GROUND LEASE

 

 

                                  GROUND LEASE

 

                                     BETWEEN

 

     Miko   Investments,    LLC,   a   Tennessee   limited   liability   company,    its

successors or assigns

 

 

                                   as LANDLORD

 

 

                                        AND

 

                           DON PABLO'S OPERATING CORP.

 

                                   as TENANT

 

 

                  8088 Kingston Pike, Knoxville, TN 37919-5531

                                    LOCATION

 

 

 

                                FREE STANDING SITE

 

 

 

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                                  GROUND LEASE

 

     This Ground Lease ("Lease") is entered into between Landlord and Tenant who

are named below.

 

     1. BASIC PROVISIONS

 

     1.1 Landlord.   The Landlord is Miko   Investments,   LLC, a Tennessee limited

liability   company,   its successors and assigns,   whose address is 2901-12 Choto

Road, Knoxville, Tennessee 37922 ("Landlord").

 

     1.2 Tenant. The Tenant is DON PABLO'S OPERATING CORP., an Ohio corporation,

whose address is c/o Avado Brands,   Inc.,   Hancock at   Washington,   Madison,   GA

30650 ("Tenant").

 

     2. LEASED PREMISES

 

     2.1 Real   Property.   The real   property   consists   of land   located in Knox

County,   Tennessee   containing   approximately   1.423 acres as more   particularly

described   or shown on Exhibit "A"   attached   hereto,   and   incorporated   herein

("Real Property").

 

     2.2 Appurtenant   Rights.   Tenant's rights hereunder shall include the right

to use, in common with others   entitled   thereto,   any common areas,   sidewalks,

pedestrian   circulation   areas,   parking   lots,   ingress   and egress   easements,

driveways,   roads and rights of way, and all   easements   as currently   exist (if

any) that are appurtenant to the Real Property ("Appurtenant Rights").

 

     2.3   Leased   Premises.   The   Leased   Premises   includes   the Real   Property

described in Section 2.1 above,   together with   Improvements and all Appurtenant

Rights (if any) described in Section 2.2 above ("Leased Premises").

 

     3. DATES, TERMS AND TIME PERIODS

 

     3.1 Effective Date. The effective date of this Lease shall be the last date

of execution by a party ("Effective   Date").   The last party to sign agrees that

it shall   immediately   notify   the other   party of its   execution   of this Lease

within   one (1)   business   day,   and   provide   to the other   party its   original

signature page within three (3) business days of execution.

 

     3.2   Initial   Term.   The initial   term of the Lease   shall   commence on the

Effective Date and end five (5) years after the Effective Date ("Initial   Term")

provided,   however,   that the partial calendar month, if any, that occurs at the

beginning   of the   Initial   Term shall be added to the first   Lease Year for the

calculation of rent and other charges hereunder.

 

     3.3 Lease   Extension.   Tenant's right and option to extend the term of this

Lease for one (1) period of five (5) years,   all upon the same terms and subject

to the same   conditions of this Lease ("Lease   Extension")   except Base Rent (as

herein defined) and other payments due Landlord.   Each such additional period is

referred to as an Extension Term ("Extension   Term").   Tenant's right and option

to exercise the Lease Extensions shall be subject to the following: (a) that the

then   existing   Lease be in full   force and   effect,   and that   Tenant not be in

default thereunder;   and (b) that Tenant has given written notice to Landlord of

Tenant's   exercise   of each   immediately   upcoming   option at least one   hundred

eighty (180) days prior to the expiration of the then existing Term.

 

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     3.4   Term.   The   Term of the   Lease   shall   mean the   Initial   Term and any

Extension Terms exercised by Tenant ("Term").

 

     4. GRANT, USE AND POSSESSION

 

     4.1 Grant. In consideration of the rents,   covenants and leases hereinafter

set forth to be paid,   observed and performed by Tenant,   Landlord hereby leases

and demises   unto Tenant the Leased   Premises,   to have and to hold the same for

the Term of the Lease.

 

     4.2 Use. Tenant intends to use the Leased Premises for the construction and

operation   of   a   Don   Pablo's   Mexican   Kitchen   restaurant   serving   alcoholic

beverages   ("Intended   Use").   Tenant   shall   have the   right to use the   Leased

Premises for any lawful and legal use ("Tenant   Use");   provided;   if the Leased

Premises shall cease being used for restaurant purposes, then Tenant must obtain

the prior   written   consent of the   Landlord,   which such   consent   shall not be

unreasonably withheld, delayed, or conditioned.

 

     4.3 Possession and Quiet Enjoyment. Landlord covenants to deliver to Tenant

possession of the Leased   Premises,   free, clear and discharged of possession or

the right of possession by any party, on or before the Possession Date. Landlord

shall assure Tenant of quiet   enjoyment and possession of the Leased Premises so

long as Tenant fully performs all of its obligations under this Lease.

 

     4.4 Exclusivity.   During the continuation of this Lease, and so long as (i)

the Leased Premises are used as a Don Pablo's Mexican Kitchen restaurant serving

alcoholic   beverages;   and (ii) the   Tenant   is not in   default   hereunder,   any

property now or hereafter   owned leased or   controlled by Landlord or any entity

of   which   Landlord   owns an   interest,   within   five (5)   miles   of the   Leased

Premises,   shall be   restricted   from a use   similar   to a Don   Pablo's   Mexican

Kitchen if it serves Mexican food and wine,   beer or other   alcoholic   beverages

and said term shall   specifically   include,   but shall not be limited   to,   such

concepts as "On the   Border",   "Cozymels",   "Ninfas,"   "El Fenix" and other such

similar   type   restaurant   concepts.   This   restriction   will be included in the

Memorandum of Lease, if recorded, pursuant to Section 16.7 herein.

 

     4.5   Subordination/Non-Disturbance.   This   Lease   and any   easement   rights

granted   herein   or   in   conjunction   with   this   Lease   shall   be   subject   and

subordinate   to any   mortgages   that may   hereafter   be placed   upon the   Leased

Premises by Landlord or its   successors or assigns,   and to any and all advances

to   be   made   thereunder,   and   to   the   interest   thereon,   and   all   renewals,

replacements,    consolidation    and   extensions    thereof,     provided   that   the

mortgagee(s)   named in said   mortgage(s)   delivers to Tenant a   recognition   and

non-disturbance Lease reasonably   satisfactory to Tenant, assuring that Tenant's

rights under this Lease shall be   recognized   and not   disturbed in the event of

foreclosure, so long as Tenant is not in default and Tenant attorns to the party

acquiring title to the Leased Premises   following such   foreclosure.   Tenant and

Landlord shall execute and deliver,   and Landlord   shall ensure that   Landlord's

mortgagee executes and delivers, whatever reasonable instruments may be required

for such purposes.

 

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     5. RENT AND OTHER PAYMENTS

 

     5.1 Base Rent.. Beginning on the Effective Date, Tenant shall pay Landlord,

at Landlord's   notice   address set forth in Section 16.1, or at such other place

as Landlord   may   hereafter   designate   in writing,   as base rent for the Leased

Premises,   the amounts set out below ("Base Rent").   All rental   payments coming

due under this Lease   shall be payable   in   monthly   installments,   in   advance,

without   notice or demand,   on or before   the fifth   (5th) day of each and every

calendar month for the full Initial Term and all Lease   Extensions   exercised by

Tenant.   Rent for a partial month   beginning on the Effective Date or at the end

of the Initial or any Extension   Term shall be prorated on the basis of a thirty

(30) day month.   If Tenant shall fail to pay, within five (5) days from the date

same is due and payable,   any rent or other   amounts due and payable   under this

Lease,   then such unpaid amount shall bear interest from the due date thereof to

the date of payment at the rate of twelve   percent   (12 %) per annum,   or at the

maximum legal rate, whichever is less.

 

                            ANNUAL RENT                  MONTHLY RENT

INITIAL TERM                $120,000.00                   $10,000.00

LEASE EXTENSIONS            $132,000.00                  $ 11,000.00

 

     5.2 Taxes.   Beginning on the Effective Date and   continuing   throughout the

Initial   Term and all   Extension   Terms,   Tenant shall pay: (1) all taxes levied

against all personal property of Tenant located on the Leased Premises; and, (2)

all business, license, rent, sales and excise taxes levied against the Tenant or

Tenant's occupancy of the Leased Premises.   Landlord shall pay all real property

taxes and   assessments   levied   against   the Leased   Premises   and Tenant   shall

reimburse   Landlord for said taxes on an monthly basis,   during the term of this

Lease.,   At the end of the   calendar   year there shall be a   reconciliation   and

within ten (10) days of Tenant's   receipt of a paid tax statement from Landlord,

Tenant shall pay any shortage or Landlord   shall credit   (against Base Rent) any

overpayment.   Real   property   taxes and   assessments   shall be prorated from the

Effective   Date to the end of the Term   based   upon a three   hundred   sixty-five

(365) day year. Tenant shall have the right with Landlord's cooperation,   but at

Tenant's expense,   to contest any tax or assessment,   and to pay in installments

where allowed by the taxing   authority.   Real   property   taxes shall not include

business,    income,   gross   receipts,   or   profits   taxes,   estate,   succession,

inheritance,    transfer,    corporation,   or   franchise   taxes   assessed   against

Landlord.

 

     5.3 Special Assessment.   In the event of any special assessments for public

capital   improvements   placed on the Leased Premises,   Tenant shall make monthly

payments by way of   reimbursement to Landlord with the payments being based upon

the useful life of the capital   improvement,   provided that such assessments are

both levied and payable during the continuance of this Lease. To the extent that

such   special   assessments   are   payable in   installments   extending   beyond the

termination or cancellation of this Lease,   Tenant shall be required to pay only

those   installments   that are   required   to be paid   prior   to the   termination,

cancellation or expiration of this Lease.

 

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     5.4 Late Fee. Tenant covenants and agrees to pay to Landlord,   from time to

time as provided in this Lease,   and as "Additional   Rent" a late charge of five

percent   (5%) of the amount then due to be paid by Tenant   hereunder if not paid

within five (5) days after the due date.

 

     5.5 Net   Lease.   This   Lease is a net lease and all Base Rent shall be paid

without notice, demand,   counterclaim,   setoff, deduction or defense and without

abatement, suspension,   deferment, diminution, or reduction. Except as otherwise

provided in this Lease, this Lease shall not terminate nor shall Tenant have any

right to   terminate   this   Lease or be   entitled   to the   abatement   of any Rent

hereunder or any reduction   thereof,   nor shall the   obligations of Tenant under

this   Lease be   otherwise   affected,   for any reason   during the Term   except as

specifically   provided   herein.   It is the purpose   and intent of   Landlord   and

Tenant that Rent shall be absolutely   net to Landlord,   so that this Lease shall

yield, net, to Landlord, the Rent specified herein throughout the Term, and that

all costs,   expenses and obligations of every kind or nature whatsoever relating

to the Leased Premises which may arise and become due as specified herein during

the Term shall be paid by Tenant,   and that Landlord   shall be   indemnified   and

saved harmless by Tenant from and against the same.

 

     6. IMPROVEMENTS

 

     6.1   Improvements.   Improvements   shall mean all buildings,   installations,

structures,   signage, utilities,   lighting facilities,   landscaping,   sidewalks,

parking   areas,    drives   and   equipment   and   all   their    components   and   all

identification,   advertising,   and   directional   signs   required by Tenant to be

located on the Leased Premises.

 

      6.2 (A) Title to Tenant Improvements.   Title to and ownership of all tenant

improvements   during the Initial Term or any Lease   Extension   shall at all such

times remain in and with Tenant.   Landlord   acknowledges and agrees that it does

not   hereby   acquire   any right,   equity,   title or   interest   in or to any such

improvements during continuance of this Lease.   Landlord shall take such actions

as may be necessary to ensure that Tenant's said   improvements   remain free from

any   liens   and   encumbrances   arising   by,   through   or   under   Landlord.   Upon

termination or expiration of this Lease, all Tenant   Improvements shall become a

part thereof and title thereto   shall vest in Landlord or Landlord's   successors

or   assigns,   except for those   articles   and items that   Tenant is   entitled to

remove   pursuant to Sections 6,4 and 6.9.

 

     (B) Title to Leased   Premises.   Tenant   shall   take such   actions as may be

necessary to ensure that   Landlord's   said Leased   Premises remain free from any

liens and encumbrances   arising by, through or under Tenant. Upon termination or

expiration   of this Lease,   all Tenant   Improvements   (and the Leased   Premises)

shall thereto shall vest in Landlord.

 

     6.3 Signage.   Tenant may install and maintain on the Leased   Premises   such

identification,    advertising   and    directional    signs   and   media   as   Tenant

determines,   including a pylon sign with the maximum   size and height   permitted

pursuant to the appropriate governmental   requirements.   Tenant may place on the

windows or inside or outside   walls of the Property any   advertising   materials,

banners,   and related items,   as well as its usual signs,   logos,   lettering and

notices   normally   installed in its   restaurants,   or used in   conjunction   with

Tenant's regional or national   advertising   campaigns . Tenant shall comply with

all laws applicable to Tenant's signs on the Leased Premises.

 

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     6.4   Tenant's   Personal   Property.    Trade   fixtures,    inventory,    signs,

equipment,   furniture   and other   personal   property of whatever kind and nature

kept or installed on the Leased Premises by Tenant shall not become the property

of   Landlord   nor a part of the   realty,   no matter   how   affixed   to the Leased

Premises,   and the same may be   removed   by   Tenant at any time and from time to

time   during   the   Initial   Term and all   Extension   Terms   ("Tenant's   Personal

Property") without any damage to the Leased Premises. All trade fixtures, signs,

equipment,   furniture   and other   personal   property of   whatever   kind shall be

installed   and   constructed   so as to comply with all   federal,   state and local

laws.   Landlord   agrees   to   subordinate   any   lien it may   have,   statutory   or

otherwise,   in Tenant's Personal Property, as security for performance of any or

all of   Tenant's   obligations   under   this   Lease,   to the   right   and lien of a

conditional   Landlord,   equipment-lessor   and any party   having or   acquiring   a

security interest in such personal property of Tenant. Upon request of Tenant or

its assignees or any subtenant or mortgagee,   Landlord shall execute and deliver

any lien subordination   setting forth that Landlord subordinates its lien on any

of Tenant's Personal Property in favor of the vendor, lessor, chattel mortgagee,

or any holder or owner. Landlord shall further acknowledge that property covered

by any such subordination is personal property of Tenant and is not to be nor to

become a part of the   realty,   no   matter   how   affixed   thereto,   and that such

property may be removed from the Leased Premises by the vendor,   lessor, chattel

mortgagee,   owner, or holder at any time, free and clear of any claim or lien of

Landlord and of Landlord's creditors,   subject to the terms of this Lease. In no

event shall Landlord be required to   subordinate   its fee interest in the Leased

Premises or the Improvements.

 

     6.5 Utilities.   Tenant shall be solely   responsible   for and shall promptly

pay all charges for heat, water, gas,   electricity and any other utility used or

consumed in or upon the Leased Premises.

 

     6.6 Alterations.   During the Initial Term and any Lease   Extension,   Tenant

shall   have the   right,   at its sole   cost and   expense,   to alter,   remodel   or

reconstruct   any buildings and other   improvements   on the Leased   Premises that

Tenant   reasonably   deems   necessary or appropriate   for its intended use of the

Leased   Premises,   provided that such alteration,   remodeling or   reconstruction

shall not:   (i)   diminish   the value of the Leased   Premises,   (ii)   violate any

codes, ordinances, or governmental regulations;   and (iii) violate any insurance

carrier   requirements.   Notwithstanding   the foregoing,   any major repairs which

total more than Ten Thousand Dollars ($10,000.00) shall require Landlord's prior

consent,   not to be   unreasonably   withheld,   conditioned   or delayed so long as

Tenant   provides   Landlord   with   a set of   plans   outlining   such   alterations,

remodeling or repair work.

 

     6.7 Liens.   Tenant   shall not do or suffer   anything to be done whereby the

Leased Premises may be encumbered by any mechanic's lien. Tenant shall, whenever

and as   often as any   mechanic's   lien is   filed   that   purports   to   attach   to

Landlord's   fee   interest,   and further   purports to be for labor   performed   or

material furnished to Tenant, either (i) discharge the same of record within ten

(10) days after the date of filing,   or (ii)   contest the same by posting a bond

in good faith.   Tenant shall fully indemnify and hold Landlord   harmless against

any loss, cost or damage resulting   therefrom.   Landlord shall have the right to

post and   maintain   on the   Leased   Premises   any   notice of   non-responsibility

provided for under   applicable   law. Tenant shall obtain lien waivers by any and

all contractors and   subcontractors   working on the Leased   Premises.   If Tenant

fails to keep this   covenant,   in addition to any other   remedies   available   to

Landlord   under this Lease or   otherwise,   Landlord may at its option   discharge

such   lien,   in which   event   Tenant   agrees to pay   Landlord a sum equal to the

amount of the lien   thus   discharged   plus   Landlord's   internal   administrative

costs, atto