Adverse Effect. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order, which violation could reasonably be expected to result in any Material Adverse Effect.
E. Liabilities of Lessor. Lessee is not liable for any indebtedness for money borrowed by Lessor and has not guaranteed any of the debts or obligations of Lessor.
8. Covenants. Lessee covenants to Lessor for so long as this Lease is in effect as follows:
A. Aggregate Fixed Charge Coverage Ratio. Lessee shall maintain an Aggregate Fixed Charge Coverage Ratio at all of the FCCR Properties in the aggregate of at least 1.25:1, calculated as of the last day of each fiscal year of Lessee (each, a "Fiscal Year"). For purposes of this Lease, the term "Aggregate Fixed Charge Coverage Ratio" shall mean with respect to the twelve month period of time ending on the date of calculation, the ratio calculated for such period of time of (a) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 4% of Aggregate Gross Sales, to (b) the sum of the Operating Lease Expense and the Equipment Payment Amount.
For purposes of this Section 8, the following terms shall be defined as set forth below:
"Capital Lease" shall mean any lease of any property (whether real, personal or mixed) by Lessee with respect to one or more of the FCCR Properties which lease would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of Lessee. The term "Capital Lease" shall not include any operating lease or this Lease.
"Debt" shall mean, as directly related to all of the FCCR Properties and the period of determination, (i) obligations of Lessee to pay debt service in respect of indebtedness of Lessee for borrowed money, (ii) obligations of Lessee evidenced by bonds, indentures, notes or similar instruments, (iii) obligations of Lessee to pay the deferred purchase price of property or services, (iv) obligations of Lessee under leases which should be, in accordance with GAAP, recorded as Capital Leases, and (v) obligations of Lessee under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. The term "Debt" shall not include Lessor's debt with respect to the FCCR Properties or otherwise.
"Depreciation and Amortization" shall mean with respect to all of the FCCR Properties the depreciation and amortization accruing during any period of determination with respect to Lessee as determined in accordance with GAAP. The term "Depreciation and Amortization" shall not include Lessor's depreciation and amortization with respect to the FCCR Properties or otherwise.
"Equipment Payment Amount" shall mean for any period of determination the sum of all amounts payable during such period of determination under all (i) leases entered into by Lessee for Personalty located at one or more of the FCCR Properties and (ii) all loans made to Lessee secured by Lessee's interest in the Personalty located at one or more of the FCCR Properties.
"Interest Expense" shall mean for any period of determination, the sum of all interest accrued or which should be accrued in respect of all Debt of Lessee directly attributable to one or more of the FCCR Properties and all business operations thereon during such period (including interest attributable to Capital Leases), as determined in accordance with GAAP.
"Net Income" shall mean with respect to all of the period of determination, the gross income of Lessee allocable to all of the FCCR Properties less all operating expenses allocable to all of the FCCR Properties. In determining the amount of Net Income, (i) adjustments shall be made for nonrecurring gains and losses allocable to the period of determination, (ii) deductions shall be made for, among other things, Depreciation and Amortization, Interest Expense and Operating Lease Expense allocable to the period of determination, (iii) charges for related entity services, financings, mark-ups on purchases and other similar charges which are of a nature historically accounted for in Lessee's Store Income Statements shall be excluded, and (iv) no deductions shall be made for (x) income taxes or charges equivalent to income taxes allocable to the period of determination, as determined in accordance with GAAP, or (y) corporate overhead expense allocable to the period of determination. All Net Sublease Rents received by Lessee pursuant to subleases contemplated by Section 26 of this Lease shall be included within ''Net Income" for purposes of the determination of the Aggregate Fixed Charge Coverage Ratio.
"Operating Lease Expense" shall mean the lease payments incurred by Lessee under any operating leases with respect to one or more of the FCCR Properties (including this Lease) and the business operations thereon during the period of determination, as determined in accordance with GAAP.
B. Nonconsolidation Covenants. (i) Lessee will not assume liability for any indebtedness for money borrowed by Lessor and does not, and will not, guarantee any of the debts or obligations of Lessor. Lessee will not hold itself out as being liable for any obligations or indebtedness of Lessor.
(ii) Lessee shall not and shall use its best efforts to cause its Affiliates not to hold Lessor out to the public or to any individual creditors as being a unified entity with assets and liabilities in common with Lessee.
(iii) Lessee shall conduct its business so as not to mislead others as to the separate identity of Lessor, and particularly will avoid the appearance of conducting business on behalf of Lessor. Without limiting the generality of the foregoing, no oral and written communications of Lessee, including, without limitation, letters, invoices, purchase orders, contracts, statements and loan applications, will be made in the name of Lessor which to the extent that to do otherwise would materially bear upon the maintenance of Lessor's separate identity.
(iv) Lessee will not act in Lessor's name.
(v) Where necessary and appropriate, Lessee shall disclose the independent business status of Lessor to creditors of Lessee, if any.
(vi) The resolutions, agreements and other instruments of Lessee, if any, underlying the transactions described in this Lease will be maintained by Lessee.
(vii) All transactions between Lessee and Lessor will be no less fair to each party than they could obtain on an arm's-length basis.
(viii) The books, records and accounts of Lessee shall at all times be maintained in a manner permitting the assets and liabilities of Lessor to be easily separated and readily ascertained from those of Lessee.
(ix) Lessee will not direct, or otherwise control, the ongoing business decisions of Lessor.
(x) Lessee will not file or cause to be filed a voluntary or involuntary petition in bankruptcy on behalf of or against Lessor.
C. Transfer, Participation and Securitization Covenants . (i) Lessee agrees to cooperate in good faith with Lessor and Lender in connection with any Transfer, Participation and/or Securitization of any of the Notes, Mortgages and/or any of the Loan Documents, or any or all servicing rights with respect thereto, including, without limitation, (x) providing all current public documents, financial and other data required to be filed with the United States Securities and Exchange Commission with respect to Lessee and the Store Income Statements (collectively, the "Disclosures"); provided, however, Lessee shall not be required to make Disclosures of any Confidential Information or any information which has not previously been made public except as required by applicable federal or state securities laws; and (y) amending the terms of this Lease to the extent necessary so as to satisfy the reasonable requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfer, Participation or Securitization, so long as such amendments would not materially and adversely affect the economic terms of this Lease or Lessee. Lessor and Lender shall prepare, at the expense of Lessor and Lender, all documents evidencing such amendments, provided that Lessee shall be responsible for the payment of its attorneys' fees incurred in connection with reviewing and finalizing such documents.
(ii) Lessee consents to Lessor and Lender providing the Disclosures, as well as any other information which Lessor and Lender may now have or hereafter acquire with respect to the Properties or the financial condition of Lessee to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or Securitization, as applicable. Lessee, Lessor and Lender shall pay their own attorneys' fees and other out-of-pocket expenses incurred in connection with the performance of its obligations under this Section 8.C.
D. Compliance Certificate. Within 90 days after the end of each Fiscal Year, Lessee shall deliver to Lessor such compliance certificates as Lessor may reasonably require in order to establish that Lessee is in compliance in all material respects with all of the obligations, duties and covenants imposed on Lessee pursuant to this Lease.
9. Rentals To Be Net to Lessor. The Base Annual Rental payable hereunder shall be net to Lessor, so that this Lease shall yield to Lessor the rentals specified during the Lease Term, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Properties shall be performed and paid by Lessee.
10. Taxes and Assessments. Lessee shall pay, prior to the earlier of delinquency or the accrual of interest on the unpaid balance, all taxes and assessments of every type or nature assessed against, imposed upon or arising with respect to Lessor (assuming that the Properties are the only real property owned by Lessor and that Lessor is not engaged in any business other than the ownership, leasing and financing of the Properties and any other matters ancillary thereto), any of the Properties, this Lease, the rental or other payments due under this Lease or Lessee during the Lease Term which affect in any manner the net return realized by Lessor under this Lease, including, without limitation, the following:
A. All taxes and assessments upon any of the Properties or any part thereof and upon any Personalty, whether belonging to Lessor or Lessee, or any tax or charge levied in lieu of such taxes and assessments;
B. All taxes, charges, license fees and or similar fees imposed by reason of the use of any of the Properties by Lessee; and
C. All excise, transaction, privilege, license, sales, use and other taxes upon the rental or other payments due under this Lease, the leasehold estate of either party or the activities of either party pursuant to this Lease.
Notwithstanding the foregoing, but without limiting the preceding obligation of Lessee to pay all taxes which are imposed on the rental or other payments due under this Lease, in no event will Lessee be required to pay any net income taxes or taxes in lieu of income taxes (i.e., taxes which are determined taking into account deductions arising from depreciation, interest, taxes and ordinary and necessary business expenses) or franchise taxes (unless imposed in lieu of other taxes that would otherwise be the obligation of Lessee wider this Lease, including, without limitation, any "gross receipts tax" or any similar tax based upon gross income or receipts of Lessor which does not take into account deductions arising from depreciation, interest, truces and/or ordinary or necessary business expenses) of Lessor, any transfer taxes of Lessor, or any tax imposed with respect to the sale, exchange or other disposition by Lessor, in whole or in part, of any of the Properties or Lessor's interest in this Lease (other than transfer or recordation taxes imposed in connection with the transfer of any of the Properties to Lessee, the substitution of a Substitute Property or the termination of this Lease pursuant to the provisions of this Lease).
All taxing authorities shall be instructed to send all tax and assessment invoices to Lessee and Lessee shall promptly provide Lessor and Lender with copies of all tax and assessment invoices received by Lessee. Upon request, Lessee shall also provide Lessor and Lender with evidence that such invoices were paid in a timely fashion. Lessee may, at its own expense, contest or cause to be contested (in the case of any item involving more than $50,000.00, after prior written notice to Lessor), by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any item specified in this Section 10 or any lien therefor, provided that (i) such proceeding shall suspend the collection thereof .from the applicable Properties or any interest therein, (ii) neither such Properties nor any interest therein would be in any danger of being sold, forfeited or lost by reason of such proceedings, (iii) no Event of Default has occurred, and (iv) Lessee shall have deposited with Lessor adequate reserves for the payment of the taxes, together with all interest and penalties thereon, unless paid in full under protest, or Lessee shall have furnished the security as may be required in the proceeding or as may be reasonably required by Lessor to ensure payment of any contested taxes. So long as an Event of Default shall not have occurred and be continuing, any amount recovered as a result of retroactive tax contests with respect to taxes or assessments payable during the Lease Term shall be paid to Lessee. Lessor shall, at the request of Lessee, execute or join in the execution of any instruments or documents reasonably requested by Lessee in connection with any contest or proceeding contemplated by this Section 10, but Lessee shall be solely responsible for the payment of all costs and expenses incurred by Lessor or Lessee in connection with such contests and proceedings.
11. Utilities. Lessee shall contract, in its own name, for and pay when due all charges for the connection and use of water, gas, electricity, telephone, garbage collection, sewer use and other utility services supplied to the Properties during the Lease Term. Under no circumstances shall Lessor be responsible for providing any utility service to the Properties. Unless an Event of Default shall have occurred and be continuing, Lessor will not take any action to interrupt the utility service to the Properties.
12. Insurance. Throughout the Lease Term, Lessee shall maintain, or cause a permitted sublessee as contemplated by Section 26 to maintain, with respect to each of the Properties, at its sole expense, the following types and amounts of insurance (which may be included under a blanket insurance policy if all the other terms hereof are satisfied):
A. Insurance against loss, damage or destruction by fire and other casualty, including theft, vandalism and malicious mischief, flood (for each of the Properties which is in a location designated by the Federal Emergency Management Administration as a Special Flood Hazard Area), earthquake (for each of the Properties which is in an area commonly subject to destructive earthquakes within recorded history), boiler explosion (for each of the Properties with a boiler), plate glass breakage, sprinkler damage (for each of the Properties which has a sprinkler system), all matters covered by a standard extended coverage endorsement, all matters covered by a special coverage endorsement commonly known as an "all-risk" endorsement and such other risks as Lessor may reasonably require consistent with reasonably prudent business practices for similar types of properties, insuring each of the Properties for not less than 100% of their full insurable replacement cost.
B. Commercial general liability and property damage insurance, including a products liability clause, covering Lessor, Remainderman and Lessee against bodily injury liability, property damage liability and automobile bodily injury and property damage liability, including without limitation any liability arising out of the ownership, maintenance, repair, condition or operation of the Properties or, to the extent covered by a customary commercial general liability policy, adjoining ways, streets or sidewalks and, if applicable, insurance covering Lessor, Remainderman and Lessee against liability arising from the sale of liquor, beer or wine on the Properties. Such insurance policy or policies shall contain a broad form contractual liability endorsement under which the insurer agrees to insure Lessee's obligations W1der Section 19 hereof to the extent insurable, and a "severability of interest" clause or endorsement which precludes the insurer from denying the claim of Lessee, Remainderman or Lessor because of the negligence or other acts of the other, shall be in amounts of not less than $1,000,000.00 per injury and occurrence with respect to any insured liability, whether for personal injury or property damage, or such higher limits as Lessor or Remainderman may reasonably request from time to time, and shall be of form and substance satisfactory to Lessor and Remainderman.
C. Business income interruption insurance or rental interruption insurance, when applicable, as requested by Lessor, equal to 100% of the Base Annual Rental for a period of not less than 12 months.
D. State worker's compensation insurance, or self insurance where permitted by applicable law, in the statutorily mandated limits, employer's liability insurance with limits not less than $500,000 or such greater amount as Lessor or Remainderman may from time to time reasonably require and such other insurance as may be necessary to comply with applicable laws.
E. Such other insurance as may from time to time be reasonably required by Lessor, Remainderman or Lender consistent with prudent business practices for similar types of properties in order to protect their respective interests with respect to the Properties.
All insurance policies shall:
(i) Provide for a waiver of subrogation by the insurer as to claims against Lessor, Remainderman, Lender and their respective employees and agents;
(ii) Provide that any ''no other insurance" clause in the insurance policy shall exclude any policies of insurance maintained by Lessor, Remainderman or Lender and that the insurance policy shall not be brought into contribution with insurance maintained by Lessor, Remainderman or Lender;
(iii) Contain a standard without contribution mortgage clause endorsement in favor of Lender and naming such other parties as additional named insureds as may be designated by Lessor provided such parties have either a direct or indirect ownership interest in the Properties or Lessor, or are managers, asset managers, agents or independent contractors of Lessor or any entity or person which has an ownership interest in Lessor;
(iv) Provide that the policy of insurance shall not be terminated, cancelled or substantially modified without at least thirty (30) days' prior written notice to Lessor, Remainderman, Lender and to any other party covered by any standard mortgage clause endorsement;
(v) Provide that the insurer shall not have the option to restore the applicable Properties if Lessor or Lessee elects to terminate this Lease in accordance with the terms hereof;
(vi) Be issued by insurance companies licensed to do business in the states in which the Properties are located and which are rated A:VI or better by AM. Best's Insurance Guide or are otherwise reasonably approved by Lessor and Remainderman; and
(vii) Provide that the insurer shall not deny a claim nor shall the insurance be cancelled, invalidated or suspended by (1) any action, inaction, conduct or negligence of Lessor, Remainderman, Lender or any other party covered by any standard mortgage clause endorsement, Lessee, anyone acting for Lessee or any subtenant or other occupant of any of the Properties, (2) occupancy or use of any of the Properties for purposes more hazardous than permitted by such policies, (3) any foreclosure or other proceedings relating to any of the Properties or change in title to or ownership of any of the Properties, or (4) any breach or violation by Lessee or any other person of any warranties, declarations or conditions contained in such policies or the applications for such policies.
It is expressly understood and agreed that the foregoing minimum limits of insurance coverage shall not limit the liability of Lessee for its acts or omissions as provided in this Lease. All insurance policies (with the exception of worker's compensation insurance to the extent not available under statutory law), shall designate Lessor, Remainderman and Lender as additional named insureds as their interests may appear and shall be payable as set forth in Section 21 hereof. All such policies shall be written as primary policies, with deductibles not to exceed 10% of the amount of coverage; provided, however, (i) Lessee shall be permitted to maintain deductibles on replacement value property insurance in an amount not to exceed $100,000.00 per Property, and (ii) at all times while Guarantor maintains a net worth determined in accordance with GAAP of at least $280,000,000.00 and Guarantor has a solicited long term debt rating (or, if Guarantor does not have a solicited long term debt rating, a corporate rating) of (a) BB or better by Standard & Poors Rating Group, or any successor thereto, or (b) ba2 or better by Moody's Investors Service, Inc., Lessee may self-insure or maintain deductibles on genera] liability insurance in an amount not to exceed $250,000.00 per occurrence per Property. Any other policies, including any policy now or hereafter carried by Lessor, Remainderman or Lender, shall serve as excess coverage. Lessee shall procure policies for all insurance for periods of not less than one year and shall provide to Lessor, Remainderman and Lender certificates of insurance or, upon the request of Lessor, Remainderman or Lender, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Lease is in effect at all times. If Lessee in good faith desires to change its insurance carrier or, not more often than once in any Lease Year, change to a policy year ending on a different calendar date, Lessor will not unreasonably withhold its consent to Lessee maintaining the preceding insurance policies for a period of less than one year solely as a result of the transition of such insurance policies to the replacement carrier or the revised ending date. Lessor further agrees that, to the extent it has requested and received duplicate originals of the insurance policies required by this Lease, Lessee shall not be required to subsequently provide duplicate originals of such insurance policies unless any of the coverages provided in any such policies change or the carrier of any such policy changes, in which event Lessee shall only be required to provide (without limiting Lessee's obligation to deliver certificates of insurance as contemplated by this Section), upon the request of Lessor, duplicate originals of those portions of the policies which have changed and/or those policies for which the carrier has changed. In the event of any transfer by Lessor of Lessor's interest in any of the Properties or any financing or refinancing of Lessor's interest in any of the Properties,or by Remainderman of Remainderman's interest in any of the Properties, Lessee shall, upon not less than ten (10) Business Days prior written notice, deliver to Lessor and Remainderman or any Lender providing such financing or refinancing, as applicable, certificates of all insurance required to be maintained by Lessee hereunder naming such transferee or such Lender, as applicable, as an additional named insured to the extent required herein effective as of the date of such transfer, financing or refinancing.
13. Tax and Insurance Impound. Upon the occurrence of an Event of Default resulting from the failure of Lessee to perform any monetary obligation due under this Lease, including, without limitation, the failure to pay Base Annual Rental, Additional Rental and/or taxes, assessments and/or insurance premiums as contemplated by this Lease, Lessor may require Lessee to pay to Lessor sums which will provide an impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and/or insurance premiums for each of the Properties. Upon such requirement, Lessor will estimate the amounts needed for such purposes and will notify Lessee to pay the same to Lessor in equal monthly installments, as nearly as practicable, in addition to all other sums due under this Lease. Should additional funds be required at any time, Lessee shall pay the same to Lessor on demand. Lessee shall advise Lessor of all taxes and insurance bills which are due and shall cooperate fully with Lessor in assuring that the same are paid timely. Lessor may deposit all impounded funds in accounts insured by any federal or state agency. Interest or other gains from such funds, if any, shall, so long as no Event of Default shall have occurred and be continuing, be the sole property of Lessee. Interest or other gains from such funds, if any, shall, if, subsequent to Lessor requiring Lessee to establish such impound account, an Event of Default shall have occurred and be continuing, be the sole property of Lessor. Upon the occurrence and during the continuance of an Event of Default, Lessor may apply all impounded funds against any sums due from Lessee to Lessor. Lessor shall give to Lessee an annual accounting showing all credits and debits to and from such impounded funds received from Lessee. Nothing in this Section 13 shall be interpreted as a waiver by Lessor of any rights Lessor may have under this Lease upon the occurrence and during the continuance of an Event of Default.
14. Payment of Rental and Other Sums. All rental and other sums which Lessee is required to pay hereunder shall be the unconditional obligation of Lessee and shall be payable in full when due without any setoff, abatement, deferment, deduction or counterclaim whatsoever. Upon execution of this Lease, Lessee shall establish arrangements whereby payments of the Base Monthly Rental and impound payments, if any, are transferred by wire or other means directly from Lessee's bank account to such account as Lessor may designate. Any delinquent payment (that is, any payment not made within five Business Days after the date when due) shall, in addition to any other remedy of Lessor, incur a late charge of 5% (which late charge is intended to compensate Lessor for the cost of handling and processing such delinquent payment and should not be considered interest) and bear interest at the Default Rate, such interest to be computed from and including the date such payment was due through and including the date of the payment; provided, however, in no event shall Lessee be obligated to pay late charges and interest in amounts that exceed the limitations imposed by applicable law then in effect.
15. Use. Except as set forth below, each of the Properties shall be used solely for the operation of a Permitted Facility in accordance with the standards of operations then in effect on a system-wide basis, and for no other pu1pose. Lessee shall promptly notify Lessor of a change of use of any of the Properties from any restaurant concept included within the definition of Permitted Facility to another restaurant concept included within the definition of Permitted Facility. Lessee shall occupy the Properties promptly following the Effective Date and, except as set forth below and except during periods when any of the Properties is untenantable by reason of Casualty or Taking (provided, however, during all such periods while any of the Properties is untenantable, Lessee shall strictly comply with the terms and conditions of Section 21 of this Lease), Lessee shall at all times during the Lease Term occupy each of the Properties and shall diligently conduct its business on each of the Properties as a Permitted Facility. Lessee may cease diligent operation of business at any of the Properties for a period not to exceed 180 days; provided, however, Lessee may not cease diligent operation at more than five of the Properties at any one time and Lessee may only cease operation once with respect to each Property within any five-year period during the Lease Term. Notwithstanding the foregoing, so long as an Event of Default has not otherwise occurred and is continuing under this Lease, up to two of the Properties then subject to this Lease may be closed for an indefinite period of time without such closure constituting an Event of Default under this Lease. If Lessee does discontinue operation as permitted by this Section 15, Lessee shall (i) give written notice to Lessor within 10 Business Days after Lessee elects to cease operation, (ii) provide adequate protection and maintenance of any such Properties during any period of vacancy, (iii) comply with all Applicable Regulations and otherwise comply with the terms and conditions of this Lease other than the continuous use covenant set forth in this Section 15, and (iv) pay all costs necessary to restore such Properties to their condition on the day operation of the business ceased at such time as such Properties are reopened for Lessee's business operations or other substituted use approved by Lessor as contemplated below. Notwithstanding anything herein to the contrary, Lessee shall pay the Base Monthly Rental as provided herein during any period in which Lessee discontinues operation.
Lessee shall not, by itself or through any assignment, sublease or other type of transfer, convert any of the Properties to a use other than a Permitted Facility during the Lease Term without Lessor's consent, which consent shall not be unreasonably withheld or delayed. Lessor may consider any or all of the following in determining whether to grant its consent, without being deemed to be unreasonable: (i) whether the rental paid to Lessor would be equal to or greater than the anticipated rental assuming continued existing use, (ii) whether the converted use will be consistent with the highest and best use of the Properties, and (iii) whether the converted use will increase Lessor's risks or decrease the value of the Properties.
16. Compliance with Laws, Restrictions, Covenants and Encumbrances. A. Lessee's use and occupation of each of the Properties, and the condition thereof, shall, at Lessee's sole cost and expense, comply fully with all Applicable Regulations and all restrictions, covenants and encumbrances of record applicable to such Property. In addition to the other requirements of this Section 16, Lessee shall, at all times throughout the Lease Term, comply with all Applicable Regulations, including, without limitation, in connection with any maintenance, repairs and replacements of the Properties undertaken by Lessee as required by Section 17 of this Lease.
B. Lessee will use its reasonable best efforts to not permit any act or condition to exist on or about any of the Properties (excluding acts committed by third parties not within the control of Lessee) which will increase any insurance rate thereon, except when such acts are required in the normal course of its business and Lessee shall pay for such increase.
C. Without limiting the generality of the other provisions of this Section 16, Lessee agrees that it shall be responsible for complying in all applicable respects with the Americans with Disabilities Act of 1990, as such act may be amended from time to time, and all regulations promulgated thereunder (collectively, the ''ADA"), as it affects the Properties, including, without limitation, making required "readily achievable" changes to remove any architectural or communications barriers, and providing auxiliary aides and services within the Properties. Lessee further agrees that any and all alterations made to the Properties during the Lease Term will comply with the applicable requirements of the ADA. All plans for alterations which must be submitted to Lessor under the provisions of Section 18 must include a statement from a licensed architect or engineer certifying that he or she has reviewed the plans, and that the plans comply with all applicable provisions of the ADA. Any subsequent approval or consent to the plans by Lessor shall not be deemed to be a representation of Lessor's part that the plans comply with the ADA, which obligation shall remain with Lessee. Lessee agrees that it will defend, indemnify and ho]d harmless the Indemnified Parties from and against any and all Losses caused by, incurred or resulting from Lessee's failure to comply with its obligations under this Section 16.C.
D. Lessee represents and warrants to Lessor as of the Effective Date, to Lessee's knowledge and except as disclosed in the Questionnaires:
(i) None of the Properties nor Lessee, in connection with its occupancy, use or operation of the Properties, are in violation of any Environmental Laws except for such noncompliance which could not reasonably be expected to have a Material Adverse Effect, or subject to any pending or threatened investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws that could reasonably be expected to have a Material Adverse Effect.
(ii) All permits, licenses or similar authorizations to construct, occupy, operate or use any buildings, improvements, fixtures and equipment forming a part of any of the Properties required to be obtained by reason of any Environmental Laws have been obtained, except for such permits, licenses or authorizations the failure of which to obtain could not reasonably be expected to have a Material Adverse Effect.
(iii) Except in De Minimis Amounts, no Hazardous Materials have been used, handled, manufactured, generated, produced, stored, treated, processed, transferred, disposed of or otherwise Released in, on, W1der, from or about any of the Properties, which have not been properly remediated in accordance with all applicable Environmental Laws, or which could not reasonably be expected to have a Material Adverse Effect.
(iv) The Properties do not contain Hazardous Materials, other than in De Minimis Amounts, or underground storage tanks.
(v) There is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with any of the Properties, except for such non-compliance which could not reasonably be expected to have a Material Adverse Effect.
(vi) Lessee has not received any written notice or other communication from any Person (including but not limited to a Governmental Authority) relating to Hazardous Materials or Remediation thereof, of possible liability of any Person pursuant to any Environmental Law, other Environmental Conditions in connection with any of the Properties, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing, in each case with respect to a condition or event that could reasonably be expected to have a Material Adverse Effect.
(vii) Lessee has truthfully and fully provided to Lessor, in writing, any and all information relating to Environmental Conditions in, on, under or from the Properties that is known to Lessee and that is contained in Lessee's files and records, including but not limited to any environmental investigations relating to Hazardous Materials in, on, under or from any of the Properties.
(viii) All uses and operations on or of the Properties, whether by Lessee or any other Person, have been in compliance with all Environmental Laws and permits issued pursuant thereto, except for such non-compliance which could not reasonably be expected to have a Material Adverse Effect; and the Properties have been kept free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law (the "Environmental Liens").
E. Lessee covenants to Lessor during the Lease Term that: (i) the Properties shall not be in violation of or subject to any investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws except for such violations or investigations or inquiries which relate to Hazardous Materials in De Minimis Amounts, and if any such investigation or inquiry is initiated, Lessee shall promptly notify Lessor; (ii) all uses and operations on or of each of the Properties, whether by Lessee or any other Person, shall be in compliance with all applicable Environmental Laws and permits issued pursuant thereto, except for such noncompliance which relates to Hazardous Materials in De Minimis Amounts; (iii) there shall be no Releases in, on, under or from any of the Properties, except in De Minimis Amounts; (iv) there shall be no Hazardous Materials in, on, or under any of the Properties, except in De Minimis Amounts; (v) Lessee shall keep each of the Properties free and clear of all Environmental Liens, whether due to any act or omission of Lessee or any other Person; (vi) Lessee shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to subsection F below, including but not limited to providing all relevant information and making knowledgeable persons within the control of Lessee available for interviews; (vii) in the event of any alleged or known Release, Lessee shall, at its sole cost and expense, perform any environmental site assessment or other investigation of Environmental Conditions in connection with any of the Properties as may be reasonably requested by Lessor (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and share with Lessor the reports and other results thereof, and Lessor and the other Indemnified Parties shall be entitled to rely on such reports and other results thereof; (viii) Lessee shall, at its sole cost and expense, comply with all reasonable written requests of Lessor to (1) reasonably effectuate Remediation of any condition (including but not limited to a Release) in, on, under or from any of the Properties; (2) comply with any Environmental Law; (3) comply with any applicable directive from any Governmental Authority, or engage in appropriate alternative remedial activities if approved by such Governmental Authority; and (4) take any other reasonable action necessary or appropriate for protection of human health or the environment on the Properties; (ix) Lessee shall, upon obtaining such information, promptly notify Lessor in writing of (A) any Releases or threatened Releases in, on, under, from or migrating towards any of the Properties which could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts; (B) any non-compliance with any Environmental Laws related in any way to any of the Properties, which non-compliance could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts; (C) any actual or potential Environmental Lien; (D) any required or proposed Remediation of Environmental Conditions relating to any of the Properties; and (E) any written or oral notice or other communication of which Lessee becomes aware from any source whatsoever (including but not limited to a Governmental Authority) relating in any way to Hazardous Materials or Remediation thereof which could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts, possible liability of any Person pursuant to any Environmental Law, other Environmental Conditions in connection with any of the Properties, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Section.
F. Lessor, Lender and any other Person designated by Lessor, including but not limited to any receiver, any representative of a Governmental Authority, and any environmental consultant, shall, after five Business Days' prior written notice to Lessee (except that in the event of an emergency no such prior notice shall be required), have the right, but not the obligation, to enter upon the Properties at all reasonable times (including, without limitation, in connection with any Securitization, Participation or Transfer or in connection with a proposed sale or conveyance of any of the Properties or a proposed financing or refinancing secured by any of the Properties or in connection with the exercise of any remedies set forth in this Lease, the Mortgages or the other Loan Documents, as applicable) to assess any and all aspects of the environmental condition of the Properties and their use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in the sole and absolute discretion of the party conducting the assessment) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing; provided, however, that any such persons (except in emergencies) shall use reasonable efforts to undertake any such assessments or investigations so as to minimize the impact on Lessee's business operations at the Properties. Lessee shall cooperate with and provide access to Lessor, Lender and any other Person designated by Lessor. Any such assessment and investigation shall be at Lessor's sole cost and expense unless at the time of any such assessment or investigation Lessor has a reasonable basis for believing that a Release has occurred on a Property or an Event of Default has occurred and is continuing, in which case Lessee shall be responsible for the cost of any such assessment or investigation. Unless an Event of Default shall have occurred and be continuing, upon completion of any assessments or testing pursuant to this Section 16.F (i) the Properties shall be restored to their condition at the time of commencement of testing, including, without limitation, the repair of any damage to the Properties as a result of such testing and (ii) Lessor shall indemnify, defend and hold Lessee harmless from and against any costs (including, without limitation, reasonable attorneys' fees and expenses), claims, loss or damages resulting from any assessments or testing pursuant to this Section 16.F (excluding claims, losses or damages suffered by Lessee as a result of Lessee's gross negligence or willful misconduct).
G. Lessee shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless each of the Indemnified Parties for, from and against any and all Losses (excluding Losses for which Lessor has agreed to indemnify, defend and hold harmless Lessee pursuant to Sections 16.F and 22 and Losses suffered by an Indemnified Party directly arising out of such Indemnified Party's gross negligence or willful misconduct; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease) and costs of Remediation (whether or not performed voluntarily), engineers' fees, environmental consultants' fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (i) any presence of any Hazardous Materials in, on, above, or under any of the Properties; (ii) any past or present Release or Threatened Release in, on, above, under or from any of the Properties; (iii) any activity by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control. management, abatement, removal, handling, transfer or transportation to or from any of the Properties of any Hazardous Materials at any time located in, under, on or above any of the Properties; (iv) any activity by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties in connection with any actual or proposed Remediation of any Hazardous Materials at any time located in, under, on or above any of the Properties, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (v) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with any of the Properties or operations thereon, including but not limited to any failure by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties to comply with any order of any Governmental Authority in connection with any Environmental Laws; (vi) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering any of the Properties; (vii) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Section; (viii) any past, present or threatened injury to, destruction of or loss of natural resources in violation of Environmental Laws in any way connected with any of the Properties, including but not limited to costs to investigate and assess such injury, destruction or loss; (ix) any acts of Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials owned or possessed by Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, at any facility or incineration vessel owned or operated by another Person and containing such or similar Hazardous Materials; (x) any acts of Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, in accepting any Hazardous Materials for transport to disposal or treatment facilities, incineration vessels or sites selected by Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, from which there is a Release, or a Threatened Release of any Hazardous Materials which causes the incurrence of costs for Remediation; (xi) any personal injury, wrongful death, or property damage arising under any statutory or common law or tort law theory, including but not limited to damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity, on or near any of the Properties; and (xii) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Section.
H. The obligations of Lessee and the rights and remedies of Indemnified Parties under Sections 16.D through 16.G shall survive the termination, expiration and/or release of this Lease.
17. Condition of Properties; Maintenance. Lessee, at its own expense, will maintain all parts of each of the Properties in good repair and sound condition, except for ordinary wear and tear and any Casualties and Takings (but without limiting Lessee's obligations under the terms and conditions of Section 21 of this Lease with respect to Casualties and Takings), and will take all action and will make all structural and non- structural, foreseen and unforeseen and ordinary and extraordinary changes and repairs or replacements which may be required to keep all parts of each of the Properties in good repair and sound condition.Lessee waives any right to (i) require Lessor to maintain, repair or rebuild all or any part of any of the Properties or (ii) make repairs at the expense of Lessor, pursuant to any Applicable Regulations at any time in effect.
18. Waste; Alterations and Improvements. Lessee shall not commit actual or constructive waste upon any of the Properties. Lessee shall not alter the exterior, structural, plumbing or electrical elements of any of the Properties in any manner without the consent of Lessor, which consent shall not be unreasonably withheld or conditioned (it being understood and agreed that to the extent Lessor is required to obtain the approval of Lender with respect to any such alterations, Lessor shall in no event be deemed to have unreasonably withheld Lessor's approval thereof if Lender shall not have given its approval if required); provided, however, Lessee may undertake nonstructural alterations to any of the Properties costing less than $100,000.00 without Lessor's consent. If Lessor's consent is required hereunder and Lessor consents to the making of any such alterations, the same shall be made according to plans and specifications approved by Lessor and subject to such other conditions as Lessor shall reasonably require. All alterations shall be made by Lessee at Lessee's sole expense by licensed contractors and in accordance with all applicable laws governing such alterations. Any work at any time commenced by Lessee on any of the Properties shall be prosecuted diligently to completion, shall be of good workmanship and materials and shall comply fully with all the terms of this Lease. Upon completion of any alterations, at Lessor's request Lessee shall promptly provide Lessor with (i) evidence of full payment to all laborers and materialmen contributing to the alterations, (ii) to the extent Lessee was required to prepare plans and specifications for such alterations, an architect's certificate certifying the alterations to have been completed in conformity with the plans and specifications, (iii) a certificate of occupancy (if the alterations are of such a nature as would require the issuance of a certificate of occupancy), and (iv) any other documents or information reasonably requested by Lessor. Any addition to or alteration of any of the Properties shall automatically be deemed a part of the Properties and belong to Lessor, and Lessee shall execute and deliver to Lessor such instruments as Lessor may require to evidence the ownership by Lessor of such addition or alteration. Lessee shall execute and file or record, as appropriate, a "Notice of Non-Responsibility," or any equivalent notice permitted under applicable law in the states where the applicable Properties are located.
19. Indemnification. Lessee shall indemnify, protect, defend and hold harmless each of the Indemnified Parties from and against any and all Losses (excluding losses for which Lessor has agreed to indemnify, defend and hold Lessee harmless pursuant to Section 22, and Losses suffered by an Indemnified Party arising out of the gross negligence or willful misconduct of such Indemnified Party; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of the Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease) caused by, incurred or resulting from Lessee's operations of or relating in any manner to any of the Properties, whether relating to their original design or construction, latent defects, alteration, maintenance, use by Lessee or any person thereon, supervision or otherwise, or from any breach of, default under, or failure to perform, any Term or provision of this Lease by Lessee, its officers, employees, agents or other persons, or to which any Indemnified Party is subject because of Lessor's or Remainderman's interest in any of the Properties, including, without limitation, Losses arising from (1) any accident, injury to or death of any person or loss of or damage to property occurring in, on or about any of the Properties or portion thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways, (2) any use, non-use or condition in, on or about, or possession, alteration, repair, operation, maintenance or management of, any of the Properties or any portion thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways, (3) any representation or warranty made herein by Lessee or in any certificate delivered in connection with this Lease being false or misleading in any material respect as of the date of such representation or warranty was made, (4) performance of any labor or services or the furnishing of any materials or other property in respect to any of the Properties or any portion thereof, (5) any taxes, assessments or other charges which Lessee is required to pay under Section 10, (6) any lien, encumbrance or claim arising on or against any of the Properties or any portion thereof under any Applicable Regulation or otherwise which Lessee is obligated hereunder to remove and discharge, or the failure to comply with any Applicable Regulation, (7) the claims of any invitees, patrons, licensees or subtenants of all or any portion of any of the Properties or any Person acting through or under Lessee or otherwise acting under or as a consequence of this Lease or any sublease, (8) any act or omission of Lessee or its agents, contractors, licensees, subtenants or invitees pertaining to this Lease, (9) any contest referred to in Section 10, and (10) the sale of liquor, beer or wine on any of the Properties. It is expressly understood and agreed that Lessee's obligations under this Section shall survive the expiration or earlier Termination of this Lease for any reason.
20. Quiet Enjoyment. So long as Lessee shall pay the rental and other sums herein provided and no Event of Default shall have occurred and be continuing, Lessee shall have, subject and subordinate to Lessor's rights herein, the right to the peaceful and quiet occupancy of the Properties. Notwithstanding the foregoing, however, in no event shall Lessee be entitled to bring any action against Lessor to enforce its rights under this Lease if an Event of Default shall have occurred and be continuing.
21. Condemnation or Destruction.
A. Notice of Taking or Casualty. In the event of a taking of all or any part of any of the Properties for any public or quasi-public purpose by any lawful power or authority by exercise of the right of condemnation or eminent domain or by agreement between Lessor, Lessee and those authorized to exercise such right ("Taking") or the commencement of any proceedings or negotiations which might result in a Taking or any damage to or destruction of any of the Properties or any part thereof as a result of a fire or other casualty (a "Casualty"), Lessee will promptly give written notice thereof to Lessor, generally describing the nature and extent of such Taking, proceedings, negotiations or Casualty and including copies of any documents or notices received in connection therewith. Thereafter, Lessee shall promptly send Lessor copies of all correspondence and pleadings relating to any such Taking, proceedings, negotiations or Casualty.
B. Assignment of Awards, Insurance Proceeds and Payments. Except as set forth below, in the event of (i) a Material Taking or (ii) a Material Casualty, Lessor shall be entitled to receive the entire award, insurance proceeds or payment in connection therewith without deduction for any estate vested in Lessee by this Lease. Lessee hereby expressly assigns to Lessor all of its right, title and interest in and to every such award, insurance proceeds or payment and agrees that Lessee shall not be entitled to any award, insurance proceeds or payment for the value of Lessee's leasehold interest in this Lease. With respect to a Material Taking, Lessee shall be entitled to claim and receive any award or payment from the condemning authority expressly granted for the taking of Personalty, the interruption of its business and moving expenses, but only if such claim or award does not adversely affect or interfere with the prosecution of Lessor's claim for the Material Taking or otherwise reduce the amount recoverable by Lessor for the Material Taking. With respect to a Material Casualty, Lessee shall be entitled to claim and receive any insurance proceeds with respect to the Personalty, the interruption of its business and moving expenses, but only if such claim or proceeds does not adversely affect or interfere with the prosecution of Lessor's claim for the Material Casualty or otherwise reduce the amount recoverable by Lessor for the Material Casualty.
C. Material Casualty. Within 60 days of a Material Casualty at any Property, Lessee shall have the option, but not the obligation, to either:
(i) deliver a rejectable offer to Lessor (a "Casualty Substitution Offer") to substitute a Substitute Property for the affected Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment (a "Casualty Termination Payment") to Lessor to terminate this Lease with respect to the affected Property in an amount equal to the sum of (x) the Applicable Percentage for the affected Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term, and (y) the Prepayment Charge corresponding to the affected Property. All Casualty Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of a Casualty Substitution Offer satisfying the requirements of Section 55 to accept or reject that offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of the offer within such time period shall be deemed to constitute Lessor's acceptance of that Casualty Substitution Offer. If the Mortgage corresponding to the affected Property is still outstanding, any rejection of the Casualty Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Casualty Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Casualty Substitution Offer within such 120-day period).
D. Acceptance or Rejection of Casualty Offer. If Lessor accepts the Casualty Substitution Offer or is deemed to have accepted the Casualty Substitution Offer or if any rejection of the Casualty Substitution Offer by Lessor is not consented to in writing by Lender as provided in this Section 21, then, within 180 days of that Material Casualty, Lessee shall complete the substitution, subject, however, to the satisfaction of each of the applicable terms and conditions set forth in this Section 21 and Section 55. Upon such substitution (i) Lessee shall be entitled to claim and receive the net award resulting from the Material Casualty, after payment of all costs and expenses incurred by Lessor and Lender in connection with that Material Casualty, and (ii) all obligations of either party under this Lease and otherwise with respect to the Property being replaced shall cease as of the closing of the substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the closing of the substitution shall survive the termination of this Lease with respect to that Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Casualty Substitution Offer and, as long as the Mortgage corresponding to the Property subject to the Casualty Substitution Offer is still outstanding, such rejection is consented to by Lender as provided in Section 21, or if the Material Casualty shall occur after the commencement of any extension options exercised pursuant to Section 27, then (i) the net award resulting from that Material Casualty shall be paid to and belong to Lessor, (ii) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (iii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, (iv) Lessee shall pay Lessor an amount equal to the insurance deductible applicable to that Material Casualty, as applicable, and (v) provided Lessee shall have paid Lessor all sums described in the preceding subitems (ii) and (iv), all obligations of either party with respect to that Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to that Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such Termination shall survive the Termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
B. Casualty Termination Payment. If Lessee makes a Casualty Termination Payment within 60 days of a Material Casualty, (1) Lessor shall be entitled to receive the net award resulting from such Material Casualty, (2) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (3) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, (4) Lessee shall pay Lessor an amount equal to the insurance deductible applicable to such Material Casualty, as applicable, and (5) provided Lessee shall have paid Lessor all sums described in the preceding subitems (2) and (4), all obligations of either party under this Lease and otherwise with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without]imitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the Termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
F. Lease Continuation.Upon the occurrence of any Casualty or Taking, Lessee shall take all steps necessary to ensure that the affected Property is secure and does not pose any threat or risk of harm to third parties, adjoining property owners or occupants. If such Casualty or Taking is not a Material Casualty or Material Taking, or if such Casualty or Taking is a Material Casualty or Material Taking, as applicable, but Lessee does not elect to make a Casualty Substitution Offer or Casualty Termination Payment or Condemnation Substitution Offer or Condemnation Termination Payment, as applicable, in connection with such Material Casualty or Material Taking, then, in any such event, (A) this Lease shall remain in full force and effect, (B) all Base Annual Rental, Additional Rental and other sums and obligations due under this Lease shall continue unabated, and (C) Lessee shall promptly commence and diligently prosecute restoration of the affected Property to the same condition, as nearly as practicable, as the condition of such affected Property prior to the occurrence of such Casualty or Taking, as applicable, in compliance with all Applicable Regulations and the Terms and conditions of this Lease, including, without limitation, the terms and conditions of Section 18 hereof.Unless Lessee shall elect to make a Casualty Substitution Offer, Casualty Termination Payment, Condemnation Substitution Offer or Condemnation Termination Payment, as applicable, following the occurrence of a Material Casualty or Material Taking, respectively, then, subject to such reasonable conditions for disbursement as may be imposed by Lessor, Lessor shall, upon the occurrence of any Casualty or Condemnation, promptly make available to Lessee in installments as restoration progresses an amount up to, but not exceeding, the amount of any insurance proceeds, award, compensation or damages actually received by Lessor (after deducting all costs, fees and expenses incident to the collection thereof (the "Material Restoration Amount"), upon request of Lessee accompanied by evidence reasonably satisfactory to Lessor that such amount has been paid or is due and payable and is properly a part of such costs and that Lessee has complied with the terms of Section 18 above in connection with the restoration. Prior to the disbursement of any portion of the Material Restoration Amount, Lessee shall provide evidence reasonably satisfactory to Lessor of the payment of restoration expenses by Lessee·up to the amount of the insurance deductible applicable to such Material Casualty or Material Taking. Lessor shall be entitled to keep any portion of the Material Restoration Amount which may be in excess of the cost of restoration, and Lessee shall bear all additional costs, fees and expenses of such restoration in excess of the Material Restoration Amount.
G. Material Taking. Within 30 days of a Material Talking affecting any Property, Lessee shall either:
(i) deliver a rejectable offer to Lessor (a "Condemnation Substitution Offer") to substitute a Substitute Property for the affected Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment (a "Condemnation Termination Payment") to Lessor to terminate this Lease with respect to the affected Property in an amount equal to the Applicable Percentage for that Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term. All Condemnation Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of a Condemnation Substitution Offer satisfying the requirements of Section 55 to accept or reject that offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of that offer within such time period shall be deemed to constitute Lessor's acceptance of the Condemnation Substitution Offer. If the Mortgage corresponding to the affected Property is still outstanding, any rejection of the Condemnation Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Condemnation Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Condemnation Substitution Offer within such 120-day period).
H. Acceptance or Rejection of Condemnation Offer. If Lessor accepts the Condemnation Substitution Offer or is deemed to have accepted the Condemnation Substitution Offer or if any rejection of the Condemnation Substitution Offer by Lessor is not consented to in writing by Lender, then, within 180 days of that Material Condemnation, Lessee shall complete the substitution, subject, however, to the satisfaction of each of the applicable terms and conditions set forth in this Section 21 and Section 55. Upon such substitution (i) Lessee shall be entitled to claim and receive the net award resulting from the Material Taking, after payment of all costs and expenses incurred by Lessor and Lender in connection with such Material Taking, and (ii) all obligations of either party under this Lease and otherwise with respect to the Property being replaced shall cease as of the closing of the substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the closing of the substitution shall survive the termination of this Lease with respect to the affected Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Condemnation Substitution Offer and, as long as the Mortgage corresponding to the Property subject to the Condemnation Substitution Offer is still outstanding, such rejection is consented to by Lender as provided in Section 21 or if the Material Taking shall occur after the commencement of any extension options exercised pursuant to Section 27, then (i) the net award resulting from that Material Taking shall be paid to and belong to Lessor, (ii) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (iii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, and (iv) provided Lessee shall have paid Lessor all sums described in the preceding subitem (ii), all obligations of either party hereunder with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
I. Taking Termination Payment. In the event Lessee makes a Condemnation Termination Payment with.in 30 days of a Material Taking, (1) Lessor shall be entitled to receive the net award resulting from such Material Taking, (2) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (3) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, and (4) provided Lessee shall have paid Lessor all sums described in the preceding subitem (2), all obligations of either party hereunder with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
J. Temporary Taking. In the event of a Taking of all or any part of any of the Properties for a temporary use ("Temporary Taking"), this Lease shall remain in full force and effect without any reduction of Base Annual Rental, Additional Rental or any other sum payable hereunder. Except as provided below, Lessee shall be entitled to the entire award for a Temporary Taking, whether paid by damages, rent or otherwise, unless the period of occupation and use by the condemning authorities shall extend beyond the date of expiration of this Lease, in which case the award made for such Taking shall be apportioned between Lessor and Lessee as of the date of such expiration. At the termination of any such Temporary Taking, Lessee will, at its own cost and expense and pursuant to the terms of Section 18 above, promptly commence and complete the restoration of the Property affected by the Temporary Taking; provided, however, Lessee shall not be required to restore the affected Property if the Lease Term shall expire prior to, or within one year after, the date of termination of the Temporary Taking, and in that event Lessor shall be entitled to recover the entire award relating to the Temporary Taking.
K. Partial Taking or Partial Casualty. In the event of a Taking which is not a Material Taking or a Temporary Taking ("Partial Taking") or of a Casualty which is not a Material Casualty (a "Partial Casualty"), all awards, compensation or damages shall be paid to Lessor, and Lessor shall have the option to (i) terminate this Lease with respect to the Property affected, provided that Lessor shall have obtained Lender's prior written consent, by notifying Lessee within 60 days after Lessee gives Lessor notice of the Partial Taking or Partial Casualty, or (ii) continue this Lease in effect, which election may be evidenced by either a written notice from Lessor to Lessee or Lessor's failure to notify Lessee in writing that Lessor has elected to terminate this Lease with respect to the affected Property within such 60-day period.
Lessee shall have a period of 60 days after Lessor's notice that it has elected to terminate this Lease with respect to the affected Property during which to elect to continue this Lease with respect to the affected Property on the terms herein provided. If Lessor elects to terminate this Lease with respect to the affected Property and Lessee does not elect to continue this Lease with respect to the affected Property or shall fail during its 60-day period to notify Lessor of Lessee's intent to continue this Lease with respect to that Property, then this Lease shall terminate with respect to the affected Property as of the last day of the month during which Lessee's 60-day period expired. Lessee shall then immediately vacate and surrender the affected Property, all obligations of either party under this Lease or otherwise with respect to that Property shall cease as of the date of termination (provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay Base Annual Rental, Additional Rental and all other sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the date of termination shall survive such termination) and Lessor may retain all such awards, compensation or damages. The Lease shall continue in full force and effect with respect to all other Properties.
If Lessor elects not to terminate this Lease with respect to the affected Property, or if Lessor elects to terminate this Lease with respect to the affected Property but Lessee elects to continue this Lease with respect to the affected Property, then this Lease shall continue in full force and effect on the following Terms: (i) all Base Annual Rental, Additional Rental and other sums and obligations due under this Lease shall continue unabated, and (ii) Lessee shall promptly commence and diligently prosecute restoration of the affected Property to the same condition, as nearly as practicable, as prior to such Partial Taking or Partial Casualty as reasonably approved by Lessor. In that case, Lessor shall promptly make available in installments as restoration progresses an amount up to but not exceeding the amount of any award, compensation or damages received by Lessor after deducting all costs, fees and expenses incident to the collection thereof (the ''Net Restoration Amount"), upon request of Lessee accompanied by evidence reasonably satisfactory to Lessor that such amount has been paid or is due and payable and is properly a part of such costs and that Lessee has complied with the Terms of Section 18 above in connection with the restoration. Lessor shall be entitled to keep any portion of the Net Restoration Amount which may be in excess of the cost of restoration, and Lessee shall bear all additional costs, fees and expenses of such restoration in excess of the Net Restoration Amount. If this Lease is terminated with respect to any Property as a result of a Partial Casualty, simultaneously with such termination Lessee shall pay Lessor an amount equal to the insurance deductible applicable to such Partial Casualty.
L. Adjustment of Losses. Any loss under any property damage insurance required to be maintained by Lessee shall be adjusted by Lessor and Lessee. Any award relating to a Taking shall be adjusted by Lessor or, at Lessor's election, Lessee. Notwithstanding the foregoing or any other provisions of this Section 21 to the contrary, if at the time of any Taking or any Casualty or at any time thereafter an Event of Default shall have occurred and be continuing, Lessor is hereby authorized and empowered but shall not be obligated, in the name and on behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any, for an award on account of such Taking or for insurance proceeds on account of such Casualty and to collect such award or proceeds and apply the same, after deducting all costs, fees and expenses incident to the collection thereof, to the curing of such default and any other then existing default under this Lease and/or to the payment of any amounts owed by Lessee to Lessor under this Lease, in such order, priority and proportions as Lessor in its discretion shall deem proper.
M. Payment of Costs and Expenses. Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with the conveyance of a Property to Lessee pursuant to this Section 21, including, without limitation, to the extent applicable, the cost of title insurance, survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and recording fees, taxes imposed on Lessor as a result of such conveyance, taxes imposed in connection with the transfer of a Property to Lessee or the termination of this Lease with respect to a Property pursuant to the provisions of this Section 21, Lessee's attorneys' fees and the reasonable attorneys' fees and expenses of counsel to Lessor and Lender.
N. No Limitation. Notwithstanding the foregoing, nothing in this Section 21 shall be construed as limiting or otherwise adversely affecting the representations, warranties, covenants and characterizations set forth in Lease, including, without limitation, those provisions set forth in Section 3 of this Lease.
22. Inspection. Lessor and its authorized representatives shall have the right, upon giving not less than five Business Days' prior written notice to Lessee (except that in the event of an emergency no such prior notice shall be required), to enter any of the Properties or any part thereof at reasonable times and inspect the same and make photographic or other evidence concerning Lessee's compliance with the terms of this Lease. Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of any of the Properties and any other loss occasioned by such entry so long as Lessor shall have used reasonable efforts not to unreasonably interrupt Lessee's normal business operations. Lessor hereby covenants and agrees to indemnify, defend and hold Lessee harmless from and against any and all losses, liabilities, damages, costs, expenses, suits, judgments and claims arising from injury or damage during the Lease Term to person or property caused by the act or acts, omissions or commissions of Lessor or any of its authorized representatives with respect to, or growing out of, any actions of Lessor pursuant to this Section 22 (except to the extent of Lessee's gross negligence or willful misconduct; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to Lessor solely by reason of the Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease). Lessee shall keep and maintain at the Properties or Lessee's corporate headquarters full, complete and appropriate books of account and records of Lessee's business relating to the Properties. Lessee's books and records shall be open at all reasonable times during regular business hours for inspection by Lessor, Lender and their respective auditors or other authorized representatives and shall show such information as is reasonably necessary to determine compliance with Lessee's obligations under this Lease.
23. Default, Remedies and Measure of Damages. A. Each of the following shall be an event of default under this Lease (each, an "Event of Default"):
(i) If any representation or warranty of Lessee set forth in this Lease is false in any respect as of the Effective Date, or if Lessee knowingly renders any statement or account which is false as and when made in any manner which could reasonably be expected to result in damages to Lessor;
(ii) If any rent or other monetary sum due under this Lease is not paid within 5 Business Days from the date when due; provided, however, notwithstanding the occurrence of such an Event of Default, Lessor shall not be entitled to exercise its remedies set forth below unless and until Lessor shall have given Lessee written notice thereof and a period of 5 Business Days from the delivery of such written notice shall have elapsed without such Event of Default being cured;
(iii) If Lessee fails to pay, prior to delinquency, any taxes, assessments or other charges, the failure of which to pay will result in the imposition of a lien against any of the Properties or the rental or other payments due under this Lease or a claim against Lessor, unless Lessee is contesting such taxes, assessments or other charges in accordance with the provisions of Section 10 of this Lease; provided, however, notwithstanding the occurrence of such an Event of Default, Lessor shall not be entitled to exercise its remedies set forth below unless and until Lessor shall have given Lessee written notice thereof and a period of 5 Business Days from the delivery of such written notice shall have elapsed without such Event of Default being cured;
(iv) If Lessee or Guarantor becomes insolvent within the meaning of the Code, files or notifies Lessor that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, hereinafter, an "Action"), becomes the subject of either a petition under the Code or an Action which is not dissolved within 90 days after filing, or is not generally paying its undisputed debts as the same become due;
(v) If Lessee vacates or abandons any of the Properties other than in accordance with the provisions of Section 15 of this Lease;
(vi) If Lessee fails to observe or perform any of the other covenants (except with respect to a breach of the Aggregate Fixed Charge Coverage Ratio, which breach is addressed in subitem (ix) below), conditions or obligations of this Lease; provided, however, if any such failure does not involve the payment of any monetary sum, is not willful or intentional, does not place any rights or property of Lessor in immediate jeopardy, and is within the reasonable power of Lessee to promptly cure after receipt of written notice thereof, then such failure shall not constitute an Event of Default hereunder, except as otherwise expressly provided herein, unless and until Lessor shall have given Lessee written notice thereof and a period of 30 days shall have elapsed, during which period Lessee may correct or cure such failure, and upon Lessee's failure to complete such correction or cure, an Event of Default shall be deemed to have occurred hereunder without further written notice or demand of any kind being required. If such failure cannot reasonably be corrected or cured within such 30-day period, and Lessee is diligently pursuing a correction or cure of such failure, then Lessee shall have a reasonable period to correct or cure such failure beyond such 30-day period, which shall in no event exceed 90 days after receiving written notice of such failure from Lessor. If Lessee shall fail to correct or cure such failure within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further written notice or demand of any kind being required;
(vii) If there is an "Event of Default" or a breach or default, after the passage of all applicable notice and cure or grace periods, under any other Sale-Leaseback Document, including, without limitation, the Guaranty;
(viii) If a final, nonappealable judgment is rendered by a court against Lessee in an amount of $25,000,000.00 or more (which is not covered by insurance) individually or in the aggregate or which prevents the operation of any of the Properties as a Permitted Facility, and in either event is not discharged (or provision made for such discharge by settlement or otherwise; provided, however, any such settlement must not prevent the operation of any of the Properties as a Permitted Facility and Lessee's failure to perform the terms of such settlement must not prevent the operation of any of the Properties as a Permitted Facility) or bonded over within 60 days from the date of entry thereof;
(ix) If there is a breach of the Aggregate Fixed Charge Coverage Ratio requirement and Lessor shall have given Lessee written notice thereof; provided, however, Lessee shall have the option, but not the obligation, to cure such breach by completing either of the following within a period of 30 days from the delivery of such written notice:
(1) prepay Base Monthly Rental in an amount (the "Prepayment Amount") equal to the product of (x) the Purchase Price multiplied by (y) a fraction, the numerator of which is the Rent Adjustment Amount and the denominator is annual Base Monthly Rental then in effect. In the event that Lessee shall elect to prepay the Base Monthly Rental in an amount equal to the Prepayment Amount, then the Base Monthly Rental commencing on the next scheduled payment date following such prepayment shall be reduced in an amount equal to the Rent Adjustment Amount divided by 12; or (2) deliver to Lessor a letter of credit in favor of Lessor (or, at Lessor's written direction, in favor of, or as designated by, Lender) in the form attached to this Lease as Exhibit C issued by an Approved Institution (the "Letter of Credit'1 in an amount equal to the lesser of (x) the Prepayment Amount and (y) an amount equal to the product of the Rent Adjustment Amount divided by 12 and the number of months remaining in the Initial Term (excluding any free rent period); provided, however, Lessee may not provide a Letter of Credit to cure a breach of the Aggregate Fixed Charge Coverage Ratio requirement if the aggregate amount of all Letters of Credit delivered to Lessor exceeds the Base Annual Rental. Such Letter of Credit shall be maintained in effect until the cure of the breach of the Aggregate Fixed Charge Coverage Ratio which was the basis for the Letter of Credit being provided. If (x) an Event of Default shall have occurred and be continuing, Lessor shall have the right to present such Letter of Credit for payment and apply such proceeds toward the Base Annual Rental then due and payable under this Lease, and (y) if a substitute or replacement Letter of Credit issued by an Approved Institution for such Letter of Credit in the amount of such Letter of Credit is not provided to Lessor at least 30 days prior to the scheduled expiration date of such Letter of Credit, Lessor shall have the right to present such Letter of Credit for payment at any time within such 30 day period and the proceeds of such Letter of Credit shall be held by Lessor as security for the payment of the Base Annual Rental due and payable under this Lease. The Letter of Credit shall provide that Lessor can only present the Letter of Credit for payment as contemplated by the preceding subitems (x) and (y). Upon Lessee's cure of the Aggregate Fixed Charge Coverage Ratio breach which was the basis for such Letter of Credit being provided, Lessor shall release the Letter of Credit to the Approved Institution or, if Lessor is holding the proceeds of such Letter of Credit, deliver such proceeds to Lessee.
Notwithstanding the foregoing, if, within a 30 day period after the delivery of Lessor's written notice to Lessee of Lessee's breach of the Aggregate Fixed Charge Coverage Ratio requirement, Lessee provides evidence satisfactory to Lessor that the Aggregate Fixed Charge Coverage Ratio is at least 1.25:1 for the twelve calendar month period immediately preceding the delivery to Lessor of such evidence, no Event of Default shall be deemed to have occurred as a result of such breach of the Aggregate Fixed Charge Coverage Ratio requirement.
(x) If Lessee shall fail to sign any instrument or certificate in accordance with the provisions of Sections 24 or 25 of this Lease and such failure shall not be cured within 5 Business Days following written notice from Lessor.
(xi) If Lessee shall fail to maintain insurance in accordance with the requirements of Section 12 and such failure continues for 5 Business days following written notice from Lessor.
B. Upon the occurrence of an Event of Default, with or without notice or demand, except the notice prior to default required under certain circumstances by Section 23.A or such other notice as may be required by statute and cannot be waived by Lessee (all other notices being hereby waived), Lessor shall be entitled to exercise, at its option, concurrently, successively, or in any combination, all remedies available at law or in equity, including without limitation, any one or more of the following:
(i) To terminate this Lease, whereupon Lessee's right to possession of the Properties shall cease and this Lease, except as to Lessee's liability, shall be terminated.
(ii) To reenter and take possession of any or all of the Properties and, to the extent permissible, all licenses, permits and other rights or privileges of Lessee pertaining to the use and operation of any or all of the Properties and to expel Lessee and those claiming under or through Lessee, without being deemed guilty in any manner of trespass or becoming liable for any loss or damage resulting therefrom, without resort to legal or judicial process, procedure or action. No notice from Lessor hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Lessor to terminate this Lease unless such notice specifically so states. If Lessee shall, after default, voluntarily give up possession of any of the Properties to Lessor, deliver to Lessor or its agents the keys to any of the Properties, or both, such actions shall be deemed to be in compliance with Lessor's rights and the acceptance thereof by Lessor or its agents shall not be deemed to constitute a termination of this Lease. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice.
(iii) If Lessee has not removed the Personalty within 20 Business Days after written notice from Lessor to Lessee and repaired all damage to the Properties caused by such removal, Lessor shall have the immediate right to seize all Personalty located on or at any or all of the Properties and cause the same to be stored in a public warehouse or elsewhere at Lessee's sole expense, without becoming liable for any loss or damage resulting therefrom and without resorting to legal or judicial process, procedure or action.
(iv) To. bring an action against Lessee for any damages sustained by Lessor.
(v) To relet any or all of the Properties or any part thereof for such term or Terms (including a term which extends beyond the original Lease Term), at such rentals and upon such other Terms as Lessor, in its sole discretion, may determine, with all proceeds received from such reletting being applied to the rental and other sums due from Lessee in such order as Lessor may, in its sole discretion, determine, which other sums include, without limitation, all repossession costs, brokerage commissions, reasonable attorneys' fees and expenses, employee expenses, alteration, remodeling and repair costs and expenses of preparing for such reletting. Except to the extent required by applicable law, Lessor shall have no obligation to relet any of the Properties or any part thereof and shall in no event be liable for refusal or failure to relet any of the Properties or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon such reletting, and no such refusal or failure shall operate to relieve Lessee of any liability under this Lease or otherwise to affect any such liability. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice.
(vi) (x) To recover from Lessee all rent and other monetary sums then due and owing under this Lease; and (y) to accelerate and recover from Lessee the present value (discounted at the rate of 6% per annum) of all rent and other monetary sums scheduled to become due and owing under this Lease after the date of such breach for the entire original scheduled Lease Term; provided, however, in no event shall such recovery be less than the sum of (i) the product of the percentage specified on Schedule m attached hereto which corresponds to the month in which such Event of Default first occurred multiplied by the sum of Lessor's Total Investment for all of the Properties which are then subject to this Lease plus (ii) the sum of the Prepayment Charges corresponding to all of the Properties which are then subject to this Lease.
(vii) To recover from Lessee all reasonable costs and expenses, including reasonable attorneys' fees, court costs, expert witness fees, costs of tests and analyses, travel and accommodation expenses, deposition and trial transcripts, copies and other similar costs and fees, paid or incurred by Lessor as a result of such breach, regardless of whether or not legal proceedings are actually commenced.
(viii) To immediately or at any time thereafter, and with or without notice, at Lessor's sole option but without any obligation to do so, correct such breach or default and charge Lessee all costs and expenses incurred by Lessor therein. Any sum or sums so paid by Lessor, together with interest at the Default Rate, shall be deemed to be Additional Rental hereunder and shall be immediately due from Lessee to Lessor. Any such acts by Lessor in correcting Lessee's breaches or defaults hereunder shall not be deemed to cure said breaches or defaults or constitute any waiver of Lessor's right to exercise any or all remedies set forth herein.
(ix) To immediately or at any time thereafter, and with or without notice, except as required herein, set off any money of Lessee held by Lessor wider this Lease against any sum owing by Lessee or Guarantor hereunder.
(x) To seek any equitable relief available to Lessor, including, without limitation, the right of specific performance.
All powers and remedies given by this Section 23.B to Lessor, subject to applicable law, shall be cumulative and not exclusive of one another or of any other right or remedy or of any other powers and remedies available to Lessor under this Lease, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements of Lessee contained in this Lease, and no delay or omission of Lessor to exercise any right or power accruing upon the occurrence of any Event of Default shall impair any other or subsequent Event of Default or impair any rights or remedies consequent thereto. Every power and remedy given by this Section 23.B or by law to Lessor may be exercised from time to time, and as often as may be deemed expedient, by Lessor, subject at all times to Lessor's right in its sole judgment to discontinue any work commenced by Lessor or change any course of action undertaken by Lessor.
If Lessee shall fail to observe or perform any of its obligations under this Lease or in the event of an emergency, then, without waiving any Event of Default which may result from such failure or emergency, Lessor may, but without any obligation to do so, take all actions, including, without limitation, entry upon any or all of the Properties to perform Lessee's obligations, immediately and without notice in the case of an emergency and upon five Business Days' prior written notice to Lessee in all other cases. All expenses incurred by Lessor in connection with performing such obligations, including, without limitation, reasonable attorneys' fees and expenses, together with interest at the Default Rate from the date any such expenses were incurred by Lessor until the date of payment by Lessee, shall constitute Additional Rental and shall be paid by Lessee to Lessor upon demand.
24. Liens; Mortgages, Subordination, Nondisturbance and Attornment. Lessor's interest in this Lease and/or any of the Properties shall not be subordinate to any liens or encumbrances placed upon any of the Properties by or resulting from any act of Lessee, and nothing herein contained shall be construed to require such subordination by Lessor. Lessee shall keep the Properties free from any liens for work performed, materials furnished or obligations incurred by Lessee.NOTICE IS HEREBY GIVEN THAT, EXCEPT AS OTHERWISE CONSENTED TO BY LESSOR PURSUANT TO SECTION 26, LESSEE IS NOT AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST, SECURITY INTEREST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF ANY OF THE PROPERTIES OR LESSEE'S LEASEHOLD INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION WHICH IS NOT APPROVED BYLESSORSHALLBEVOID.FURTHERMORE,ANYSUCHPURPORTED TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH LESSOR'S RELATIONSHIP WITH LESSEE AND LESSOR'S OWNERSHIP OF THE PROPERTIES.
This Lease at all times shall automatically be subordinate to the Mortgages and to the lien of any and all mortgages, deeds of trust, deeds to secure debt and trust deeds now or hereafter placed upon any of the Properties by Lessor, and Lessee covenants and agrees to execute and deliver, upon demand, such further instruments subordinating this Lease to the lien of the Mortgages and any or all such mortgages, deeds of trust, deeds to secure debt or trust deeds as shall be desired by Lessor, or any present or proposed mortgagees or lenders under deeds of trust, deeds to secure debt or trust deeds, upon the condition that (a) Lessee shall have the right to remain in possession of the Properties under the terms of this Lease, notwithstanding any default in the Mortgages or any or all such mortgages, deeds of trust, deeds to secure debt or trust deeds or after foreclosure of any or all such Mortgages, mortgages, deeds of trust, deeds to secure debt or trust deeds, so long as an Event of Default shall not have occurred and be continuing and (b) the holders of the Mortgages and any and all mortgages, deeds of trust, deeds to secure debt and trust deeds now or hereafter placed upon any of the Properties by Lessor execute an agreement substantially in the form attached to this Lease as Exhibit D, but with such modifications as may be reasonably required consistent with then customary lending practices, in recordable form wherein the holder(s) of said indebtedness agree not to disturb Lessee's possession, deprive Lessee of any rights or increase Lessee's obligations under this Lease ("Non-Disturbance and Attornment Agreement"). The Non-Disturbance and Attornment Agreement shall provide that the mortgagee, beneficiary or trustee named in such mortgage, deed of trust, deed to secure debt or trust deed shall, subject to the terms of this Section 24, recognize this Lease and acknowledge that, so long as an Event of Default shall not have occurred and be continuing, a foreclosure or acceptance of a deed in lieu of foreclosure or the exercise of any other rights under such mortgage, deed of trust, deed to secure debt or trust deed shall not extinguish or otherwise diminish or disturb the rights of Lessee as set forth in this Lease. Lessee acknowledges and agrees that the execution and delivery by Lender of the Acknowledgement satisfies the obligation of Lessor to deliver a Non-Disturbance and Attornment Agreement with respect to the obligations of Lessor to Lender under the Mortgages encumbering the Properties executed as of the date of this Lease.
If any mortgagee, receiver, Lender or other secured party elects to have this Lease and the interest of Lessee hereunder be superior to any of the Mortgages or any such mortgage, deed of trust, deed to secure debt or trust deed and evidences such election by notice given to Lessee, then this Lease and the interest of Lessee hereunder shall be deemed superior to any such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed, whether this Lease was executed before or after such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed and in that event such mortgagee, receiver, Lender or other secured party shall have the same rights with respect to this Lease as if it had been executed and delivered prior to the execution and delivery of such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed and had been assigned to such mortgagee, receiver, Lender or other secured party.
Although the foregoing provisions shall be self-operative and no future instrument of subordination shall be required, upon request by Lessor, Lessee shall execute and deliver whatever instruments may be reasonably required for such purposes.
Lessee shall send written notice to any Lender of Lessor having a recorded lien upon any of the Properties or any part thereof of which Lessee has been notified in writing of any breach or default by Lessor of any of its obligations under this Lease concurrently with the sending of such notice to Lessor, and Lessee shall give such Lender at least 60 days beyond any notice period to which Lessor might be entitled to cure such default before Lessee may exercise any remedy with respect thereto.
25. Estoppel Certificate. At any time, but not more often than twice every 12 months, Lessee shall, promptly and in no event later than 10 days after a request from Lessor or Lender, execute, acknowledge and deliver to Lessor or Lender a certificate in the form supplied by Lessor, Lender or any present or proposed mortgagee or purchaser designated by Lessor, certifying the following: (i) that Lessee has accepted the Properties (or, if Lessee has not done so, that Lessee has not accepted the Properties, and specifying the reasons therefor); (ii) that this Lease is in full force and effect and has not been modified (or if modified, setting forth all modifications), or, if this Lease is not in full force and effect, the certificate shall so specify the reasons therefor; (iii) the commencement and expiration dates of the Lease Term, including the terms of any extension options of Lessee; (iv) the date to which the rentals have been paid under this Lease and the amount thereof then payable; (v) whether there are then any existing defaults by Lessor in the performance of its obligations under this Lease, and, if there are any such defaults, specifying the nature and extent thereof; (vi) that no notice has been received by Lessee of any default under this Lease which has not been cured, except as to defaults specified in the certificate; (vii) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of Lessee; (viii) that neither Lessor nor Lender has actual involvement in the management or control of decision making related to the operational aspects or the day-to-day operations of the Properties; and (ix) any other information reasonably requested by Lessor or Lender consistent with then customary leasing or lending practices.
26. Assignment; Subletting. A. Lessor shall have the right to sell or convey all, but not less than all, of the Properties or to assign its right, title and interest as Lessor under this Lease in whole, but not in part. In the event of any such sale or assignment other than a security assignment, provided Lessee receives written notice that such purchaser or assignee has assumed all of Lessor's obligations under this Lease, Lessee shall attorn to such purchaser or assignee and Lessor shall be relieved, from and after the date of such transfer or conveyance, of liability for the performance of any obligation of Lessor contained herein, except for obligations or liabilities accrued prior to such assignment or sale.
B. Lessee acknowledges that Lessor has relied both on the business experience and creditworthiness of Lessee and upon the particular purposes for which Lessee intends to use the Properties in entering into this Lease. Without the prior written consent of Lessor, and except as expressly set forth in this Section 26.B: (i) Lessee shall not assign, transfer, convey, pledge or mortgage this Lease or any interest therein, whether by operation of law or otherwise; (ii) no interest in Lessee shall be assigned, transferred, conveyed, pledged or mortgaged, whether by operation of law or otherwise, including, without limitation, a dissolution of Lessee or a transfer of any of the voting stock of Lessee; and (iii) Lessee shall not sublet all or any part of any of the Properties except as set forth in Section 26.C. It is expressly agreed that Lessor may withhold or condition such consent based upon such matters as Lessor may in its reasonable discretion determine, including, without limitation, the experience and creditworthiness of any assignee, the assumption by any assignee of all of Lessee's obligations hereunder by undertakings enforceable by Lessor, payment to Lessor of any rentals owing under a sublease which are in excess of the rentals owing hereunder, the transfer to any assignee of all necessary licenses and franchises to continue operating the Properties for the purposes herein provided, receipt of such representations and warranties from any assignee as Lessor may reasonably request, including such matters as its organization, existence, good standing and finances and other matters, whether or not similar in kind. At the time of any assignment of this Lease which is approved by Lessor, the assignee shall assume all of the obligations of Lessee under this Lease pursuant to Lessor's standard form of assumption agreement. No such assignment nor any subletting of any of the Properties shall relieve Lessee of its obligations respecting this Lease. Any assignment, transfer, conveyance, pledge or mortgage in violation of this Section 26.B shall be voidable at the sole option of Lessor. Notwithstanding the foregoing, but subject to the conditions set forth in the following sentence, the prior written consent of Lessor shall not be required for the assignment by Lessee of this Lease to an Affiliate of Lessee, or the transfer of the voting stock of Lessee by Guarantor to an Affiliate of Lessee in a single transaction or a series of transactions, provided that in either event such Affiliate is a corporation, partnership or limited liability company whose voting stock, partnership interests or membership interests, as applicable, are owned entirely, directly or indirectly, by Guarantor. Lessee's right to complete an assignment or transfer contemplated by the preceding sentence shall be subject to the satisfaction of the following conditions precedent at the time of the proposed assignment or transfer:
(1) no Event of Default shall have occurred and be continuing;
(2) Lessee shall provide Lessor with written notice of such proposed assignment or transfer at least 30 days prior to the anticipated date of such assignment or transfer;
(3) Lessee, such Affiliate and Guarantor shall execute such documents, take such actions and deliver such opinions of counsel and other evidence of authority as Lessor may reasonably require to evidence the obligations of Lessee and, to the extent applicable, such Affiliate, as lessee, under this Lease and Guarantor under the Guaranty notwithstanding the completion of such assignment or transfer; and
(4) Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with any such assignment or transfer, including, without limitation, the reasonable attorneys' fees and expenses of Lessor and Lender.
C. Without otherwise limiting any of the terms and conditions of this Section or Section 24 of this Lease, (i) Lessee shall have the right to transfer any of its assets to an Affiliate of Lessee, other than its leasehold interests in the Properties and any other assets used in connection with or related to the operation of the Properties, and (ii) the voting stock, partnership interests or membership interests, as applicable, of such Affiliate may be pledged to a third-party financial institution as security for the performance of obligations due such institution, subject to the satisfaction of the following conditions: (x) no Event of Default shall have occurred and be continuing, (y) such Affiliate is a corporation, partnership or limited liability company whose voting stock, partnership interests or membership interests, as applicable, are owned entirely, directly or indirectly, by Guarantor, and (z) such Affiliate shall have executed and delivered to Lessor an unconditional guaranty of payment and performance with respect to the obligations of Lessee under this Lease, which unconditional guaranty shall be substantially in the form of the Guaranty.
D. Notwithstanding the foregoing, but subject to the conditions set forth in the following sentence, Lessee shall have the right to sublease: (i) any of the Properties to a wholly- owned subsidiary or Affiliate of Lessee, plus (ii) an aggregate of four of the Properties at any time (in addition to the Properties subleased pursuant to the preceding item (i)) without the consent of Lessor or Lender. Lessee's right to sublease the Properties as contemplated by the preceding sentence shall be subject to the following conditions:
(1) no Event of Default shall have occurred and be continuing;
(2) any such sublease shall be subordinate to this Lease and Lessee shall remain liable under this Lease notwithstanding such sublease; and
(3) the Properties subject to such subleases shall be used as Permitted Facilities and shall otherwise be operated and maintained in accordance with the terms and conditions of this Lease.
Within 10 Business Days after the execution of each such sublease, Lessee shall provide Lessor with a notice of such sublease and a photocopy of the fully executed sublease.
27. Option To Extend; New Lease. A. Lessor and Lessee acknowledge and agree that the Lease Term, including any term extensions provided for in this Lease, is less than 90% of the expected remaining economic life of each of the Properties. Lessee, provided no Event of Default has occurred and is continuing at the time of exercise or at the expiration of the Lease Term or, if applicable, the preceding extension of the Lease Term, shall have the option to continue this Lease in effect for one initial additional period of 10 years and 2 successive periods of 5 years each in accordance with the terms and provisions of this Lease then in effect, except that the Base Annual Rental during each extension period shall be an amount set forth on the attached Exhibit B. Lessor and Lessee agree that the Base Annual Rental during each extension period represents the then fair market rental value of the Properties.
Lessee may only exercise the first extension option by giving notice to Lessor of Lessee's intention to do so not later than July 31, 2019. If the first extension option is exercised by Lessee, Lessee may only exercise the second extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2030. If the first two extension options are exercised, Lessee may only exercise the third extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2035.
B. In addition, provided no Event of Default shall have occurred and be continuing, Lessee shall also have the right, by notice delivered to Lessor not later than July 31, 2019, to enter into a new master lease with Lessor, to commence at the end of the Initial Term, for not less than 13 of the Properties. In the event Lessee elects to enter into such new master lease, the Base Annual Rental under such new master lease shall equal the product of (i) the aggregate Applicable Percentage for the Properties included within such new master lease multiplied by the Purchase Price, and (ii) the "Rent Factor'' set forth on the attached Exhibit B. Such new master lease shall be for a 10 year primary term, have two (2) five-year renewal options and otherwise be on the same terms and conditions as this Lease. Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with the execution of such new master lease, including, without limitation, Lessee's attorneys' fees and reasonable attorneys' fees and expenses of counsel to Lessor and Lender.
28. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Lease shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) the next Business Day after transmission, if delivered facsimile, (c) the next Business Day, if delivered by express overnight delivery service, or {d) the fifth Business Day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below:
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If to Lessee:
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Cracker Barrel Old Country Store, Inc.
305 Hartmann Drive
P.O. Box 787
Lebanon, TN 37088-0787
Attention: Chief Financial Officer
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| Telephone: |
(615) 443-9574
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Facsimile:
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(615) 443-9818
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With a copy to:
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General Counsel
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Cracker Barrel Old Country Store, Inc.
305 Hartmann Drive
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P.O. Box 787
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Lebanon, TN 37088-0787
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Telephone:
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(615) 443-9180 | ||
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Facsimile:
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(615) 443-9818
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With a copy to Guarantor:
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CBRL Group, Inc.
Attention: General Counsel
305 Hartmann Drive
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P.O. Box 787
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Lebanon, TN 37088-0787
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Telephone:
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(615) 443-9180 | ||
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Facsimile:
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(615) 443-9818
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If to Lessor:
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Country Stores Property I, LLC
c/o U.S. Realty Advisors LLC
1370 Avenue of the Americas
New York, NY 10019
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Attention:
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Mr. David M. Ledy | ||
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Telephone:
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(212) 581-4540 | ||
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Facsimile:
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(212) 581-4950
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With a copy to:
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Proskauer Rose LLP
1585 Broadway
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New York, NY 10036
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Attention:
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Kenneth S. Hilton, Esq.
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| Telephone: | (212) 969-3000 | ||
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Facsimile:
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(212) 969-2900
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or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. No such notices, consents, approvals or other communications shall be valid unless Lender receives a duplicate original thereof at the following address:
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Dennis L. Ruben, Esq.
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Executive Vice President, General Counsel and Secretary
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FFCA Funding Corporation
17207 North Perimeter Drive
Scottsdale, AZ 85255
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Telephone:
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(480) 585-4500 | |
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Telecopy:
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(480) 585-2226
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or to such other address or such other person as Lender may from time to time specify to Lessor and Lessee in a notice delivered in the manner provided above.
29. Holding Over. If Lessee remains in possession of any of the Properties after the expiration of the Lease Term, Lessee, at Lessor's option and within Lessor's sole discretion, may be deemed a tenant on a month-to-month basis and shall continue to pay rentals and other sums in the amounts herein provided, except that the Base Monthly Rental shall be automatically doubled, and to comply with all the terms of this Lease; provided, however, nothing herein nor the acceptance of rent by Lessor shall be deemed a consent to such holding over. Lessee shall defend, indemnify, protect and hold the Indemnified Parties harmless from and against any and all Losses resulting from Lessee's failure to surrender possession upon the expiration of the Lease Term, including, without limitation, any claims made by any succeeding lessee. The Terms of this Section 29 shall survive the expiration of the Lease Term.
30. Removal of Personalty. At the expiration of the Lease Term, and if Lessee is not then in breach hereof, Lessee may remove all Personalty from the Properties. Lessee shall repair any damage caused by such removal and shall leave the Properties broom clean and in good and working condition and repair inside and out, except for normal wear and tear and any Casualty and any Taking for which the terms of this Lease do not require Lessee to restore. Any property of Lessee left on the Properties on the 10th Business Day following the expiration of the Lease Term shall automatically and immediately become the property of Lessor. At the expiration of the Lease Term, and if Lessee is not then in breach of this Lease, Lessor agrees that Lessee, at Lessee's sole expense, may, within nine Business Days after such expiration, make such modifications and alterations, including removal of all distinctive physical and structural features associated with the trade dress of Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™ units, as may be necessary to distinguish the Property so clearly from its former appearance and from other Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™, as to prevent any possibility that the public will associate the Property with Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™ units, and any confusion created by such association. (Such modifications and alterations shall include, but not be limited to, removing or covering the distinctive decor and color scheme on all walls, counters, fixtures and furnishings, as well as the exterior of the Property.).
31. Financial Statements. (a) Lessee shall provide Lessor with copies of each Quarterly Report on Form 10-Q, Annual Report on Form 10-K and Current Report on Form 8-K of Guarantor, promptly and in any event within 5 Business Days after the filing of such reports (if any) with the United States Securities and Exchange Commission. If Guarantor ceases to be required to file such reports, or if for any other reason such reports are not filed, with the United States Securities and Exchange Commission, Lessee shall provide Lessor the following reports: (i) within 60 days after the end of each of the first 3 fiscal quarters of each fiscal year of Guarantor, copies of the unaudited consolidated balance sheets of Guarantor and its consolidated subsidiaries as at the end of the fiscal quarter of Guarantor and the related unaudited statements of earnings and cash flows, in each case for the fiscal quarter and for the period from the beginning of such fiscal year through the end of such fiscal quarter of Guarantor, prepared in accordance with GAAP throughout the periods reflected therein and certified (subject to year end adjustments and the omission of footnotes) by the chief financial officer or chief accounting officer of Guarantor, and (ii) as soon as possible and in any event within 120 days after the end of each fiscal year of Guarantor, a copy of the audited consolidated balance sheet of Guarantor and its consolidated subsidiaries as at the end of that fiscal year and the related statements of earnings, stockholders' equity and cash flows of Guarantor and its consolidated subsidiaries for that fiscal year, setting forth in each case, in comparative form, the corresponding figures for the preceding fiscal year of Guarantor and prepared in accordance with GAAP throughout the periods reflected therein, certified by a firm of independent certified public accountants selected by Guarantor. In the event that Lessee's property and business at the Properties is ordinarily consolidated with other business for financial statement purposes, separate non-GAAP statements shall be prepared showing the sales, profits and losses, assets and liabilities pertaining to each of the Properties with the basis for allocation of overhead or other charges being clearly set forth.
(a) Within 60 days after the end of each of the first 3 fiscal quarters of each year of Lessee and within 120 days after the end of each fiscal year of Lessee, Lessee shall deliver to Lessor and Lender a Store Income Statement for each of the Properties.
32. Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, acts of God, enemy or hostile governmental action, civil commotion, fire or other casualty beyond the control of the party obligated to perform shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to rental and other monies to be paid by Lessee pursuant to this Lease and any indemnification obligations imposed upon Lessee under this Lease.
33. Time Is of the Essence. Time is of the essence with respect to each and every provision of this Lease in which time is a factor.
34. Liability Limitation. (a) Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessor, that (i) there shall be absolutely no personal liability on the part of Lessor, its successors or assigns and the trustees, members, partners, shareholders, officers, directors, employees and agents of Lessor and its successors or assigns, to Lessee with respect to any of the terms, covenants and conditions of this Lease, (ii) Lessee waives all claims, demands and causes of action against the trustees, members, partners, shareholders, officers, directors, employees and agents of Lessor and its successors or assigns in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, and (iii) Lessee shall look solely to the Properties for the satisfaction of each and every remedy of Lessee in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, or any other matter in connection with this Lease or the Properties, such exculpation of liability to be absolute and without any exception whatsoever.
(b) Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessee, that, except as set forth in this subsection below, (i) there shall be absolutely no personal liability on the part of the shareholders, officers, directors, employees and agents of Lessee and its successors or assigns with respect to any of the terms, covenants and conditions of this Lease, and (ii) Lessor waives all claims, demands and causes of action against the shareholders, officers, directors, employees and agents of Lessee and its successors or assigns in the event of any breach by Lessee of any of the terms, covenants and conditions of this Lease to be performed by Lessee, such exculpation of liability to be absolute and without any exception whatsoever, except that such waiver and exculpation shall not extend to Losses incurred by any of the Indemnified Parties as a result of fraud or intentional misrepresentations by any of the shareholders, officers, directors, employees and agents of Lessee and its successors and assigns, or limit the ability of the Indemnified Parties to seek recovery from such shareholders, officers, directors, employees and agents of Lessee and its successors and assigns as a result of such fraud or intentional misrepresentation.
35. Consent of Lessor, (a) Except as specified otherwise in specific Sections of this Lease, Lessor's consent to any request of Lessee may be conditioned or withheld in Lessor's sole discretion. Lessor shall have no liability for damages resulting from Lessor's failure to give any consent, approval or instruction reserved to Lessor, Lessee's sole remedy in any such event being an action for injunctive relief.
(b) It is understood and agreed that to the extent Lessor is required to obtain the consent, approval, agreement or waiver of Lender with respect to a matter for which Lessor's approval has been requested under this Lease, Lessor shall in no event be deemed to have unreasonably withheld Lessor's consent, approval, agreement or waiver thereof if Lender shall not have given its approval if required.
36. Waiver and Amendment. No provision of this Lease shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. No acceptance by Lessor of an amount less than the monthly rent and other payments stipulated to be due under this Lease shall be deemed to be other than a payment on account of the earliest such rent or other payments then due or in arrears nor shall any endorsement or statement on any check or letter accompanying any such payment be deemed a waiver of Lessor's right to collect any unpaid amounts or an accord and satisfaction.
37. Successors Bound. Except as otherwise specifically provided herein, the terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of the respective heirs, successors, executors, administrators and assigns of each of the parties hereto.
38. No Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation of this Lease, shall not result in a merger of Lessor's and Lessee's estates, and shall, at the option of Lessor, either terminate any or all existing subleases or subtenancies, or operate as an assignment to Lessor of any or all of such subleases or subtenancies.
39. Captions. Captions are used throughout this Lease for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. References to a particular "Section" herein shall mean such Section of this Lease unless specific reference is also made to another instrument or agreement.
40. Severability. The provisions of this Lease shall be deemed severable. If any part of this Lease shall be held unenforceable by any court of competent jurisdiction, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed herein.
41. Characterization. A. It is the intent of the parties hereto that the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein. None of the agreements contained herein, is intended, nor shall the same be deemed or construed, to create a partnership between Lessor and Lessee, to make them joint venturers, to make Lessee an agent, legal representative, partner, subsidiary or employee of Lessor, nor to make Lessor in any way responsible for the debts, obligations or losses of Lessee.
B. Lessor and Lessee acknowledge and warrant to each other that each has been represented by independent counsel and has executed this Lease after being fully advised by said counsel as to its effect and significance. This Lease shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Whenever in this Lease any words of obligation or duty are used, such words or expressions shall have the same force and effect as though made in the form of a covenant.
42. Easements. During the Lease Term, Lessor agrees to grant such utility, access or other similar easements on, over and above any of the Properties as Lessee may reasonably request provided that such easements will not materially interfere with Lessor's ownership of such Properties.
43. Bankruptcy. A. As a material inducement to Lessor executing this Lease, Lessee acknowledges and agrees that Lessor is relying upon (i) the financial condition and specific operating experience of Lessee and Lessee's obligation to use each of the Properties specifically in accordance with system-wide requirements imposed from time to time on Permitted Facilities, (ii) Lessee's timely performance of all of its obligations under this Lease notwithstanding the entry of an order for relief under the Code for Lessee and (iii) all Events of Default under this Lease as to all Properties being cured promptly and this Lease being assumed within 60 days of any order for relief entered under the Code for Lessee, or this Lease being rejected within that 60-day period and the Properties surrendered to Lessor.
Accordingly, in consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, Lessee hereby agrees that:
(i) All obligations that accrue under this Lease (including the obligation to pay rent), from and after the date that an Action is commenced shall be timely performed exactly as provided in this Lease and any failure to so perform shall be harmful and prejudicial to Lessor;
(ii) Any and all obligations under this Lease that become due from and after the date that an Action is commenced and that are not paid as required by this Lease shall, in the amount of such rents, constitute administrative expense claims allowable under the Code with priority of payment at least equal to that of any other actual and necessary expenses incurred after the commencement of the Action;
(iii) Any extension of the time period within which Lessee may assume or reject this Lease without an obligation to cause all obligations coming due under this Lease from and after the date that an Action is commenced to be performed as and when required under this Lease shall be harmful and prejudicial to Lessor;
(iv) Any time period designated as the period within which Lessee must cure all defaults and compensate Lessor for all pecuniary losses which extends beyond the date of assumption of this Lease shall be harmful and prejudicial to Lessor;
(v) Any assignment of this Lease must result in all terms and conditions of this Lease being assumed by the assignee without alteration or amendment, and any assignment which results in an amendment or alteration of the terms and conditions of this Lease without the express written consent of Lessor shall be harmful and prejudicial to Lessor;
(vi) Any proposed assignment of this Lease to an assignee:
(a) that will not use the Properties specifically in accordance with a franchise, license and/or area development agreement with the franchisor of Permitted Facilities,
(b) that does not possess financial condition, operating performance and experience characteristics equal to or better than the financial condition, operating performance and experience of Lessee as of the Effective Date, or
(c) that does not provide guarantors of the Lease obligations with financial condition equal to or better than the financial condition of Guarantor as of the Effective Date,
shall be harmful and prejudicial to Lessor;
(vii) The rejection (or deemed rejection) of this Lease for any reason whatsoever shall constitute cause for immediate relief from the automatic stay provisions of the Code, and Lessee stipulates that such automatic stay shall be lifted immediately and possession of the Properties will be delivered to Lessor immediately without the necessity of any further action by Lessor; and
(viii) This Lease shall at all times be treated as consistent with the specific characterizations set forth in Section 3 of this Lease, and assumption or rejection of this Lease shall be (a) in its entirety, (b) for all of the Properties, and (c) in strict accordance with the specific Terms and conditions of this Lease.
B. No provision of this Lease shall be deemed a waiver of Lessor's rights or remedies under the Code or applicable law to oppose any assumption and/or assignment of this Lease, to require timely performance of Lessee's obligations under this Lease, or to regain possession of the Properties as a result of the failure of Lessee to comply with the terms and conditions of this Lease or the Code.
C. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor under this Lease, whether or not expressly denominated as such, shall constitute "rent" for the purposes of the Code.
D. For purposes of this Section 43 addressing the rights and obligations of Lessor and Lessee in the event that an Action is commenced, the term "Lessee" shall include Lessee's successor in bankruptcy, whether a trustee, Lessee as debtor in possession or other responsible Person.
44. No Offer. No contractual or other rights shall exist between Lessor and Lessee with respect to the Properties until both have executed and delivered this Lease, notwithstanding that deposits may have been received by Lessor and notwithstanding that Lessor may have delivered to Lessee an unexecuted copy of this Lease. The submission of this Lease to Lessee shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for Lessee to lease or otherwise create any interest on the part of Lessee in the Properties.
45. Other Documents. Each of the parties agrees to sign such other and further documents as may be reasonably necessary or appropriate to carry out the intentions expressed in this Lease.
46. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Lease, to the extent permitted by law, the prevailing party shall be entitled to recover all of its reasonable attorneys' fees and other costs in addition to any other relief to which it may be entitled. In addition, Lessor shall, upon demand, be entitled to all reasonable attorneys' fees and all other costs incurred in the preparation and service of any notice or demand hereunder, whether or not a legal action is subsequently commenced. References in this Lease to attorneys' fees and/or costs shall mean both the fees and costs of independent counsel retained by either party with respect to the matter and the fees and costs of their in-house counsel incurred in connection with the matter.
47. Entire Agreement. This Lease and any other instruments or agreements referred ) to herein, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements except as herein provided. Without limiting the foregoing, Lessee specifically acknowledges that neither Lessor nor any agent, officer, employee or representative of Lessor has made any representation or warranty regarding the projected profitability of the business to be conducted on the Properties. Furthermore, Lessee acknowledges that Lessor did not prepare or assist in the preparation of any of the projected figures used by Lessee in analyzing the economic viability and feasibility of the business to be conducted by Lessee at the Properties.
48. Forum Selection; Jurisdiction; Venue; Choice of Law. Lessee acknowledges that this Lease was partially negotiated in the State of Arizona, this Lease was executed and delivered in the State of Arizona, all payments under this Lease will be delivered in the State of Arizona (unless otherwise directed by Lessor or its successors) and there are substantial contacts between the parties and the transactions contemplated herein and the State of Arizona. Except for purposes of any action or proceeding concerning the creation of this Lease and the rights and remedies of Lessor with respect to the Properties (which actions or proceedings shall be conducted in the state where the affected Property is located), for purposes of all other actions or proceedings arising out of this Lease, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of Arizona. Lessee and Lessor consent that they may be served with any process or paper by registered mail or by personal service within or without the State of Arizona in accordance with applicable law. Furthermore, each of Lessee and Lessor waive and agree not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. The creation of this Lease and the rights and remedies of Lessor with respect to the Properties, as provided herein and by the laws of the states in which the Properties are located, as applicable, shall be governed by and construed in accordance with the internal laws of the states in which the Properties are located, as applicable, without regard to principles of conflicts of law.With respect to other provisions of this Lease, this Lease shall be governed by the internal laws of the State of Arizona, without regard to its principles of conflicts of law. Nothing contained in this Section 48 shall limit or restrict the right of Lessor or Lessee to commence any proceeding in the federal or state courts located in the states in which the Properties are located to the extent Lessor or Lessee deems such proceeding necessary or advisable to exercise remedies available under this Lease.
49. Counterparts. This Lease may be executed in one or more counterparts, each of which shall be deemed an original.
50. Memorandum of Master Lease, Concurrently with the execution of this Lease, Lessor and Lessee are executing the Memorandum to be recorded in the applicable real property records with respect to each of the Properties.
5 l. No Brokerage. Lessor and Lessee each represent and warrant to each other that it has had no conversation or negotiations with any broker concerning the leasing of the Properties. Each of Lessor and Lessee agrees to defend, protect, indemnify, save and keep harmless the other, against and from all liabilities, claims, losses, costs, damages and expenses, including reasonable attorneys' fees, arising out of, resulting from or in connection with its breach of the foregoing warranty and representation.
52. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. LESSOR AND LESSEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF ANY OF THE PROPERTIES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, LESSEE AND LESSOR EACH HEREBY .KNOWINGLY,VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER PARTY AND ANY OF ITS AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEESO R ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY RESPECTIVE ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY ONE PARTY AGAINSTTHE OTHER OR ANY OF ITS AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF THEIR RESPECTIVE SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO, EXCEPT THAT SUCH WAIVER ON THE PART OF LESSOR SHALL NOT BE DEEMED TO OTHERWISE LIMIT, REDUCE OR PRECLUDE IN ANY WAY LESSOR'S REMEDIES PURSUANT TO SECTION 23 HEREOF. THE WAIVER BY EACH PARTY OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
53. Reliance By Lender. Lessee acknowledges and agrees that Lender may rely on all of the representations, warranties and covenants set forth in this Lease, that Lender is an intended third-party beneficiary of such representations, warranties and covenants and that Lender shall have all rights and remedies available at law or in equity as a result of a breach of such representations, warranties and covenants, including to the extent applicable, the right of subrogation.
54. Document Review. In the event Lessee makes any request upon Lessor requiring Lessor, Lender or the attorneys of Lessor or Lender to review and/or prepare (or cause to be reviewed and/or prepared) any documents, plans, specifications or other submissions in connection with or arising out of this Lease, then Lessee shall reimburse Lessor or its designee promptly upon Lessor's demand therefor for all reasonable out-of-pocket costs and expenses incurred by Lessor in connection with such review and/or preparation plus a reasonable processing and review fee.
55. Substitution. A. Subject to the fulfillment of all of the conditions set forth in the following Section 55.B, Lessee shall have the right to deliver a rejectable offer to Lessor (each, a "Rejectable Substitution Offer") to substitute a Substitute Property for a Property if:
(i) the terms of Sections 21.C or 21.D of this Lease permit such substitution (each, a "Casualty/Condemnation Substitution"); or
(ii) the terms of Section 57 of this Lease permit such substitution (each, an "Economic Substitution").
Each Rejectable Substitution Offer shall identify the proposed Substitute Property in reasonable detail and contain a certificate executed by a duly authorized officer of Lessee pursuant to which Lessee shall certify that in Lessee's good faith judgment such proposed Substitute Property satisfies as of the date of such notice, or will satisfy as of the date of the closing of such substitution, all of the applicable conditions to substitution set forth in this Section 55. Lessee agrees to deliver to Lessor all of the diligence information and materials contemplated by the provisions of Section 55.B of this Lease within 30 days after the delivery to Lessor of a Rejectable Substitution Offer.
Lessor shall have 120 days from the delivery of a Rejectable Substitution Offer notice satisfying the requirements of the preceding paragraph to deliver to Lessee written notice of its election to either accept or reject the Rejectable Substitution Offer. Lessor's failure to deliver such notice within such time period shall be deemed to constitute Lessor's acceptance of the Rejectable Substitution Offer. If the Mortgage corresponding to the Property to be replaced is still outstanding, any rejection of the Rejectable Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within such 120-day period. If Lessor accepts the Rejectable Substitution Offer or is deemed to have accepted the Rejectable Substitution Offer or if Lender does not consent in writing to any rejection of the Rejectable Substitution Offer by Lessor as provided in this Section 55, then Lessee shall complete such substitution, subject, however, to the satisfaction of each of the applicable Terms and conditions set forth in this Section 55.
If Lessor rejects the Rejectable Substitution Offer and Lessee has satisfied the applicable requirements for substitution set forth in this Section 55, and such rejection is consented to by Lender as provided in this Section 55, then:
(X) if such rejected Rejectable Substitution Offer was made with respect to a Casualty/Condemnation Substitution, the provisions of the next to last paragraphs of either Section 21.D or Section 21.H, as applicable, shall apply; and
(Y) if such rejected Rejectable Substitution Offer was made with respect to a Economic Substitution, this Lease shall Terminate with respect to the Property which Lessee proposed to replace on the next scheduled Base Monthly Rental payment date (the "Early Substitution Termination Date") provided Lessee has paid to Lessor all Base Annual Rental, Additional Rental and all other sums and obligations then due and payable under this Lease as of such Early Substitution Termination Date.
On the Early Substitution Termination Date, and provided Lessee shall have paid to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease as of the Early Substitution Date:
(i) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect; and
(ii) all obligations of Lessor and Lessee shall cease as of the Early Substitution Termination Date with respect to such Property; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19 of this Lease) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the Early Substitution Termination Date shall survive the termination of this Lease with respect to such Property or otherwise. This Lease shall, however, continue in full force and effect with respect to all other Properties.
B. The substitution of a Substitute Property for a Property pursuant to the preceding Section 55.A shall be subject to the fulfillment of all of the following Terms and conditions:
(i) The Substitute Property must:
(1) be a Permitted Facility, in good condition and repair, ordinary wear and tear excepted, and located in the same state as the Property to be replaced or in another state acceptable to Lessor in Lessor's sole discretion;
(2) have a Fixed Charge Coverage Ratio (with the definitions of Section 8.A being deemed to be modified, as contemplated in the following sentence, to provide for a calculation of a "Fixed Charge Coverage Ratio" for the Substitute Property only) for the FCCR Period greater than the Fixed Charge Coverage Ratio for the Property to be replaced for such FCCR Period. For purposes of this subitem (2), the definitions set forth in Section 8.A of this Lease with respect to the calculation of the Aggregate Fixed Charge Coverage Ratio shall be deemed modified as applicable to provide for the calculation of a Fixed Charge Coverage Ratio for each Property on an individual basis rather than on an aggregate basis with the other Properties, including, without limitation, modifying the definitions of Debt, Depreciation and Amortization and Net Income to apply only to the Property for which such calculation is being made, and the Operating Lease Expense with respect to this Lease for each such Property shall equal the Applicable Percentage for each Property multiplied by the Base Annual Rental then in effect;
(3) have a fair market value no less than the greater of the then fair market value of the Property being replaced or the fair market value of such Property as of the Effective Date (in each case, determined without regard to this Lease, but assuming that while this Lease has been in effect, Lessee has complied with all of the terms and conditions of this Lease), as determined by Lessor, and consented to by Lender, utilizing the same valuation method as used in connection with the closing of the transaction described in the Sale-Leaseback Agreement, which was based upon the sum of(x) the fair market value of the land comprising such Property and (y) the replacement cost of the improvements located thereon;
(4) have improvements which have a remaining useful life substantially equivalent to, or better than, that of the improvements located at the Property to be replaced; and
(5) be conveyed to Lessor (or, if directed by Lessor, to Lessor and a person designated to acquire the remainderman interest) by special or limited warranty deed, free and clear of all liens and encumbrances, except such matters as are reasonably acceptable to Lessor (the "Substitute Property Permitted Exceptions");
(ii) Lessor shall have inspected and approved the Substitute Property utilizing Lessor's customary site inspection and underwriting approval criteria. Lessee shall have reimbursed Lessor and Lender for all of their reasonable costs and expenses incurred with respect to such proposed substitution, including, without limitation, Lessor's third-party and/or in-house site inspectors' costs and expenses with respect to the proposed Substitute Property. Lessee shall be solely responsible for the payment of all costs and expenses resulting from such proposed substitution, regardless of whether such substitution is consummated, including, without limitation, the cost of title insurance and endorsements for both Lessor and Lender, survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and recording fees, the cost of environmental policies or endorsements to the Environmental Policies as applicable, income and transfer taxes imposed on Lessor as a result of such substitution and the reasonable attorneys' fees and expenses of counsel to Lessee, Lessor and Lender;
(iii) Lessor shall have received a preliminary title report and irrevocable commitment to insure title by means of an ALTA extended coverage owner's policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the proposed Substitute Property is located) for the proposed Substitute Property issued by Title Company and committing to insure Lessor's good and marketable title in the proposed Substitute Property, subject only to the Substitute Property Permitted Exceptions and containing endorsements substantially comparable to those required by Lessor at the Closing (as defined in the Sale-Leaseback Agreement) and Lender shall have received such title report and irrevocable commitment to insure its first priority lien encumbering the proposed Substitute Property as Lender shall reasonably require;
(iv) Lessor shall have received a current ALTA survey of the proposed Substitute Property, the form of which shall be comparable to those received by Lessor at the Closing and sufficient to cause the standard survey exceptions set forth in the title policy referred to in the preceding subsection to be deleted;
(v) Lessor shall have received an environmental insurance policy with respect to the proposed Substitute Property, or to the extent applicable, an endorsement to the Environmental Policies, the form and substance of which shall be satisfactory to Lessor in its sole discretion;
(vi) Lessee shall deliver, or cause to be delivered, with respect to Lessee and the Substitute Property, opinions of Counsel (as defined in the Sale-Leaseback Agreement) in form and substance comparable to those received at Closing (but also addressing such matters unique to the Substitute Property as may be reasonably required by Lessor);
(vii) no Event of Default shall have occurred and be continuing under any of the Sale-Leaseback Documents;
(viii) Lessee shall have executed such documents as may be reasonably required by Lessor as a result of such substitution, including amendments to this Lease and the Memorandum (the "Substitute Documents"), all of which documents shall be in form and substance reasonably satisfactory to Lessor;
(ix) the representations and warranties set forth in the Substitute Documents, this Lease and the Sale-Leaseback Agreement applicable to the proposed Substitute Property shall be true and correct in all material respects as of the date of substitution, and Lessee shall have delivered to Lessor an officer's certificate certifying to that effect;
(x) Lessee shall have delivered to Lessor certificates of insurance showing that insurance required by the Substitute Documents is in full force and effect;
(xi) Lessor shall have obtained an endorsement to the policy of residual value insurance issued to Lessor and Lender in connection with the transaction described in the Sale-Leaseback Agreement with respect to the proposed Substitute Property, which endorsement shall be in form and substance reasonably satisfactory to Lessor and Lender; and
(xii) Lender shall have consented to the substitution of the proposed Substitute Property.
C. Upon satisfaction of the foregoing conditions set forth in Section 55.B and provided Lessor has accepted the Rejectable Substitution Offer:
(i) the proposed Substitute Property shall be deemed substituted for the Property to be replaced;
(ii) the Substitute Property shall be referred to herein as a "Property" and included within the definition of "Properties"; and
(iii) the Substitute Documents shall be dated as of the date of the substitution;
(iv) Lessor shall convey fee simple insurable title to the Property to be replaced to Lessee or a designee of Lessee "as-is" by special or limited warranty deed, subject to all matters of record (except for the Mortgage corresponding to the Property to be replaced and any other consensual liens granted by Lessor other than those granted by Lessor at the request of Lessee, which shall be released at or before the delivery of such special or limited warranty deed) and all other matters to which Lessee has consented to or for which Lessee is obligated to satisfy under the terms of this Lease, and without representation or warranty.
56. Option To Purchase Properties. Lessee shall have the option, but not the obligation, which option is to be exercised no later than July 31, 2019, to elect to purchase all of the Properties then subject to this Lease for 100% of their Fair Market Value (as defined below}, less closing and transaction costs in an amount not to exceed 5% of such Fair Market Value. Lessor shall have the right, but not the obligation, to accept Lessee's offer. Lessee shall elect such option by giving written notice (the "Option Notice") to Lessor of its intention to do so, and the closing of such purchase must occur within 180 days prior to the end of the Initial Term (the "Purchase Period'').
The term "Fair Market Value" means the fee simple fair market value of all of the Properties determined as follows: within 90 days of Lessor's receipt of the Option Notice, Lessor shall, at Lessee's sole expense, retain an independent MAI appraiser to prepare an appraisal of the fee simple fair market value of the Properties, including any additions or renovations thereto. In determining the fair market value of the Properties, the appraiser shall utilize the cost, income and sales comparison approaches to value. In utilizing the income approach, the appraiser shall determine the "leased fee" value of the Properties, which shall be arrived at by considering (i) the income that would be produced by this Lease through the end of the fully extended Lease Term, and (ii) any other factors relating to such approach which the appraiser shall deem relevant in his sole discretion, including, without limitation, determining the residual value of the Properties following the expiration of the Lease Term. If within 20 days after being notified of the result of such appraisal Lessee elects to reject that appraisal, then the first appraisal shall become null and void and Lessor shall nominate to Lessee a list of not less than three independent MAI appraisers who are experienced with appraising property similar to the Properties, and Lessee shall select one such appraiser. Within 10 days of such selection, Lessor shall retain such appraiser to prepare an appraisal of the Properties in the same manner described above, and the resulting determination of such appraiser shall be the "Fair Market Value" of the Properties for purposes of this Section 56.
Upon exercise of this option, Lessor and Lessee shall open an escrow account with a recognized title insurance or trust company selected by Lessor. Such escrow shall be subject to the standard escrow instructions of the escrow agent, to the extent they are not inconsistent herewith. At or before the close of escrow, Lessor shall deliver to the escrow agent its special warranty deeds conveying to Lessee all of Lessor's right, title and interest in the Properties free and clear of all liens and encumbrances except liens for taxes and assessments and easements, covenants and restrictions of record which were attached to the Properties as of the Effective Date, attached during the Lease Term through Lessee's action or inaction, as applicable, have been granted by Lessor in lieu of a taking by the power of eminent domain or the like, have been approved by Lessee, or which do not materially adversely affect the use of the Properties as Permitted Facilities. In the event Lessor is unable to convey title as required, Lessee shall have the right to accept such title as Lessor can convey, seek specific performance or elect not to consummate its exercise of the option, in which case the option shall lapse and this Lease shall remain in full force and effect. Both Lessor and Lessee agree to execute such instruments, and take such actions, as may be reasonably necessary or appropriate to consummate the sale of the Properties in the manner herein provided. Simultaneously with the closing of the option, Lessor shall prepay the outstanding principal balance of the Notes and all other sums due under the Loan Documents and cause the Mortgages to be released.
All costs of the exercise of the option set forth in this Section, including, without limitation, escrow fees, title insurance fees, recording costs or fees, attorneys' fees (including those of Lessor), appraisal fees, stamp taxes and transfer fees, shall be borne by Lessee. Lessee shall continue to pay and perform all of its obligations under this Lease until the close of escrow, which in no event shall occur after the date of the expiration of the Initial Term. The purchase price paid by Lessee in exercising this option shall be paid to Lessor or to such Person as Lessor may direct at closing in immediately available funds. Lessee shall not have the right to exercise this option or consummate the exercise thereof if at the time of exercise or consummation an Event of Default shall have occurred and be continuing or if any condition shall exist which upon the giving of notice or the passage of time, or both, would constitute an Event of Default.
The failure of Lessee to consummate the purchase of the Properties as contemplated herein shall not release Lessee from its obligations under this Lease and the Lease shall remain in full force and effect until the expiration of the Lease Term or applicable extension period. The escrow shall close within the Purchase Period or Lessee's option to purchase the Properties shall terminate. The closing date may be extended for a reasonable period of time to permit Lessor to cure title defects or to permit either party to cure any other defects or defaults provided each party is diligently seeking to cure such defect or default and Lessee continues to perform its obligations hereunder.
Lessee may not sell, assign, transfer, hypothecate or otherwise dispose of the option granted herein or any interest therein, except in conjunction with a permitted assignment of Lessee's entire interest herein and then only to the assignee thereof. Any attempted assignment of this option which is contrary to the Terms of this paragraph shall be deemed to be a default under this Lease and the option granted herein shall be void.
57. Economic Infeasability. During the period of time commencing with the third anniversary of the Effective Date and ending at the end of the Initial Term, but provided that no Event of Default shall have occurred and be continuing, Lessee shall have the option, but not the obligation, with respect to each Property with a "Fixed Charge Coverage Ratio" (determined on a per Property basis as contemplated by Section 55.B(i)(2)) for the 12 calendar months immediately preceding such third anniversary equal to or less than 1.1:1, to either:
(i) make a rejectable offer to Lessor (an "Economic Substitution Offer") to substitute a Substitute Property for such Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment to Lessor (an "Economic Termination Payment") to terminate this Lease with respect to such Property in an amount equal to the sum of (x) the Applicable Percentage for such Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term, and (y) the Prepayment Charge corresponding to such Property;
provided, however, Lessee may not exercise the rights set forth in this Section 57 with respect to more than six of the Properties in the aggregate. All Economic Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of an Economic Substitution Offer satisfying the requirements of Section 55.A to accept or reject such offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of such offer within such time period shall be deemed to constitute Lessor's acceptance of such Economic Substitution Offer. If the Mortgage corresponding to such Property is still outstanding, any rejection of the Economic Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender, and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Economic Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Economic Substitution Offer within such 120-day period).
If Lessor accepts the Economic Substitution Offer or is deemed to have accepted the Economic Substitution Offer or if any rejection of the Economic Substitution Offer by Lessor is not consented to in writing by Lender, then, within 120 days of the delivery of such Economic Substitution Offer, Lessee shall complete such substitution, subject, however, to the satisfaction of each of the applicable Terms and conditions set forth in this Section 57. Upon such substitution all obligations of either party hereunder with respect to the Property being replaced shall cease as of the closing of such substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the closing of such substitution shall survive the Termination of this Lease with respect to such Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Economic Substitution Offer and such rejection is consented to by Lender, then (i) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (ii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect, and (iii) provided Lessee shall have paid Lessor all sums described in the preceding subitem (i), all obligations of either party hereunder shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to such Termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If the event Lessee makes an Economic Termination Payment as contemplated above, (1) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (2) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect, and (3) provided Lessee shall have paid Lessor all sums described in the preceding subitem (1), all obligations of either party hereunder with respect to such Property shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
58. State Specific Provisions; Limitation of Interest and Late Charge. (a) The provisions and/or remedies which are set forth on Schedule I shall be deemed a part of and included within the terms and conditions of this Lease.
(b) Notwithstanding anything to the contrary contained in this Lease with respect to the payment by Lessee to Lessor of interest at the Default Rate or otherwise and/or any late charges, Lessee shall not be required to pay any such interest or late charges in excess of the limitation imposed by applicable law prescribing maximum rates of interest then in effect.
59. Confidential Information. (a) Confidential Information may be disclosed to Lessor and Lender and their respective authorized employees, agents and representatives, lenders, purchasers, transferees, assignees, servicers, participants, investors, analysts and Governmental Authorities with regulatory authority over Lender and selected rating agencies with a need to know (collectively, the "Permitted Recipients"), orally or in writing, by inspection or by permissive observation, or in any other way, but no disclosure will allow the Permitted Recipients to further disclose the Confidential Information or to use it except as permitted by this Lease. Confidential Information does not include:
(i) information which was in the public domain, publicly available and publicly known at the time of disclosure, including, without limitation, the reports filed with the SEC as contemplated by Section 8.A of the Sale-Leaseback Agreement and Section 31 of this Lease,
(ii) information which subsequently becomes public knowledge as a result of a disclosure by Lessee, or in any way not involving any breach of this Lease by Lessor, as of the date of its becoming public, or
(iii) information which Lessor or Lender obtains from sources other than Lessee or its Affiliates in any manner not involving any breach of this Section by Buyer or Lender.
(b) Lessee grants to the Permitted Recipients the nonexclusive right to review and use the Confidential information in order to understand the operations of Lessee and its Affiliates in connection with the transactions contemplated by this Lease. Except as otherwise contemplated by subsection (c) below:
(i) the Confidential Information may not be used for any other purpose or by any other Person, and the Confidential Information may not be copied, reproduced, or disseminated except as permitted in this Lease;
(ii) Lessor may possess, review, analyze, and use the Confidential Information only while, and only in connection with, its discussions and negotiations with respect to the purchase of the Properties; and
(iii) except to any Permitted Recipient, Lessor will not reveal, allow the release or discovery of, or disclose the Confidential Information, or any part of it, to any person, firm, corporation, or any other entity or individual without specific prior written consent from Lessee.
The foregoing prohibitions on disclosure and release apply whether or not the Confidential Information may be classified as a trade secret. Lessor will in good faith treat the Confidential Information with at least the same care that Lessee and other similar businesses use in the protection of their own undisclosed and proprietary information, and the Confidential Information will be disclosed to Permitted Recipients. Lessor will, and will require Lender to, advise such Permitted Recipients who are necessarily given access to Confidential Information of its confidential and proprietary nature and of the existence and importance of this Lease and use reasonable efforts to protect the secrecy of such Confidential Information and to comply with the nondisclosure terms of this Lease, and Lessor will and will require Lender to, require that each Permitted Recipient of Proprietary Confidential Information enter into a customary and commercially reasonable written confidentiality agreement pursuant to which they will agree not to disclose such Proprietary Confidential Information in violation of the provisions of this Section 59.
All tangible records and memorializations of Confidential Information are the exclusive property of Lessee. Upon assignment by Lessor or any termination of this Lease, Lessor will immediately cease all use of the Confidential Information in any way. All Confidential Information then in the possession of Lessor shall be immediately returned to Lessee or its duly authorized representative, and Lessor agrees to use reasonable efforts to return to Lessee all Confidential Information then in the possession of Lender.
(c) Notwithstanding the foregoing, nothing in this Section 59 shall limit or prevent:
(i) Lessor and/or Lender from utilizing Confidential Information delivered to Lessor or Lender pursuant to the Sale-Leaseback Agreement or this Lease, including, without limitation, Store Income Statements delivered to Lessor or Lender pursuant to the Sale-Leaseback Agreement or Section 31 of this Lease, subject to the requirements of this Section 59;
(ii) Lender from disclosing, distributing and/or making Confidential Information available to any Permitted Recipient as necessary in connection with any Transfer, Participation and/or Securitization as contemplated by Section 8.C of this Lease provided that Lessor shall require Lender to (1) advise each such Permitted Recipient of the confidential nature of such Confidential Information, (2) require that each Permitted Recipient of Proprietary Confidential Information enter into a customary and commercially reasonable written confidentiality agreement as contemplated by Section 59(b), and (3) request, to the extent reasonably practicable, that each Permitted Recipient of Confidential Information which is not Propriety Confidential Information enter into a customary and commercially reasonable written confidentiality agreement pursuant to which they will agree not to disclose such Confidential Information in violation of the provisions of this Section 59;
(iii) Lessor and/or Lender from utilizing Confidential Information in connection with the exercise of Lessor's rights and remedies under this Lease following the occurrence and during the continuance of an Event of Default;
(iv) Lessor and/or Lender from disclosing Confidential Information as required by court order or subpoena or as otherwise required by any Governmental Authority under applicable law; and/or
(v) Lessor from delivering any such Confidential Information to prospective purchasers or mortgagees of Lessor's interest in the Properties or in Lessor, and their respective attorney's, consultants, representatives or agents, provided that (x) in the case of prospective purchasers, Lessor shall obtain a commercially reasonable written confidentiality agreement from any such prospective purchaser pursuant to which such prospective purchaser will agree not to disclose any such Confidential Information in violation of the provisions of this Section 59, and (y) in the case of prospective mortgagees, Lessor shall advise such mortgagees of the confidential nature of such Confidential Information and shall request that such mortgagee enter into a commercially reasonable written confidentiality agreement pursuant to which such mortgagee will agree not to disclose such Confidential Information in violation of the provisions of this Section 59.
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of the date first above written.
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LESSOR:
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COUNTRY STORES PROPERTY I, LLC,
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a Delaware limited liability company
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By
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Country Stores Equity I, LLC, a Delaware limited liability company, its member | |
| By: | Jamie Elliott | |
| Printed Name: | Jamie Elliott |
| Its: | Vice President | |
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LESSEE:
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| CRACKER BARREL OLD COUNTRY STORE, INC., a Tennessee corporation | ||
| By: | James F. Blackstock | |
| Printed Name: | James F. Blackstock |
| Its: | Senior Vice President | |
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Lessee's Tax Identification Number: 62-0812904
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STATE OF ARIZONA
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| COUNTY OF MARICOPA |
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I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that Jamie Elliot:, whose name as Vice President of Country Stores Equity I, LLC a Delaware limited liability company, member of Country Stores Property I, LLC, a Delaware limited liability company, on behalf of the limited liability company, is signed to the foregoing Master Lease, and who is known to me, acknowledged before me on this day that, being informed of the contents of the Master Lease, [s]he, as such officer and with full authority, executed the same voluntarily for and as the act of the corporation and limited liability company.
Given under my hand and official seal this 28 day of July, 2000.
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Susan M. Goldberg
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Notary Public
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My Commission Expires:
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July 17, 2002
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STATE OF ARIZONA
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| COUNTY OF MARICOPA |
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I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that James F. Blackstock, name Sr. Vice President of Cracker Barrel Old Country Store, Inc., a Tennessee corporation, on behalf of the corporation, is signed to the foregoing Master Lease, and who is known to me, acknowledged before me on this day that, being informed of the contents of the Master Lease, [s]he, as such officer and with full authority, executed the same voluntarily for and as the act of the corporation and limited liability company.
Given under my hand and official seal this 28day of July, 2000.
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/s/ Susan M. Goldberg
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Notary Public
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My Commission Expires:
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July 17, 2002
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Exhibit 10(f)
MASTER LEASE
THIS MASTER LEASE (this "Lease") is made as of July 21, 2000 (the "Effective Date"), by and between COUNTRY STORES PROPERTY III, LLC, a Delaware limited liability company ("Lessor"), whose address is c/o U.S. Realty Advisors, LLC, 1370 Avenue of the Americas, New York, New York 10019, and CRACKER BARREL OLD COUNTRY STORE, INC., a Tennessee corporation ("Lessee"), whose address is P.O. Box 787, 305 Hartmann Drive, Lebanon, Tennessee 37088-0787.
WITNESSETH:
THAT, in consideration of the mutual covenants and agreements herein contained, Lessor and Lessee hereby covenant and agree as follows:
1. Certain Defined Terms. The following terms shall have the following meanings for all purposes of this Lease:
"Acknowledgement" means the Acknowledgement of Lease Assignment dated as of the date of this Lease among Lessor, Lessee, Lender and Remainderman. A duplicate original Acknowledgement will be executed and recorded in the applicable real property records for each Property.
"ADA'' is defined in Section 16.C.
"Additional Rental is defined in Section 5.B.
"Affiliate" means any Person which directly or indirectly controls, is under common control with, or is controlled by any other Person. For purposes of this definition, "controls", "under common control with" and "controlled by" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise.
"Aggregate Fixed Charge Coverage Ratio” shall have the meaning set forth in Section 8.A.
"Applicable Percentage" means the percentage set forth in Schedule I to the Sale- Leaseback Agreement with respect to the applicable Property, which percentage shall be adjusted as appropriate by Lessor to reflect the release of individual Properties from this Lease.
"Applicable Regulations" means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders and approvals of each Governmental Authority having jurisdiction over Lessee and/or any of the Properties, including, without limitation, all health, building, fire, safety and other codes, ordinances and requirements and all applicable standards of the National Board of Fire Underwriters and the ADA, in each case, as amended, and any judicial or administrative interpretation thereof, including any judicial order, consent, decree or judgment applicable to Lessee.
"Approved Institution" means any domestic federal or state charted commercial bank located in any of the cities listed on the attached Schedule II and having, at the time of selection, (i) a long-term deposit or long-term unsecured debt rating of at least AA or its equivalent issued by Standard & Poors Rating Group, Moody's Investors Service, Inc., any successor to such agencies or any other nationally recognized credit rating agency, and (ii) combined capital and surplus in excess of $100,000,000.00.
"Base Annual Rental means $2,780,094.98.
"Base Monthly Rental means an amount equal to 1/12 of the applicable Base Annual Rental.
"Business Day" means a day on which national banks are not required or authorized to remain closed.
"Capital Lease" is defined in Section 8.A.
"Casualty" is defined in Section 21.A.
"Casualty Substitution Offer" is defined in Section 21.C.
"Casualty/Condemnation Substitution" is defined in Section 55.A(i).
"Casualty Termination Payment" is defined in Section 21.C.
"Confidential Information" means, except as otherwise contemplated by Section 59, all proprietary or confidential or nonpublic information relating to restaurant and retail operations, menu and recipe, marketing, business strategy, trade secrets relating to or used by Lessee or its Affiliates in their businesses or being developed for their use, capital structure and financial matters, including, without limitation, Store Income Statements, forecasts and projections.
"Condemnation Substitution Offer" is defined in Section 21.G.
"Condemnation Termination Payment" is defined in Section 21.G.
"Code" means the United States Bankruptcy Code, 11 U.S.C. Sec. 101 et seq., as amended.
"Debt" is defined in Section 8.A.
"Deeds" is defined in the Sale-Leaseback Agreement.
"De Minimis Amounts" shall mean (i) with respect to any presence, Release or Threatened Release of Hazardous Materials, those quantities of Hazardous Materials in any form or combination of forms, which do not constitute a violation requiring regulation or remediation under any Environmental Laws in the state in which the affected Property is located, and (ii) with respect to the use or storage of Hazardous Materials in or upon any of the Properties, those quantities of Hazardous Materials customarily employed in the ordinary course of, or associated with, the operation of a Permitted Facility and used or stored in compliance with Environmental Laws.
"Default Rate" means 18% per annum or the highest rate permitted by law, whichever is less.
"Depreciation and Amortization" is defined in Section 8.A.
"Disclosures" is defined in Section 8.C.
"Early Substitution Date" is defined in Section 55.A.
"Early Substitution Termination Date" is defined in Section 55.A.
"Economic Substitution" is defined in Section 55.A(ii).
"Economic Substitution Offer" is defined in Section 57(i).
"Economic Termination Payment" is defined in Section 57(ii).
"Effective Date" is defined in the Preamble.
"Environmental Condition" means any condition with respect to soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air and any environmental medium comprising or surrounding any of the Properties, whether or not yet discovered, which could or does result in any damage, loss, cost, expense, claim, demand, order or liability to or against Lessee or Lessor by any third party (including, without limitation, any Governmental Authority), including, without limitation, any condition resulting from the operation of Lessee's business and/or the operation of the business of any other property owner or operator in the vicinity of any of the Properties and/or any activity or operation formerly conducted by any Person on or off any of the Properties.
"Environmental Insurer" means American International Specialty Lines Insurance Company or such other insurer providing Environmental Policies reasonably acceptable to Lessor.
"Environmental Laws" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to Hazardous Materials and/or the protection of human health or the environment, by reason of a Release or a Threatened Release of Hazardous Materials or relating to liability for or costs of Remediation or prevention of Releases. "Environmental Laws" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations, rulings, orders or decrees promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Laws" also includes, but is not limited to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a Governmental Authority of the environmental condition of the property; requiring notification or disclosure of Releases or other environmental condition of any of the Properties to any Governmental Authority or other Person, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements relating to Hazardous Materials in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to Hazardous Materials; and relating to wrongful death, personal injury, or property or other damage in connection with the physical condition or use of any of the Properties by reason of the presence of Hazardous Materials in, on, under or above any of the Properties.
"Environmental Liens" is defined in Section 16.D(viii).
"Environmental Policies" means the environmental insurance policy or policies, as applicable, issued by Environmental Insurer to Lessor with respect to the Properties, which Environmental Policies shall be in form and substance satisfactory to Lessor in its sole discretion.
"Equipment Payment Amount" is defined in Section 8.A.
"Event of Default" is defined in Section 23.
"Fair Market Value" is defined in Section 56.
"FCCR Period' means the twelve month period of time immediately preceding the date on which Lessee gives written notice to Lessor that Lessee is proposing to substitute a Substitute Property as permitted by Section 55.A.
"FCCR Property" means, collectively, the Properties and the Related Properties.
"Fiscal Year" is defined in Section 8.A.
"GAAP" means generally accepted accounting principles in the United States, at the time at which the information affected by these principles was prepared, consistently applied.
"Governmental Authority" means any governmental authority, agency, department, commission, bureau, board, instrumentality, court or quasi-governmental authority of the United States or the state in which the particular Property is located or any political subdivision thereof.
"Gross Sales" means the gross sales, excluding sales tax, arising from all business conducted at all of the Properties by Lessee during the period of determination, as shown on Lessee's Store Income Statements.
"Guarantor" means CBRL Group, Inc., a Tennessee corporation.
"Guaranty" means that certain Unconditional Guaranty of Payment and Performance dated as of the date of this Lease to be executed by Guarantor with respect to the obligations of Lessee under this Lease, as the same may be amended from time to time.
"Hazardous Materials" means (i) any toxic substance or hazardous waste, substance, solid waste, or related material, or any pollutant or contaminant; (ii) radon gas, asbestos in any form which is or could become friable, urea formaldehyde foam insulation, transformers or other equipment which contains dielectric fluid containing levels of polychlorinated biphenyls in excess of federal, state or local safety guidelines, whichever are more stringent, or any petroleum product; (iii) any substance, gas, material or chemical which is or may be defined as or included in the definition of "hazardous substances," "toxic substances," "hazardous materials," "hazardous wastes," "regulated substances" or words of similar import under any Environmental Laws; and (iv) any other chemical, material, gas or substance the exposure to or release of which is or becomes prohibited, limited or regulated by any Governmental Authority that asserts or may assert jurisdiction over any of the Properties or the operations or activity at any of the Properties, or any chemical, material, gas or substance that does or is likely to pose a hazard to the health and/or safety of the occupants of any of the Properties or the owners and/or occupants of property adjacent to or surrounding any of the Properties.
"Indemnified Parties" means Lessor, Remainderman, and Lender and their directors, officers, shareholders, trustees, beneficial owners, partners, members, and any directors, officers, shareholders, trustees, beneficial owners, partners, members of any beneficial owners, partners or members of Lessor, Remainderman or Lender, and all employees, agents, servants, representatives, contractors, subcontractors, Affiliates, subsidiaries, participants, successors and assigns of any of the foregoing, including, without limitation, any successors by merger, consolidation or acquisition of all or a substantial portion of the assets and business of Lessor, Remainderman or Lender, as applicable.
"Initial Term" means the period of the Lease Term commencing on the Effective Date and ending on July 31, 2021, or such earlier date that this Lease is terminated.
"Interest Expense" is defined in Section 8.A.
"Lease Term" is defined in Section 4.
''Lease Year" means the 12-month period commencing on August 1, 2000 and ending on July 31, 2001 and each successive 12-month period thereafter.
"Lender" means FFCA Funding Corporation, a Delaware corporation, its successors and assigns, any successor lender in connection with any loan secured by Lessor's interest in any of the Properties, and any servicer of any loan secured by Lessor's interest in any of the Properties, including, without limitation, Franchise Finance Corporation of America, a Delaware corporation.
"Lessor's Total Investment" means $25,386,107.00.
"Letter of Credit" means a letter of credit substantially in the form attached to this Lease as Exhibit C issued by an Approved Institution in accordance with the terms of Section 23.A(ix)(2) of this Lease.
"Loan Agreement" means the Loan Agreement dated as of the date of this Lease in effect between Lessor and Lender, as such agreement may be amended from time to time and any and all replacements or substitutions thereof.
"Loan Documents" means, collectively, the Loan Agreement, the Notes, the Mortgages and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, all as amended and supplemented and any and all replacements or substitutions thereof.
"Losses" means any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, diminutions in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement and damages of whatever kind or nature (including, without limitation, attorneys' fees, court costs and other costs of defense).
"Material Adverse Effect" means any act, omission or event which would:
(x) prevent Lessee from performing its obligations under this Lease or any of the other Sale-Leaseback Documents;
(y) have the effect of reducing Guarantor's net worth as determined m accordance with GAAP below $680,000,000.00; or
(z) prevent the operation of any of the Properties as a Permitted Facility or expose Lessor or any other Indemnified Party to potential criminal liability or civil liability which is not insured or indemnified against pursuant to this Lease.
"Material Casualty" means the occurrence of damage or destruction to the improvements located on a Property the cost of which to restore is at least equal to 40% of the then current replacement cost of such improvements and the restoration of which cannot reasonably be completed with 120 days from the occurrence of such damage or destruction, both as reasonably determined by Lessee.
"Material Taking" means a Taking of the whole of any of the Properties, other than for temporary use, or a Taking of any of the Properties (other than for temporary use) which will: (i) materially impair access to such Property in Lessee's reasonable judgment; (ii) either result in the loss of 10% or more of the parking spaces at such Property or the loss of such parking spaces as would result in the Property being reasonably incapable of satisfying the parking requirements under Applicable Regulations either by the addition or replacement of parking spaces; or (iii) result in the permanent closure or removal of such portion of the improvements located on such Property as to make uneconomical the continued use of the remainder of such Property as a Permitted Facility.
"Maturity Date" means August 1, 2020.
"Maximum Allowed Annual Rental means, for any Fiscal Year in which Lessee has failed to satisfy the Aggregate Fixed Charge Coverage Ratio requirement, an amount equal to (x) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 4% of Aggregate Gross Sales, divided by (y) 1.25.
"Memorandum" means the Memorandum of Master Lease dated as of the date of this Lease between Lessor and Lessee with respect to the Properties. A duplicate original Memorandum will be executed and recorded in the applicable real property records for each Property. Each Memorandum will contain exhibits with the addresses and store identification numbers for all of the Properties and the legal description for the applicable Property.
"Mortgages" means, collectively, the Mortgages, Deeds of Trust or Deeds to Secure Debt, Assignments of Rents and Leases, Security Agreements and Fixture Filings dated as of even date herewith executed by Lessor for the benefit of Lender with respect to the Properties, as such instruments may be amended, restated and/or supplemented from time to time and any and all replacements or substitutions thereof.
"Net Income" is defined in Section 8.A.
"Net Restoration Amount" is defined in Section 21.K.
"Net Sublease Rents" means all rents received by Lessor during the applicable Fiscal Year pursuant to any subleases contemplated by Section 26 of this Lease, less those operating expenses incurred by Lessor, if any, pursuant to the terms and conditions of such subleases with respect to the affected Properties.
"Non-Disturbance and Attornment Agreement" is defined in Section 24.
"Notes" means, collectively, the Promissory Notes dated as of the date of this Lease executed by Lessor and payable to Lender with respect to the Properties, as such notes may be amended, restated and/or substituted from time to time.
"Operating Lease Expense" is defined in Section 8.A.
"Option Notice" is defined in Section 56.
"Participation" means the granting of any participations in any document evidencing loan obligations set forth in the Loan Agreement or any of the Loan Documents or any or all servicing rights with respect thereto.
"Partial Casualty" is defined in Section 21.K.
"Partial Taking" is defined in Section 21.K.
"Pending Actions" means the legal proceedings described in Guarantor's Quarterly Report on Form 10-Q with respect to its fiscal quarter ended April 28, 2000 filed with the United States Securities and Exchange Commission.
"Permitted Facility" means a Cracker Barrel Old Country Store restaurant; provided, however, up to four of the Properties in the aggregate may be operated as a Logan's Roadhouse restaurant or as another nationally or regionally recognized restaurant concept.
"Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated organization, Governmental Authority or any other form of entity.
"Personalty" means all machinery, appliances, furniture, equipment, trade fixtures, ceiling fans and rods and other personal property owned or leased by Lessee from time to time situated on or used in connection with the Properties; provided, however, the term "Personalty" shall not include the HVAC, supply fans, air ducts, plumbing and electrical fixtures and lighting poles, all of which items are intended to be fixtures as such term is used within the definition of "Properties".
"Prepayment Charges" means, for purposes of this Lease, an amount equal to any prepayment premium or charge or the "Yield Maintenance Payment" (as defined below), or any other cost or expense imposed on Lessor by the applicable Lender in connection with the payment of the applicable Note(s) or promissory note(s) prior to the Maturity Date. While the Notes are outstanding, the Prepayment Charge shall equal the Yield Maintenance Payment, and the Prepayment Charge payable under any promissory note(s) executed subsequent to the satisfaction of the Notes shall not exceed the Yield Maintenance Payment.
"Prepayment of Rent" is defined in Section 23.A(ix).
"Properties" means, collectively, the parcels of real estate described by address, Lessor Number and Unit Number in Exhibit A attached hereto and legally described in Exhibit A-1 attached hereto, all rights, privileges and appurtenances associated therewith, and all buildings, structures, fixtures (but not trade fixtures) and other improvements (excluding Personalty) now or hereafter located on such real estate (whether or not affixed to such real estate).
"Property" means any one of the Properties.
"Proprietary Confidential Information" means all Confidential Information other than financial information delivered to Lessor and/or Lender pursuant to the Sale-Leaseback Agreement and/or this Lease, which financial information includes, without limitation, the Store Income Statements.
"Purchase Period'' is defined in Section 56.
"Purchase Price" means $24,522,885.83.
"Option Notice" is defined in Section 56.
"Questionnaires" is defined in the Sale-Leaseback Agreement.
"Reinvestment Rate" means an interest rate equal to the then current yield of U.S. treasury securities having a weighted average life to maturity closest to the Maturity Date.
"Rejectable Substitution Offer" is defined in Section 55.A.
"Release" means any presence, release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or leaching of Hazardous Materials in, on, under, to or from the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any of the Properties except in De Minimis Amounts.
"Remainderman" means CS Remainder III, LLC, a Delaware limited liability company, which owns a remainder interest in the Properties, together with its successors and assigns.
"Remediation" means any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Materials, any actions to prevent, cure or mitigate any Release, any action to comply with any Environmental Laws or with any permits issued pursuant thereto in connection with a remediation and any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or any evaluation relating to any Hazardous Materials in connection with a remediation.
"Rent Adjustment Amount" means an amount equal to the difference between (x) the Aggregate Base Annual Rental then in effect, and (y) the Maximum Allowed Annual Rental.
"Sale-Leaseback Agreement means that certain Sale-Leaseback Agreement dated as of the date hereof among Lessor, Lessee, CBOCS West, Inc., a Nevada corporation, CBOCS Michigan, Inc., a Michigan corporation, and CBOCS Texas Limited Partnership, a Texas limited partnership, with respect to the Properties.
"Sale-Leaseback Documents" means the Sale-Leaseback Agreement, this Lease, the Memorandum, the Guaranty, the Deeds, the Acknowledgement, the Tripartite Agreement and all other documents executed in connection therewith.
"Securitization" means one or more sales, dispositions, transfers or assignments by Lender or any Affiliate of Lender to a special purpose corporation, trust or other entity identified by Lender or any Affiliate of Lender of notes evidencing obligations to repay secured or unsecured loans owned by Lender or any Affiliate of Lender (and, to the extent applicable, the subsequent sale, transfer or assignment of such notes to another special purpose corporation, trust or other entity identified by Lender or any Affiliate of Lender), and the issuance of bonds, certificates, notes or other instruments evidencing interests in pools of such loans, whether in connection with a permanent asset securitization or a sale of loans in anticipation of a permanent asset securitization. Each Securitization shall be undertaken in accordance with all requirements which may be imposed by the investors or the rating agencies involved in each such sale, disposition, transfer or assignment or which may be imposed by applicable securities, tax or other laws or regulations, including, without limitation, laws relating to Lender's status as a real estate investment trust.
"Store Income Statements" means the operating statements prepared for each of the Properties in the form attached as Exhibit E to this Lease and otherwise containing such detail as is necessary to determine Lessee's compliance with the provisions of Section 8.A of this Lease. Lessee may prepare the operating statements for the Properties in a form other than that set forth on Exhibit E provided the form Lessee uses contains the same information detailed on the attached Exhibit E and contains such detail as is necessary to determine Lessee's compliance with the provisions of Section 8.A of this Lease.
"Substitute Documents" is defined in Section 55.B(viii).
"Substitute Property" means one or more parcels of real estate substituted for any of the Properties in accordance with the requirements of Section 55, together with all rights, privileges and appurtenances associated therewith, and all buildings, structures, fixtures (but not trade fixtures) and other improvements located thereon (excluding Personalty). For purposes of clarity, where two or more parcels of rea] property comprise a Substitute Property, such parcels shall be aggregated and deemed to constitute the Substitute Property for all purposes of this Lease.
"Substitute Property Permitted Exceptions" is defined in Section 55.B(i)(5).
"Successor Lessor" is defined in Section 24.
"Taking" is defined in Section 21.A.
"Temporary Taking" is defined in Section 21.I.
"Threatened Release" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata, ambient air or any other environmental medium comprising or surrounding any of the Properties which may result from such Release.
"Title Company" means Lawyers Title Insurance Corporation, or such other nationally recognized title insurance company reasonably acceptable to Lessor.
"Transfer" means any sale, transfer or assignment of any document evidencing loan obligations set forth in the Loan Agreement or any of the Loan Documents, or any or all servicing rights with respect thereto.
"Tripartite Agreement" means the Tripartite Agreement dated as of the date of this Agreement among Lessor, Lessee and Remainderman.
"Yield Maintenance Payment" means an amount equal to the positive difference between (a) the present value, computed at the Reinvestment Rate, of the stream of monthly principal and interest payments in effect under the applicable Note(s) as of the Effective Date from the date of prepayment through the Maturity Date, and (b) the outstanding principal balance of such Note(s) as of the date of prepayment; provided, however, if such difference is a negative number, the Yield Maintenance Payment shall be zero.
2. Demise of Properties. In consideration of the rentals and other sums to be paid by Lessee and of the other terms, covenants and conditions on Lessee's part to be kept and performed, Lessor hereby leases to Lessee, and Lessee hereby takes and hires, the Properties. The Properties are leased to Lessee "AS IS" and "WHERE IS" without representation or warranty by Lessor and subject to the rights of parties in possession, to the existing state of title, any state of facts which an accurate survey or physical inspection might reveal, and all Applicable Regulations now or hereafter in effect. Lessee has examined each of the Properties and title to each of the Properties and has found all of the same satisfactory for all of Lessee's purposes.
3. Characterization of Lease. A. Lessor and Lessee intend that:
(i) this Lease constitutes a single master lease ·of all, but not less than all, of the Properties and that Lessor and Lessee have executed and delivered this Lease with the understanding that this Lease constitutes a unitary, unseverable instrument pertaining to all, but not less than all, of the Properties, and that neither this Lease nor the duties, obligations or rights of Lessee may be allocated or otherwise divided among the Properties by Lessee;
(ii) this Lease is a "true lease" and not a financing lease, capital lease, mortgage, equitable mortgage, deed of trust, trust agreement, security agreement or other financing or trust arrangement, and the economic realities of this Lease are those of a true lease; and
(iii) the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein.
B. Lessor and Lessee acknowledge and agree that the Lease Term, including any term extensions provided for in this Lease, is less than 90% of the expected remaining economic life of each of the Properties.
C. Lessee and Lessor each waive any claim or defense based upon the characterization of this Lease as anything other than a true lease and irrevocably waive any claim or defense which asserts that the Lease is anything other than a true lease. Lessee and Lessor covenant and agree that they will not assert that this Lease is anything but a true lease. Lessee and Lessor each stipulate and agree not to challenge the validity, enforceability or characterization of the lease of the Properties as a true lease and further stipulate and agree that nothing contained in this Lease creates or is intended to create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like. Lessee and Lessor each shall support the intent of the parties that the lease of the Properties pursuant to this Lease is a true lease and does not create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs.
D. Lessee and Lessor each waive any claim or defense based upon the characterization of this Lease as anything other than a master lease of all of the Properties and irrevocably waive any claim or defense which asserts that the Lease is anything other than a master lease. Lessee and Lessor each covenant and agree that it will not assert that this Lease is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties. Lessee and Lessor each stipulate and agree not to challenge the validity, enforceability or characterization of the lease of the Properties as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties. Lessee and Lessor each shall support the intent of the parties that this Lease is a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Properties, if, and to the extent that, any challenge occurs.
E. Lessee represents and warrants to Lessor that (i) the Base Annual Rental is the fair market value for the use of the Properties and was agreed to by Lessor and Lessee on that basis, and (ii) the execution, delivery and performance by Lessee of this Lease does not constitute a transfer of all or any part of the Properties, except for the leasehold interest and rights in and to the Properties created by this Lease.
F. The expressions of intent, the waivers, the representations and warranties, the covenants, the agreements and the stipulations set forth in this Section are a material inducement to Lessor's entering into this Lease.
4. Lease Term. The Lease Term for all of the Properties shall commence as of the Effective Date and shall expire on July 31, 2021, unless terminated sooner as provided in this Lease and as may be extended for one initial period of ten years and two subsequent periods of five years each as set forth in Section 27 below. The time period during which this Lease shall actually be in effect is referred to herein as the "Lease Term."
5. Rental and Other Payments. A. If the Effective Date is a date other than the first day of the month, Lessee shall pay Lessor on the Effective Date the Base Monthly Rental prorated on the basis of the ratio that the number of days from the Effective Date through the last day in the month containing the Effective Date bears to the number of days in such month. Thereafter, on or before the first day of each succeeding calendar month, Lessee shall pay Lessor in advance the Base Monthly Rental.
B. All sums of money required to be paid by Lessee under this Lease which are not specifically referred to as rent ("Additional Rental") shall be considered rent although not specifically designated as such. Lessor shall have the same remedies for nonpayment of Additional Rental as those provided herein for the nonpayment of Base Annual Rental.
6. Representations and Warranties of Lessor. The representations and warranties of Lessor contained in this Section are being made to induce Lessee to enter into this Lease and Lessee has relied and will continue to rely upon such representations and warranties. Lessor represents and warrants to Lessee as of the Effective Date as follows:
A. Organization, Authority and Status of Lessor. (i) Lessor has been duly organized and is validly existing and in good standing under the laws of the State of Delaware. All necessary corporate or other appropriate formal action has been taken to authorize the execution, delivery and performance by Lessor of this Lease and the other documents, instruments and agreements provided for herein.
(ii) The Person who has executed this Lease on behalf of Lessor is duly authorized so to do.
B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessor, enforceable against Lessor in accordance with its terms, subject to general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect affecting the enforcement of creditors rights generally.
C. Absence of Breaches or Defaults. Lessor is not in breach or default under any document, instrument or agreement to which Lessor is a party or by which Lessor, any of the Properties or any of Lessor's property is subject or bound, which breach or default would have a material adverse effect on Lessor or the Properties. The authorization, execution, delivery and performance of this Lease and the other documents, instruments and agreements provided for herein will not result in any breach of or default under any document, instrument or agreement to which Lessor is a party or by which Lessor, any of the Properties or any of Lessor's property is subject or bound, which breach or default would have a material adverse effect on Lessor or the Properties. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order known to Lessor and the remedies for such violation would not have a material adverse effect on Lessor or the Properties.
7. Representations and Warranties of Lessee. The representations and warranties of Lessee contained in this Section are being made to induce Lessor to enter into this Lease and Lessor has relied, and will continue to rely, upon such representations and warranties. Lessee represents and warrants to Lessor as of the Effective Date as follows:
A. Organization, Authority and Status of Lessee. (i) Lessee has been duly organized or formed, is validly existing and in good standing under the laws of its state of incorporation or formation and is qualified to do business in each jurisdiction in which any of the Properties are located. All necessary corporate action has been taken to authorize the execution, delivery and performance by Lessee of this Lease and of the other documents, instruments and agreements provided for herein. Lessee is not a "foreign corporation", "foreign partnership", "foreign trust", "foreign limited liability company" or "foreign estate", as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder. Lessee's United States tax identification number is correctly set forth on the signature page of this Lease.
(ii) The Person who has executed this Lease on behalf of Lessee is duly authorized to do so.
B. Enforceability. This Lease constitutes the legal, valid and binding obligation of Lessee, enforceable against Lessee in accordance with its terms, subject to general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect affecting the enforcement of creditors rights generally.
C. Litigation. There are no suits, actions, proceedings or investigations pending, or, to the best of its knowledge, threatened against or involving Lessee, Guarantor or any of the Properties before any arbitrator or Governmental Authority, including, without limitation, the Pending Actions, which might reasonably result in any Material Adverse Effect.
D. Absence of Breaches or Defaults. Neither Lessee nor Guarantor is in default under any document, instrument or agreement to which Lessee or Guarantor is a party or by which Lessee, Guarantor, any of the Properties or any of Lessee's or Guarantor's property is subject or bound, which default could reasonably be expected to result in any Material Adverse Effect. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not result in any breach of or default under any document, instrument or agreement to which Lessee or Guarantor is a party or by which Lessee, Guarantor, any of the Properties or any of Lessee's or Guarantor's property is subject or bound, which breach or default could reasonably be expected to result in any Material Adverse Effect. The authorization, execution, delivery and performance of this Lease and the documents, instruments and agreements provided for herein will not violate any applicable law, statute, regulation, rule, ordinance, code, rule or order, which violation could reasonably be expected to result in any Material Adverse Effect.
E. Liabilities of Lessor. Lessee is not liable for any indebtedness for money borrowed by Lessor and has not guaranteed any of the debts or obligations of Lessor.
8. Covenants. Lessee covenants to Lessor for so long as this Lease is in effect as follows:
A. Aggregate Fixed Charge Coverage Ratio. Lessee shall maintain an Aggregate Fixed Charge Coverage Ratio at all of the FCCR Properties in the aggregate of at least 1.25:1, calculated as of the last day of each fiscal year of Lessee (each, a "Fiscal Year"). For purposes of this Lease, the term "Aggregate Fixed Charge Coverage Ratio" shall mean with respect to the twelve month period of time ending on the date of calculation, the ratio calculated for such period of time of (a) the sum of Net Income, Depreciation and Amortization, Interest Expense and Operating Lease Expense, less a corporate overhead allocation in an amount equal to 4% of Aggregate Gross Sales, to (b) the sum of the Operating Lease Expense and the Equipment Payment Amount.
For purposes of this Section 8, the following terms shall be defined as set forth below:
"Capital Lease" shall mean any lease of any property (whether real, personal or mixed) by Lessee with respect to one or more of the FCCR Properties which lease would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of Lessee. The term "Capital Lease" shall not include any operating lease or this Lease.
"Debt" shall mean, as directly related to all of the FCCR Properties and the period of determination, (i) obligations of Lessee to pay debt service in respect of indebtedness of Lessee for borrowed money, (ii) obligations of Lessee evidenced by bonds, indentures, notes or similar instruments, (iii) obligations of Lessee to pay the deferred purchase price of property or services, (iv) obligations of Lessee under leases which should be, in accordance with GAAP, recorded as Capital Leases, and (v) obligations of Lessee under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above. The term "Debt" shall not include Lessor's debt with respect to the FCCR Properties or otherwise.
"Depreciation and Amortization" shall mean with respect to all of the FCCR Properties the depreciation and amortization accruing during any period of determination with respect to Lessee as determined in accordance with GAAP. The term "Depreciation and Amortization" shall not include Lessor's depreciation and amortization with respect to the FCCR Properties or otherwise.
"Equipment Payment Amount" shall mean for any period of determination the sum of all amounts payable during such period of determination under all (i) leases entered into by Lessee for Personalty located at one or more of the FCCR Properties and (ii) all loans made to Lessee secured by Lessee's interest in the Personalty located at one or more of the FCCR Properties.
"Interest Expense" shall mean for any period of determination, the sum of all interest accrued or which should be accrued in respect of all Debt of Lessee directly attributable to one or more of the FCCR Properties and all business operations thereon during such period (including interest attributable to Capital Leases), as determined in accordance with GAAP.
"Net Income" shall mean with respect to all of the period of determination, the gross income of Lessee allocable to all of the FCCR Properties less all operating expenses allocable to all of the FCCR Properties. In determining the amount of Net Income, (i) adjustments shall be made for nonrecurring gains and losses allocable to the period of determination, (ii) deductions shall be made for, among other things, Depreciation and Amortization, Interest Expense and Operating Lease Expense allocable to the period of determination, (iii) charges for related entity services, financings, mark-ups on purchases and other similar charges which are of a nature historically accounted for in Lessee's Store Income Statements shall be excluded, and (iv) no deductions shall be made for (x) income taxes or charges equivalent to income taxes allocable to the period of determination, as determined in accordance with GAAP, or (y) corporate overhead expense allocable to the period of determination. All Net Sublease Rents received by Lessee pursuant to subleases contemplated by Section 26 of this Lease shall be included within ''Net Income" for purposes of the determination of the Aggregate Fixed Charge Coverage Ratio.
"Operating Lease Expense" shall mean the lease payments incurred by Lessee under any operating leases with respect to one or more of the FCCR Properties (including this Lease) and the business operations thereon during the period of determination, as determined in accordance with GAAP.
B. Nonconsolidation Covenants. (i) Lessee will not assume liability for any indebtedness for money borrowed by Lessor and does not, and will not, guarantee any of the debts or obligations of Lessor. Lessee will not hold itself out as being liable for any obligations or indebtedness of Lessor.
(ii) Lessee shall not and shall use its best efforts to cause its Affiliates not to hold Lessor out to the public or to any individual creditors as being a unified entity with assets and liabilities in common with Lessee.
(iii) Lessee shall conduct its business so as not to mislead others as to the separate identity of Lessor, and particularly will avoid the appearance of conducting business on behalf of Lessor. Without limiting the generality of the foregoing, no oral and written communications of Lessee, including, without limitation, letters, invoices, purchase orders, contracts, statements and loan applications, will be made in the name of Lessor which to the extent that to do otherwise would materially bear upon the maintenance of Lessor's separate identity.
(iv) Lessee will not act in Lessor's name.
(v) Where necessary and appropriate, Lessee shall disclose the independent business status of Lessor to creditors of Lessee, if any.
(vi) The resolutions, agreements and other instruments of Lessee, if any, underlying the transactions described in this Lease will be maintained by Lessee.
(vii) All transactions between Lessee and Lessor will be no less fair to each party than they could obtain on an arm's-length basis.
(viii) The books, records and accounts of Lessee shall at all times be maintained in a manner permitting the assets and liabilities of Lessor to be easily separated and readily ascertained from those of Lessee.
(ix) Lessee will not direct, or otherwise control, the ongoing business decisions of Lessor.
(x) Lessee will not file or cause to be filed a voluntary or involuntary petition in bankruptcy on behalf of or against Lessor.
C. Transfer, Participation and Securitization Covenants . (i) Lessee agrees to cooperate in good faith with Lessor and Lender in connection with any Transfer, Participation and/or Securitization of any of the Notes, Mortgages and/or any of the Loan Documents, or any or all servicing rights with respect thereto, including, without limitation, (x) providing all current public documents, financial and other data required to be filed with the United States Securities and Exchange Commission with respect to Lessee and the Store Income Statements (collectively, the "Disclosures"); provided, however, Lessee shall not be required to make Disclosures of any Confidential Information or any information which has not previously been made public except as required by applicable federal or state securities laws; and (y) amending the terms of this Lease to the extent necessary so as to satisfy the reasonable requirements of purchasers, transferees, assignees, servicers, participants, investors or selected rating agencies involved in any such Transfer, Participation or Securitization, so long as such amendments would not materially and adversely affect the economic terms of this Lease or Lessee. Lessor and Lender shall prepare, at the expense of Lessor and Lender, all documents evidencing such amendments, provided that Lessee shall be responsible for the payment of its attorneys' fees incurred in connection with reviewing and finalizing such documents.
(ii) Lessee consents to Lessor and Lender providing the Disclosures, as well as any other information which Lessor and Lender may now have or hereafter acquire with respect to the Properties or the financial condition of Lessee to each purchaser, transferee, assignee, servicer, participant, investor or rating agency involved with respect to such Transfer, Participation and/or Securitization, as applicable. Lessee, Lessor and Lender shall pay their own attorneys' fees and other out-of-pocket expenses incurred in connection with the performance of its obligations under this Section 8.C.
D. Compliance Certificate. Within 90 days after the end of each Fiscal Year, Lessee shall deliver to Lessor such compliance certificates as Lessor may reasonably require in order to establish that Lessee is in compliance in all material respects with all of the obligations, duties and covenants imposed on Lessee pursuant to this Lease.
9. Rentals To Be Net to Lessor. The Base Annual Rental payable hereunder shall be net to Lessor, so that this Lease shall yield to Lessor the rentals specified during the Lease Term, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Properties shall be performed and paid by Lessee.
10. Taxes and Assessments. Lessee shall pay, prior to the earlier of delinquency or the accrual of interest on the unpaid balance, all taxes and assessments of every type or nature assessed against, imposed upon or arising with respect to Lessor (assuming that the Properties are the only real property owned by Lessor and that Lessor is not engaged in any business other than the ownership, leasing and financing of the Properties and any other matters ancillary thereto), any of the Properties, this Lease, the rental or other payments due under this Lease or Lessee during the Lease Term which affect in any manner the net return realized by Lessor under this Lease, including, without limitation, the following:
A. All taxes and assessments upon any of the Properties or any part thereof and upon any Personalty, whether belonging to Lessor or Lessee, or any tax or charge levied in lieu of such taxes and assessments;
B. All taxes, charges, license fees and or similar fees imposed by reason of the use of any of the Properties by Lessee; and
C. All excise, transaction, privilege, license, sales, use and other taxes upon the rental or other payments due under this Lease, the leasehold estate of either party or the activities of either party pursuant to this Lease.
Notwithstanding the foregoing, but without limiting the preceding obligation of Lessee to pay all taxes which are imposed on the rental or other payments due under this Lease, in no event will Lessee be required to pay any net income taxes or taxes in lieu of income taxes (i.e., taxes which are determined taking into account deductions arising from depreciation, interest, taxes and ordinary and necessary business expenses) or franchise taxes (unless imposed in lieu of other taxes that would otherwise be the obligation of Lessee wider this Lease, including, without limitation, any "gross receipts tax" or any similar tax based upon gross income or receipts of Lessor which does not take into account deductions arising from depreciation, interest, truces and/or ordinary or necessary business expenses) of Lessor, any transfer taxes of Lessor, or any tax imposed with respect to the sale, exchange or other disposition by Lessor, in whole or in part, of any of the Properties or Lessor's interest in this Lease (other than transfer or recordation taxes imposed in connection with the transfer of any of the Properties to Lessee, the substitution of a Substitute Property or the termination of this Lease pursuant to the provisions of this Lease).
All taxing authorities shall be instructed to send all tax and assessment invoices to Lessee and Lessee shall promptly provide Lessor and Lender with copies of all tax and assessment invoices received by Lessee. Upon request, Lessee shall also provide Lessor and Lender with evidence that such invoices were paid in a timely fashion. Lessee may, at its own expense, contest or cause to be contested (in the case of any item involving more than $50,000.00, after prior written notice to Lessor), by appropriate legal proceedings conducted in good faith and with due diligence, the amount or validity or application, in whole or in part, of any item specified in this Section 10 or any lien therefor, provided that (i) such proceeding shall suspend the collection thereof .from the applicable Properties or any interest therein, (ii) neither such Properties nor any interest therein would be in any danger of being sold, forfeited or lost by reason of such proceedings, (iii) no Event of Default has occurred, and (iv) Lessee shall have deposited with Lessor adequate reserves for the payment of the taxes, together with all interest and penalties thereon, unless paid in full under protest, or Lessee shall have furnished the security as may be required in the proceeding or as may be reasonably required by Lessor to ensure payment of any contested taxes. So long as an Event of Default shall not have occurred and be continuing, any amount recovered as a result of retroactive tax contests with respect to taxes or assessments payable during the Lease Term shall be paid to Lessee. Lessor shall, at the request of Lessee, execute or join in the execution of any instruments or documents reasonably requested by Lessee in connection with any contest or proceeding contemplated by this Section 10, but Lessee shall be solely responsible for the payment of all costs and expenses incurred by Lessor or Lessee in connection with such contests and proceedings.
11. Utilities. Lessee shall contract, in its own name, for and pay when due all charges for the connection and use of water, gas, electricity, telephone, garbage collection, sewer use and other utility services supplied to the Properties during the Lease Term. Under no circumstances shall Lessor be responsible for providing any utility service to the Properties. Unless an Event of Default shall have occurred and be continuing, Lessor will not take any action to interrupt the utility service to the Properties.
12. Insurance. Throughout the Lease Term, Lessee shall maintain, or cause a permitted sublessee as contemplated by Section 26 to maintain, with respect to each of the Properties, at its sole expense, the following types and amounts of insurance (which may be included under a blanket insurance policy if all the other terms hereof are satisfied):
A. Insurance against loss, damage or destruction by fire and other casualty, including theft, vandalism and malicious mischief, flood (for each of the Properties which is in a location designated by the Federal Emergency Management Administration as a Special Flood Hazard Area), earthquake (for each of the Properties which is in an area commonly subject to destructive earthquakes within recorded history), boiler explosion (for each of the Properties with a boiler), plate glass breakage, sprinkler damage (for each of the Properties which has a sprinkler system), all matters covered by a standard extended coverage endorsement, all matters covered by a special coverage endorsement commonly known as an "all-risk" endorsement and such other risks as Lessor may reasonably require consistent with reasonably prudent business practices for similar types of properties, insuring each of the Properties for not less than 100% of their full insurable replacement cost.
B. Commercial general liability and property damage insurance, including a products liability clause, covering Lessor, Remainderman and Lessee against bodily injury liability, property damage liability and automobile bodily injury and property damage liability, including without limitation any liability arising out of the ownership, maintenance, repair, condition or operation of the Properties or, to the extent covered by a customary commercial general liability policy, adjoining ways, streets or sidewalks and, if applicable, insurance covering Lessor, Remainderman and Lessee against liability arising from the sale of liquor, beer or wine on the Properties. Such insurance policy or policies shall contain a broad form contractual liability endorsement under which the insurer agrees to insure Lessee's obligations Under Section 19 hereof to the extent insurable, and a "severability of interest" clause or endorsement which precludes the insurer from denying the claim of Lessee, Remainderman or Lessor because of the negligence or other acts of the other, shall be in amounts of not less than $1,000,000.00 per injury and occurrence with respect to any insured liability, whether for personal injury or property damage, or such higher limits as Lessor or Remainderman may reasonably request from time to time, and shall be of form and substance satisfactory to Lessor and Remainderman.
C. Business income interruption insurance or rental interruption insurance, when applicable, as requested by Lessor, equal to 100% of the Base Annual Rental for a period of not less than 12 months.
D. State worker's compensation insurance, or self insurance where permitted by applicable law, in the statutorily mandated limits, employer's liability insurance with limits not less than $500,000 or such greater amount as Lessor or Remainderman may from time to time reasonably require and such other insurance as may be necessary to comply with applicable laws.
E. Such other insurance as may from time to time be reasonably required by Lessor, Remainderman or Lender consistent with prudent business practices for similar types of properties in order to protect their respective interests with respect to the Properties.
All insurance policies shall:
(i) Provide for a waiver of subrogation by the insurer as to claims against Lessor, Remainderman, Lender and their respective employees and agents;
(ii) Provide that any ''no other insurance" clause in the insurance policy shall exclude any policies of insurance maintained by Lessor, Remainderman or Lender and that the insurance policy shall not be brought into contribution with insurance maintained by Lessor, Remainderman or Lender;
(iii) Contain a standard without contribution mortgage clause endorsement in favor of Lender and naming such other parties as additional named insureds as may be designated by Lessor provided such parties have either a direct or indirect ownership interest in the Properties or Lessor, or are managers, asset managers, agents or independent contractors of Lessor or any entity or person which has an ownership interest in Lessor;
(iv) Provide that the policy of insurance shall not be terminated, cancelled or substantially modified without at least thirty (30) days' prior written notice to Lessor, Remainderman, Lender and to any other party covered by any standard mortgage clause endorsement;
(v) Provide that the insurer shall not have the option to restore the applicable Properties if Lessor or Lessee elects to terminate this Lease in accordance with the terms hereof;
(vi) Be issued by insurance companies licensed to do business in the states in which the Properties are located and which are rated A:VI or better by AM. Best's Insurance Guide or are otherwise reasonably approved by Lessor and Remainderman; and
(vii) Provide that the insurer shall not deny a claim nor shall the insurance be cancelled, invalidated or suspended by (1) any action, inaction, conduct or negligence of Lessor, Remainderman, Lender or any other party covered by any standard mortgage clause endorsement, Lessee, anyone acting for Lessee or any subtenant or other occupant of any of the Properties, (2) occupancy or use of any of the Properties for purposes more hazardous than permitted by such policies, (3) any foreclosure or other proceedings relating to any of the Properties or change in title to or ownership of any of the Properties, or (4) any breach or violation by Lessee or any other person of any warranties, declarations or conditions contained in such policies or the applications for such policies.
It is expressly understood and agreed that the foregoing minimum limits of insurance coverage shall not limit the liability of Lessee for its acts or omissions as provided in this Lease. All insurance policies (with the exception of worker's compensation insurance to the extent not available under statutory law), shall designate Lessor, Remainderman and Lender as additional named insureds as their interests may appear and shall be payable as set forth in Section 21 hereof. All such policies shall be written as primary policies, with deductibles not to exceed 10% of the amount of coverage; provided, however, (i) Lessee shall be permitted to maintain deductibles on replacement value property insurance in an amount not to exceed $100,000.00 per Property, and (ii) at all times while Guarantor maintains a net worth determined in accordance with GAAP of at least $280,000,000.00 and Guarantor has a solicited long term debt rating (or, if Guarantor does not have a solicited long term debt rating, a corporate rating) of (a) BB or better by Standard & Poors Rating Group, or any successor thereto, or (b) ba2 or better by Moody's Investors Service, Inc., Lessee may self-insure or maintain deductibles on genera] liability insurance in an amount not to exceed $250,000.00 per occurrence per Property. Any other policies, including any policy now or hereafter carried by Lessor, Remainderman or Lender, shall serve as excess coverage. Lessee shall procure policies for all insurance for periods of not less than one year and shall provide to Lessor, Remainderman and Lender certificates of insurance or, upon the request of Lessor, Remainderman or Lender, duplicate originals of insurance policies evidencing that insurance satisfying the requirements of this Lease is in effect at all times. If Lessee in good faith desires to change its insurance carrier or, not more often than once in any Lease Year, change to a policy year ending on a different calendar date, Lessor will not unreasonably withhold its consent to Lessee maintaining the preceding insurance policies for a period of less than one year solely as a result of the transition of such insurance policies to the replacement carrier or the revised ending date. Lessor further agrees that, to the extent it has requested and received duplicate originals of the insurance policies required by this Lease, Lessee shall not be required to subsequently provide duplicate originals of such insurance policies unless any of the coverages provided in any such policies change or the carrier of any such policy changes, in which event Lessee shall only be required to provide (without limiting Lessee's obligation to deliver certificates of insurance as contemplated by this Section), upon the request of Lessor, duplicate originals of those portions of the policies which have changed and/or those policies for which the carrier has changed. In the event of any transfer by Lessor of Lessor's interest in any of the Properties or any financing or refinancing of Lessor's interest in any of the Properties,or by Remainderman of Remainderman's interest in any of the Properties, Lessee shall, upon not less than ten (10) Business Days prior written notice, deliver to Lessor and Remainderman or any Lender providing such financing or refinancing, as applicable, certificates of all insurance required to be maintained by Lessee hereunder naming such transferee or such Lender, as applicable, as an additional named insured to the extent required herein effective as of the date of such transfer, financing or refinancing.
13. Tax and Insurance Impound. Upon the occurrence of an Event of Default resulting from the failure of Lessee to perform any monetary obligation due under this Lease, including, without limitation, the failure to pay Base Annual Rental, Additional Rental and/or taxes, assessments and/or insurance premiums as contemplated by this Lease, Lessor may require Lessee to pay to Lessor sums which will provide an impound account (which shall not be deemed a trust fund) for paying up to the next one year of taxes, assessments and/or insurance premiums for each of the Properties. Upon such requirement, Lessor will estimate the amounts needed for such purposes and will notify Lessee to pay the same to Lessor in equal monthly installments, as nearly as practicable, in addition to all other sums due under this Lease. Should additional funds be required at any time, Lessee shall pay the same to Lessor on demand. Lessee shall advise Lessor of all taxes and insurance bills which are due and shall cooperate fully with Lessor in assuring that the same are paid timely. Lessor may deposit all impounded funds in accounts insured by any federal or state agency. Interest or other gains from such funds, if any, shall, so long as no Event of Default shall have occurred and be continuing, be the sole property of Lessee. Interest or other gains from such funds, if any, shall, if, subsequent to Lessor requiring Lessee to establish such impound account, an Event of Default shall have occurred and be continuing, be the sole property of Lessor. Upon the occurrence and during the continuance of an Event of Default, Lessor may apply all impounded funds against any sums due from Lessee to Lessor. Lessor shall give to Lessee an annual accounting showing all credits and debits to and from such impounded funds received from Lessee. Nothing in this Section 13 shall be interpreted as a waiver by Lessor of any rights Lessor may have under this Lease upon the occurrence and during the continuance of an Event of Default.
14. Payment of Rental and Other Sums. All rental and other sums which Lessee is required to pay hereunder shall be the unconditional obligation of Lessee and shall be payable in full when due without any setoff, abatement, deferment, deduction or counterclaim whatsoever. Upon execution of this Lease, Lessee shall establish arrangements whereby payments of the Base Monthly Rental and impound payments, if any, are transferred by wire or other means directly from Lessee's bank account to such account as Lessor may designate. Any delinquent payment (that is, any payment not made within five Business Days after the date when due) shall, in addition to any other remedy of Lessor, incur a late charge of 5% (which late charge is intended to compensate Lessor for the cost of handling and processing such delinquent payment and should not be considered interest) and bear interest at the Default Rate, such interest to be computed from and including the date such payment was due through and including the date of the payment; provided, however, in no event shall Lessee be obligated to pay late charges and interest in amounts that exceed the limitations imposed by applicable law then in effect.
15. Use. Except as set forth below, each of the Properties shall be used solely for the operation of a Permitted Facility in accordance with the standards of operations then in effect on a system-wide basis, and for no other pu1pose. Lessee shall promptly notify Lessor of a change of use of any of the Properties from any restaurant concept included within the definition of Permitted Facility to another restaurant concept included within the definition of Permitted Facility. Lessee shall occupy the Properties promptly following the Effective Date and, except as set forth below and except during periods when any of the Properties is untenantable by reason of Casualty or Taking (provided, however, during all such periods while any of the Properties is untenantable, Lessee shall strictly comply with the terms and conditions of Section 21 of this Lease), Lessee shall at all times during the Lease Term occupy each of the Properties and shall diligently conduct its business on each of the Properties as a Permitted Facility. Lessee may cease diligent operation of business at any of the Properties for a period not to exceed 180 days; provided, however, Lessee may not cease diligent operation at more than two of the Properties at any one time and Lessee may only cease operation once with respect to each Property within any five-year period during the Lease Term. Notwithstanding the foregoing, so long as an Event of Default has not otherwise occurred and is continuing under this Lease, one of the Properties then subject to this Lease may be closed for an indefinite period of time without such closure constituting an Event of Default under this Lease. If Lessee does discontinue operation as permitted by this Section 15, Lessee shall (i) give written notice to Lessor within 10 Business Days after Lessee elects to cease operation, (ii) provide adequate protection and maintenance of any such Properties during any period of vacancy, (iii) comply with all Applicable Regulations and otherwise comply with the terms and conditions of this Lease other than the continuous use covenant set forth in this Section 15, and (iv) pay all costs necessary to restore such Properties to their condition on the day operation of the business ceased at such time as such Properties are reopened for Lessee's business operations or other substituted use approved by Lessor as contemplated below. Notwithstanding anything herein to the contrary, Lessee shall pay the Base Monthly Rental as provided herein during any period in which Lessee discontinues operation.
Lessee shall not, by itself or through any assignment, sublease or other type of transfer, convert any of the Properties to a use other than a Permitted Facility during the Lease Term without Lessor's consent, which consent shall not be unreasonably withheld or delayed. Lessor may consider any or all of the following in determining whether to grant its consent, without being deemed to be unreasonable: (i) whether the rental paid to Lessor would be equal to or greater than the anticipated rental assuming continued existing use, (ii) whether the converted use will be consistent with the highest and best use of the Properties, and (iii) whether the converted use will increase Lessor's risks or decrease the value of the Properties.
16. Compliance with Laws, Restrictions, Covenants and Encumbrances.
A. Lessee's use and occupation of each of the Properties, and the condition thereof, shall, at Lessee's sole cost and expense, comply fully with all Applicable Regulations and all restrictions, covenants and encumbrances of record applicable to such Property. In addition to the other requirements of this Section 16, Lessee shall, at all times throughout the Lease Term, comply with all Applicable Regulations, including, without limitation, in connection with any maintenance, repairs and replacements of the Properties undertaken by Lessee as required by Section 17 of this Lease.
B. Lessee will use its reasonable best efforts to not permit any act or condition to exist on or about any of the Properties (excluding acts committed by third parties not within the control of Lessee) which will increase any insurance rate thereon, except when such acts are required in the normal course of its business and Lessee shall pay for such increase.
C. Without limiting the generality of the other provisions of this Section 16, Lessee agrees that it shall be responsible for complying in all applicable respects with the Americans with Disabilities Act of 1990, as such act may be amended from time to time, and all regulations promulgated thereunder (collectively, the ''ADA"), as it affects the Properties, including, without limitation, making required "readily achievable" changes to remove any architectural or communications barriers, and providing auxiliary aides and services within the Properties. Lessee further agrees that any and all alterations made to the Properties during the Lease Term will comply with the applicable requirements of the ADA. All plans for alterations which must be submitted to Lessor under the provisions of Section 18 must include a statement from a licensed architect or engineer certifying that he or she has reviewed the plans, and that the plans comply with all applicable provisions of the ADA. Any subsequent approval or consent to the plans by Lessor shall not be deemed to be a representation of Lessor's part that the plans comply with the ADA, which obligation shall remain with Lessee. Lessee agrees that it will defend, indemnify and ho]d harmless the Indemnified Parties from and against any and all Losses caused by, incurred or resulting from Lessee's failure to comply with its obligations under this Section 16.C.
D. Lessee represents and warrants to Lessor as of the Effective Date, to Lessee's knowledge and except as disclosed in the Questionnaires:
(i) None of the Properties nor Lessee, in connection with its occupancy, use or operation of the Properties, are in violation of any Environmental Laws except for such noncompliance which could not reasonably be expected to have a Material Adverse Effect, or subject to any pending or threatened investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws that could reasonably be expected to have a Material Adverse Effect.
(ii) All permits, licenses or similar authorizations to construct, occupy, operate or use any buildings, improvements, fixtures and equipment forming a part of any of the Properties required to be obtained by reason of any Environmental Laws have been obtained, except for such permits, licenses or authorizations the failure of which to obtain could not reasonably be expected to have a Material Adverse Effect.
(iii) Except in De Minimis Amounts, no Hazardous Materials have been used, handled, manufactured, generated, produced, stored, treated, processed, transferred, disposed of or otherwise Released in, on, under, from or about any of the Properties, which have not been properly remediated in accordance with all applicable Environmental Laws, or which could not reasonably be expected to have a Material Adverse Effect.
(iv) The Properties do not contain Hazardous Materials, other than in De Minimis Amounts, or underground storage tanks.
(v) There is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with any of the Properties, except for such non-compliance which could not reasonably be expected to have a Material Adverse Effect.
(vi) Lessee has not received any written notice or other communication from any Person (including but not limited to a Governmental Authority) relating to Hazardous Materials or Remediation thereof, of possible liability of any Person pursuant to any Environmental Law, other Environmental Conditions in connection with any of the Properties, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing, in each case with respect to a condition or event that could reasonably be expected to have a Material Adverse Effect.
(vii) Lessee has truthfully and fully provided to Lessor, in writing, any and all information relating to Environmental Conditions in, on, under or from the Properties that is known to Lessee and that is contained in Lessee's files and records, including but not limited to any environmental investigations relating to Hazardous Materials in, on, under or from any of the Properties.
(viii) All uses and operations on or of the Properties, whether by Lessee or any other Person, have been in compliance with all Environmental Laws and permits issued pursuant thereto, except for such non-compliance which could not reasonably be expected to have a Material Adverse Effect; and the Properties have been kept free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law (the "Environmental Liens").
E. Lessee covenants to Lessor during the Lease Term that: (i) the Properties shall not be in violation of or subject to any investigation or inquiry by any Governmental Authority or to any remedial obligations under any Environmental Laws except for such violations or investigations or inquiries which relate to Hazardous Materials in De Minimis Amounts, and if any such investigation or inquiry is initiated, Lessee shall promptly notify Lessor; (ii) all uses and operations on or of each of the Properties, whether by Lessee or any other Person, shall be in compliance with all applicable Environmental Laws and permits issued pursuant thereto, except for such noncompliance which relates to Hazardous Materials in De Minimis Amounts; (iii) there shall be no Releases in, on, under or from any of the Properties, except in De Minimis Amounts; (iv) there shall be no Hazardous Materials in, on, or under any of the Properties, except in De Minimis Amounts; (v) Lessee shall keep each of the Properties free and clear of all Environmental Liens, whether due to any act or omission of Lessee or any other Person; (vi) Lessee shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to subsection F below, including but not limited to providing all relevant information and making knowledgeable persons within the control of Lessee available for interviews; (vii) in the event of any alleged or known Release, Lessee shall, at its sole cost and expense, perform any environmental site assessment or other investigation of Environmental Conditions in connection with any of the Properties as may be reasonably requested by Lessor (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and share with Lessor the reports and other results thereof, and Lessor and the other Indemnified Parties shall be entitled to rely on such reports and other results thereof; (viii) Lessee shall, at its sole cost and expense, comply with all reasonable written requests of Lessor to (1) reasonably effectuate Remediation of any condition (including but not limited to a Release) in, on, under or from any of the Properties; (2) comply with any Environmental Law; (3) comply with any applicable directive from any Governmental Authority, or engage in appropriate alternative remedial activities if approved by such Governmental Authority; and (4) take any other reasonable action necessary or appropriate for protection of human health or the environment on the Properties; (ix) Lessee shall, upon obtaining such information, promptly notify Lessor in writing of (A) any Releases or threatened Releases in, on, under, from or migrating towards any of the Properties which could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts; (B) any non-compliance with any Environmental Laws related in any way to any of the Properties, which non-compliance could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts; (C) any actual or potential Environmental Lien; (D) any required or proposed Remediation of Environmental Conditions relating to any of the Properties; and (E) any written or oral notice or other communication of which Lessee becomes aware from any source whatsoever (including but not limited to a Governmental Authority) relating in any way to Hazardous Materials or Remediation thereof which could reasonably be expected to involve Hazardous Materials other than in De Minimis Amounts, possible liability of any Person pursuant to any Environmental Law, other Environmental Conditions in connection with any of the Properties, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Section.
F. Lessor, Lender and any other Person designated by Lessor, including but not limited to any receiver, any representative of a Governmental Authority, and any environmental consultant, shall, after five Business Days' prior written notice to Lessee (except that in the event of an emergency no such prior notice shall be required), have the right, but not the obligation, to enter upon the Properties at all reasonable times (including, without limitation, in connection with any Securitization, Participation or Transfer or in connection with a proposed sale or conveyance of any of the Properties or a proposed financing or refinancing secured by any of the Properties or in connection with the exercise of any remedies set forth in this Lease, the Mortgages or the other Loan Documents, as applicable) to assess any and all aspects of the environmental condition of the Properties and their use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in the sole and absolute discretion of the party conducting the assessment) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing; provided, however, that any such persons (except in emergencies) shall use reasonable efforts to undertake any such assessments or investigations so as to minimize the impact on Lessee's business operations at the Properties. Lessee shall cooperate with and provide access to Lessor, Lender and any other Person designated by Lessor. Any such assessment and investigation shall be at Lessor's sole cost and expense unless at the time of any such assessment or investigation Lessor has a reasonable basis for believing that a Release has occurred on a Property or an Event of Default has occurred and is continuing, in which case Lessee shall be responsible for the cost of any such assessment or investigation. Unless an Event of Default shall have occurred and be continuing, upon completion of any assessments or testing pursuant to this Section 16.F (i) the Properties shall be restored to their condition at the time of commencement of testing, including, without limitation, the repair of any damage to the Properties as a result of such testing and (ii) Lessor shall indemnify, defend and hold Lessee harmless from and against any costs (including, without limitation, reasonable attorneys' fees and expenses), claims, loss or damages resulting from any assessments or testing pursuant to this Section 16.F (excluding claims, losses or damages suffered by Lessee as a result of Lessee's gross negligence or willful misconduct).
G. Lessee shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless each of the Indemnified Parties for, from and against any and all Losses (excluding Losses for which Lessor has agreed to indemnify, defend and hold harmless Lessee pursuant to Sections 16.F and 22 and Losses suffered by an Indemnified Party directly arising out of such Indemnified Party's gross negligence or willful misconduct; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease) and costs of Remediation (whether or not performed voluntarily), engineers' fees, environmental consultants' fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (i) any presence of any Hazardous Materials in, on, above, or under any of the Properties; (ii) any past or present Release or Threatened Release in, on, above, under or from any of the Properties; (iii) any activity by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control. management, abatement, removal, handling, transfer or transportation to or from any of the Properties of any Hazardous Materials at any time located in, under, on or above any of the Properties; (iv) any activity by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties in connection with any actual or proposed Remediation of any Hazardous Materials at any time located in, under, on or above any of the Properties, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (v) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with any of the Properties or operations thereon, including but not limited to any failure by Lessee, any Affiliate of Lessee or any other tenant or other user of any of the Properties to comply with any order of any Governmental Authority in connection with any Environmental Laws; (vi) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering any of the Properties; (vii) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Section; (viii) any past, present or threatened injury to, destruction of or loss of natural resources in violation of Environmental Laws in any way connected with any of the Properties, including but not limited to costs to investigate and assess such injury, destruction or loss; (ix) any acts of Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Materials owned or possessed by Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, at any facility or incineration vessel owned or operated by another Person and containing such or similar Hazardous Materials; (x) any acts of Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, in accepting any Hazardous Materials for transport to disposal or treatment facilities, incineration vessels or sites selected by Lessee, any Affiliate of Lessee or any other tenant or user of any of the Properties, from which there is a Release, or a Threatened Release of any Hazardous Materials which causes the incurrence of costs for Remediation; (xi) any personal injury, wrongful death, or property damage arising under any statutory or common law or tort law theory, including but not limited to damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity, on or near any of the Properties; and (xii) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to this Section.
H. The obligations of Lessee and the rights and remedies of Indemnified Parties under Sections 16.D through 16.G shall survive the termination, expiration and/or release of this Lease.
17. Condition of Properties; Maintenance. Lessee, at its own expense, will maintain all parts of each of the Properties in good repair and sound condition, except for ordinary wear and tear and any Casualties and Takings (but without limiting Lessee's obligations under the terms and conditions of Section 21 of this Lease with respect to Casualties and Takings), and will take all action and will make all structural and non- structural, foreseen and unforeseen and ordinary and extraordinary changes and repairs or replacements which may be required to keep all parts of each of the Properties in good repair and sound condition.Lessee waives any right to (i) require Lessor to maintain, repair or rebuild all or any part of any of the Properties or (ii) make repairs at the expense of Lessor, pursuant to any Applicable Regulations at any time in effect.
18. Waste; Alterations and Improvements. Lessee shall not commit actual or constructive waste upon any of the Properties. Lessee shall not alter the exterior, structural, plumbing or electrical elements of any of the Properties in any manner without the consent of Lessor, which consent shall not be unreasonably withheld or conditioned (it being understood and agreed that to the extent Lessor is required to obtain the approval of Lender with respect to any such alterations, Lessor shall in no event be deemed to have unreasonably withheld Lessor's approval thereof if Lender shall not have given its approval if required); provided, however, Lessee may undertake nonstructural alterations to any of the Properties costing less than $100,000.00 without Lessor's consent. If Lessor's consent is required hereunder and Lessor consents to the making of any such alterations, the same shall be made according to plans and specifications approved by Lessor and subject to such other conditions as Lessor shall reasonably require. All alterations shall be made by Lessee at Lessee's sole expense by licensed contractors and in accordance with all applicable laws governing such alterations. Any work at any time commenced by Lessee on any of the Properties shall be prosecuted diligently to completion, shall be of good workmanship and materials and shall comply fully with all the terms of this Lease. Upon completion of any alterations, at Lessor's request Lessee shall promptly provide Lessor with (i) evidence of full payment to all laborers and materialmen contributing to the alterations, (ii) to the extent Lessee was required to prepare plans and specifications for such alterations, an architect's certificate certifying the alterations to have been completed in conformity with the plans and specifications, (iii) a certificate of occupancy (if the alterations are of such a nature as would require the issuance of a certificate of occupancy), and (iv) any other documents or information reasonably requested by Lessor. Any addition to or alteration of any of the Properties shall automatically be deemed a part of the Properties and belong to Lessor, and Lessee shall execute and deliver to Lessor such instruments as Lessor may require to evidence the ownership by Lessor of such addition or alteration. Lessee shall execute and file or record, as appropriate, a "Notice of Non-Responsibility," or any equivalent notice permitted under applicable law in the states where the applicable Properties are located.
19. Indemnification. Lessee shall indemnify, protect, defend and hold harmless each of the Indemnified Parties from and against any and all Losses (excluding losses for which Lessor has agreed to indemnify, defend and hold Lessee harmless pursuant to Section 22, and Losses suffered by an Indemnified Party arising out of the gross negligence or willful misconduct of such Indemnified Party; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to any of the Indemnified Parties solely by reason of the Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease) caused by, incurred or resulting from Lessee's operations of or relating in any manner to any of the Properties, whether relating to their original design or construction, latent defects, alteration, maintenance, use by Lessee or any person thereon, supervision or otherwise, or from any breach of, default under, or failure to perform, any Term or provision of this Lease by Lessee, its officers, employees, agents or other persons, or to which any Indemnified Party is subject because of Lessor's or Remainderman's interest in any of the Properties, including, without limitation, Losses arising from (1) any accident, injury to or death of any person or loss of or damage to property occurring in, on or about any of the Properties or portion thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways, (2) any use, non-use or condition in, on or about, or possession, alteration, repair, operation, maintenance or management of, any of the Properties or any portion thereof or on the adjoining sidewalks, curbs, parking areas, streets or ways, (3) any representation or warranty made herein by Lessee or in any certificate delivered in connection with this Lease being false or misleading in any material respect as of the date of such representation or warranty was made, (4) performance of any labor or services or the furnishing of any materials or other property in respect to any of the Properties or any portion thereof, (5) any taxes, assessments or other charges which Lessee is required to pay under Section 10, (6) any lien, encumbrance or claim arising on or against any of the Properties or any portion thereof under any Applicable Regulation or otherwise which Lessee is obligated hereunder to remove and discharge, or the failure to comply with any Applicable Regulation, (7) the claims of any invitees, patrons, licensees or subtenants of all or any portion of any of the Properties or any Person acting through or under Lessee or otherwise acting under or as a consequence of this Lease or any sublease, (8) any act or omission of Lessee or its agents, contractors, licensees, subtenants or invitees pertaining to this Lease, (9) any contest referred to in Section 10, and (10) the sale of liquor, beer or wine on any of the Properties. It is expressly understood and agreed that Lessee's obligations under this Section shall survive the expiration or earlier Termination of this Lease for any reason.
20. Quiet Enjoyment. So long as Lessee shall pay the rental and other sums herein provided and no Event of Default shall have occurred and be continuing, Lessee shall have, subject and subordinate to Lessor's rights herein, the right to the peaceful and quiet occupancy of the Properties. Notwithstanding the foregoing, however, in no event shall Lessee be entitled to bring any action against Lessor to enforce its rights under this Lease if an Event of Default shall have occurred and be continuing.
21. Condemnation or Destruction.
A. Notice of Taking or Casualty. In the event of a taking of all or any part of any of the Properties for any public or quasi-public purpose by any lawful power or authority by exercise of the right of condemnation or eminent domain or by agreement between Lessor, Lessee and those authorized to exercise such right ("Taking") or the commencement of any proceedings or negotiations which might result in a Taking or any damage to or destruction of any of the Properties or any part thereof as a result of a fire or other casualty (a "Casualty"), Lessee will promptly give written notice thereof to Lessor, generally describing the nature and extent of such Taking, proceedings, negotiations or Casualty and including copies of any documents or notices received in connection therewith. Thereafter, Lessee shall promptly send Lessor copies of all correspondence and pleadings relating to any such Taking, proceedings, negotiations or Casualty.
B. Assignment of Awards, Insurance Proceeds and Payments. Except as set forth below, in the event of (i) a Material Taking or (ii) a Material Casualty, Lessor shall be entitled to receive the entire award, insurance proceeds or payment in connection therewith without deduction for any estate vested in Lessee by this Lease. Lessee hereby expressly assigns to Lessor all of its right, title and interest in and to every such award, insurance proceeds or payment and agrees that Lessee shall not be entitled to any award, insurance proceeds or payment for the value of Lessee's leasehold interest in this Lease. With respect to a Material Taking, Lessee shall be entitled to claim and receive any award or payment from the condemning authority expressly granted for the taking of Personalty, the interruption of its business and moving expenses, but only if such claim or award does not adversely affect or interfere with the prosecution of Lessor's claim for the Material Taking or otherwise reduce the amount recoverable by Lessor for the Material Taking. With respect to a Material Casualty, Lessee shall be entitled to claim and receive any insurance proceeds with respect to the Personalty, the interruption of its business and moving expenses, but only if such claim or proceeds does not adversely affect or interfere with the prosecution of Lessor's claim for the Material Casualty or otherwise reduce the amount recoverable by Lessor for the Material Casualty.
C. Material Casualty. Within 60 days of a Material Casualty at any Property, Lessee shall have the option, but not the obligation, to either:
(i) deliver a rejectable offer to Lessor (a "Casualty Substitution Offer") to substitute a Substitute Property for the affected Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment (a "Casualty Termination Payment") to Lessor to terminate this Lease with respect to the affected Property in an amount equal to the sum of (x) the Applicable Percentage for the affected Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term, and (y) the Prepayment Charge corresponding to the affected Property. All Casualty Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of a Casualty Substitution Offer satisfying the requirements of Section 55 to accept or reject that offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of the offer within such time period shall be deemed to constitute Lessor's acceptance of that Casualty Substitution Offer. If the Mortgage corresponding to the affected Property is still outstanding, any rejection of the Casualty Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Casualty Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Casualty Substitution Offer within such 120-day period).
D. Acceptance or Rejection of Casualty Offer. If Lessor accepts the Casualty Substitution Offer or is deemed to have accepted the Casualty Substitution Offer or if any rejection of the Casualty Substitution Offer by Lessor is not consented to in writing by Lender as provided in this Section 21, then, within 180 days of that Material Casualty, Lessee shall complete the substitution, subject, however, to the satisfaction of each of the applicable terms and conditions set forth in this Section 21 and Section 55. Upon such substitution (i) Lessee shall be entitled to claim and receive the net award resulting from the Material Casualty, after payment of all costs and expenses incurred by Lessor and Lender in connection with that Material Casualty, and (ii) all obligations of either party under this Lease and otherwise with respect to the Property being replaced shall cease as of the closing of the substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the closing of the substitution shall survive the termination of this Lease with respect to that Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Casualty Substitution Offer and, as long as the Mortgage corresponding to the Property subject to the Casualty Substitution Offer is still outstanding, such rejection is consented to by Lender as provided in Section 21, or if the Material Casualty shall occur after the commencement of any extension options exercised pursuant to Section 27, then (i) the net award resulting from that Material Casualty shall be paid to and belong to Lessor, (ii) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (iii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, (iv) Lessee shall pay Lessor an amount equal to the insurance deductible applicable to that Material Casualty, as applicable, and (v) provided Lessee shall have paid Lessor all sums described in the preceding subitems (ii) and (iv), all obligations of either party with respect to that Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to that Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such Termination shall survive the Termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
B. Casualty Termination Payment. If Lessee makes a Casualty Termination Payment within 60 days of a Material Casualty, (1) Lessor shall be entitled to receive the net award resulting from such Material Casualty, (2) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (3) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, (4) Lessee shall pay Lessor an amount equal to the insurance deductible applicable to such Material Casualty, as applicable, and (5) provided Lessee shall have paid Lessor all sums described in the preceding subitems (2) and (4), all obligations of either party under this Lease and otherwise with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without ]imitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the Termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
F. Lease Continuation.Upon the occurrence of any Casualty or Taking, Lessee shall take all steps necessary to ensure that the affected Property is secure and does not pose any threat or risk of harm to third parties, adjoining property owners or occupants. If such Casualty or Taking is not a Material Casualty or Material Taking, or if such Casualty or Taking is a Material Casualty or Material Taking, as applicable, but Lessee does not elect to make a Casualty Substitution Offer or Casualty Termination Payment or Condemnation Substitution Offer or Condemnation Termination Payment, as applicable, in connection with such Material Casualty or Material Taking, then, in any such event, (A) this Lease shall remain in full force and effect, (B) all Base Annual Rental, Additional Rental and other sums and obligations due under this Lease shall continue unabated, and (C) Lessee shall promptly commence and diligently prosecute restoration of the affected Property to the same condition, as nearly as practicable, as the condition of such affected Property prior to the occurrence of such Casualty or Taking, as applicable, in compliance with all Applicable Regulations and the Terms and conditions of this Lease, including, without limitation, the terms and conditions of Section 18 hereof.Unless Lessee shall elect to make a Casualty Substitution Offer, Casualty Termination Payment, Condemnation Substitution Offer or Condemnation Termination Payment, as applicable, following the occurrence of a Material Casualty or Material Taking, respectively, then, subject to such reasonable conditions for disbursement as may be imposed by Lessor, Lessor shall, upon the occurrence of any Casualty or Condemnation, promptly make available to Lessee in installments as restoration progresses an amount up to, but not exceeding, the amount of any insurance proceeds, award, compensation or damages actually received by Lessor (after deducting all costs, fees and expenses incident to the collection thereof (the "Material Restoration Amount"), upon request of Lessee accompanied by evidence reasonably satisfactory to Lessor that such amount has been paid or is due and payable and is properly a part of such costs and that Lessee has complied with the terms of Section 18 above in connection with the restoration. Prior to the disbursement of any portion of the Material Restoration Amount, Lessee shall provide evidence reasonably satisfactory to Lessor of the payment of restoration expenses by Lessee·up to the amount of the insurance deductible applicable to such Material Casualty or Material Taking. Lessor shall be entitled to keep any portion of the Material Restoration Amount which may be in excess of the cost of restoration, and Lessee shall bear all additional costs, fees and expenses of such restoration in excess of the Material Restoration Amount.
G. Material Taking. Within 30 days of a Material Talking affecting any Property, Lessee shall either:
(i) deliver a rejectable offer to Lessor (a "Condemnation Substitution Offer") to substitute a Substitute Property for the affected Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment (a "Condemnation Termination Payment") to Lessor to terminate this Lease with respect to the affected Property in an amount equal to the Applicable Percentage for that Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term. All Condemnation Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of a Condemnation Substitution Offer satisfying the requirements of Section 55 to accept or reject that offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of that offer within such time period shall be deemed to constitute Lessor's acceptance of the Condemnation Substitution Offer. If the Mortgage corresponding to the affected Property is still outstanding, any rejection of the Condemnation Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Condemnation Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Condemnation Substitution Offer within such 120-day period).
H. Acceptance or Rejection of Condemnation Offer. If Lessor accepts the Condemnation Substitution Offer or is deemed to have accepted the Condemnation Substitution Offer or if any rejection of the Condemnation Substitution Offer by Lessor is not consented to in writing by Lender, then, within 180 days of that Material Condemnation, Lessee shall complete the substitution, subject, however, to the satisfaction of each of the applicable terms and conditions set forth in this Section 21 and Section 55. Upon such substitution (i) Lessee shall be entitled to claim and receive the net award resulting from the Material Taking, after payment of all costs and expenses incurred by Lessor and Lender in connection with such Material Taking, and (ii) all obligations of either party under this Lease and otherwise with respect to the Property being replaced shall cease as of the closing of the substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the closing of the substitution shall survive the termination of this Lease with respect to the affected Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Condemnation Substitution Offer and, as long as the Mortgage corresponding to the Property subject to the Condemnation Substitution Offer is still outstanding, such rejection is consented to by Lender as provided in Section 21 or if the Material Taking shall occur after the commencement of any extension options exercised pursuant to Section 27, then (i) the net award resulting from that Material Taking shall be paid to and belong to Lessor, (ii) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (iii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, and (iv) provided Lessee shall have paid Lessor all sums described in the preceding subitem (ii), all obligations of either party hereunder with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date, provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
I. Taking Termination Payment. In the event Lessee makes a Condemnation Termination Payment with.in 30 days of a Material Taking, (1) Lessor shall be entitled to receive the net award resulting from such Material Taking, (2) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (3) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for the affected Property and the Base Annual Rental then in effect, and (4) provided Lessee shall have paid Lessor all sums described in the preceding subitem (2), all obligations of either party hereunder with respect to the affected Property shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to the affected Property under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
J. Temporary Taking. In the event of a Taking of all or any part of any of the Properties for a temporary use ("Temporary Taking"), this Lease shall remain in full force and effect without any reduction of Base Annual Rental, Additional Rental or any other sum payable hereunder. Except as provided below, Lessee shall be entitled to the entire award for a Temporary Taking, whether paid by damages, rent or otherwise, unless the period of occupation and use by the condemning authorities shall extend beyond the date of expiration of this Lease, in which case the award made for such Taking shall be apportioned between Lessor and Lessee as of the date of such expiration. At the termination of any such Temporary Taking, Lessee will, at its own cost and expense and pursuant to the terms of Section 18 above, promptly commence and complete the restoration of the Property affected by the Temporary Taking; provided, however, Lessee shall not be required to restore the affected Property if the Lease Term shall expire prior to, or within one year after, the date of termination of the Temporary Taking, and in that event Lessor shall be entitled to recover the entire award relating to the Temporary Taking.
K. Partial Taking or Partial Casualty. In the event of a Taking which is not a Material Taking or a Temporary Taking ("Partial Taking") or of a Casualty which is not a Material Casualty (a "Partial Casualty"), all awards, compensation or damages shall be paid to Lessor, and Lessor shall have the option to (i) terminate this Lease with respect to the Property affected, provided that Lessor shall have obtained Lender's prior written consent, by notifying Lessee within 60 days after Lessee gives Lessor notice of the Partial Taking or Partial Casualty, or (ii) continue this Lease in effect, which election may be evidenced by either a written notice from Lessor to Lessee or Lessor's failure to notify Lessee in writing that Lessor has elected to terminate this Lease with respect to the affected Property within such 60-day period.
Lessee shall have a period of 60 days after Lessor's notice that it has elected to terminate this Lease with respect to the affected Property during which to elect to continue this Lease with respect to the affected Property on the terms herein provided. If Lessor elects to terminate this Lease with respect to the affected Property and Lessee does not elect to continue this Lease with respect to the affected Property or shall fail during its 60-day period to notify Lessor of Lessee's intent to continue this Lease with respect to that Property, then this Lease shall terminate with respect to the affected Property as of the last day of the month during which Lessee's 60-day period expired. Lessee shall then immediately vacate and surrender the affected Property, all obligations of either party under this Lease or otherwise with respect to that Property shall cease as of the date of termination (provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to the affected Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay Base Annual Rental, Additional Rental and all other sums (whether payable to Lessor or a third party) accruing under this Lease with respect to the affected Property prior to the date of termination shall survive such termination) and Lessor may retain all such awards, compensation or damages. The Lease shall continue in full force and effect with respect to all other Properties.
If Lessor elects not to terminate this Lease with respect to the affected Property, or if Lessor elects to terminate this Lease with respect to the affected Property but Lessee elects to continue this Lease with respect to the affected Property, then this Lease shall continue in full force and effect on the following Terms: (i) all Base Annual Rental, Additional Rental and other sums and obligations due under this Lease shall continue unabated, and (ii) Lessee shall promptly commence and diligently prosecute restoration of the affected Property to the same condition, as nearly as practicable, as prior to such Partial Taking or Partial Casualty as reasonably approved by Lessor. In that case, Lessor shall promptly make available in installments as restoration progresses an amount up to but not exceeding the amount of any award, compensation or damages received by Lessor after deducting all costs, fees and expenses incident to the collection thereof (the ''Net Restoration Amount"), upon request of Lessee accompanied by evidence reasonably satisfactory to Lessor that such amount has been paid or is due and payable and is properly a part of such costs and that Lessee has complied with the Terms of Section 18 above in connection with the restoration. Lessor shall be entitled to keep any portion of the Net Restoration Amount which may be in excess of the cost of restoration, and Lessee shall bear all additional costs, fees and expenses of such restoration in excess of the Net Restoration Amount. If this Lease is terminated with respect to any Property as a result of a Partial Casualty, simultaneously with such termination Lessee shall pay Lessor an amount equal to the insurance deductible applicable to such Partial Casualty.
L. Adjustment of Losses. Any loss under any property damage insurance required to be maintained by Lessee shall be adjusted by Lessor and Lessee. Any award relating to a Taking shall be adjusted by Lessor or, at Lessor's election, Lessee. Notwithstanding the foregoing or any other provisions of this Section 21 to the contrary, if at the time of any Taking or any Casualty or at any time thereafter an Event of Default shall have occurred and be continuing, Lessor is hereby authorized and empowered but shall not be obligated, in the name and on behalf of Lessee and otherwise, to file and prosecute Lessee's claim, if any, for an award on account of such Taking or for insurance proceeds on account of such Casualty and to collect such award or proceeds and apply the same, after deducting all costs, fees and expenses incident to the collection thereof, to the curing of such default and any other then existing default under this Lease and/or to the payment of any amounts owed by Lessee to Lessor under this Lease, in such order, priority and proportions as Lessor in its discretion shall deem proper.
M. Payment of Costs and Expenses. Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with the conveyance of a Property to Lessee pursuant to this Section 21, including, without limitation, to the extent applicable, the cost of title insurance, survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and recording fees, taxes imposed on Lessor as a result of such conveyance, taxes imposed in connection with the transfer of a Property to Lessee or the termination of this Lease with respect to a Property pursuant to the provisions of this Section 21, Lessee's attorneys' fees and the reasonable attorneys' fees and expenses of counsel to Lessor and Lender.
N. No Limitation. Notwithstanding the foregoing, nothing in this Section 21 shall be construed as limiting or otherwise adversely affecting the representations, warranties, covenants and characterizations set forth in Lease, including, without limitation, those provisions set forth in Section 3 of this Lease.
22. Inspection. Lessor and its authorized representatives shall have the right, upon giving not less than five Business Days' prior written notice to Lessee (except that in the event of an emergency no such prior notice shall be required), to enter any of the Properties or any part thereof at reasonable times and inspect the same and make photographic or other evidence concerning Lessee's compliance with the terms of this Lease. Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of any of the Properties and any other loss occasioned by such entry so long as Lessor shall have used reasonable efforts not to unreasonably interrupt Lessee's normal business operations. Lessor hereby covenants and agrees to indemnify, defend and hold Lessee harmless from and against any and all losses, liabilities, damages, costs, expenses, suits, judgments and claims arising from injury or damage during the Lease Term to person or property caused by the act or acts, omissions or commissions of Lessor or any of its authorized representatives with respect to, or growing out of, any actions of Lessor pursuant to this Section 22 (except to the extent of Lessee's gross negligence or willful misconduct; provided, however, that the term "gross negligence" shall not include gross negligence imputed as a matter of law to Lessor solely by reason of the Lessor's interest in any of the Properties or Lessor's failure to act in respect of matters which are or were the obligation of Lessee under this Lease). Lessee shall keep and maintain at the Properties or Lessee's corporate headquarters full, complete and appropriate books of account and records of Lessee's business relating to the Properties. Lessee's books and records shall be open at all reasonable times during regular business hours for inspection by Lessor, Lender and their respective auditors or other authorized representatives and shall show such information as is reasonably necessary to determine compliance with Lessee's obligations under this Lease.
23. Default, Remedies and Measure of Damages. A. Each of the following shall be an event of default under this Lease (each, an "Event of Default"):
(i) If any representation or warranty of Lessee set forth in this Lease is false in any respect as of the Effective Date, or if Lessee knowingly renders any statement or account which is false as and when made in any manner which could reasonably be expected to result in damages to Lessor;
(ii) If any rent or other monetary sum due under this Lease is not paid within 5 Business Days from the date when due; provided, however, notwithstanding the occurrence of such an Event of Default, Lessor shall not be entitled to exercise its remedies set forth below unless and until Lessor shall have given Lessee written notice thereof and a period of 5 Business Days from the delivery of such written notice shall have elapsed without such Event of Default being cured;
(iii) If Lessee fails to pay, prior to delinquency, any taxes, assessments or other charges, the failure of which to pay will result in the imposition of a lien against any of the Properties or the rental or other payments due under this Lease or a claim against Lessor, unless Lessee is contesting such taxes, assessments or other charges in accordance with the provisions of Section 10 of this Lease; provided, however, notwithstanding the occurrence of such an Event of Default, Lessor shall not be entitled to exercise its remedies set forth below unless and until Lessor shall have given Lessee written notice thereof and a period of 5 Business Days from the delivery of such written notice shall have elapsed without such Event of Default being cured;
(iv) If Lessee or Guarantor becomes insolvent within the meaning of the Code, files or notifies Lessor that it intends to file a petition under the Code, initiates a proceeding under any similar law or statute relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts (collectively, hereinafter, an "Action"), becomes the subject of either a petition under the Code or an Action which is not dissolved within 90 days after filing, or is not generally paying its undisputed debts as the same become due;
(v) If Lessee vacates or abandons any of the Properties other than in accordance with the provisions of Section 15 of this Lease;
(vi) If Lessee fails to observe or perform any of the other covenants (except with respect to a breach of the Aggregate Fixed Charge Coverage Ratio, which breach is addressed in subitem (ix) below), conditions or obligations of this Lease; provided, however, if any such failure does not involve the payment of any monetary sum, is not willful or intentional, does not place any rights or property of Lessor in immediate jeopardy, and is within the reasonable power of Lessee to promptly cure after receipt of written notice thereof, then such failure shall not constitute an Event of Default hereunder, except as otherwise expressly provided herein, unless and until Lessor shall have given Lessee written notice thereof and a period of 30 days shall have elapsed, during which period Lessee may correct or cure such failure, and upon Lessee's failure to complete such correction or cure, an Event of Default shall be deemed to have occurred hereunder without further written notice or demand of any kind being required. If such failure cannot reasonably be corrected or cured within such 30-day period, and Lessee is diligently pursuing a correction or cure of such failure, then Lessee shall have a reasonable period to correct or cure such failure beyond such 30-day period, which shall in no event exceed 90 days after receiving written notice of such failure from Lessor. If Lessee shall fail to correct or cure such failure within such 90-day period, an Event of Default shall be deemed to have occurred hereunder without further written notice or demand of any kind being required;
(vii) If there is an "Event of Default" or a breach or default, after the passage of all applicable notice and cure or grace periods, under any other Sale-Leaseback Document, including, without limitation, the Guaranty;
(viii) If a final, nonappealable judgment is rendered by a court against Lessee in an amount of $25,000,000.00 or more (which is not covered by insurance) individually or in the aggregate or which prevents the operation of any of the Properties as a Permitted Facility, and in either event is not discharged (or provision made for such discharge by settlement or otherwise; provided, however, any such settlement must not prevent the operation of any of the Properties as a Permitted Facility and Lessee's failure to perform the terms of such settlement must not prevent the operation of any of the Properties as a Permitted Facility) or bonded over within 60 days from the date of entry thereof;
(ix) If there is a breach of the Aggregate Fixed Charge Coverage Ratio requirement and Lessor shall have given Lessee written notice thereof; provided, however, Lessee shall have the option, but not the obligation, to cure such breach by completing either of the following within a period of 30 days from the delivery of such written notice:
(1) prepay Base Monthly Rental in an amount (the "Prepayment Amount") equal to the product of (x) the Purchase Price multiplied by (y) a fraction, the numerator of which is the Rent Adjustment Amount and the denominator is the Base Monthly Rental then in effect. In the event that Lessee shall elect to prepay the Base Monthly Rental in an amount equal to the Prepayment Amount, then the Monthly Rental commencing on the next scheduled payment date following such prepayment shall be reduced in an amount equal to the Rent Adjustment Amount divided by 12; or
(2) deliver to Lessor a letter of credit in favor of Lessor (or, at Lessor's written direction, in favor of, or as designated by, Lender) in the form attached to this Lease as Exhibit C issued by an Approved Institution (the "Letter of Credit'1 in an amount equal to the lesser of (x) the Prepayment Amount and (y) an amount equal to the product of the Rent Adjustment Amount divided by 12 and the number of months remaining in the Initial Term (excluding any free rent period); provided, however, Lessee may not provide a Letter of Credit to cure a breach of the Aggregate Fixed Charge Coverage Ratio requirement if the aggregate amount of all Letters of Credit delivered to Lessor exceeds the Base Annual Rental. Such Letter of Credit shall be maintained in effect until the cure of the breach of the Aggregate Fixed Charge Coverage Ratio which was the basis for the Letter of Credit being provided. If (x) an Event of Default shall have occurred and be continuing, Lessor shall have the right to present such Letter of Credit for payment and apply such proceeds toward the Base Annual Rental then due and payable under this Lease, and (y) if a substitute or replacement Letter of Credit issued by an Approved Institution for such Letter of Credit in the amount of such Letter of Credit is not provided to Lessor at least 30 days prior to the scheduled expiration date of such Letter of Credit, Lessor shall have the right to present such Letter of Credit for payment at any time within such 30 day period and the proceeds of such Letter of Credit shall be held by Lessor as security for the payment of the Base Annual Rental due and payable under this Lease. The Letter of Credit shall provide that Lessor can only present the Letter of Credit for payment as contemplated by the preceding subitems (x) and (y). Upon Lessee's cure of the Aggregate Fixed Charge Coverage Ratio breach which was the basis for such Letter of Credit being provided, Lessor shall release the Letter of Credit to the Approved Institution or, if Lessor is holding the proceeds of such Letter of Credit, deliver such proceeds to Lessee.
Notwithstanding the foregoing, if, within a 30 day period after the delivery of Lessor's written notice to Lessee of Lessee's breach of the Aggregate Fixed Charge Coverage Ratio requirement, Lessee provides evidence satisfactory to Lessor that the Aggregate Fixed Charge Coverage Ratio is at least 1.25:1 for the twelve calendar month period immediately preceding the delivery to Lessor of such evidence, no Event of Default shall be deemed to have occurred as a result of such breach of the Aggregate Fixed Charge Coverage Ratio requirement.
(x) If Lessee shall fail to sign any instrument or certificate in accordance with the provisions of Sections 24 or 25 of this Lease and such failure shall not be cured within 5 Business Days following written notice from Lessor.
(xi) If Lessee shall fail to maintain insurance in accordance with the requirements of Section 12 and such failure continues for 5 Business days following written notice from Lessor.
B. Upon the occurrence of an Event of Default, with or without notice or demand, except the notice prior to default required under certain circumstances by Section 23.A or such other notice as may be required by statute and cannot be waived by Lessee (all other notices being hereby waived), Lessor shall be entitled to exercise, at its option, concurrently, successively, or in any combination, all remedies available at law or in equity, including without limitation, any one or more of the following:
(i) To terminate this Lease, whereupon Lessee's right to possession of the Properties shall cease and this Lease, except as to Lessee's liability, shall be terminated.
(ii) To reenter and take possession of any or all of the Properties and, to the extent permissible, all licenses, permits and other rights or privileges of Lessee pertaining to the use and operation of any or all of the Properties and to expel Lessee and those claiming under or through Lessee, without being deemed guilty in any manner of trespass or becoming liable for any loss or damage resulting therefrom, without resort to legal or judicial process, procedure or action. No notice from Lessor hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Lessor to terminate this Lease unless such notice specifically so states. If Lessee shall, after default, voluntarily give up possession of any of the Properties to Lessor, deliver to Lessor or its agents the keys to any of the Properties, or both, such actions shall be deemed to be in compliance with Lessor's rights and the acceptance thereof by Lessor or its agents shall not be deemed to constitute a termination of this Lease. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice.
(iii) If Lessee has not removed the Personalty within 20 Business Days after written notice from Lessor to Lessee and repaired all damage to the Properties caused by such removal, Lessor shall have the immediate right to seize all Personalty located on or at any or all of the Properties and cause the same to be stored in a public warehouse or elsewhere at Lessee's sole expense, without becoming liable for any loss or damage resulting therefrom and without resorting to legal or judicial process, procedure or action.
(iv) To. bring an action against Lessee for any damages sustained by Lessor.
(v) To relet any or all of the Properties or any part thereof for such term or Terms (including a term which extends beyond the original Lease Term), at such rentals and upon such other Terms as Lessor, in its sole discretion, may determine, with all proceeds received from such reletting being applied to the rental and other sums due from Lessee in such order as Lessor may, in its sole discretion, determine, which other sums include, without limitation, all repossession costs, brokerage commissions, reasonable attorneys' fees and expenses, employee expenses, alteration, remodeling and repair costs and expenses of preparing for such reletting. Except to the extent required by applicable law, Lessor shall have no obligation to relet any of the Properties or any part thereof and shall in no event be liable for refusal or failure to relet any of the Properties or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon such reletting, and no such refusal or failure shall operate to relieve Lessee of any liability under this Lease or otherwise to affect any such liability. Lessor reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Lessee written notice thereof, in which event this Lease will terminate as specified in said notice.
(vi) (x) To recover from Lessee all rent and other monetary sums then due and owing under this Lease; and (y) to accelerate and recover from Lessee the present value (discounted at the rate of 6% per annum) of all rent and other monetary sums scheduled to become due and owing under this Lease after the date of such breach for the entire original scheduled Lease Term; provided, however, in no event shall such recovery be less than the sum of (i) the product of the percentage specified on Schedule m attached hereto which corresponds to the month in which such Event of Default first occurred multiplied by the sum of Lessor's Total Investment for all of the Properties which are then subject to this Lease plus (ii) the sum of the Prepayment Charges corresponding to all of the Properties which are then subject to this Lease.
(vii) To recover from Lessee all reasonable costs and expenses, including reasonable attorneys' fees, court costs, expert witness fees, costs of tests and analyses, travel and accommodation expenses, deposition and trial transcripts, copies and other similar costs and fees, paid or incurred by Lessor as a result of such breach, regardless of whether or not legal proceedings are actually commenced.
(viii) To immediately or at any time thereafter, and with or without notice, at Lessor's sole option but without any obligation to do so, correct such breach or default and charge Lessee all costs and expenses incurred by Lessor therein. Any sum or sums so paid by Lessor, together with interest at the Default Rate, shall be deemed to be Additional Rental hereunder and shall be immediately due from Lessee to Lessor. Any such acts by Lessor in correcting Lessee's breaches or defaults hereunder shall not be deemed to cure said breaches or defaults or constitute any waiver of Lessor's right to exercise any or all remedies set forth herein.
(ix) To immediately or at any time thereafter, and with or without notice, except as required herein, set off any money of Lessee held by Lessor wider this Lease against any sum owing by Lessee or Guarantor hereunder.
(x) To seek any equitable relief available to Lessor, including, without limitation, the right of specific performance.
All powers and remedies given by this Section 23.B to Lessor, subject to applicable law, shall be cumulative and not exclusive of one another or of any other right or remedy or of any other powers and remedies available to Lessor under this Lease, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements of Lessee contained in this Lease, and no delay or omission of Lessor to exercise any right or power accruing upon the occurrence of any Event of Default shall impair any other or subsequent Event of Default or impair any rights or remedies consequent thereto. Every power and remedy given by this Section 23.B or by law to Lessor may be exercised from time to time, and as often as may be deemed expedient, by Lessor, subject at all times to Lessor's right in its sole judgment to discontinue any work commenced by Lessor or change any course of action undertaken by Lessor.
If Lessee shall fail to observe or perform any of its obligations under this Lease or in the event of an emergency, then, without waiving any Event of Default which may result from such failure or emergency, Lessor may, but without any obligation to do so, take all actions, including, without limitation, entry upon any or all of the Properties to perform Lessee's obligations, immediately and without notice in the case of an emergency and upon five Business Days' prior written notice to Lessee in all other cases. All expenses incurred by Lessor in connection with performing such obligations, including, without limitation, reasonable attorneys' fees and expenses, together with interest at the Default Rate from the date any such expenses were incurred by Lessor until the date of payment by Lessee, shall constitute Additional Rental and shall be paid by Lessee to Lessor upon demand.
24. Liens; Mortgages, Subordination, Nondisturbance and Attornment. Lessor's interest in this Lease and/or any of the Properties shall not be subordinate to any liens or encumbrances placed upon any of the Properties by or resulting from any act of Lessee, and nothing herein contained shall be construed to require such subordination by Lessor. Lessee shall keep the Properties free from any liens for work performed, materials furnished or obligations incurred by Lessee.NOTICE IS HEREBY GIVEN THAT, EXCEPT AS OTHERWISE CONSENTED TO BY LESSOR PURSUANT TO SECTION 26, LESSEE IS NOT AUTHORIZED TO PLACE OR ALLOW TO BE PLACED ANY LIEN, MORTGAGE, DEED OF TRUST, SECURITY INTEREST OR ENCUMBRANCE OF ANY KIND UPON ALL OR ANY PART OF ANY OF THE PROPERTIES OR LESSEE'S LEASEHOLD INTEREST THEREIN, AND ANY SUCH PURPORTED TRANSACTION WHICH IS NOT APPROVED BYLESSORSHALLBEVOID.FURTHERMORE,ANYSUCHPURPORTED TRANSACTION SHALL BE DEEMED A TORTIOUS INTERFERENCE WITH LESSOR'S RELATIONSHIP WITH LESSEE AND LESSOR'S OWNERSHIP OF THE PROPERTIES.
This Lease at all times shall automatically be subordinate to the Mortgages and to the lien of any and all mortgages, deeds of trust, deeds to secure debt and trust deeds now or hereafter placed upon any of the Properties by Lessor, and Lessee covenants and agrees to execute and deliver, upon demand, such further instruments subordinating this Lease to the lien of the Mortgages and any or all such mortgages, deeds of trust, deeds to secure debt or trust deeds as shall be desired by Lessor, or any present or proposed mortgagees or lenders under deeds of trust, deeds to secure debt or trust deeds, upon the condition that (a) Lessee shall have the right to remain in possession of the Properties under the terms of this Lease, notwithstanding any default in the Mortgages or any or all such mortgages, deeds of trust, deeds to secure debt or trust deeds or after foreclosure of any or all such Mortgages, mortgages, deeds of trust, deeds to secure debt or trust deeds, so long as an Event of Default shall not have occurred and be continuing and (b) the holders of the Mortgages and any and all mortgages, deeds of trust, deeds to secure debt and trust deeds now or hereafter placed upon any of the Properties by Lessor execute an agreement substantially in the form attached to this Lease as Exhibit D, but with such modifications as may be reasonably required consistent with then customary lending practices, in recordable form wherein the holder(s) of said indebtedness agree not to disturb Lessee's possession, deprive Lessee of any rights or increase Lessee's obligations under this Lease ("Non-Disturbance and Attornment Agreement"). The Non-Disturbance and Attornment Agreement shall provide that the mortgagee, beneficiary or trustee named in such mortgage, deed of trust, deed to secure debt or trust deed shall, subject to the terms of this Section 24, recognize this Lease and acknowledge that, so long as an Event of Default shall not have occurred and be continuing, a foreclosure or acceptance of a deed in lieu of foreclosure or the exercise of any other rights under such mortgage, deed of trust, deed to secure debt or trust deed shall not extinguish or otherwise diminish or disturb the rights of Lessee as set forth in this Lease. Lessee acknowledges and agrees that the execution and delivery by Lender of the Acknowledgement satisfies the obligation of Lessor to deliver a Non-Disturbance and Attornment Agreement with respect to the obligations of Lessor to Lender under the Mortgages encumbering the Properties executed as of the date of this Lease.
If any mortgagee, receiver, Lender or other secured party elects to have this Lease and the interest of Lessee hereunder be superior to any of the Mortgages or any such mortgage, deed of trust, deed to secure debt or trust deed and evidences such election by notice given to Lessee, then this Lease and the interest of Lessee hereunder shall be deemed superior to any such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed, whether this Lease was executed before or after such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed and in that event such mortgagee, receiver, Lender or other secured party shall have the same rights with respect to this Lease as if it had been executed and delivered prior to the execution and delivery of such Mortgage, mortgage, deed of trust, deed to secure debt or trust deed and had been assigned to such mortgagee, receiver, Lender or other secured party.
Although the foregoing provisions shall be self-operative and no future instrument of subordination shall be required, upon request by Lessor, Lessee shall execute and deliver whatever instruments may be reasonably required for such purposes.
Lessee shall send written notice to any Lender of Lessor having a recorded lien upon any of the Properties or any part thereof of which Lessee has been notified in writing of any breach or default by Lessor of any of its obligations under this Lease concurrently with the sending of such notice to Lessor, and Lessee shall give such Lender at least 60 days beyond any notice period to which Lessor might be entitled to cure such default before Lessee may exercise any remedy with respect thereto.
25. Estoppel Certificate. At any time, but not more often than twice every 12 months, Lessee shall, promptly and in no event later than 10 days after a request from Lessor or Lender, execute, acknowledge and deliver to Lessor or Lender a certificate in the form supplied by Lessor, Lender or any present or proposed mortgagee or purchaser designated by Lessor, certifying the following: (i) that Lessee has accepted the Properties (or, if Lessee has not done so, that Lessee has not accepted the Properties, and specifying the reasons therefor); (ii) that this Lease is in full force and effect and has not been modified (or if modified, setting forth all modifications), or, if this Lease is not in full force and effect, the certificate shall so specify the reasons therefor; (iii) the commencement and expiration dates of the Lease Term, including the terms of any extension options of Lessee; (iv) the date to which the rentals have been paid under this Lease and the amount thereof then payable; (v) whether there are then any existing defaults by Lessor in the performance of its obligations under this Lease, and, if there are any such defaults, specifying the nature and extent thereof; (vi) that no notice has been received by Lessee of any default under this Lease which has not been cured, except as to defaults specified in the certificate; (vii) the capacity of the person executing such certificate, and that such person is duly authorized to execute the same on behalf of Lessee; (viii) that neither Lessor nor Lender has actual involvement in the management or control of decision making related to the operational aspects or the day-to-day operations of the Properties; and (ix) any other information reasonably requested by Lessor or Lender consistent with then customary leasing or lending practices.
26. Assignment; Subletting. A. Lessor shall have the right to sell or convey all, but not less than all, of the Properties or to assign its right, title and interest as Lessor under this Lease in whole, but not in part. In the event of any such sale or assignment other than a security assignment, provided Lessee receives written notice that such purchaser or assignee has assumed all of Lessor's obligations under this Lease, Lessee shall attorn to such purchaser or assignee and Lessor shall be relieved, from and after the date of such transfer or conveyance, of liability for the performance of any obligation of Lessor contained herein, except for obligations or liabilities accrued prior to such assignment or sale.
B. Lessee acknowledges that Lessor has relied both on the business experience and creditworthiness of Lessee and upon the particular purposes for which Lessee intends to use the Properties in entering into this Lease. Without the prior written consent of Lessor, and except as expressly set forth in this Section 26.B: (i) Lessee shall not assign, transfer, convey, pledge or mortgage this Lease or any interest therein, whether by operation of law or otherwise; (ii) no interest in Lessee shall be assigned, transferred, conveyed, pledged or mortgaged, whether by operation of law or otherwise, including, without limitation, a dissolution of Lessee or a transfer of any of the voting stock of Lessee; and (iii) Lessee shall not sublet all or any part of any of the Properties except as set forth in Section 26.C. It is expressly agreed that Lessor may withhold or condition such consent based upon such matters as Lessor may in its reasonable discretion determine, including, without limitation, the experience and creditworthiness of any assignee, the assumption by any assignee of all of Lessee's obligations hereunder by undertakings enforceable by Lessor, payment to Lessor of any rentals owing under a sublease which are in excess of the rentals owing hereunder, the transfer to any assignee of all necessary licenses and franchises to continue operating the Properties for the purposes herein provided, receipt of such representations and warranties from any assignee as Lessor may reasonably request, including such matters as its organization, existence, good standing and finances and other matters, whether or not similar in kind. At the time of any assignment of this Lease which is approved by Lessor, the assignee shall assume all of the obligations of Lessee under this Lease pursuant to Lessor's standard form of assumption agreement. No such assignment nor any subletting of any of the Properties shall relieve Lessee of its obligations respecting this Lease. Any assignment, transfer, conveyance, pledge or mortgage in violation of this Section 26.B shall be voidable at the sole option of Lessor. Notwithstanding the foregoing, but subject to the conditions set forth in the following sentence, the prior written consent of Lessor shall not be required for the assignment by Lessee of this Lease to an Affiliate of Lessee, or the transfer of the voting stock of Lessee by Guarantor to an Affiliate of Lessee in a single transaction or a series of transactions, provided that in either event such Affiliate is a corporation, partnership or limited liability company whose voting stock, partnership interests or membership interests, as applicable, are owned entirely, directly or indirectly, by Guarantor. Lessee's right to complete an assignment or transfer contemplated by the preceding sentence shall be subject to the satisfaction of the following conditions precedent at the time of the proposed assignment or transfer:
(1) no Event of Default shall have occurred and be continuing;
(2) Lessee shall provide Lessor with written notice of such proposed assignment or transfer at least 30 days prior to the anticipated date of such assignment or transfer;
(3) Lessee, such Affiliate and Guarantor shall execute such documents, take such actions and deliver such opinions of counsel and other evidence of authority as Lessor may reasonably require to evidence the obligations of Lessee and, to the extent applicable, such Affiliate, as lessee, under this Lease and Guarantor under the Guaranty notwithstanding the completion of such assignment or transfer; and
(4) Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with any such assignment or transfer, including, without limitation, the reasonable attorneys' fees and expenses of Lessor and Lender.
C. Without otherwise limiting any of the terms and conditions of this Section or Section 24 of this Lease, (i) Lessee shall have the right to transfer any of its assets to an Affiliate of Lessee, other than its leasehold interests in the Properties and any other assets used in connection with or related to the operation of the Properties, and (ii) the voting stock, partnership interests or membership interests, as applicable, of such Affiliate may be pledged to a third-party financial institution as security for the performance of obligations due such institution, subject to the satisfaction of the following conditions: (x) no Event of Default shall have occurred and be continuing, (y) such Affiliate is a corporation, partnership or limited liability company whose voting stock, partnership interests or membership interests, as applicable, are owned entirely, directly or indirectly, by Guarantor, and (z) such Affiliate shall have executed and delivered to Lessor an unconditional guaranty of payment and performance with respect to the obligations of Lessee under this Lease, which unconditional guaranty shall be substantially in the form of the Guaranty.
D. Notwithstanding the foregoing, but subject to the conditions set forth in the following sentence, Lessee shall have the right to sublease: (i) any of the Properties to a wholly- owned subsidiary or Affiliate of Lessee, plus (ii) an aggregate of four of the Properties at any time (in addition to the Properties subleased pursuant to the preceding item (i)) without the consent of Lessor or Lender. Lessee's right to sublease the Properties as contemplated by the preceding sentence shall be subject to the following conditions:
(1) no Event of Default shall have occurred and be continuing;
(2) any such sublease shall be subordinate to this Lease and Lessee shall remain liable under this Lease notwithstanding such sublease; and
(3) the Properties subject to such subleases shall be used as Permitted Facilities and shall otherwise be operated and maintained in accordance with the terms and conditions of this Lease.
Within 10 Business Days after the execution of each such sublease, Lessee shall provide Lessor with a notice of such sublease and a photocopy of the fully executed sublease.
27. Option To Extend; New Lease. A. Lessor and Lessee acknowledge and agree that the Lease Term, including any term extensions provided for in this Lease, is less than 90% of the expected remaining economic life of each of the Properties. Lessee, provided no Event of Default has occurred and is continuing at the time of exercise or at the expiration of the Lease Term or, if applicable, the preceding extension of the Lease Term, shall have the option to continue this Lease in effect for one initial additional period of 10 years and 2 successive periods of 5 years each in accordance with the terms and provisions of this Lease then in effect, except that the Base Annual Rental during each extension period shall be an amount set forth on the attached Exhibit B. Lessor and Lessee agree that the Base Annual Rental during each extension period represents the then fair market rental value of the Properties.
Lessee may only exercise the first extension option by giving notice to Lessor of Lessee's intention to do so not later than July 31, 2019. If the first extension option is exercised by Lessee, Lessee may only exercise the second extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2030. If the first two extension options are exercised, Lessee may only exercise the third extension option by giving notice to Lessor of Lessee's intention to do so not later than October 31, 2035.
B. In addition, provided no Event of Default shall have occurred and be continuing, Lessee shall also have the right, by notice delivered to Lessor not later than July 31, 2019, to enter into a new master lease with Lessor, to commence at the end of the Initial Term, for not less than 13 of the Properties. In the event Lessee elects to enter into such new master lease, the Base Annual Rental under such new master lease shall equal the product of (i) the aggregate Applicable Percentage for the Properties included within such new master lease multiplied by the Purchase Price, and (ii) the "Rent Factor'' set forth on the attached Exhibit B. Such new master lease shall be for a 10 year primary term, have two (2) five-year renewal options and otherwise be on the same terms and conditions as this Lease. Lessee shall be solely responsible for the payment of all costs and expenses incurred in connection with the execution of such new master lease, including, without limitation, Lessee's attorneys' fees and reasonable attorneys' fees and expenses of counsel to Lessor and Lender.
28. Notices. All notices, consents, approvals or other instruments required or permitted to be given by either party pursuant to this Lease shall be in writing and given by (i) hand delivery, (ii) facsimile, (iii) express overnight delivery service or (iv) certified or registered mail, return receipt requested, and shall be deemed to have been delivered upon (a) receipt, if hand delivered, (b) the next Business Day after transmission, if delivered facsimile, (c) the next Business Day, if delivered by express overnight delivery service, or {d) the fifth Business Day following the day of deposit of such notice with the United States Postal Service, if sent by certified or registered mail, return receipt requested. Notices shall be provided to the parties and addresses (or facsimile numbers, as applicable) specified below:
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If to Lessee:
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Cracker Barrel Old Country Store, Inc.
305 Hartmann Drive
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P.O. Box 787
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Lebanon, TN 37088-0787
Attention: Chief Financial Officer
Telephone: (615) 443-9574
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Facsimile: (615) 443-9818
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With a copy to:
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General Counsel
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Cracker Barrel Old Country Store, Inc.
305 Hartmann Drive
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P.O. Box 787
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Lebanon, TN 37088-0787
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Telephone: (615) 443-9180
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Facsimile: (615) 443-9818
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With a copy to Guarantor:
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CBRL Group, Inc.
Attention: General Counsel
305 Hartmann Drive
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P.O. Box 787
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Lebanon, TN 37088-0787
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Telephone: (615) 443-9180
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Facsimile: (615) 443-9818
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If to Lessor:
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Country Stores Property I, LLC
c/o U.S. Realty Advisors LLC
1370 Avenue of the Americas
New York, NY 10019
Attention: Mr. David M. Ledy
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Telephone: (212) 581-4540
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Facsimile: (212) 581-4950
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With a copy to:
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Proskauer Rose LLP
1585 Broadway
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New York, NY 10036
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Attention: Kenneth S. Hilton, Esq.
Telephone: (212) 969-3000
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Facsimile: (212) 969-2900
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or to such other address or such other person as either party may from time to time hereafter specify to the other party in a notice delivered in the manner provided above. No such notices, consents, approvals or other communications shall be valid unless Lender receives a duplicate original thereof at the following address:
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Dennis L. Ruben, Esq.
Executive Vice President, General Counsel and Secretary
FFCA Funding Corporation 17207 North Perimeter Drive Scottsdale, AZ 85255
Telephone: (480) 585-4500
Telecopy: (480) 585-2226
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or to such other address or such other person as Lender may from time to time specify to Lessor and Lessee in a notice delivered in the manner provided above.
29. Holding Over. If Lessee remains in possession of any of the Properties after the expiration of the Lease Term, Lessee, at Lessor's option and within Lessor's sole discretion, may be deemed a tenant on a month-to-month basis and shall continue to pay rentals and other sums in the amounts herein provided, except that the Base Monthly Rental shall be automatically doubled, and to comply with all the terms of this Lease; provided, however, nothing herein nor the acceptance of rent by Lessor shall be deemed a consent to such holding over. Lessee shall defend, indemnify, protect and hold the Indemnified Parties harmless from and against any and all Losses resulting from Lessee's failure to surrender possession upon the expiration of the Lease Term, including, without limitation, any claims made by any succeeding lessee. The Terms of this Section 29 shall survive the expiration of the Lease Term.
30. Removal of Personalty. At the expiration of the Lease Term, and if Lessee is not then in breach hereof, Lessee may remove all Personalty from the Properties. Lessee shall repair any damage caused by such removal and shall leave the Properties broom clean and in good and working condition and repair inside and out, except for normal wear and tear and any Casualty and any Taking for which the terms of this Lease do not require Lessee to restore. Any property of Lessee left on the Properties on the 10th Business Day following the expiration of the Lease Term shall automatically and immediately become the property of Lessor. At the expiration of the Lease Term, and if Lessee is not then in breach of this Lease, Lessor agrees that Lessee, at Lessee's sole expense, may, within nine Business Days after such expiration, make such modifications and alterations, including removal of all distinctive physical and structural features associated with the trade dress of Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™ units, as may be necessary to distinguish the Property so clearly from its former appearance and from other Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™, as to prevent any possibility that the public will associate the Property with Cracker Barrel Old Country Store® units, Logan's Roadhouse® units and Carmine Giardini's Gourmet Market™ units, and any confusion created by such association. (Such modifications and alterations shall include, but not be limited to, removing or covering the distinctive decor and color scheme on all walls, counters, fixtures and furnishings, as well as the exterior of the Property.).
31. Financial Statements. (a) Lessee shall provide Lessor with copies of each Quarterly Report on Form 10-Q, Annual Report on Form 10-K and Current Report on Form 8-K of Guarantor, promptly and in any event within 5 Business Days after the filing of such reports (if any) with the United States Securities and Exchange Commission. If Guarantor ceases to be required to file such reports, or if for any other reason such reports are not filed, with the United States Securities and Exchange Commission, Lessee shall provide Lessor the following reports: (i)within 60 days after the end of each of the first 3 fiscal quarters of each fiscal year of Guarantor, copies of the unaudited consolidated balance sheets of Guarantor and its consolidated subsidiaries as at the end of the fiscal quarter of Guarantor and the related unaudited statements of earnings and cash flows, in each case for the fiscal quarter and for the period from the beginning of such fiscal year through the end of such fiscal quarter of Guarantor, prepared in accordance with GAAP throughout the periods reflected therein and certified (subject to year end adjustments and the omission of footnotes) by the chief financial officer or chief accounting officer of Guarantor, and (ii) as soon as possible and in any event within 120 days after the end of each fiscal year of Guarantor, a copy of the audited consolidated balance sheet of Guarantor and its consolidated subsidiaries as at the end of that fiscal year and the related statements of earnings, stockholders' equity and cash flows of Guarantor and its consolidated subsidiaries for that fiscal year, setting forth in each case, in comparative form, the corresponding figures for the preceding fiscal year of Guarantor and prepared in accordance with GAAP throughout the periods reflected therein, certified by a firm of independent certified public accountants selected by Guarantor. In the event that Lessee's property and business at the Properties is ordinarily consolidated with other business for financial statement purposes, separate non-GAAP statements shall be prepared showing the sales, profits and losses, assets and liabilities pertaining to each of the Properties with the basis for allocation of overhead or other charges being clearly set forth.
(a) Within 60 days after the end of each of the first 3 fiscal quarters of each year of Lessee and within 120 days after the end of each fiscal year of Lessee, Lessee shall deliver to Lessor and Lender a Store Income Statement for each of the Properties.
32. Force Majeure. Any prevention, delay or stoppage due to strikes, lockouts, acts of God, enemy or hostile governmental action, civil commotion, fire or other casualty beyond the control of the party obligated to perform shall excuse the performance by such party for a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to rental and other monies to be paid by Lessee pursuant to this Lease and any indemnification obligations imposed upon Lessee under this Lease.
33. Time Is of the Essence. Time is of the essence with respect to each and every provision of this Lease in which time is a factor.
34. Liability Limitation. (a) Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessor, that (i) there shall be absolutely no personal liability on the part of Lessor, its successors or assigns and the trustees, members, partners, shareholders, officers, directors, employees and agents of Lessor and its successors or assigns, to Lessee with respect to any of the terms, covenants and conditions of this Lease, (ii)Lessee waives all claims, demands and causes of action against the trustees, members, partners, shareholders, officers, directors, employees and agents of Lessor and its successors or assigns in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, and (iii) Lessee shall look solely to the Properties for the satisfaction of each and every remedy of Lessee in the event of any breach by Lessor of any of the terms, covenants and conditions of this Lease to be performed by Lessor, or any other matter in connection with this Lease or the Properties, such exculpation of liability to be absolute and without any exception whatsoever.
(b) Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed, such agreement being a primary consideration for the execution of this Lease by Lessee, that, except as set forth in this subsection below, (i) there shall be absolutely no personal liability on the part of the shareholders, officers, directors, employees and agents of Lessee and its successors or assigns with respect to any of the terms, covenants and conditions of this Lease, and (ii) Lessor waives all claims, demands and causes of action against the shareholders, officers, directors, employees and agents of Lessee and its successors or assigns in the event of any breach by Lessee of any of the terms, covenants and conditions of this Lease to be performed by Lessee, such exculpation of liability to be absolute and without any exception whatsoever, except that such waiver and exculpation shall not extend to Losses incurred by any of the Indemnified Parties as a result of fraud or intentional misrepresentations by any of the shareholders, officers, directors, employees and agents of Lessee and its successors and assigns, or limit the ability of the Indemnified Parties to seek recovery from such shareholders, officers, directors, employees and agents of Lessee and its successors and assigns as a result of such fraud or intentional misrepresentation.
35. Consent of Lessor, (a) Except as specified otherwise in specific Sections of this Lease, Lessor's consent to any request of Lessee may be conditioned or withheld in Lessor's sole discretion. Lessor shall have no liability for damages resulting from Lessor's failure to give any consent, approval or instruction reserved to Lessor, Lessee's sole remedy in any such event being an action for injunctive relief.
(b) It is understood and agreed that to the extent Lessor is required to obtain the consent, approval, agreement or waiver of Lender with respect to a matter for which Lessor's approval has been requested under this Lease, Lessor shall in no event be deemed to have unreasonably withheld Lessor's consent, approval, agreement or waiver thereof if Lender shall not have given its approval if required.
36. Waiver and Amendment. No provision of this Lease shall be deemed waived or amended except by a written instrument unambiguously setting forth the matter waived or amended and signed by the party against which enforcement of such waiver or amendment is sought. Waiver of any matter shall not be deemed a waiver of the same or any other matter on any future occasion. No acceptance by Lessor of an amount less than the monthly rent and other payments stipulated to be due under this Lease shall be deemed to be other than a payment on account of the earliest such rent or other payments then due or in arrears nor shall any endorsement or statement on any check or letter accompanying any such payment be deemed a waiver of Lessor's right to collect any unpaid amounts or an accord and satisfaction.
37. Successors Bound. Except as otherwise specifically provided herein, the terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of the respective heirs, successors, executors, administrators and assigns of each of the parties hereto.
38. No Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation of this Lease, shall not result in a merger of Lessor's and Lessee's estates, and shall, at the option of Lessor, either terminate any or all existing subleases or subtenancies, or operate as an assignment to Lessor of any or all of such subleases or subtenancies.
39. Captions. Captions are used throughout this Lease for convenience of reference only and shall not be considered in any manner in the construction or interpretation hereof. References to a particular "Section" herein shall mean such Section of this Lease unless specific reference is also made to another instrument or agreement.
40. Severability. The provisions of this Lease shall be deemed severable. If any part of this Lease shall be held unenforceable by any court of competent jurisdiction, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed herein.
41. Characterization. A. It is the intent of the parties hereto that the business relationship created by this Lease and any related documents is solely that of a long-term commercial lease between landlord and tenant and has been entered into by both parties in reliance upon the economic and legal bargains contained herein. None of the agreements contained herein, is intended, nor shall the same be deemed or construed, to create a partnership between Lessor and Lessee, to make them joint venturers, to make Lessee an agent, legal representative, partner, subsidiary or employee of Lessor, nor to make Lessor in any way responsible for the debts, obligations or losses of Lessee.
B. Lessor and Lessee acknowledge and warrant to each other that each has been represented by independent counsel and has executed this Lease after being fully advised by said counsel as to its effect and significance. This Lease shall be interpreted and construed in a fair and impartial manner without regard to such factors as the party which prepared the instrument, the relative bargaining powers of the parties or the domicile of any party. Whenever in this Lease any words of obligation or duty are used, such words or expressions shall have the same force and effect as though made in the form of a covenant.
42. Easements. During the Lease Term, Lessor agrees to grant such utility, access or other similar easements on, over and above any of the Properties as Lessee may reasonably request provided that such easements will not materially interfere with Lessor's ownership of such Properties.
43. Bankruptcy. A. As a material inducement to Lessor executing this Lease, Lessee acknowledges and agrees that Lessor is relying upon (i) the financial condition and specific operating experience of Lessee and Lessee's obligation to use each of the Properties specifically in accordance with system-wide requirements imposed from time to time on Permitted Facilities, (ii) Lessee's timely performance of all of its obligations under this Lease notwithstanding the entry of an order for relief under the Code for Lessee and (iii) all Events of Default under this Lease as to all Properties being cured promptly and this Lease being assumed within 60 days of any order for relief entered under the Code for Lessee, or this Lease being rejected within that 60-day period and the Properties surrendered to Lessor.
Accordingly, in consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, Lessee hereby agrees that:
(i) All obligations that accrue under this Lease (including the obligation to pay rent), from and after the date that an Action is commenced shall be timely performed exactly as provided in this Lease and any failure to so perform shall be harmful and prejudicial to Lessor;
(ii) Any and all obligations under this Lease that become due from and after the date that an Action is commenced and that are not paid as required by this Lease shall, in the amount of such rents, constitute administrative expense claims allowable under the Code with priority of payment at least equal to that of any other actual and necessary expenses incurred after the commencement of the Action;
(iii) Any extension of the time period within which Lessee may assume or reject this Lease without an obligation to cause all obligations coming due under this Lease from and after the date that an Action is commenced to be performed as and when required under this Lease shall be harmful and prejudicial to Lessor;
(iv) Any time period designated as the period within which Lessee must cure all defaults and compensate Lessor for all pecuniary losses which extends beyond the date of assumption of this Lease shall be harmful and prejudicial to Lessor;
(v) Any assignment of this Lease must result in all terms and conditions of this Lease being assumed by the assignee without alteration or amendment, and any assignment which results in an amendment or alteration of the terms and conditions of this Lease without the express written consent of Lessor shall be harmful and prejudicial to Lessor;
(vi) Any proposed assignment of this Lease to an assignee:
(a) that will not use the Properties specifically in accordance with a franchise, license and/or area development agreement with the franchisor of Permitted Facilities,
(b) that does not possess financial condition, operating performance and experience characteristics equal to or better than the financial condition, operating performance and experience of Lessee as of the Effective Date, or
(c) that does not provide guarantors of the Lease obligations with financial condition equal to or better than the financial condition of Guarantor as of the Effective Date,
shall be harmful and prejudicial to Lessor;
(vii) The rejection (or deemed rejection) of this Lease for any reason whatsoever shall constitute cause for immediate relief from the automatic stay provisions of the Code, and Lessee stipulates that such automatic stay shall be lifted immediately and possession of the Properties will be delivered to Lessor immediately without the necessity of any further action by Lessor; and
(viii) This Lease shall at all times be treated as consistent with the specific characterizations set forth in Section 3 of this Lease, and assumption or rejection of this Lease shall be (a) in its entirety, (b) for all of the Properties, and (c) in strict accordance with the specific Terms and conditions of this Lease.
B. No provision of this Lease shall be deemed a waiver of Lessor's rights or remedies under the Code or applicable law to oppose any assumption and/or assignment of this Lease, to require timely performance of Lessee's obligations under this Lease, or to regain possession of the Properties as a result of the failure of Lessee to comply with the terms and conditions of this Lease or the Code.
C. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor under this Lease, whether or not expressly denominated as such, shall constitute "rent" for the purposes of the Code.
D. For purposes of this Section 43 addressing the rights and obligations of Lessor and Lessee in the event that an Action is commenced, the term "Lessee" shall include Lessee's successor in bankruptcy, whether a trustee, Lessee as debtor in possession or other responsible Person.
44. No Offer. No contractual or other rights shall exist between Lessor and Lessee with respect to the Properties until both have executed and delivered this Lease, notwithstanding that deposits may have been received by Lessor and notwithstanding that Lessor may have delivered to Lessee an unexecuted copy of this Lease. The submission of this Lease to Lessee shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for Lessee to lease or otherwise create any interest on the part of Lessee in the Properties.
45. Other Documents. Each of the parties agrees to sign such other and further documents as may be reasonably necessary or appropriate to carry out the intentions expressed in this Lease.
46. Attorneys' Fees. In the event of any judicial or other adversarial proceeding between the parties concerning this Lease, to the extent permitted by law, the prevailing party shall be entitled to recover all of its reasonable attorneys' fees and other costs in addition to any other relief to which it may be entitled. In addition, Lessor shall, upon demand, be entitled to all reasonable attorneys' fees and all other costs incurred in the preparation and service of any notice or demand hereunder, whether or not a legal action is subsequently commenced. References in this Lease to attorneys' fees and/or costs shall mean both the fees and costs of independent counsel retained by either party with respect to the matter and the fees and costs of their in-house counsel incurred in connection with the matter.
47. Entire Agreement. This Lease and any other instruments or agreements referred ) to herein, constitute the entire agreement between the parties with respect to the subject matter hereof, and there are no other representations, warranties or agreements except as herein provided. Without limiting the foregoing, Lessee specifically acknowledges that neither Lessor nor any agent, officer, employee or representative of Lessor has made any representation or warranty regarding the projected profitability of the business to be conducted on the Properties. Furthermore, Lessee acknowledges that Lessor did not prepare or assist in the preparation of any of the projected figures used by Lessee in analyzing the economic viability and feasibility of the business to be conducted by Lessee at the Properties.
48. Forum Selection; Jurisdiction; Venue; Choice of Law. Lessee acknowledges that there are substantial contacts between the parties and the transactions contemplated herein and the State of New York. Except for purposes of any action or proceeding concerning the creation of this Lease and the rights and remedies of Lessor with respect to the Properties (which actions or proceedings shall be conducted in the state where the affected Property is located), for purposes of all other actions or proceedings arising out of this Lease, the parties hereto expressly submit to the jurisdiction of all federal and state courts located in the State of New York. Lessee and Lessor consent that they may be served with any process or paper by registered mail or by personal service within or without the State of New York in accordance with applicable law. Furthermore, each of Lessee and Lessor waive and agree not to assert in any such action, suit or proceeding that it is not personally subject to the jurisdiction of such courts, that the action, suit or proceeding is brought in an inconvenient forum or that venue of the action, suit or proceeding is improper. The creation of this Lease and the rights and remedies of Lessor with respect to the Properties, as provided herein and by the laws of the states in which the Properties are located, as applicable, shall be governed by and construed in accordance with the internal laws of the states in which the Properties are located, as applicable, without regard to principles of conflicts oflaw. With respect to other provisions of this Lease, this Lease shall be governed by the internal laws of the State of New York, without regard to its principles of conflicts of law. Nothing contained in this Section 48 shall limit or restrict the right of Lessor or Lessee to commence any proceeding in the federal or state courts located in the states in which the Properties are located to the extent Lessor or Lessee deems such proceeding necessary or advisable to exercise remedies available under this Lease.
49. Counterparts. This Lease may be executed in one or more counterparts, each of which shall be deemed an original.
50. Memorandum of Master Lease, Concurrently with the execution of this Lease, Lessor and Lessee are executing the Memorandum to be recorded in the applicable real property records with respect to each of the Properties.
5l. No Brokerage. Lessor and Lessee each represent and warrant to each other that it has had no conversation or negotiations with any broker concerning the leasing of the Properties. Each of Lessor and Lessee agrees to defend, protect, indemnify, save and keep harmless the other, against and from all liabilities, claims, losses, costs, damages and expenses, including reasonable attorneys' fees, arising out of, resulting from or in connection with its breach of the foregoing warranty and representation.
52. Waiver of Jury Trial and Punitive, Consequential, Special and Indirect Damages. LESSOR AND LESSEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR ITS SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF ANY OF THE PROPERTIES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. THIS WAIVER BY THE PARTIES HERETO OF ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY HAS BEEN NEGOTIATED AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN. FURTHERMORE, LESSEE AND LESSOR EACH HEREBY .KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES FROM THE OTHER PARTY AND ANY OF ITS AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF THEIR SUCCESSORS WITH RESPECT TO ANY AND ALL ISSUES PRESENTED IN ANY RESPECTIVE ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY ONE PARTY AGAINST THE OTHER OR ANY OF ITS AFFILIATES, OFFICERS, DIRECTORS, MEMBERS OR EMPLOYEES OR ANY OF THEIR RESPECTIVE SUCCESSORS WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE OR ANY DOCUMENT CONTEMPLATED HEREIN OR RELATED HERETO, EXCEPT THAT SUCH WAIVER ON THE PART OF LESSOR SHALL NOT BE DEEMED TO OTHERWISE LIMIT, REDUCE OR PRECLUDE IN ANY WAY LESSOR'S REMEDIES PURSUANT TO SECTION 23 HEREOF. THE WAIVER BY EACH PARTY OF ANY RIGHT IT MAY HAVE TO SEEK PUNITIVE, CONSEQUENTIAL, SPECIAL AND INDIRECT DAMAGES HAS BEEN NEGOTIATED BY THE PARTIES HERETO AND IS AN ESSENTIAL ASPECT OF THEIR BARGAIN.
53. Reliance By Lender. Lessee acknowledges and agrees that Lender may rely on all of the representations, warranties and covenants set forth in this Lease, that Lender is an intended third-party beneficiary of such representations, warranties and covenants and that Lender shall have all rights and remedies available at law or in equity as a result of a breach of such representations, warranties and covenants, including to the extent applicable, the right of subrogation.
54. Document Review. In the event Lessee makes any request upon Lessor requiring Lessor, Lender or the attorneys of Lessor or Lender to review and/or prepare (or cause to be reviewed and/or prepared) any documents, plans, specifications or other submissions in connection with or arising out of this Lease, then Lessee shall reimburse Lessor or its designee promptly upon Lessor's demand therefor for all reasonable out-of-pocket costs and expenses incurred by Lessor in connection with such review and/or preparation plus a reasonable processing and review fee.
55. Substitution. A. Subject to the fulfillment of all of the conditions set forth in the following Section 55.B, Lessee shall have the right to deliver a rejectable offer to Lessor (each, a "Rejectable Substitution Offer") to substitute a Substitute Property for a Property if:
(i) the terms of Sections 21.C or 21.D of this Lease permit such substitution (each, a "Casualty/Condemnation Substitution"); or
(ii) the terms of Section 57 of this Lease permit such substitution (each, an "Economic Substitution").
Each Rejectable Substitution Offer shall identify the proposed Substitute Property in reasonable detail and contain a certificate executed by a duly authorized officer of Lessee pursuant to which Lessee shall certify that in Lessee's good faith judgment such proposed Substitute Property satisfies as of the date of such notice, or will satisfy as of the date of the closing of such substitution, all of the applicable conditions to substitution set forth in this Section 55. Lessee agrees to deliver to Lessor all of the diligence information and materials contemplated by the provisions of Section 55.B of this Lease within 30 days after the delivery to Lessor of a Rejectable Substitution Offer.
Lessor shall have 120 days from the delivery of a Rejectable Substitution Offer notice satisfying the requirements of the preceding paragraph to deliver to Lessee written notice of its election to either accept or reject the Rejectable Substitution Offer. Lessor's failure to deliver such notice within such time period shall be deemed to constitute Lessor's acceptance of the Rejectable Substitution Offer. If the Mortgage corresponding to the Property to be replaced is still outstanding, any rejection of the Rejectable Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender and such written consent is delivered to Lessee within such 120-day period. If Lessor accepts the Rejectable Substitution Offer or is deemed to have accepted the Rejectable Substitution Offer or if Lender does not consent in writing to any rejection of the Rejectable Substitution Offer by Lessor as provided in this Section 55, then Lessee shall complete such substitution, subject, however, to the satisfaction of each of the applicable Terms and conditions set forth in this Section 55.
If Lessor rejects the Rejectable Substitution Offer and Lessee has satisfied the applicable requirements for substitution set forth in this Section 55, and such rejection is consented to by Lender as provided in this Section 55, then:
(X) if such rejected Rejectable Substitution Offer was made with respect to a Casualty/Condemnation Substitution, the provisions of the next to last paragraphs of either Section 21.D or Section 21.H, as applicable, shall apply; and
(Y) if such rejected Rejectable Substitution Offer was made with respect to a Economic Substitution, this Lease shall Terminate with respect to the Property which Lessee proposed to replace on the next scheduled Base Monthly Rental payment date (the "Early Substitution Termination Date") provided Lessee has paid to Lessor all Base Annual Rental, Additional Rental and all other sums and obligations then due and payable under this Lease as of such Early Substitution Termination Date.
On the Early Substitution Termination Date, and provided Lessee shall have paid to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease as of the Early Substitution Date:
(i) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect; and
(ii) all obligations of Lessor and Lessee shall cease as of the Early Substitution Termination Date with respect to such Property; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19 of this Lease) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the Early Substitution Termination Date shall survive the termination of this Lease with respect to such Property or otherwise. This Lease shall, however, continue in full force and effect with respect to all other Properties.
B. The substitution of a Substitute Property for a Property pursuant to the preceding Section 55.A shall be subject to the fulfillment of all of the following Terms and conditions:
(i) The Substitute Property must:
(1) be a Permitted Facility, in good condition and repair, ordinary wear and tear excepted, and located in the same state as the Property to be replaced or in another state acceptable to Lessor in Lessor's sole discretion;
(2) have a Fixed Charge Coverage Ratio (with the definitions of Section 8.A being deemed to be modified, as contemplated in the following sentence, to provide for a calculation of a "Fixed Charge Coverage Ratio" for the Substitute Property only) for the FCCR Period greater than the Fixed Charge Coverage Ratio for the Property to be replaced for such FCCR Period. For purposes of this subitem (2), the definitions set forth in Section 8.A of this Lease with respect to the calculation of the Aggregate Fixed Charge Coverage Ratio shall be deemed modified as applicable to provide for the calculation of a Fixed Charge Coverage Ratio for each Property on an individual basis rather than on an aggregate basis with the other Properties, including, without limitation, modifying the definitions of Debt, Depreciation and Amortization and Net Income to apply only to the Property for which such calculation is being made, and the Operating Lease Expense with respect to this Lease for each such Property shall equal the Applicable Percentage for each Property multiplied by the Base Annual Rental then in effect;
(3) have a fair market value no less than the greater of the then fair market value of the Property being replaced or the fair market value of such Property as of the Effective Date (in each case, determined without regard to this Lease, but assuming that while this Lease has been in effect, Lessee has complied with all of the terms and conditions of this Lease), as determined by Lessor, and consented to by Lender, utilizing the same valuation method as used in connection with the closing of the transaction described in the Sale-Leaseback Agreement, which was based upon the sum of(x) the fair market value of the land comprising such Property and (y) the replacement cost of the improvements located thereon;
(4) have improvements which have a remaining useful life substantially equivalent to, or better than, that of the improvements located at the Property to be replaced; and
(5) be conveyed to Lessor (or, if directed by Lessor, to Lessor and a person designated to acquire the remainderman interest) by special or limited warranty deed, free and clear of all liens and encumbrances, except such matters as are reasonably acceptable to Lessor (the "Substitute Property Permitted Exceptions");
(ii) Lessor shall have inspected and approved the Substitute Property utilizing Lessor's customary site inspection and underwriting approval criteria. Lessee shall have reimbursed Lessor and Lender for all of their reasonable costs and expenses incurred with respect to such proposed substitution, including, without limitation, Lessor's third-party and/or in-house site inspectors' costs and expenses with respect to the proposed Substitute Property. Lessee shall be solely responsible for the payment of all costs and expenses resulting from such proposed substitution, regardless of whether such substitution is consummated, including, without limitation, the cost of title insurance and endorsements for both Lessor and Lender, survey charges, stamp taxes, mortgage taxes, transfer fees, escrow and recording fees, the cost of environmental policies or endorsements to the Environmental Policies as applicable, income and transfer taxes imposed on Lessor as a result of such substitution and the reasonable attorneys' fees and expenses of counsel to Lessee, Lessor and Lender;
(iii) Lessor shall have received a preliminary title report and irrevocable commitment to insure title by means of an ALTA extended coverage owner's policy of title insurance (or its equivalent, in the event such form is not issued in the jurisdiction where the proposed Substitute Property is located) for the proposed Substitute Property issued by Title Company and committing to insure Lessor's good and marketable title in the proposed Substitute Property, subject only to the Substitute Property Permitted Exceptions and containing endorsements substantially comparable to those required by Lessor at the Closing (as defined in the Sale-Leaseback Agreement) and Lender shall have received such title report and irrevocable commitment to insure its first priority lien encumbering the proposed Substitute Property as Lender shall reasonably require;
(iv) Lessor shall have received a current ALTA survey of the proposed Substitute Property, the form of which shall be comparable to those received by Lessor at the Closing and sufficient to cause the standard survey exceptions set forth in the title policy referred to in the preceding subsection to be deleted;
(v) Lessor shall have received an environmental insurance policy with respect to the proposed Substitute Property, or to the extent applicable, an endorsement to the Environmental Policies, the form and substance of which shall be satisfactory to Lessor in its sole discretion;
(vi) Lessee shall deliver, or cause to be delivered, with respect to Lessee and the Substitute Property, opinions of Counsel (as defined in the Sale-Leaseback Agreement) in form and substance comparable to those received at Closing (but also addressing such matters unique to the Substitute Property as may be reasonably required by Lessor);
(vii) no Event of Default shall have occurred and be continuing under any of the Sale-Leaseback Documents;
(viii) Lessee shall have executed such documents as may be reasonably required by Lessor as a result of such substitution, including amendments to this Lease and the Memorandum (the "Substitute Documents"), all of which documents shall be in form and substance reasonably satisfactory to Lessor;
(ix) the representations and warranties set forth in the Substitute Documents, this Lease and the Sale-Leaseback Agreement applicable to the proposed Substitute Property shall be true and correct in all material respects as of the date of substitution, and Lessee shall have delivered to Lessor an officer's certificate certifying to that effect;
(x) Lessee shall have delivered to Lessor certificates of insurance showing that insurance required by the Substitute Documents is in full force and effect;
(xi) Lessor shall have obtained an endorsement to the policy of residual value insurance issued to Lessor and Lender in connection with the transaction described in the Sale-Leaseback Agreement with respect to the proposed Substitute Property, which endorsement shall be in form and substance reasonably satisfactory to Lessor and Lender; and
(xii) Lender shall have consented to the substitution of the proposed Substitute Property.
C. Upon satisfaction of the foregoing conditions set forth in Section 55.B and provided Lessor has accepted the Rejectable Substitution Offer:
(i) the proposed Substitute Property shall be deemed substituted for the Property to be replaced;
(ii) the Substitute Property shall be referred to herein as a "Property" and included within the definition of "Properties";
(iii) the Substitute Documents shall be dated as of the date of the substitution; and
(iv) Lessor shall convey fee simple insurable title to the Property to be replaced to Lessee or a designee of Lessee "as-is" by special or limited warranty deed, subject to all matters of record (except for the Mortgage corresponding to the Property to be replaced and any other consensual liens granted by Lessor other than those granted by Lessor at the request of Lessee, which shall be released at or before the delivery of such special or limited warranty deed) and all other matters to which Lessee has consented to or for which Lessee is obligated to satisfy under the terms of this Lease, and without representation or warranty.
56. Option To Purchase Properties. Lessee shall have the option, but not the obligation, which option is to be exercised no later than July 31, 2019, to elect to purchase all of the Properties then subject to this Lease for 100% of their Fair Market Value (as defined below}, less closing and transaction costs in an amount not to exceed 5% of such Fair Market Value. Lessor shall have the right, but not the obligation, to accept Lessee's offer. Lessee shall elect such option by giving written notice (the "Option Notice") to Lessor of its intention to do so, and the closing of such purchase must occur within 180 days prior to the end of the Initial Term (the "Purchase Period'').
The term "Fair Market Value" means the fee simple fair market value of all of the Properties determined as follows: within 90 days of Lessor's receipt of the Option Notice, Lessor shall, at Lessee's sole expense, retain an independent MAI appraiser to prepare an appraisal of the fee simple fair market value of the Properties, including any additions or renovations thereto. In determining the fair market value of the Properties, the appraiser shall utilize the cost, income and sales comparison approaches to value. In utilizing the income approach, the appraiser shall determine the "leased fee" value of the Properties, which shall be arrived at by considering (i) the income that would be produced by this Lease through the end of the fully extended Lease Term, and (ii) any other factors relating to such approach which the appraiser shall deem relevant in his sole discretion, including, without limitation, determining the residual value of the Properties following the expiration of the Lease Term. If within 20 days after being notified of the result of such appraisal Lessee elects to reject that appraisal, then the first appraisal shall become null and void and Lessor shall nominate to Lessee a list of not less than three independent MAI appraisers who are experienced with appraising property similar to the Properties, and Lessee shall select one such appraiser. Within 10 days of such selection, Lessor shall retain such appraiser to prepare an appraisal of the Properties in the same manner described above, and the resulting determination of such appraiser shall be the "Fair Market Value" of the Properties for purposes of this Section 56.
Upon exercise of this option, Lessor and Lessee shall open an escrow account with a recognized title insurance or trust company selected by Lessor. Such escrow shall be subject to the standard escrow instructions of the escrow agent, to the extent they are not inconsistent herewith. At or before the close of escrow, Lessor shall deliver to the escrow agent its special warranty deeds conveying to Lessee all of Lessor's right, title and interest in the Properties free and clear of all liens and encumbrances except liens for taxes and assessments and easements, covenants and restrictions of record which were attached to the Properties as of the Effective Date, attached during the Lease Term through Lessee's action or inaction, as applicable, have been granted by Lessor in lieu of a taking by the power of eminent domain or the like, have been approved by Lessee, or which do not materially adversely affect the use of the Properties as Permitted Facilities. In the event Lessor is unable to convey title as required, Lessee shall have the right to accept such title as Lessor can convey, seek specific performance or elect not to consummate its exercise of the option, in which case the option shall lapse and this Lease shall remain in full force and effect. Both Lessor and Lessee agree to execute such instruments, and take such actions, as may be reasonably necessary or appropriate to consummate the sale of the Properties in the manner herein provided. Simultaneously with the closing of the option, Lessor shall prepay the outstanding principal balance of the Notes and all other sums due under the Loan Documents and cause the Mortgages to be released.
All costs of the exercise of the option set forth in this Section, including, without limitation, escrow fees, title insurance fees, recording costs or fees, attorneys' fees (including those of Lessor), appraisal fees, stamp taxes and transfer fees, shall be borne by Lessee. Lessee shall continue to pay and perform all of its obligations under this Lease until the close of escrow, which in no event shall occur after the date of the expiration of the Initial Term. The purchase price paid by Lessee in exercising this option shall be paid to Lessor or to such Person as Lessor may direct at closing in immediately available funds. Lessee shall not have the right to exercise this option or consummate the exercise thereof if at the time of exercise or consummation an Event of Default shall have occurred and be continuing or if any condition shall exist which upon the giving of notice or the passage of time, or both, would constitute an Event of Default.
The failure of Lessee to consummate the purchase of the Properties as contemplated herein shall not release Lessee from its obligations under this Lease and the Lease shall remain in full force and effect until the expiration of the Lease Term or applicable extension period. The escrow shall close within the Purchase Period or Lessee's option to purchase the Properties shall terminate. The closing date may be extended for a reasonable period of time to permit Lessor to cure title defects or to permit either party to cure any other defects or defaults provided each party is diligently seeking to cure such defect or default and Lessee continues to perform its obligations hereunder.
Lessee may not sell, assign, transfer, hypothecate or otherwise dispose of the option granted herein or any interest therein, except in conjunction with a permitted assignment of Lessee's entire interest herein and then only to the assignee thereof. Any attempted assignment of this option which is contrary to the Terms of this paragraph shall be deemed to be a default under this Lease and the option granted herein shall be void.
57. Economic Infeasability. During the period of time commencing with the third anniversary of the Effective Date and ending at the end of the Initial Term, but provided that no Event of Default shall have occurred and be continuing, Lessee shall have the option, but not the obligation, with respect to each Property with a "Fixed Charge Coverage Ratio" (determined on a per Property basis as contemplated by Section 55.B(i)(2)) for the 12 calendar months immediately preceding such third anniversary equal to or less than 1.1:1, to either:
(i) make a rejectable offer to Lessor (an "Economic Substitution Offer") to substitute a Substitute Property for such Property pursuant to the terms and conditions of Section 55 of this Lease; or
(ii) make a payment to Lessor (an "Economic Termination Payment") to terminate this Lease with respect to such Property in an amount equal to the sum of (x) the Applicable Percentage for such Property multiplied by the aggregate Base Annual Rental and Additional Rental for the remaining Initial Term, and (y) the Prepayment Charge corresponding to such Property; provided, however, Lessee may not exercise the rights set forth in this Section 57 with respect to more than six of the Properties in the aggregate. All Economic Termination Payments shall be made on a regularly scheduled Base Monthly Rental payment date upon no less than 30 days prior written notice from Lessee to Lessor.
Lessor shall have 120 days from the delivery of an Economic Substitution Offer satisfying the requirements of Section 55.A to accept or reject such offer in its sole discretion. Lessor's failure to deliver notice of acceptance or rejection of such offer within such time period shall be deemed to constitute Lessor's acceptance of such Economic Substitution Offer. If the Mortgage corresponding to such Property is still outstanding, any rejection of the Economic Substitution Offer by Lessor shall not be effective unless it is consented to in writing by Lender, and such written consent is delivered to Lessee within that 120-day period (Lender shall be deemed to have objected to Lessor's rejection of such Economic Substitution Offer if Lender does not consent to or object to Lessor's rejection of such Economic Substitution Offer within such 120-day period).
If Lessor accepts the Economic Substitution Offer or is deemed to have accepted the Economic Substitution Offer or if any rejection of the Economic Substitution Offer by Lessor is not consented to in writing by Lender, then, within 120 days of the delivery of such Economic Substitution Offer, Lessee shall complete such substitution, subject, however, to the satisfaction of each of the applicable Terms and conditions set forth in this Section 57. Upon such substitution all obligations of either party hereunder with respect to the Property being replaced shall cease as of the closing of such substitution; provided, however, Lessee's obligations to the Indemnified Parties under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to the closing of such substitution shall survive the Termination of this Lease with respect to such Property. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If Lessor rejects the Economic Substitution Offer and such rejection is consented to by Lender, then (i) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (ii) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect, and (iii) provided Lessee shall have paid Lessor all sums described in the preceding subitem (i), all obligations of either party hereunder shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to such Termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
If the event Lessee makes an Economic Termination Payment as contemplated above, (1) on the next scheduled Base Monthly Rental payment date, Lessee shall pay to Lessor all Base Annual Rental, Additional Rental and other sums and obligations then due and payable under this Lease, (2) the Base Annual Rental then in effect shall be reduced by an amount equal to the product of the Applicable Percentage for such Property and the Base Annual Rental then in effect, and (3) provided Lessee shall have paid Lessor all sums described in the preceding subitem (1), all obligations of either party hereunder with respect to such Property shall cease as of the next scheduled Base Monthly Rental payment date; provided, however, Lessee's obligations to Lessor with respect to such Property under any indemnification provisions of this Lease with respect to such Property (including, without limitation, Sections 16 and 19) and Lessee's obligations to pay any sums (whether payable to Lessor or a third party) accruing under this Lease with respect to such Property prior to such termination shall survive the termination of this Lease. This Lease shall, however, continue in full force and effect with respect to all other Properties.
58. State Specific Provisions; Limitation of Interest and Late Charge. (a) The provisions and/or remedies which are set forth on Schedule I shall be deemed a part of and included within the terms and conditions of this Lease.
(b) Notwithstanding anything to the contrary contained in this Lease with respect to the payment by Lessee to Lessor of interest at the Default Rate or otherwise and/or any late charges, Lessee shall not be required to pay any such interest or late charges in excess of the limitation imposed by applicable law prescribing maximum rates of interest then in effect.
59. Confidential Information. (a) Confidential Information may be disclosed to Lessor and Lender and their respective authorized employees, agents and representatives, lenders, purchasers, transferees, assignees, servicers, participants, investors, analysts and Governmental Authorities with regulatory authority over Lender and selected rating agencies with a need to know (collectively, the "Permitted Recipients"), orally or in writing, by inspection or by permissive observation, or in any other way, but no disclosure will allow the Permitted Recipients to further disclose the Confidential Information or to use it except as permitted by this Lease. Confidential Information does not include:
(i) information which was in the public domain, publicly available and publicly known at the time of disclosure, including, without limitation, the reports filed with the SEC as contemplated by Section 8.A of the Sale-Leaseback Agreement and Section 31 of this Lease,
(ii) information which subsequently becomes public knowledge as a result of a disclosure by Lessee, or in any way not involving any breach of this Lease by Lessor, as of the date of its becoming public, or
(iii) information which Lessor or Lender obtains from sources other than Lessee or its Affiliates in any manner not involving any breach of this Section by Buyer or Lender.
(b) Lessee grants to the Permitted Recipients the nonexclusive right to review and use the Confidential information in order to understand the operations of Lessee and its Affiliates in connection with the transactions contemplated by this Lease. Except as otherwise contemplated by subsection (c) below:
(i) the Confidential Information may not be used for any other purpose or by any other Person, and the Confidential Information may not be copied, reproduced, or disseminated except as permitted in this Lease;
(ii) Lessor may possess, review, analyze, and use the Confidential Information only while, and only in connection with, its discussions and negotiations with respect to the purchase of the Properties; and
(iii) except to any Permitted Recipient, Lessor will not reveal, allow the release or discovery of, or disclose the Confidential Information, or any part of it, to any person, firm, corporation, or any other entity or individual without specific prior written consent from Lessee.
The foregoing prohibitions on disclosure and release apply whether or not the Confidential Information may be classified as a trade secret. Lessor will in good faith treat the Confidential Information with at least the same care that Lessee and other similar businesses use in the protection of their own undisclosed and proprietary information, and the Confidential Information will be disclosed to Permitted Recipients. Lessor will, and will require Lender to, advise such Permitted Recipients who are necessarily given access to Confidential Information of its confidential and proprietary nature and of the existence and importance of this Lease and use reasonable efforts to protect the secrecy of such Confidential Information and to comply with the nondisclosure terms of this Lease, and Lessor will and will require Lender to, require that each Permitted Recipient of Proprietary Confidential Information enter into a customary and commercially reasonable written confidentiality agreement pursuant to which they will agree not to disclose such Proprietary Confidential Information in violation of the provisions of this Section 59.
All tangible records and memorializations of Confidential Information are the exclusive property of Lessee. Upon assignment by Lessor or any termination of this Lease, Lessor will immediately cease all use of the Confidential Information in any way. All Confidential Information then in the possession of Lessor shall be immediately returned to Lessee or its duly authorized representative, and Lessor agrees to use reasonable efforts to return to Lessee all Confidential Information then in the possession of Lender.
(c) Notwithstanding the foregoing, nothing in this Section 59 shall limit or prevent:
(i) Lessor and/or Lender from utilizing Confidential Information delivered to Lessor or Lender pursuant to the Sale-Leaseback Agreement or this Lease, including, without limitation, Store Income Statements delivered to Lessor or Lender pursuant to the Sale-Leaseback Agreement or Section 31 of this Lease, subject to the requirements of this Section 59;
(ii) Lender from disclosing, distributing and/or making Confidential Information available to any Permitted Recipient as necessary in connection with any Transfer, Participation and/or Securitization as contemplated by Section 8.C of this Lease provided that Lessor shall require Lender to (1) advise each such Permitted Recipient of the confidential nature of such Confidential Information, (2) require that each Permitted Recipient of Proprietary Confidential Information enter into a customary and commercially reasonable written confidentiality agreement as contemplated by Section 59(b), and (3) request, to the extent reasonably practicable, that each Permitted Recipient of Confidential Information which is not Propriety Confidential Information enter into a customary and commercially reasonable written confidentiality agreement pursuant to which they will agree not to disclose such Confidential Information in violation of the provisions of this Section 59;
(iii) Lessor and/or Lender from utilizing Confidential Information in connection with the exercise of Lessor's rights and remedies under this Lease following the occurrence and during the continuance of an Event of Default;
(iv) Lessor and/or Lender from disclosing Confidential Information as required by court order or subpoena or as otherwise required by any Governmental Authority under applicable law; and/or
(v) Lessor from delivering any such Confidential Information to prospective purchasers or mortgagees of Lessor's interest in the Properties or in Lessor, and their respective attorney's, consultants, representatives or agents, provided that (x) in the case of prospective purchasers, Lessor shall obtain a commercially reasonable written confidentiality agreement from any such prospective purchaser pursuant to which such prospective purchaser will agree not to disclose any such Confidential Information in violation of the provisions of this Section 59, and (y) in the case of prospective mortgagees, Lessor shall advise such mortgagees of the confidential nature of such Confidential Information and shall request that such mortgagee enter into a commercially reasonable written confidentiality agreement pursuant to which such mortgagee will agree not to disclose such Confidential Information in violation of the provisions of this Section 59.
IN WITNESS WHEREOF, Lessor and Lessee have entered into this Lease as of the date first above written.
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LESSOR:
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COUNTRY STORES PROPERTY I, LLC,
a Delaware limited liability company
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By Country Stores Equity I, LLC, a Delaware limited liability company, its member
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| By: | /s/ Jamie Elliott | |
| Printed Name: | Jamie Elliott | |
| Its: | Vice President |
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LESSEE:
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CRACKERBARRELOLDCOUNTRY STORE, INC., a Tennessee corporation
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| By: | /s/ James F. Blackstock | |
| Printed Name: |
James F. Blackstock
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| Its: | Senior Vice President | |
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Lessee's Tax Identification Number: 62-0812904
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STATE OF ARIZONA
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] ss.
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COUNTY OF MARICOPA
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I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that Jamie Elliot:, whose name as Vice President of Country Stores Equity I, LLC a Delaware limited liability company, member of Country Stores Property I, LLC, a Delaware limited liability company, on behalf of the limited liability company, is signed to the foregoing Master Lease, and who is known to me, acknowledged before me on this day that, being informed of the contents of the Master Lease, [s]he, as such officer and with full authority, executed the same voluntarily for and as the act of the corporation and limited liability company.
Given under my hand and official seal this 28 day of July, 2000.
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/s/ Susan M. Goldberg
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| Notary Public |
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My Commission Expires:
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February 2, 2004
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STATE OF ARIZONA
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COUNTY OF MARICOPA
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I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that James F. Blackstock, name Sr. Vice President of Cracker Barrel Old Country Store, Inc., a Tennessee corporation, on behalf of the corporation, is signed to the foregoing Master Lease, and who is known to me, acknowledged before me on this day that, being informed of the contents of the Master Lease, [s]he, as such officer and with full authority, executed the same voluntarily for and as the act of the corporation and limited liability company.
Given under my hand and official seal this 28day of July, 2000.
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/s/Susan M. Goldberg
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Notary Public
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My Commission Expires:
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July 17, 2002
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Exhibit 10(s)
May 22, 2015
Nicholas V Flanagan
617 Calverton Ln
Brentwood, TN 37027-8979
Re: Change in Control and Severance Agreement
Dear Nicholas :
The Board of Directors (the “Board”) of Cracker Barrel Old Country Store, Inc. recognizes the contribution that you have made to Cracker Barrel Old Country Store, Inc. or one of its direct or indirect subsidiaries (collectively, the “Company”) and wishes to ensure your continuing commitment to the Company and its business operations. Accordingly, in exchange for your continuing commitment to the Company, and your energetic focus on continually improving operations, the Company promises you the following benefits if your employment with the Company is terminated in certain circumstances:
1. DEFINITIONS. As used in this Agreement, the following terms have the following meanings which are equally applicable to both the singular and plural forms of the terms defined:
1.1 “Accrued Obligations” means, as of the Termination Date, the sum of (A) your then-current base salary (disregarding any reduction constituting Good Reason) through the Termination Date to the extent not theretofore paid by the Company, (B) your accrued benefits under any employee benefit plan, policy or arrangement maintained by the Company, and (C) any expense reimbursements accrued by you as of the Termination Date to the extent not theretofore paid by the Company, subject to payment in accordance with Company policy.
1.2 “Cause” means any one of the following:
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personal dishonesty or willful misconduct in connection with any material aspect of your duties to the Company;
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breach of fiduciary duty;
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your conviction for, or your pleading guilty or no contest to, any felony or crime involving moral turpitude; or
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your willful or intentional misconduct that causes (or is reasonably believed by the Company to have caused) material and demonstrable injury, monetarily or otherwise, to the Company;
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1.3 “Change in Control” means the occurrence of any of the following events:
(a) An acquisition of any shares of stock of the Company by any “Person” (as the term “person” is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)), other than the Company or a wholly-owned subsidiary thereof or any employee benefit plan (or related trust) of the Company or any of its subsidiaries, immediately after which such Person has “Beneficial Ownership” (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of 30% or more of the then outstanding voting securities or the combined voting power of the Company’s then outstanding voting securities.
(b) The individuals who, as of the Effective Date, are members of the Board (the “Incumbent Board”) cease for any reason to constitute a majority of the Board; provided, however, that if the election, or the nomination for election by the Company’s shareholders, of any new director was approved by a vote of at least 2/3 of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of either an actual or threatened “Election Contest” (as described in Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board (a “Proxy Contest”) including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest;
(c) Consummation of reorganization, merger, cash tender or exchange offer, or other business combination to which the Company is a party or a sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), unless, following such Business Combination: (1) all or substantially all of the individuals and entities who were the beneficial owners of the Company’s outstanding voting securities immediately prior to such Business Combination are the beneficial owners, directly or indirectly, of more than fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from the Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) (the “Successor Entity”) in substantially the same proportions as their ownership of the outstanding voting securities of the Company immediately prior to such Business Combination; (2) no Person (excluding any Successor Entity or any employee benefit plan or related trust of the Company, such Successor Entity, or any of their affiliates) is the beneficial owner, directly or indirectly, of thirty percent (30%) or more of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the Successor Entity, except to the extent that such ownership existed prior to the Business Combination; and (3) the individuals who were members of the Incumbent Board (excluding, for the avoidance of doubt, any person who would not be considered a member of the Incumbent Board pursuant to Section 1.3(b) above) immediately prior to the execution of the initial agreement, or to the action of the Board, providing for such Business Combination constitute at least a majority of the members of the board of directors of the Successor Entity; or
(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
1.4 “Change in Control Period” means the two year period beginning the day a Change in Control occurs.
1.5 “Effective Date” means the date first written above.
1.6 “Good Reason” shall mean if you resign from your employment with the Company in connection with one or more of the following events: (i) a reduction of 5% or more of your base salary; (ii) a reduction of 5 percentage points or more of your annual target bonus opportunity (expressed as a percentage of base salary); (iii) a material adverse change in the aggregate level of other employee benefits to which you were entitled prior to the change (other than those changes precipitated by a material change in applicable law, including the Patient Protection and Affordable Care Act), (iv) a material change in your duties and responsibilities for the Company (without your consent) from those duties and responsibilities for the Company in effect prior to such change, which change results in the assignment of duties and responsibilities inferior to your duties and responsibilities prior to such change, or (v) a requirement by the Company that you relocate to a location that is greater than 50 miles from the location of the office in which you primarily perform your duties of employment at the time of such relocation (collectively, a “Good Reason Event”). You must provide written notice of your resignation for Good Reason to the Company within 45 days of the occurrence of any Good Reason Event in order for your resignation for Good Reason to be effective hereunder. Upon receipt of such notice, the Company shall have 30 days (the “Cure Period”) to rectify the Good Reason Event. If the Company fails to rectify the Good Reason Event prior to the expiration of the Cure Period, then you may terminate employment within 10 days following the expiration of the Cure Period (the “Good Reason Termination Period”) and receive the benefits provided under this Agreement. If you do not terminate employment during the Good Reason Termination Period, then you will be deemed to have waived your right to receive benefits under this Agreement regarding such Good Reason Event.
1.7 “Pre-Change in Control Qualifying Termination” shall mean a termination of your employment (i) by the Company without Cause, or (ii) by you for Good Reason; provided, however, a Pre-Change in Control Qualifying Termination shall not have occurred in the event (x) you separate from service with the Company as a result of occupational or non-occupational sickness or injury, (y) you temporarily separate from service with the Company due to fire, storm damage, act(s) of God or a temporary reduction-in-force of sixty (60) days or less (within any twelve (12) month look back period) or (z) you separate from service with the Company during a Change in Control Period.
1.8 “Severance Benefits” shall have the meaning set forth in either Section 2.2 or 3, whichever is applicable.
1.9 “Severance Delay Period” means the period beginning on the Termination Date (as defined in Section 2 hereof) and ending on the sixtieth (60th) day thereafter.
1.10 “Term” shall mean the period of time beginning on the Effective Date and ending on the third anniversary of the Effective Date. The Term may be extended by the mutual agreement of the parties. Furthermore, the Term shall be automatically extended upon a Change in Control (that occurs within the Term) to the end of the Change in Control Period.
2. TERMINATION OF EMPLOYMENT; SEVERANCE. Your immediate supervisor or the Company’s Board of Directors may terminate your employment, with or without Cause, at any time by giving you written notice of your termination, and such termination of employment shall be effective on the date specified in the notice. The effective date of your termination of employment (the “Termination Date”) shall be the last day of your employment with the Company, as specified in a notice by you, or if you are terminated by the Company, the date that is specified by the Company in its notice to you.
2.1 Confidential Information/Return of Company Property.
(a) You acknowledge that you have a duty to strictly maintain the confidentiality of Company marketing, financial, strategic planning, proprietary or other information which is not generally known to the public during your employment and following the termination of your employment for whatever reason. You recognize and acknowledge that, as a result of your employment by the Company, you have or will become familiar with and acquire knowledge of confidential information and certain trade secrets that are valuable, special, and unique assets of the Company. You agree that all that confidential information and trade secrets are the property of the Company. Therefore, you agree that, for and during your employment with the Company and continuing following the termination of your employment for any reason, all confidential information and trade secrets shall be considered to be proprietary to the Company and kept as the private records of the Company and will not be divulged to any firm, individual, or institution, or used to the detriment of the Company. You understand that these confidentiality obligations are not intended to prohibit you from communicating with any governmental agency.
(b) You acknowledge that upon termination of your employment for whatever reason you are required to return to the Company all Company property in good condition and repair (normal wear and tear excepted) including but not limited to keys, security cards and fobs, credit cards, furniture, equipment, automobiles, computer hardware and software, telephone equipment, and all documents, manuals, plans, equipment, training materials, business papers, personnel files, computer files or copies of the same relating to Company business which are in the Employee’s possession.
2.2 Termination by the Company for Cause or Voluntary Quit. If you are terminated for Cause, or if you voluntarily quit your employment without Good Reason, the Company shall have no further obligation to you, other than for Accrued Obligations, and your participation in all of the Company’s benefit plans and programs shall cease as of the Termination Date. In the event of a termination described in this Section 2.1, you shall not be entitled to receive Severance Benefits described in Section 2.2 or Section 3.
2.3 Pre-Change in Control Qualifying Termination. If your Termination Date occurs during the Term and such termination is due to a Pre-Change in Control Qualifying Termnation, in addition to your Accrued Obligations, you shall be entitled to receive severance pay (the “Severance Benefits”) (a) equal to the amount determined in accordance with Exhibit A attached hereto, and (b) payable in regular installments, in accordance with the Company’s normal payroll policies then in effect for the period set forth in Exhibit A (the “Severance Period”), which payments will commence with the first payroll period occurring after the expiration of the Severance Delay Period (the “Initial Payment”) and shall continue for the remainder of the Severance Period. The Initial Payment shall include payment for any payroll periods which occur during the Severance Delay Period.
All employee benefits and benefit accruals will cease as of the Termination Date. However, medical insurance benefits may be continued (at your sole expense) to the extent required by federal law. You may have other benefit conversion or withdrawal rights arising under other Company sponsored retirement or welfare benefit plan as a result of your separation from service, which benefits and rights shall be governed by the terms of such plans. Settlement of reimbursable expenses under the terms of the Company’s expense reimbursement, travel and/or entertainment policies shall occur within twenty-one (21) days from your Termination Date.
2.4 Involuntary Termination Without Cause or Due to Good Reason During a Change in Control Period. If a Change in Control occurs during the Term and your employment with the Company is terminated by the Company without Cause, or by you for Good Reason, during a Change in Control Period, you shall be entitled to receive Severance Benefits pursuant to Section 3.
3. CHANGE IN CONTROL SEVERANCE BENEFITS. If your employment with the Company is terminated as described in Section 2.3, in addition to the Accrued Obligations, you shall be entitled to the benefits specified in subsections 3.1 and 3.2 (the “Severance Benefits”) for the period of time set forth in the applicable section.
3.1 Salary Payment or Continuance. Following the expiration of the Severance Delay Period, you will be paid an amount (a) equal to the amount determined in accordance with Exhibit B attached hereto, and (b) payable on the terms as set forth in such Exhibit B; provided, however, if the Change in Control triggering Severance Benefits pursuant to this Section 3.1 does not constitute a “change in the ownership of the Company,” a “change in the effective control of the Company,” or a “change in the ownership of a substantial portion of the assets of the Company” as such terms are defined in Section 1.409A-3(i)(5) of the Treasury Regulations, the portion of the Severance Benefits described in this Section 3.1 that constitute deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) shall be paid to the Executive in installments over the same period as described in Section 2.2.
3.2 Continuation of Benefits. Effective as of the Termination Date, you will cease all health benefit coverage and other benefit coverage provided by the Company. Notwithstanding the foregoing, you may be entitled to elect continuing medical, prescription and dental coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). In the event that you choose continuation of such coverage under COBRA, you shall continue to receive the medical, prescription and dental benefits at the levels you would have been entitled to receive had you remained in employment following the Termination Date (including any changes in benefits or costs that are implemented by the Company with respect to similarly-situated employees who are continuing in their employment), pursuant to COBRA, and the Company will reimburse to you the full COBRA premium amount following the Termination Date for the period of time set forth in Exhibit B (the “COBRA Continuation Period”), so long as you remain eligible to continue such coverage under COBRA. The costs of the Company’s portion of any premiums due under this 3.2 shall be included in your gross income to the extent the provision of such benefits would be deemed to be discriminatory under Code Section 105(h). For the avoidance of doubt, the parties mutually agree that the period during which the Company pays any premiums under this Section 3.2 shall run concurrently with the applicable COBRA continuation period without any extension and you shall be solely responsible for the full cost of any heath premiums for the continuation of COBRA coverage which may extend past this period, if any. Notwithstanding the foregoing, if you become reemployed with another employer and receive medical, prescription or dental benefits under another employer-provided plan, this COBRA premium subsidy benefit shall cease regarding such applicable coverage. You agree that you will notify the Company within seven days of your obtaining employment that will provide you any such benefits.
4. EFFECT OF TERMINATION ON STOCK OPTIONS, RESTRICTED STOCK AND CASH-BASED LONG-TERM INCENTIVE AWARDS. In the event of any termination of your employment, all stock options, restricted stock or cash-based long-term incentive awards (“Cash Awards”) that are vested prior to the Termination Date shall be owned, exercisable or payable in accordance with their terms. Any of your stock options, restricted stock or Cash Awards that are not vested prior to the Termination Date shall lapse and be void; provided, however, if your employment with the Company is terminated as described in Section 2.3 above, then, (i) if your option, restricted stock or Cash Award agreements provide for immediate vesting in the event of a Change in Control, the terms of your option, restricted stock or Cash Award agreement shall control, and the exercise, lapse of restrictions or payment of such awards shall be made in accordance with the terms of such agreements and (ii) if your option, restricted stock or Cash Award agreement does not provide for immediate vesting in the event of a Change in Control, then you shall receive, following the expiration of the Severance Delay Period, the sum of (X) a lump sum cash distribution equal to: the product of (a) the number of shares of the Company’s (or Successor Entity’s) common stock that are subject to options or restricted stock grants held by you that are not vested as of the Termination Date, multiplied by (b) the difference of: (1) the closing price of a share of the Company’s (or Successor Entity’s) common stock on the principal trading market of such shares as reported by The Wall Street Journal as of the day prior to the Termination Date (or, if the market is closed on that date, on the last preceding date on which the market was open for trading; or, if the stock of the Company or Successor Entity is not publicly traded as of such date, the fair market value of such stock, as determined by the Board of the Company or the Successor Entity in good faith), minus (2) the applicable exercise prices of those non-vested shares (which exercise price for restricted stock is zero for purposes of this calculation), and (Y) a lump sum distribution in an amount equal to the target amount (as determined pursuant to the terms of the applicable Cash Award agreement), or the actual amount earned under the Cash Award Agreement if the applicable performance period for such award has ended, of your unvested and outstanding Cash Awards. For the avoidance of doubt, for the purposes of determining the vesting of your awards covered by this Section 4, if a transaction occurs that would not meet the definition of a Change in Control provided for in the Cracker Barrel Old Country Store, Inc. 2002 Omnibus Incentive Compensation Plan, Cracker Barrel Old Country Store, Inc. Amended and Restated Stock Option Plan, the Cracker Barrel Old Country Store, Inc. 2010 Omnibus Stock and Incentive Plan (collectively, the “CBRL Equity Plans”) or any awards agreements issued thereunder, but would meet the definition of a Change in Control under Section 1.3 of this Agreement, then the provisions of this Section 4 shall control the vesting and payment of such awards. For purposes of the CBRL Equity Plans, this Section 4 shall be construed as an Award Notice, or an amendment thereto, governing the applicable Awards (each as defined in the CBRL Equity Plans) and to the Option agreements granted under the Amended and Restated Stock Option Plan (as defined therein) to the extent necessary to carry out the intent of this Agreement.
5. CONDITIONS FOR RECEIVING SEVERANCE BENEFITS. In consideration for the benefits offered to you pursuant to Section 2.2, Section 3 and the benefits pursuant to Section 4, you hereby agree, or shall agree in writing prior to the payment of any such benefits on forms prescribed by the Company, to the following conditions:
(a) You acknowledge and understand that should you fail to honor your obligations to maintain the confidentiality of Company information and to return all Company property upon termination, that you will forfeit any right to severance of any sort.
(b) An unconditional release from all charges, complaints and claims, including attorney fees, based on employment with the Company, or the termination of that employment by executing the General Release substantially in form and substance as set forth in Exhibit C attached hereto; provided that the General Release shall have become effective, you shall not have revoked such release and all applicable revocation periods with respect to such release shall have expired prior to the expiration of the Severance Delay Period;
(c) Resignation from job position and membership in any Company board, committee or task force; and
(d) Strict compliance with the terms of any NonCompete/NonSolicitation Agreement attached hereto as Exhibit D.
(e) The parties agree that nothing in this Section 5 shall be construed as prohibiting the Company from pursuing any remedies available to it for any breach or threatened breach of this Section 5, including, without limitation, the recovery of damages from you or any person or entity acting in concert with you.
In the event the conditions set forth in subsections (a) to (e) above are not met (including the expiration of any applicable revocation periods) by the end of the Severance Delay Period, or have been breached at any time, you shall forfeit all rights to any Severance Benefits hereunder and the Company shall be under no obligation to make any payments to you pursuant to this Agreement. You understand and agree that the right to obtain the Severance Benefits and the benefits provided by Section 4 above subject to compliance with this section is adequate consideration for the release of claims set forth in Section 5(b) and that such executed and unrevoked release will continue in full force and effect even though you do not receive some or all of the Severance Benefits and benefits provided by Section 4 as a result of your failure to comply with your other obligations under this Section 5. The provisions of this Section 5 shall survive any termination of this Agreement or your employment with the Company.
6. GENERAL PROVISIONS.
6.1 Other Plans. Nothing in this Agreement shall affect your rights during your employment to receive increases in compensation, responsibilities or duties or to participate in and receive benefits from any pension plan, benefit plan or profit sharing plans except plans which specifically address benefits of the type addressed in Sections 3 and 4 of this Agreement.
6.2 Death During Severance Period. If you die during the Severance Period, any Benefits remaining to be paid to you shall be paid to the beneficiary designated by you to receive those Benefits (or in the absence of designation, to your surviving spouse or next of kin).
6.3 Notices. Any notices to be given under this Agreement may be effected by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses appearing on the first page of this Agreement (to the attention of the Secretary in the case of notices to the Company), but each party may change the delivery address by written notice in accordance with this Section 6.3. Notices delivered personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of the second day following deposit in the United States Mail.
6.4 Entire Agreement. This Agreement supersedes all previous oral or written agreements, understandings or arrangements between the Company and you regarding a termination of your employment with the Company or a change in your status, scope or authority and the salary, benefits or other compensation that you receive from the Company as a result of the termination of your employment with the Company (the “Subject Matter”), all of which are wholly terminated and canceled. This Agreement contains all of the covenants and agreements between the parties with respect to the Subject Matter. Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made with respect to the Subject Matter by any party, or anyone acting on behalf of any party, which are not embodied in this Agreement. Any subsequent agreement relating to the Subject Matter or any modification of this Agreement will be effective only if it is in writing signed by the party against whom enforcement of the modification is sought and as is consistent with Section 409A of the Code.
6.5 Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way.
6.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee (without giving effect to any conflict of law principles that would require the application of any other laws), and it shall be enforced or challenged only in the courts of the State of Tennessee.
6.7 Waiver of Jury Trial. The Company and you expressly waive any right to a trial by jury in any action or proceeding to enforce or defend any rights under this Agreement, and agree that any such action or proceeding shall be tried before a court and not a jury. You irrevocably waive, to the fullest extent permitted by law, any objection that you may have now or hereafter to the specified venue of any such action or proceeding and any claim that any such action or proceeding has been brought in an inconvenient forum.
6.8 Miscellaneous. Failure or delay of either party to insist upon compliance with any provision of this Agreement will not operate as and is not to be construed to be a waiver or amendment of the provision or the right of the aggrieved party to insist upon compliance with the provision or to take remedial steps to recover damages or other relief for noncompliance. Any express waiver of any provision of this Agreement will not operate, and is not to be construed, as a waiver of any subsequent breach, irrespective of whether occurring under similar or dissimilar circumstances. You may not assign any of your rights under this Agreement. The rights and obligations of the Company under this Agreement shall benefit and bind the successors and assigns of the Company. The Company agrees that if it assigns this Agreement to any successor company, it will ensure that its terms are continued.
6.9 Section 280G of the Code.
(a) Notwithstanding any other provision to the contrary, if any payments or benefits that you would receive from the Company pursuant to this Agreement or otherwise (collectively, the “Payments”) would, either separately or in the aggregate, (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Payments will be equal to the Reduced Amount (defined below). The “Reduced Amount” will be either (1) the entire amount of the Payments, or (2) an amount equal to the largest portion of the Payments that would result in no portion of any of the Payments (after reduction) being subject to the Excise Tax, whichever amount after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes), results in your receipt, on an after-tax basis, of the greatest amount of the Payments. If a reduction in the Payments is to be made so that the amount of the Payments equals the Reduced Amount, the Payments will be paid only to the extent permitted under the Reduced Amount alternative; provided, that in the event the Reduced Amount is paid, the cash payments set forth in Section 3.1 shall be reduced as required by the operation of this Section 6.9.
(b) The Company shall engage the accounting firm engaged by the Company for general audit purposes at least 20 business days prior to the effective date of the Change in Control to perform any calculation necessary to determine the amount, if any, payable to you pursuant to Section 3.1, as limited by this Section 6.9. If the accounting firm so engaged by the Company is also serving as accountant or auditor for the individual, entity or group that will control the Company following the Change in Control, the Company may appoint a nationally recognized accounting firm other than the accounting firm engaged by the Company for general audit purposes to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.
(c) The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to the Company and you within 20 days after the date on which such accounting firm has been engaged to make such determinations or within such other time period as agreed to by the Company and you. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and you.
(d) Notwithstanding the foregoing, in determining the reduction, if any, that shall occur as a result of this Section 6.9, the amounts payable or benefits to be provided to you shall be reduced such that the economic loss to you as a result of the Excise Tax elimination is minimized. In applying this principle, the reduction shall first be made to the cash payments described in Section 2.2(a) or Section 3.1, as applicable, first, and otherwise in a manner consistent with the requirements of Section 409A of the Code, and where more than one economically equivalent amounts are subject to reduction but payable at different times, such amounts shall be reduced on a pro rata basis but not below zero.
6.10 Section 409A of the Code.
(a) Notwithstanding the other provisions hereof, this Agreement is intended to comply with the requirements of Section 409A of the Code, to the extent applicable, and this Agreement shall be interpreted to avoid any penalty sanctions under Section 409A of the Code. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to comply with Section 409A of the Code and, if necessary, any such provision shall be deemed amended to comply with Section 409A of the Code and regulations thereunder. If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under Section 409A of the Code, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. Except to the extent permitted under Section 409A of the Code, in no event may you, directly or indirectly, designate the calendar year of any payment under this Agreement. Each payment made under this Agreement shall be treated as a separate payment and the right to a series of installment payments under this Agreement is to be treated as a right to a series of separate payments.
(b) Notwithstanding any provision to the contrary in this Agreement, if on the date of your termination of employment, you are a “specified employee” (as such term is defined in Section 409A(a)(2)(B)(i) of the Code and its corresponding regulations) as determined by the Board (or its delegate) in accordance with its “specified employee” determination policy, then all severance benefits payable to you under this Agreement that constitute deferred compensation subject to the requirements of Section 409A of the Code that are payable to you within the six (6) month period following your separation from service shall be postponed for a period of six (6) months following your “separation from service” with the Company (or any successor thereto). Any payments delayed pursuant to this Section 6.10(c) will be made in a lump sum on the Company’s first regularly scheduled payroll date that follows such six (6) month period or, if earlier, the date of your death, and any remaining payments required to be made under this Agreement will be paid upon the schedule otherwise applicable to such payments under this Agreement.
(c) Notwithstanding any other provision to the contrary, a termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of “deferred compensation” (as such term is defined in Section 409A of the Code and the Treasury Regulations promulgated thereunder) upon or following a termination of employment unless such termination is also a “separation from service” from the Company within the meaning of Section 409A of the Code and Section 1.409A-1(h) of the Treasury Regulations and, for purposes of any such provision of this Agreement, references to a “separation,” “termination,” “termination of employment” or like terms shall mean “separation from service.”
(d) Notwithstanding any other provision to the contrary, in no event shall any payment under this Agreement that constitutes “deferred compensation” for purposes of Section 409A of the Code and the Treasury Regulations promulgated thereunder be subject to offset by any other amount unless otherwise permitted by Section 409A of the Code.
(e) To the extent that any reimbursement, fringe benefit or other similar plan or arrangement in which you participate during the term of your employment under this Agreement or thereafter provides for a “deferral of compensation” within the meaning of Section 409A of the Code, (1) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid); (2) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (3) any such reimbursement or payment may not be subject to liquidation or exchange for another benefit, all in accordance with Section 1.409A-3(i)(1)(iv) of the Treasury Regulations.
(f) For the avoidance of doubt, any payment due under this Agreement within a period following your termination of employment or other event, shall be made on a date during such period as determined by the Company in its sole discretion.
(g) By accepting this agreement, you hereby agree and acknowledges that the Company makes no representations with respect to the application of Code Section 409A to any tax, economic, or legal consequences of any payments payable to you hereunder and, by the acceptance of this Agreement, you agree to accept the potential application of Code Section 409A to the tax and legal consequences of payments payable to you hereunder.
If all of the terms and conditions in this Agreement are agreed to by you, please signify your agreement by executing the enclosed duplicate of this letter and returning it to us. At the date of your return, this letter shall constitute a fully enforceable Agreement between us.
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CRACKER BARREL OLD COUNTRY STORE, INC.
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By:
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/s/Michael J. Zlystra
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The foregoing is fully agreed to and accepted by:
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Company Employee’s Signature:
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/s/Nicholas v. Flanagan
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Please Print or Type Name:
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Nicholas V Flanagan
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Please Print or Type Title:
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SVP RESTAURANT & RETAIL OPERATIONS
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Exhibit A
Section 2.2 Severance Benefits
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Position
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Severance Benefit
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Senior Vice President and General Counsel
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12 months base salary plus one additional week of severance for each year of service in excess of 15 years (not to exceed 18 months total severance)
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For purposes of this Agreement, “year of service” means twelve (12) consecutive months of continuous full time employment (32 hours or more per week) with the Company. Breaks in service of more than 90 days are not recognized as continuous employment under this Agreement.
Exhibit B
Section 3 Severance Benefits
Section 3.1 Amount and Term: The amount of the Severance Benefits shall be determined in accordance with your position with the Company immediately before the Date of Termination (exclusive of any Company action constituting Good Reason) as follows:
(a) SVP/General Counsel - an amount equal to the product of 2.00 times the sum of the following amounts: (1) the average of your annual base salary for the three (3) years immediately preceding the Termination Date, and (2) the average of any bonus payments for the three (3) years immediately preceding the Termination Date. This payment shall be made in cash in a single lump sum immediately following the expiration of the Severance Delay Period.
Section 3.2 Term: Except as otherwise provided in Section 3.2, the Company’s obligation to reimburse premium during the COBRA Continuation Period shall begin as of the Termination Date and end 18 months following the Termination Date. If at this time you are not eligible to receive healthcare coverage from another employer, the Company will continue to reimburse you an amount equal to the monthly COBRA premium for up to an additional 6 months (or, if earlier, the time at which you become eligible to receive such healthcare coverage from another employer).
Exhibit C
GENERAL RELEASE
I, , in consideration of and subject to the performance by Cracker Barrel Old Country Store, Inc. (together with each of its Subsidiaries, the “Company”), of its obligations under the Change in Control and Severance Agreement, dated as of the date as of (the “Agreement”), do hereby release and forever discharge as of the date hereof the Company and its affiliates and all present and former directors, officers, agents, representatives, employees, successors and assigns of the Company and its affiliates and the Company’s direct or indirect owners (collectively, the “Released Parties”) to the extent provided below.
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1.
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I understand that any payments or benefits paid (or the right to obtain such payments or benefits granted to me subject to compliance with Section 5) under Section 2 or 3 of the Agreement represent, in part, consideration for signing this General Release and are not salary, wages or benefits to which I was already entitled. I understand and agree that I will not receive the payments and benefits specified in Section 2 or Section 3 of the Agreement unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter or breach this General Release. Such payments and benefits will not be considered compensation for purposes of any employee benefit plan, program, policy or arrangement maintained or hereafter established by the Company or its affiliates. I also acknowledge and represent that I have received all payments and benefits that I am entitled to receive (as of the date hereof) by virtue of any employment by the Company.
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| 2. |
Except as provided in paragraph 4 below, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; the Genetic Information Nondiscrimination Act of 2008; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).
|
| 3. |
I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above.
|
| 4. |
In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to the terms of the Agreement. I further agree that in the event I should bring a Claim seeking damages against the Company, or in the event I should seek to recover against the Company in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims. I further agree that I am not aware of any pending charge or complaint of the type described in paragraph 2 as of the execution of this General Release.
|
| 5. |
I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.
|
| 6. |
I agree that if I violate this General Release by suing the Company or the other Released Parties for any claim that does not arise under the Age Discrimination in Employment Act, I will pay all costs and expenses of defending against the suit incurred by the Released Parties, including reasonable attorneys’ fees, and return all payments received by me pursuant to the Agreement.
|
| 7. |
I agree that this General Release is confidential and agree not to disclose any information regarding the terms of this General Release, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone. Notwithstanding anything herein to the contrary, each of the parties (and each affiliate and person acting on behalf of any such party) agree that each party (and each employee, representative, and other agent of such party) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of this transaction contemplated in the Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to such party or such person relating to such tax treatment and tax structure, except to the extent necessary to comply with any applicable federal or state securities laws. This authorization is not intended to permit disclosure of any other information including (without limitation) (i) any portion of any materials to the extent not related to the tax treatment or tax structure of this transaction, (ii) the identities of participants or potential participants in the Agreement, (iii) any financial information (except to the extent such information is related to the tax treatment or tax structure of this transaction), or (iv) any other term or detail not relevant to the tax treatment or the tax structure of this transaction.
|
| 8. |
Any non-disclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), any other self-regulatory organization or governmental entity.
|
| 9. |
I agree to reasonably cooperate with the Company in any internal investigation, any administrative, regulatory, or judicial proceeding or any dispute with a third party.
|
| 10. |
I agree not to disparage the Company, its past and present investors, officers, directors or employees or its affiliates and to keep all confidential and proprietary information about the past or present business affairs of the Company and its affiliates confidential in accordance with the terms of the Agreement unless a prior written release from the Company is obtained. I further agree that as of the date hereof, I have returned to the Company any and all property, tangible or intangible, relating to its business, which I possessed or had control over at any time (including, but not limited to, Company-provided credit cards, building or office access cards, keys, computer equipment, manuals, files, documents, records, software, customer data base and other data) and that I shall not retain any copies, compilations, extracts, excerpts, summaries or other notes of any such manuals, files, documents, records, software, customer data base or other data. Nothing in this Agreement will prohibit the making of any truthful statements made by any Person in response to a lawful subpoena or legal proceeding or to enforce such Person’s rights under this Agreement, or any other agreement between you, the Company, and its Subsidiaries.
|
| 11. |
Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect (i) any rights or claims arising out of any breach by the Company or by any Released Party of the Agreement after the date hereof, (ii) any rights or obligations under applicable law which cannot be waived or released pursuant to an agreement, including my right to file a charge at discrimination with the Equal Employment Opportunity Commission (“EEOC”) although I have waived and do waive: (a) the right to file a lawsuit based upon such charge and (b) any damages or relief obtained on my behalf by the EEOC or any other third party, (iii) any rights to payments or benefits under Section 2 or Section 3 of the Agreement, (iv) my rights of indemnification and directors and officers insurance coverage to which I may be entitled solely with regards to my service as an officer or director of the Company; (v) my rights with regard to accrued benefits under any employee benefit plan, policy or arrangement maintained by the Company or under COBRA; and (vi) my rights as a stockholder or other equity holder of the Company and/or its affiliates.
|
| 12. |
Whenever possible, each provision of this General Release shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
|
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
| (a) |
I HAVE READ IT CAREFULLY;
|
| (b) |
I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;
|
|
(c)
|
I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
|
| (d) |
I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION, I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;
|
| (e) |
I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON [ , ] TO CONSIDER IT;
|
| (f) |
THE CHANGES TO THE AGREEMENT SINCE [ , ] EITHER ARE NOT MATERIAL OR WERE MADE AT MY REQUEST.
|
| (g) |
I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
|
| (h) |
I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
|
| (i) |
I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
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|
DATE:
|
||||
|
Name:
|
||||
|
(Print)
|
||||
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ACCEPTED:
|
||
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CRACKER BARREL OLD COUNTRY STORE, INC.
|
||
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By:
|
||
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Title:
|
||
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Date:
|
||
Exhibit D
Noncompete/Nonsolicitation.
In exchange for your continued employment and the agreement of the Company to enter into the Change in Control and Severance Agreement, you agree that:
(a) During your employment with the Company and its Subsidiaries, and for one year thereafter in the event that you are receiving severance benefits pursuant to Exhibit A or Exhibit B of this Agreement or have been terminated for Cause as defined by Paragraph 1.2, you shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, be employed in an executive, managerial or administrative capacity by, or in any manner engage in, any business within the United States that is engaging in the multi-unit restaurant business that offers full service family or casual dining, including, but not limited to, Biglari Holdings, Inc. (Steak n Shake and Western Sizzlin), Bob Evans Farms, Brinker International (Chili’s, Maggiano’s, Romano’s Macaroni Grill), Cheddars, Cheesecake Factory, Darden Restaurants, Inc. (Olive Garden, Longhorn Steakhouse, The Capital Grille, Bahama Breeze, Seasons 52), Denny’s, DineEquity, Inc. (IHOP, Applebee’s), First Watch, Huddle House, O’Charley’s, Perkins, Red Lobster, Red Robin, Ruby Tuesday, Shoney’s, and Waffle House, or any other businesses that are competitive with any of the businesses engaged in by the Company or its Subsidiaries during the last twelve months of your employment with the Company and its Subsidiaries or, as of the date of termination of such employment, are contemplated to exist during the twelve-month period following the date of the termination of your employment (collectively, the “Restricted Business”). You acknowledge that during the course of your employment with the Company and its Subsidiaries, as a result of your senior executive position within the Company, you have and will become familiar with the Company’s and its Subsidiaries’ business strategies, trade secrets, personnel and with other Confidential Information concerning the Company and its Subsidiaries at the very highest level and that your services have been and shall continue to be of special, unique, and extraordinary value to the Company and its Subsidiaries. Nothing herein shall prohibit you from (i) being a passive owner of not more than 2% of the outstanding stock of any class of a corporation that is publicly traded, so long as you have no active participation in the business of such corporation; or (ii) becoming employed, engaged, associated or otherwise participating with a separately managed division or subsidiary of a competitive business that does not engage in the Restricted Business (provided that your services are provided only to such division or subsidiary); or (iii) accepting employment with any federal or state government or governmental subdivision or agency.
(b) During your employment with the Company and its Subsidiaries and for eighteen months thereafter, you agree that, you shall not directly or indirectly through another Person (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company or any Subsidiary and any employee thereof; (ii) hire any Person who was an employee of the Company or any Subsidiary, at any time during the twelve-month period immediately following the termination of your employment with the Company; or (iii) induce or attempt to induce any member, provider, payor or other business relation of the Company or any Subsidiary to cease or materially reduce doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary (including, without limitation, making any negative or disparaging statements or communications regarding the Company or its Subsidiaries). Notwithstanding the foregoing, nothing in this Agreement shall prohibit you from employing an individual (i) with the consent of the Company or (ii) who responds to general solicitations in publications or on websites, or through the use of search firms, so long as such general solicitations or search firm activities are not targeted specifically at an employee (or former employee, as described above) of the Company or any of its Subsidiaries.
(c) If you breach any of these Noncompete/Nonsolicitation covenants, you agree that the Company shall have the right to enforce such covenants by way of a temporary restraining order and/or a preliminary and/or permanent injunction by any court having jurisdiction, without the posting of any bond or security by the Company and that should the Company commence an action for injunctive relief, the Company shall also have the right in the same proceeding to seek and obtain money damages caused by the breach.
(d) If any of the provisions of the above Noncompete/Nonsolicitation covenants above is construed to be invalid or unenforceable in any respect, you agree that the same may be modified as the court may direct in order to make such provision reasonable and enforceable, and such modification of the provision shall not affect the remainder of the provisions of the covenants, and such provision will be given the maximum possible effect and the modified agreement will be fully enforceable.
(e) In the event you breach any of these Noncompete/Nonsolicitation covenants, you agree that the Noncompete Period shall be extended by the amount of time in which you are in breach of the covenants.
(f) You agree that should you breach any of the covenants contained herein, you will pay all costs and expenses, including reasonable attorneys’ fees, which may arise or accrue from any action to enforce the terms and obligations hereunder pursued by the Company, whether such remedy is pursued by a legal action or whether such costs and expenses are incurred with or without suit or before or after judgment.
(g) You agree that the Company may notify any new or prospective employer of the existence of this Non-Competition/Non-Solicitation Agreement during the eighteen month period following the termination of your employment with the Company.
(h) You agree to notify the Company of any new employment or other engagement that could reasonably be viewed as a breach of your obligations under this Non-Competition/Non-Solicitation Agreement, regardless of whether you believe such obligation is enforceable.
|
DATE:
|
5/18/15
|
/s/Nicholas V. Flanagan
|
||
|
Name:
|
Nicholas V Flanagan
|
|||
|
(Print)
|
||||
EXHIBIT 21
Subsidiaries of the Registrant
The following is a list of the significant subsidiaries of the Registrant as of July 28, 2017, all of which are wholly-owned:
|
Parent
|
State of
Incorporation
|
|
Cracker Barrel Old Country Store, Inc.
|
Tennessee
|
|
Subsidiaries
|
|
|
CBOCS Distribution, Inc.
|
|
|
(dba Cracker Barrel Old Country Store)
|
Tennessee
|
|
CBOCS Properties, Inc.
|
|
|
(dba Cracker Barrel Old Country Store)
|
Michigan
|
|
CBOCS West, Inc.
|
|
|
(dba Cracker Barrel Old Country Store)
|
Nevada
|
|
Rocking Chair, Inc.
|
Nevada
|
|
CBOCS Texas, LLC
|
|
|
(dba Cracker Barrel Old Country Store)
|
Tennessee
|
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 33-37567, 33-45482, 333-63442, 333-71384, 333-81063, 333-111364 and 333-174744 on Form S-8 of our reports dated September 26, 2016 relating to the consolidated financial statements of Cracker Barrel Old Country Store, Inc., and the effectiveness of Cracker Barrel Old Country Store, Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Cracker Barrel Old Country Store, Inc. for the year ended July 28, 2017.
/s/Deloitte & Touche LLP
Nashville, Tennessee
September 22, 2017
|
EXHIBIT 31.1
|
CERTIFICATION
|
I, Sandra B. Cochran, certify that:
| 1. |
I have reviewed this Annual Report on Form 10-K of Cracker Barrel Old Country Store, Inc.;
|
| 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 officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| (c) |
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
|
| (d) |
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; and
|
| 5. |
The registrant's other certifying officer(s) 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 the 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 control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: September 22, 2017
/s/Sandra B. Cochran
Sandra B. Cochran, President and
Chief Executive Officer
|
EXHIBIT 31.2
|
CERTIFICATION
|
I, Jill M. Golder, certify that:
| 1. |
I have reviewed this Annual Report on Form 10-K of Cracker Barrel Old Country Store, Inc.;
|
| 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 officer(s) 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| (c) |
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
|
| (d) |
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; and
|
| 5. |
The registrant's other certifying officer(s) 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 the 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 control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
| (b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: September 22, 2017
/s/Jill M. Golder
Jill M. Golder, Senior Vice President
and Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cracker Barrel Old Country Store, Inc. (the “Issuer”) on Form 10-K for the fiscal year ended July 28, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sandra B. Cochran, President and Chief Executive Officer of the Issuer, certify, pursuant to 18 U.S.C. Section 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 Issuer.
|
|
Date:
|
September 22, 2017
|
By:
|
/s/Sandra B. Cochran
|
|
Sandra B. Cochran
|
|||
|
President and Chief Executive Officer
|
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cracker Barrel Old Country Store, Inc. (the “Issuer”) on Form 10-K for the fiscal year ended July 28, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jill M. Golder, Senior Vice President and Chief Financial Officer of the Issuer, certify, pursuant to 18 U.S.C. Section 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 Issuer.
|
|
Date:
|
September 22, 2017
|
By:
|
/s/Jill M. Golder
|
|
Jill M. Golder,
|
|||
|
Senior Vice President and Chief Financial Officer
|