-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UlfWGLYiQruxDwzn/prI7tbJB4WYd7jNfiM3GRVtoMsqbimsXb9Ml1AcNrJxaDkk NlW6GwImtbgpoTz/8H8usQ== 0000931763-99-000698.txt : 19990311 0000931763-99-000698.hdr.sgml : 19990311 ACCESSION NUMBER: 0000931763-99-000698 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 29 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOHAWK INDUSTRIES INC CENTRAL INDEX KEY: 0000851968 STANDARD INDUSTRIAL CLASSIFICATION: CARPETS AND RUGS [2273] IRS NUMBER: 521604305 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13697 FILM NUMBER: 99561983 BUSINESS ADDRESS: STREET 1: 160 S INDUSTRIAL BLVD STREET 2: PO BOX 12069 CITY: CALHOUN STATE: GA ZIP: 30701 BUSINESS PHONE: 7066297721 MAIL ADDRESS: STREET 1: P O BOX 12069 CITY: CALHOUN STATE: GA ZIP: 30703 10-K405 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [MARK ONE] [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM COMMISSION FILE NUMBER TO 01-19826 MOHAWK INDUSTRIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 52-1604305 (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) P. O. BOX 12069, 160 S. INDUSTRIAL BLVD., CALHOUN, GEORGIA 30701 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (706) 629-7721 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [_] The aggregate market value of the Common Stock of the Registrant held by non- affiliates of the Registrant (37,645,351 shares) on March 8, 1999 was $1,185,828,557. The aggregate market value was computed by reference to the closing price of the Common Stock on such date. Number of shares of Common Stock outstanding as of March 8, 1999: 60,578,367 shares of Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders--Part III ================================================================================ PART I ITEM 1. BUSINESS GENERAL Mohawk Industries, Inc. ("Mohawk" or the "Company," a term which includes the Company and its subsidiaries, including its primary operating subsidiaries, Mohawk Carpet Corporation ("Mohawk Carpet"), Aladdin Manufacturing Corporation ("Aladdin Manufacturing", formerly known as Mohawk Manufacturing Corporation), World Carpets, Inc. ("World"), American Weavers, LLC ("American Weavers") and Newmark & James, Inc. ("Newmark")) is a leading producer of woven and tufted broadloom carpet and rugs for principally residential applications. The Company is the second largest carpet and rug manufacturer in the United States, with 1998 net sales of approximately $2.6 billion. The Company designs, manufactures and markets carpet and rugs in a broad range of colors, textures and patterns. The Company is widely recognized through its premier brand names, some of which are "Mohawk," "Aladdin," "Alexander Smith," "American Rug Craftsmen," "American Weavers," "Bigelow," "Durkan," "Galaxy," "Harbinger," "Helios," "Horizon," "Image," "Karastan," "Mohawk Commercial," "Newmark Rug," and "World," and markets its products primarily through carpet retailers, home centers, mass merchandisers, department stores, commercial dealers and commercial end users. Mohawk's operations are vertically integrated from the extrusion of resin and post-consumer plastics into fiber, to the conversion of fiber into yarn and to the manufacture and shipment of finished carpet and rugs. HISTORY The Company was organized in Delaware in 1988 to acquire Aladdin Manufacturing from its predecessor owner, Mohasco Corporation, in a leveraged buyout transaction. The Company completed its initial public offering of Common Stock in April 1992, raising approximately $42.5 million in proceeds, which were used to retire indebtedness and redeem preferred stock outstanding at that time. Mohawk acquired Horizon Industries, Inc. ("Horizon") in October 1992 for cash of approximately $63.9 million and 4,009,500 shares of Common Stock valued at approximately $22.5 million. Mohawk purchased American Rug Craftsmen, Inc. ("American Rug") in April 1993 for approximately $32.0 million in cash and Karastan Bigelow in July 1993 for approximately $155.5 million, which was substantially all cash. In May 1993, the Company completed an offering of 4,725,000 shares of Common Stock. Of the total number of shares, 3,600,000 shares were sold by the Company and 1,125,000 shares were sold by selling stockholders. The net proceeds to the Company were approximately $46.0 million. On February 25, 1994, Mohawk acquired all of the common stock of Aladdin Mills, Inc. ("Aladdin") in exchange for approximately 20,343,000 shares of Common Stock, valued at $386.5 million, based upon the closing stock price at the date the agreement was executed. On January 13, 1995, Mohawk acquired all of the capital stock of Galaxy Carpet Mills, Inc. ("Galaxy") for $42.2 million in cash. On July 23, 1997, the Company acquired certain assets of Diamond Rug & Carpet Mills, Inc. ("Diamond") and other assets owned by Diamond's principal shareholders for approximately $36.0 million, which consisted of $19.6 million in cash at closing, $7.0 million in cash over the six-month period following closing and a $9.4 million note payable in seven annual installments of principal plus interest at 6%. The acquisition was accomplished through a plan of reorganization filed by Diamond under Chapter 11 of the United States Bankruptcy Code. The Company completed its acquisitions of Newmark and American Weavers, on June 30, 1998 and August 10, 1998, respectively. On November 12, 1998 the Company acquired all of the outstanding capital stock of World in exchange for approximately 4,900,000 shares of the Company's common stock valued at $149.5 million, based on the closing stock price on the day the agreement was executed. On January 29, 1999, the Company acquired certain assets of Image Industries, Inc. ("Image") for approximately $193 million, including the assumption of $30 million of tax exempt bonds, and on March 1, 1999, the Company acquired all of the outstanding capital stock of Durkan Patterned Carpets, Inc. ("Durkan") for 3,150,000 shares valued at $116.5 million based on the closing stock price the day the letter of intent was executed. 2 On October 23, 1997, the Board of Directors of the Company declared a 3-for-2 stock split that was paid as a 50% stock dividend on December 4, 1997, to holders of record on November 4, 1997. All share information presented herein gives effect to this stock split and the World merger. INDUSTRY According to the most recent figures available from the United States Department of Commerce, worldwide carpet and rug sales volume of American manufacturers and their domestic divisions was 1.7 billion square yards in 1997. This volume represents a market in excess of approximately $10.3 billion at the "mill level," which management believes, based on standard industry mark-ups, translates into approximately $16.4 billion to $18.5 billion at the retail level. Based upon data obtained from recent industry publications, the worldwide carpet and rug sales volume of American manufacturers in 1998 was approximately 1.8 billion square yards and $10.7 billion. The overall level of sales in the carpet industry is influenced by a number of factors, including consumer confidence in spending for durable goods, interest rates, turnover in housing, the condition of the residential and commercial construction industries and the overall strength of the economy. Broadloom carpet (defined as carpet over six feet by nine feet in size) represented 80% of the volume shipped by the industry in 1997. Tufted broadloom carpet (a category that refers to the manner of construction in addition to size) represented 96% of the broadloom industry volume shipped in 1997. The broadloom carpet industry has two primary markets, residential and commercial, with the residential market making up approximately 74% of industry volume shipped and the commercial market comprising approximately 26% in 1997. An estimated 55% of industry shipments is made in response to replacement demand, which usually involves exact yardage (or "cut order") shipments that typically provide higher profit margins than sales of carpet sold in full rolls. Because the replacement business generally involves higher quality carpet cut to order by the manufacturer, rather than the dealer, this business tends to be more profitable for manufacturers than the new construction business. PRODUCTS AND MARKETS The Company designs, manufactures and markets hundreds of styles of carpet, rugs and mats in a broad range of colors, textures and patterns. Mohawk positions its products in all price ranges and emphasizes quality, style, performance and service. The Company is widely recognized through its premier brand names, "Mohawk," "Aladdin," "Alexander Smith," "American Rug Craftsmen," "American Weavers," "Bigelow," "Bigelow Commercial," "Durkan," "Galaxy," "Harbinger," "Helios," "Horizon," "Image," "Karastan," "Karastan Contract," "Mohawk Commercial," "Newmark Rug," and "World," and markets its products primarily through carpet retailers, home centers, mass merchandisers, department stores, commercial dealers, and commercial end users. Some products are also marketed through private labeling programs. Mohawk markets certain of its products outside the United States, but does not consider sales of such products to be material. Sales to residential customers represent a significant portion of the total industry and the majority of the Company's sales. The Company currently markets approximately 900 residential products to more than 25,000 customers which include independent retailers, department stores, mass merchandisers, buying groups, and building and tenant improvement contractors. The Company has positioned its premier residential brand names across all price ranges. "Mohawk," "Alexander Smith," "Bigelow," "Galaxy," "Horizon," "Karastan" and "World" are positioned to sell primarily in the medium-to-high retail price range in the residential broadloom market and these lines are also sold under private labels. These lines have substantial brand name recognition among carpet dealers and retailers with the "Karastan," "Mohawk," and "Bigelow" brands having the highest consumer recognition in the industry. "Karastan" is the leader in the exclusive high end market. The "Aladdin" brand name competes in the low-to-medium retail price range. Based on an industry survey, the Company is considered a leader within the industry of U.S. carpet manufacturers providing marketing support. Through dealer programs like Karastan Gallery, Mohawk Brand Excellence, New 3 Visions, Hamilton, Ciboney, Mohawk Carpet Color Center and Floor Scapes, the Company offers intensive marketing and advertising support. These programs offer varying degrees of support to dealers in sales and management training, display racks, exclusive promotions and assistance in certain administrative functions such as computer systems, accounting and insurance. The Company generally markets its residential products through its residential sales forces that report to common management on a regional basis. All of the regional vice presidents report to one senior vice president of sales. Each region has responsibility for sales, distribution and inventory management in its region, all of which is coordinated by the senior vice president of sales at a national level. The inventory management on a regional level is accomplished by a hub-and-spoke distribution network. In this system, Company trucks generally deliver carpet from mill sites to regional warehouses. From there, it is shipped to local distribution warehouses, then to retailers. The Company believes that the current structure of the residential sales group has contributed to a more efficient and profitable organization. The commercial customer base is divided into several groups: educational institutions, corporate office space, hospitality facilities, retail space and health care facilities. In addition, Mohawk produces and sells carpet for the export market, the federal government and other niche businesses. Different purchase decision makers and decision-making processes exist for each group. For example, in the corporate office group, decisions are usually made by architects or specifiers, whose responsibility is to manage the project budget and coordinate interior design. In the institutional group, by comparison, decisions are often made by purchasing agents employed by the end user who have longstanding relationships with carpet manufacturers. The commercial market is generally a more complex market in which to sell than the residential market. In the commercial market, the Company markets its products under the brand names "Mohawk Commercial," "Harbinger," "Aladdin," "Karastan Contract" and "Bigelow Commercial." The marketing strategy of the Mohawk Commercial, Karastan Contract and Bigelow Commercial brands is to leverage the brands' traditional sales strength in the educational institution part of the market to the office, hospitality, retail and health care groups. These brands are comprised of specialized products for these groups that emphasize product quality and specification rather than just price. The Harbinger brand is a specialized line of commercial carpet generally specified by architects and designers for end users in the hospitality, corporate, health care and institutional market sectors. Harbinger products are largely custom designed and colored and are marketed through its sales organization of commercial carpet sales specialists. The Harbinger brand is considered to be an industry leader in product quality, styling and innovation for the high-end commercial market. Harbinger products were the first to introduce "graphics" tufting technology to the industry and have maintained their product development leadership by employing tufting and dyeing technologies that produce intricate multicolored patterns. The Aladdin brand is marketed primarily to the "mainstreet" sector of the commercial market. The "mainstreet" sector is generally comprised of the low-to- medium price range styles and is distributed primarily through retail dealers for smaller installations. Woven commercial products accounted for a significant portion of the Company's net sales of commercial product in 1998, including the Mohawk Commercial brand's exclusive woven interlock products, which are manufactured by a unique weaving process that increases performance, wear and durability. The Company's ability to make woven carpet under the Mohawk Commercial, Karastan Contract and Bigelow Commercial brand names in large volume for commercial applications differentiates it from other manufacturers, most of which produce tufted carpet almost exclusively. Woven carpet and specifically the Company's woven interlock products sell at higher prices than tufted carpet and generally produce higher profit margins. Management believes that the Company is the largest producer of woven carpet in the United States and that the Company has several carpet weaving machines and processes that no other manufacturer has, thereby allowing the Company to create carpet to meet specifications that its competitors cannot duplicate. 4 The machine-made rug market is currently the fastest growing segment of the U. S. carpet and rug industry with an annual growth rate estimated to be approximately 12% in 1998. Much of this growth has occurred at the low-to- medium retail price ranges. The distribution channels for the rug market primarily include department stores, mass merchants, floorcovering stores, catalog stores, home centers and furniture stores. The Company's product lines include a broad array of rugs. The Karastan brand name rugs represent the higher retail price ranges with one of the most valued brand names in the industry and are distributed through specialty stores, along with department and furniture stores. These are higher quality woven wool rugs manufactured primarily on Axminster looms. The Company emphasizes the fast growing lower retail price ranges through its American Rug Craftsmen and American Weavers brand names. The rugs sold under these brands are primarily woven polypropylene area rugs, tufted border rugs and decorative mats, which are made from purchased matting material that is cut, serged and screen printed by the Company. These products are distributed primarily through mass merchants and home centers. The Company also sells to the bath mat and washable bath rug segments of the rug market through its Newmark Rug and Aladdin brand names. The Aladdin products are tufted nylon products which are distributed through department stores and mass merchants. The Newmark products are high-end washable cotton bath rugs that are distributed to the luxury market of department stores, specialty stores, and catalogue businesses. ADVERTISING AND PROMOTION The Company promotes its products in the form of co-operative advertising, point-of-sale displays and marketing literature provided to assist in marketing various carpet styles. Mohawk also continues to rely on the substantial brand name identification of its "Aladdin," "Alexander Smith," "American Rug Craftsmen," "American Weavers," "Bigelow," "Bigelow Commercial," "Durkan," "Galaxy," "Harbinger," "Helios," "Horizon," "Image," "Karastan," "Karastan Contract," "Mohawk," "Mohawk Commercial," "Newmark Rug," and "World," lines. The cost of producing display samples, a significant promotional expense, is partially offset by sales of samples and support from raw materials suppliers. MANUFACTURING AND OPERATIONS The Company's manufacturing operations are vertically integrated and include the extrusion of resin and post-consumer plastics into polypropylene, polyester and nylon fiber, yarn processing, tufting, weaving, dyeing, coating and finishing. Capital expenditures are primarily focused on increasing capacity, improving productivity and reducing costs. Mohawk incurred $115.1 million in capital expenditures over the past three years, including acquisitions. These expenditures increased manufacturing efficiency and capacity, while improving overall cost competitiveness. RAW MATERIALS AND SUPPLIERS The principal raw materials the Company uses are nylon staple fibers; nylon filament fibers; raw wool; polypropylene filament fibers; polyester staple fibers; olefin and polyester resins and post-consumer plastics; synthetic backing materials, polyurethane and latex; and various dyes and chemicals. Mohawk obtains all of its major raw materials from independent sources and all of its externally purchased nylon fibers from four major suppliers: E.I. du Pont de Nemours and Company, Monsanto Company, BASF Corporation and AlliedSignal, Inc. Most of the fibers the Company uses in carpet production are treated with stain-resistant chemicals. The Company has not experienced significant shortages of raw materials in recent years. The Company believes that the loss of any one supplier would not have a material effect on the Company and that an alternative supply arrangement could be made in a relatively short period of time. COMPETITION All of the markets in which the Company does business are highly competitive, with less than 100 companies engaged in the manufacture and sale of carpet in the United States. Carpet manufacturers also face competition from 5 the hard surface floorcovering industry. Based on industry publications, the top twenty North American carpet and rug manufacturers (including their American and foreign divisions) in 1997 had worldwide sales in excess of $10.0 billion, and the top twenty manufacturers in 1990 had sales in excess of $6 billion. Mohawk, with 1998 net sales of approximately $2.6 billion, is the second largest producer of carpet and rugs (in terms of sales volume). Certain of the Company's competitors have greater financial and other resources than the Company. In particular, the industry has one large competitor, Shaw Industries, Inc. ("Shaw"), who in 1998 held the largest share of the domestic wholesale market based on sales. Shaw's size could permit significant raw material purchasing power and certain other manufacturing cost advantages compared with the rest of the industry. The principal methods of competition within the industry are price, style, quality and service. In each of the Company's markets, price competition and market coverage are particularly important because there is relatively little perceived differentiation among competing product lines. Mohawk's recent investments in modernized, advanced manufacturing and data processing equipment, the extensive diversity of equipment in which it has invested and its marketing strategy contribute to its ability to compete primarily on the basis of performance, quality, style and service, rather than just price. TRADEMARKS Mohawk uses several trademarks that it considers important in the marketing of its products, including "Aladdin," "Alexander Smith (R)," "American Rug Craftsmen," "Bigelow (R)," "Ciboney (R)," "Commercial Horizons (R)," "Galaxy(R)" "Hamilton (R)" "Harbinger (R)," "Helios (R)," "Horizon (R)," "Image," "Karastan (R)," "Mohawk (R)," "Mohawk Color Center (R)," "Mohawk Commercial," "Tommy Mohawk (R)," "Townhouse," and "World." SALES TERMS AND MAJOR CUSTOMERS The Company's sales terms are the same as those generally available throughout the industry. The Company generally permits its customers to return broadloom carpet purchased from it within 30 days from the date of sale if the customer is not satisfied with the quality of the carpet. This return policy is consistent with the Company's emphasis on quality, style and performance and promotes customer satisfaction without generating enough returns to affect materially the Company's operating results or financial position. During 1998, no single customer accounted for more than 5.0% of Mohawk's total net sales. The Company believes the loss of one or a few major customers would not have a material adverse effect on the Company's business. BACKLOG Backlog of orders is generally insignificant in the carpet manufacturing business because most residential orders are filled within several days and commercial backlogs reflect the terms of the relevant contracts, which generally require delivery within four to six weeks. EMPLOYEES As of December 31, 1998, the Company employed approximately 18,200 persons. Approximately 280 Mohawk employees are members of the Union of Needletrades, Industrial and Textile Employees, AFL-CIO, CLC with which the Company is party to a collective bargaining agreement. Other than with respect to these employees, the Company is not a party to any collective bargaining agreements. Additionally, the Company has not experienced any strikes or work stoppages. The Company believes that its relations with its employees are good. ENVIRONMENTAL MATTERS The Company's operations must meet federal, state and local regulations governing the discharge of materials into the environment. All of the plants operated by the Company were built or have been upgraded to meet current 6 environmental standards. The Company believes it is in material compliance with all applicable regulations. The Company estimates that any expenses incurred in maintaining compliance with these regulations will not materially affect earnings. CYCLICAL NATURE OF INDUSTRY; CURRENT ECONOMIC CONDITIONS The carpet industry is a cyclical business, influenced by a number of general economic factors, including consumer confidence and spending for durable goods, disposable income, interest rates, turnover in housing and the condition of the residential and commercial construction industries (including the number of new housing starts and the level of commercial construction). During economic downturns, the carpet industry can be expected to experience a general decline in sales and profitability. ITEM 2. PROPERTIES The Company owns a 47,500 square foot headquarters office in Calhoun, Georgia on an eight acre site. The following table lists the principal manufacturing and distribution facilities owned by the Company:
APPROX. ENCLOSED AREA IN SQUARE LOCATION PRIMARY PRODUCTS OR PURPOSES FOOTAGE -------- ---------------------------- --------- Dalton, GA........... Carpet and rug manufacturing and warehousing.. 1,832,600 Dalton, GA........... Carpet manufacturing, distribution and offices 1,103,200 Dalton, GA........... Carpet manufacturing, distribution and offices 396,900 Dalton, GA........... Carpet and yarn manufacturing................. 1,101,600 Chatsworth, GA....... Carpet manufacturing, warehousing and offices. 787,800 Dublin, GA........... Carpet manufacturing, warehousing and offices. 831,000 Lyerly, GA........... Carpet manufacturing and warehousing.......... 635,000 Eden, NC............. Carpet and rug manufacturing.................. 784,200 Calhoun, GA.......... Carpet manufacturing and distribution center.. 792,000 Dalton, GA........... Carpet manufacturing.......................... 342,000 Eton, GA............. Carpet manufacturing.......................... 577,205 Armuchee, GA......... Carpet manufacturing.......................... 232,000 Chatsworth, GA....... Distribution center........................... 812,075 Shannon, GA.......... Distribution center........................... 567,000 Landrum, SC.......... Weaving and finishing of carpet............... 350,000 Dalton, GA(1)........ Carpet dyeing................................. 259,000 Dalton, GA........... Carpet dyeing................................. 216,000 Dalton, GA........... Sample storage and distribution............... 123,000 Eden, NC............. Carpet and rug distribution................... 194,000 Summerville, GA...... Sample manufacturing and distribution......... 235,000 Chatsworth, GA....... Sample manufacturing.......................... 291,800 Sugar Valley, GA..... Rug manufacturing, warehousing and offices.... 472,500 Dalton, GA........... Rug manufacturing and offices................. 135,000 Calhoun, GA.......... Rug manufacturing and warehousing............. 250,000 Chatsworth, GA....... Yarn extrusion................................ 257,800 Summerville, GA...... Yarn extrusion................................ 579,000 Dahlonega, GA........ Yarn manufacturing............................ 336,716 Calhoun Falls, SC.... Yarn manufacturing............................ 425,000 Bennettsville, SC.... Yarn manufacturing............................ 412,000 Dalton, GA........... Yarn manufacturing............................ 105,400 Laurel Hill, NC...... Yarn manufacturing............................ 203,000 Fort Oglethorpe, GA.. Yarn manufacturing............................ 194,000 Dalton, GA........... Yarn manufacturing............................ 231,000 Dalton, GA........... Yarn manufacturing............................ 180,000
7 Calhoun, GA.......... Yarn manufacturing............................ 121,000 Calhoun, GA.......... Yarn manufacturing............................ 113,800 Belton, SC (1)....... Yarn manufacturing............................ 106,000 Dillon, SC........... Yarn manufacturing............................ 102,000 South Pittsburg, TN.. Yarn manufacturing............................ 102,000 Chatsworth, GA....... Yarn manufacturing............................ 138,100 Rome, GA............. Yarn manufacturing............................ 240,400 Rome, GA............. Yarn manufacturing............................ 224,000 Cartersville, GA..... Yarn manufacturing............................ 178,100 Chatsworth, GA....... Yarnset plant................................. 121,200 Chatsworth, GA....... Commercial warehouse.......................... 128,000 Eton, GA............. Storage warehouse............................. 121,300 Greenville, NC....... Wool processing............................... 103,000
___________ (1) Operations have been discontinued and these facilities are held for sale. The following table lists the Company's material leased office, manufacturing and warehouse facilities:
APPROX. ENCLOSED AREA IN LEASE SQUARE TERM LOCATION PRIMARY PRODUCTS OR PURPOSES FOOTAGE THROUGH (1) -------- ---------------------------- ---------- ----------- Calhoun, GA......... Carpet manufacturing and administrative offices (2) 62,000 Jul. 2000 Calhoun, GA......... Mat manufacturing and warehouse (2)................ 164,400 June 2004 Philadelphia, PA.... Warehouse.......................................... 53,100 Dec. 2000 Calhoun, GA......... Rug manufacturing, warehouse and offices........... 233,455 Apr. 2003 Haiwassee, GA....... Rug manufacturing.................................. 63,500 June 2003 La Mirada, CA....... Distribution warehouse............................. 220,000 Aug. 2001 Grand Prairie, TX... Distribution warehouse............................. 208,000 June 2004 Glen Burnie, MD..... Distribution warehouse............................. 187,000 June 2004 Pompton Plains, NJ.. Distribution warehouse............................. 164,000 June 2004 Miami, FL........... Distribution warehouse............................. 120,600 May 2001 Columbus, OH........ Distribution warehouse............................. 112,500 Aug. 2004 Romeoville, IL...... Distribution warehouse............................. 108,000 Nov. 1999 Hayward, CA......... Distribution warehouse............................. 102,500 Aug. 2001 Dalton, GA.......... Distribution warehouse............................. 80,000 Aug. 2002 Kent, WA............ Distribution warehouse............................. 67,250 Jan. 2003 San Diego, CA....... Distribution warehouse............................. 63,000 Sep. 2006 Rome, GA............ Warehouse.......................................... 140,000 Jan. 2000 Kensington, GA...... Warehouse.......................................... 136,000 May 1999 Lyerly, GA.......... Warehouse.......................................... 74,250 Nov. 2002 Calhoun, GA......... Warehouse.......................................... 68,700 Aug. 2000 Calhoun, GA......... Warehouse.......................................... 60,000 Oct. 2001
- ------------ (1) Include renewal options exercisable by the Company. (2) Includes a number of separately leased adjoining or adjacent buildings with varying lease terms. The expiration date shown in the table is the earliest expiration date of the respective group of leases. The Company's properties are in good condition and adequate for its requirements. The Company also believes its principal plants are generally adequate to meet its production plans pursuant to its long-term sales goals. In the ordinary course of its business, the Company monitors the condition of its facilities to ensure that they remain adequate to meet long-term sales goals and production plans. 8 ITEM 3. LEGAL PROCEEDINGS The Company is involved in routine litigation from time to time in the regular course of its business. Except as noted below, there are no material legal proceedings pending or known to be contemplated to which the Company is a party or to which any of its property is subject. In December 1995, the Company and four other carpet manufacturers were added as defendants in a purported class action lawsuit, In re Carpet Antitrust Litigation, pending in the United States District Court for the Northern District of Georgia, Rome Division. The amended complaint alleges price fixing regarding polypropylene products in violation of Section One of the Sherman Act. In September 1997, the Court determined that the plaintiffs met their burden of establishing the requirements for class certification and granted the plaintiffs' motion to certify the class. The Company is a party to two consolidated lawsuits captioned Gaehwiler v. Sunrise Carpet Industries, Inc. et. al. and Patco Enterprises, Inc. v. Sunrise Carpet Industries, Inc. et. al.; both of which were filed in the Superior Court of the State of California, City and County of San Francisco in 1996. Both complaints were brought on behalf of a purported class of indirect purchasers of carpet in the State of California and seek damages for alleged violations of California antitrust and unfair competition laws. The complaints filed do not specify any amount of damages but do request for any unlawful conduct to be enjoined and treble damages plus reimbursement for fees and costs. In October 1998, two plaintiffs, on behalf of an alleged class of purchasers of nylon carpet products, filed a complaint in the United States District Court for the Northern District of Georgia against the Company and two of its subsidiaries as well as a competitor and one of its subsidiaries. The complaint alleges that the Company acted in concert with other carpet manufacturers to restrain competition in the sale of certain nylon carpet products. The Company has filed an answer and denied the allegations in the complaint and set forth its defenses. In February 1999, a similar complaint was filed in the Superior Court of the State of California, City and County of San Francisco, on behalf of a purported class based on indirect purchases of nylon carpet in the State of California and alleges violations of California antitrust and unfair competition laws. The complaints described above do not specify any specific amount of damages but do request injunctive relief and treble damages plus reimbursement for fees and costs. The Company believes it has meritorious defenses and intends to vigorously defend against these actions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the fourth quarter ended December 31, 1998. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET FOR THE COMMON STOCK On December 16, 1997, the Common Stock began trading on the New York Stock Exchange ("NYSE") under the symbol "MHK." From the time of the Company's initial public offering in April 1992 until December 15, 1997, the Common Stock was listed on the Nasdaq National Market ("NNM") under the symbol "MOHK." The table below sets forth the high and low bid or sales prices per share of the Common Stock as reported on either the NNM or the NYSE Composite Tape, as applicable, for each fiscal period indicated.
MOHAWK COMMON STOCK ------------------ HIGH LOW ---------- ------- 1997 ---- First Quarter..................... $18.67 13.92 Second Quarter.................... 17.33 12.92 Third Quarter..................... 18.29 14.58 Fourth Quarter.................... 22.00 17.75 1998 ---- First Quarter..................... $33.50 20.50 Second Quarter.................... 35.50 28.44 Third Quarter..................... 34.94 22.63 Fourth Quarter.................... 42.44 22.69 1999 ---- First Quarter (through March 8, 1999) $42.00 29.50
As of March 8, 1999, there were 443 holders of record of Common Stock. Mohawk has not paid or declared any cash dividends on shares of its Common Stock since completing its initial public offering. The Company's policy is to retain all net earnings for the development of its business, and it does not anticipate paying cash dividends on the Common Stock in the foreseeable future. The payment of future cash dividends will be at the sole discretion of the Board of Directors and will depend upon the Company's profitability, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board of Directors. The payment of cash dividends is limited by certain covenants in various of the Company's loan agreements. On November 12, 1998, the Company issued 4,899,992 shares of Common Stock to the former shareholders of World in exchange for all of their shares of World. This issuance of securities was made in reliance on the exemption from registration provided under Section 4(2) of the Securities Act of 1933 as a transaction by an issuer not involving a public offering. All of the securities were acquired by the recipients for investment and with no view toward the public resale or distribution of the securities without registration. There was not any public solicitation and the issues stock certificates bear restrictive legends. 10 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth the selected financial data of the Company for the periods indicated, derived from the consolidated financial statements of the Company. On February 25, 1994, the Company exchanged 20,343,336 shares of Common Stock for all of the outstanding shares of Aladdin common stock in a transaction recorded using the pooling- of-interests basis of accounting. All financial data were restated to include the accounts and results of operations of Aladdin. On January 13, 1995, the Company acquired all of the outstanding capital stock of Galaxy. The operating results of Galaxy are included in the 1995 consolidated statement of earnings from the date of its acquisition. On July 23, 1997, the Company acquired certain assets of Diamond Rug & Carpet Mills, Inc. and other assets owned by Diamond's principal shareholders. The acquisitions of Galaxy and Diamond were recorded using the purchase method of accounting. On November 12, 1998, the Company acquired all of the outstanding capital stock of World in exchange for 4,899,992 shares of the Company's common stock in a transaction recorded using the pooling-of-interests basis of accounting. All financial data are restated to include the accounts and results of operations of World. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and notes thereto included elsewhere herein.
AT OR FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------ ------------- ----------- ------------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF EARNINGS DATA: Net sales............................................... $ 2,639,200 2,327,341 2,153,016 1,965,374 1,712,112 Cost of sales (a)....................................... 1,998,903 1,808,137 1,675,221 1,545,796 1,341,703 ------------ ------------- ----------- ------------- ------------ Gross profit.......................................... 640,297 519,204 477,795 419,578 370,409 Selling, general and administrative expenses............ 406,170 354,528 340,770 325,276 265,044 Restructuring costs (b)................................. - - 700 8,439 - Carrying value reduction of property, plant and equipment and other assets (c).................... 2,900 5,500 3,060 23,711 - Compensation expense for stock option exercises (d)..... - 2,600 - 4,000 - ------------ ------------- ----------- ------------- ------------ Operating income...................................... 231,227 156,576 133,265 58,152 105,365 ------------ ------------- ----------- ------------- ------------ Interest expense........................................ 29,290 34,551 37,522 39,981 31,210 Acquisition costs - Aladdin/World Mergers (e)........... 17,700 - - - 10,201 Other expense, net...................................... 1,849 447 4,080 1,206 689 ------------ ------------- ----------- ------------- ------------ 48,839 34,998 41,602 41,187 42,100 ------------ ------------- ----------- ------------- ------------ Earnings before income taxes.......................... 182,388 121,578 91,663 16,965 63,265 Income taxes (f)........................................ 74,776 48,154 38,285 6,951 26,599 ------------ ------------- ----------- ------------- ------------ Net earnings.......................................... $ 107,612 73,424 53,378 10,014 36,666 ============ ============= =========== ============= ============ Basic earnings per share (g)............................ $ 1.88 1.29 0.95 0.19 0.68 ============ ============= =========== ============= ============ Weighted-average common shares outstanding (g).......... 57,243 56,812 56,160 54,085 53,568 ============ ============= =========== ============= ============ Diluted earnings per share (g).......................... $ 1.86 1.28 0.94 0.18 0.67 ============ ============= =========== ============= ============ Weighted-average common and dilutive potential common shares outstanding (g)......................... 57,984 57,303 56,749 55,335 54,961 ============ ============= =========== ============= ============ BALANCE SHEET DATA: Working capital......................................... $ 419,217 382,108 387,067 301,790 351,346 Total assets............................................ 1,331,406 1,176,557 1,177,510 1,061,826 996,999 Short-term note payable................................. - - 21,200 50,000 - Long-term debt (including current portion).............. 355,968 377,738 458,741 405,100 448,442 Stockholders' equity.................................... 586,709 477,133 399,047 336,447 321,984
11 _____________ (a) Certain of the Company's facilities suffered damage during the March 1993 blizzard, and the Company finalized settlement of the insurance claim during the first quarter of 1994. The Company recorded a reduction of $6.0 million in cost of sales in 1994 for reimbursements of business interruption costs (b) During 1995 and 1996, the Company recorded pre-tax restructuring costs of $8.4 million and $0.7 million, respec-tively, related to certain mill closings whose operations have been consolidated into other Mohawk facilities. (c) During 1995, the Company adopted FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as of January 1, 1995. A charge of $23.7 million was recorded for the reduction of the carrying value of property, plant and equipment at certain mills. During 1996, the Company recorded a charge of $3.1 million arising from the write-down of property, plant and equipment to be disposed of related to the closing of a manufacturing facility in 1996 and a revision in the estimate of fair value of certain property, plant and equipment based on current market conditions related to mill closings in 1995. During 1997, the Company recorded a charge of $5.5 million arising from a revision in the estimated fair value of certain property, plant and equipment held for sale based on current appraisals and other market information related to a mill closing in 1995. During 1998, the Company recorded a charge of $2.9 million for the write-down of assets to be disposed of relating to the acquisition of World. (d) Charges of $4.0 million and $2.6 million were recorded in 1995 and 1997, respectively, for income tax reimburse-ments to be made to certain executives related to the exercise of stock options granted in 1988 and 1989 in connec-tion with the Company's 1988 leveraged buyout. (e) The Company recorded one-time charges of $10.2 million and $17.7 million in 1994 and 1998, respectively, for transaction expenses related to the Aladdin and World Mergers, respectively. (f) During 1994, the Company reduced income tax expense by $2.0 million to reflect a reduction in its effective tax rate and certain other changes in the Company's federal and state income tax status. (g) The Board of Directors declared a 3-for-2 stock split on October 23, 1997, which was paid on December 4, 1997 to holders of record on November 4, 1997. Earnings per share and weighted-average common share data have been restated to reflect the split. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL During the three-year period ended December 31, 1998, the Company continued to experience significant growth both internally and through acquisitions. On July 23, 1997, the Company acquired certain assets of Diamond and other assets owned by Diamond's principal shareholders for $36.0 million, including acquisition costs, which consisted of $19.6 million in cash, at closing, $7.0 million in cash over the six-month period following closing and a $9.4 million note payable in seven annual installments of principal plus interest at 6%. The Diamond business combination was accounted for using the purchase method of accounting. The Company completed its acquisitions of Newmark and American Weavers on June 30, 1998 and August 10, 1998, respectively. Both of these acquisitions were accounted for using the purchase method of accounting. On November 12, 1998, the Company acquired all of the outstanding capital stock of World in exchange for approximately 4,900,000 shares of the Company's common stock valued at $149.5 million, based on the closing stock price on the day the agreement was executed. The acquisition of World was accounted for using the pooling-of- interests method of accounting. On January 29, 1999, the Company acquired certain assets of Image for approximately $193 million, including acquisition costs and the assumption of $30 million of tax exempt debt, and on March 9, 1999, the Company acquired all of the outstanding capital stock of Durkan for 3,150,000 shares of the Company's common stock valued at $116.5 million based on the closing stock price the day the letter of intent was executed. The Image acquisition will be accounted for using the purchase method of accounting and the Durkan acquisition will be accounted for using the pooling-of-interests method of accounting. These acquisitions have created opportunities to enhance Mohawk's operations by (i) broadening price points, (ii) increasing vertical integration efforts, (iii) expanding distribution capabilities and (iv) facilitating entry into niche businesses, such as rugs, decorative throws and table runners. Through the Company's restructuring efforts over the past three years, new information technology systems have been installed throughout all of the organization, all of which are Year 2000 compliant. In addition, the Company has concluded identification of all other significant information technology systems that are not Year 2000 compliant. The Company is reviewing its equipment and software with the respective vendors from whom it purchased the equipment and software to address any noncompliance issues. However, the Company believes that certain Year 2000 issues exist with respect to its business systems. The Company has formed a committee of employees familiar with its information technology systems to assess and prioritize the need to act, on the basis of each system's importance, to ensure that its business systems will be made Year 2000 compliant. The Company has also begun a review of all process control systems, both proprietary and non-proprietary. This review revealed that certain Year 2000 issues exist. The Company does not believe these issues are material and will obtain the necessary technical resources to assist in making these systems Year 2000 compliant. Although the Company can provide no assurances, it estimates that it will cost no more than approximately $1,000,000 of incremental costs to make its business systems Year 2000 compliant and that these upgrades will be completed in the second quarter of 1999. The Company has also begun to review its top suppliers and customers to determine their progress in becoming Year 2000 compliant. This will allow the Company to determine whether a Year 2000 problem will impede the ability of its suppliers and customers to provide goods and services as the Year 2000 is approached and reached. An initial review indicated that all of its major suppliers and customers appear to be in the process of resolving any of their Year 2000 compliance issues and that they do not foresee any material problems. The Company will follow-up with all of its suppliers and customers to insure that all potential problems, including those of our individual plant locations and local suppliers, are managed correctly. If the Company cannot successfully and timely resolve its Year 2000 issues, its business, results of operations and financial condition could be materially adversely affected. The Company has not developed a contingency plan in the event of a Year 2000 problem, however, based upon the results of its internal review, the Company does not believe a contingency plan is necessary. The Company will, however, continue to evaluate the need for a contingency plan. 13 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------- Net sales for the year ended December 31, 1998 were $2,639.2 million, reflecting an increase of $311.9 million, or approximately 13%, over the $2,327.3 million reported in the year ended December 31, 1997. All major product categories achieved sales increases in 1998 as compared to 1997. These sales increases were impacted by continued favorable industry conditions and a gain in the Company's market share which the Company believes primarily resulted from continued emphasis on supporting its dealers and strong customer acceptance of new product introductions. Quarterly net sales and the percentage changes in net sales by quarter for 1998 versus 1997 were as follows (dollars in thousands):
1998 1997 CHANGE ---------- --------- ------- First Quarter............... $ 561,664 514,993 9.1 % Second Quarter.............. 662,569 581,539 13.9 Third Quarter............... 691,954 600,843 15.2 Fourth Quarter.............. 723,013 629,966 14.8 ---------- --------- ---- Total Year................ $2,639,200 2,327,341 13.4 % ========== ========= ====
Gross profit for 1998 was $ 640.3 million (24.3% of net sales) and represented an increase over the gross profit of $519.2 million (22.3% of net sales) for 1997. Gross profit dollars for the current year were impacted favorably by better absorption of fixed costs through higher production volume and continued improvements in manufacturing efficiencies from restructuring efforts. Selling, general and administrative expenses for 1998 were $406.2 million (15.4% of net sales) compared to $354.5 million (15.2% of net sales) for 1997. Selling, general and administrative expenses as a percentage of net sales increased primarily due to higher sample expenses due to the introduction of new products in 1998. During the fourth quarter of 1998, the Company recorded a charge of $2.9 million for the write-down of fixed assets to be disposed of in connection with the World acquisition. Also, a $17.7 million charge was recorded for non- recurring costs associated with the World acquisition. During the fourth quarter of 1997, the Company revised its estimate of the fair value of certain property, plant and equipment held for sale. The revision resulted in a $5.5 million write-down to the carrying value of those assets. The revision was based upon current appraisals and other market information. In addition, a $2.6 million charge was recorded for additional income tax reimbursements to be made to certain executives for the exercise of stock options. The income tax reimbursements were recorded in connection with stock options granted in 1988 and 1989 related to the Company's 1988 leveraged buyout. Interest expense for the current year was $29.3 million compared to $34.6 million in 1997. The primary factor contributing to the decrease was a significant reduction in debt levels. In the current year, income tax expense was $74.8 million, or 41.0% of earnings before income taxes. In 1997, income tax expense was $48.2 million, representing 39.6% of earnings before income taxes. The primary reason for the increase in the 1998 effective income tax rate is that certain costs included in the non recurring pre-tax charge of $17.7 million related to the World acquisition are not deductible for income tax purposes. YEAR ENDED DECEMBER 31, 1997 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1996 - -------------------------------------------------------------------------- Net sales for the year ended December 31, 1997 were $2,327.3 million, reflecting an increase of $174.3 million, or approximately 8%, over the $2,153.0 million reported in the year ended December 31, 1996. All major product categories achieved sales increases in 1997 as compared to 1996. These sales increases were attributable to an improvement in the Company's market share which the Company believes primarily resulted from competitive changes in the retail segment of the industry, strong customer acceptance of new product introductions, expansion of residential warehousing operations, and further refinement of the sales organization to achieve better regional customer focus. 14 Quarterly net sales and the percentage changes in net sales by quarter for 1997 versus 1996 were as follows (dollars in thousands):
1997 1996 CHANGE ----------- --------- ------- First Quarter..................... $ 514,993 466,201 10.5% Second Quarter.................... 581,539 555,671 4.7 Third Quarter..................... 600,843 557,724 7.7 Fourth Quarter.................... 629,966 573,420 9.9 ---------- --------- ---- Total Year...................... $2,327,341 2,153,016 8.1% ========== ========= ====
Gross profit for 1997 was $519.2 million (22.3% of net sales) and represented an increase over the gross profit of $477.8 million (22.2% of net sales) for 1996. Gross profit dollars for 1997 were impacted favorably by manufacturing improvements from restructuring and consolidating the residential operations, higher production levels resulting in better absorption of fixed costs and a reduction in certain raw material prices. Selling, general and administrative expenses for 1997 were $354.5 million (15.2% of net sales) compared to $340.8 million (15.8% of net sales) for 1996. Selling, general and administrative expenses as a percentage of net sales decreased primarily due to lower administrative, bad debt and sample expenses. During the fourth quarter of 1997, the Company revised its estimate of the fair value of certain property, plant and equipment held for sale. The revision resulted in a $5.5 million write-down to the carrying value of those assets. The revision was based upon current appraisals and other market information. In addition, a $2.6 million charge was recorded for additional income tax reimbursements to be made to certain executives for the exercise of stock options. The income tax reimbursements were recorded in connection with stock options granted in 1988 and 1989 related to the Company's 1988 leveraged buyout. During 1996, the Company recorded nonrecurring charges of (i) $3.1 million which included $0.9 million, primarily to reduce the carrying value of certain assets, related to the decision to close a spinning mill in Belton, South Carolina and $2.2 million primarily arising from a revision in the estimate of the fair value of certain land and buildings that were recently sold and (ii) $0.7 million related to restructuring costs for the Belton spinning mill closing. Interest expense for 1997 was $34.6 million compared to $37.5 million in 1996. The primary factor contributing to the decrease was a significant reduction in debt levels. In 1997, income tax expense was $48.2 million, or 39.6% of earnings before income taxes. In 1996, income tax expense was $38.3 million, representing 41.8% of earnings before income taxes. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are for working capital, capital expenditures and acquisitions. The Company's capital needs are met through a combination of internally-generated funds, bank credit lines and credit terms from suppliers. The level of accounts receivable increased from $286.9 million at the beginning of 1998 to $321.1 million at December 31, 1998. The $34.2 million increase is attributable to strong sales growth. Inventories increased from $367.1 million at the beginning of 1998 to $412.2 million at December 31, 1998, due primarily to acquisitions and the need for a higher level of inventory to meet the increased sales volume. Capital expenditures totaled $78.5 million during 1998, and the Company spent an additional $36.6 million related to the Newmark and American Weavers acquisitions. The capital expenditures made during 1998 were incurred primarily to modernize and expand manufacturing facilities and equipment. The Company's capital projects are primarily focused on increasing capacity, improving productivity and reducing costs. Capital expenditures for Mohawk, including the $21.2 million of equipment used for the extrusion of polypropylene yarn that was acquired in a noncash transaction in 1996 and $72.8 million for acquisitions, have totaled $265.8 million over the past three years. Capital spending during 1999 is expected to range from $95 million to $105 million, the majority of which will be used to purchase equipment 15 to increase production capacity and productivity. This amount excludes the $193 million that was paid in January 1999 to purchase Image. On January 28, 1999, the Company amended and restated its revolving credit agreement to increase total availability to $450 million, comprised of the Tranche A commitment of $250 million due on January 28, 2004 and the Tranche B commitment of $200 million due on January 27, 2000. IMPACT OF INFLATION Inflation affects the Company's manufacturing costs and operating expenses. The carpet industry has experienced moderate inflation in the prices of raw materials and outside processing for the last three years. The Company has generally passed along nylon fiber price increases to its customers. SEASONALITY The carpet business is seasonal, with the Company's second, third and fourth quarters typically producing higher net sales and operating income. By comparison, results for the first quarter tend to be the weakest. This seasonality is primarily attributable to consumer residential spending patterns and higher installation levels during the spring and summer months. FORWARD-LOOKING INFORMATION Certain of the matters discussed in the preceding pages, particularly regarding anticipating future financial performance, business prospects, growth and operating strategies, proposed acquisitions, new products and similar matters, and those preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "estimates," or similar expressions constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended. For those statements, Mohawk claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward- looking statements involve a number of risks and uncertainties. The following important factors, in addition to those discussed elsewhere in this document, affect the future results of Mohawk and could cause those results to differ materially from those expressed in the forward-looking statements: materially adverse changes in economic conditions generally in the carpet, rug and floorcovering markets served by Mohawk; competition from other carpet, rug and floorcovering manufacturers, raw material prices, timing and level of capital expenditures, the successful integration of acquisitions including the challenges inherent in diverting Mohawk's management attention and resources from other strategic matters and from operational matters for an extended period of time, the successful introduction of new products, the successful rationalization of existing operations, and other risks identified from time to time in the Company's SEC reports and public announcements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk-sensitive instruments do not subject the Company to material market risk exposures. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Reports............................................................... 17 Consolidated Balance Sheets as of December 31, 1998 and 1997................................ 19 Consolidated Statements of Earnings for the Years ended December 31, 1998, 1997 and 1996.... 20 Consolidated Statements of Stockholders' Equity for the Years ended December 31, 1998, 1997 and 1996....................................................... 21 Consolidated Statements of Cash Flows for the Years ended December 31, 1998, 1997 and 1996.. 22 Notes to Consolidated Financial Statements.................................................. 23
16 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors and Stockholders Mohawk Industries, Inc.: We have audited the consolidated financial statements of Mohawk Industries, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in Item 14(a)2. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We did not audit the consolidated financial statements of World Carpets, Inc. and Subsidiary, a wholly owned subsidiary, as of June 28, 1998 and for each of the years in the two-year period ended June 28, 1998 (not presented herein), which financial statements have been combined with those of Mohawk Industries, Inc. and subsidiaries as of December 31, 1997 and for each of the years in the two-year period ended December 31, 1997, respectively. The consolidated financial statements of World Carpets, Inc. and Subsidiary reflect total assets constituting 18 percent as of December 31, 1997 and total net sales constituting 19 percent for each of the years in the two-year period ended December 31, 1997, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for World Carpets, Inc. and Subsidiary, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mohawk Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG LLP Atlanta, Georgia February 5, 1999, except for the seventh paragraph of note 2 as to which the date is March 9, 1999 17 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Shareholders of World Carpets, Inc. In our opinion, the consolidated balance sheets and the related consolidated statements of operations, of changes in shareholder's equity and of cash flows present fairly, in all material respects, the financial position of World Carpets, Inc. and its subsidiary (the "Company") at June 28, 1998, and the results of their operations and their cash flows for the years ended June 28, 1998 and June 29, 1997 (not presented separately herein), in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of the Company for any period subsequent to June 28, 1998. PricewaterhouseCoopers LLP Atlanta, Georgia September 21, 1998 18 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS 1998 1997 --------------- -------------- Current assets: Cash............................................................................ $ - 145 Receivables..................................................................... 321,126 286,871 Inventories..................................................................... 412,194 367,076 Prepaid expenses................................................................ 21,283 15,547 Deferred income taxes........................................................... 52,304 39,082 --------------- -------------- Total current assets............................................. 806,907 708,721 Property, plant and equipment, net..................................................... 422,922 391,101 Other assets........................................................................... 101,577 76,735 --------------- -------------- $ 1,331,406 1,176,557 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt............................................... $ 34,176 41,529 Accounts payable and accrued expenses........................................... 353,514 285,084 --------------- -------------- Total current liabilities........................................ 387,690 326,613 Deferred income taxes.................................................................. 29,835 30,311 Long-term debt, less current portion................................................... 321,792 336,209 Other long-term liabilities............................................................ 5,380 6,291 --------------- -------------- Total liabilities................................................ 744,697 699,424 --------------- -------------- Stockholders' equity: Preferred stock, $.01 par value; 60 shares authorized; no shares issued......... - - Common stock, $.01 par value; 150,000 shares authorized; 57,383 and 57,067 shares issued in 1998 and 1997, respectively.................................. 574 571 Additional paid-in capital...................................................... 168,797 164,140 Retained earnings............................................................... 417,338 312,422 --------------- -------------- Total stockholders' equity...................................... 586,709 477,133 Commitments and contingencies (Notes 10 and 13)........................................ --------------- -------------- $ 1,331,406 1,176,557 =============== ==============
See accompanying notes to consolidated financial statements. 19 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1997 1996 ---------- --------- --------- Net sales............................................. $2,639,200 2,327,341 2,153,016 Cost of sales ........................................ 1,998,903 1,808,137 1,675,221 ---------- --------- --------- Gross profit..................................... 640,297 519,204 477,795 Selling, general and administrative expenses.......... 406,170 354,528 340,770 Restructuring costs................................... - - 700 Carrying value reduction of property, plant and equipment and other assets....................... 2,900 5,500 3,060 Compensation expense for stock option exercises....... - 2,600 - ---------- --------- --------- Operating income................................. 231,227 156,576 133,265 ---------- --------- --------- Other expense: Interest expense.................................... 29,290 34,551 37,522 Acquisition costs - World Merger.................... 17,700 - - Other expense, net.................................. 1,849 447 4,080 ---------- --------- --------- 48,839 34,998 41,602 ---------- --------- --------- Earnings before income taxes..................... 182,388 121,578 91,663 Income taxes.......................................... 74,776 48,154 38,285 ---------- --------- --------- Net earnings..................................... $ 107,612 73,424 53,378 ========== ========= ========= Basic earnings per share.............................. $ 1.88 1.29 0.95 ========== ========= ========= Weighted-average common shares outstanding............ 57,243 56,812 56,160 ========== ========= ========= Diluted earnings per share............................ $ 1.86 1.28 0.94 ========== ========= ========= Weighted-average common and dilutive potential common shares outstanding............................ 57,984 57,303 56,749 ========== ========= =========
See accompanying notes to consolidated financial statements. 20 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
ADDITIONAL TOTAL COMMON STOCK PAID-IN RETAINED TREASURY STOCK STOCKHOLDER'S ---------------------- SHARES AMOUNT CAPITAL EARNINGS STOCK OPTIONS EQUITY --------- --------- --------- ---------- -------- ---------- ------------ Balances at December 31, 1995......... 51,591 $ 516 122,575 155,822 (115) (317) 278,481 Pooling of World...................... 4,900 49 28,071 29,846 - - 57,966 Stock options exercised............... 116 1 1,207 - 115 - 1,323 Dividends paid........................ - - - (24) - - (24) Tax benefit from exercise of stock options.......................... - - 7,606 - - - 7,606 Amortization of deferred compensation..................... - - - - - 317 317 Net earnings.......................... - - - 53,378 - - 53,378 ---------- ---------- --------- --------- -------- -------- --------- Balances at December 31, 1996......... 56,607 566 159,459 239,022 - - 399,047 Stock options exercised............... 460 5 3,631 - - - 3,636 Dividends paid........................ - - - (24) - - (24) Tax benefit from exercise of stock options.......................... - - 1,050 - - - 1,050 Net earnings.......................... - - - 73,424 - - 73,424 ---------- ---------- --------- --------- -------- -------- --------- Balances at December 31, 1997......... 57,067 571 164,140 312,422 - - 477,133 Stock options exercised............... 316 3 4,414 - - - 4,417 Dividends paid........................ - - - (24) - - (24) Tax benefit from exercise of stock options.......................... - - 243 - - - 243 Adjustments to conform fiscal year end of World......................... - - - 2,672) - - (2,672) Net earnings.......................... - - - 107,612 - - 107,612 ---------- ---------- --------- --------- -------- -------- --------- Balances at December 31, 1998......... 57,383 $ 574 168,797 417,338 - - 586,709 ========== =========== ========= ========= ======== ======== =========
See accompanying notes to consolidated financial statements. 21 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 ----------- ---------- --------- Cash flows from operating activities: Net earnings............................................................. $ 107,612 73,424 53,378 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization....................................... 67,897 68,377 62,281 Deferred income taxes............................................... (13,744) (3,440) 4,348 Provision for doubtful accounts..................................... 13,173 8,434 13,213 (Gain) loss on sale of property, plant and equipment................ 2,121 (396) 1,302 Carrying value reduction of property, plant and equipment and other assets............................................................. 2,900 5,500 3,060 Compensation expense for stock option exercises..................... - 2,600 - Changes in assets and liabilities, net of effects of acquisitions: Receivables...................................................... (38,743) (29,254) (69,560) Inventories...................................................... (30,251) 25,725 (12,662) Accounts payable and accrued expenses............................ 60,159 26,607 3,359 Other assets and prepaid expenses................................ (8,530) 1,941 (7,291) Other liabilities................................................ (1,672) (2,571) 4,868 ------------ ---------- ---------- Net cash provided by operating activities...................... 160,922 176,947 56,296 ------------ ---------- ---------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment and other assets.... - 2,092 3,284 Additions to property, plant and equipment.............................. (78,488) (42,953) (49,985) Acquisitions............................................................ (36,574) (34,141) (2,122) Other................................................................... - 895 159 Net cash used in investing activities.......................... (115,062) (74,107) (48,664) ------------ ---------- ---------- Cash flows from financing activities: Net change in revolving line of credit................................... 85,347 (83,131) (27,179) Payment of note payable.................................................. - (21,200) - Payments on term loans................................................... (35,958) (20,337) (13,754) Redemption of acquisition indebtedness................................... (102,201) - - Proceeds from new loan................................................... - 10,661 24,681 Proceeds from Industrial Revenue Bonds and other, net of payments........ 11,329 11,593 - Change in outstanding checks in excess of cash........................... (6,486) (5,841) (391) Dividends paid........................................................... (24) (24) (24) Common stock transactions................................................ 1,988 4,686 9,246 ------------ ---------- ---------- Net cash used in financing activities......................... (46,005) (103,593) (7,421) ------------ ---------- ---------- Net change in cash............................................ (145) (753) 211 Cash, beginning of year....................................................... 145 898 687 ------------ ---------- ---------- Cash, end of year............................................................. $ - 145 898 ============ ========== ==========
See accompanying notes to consolidated financial statements. 22 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The consolidated financial statements include the accounts of Mohawk Industries, Inc. and its subsidiaries (the "Company" or "Mohawk"). All significant intercompany balances and transactions have been eliminated in consolidation. On November 12, 1998, the Company acquired all of the outstanding capital stock of World Carpets, Inc. ("World") in exchange for approximately 4,900 shares of the Company's common stock ("Merger"). On November 12, 1998, the Securities and Exchange Commission declared effective a shelf registration statement to register for resale approximately 4,900 shares of Company common stock issued in connection with the Merger. The historical consolidated financial statements have been restated to give retroactive effect to the Merger. The Merger is being accounted for as a pooling-of-interests in the accompanying consolidated financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (b) Accounts Receivable and Revenue Recognition The Company is a broadloom carpet and rug manufacturer and sells carpet and rugs throughout the United States for principally residential use. The Company grants credit to customers, most of whom are retail carpet dealers, under credit terms that are customary in the industry. Revenues are recognized when goods are shipped. The Company provides allowances for expected cash discounts, returns, claims and doubtful accounts based upon historical bad debt and claims experience and periodic evaluations of the aging of the accounts receivable. (c) Inventories Inventories are stated at the lower of cost or market (net realizable value). Cost is determined using the last-in, first-out (LIFO) method, which matches current costs with current revenues, for substantially all inventories and the first-in, first-out (FIFO) method for the remaining inventories. (d) Property, Plant and Equipment Property, plant and equipment is stated at cost, including interest on funds borrowed to finance the acquisition or construction of major capital additions. Depreciation is calculated on a straight-line basis over the estimated remaining useful lives of the respective assets. (e) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 23 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (f) Earnings per Share ("EPS") The Company applies the provisions of Financial Accounting Standards Board ("FASB") FAS No. 128, Earnings per Share, which requires companies to present basic EPS and diluted EPS. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The Company's weighted-average common and dilutive potential common shares outstanding have been adjusted for the 3-for-2 stock split approved by the Board of Directors on October 23, 1997 and paid on December 4, 1997 to holders of record on November 4, 1997 and the World merger. Dilutive common stock options are included in the diluted EPS calculation using the treasury stock method. Common stock options that were not included in the diluted EPS computation because the options' exercise price was greater than the average market price of the common shares for the periods presented are immaterial. (g) Financial Instruments The Company's financial instruments consist primarily of cash, accounts receivable, accounts payable, notes payable and long-term debt. The carrying amount of cash, accounts receivable, accounts payable and notes payable approximates their fair value because of the short-term maturity of such instruments. Interest rates that are currently available to the Company for issuance of long-term debt with similar terms and remaining maturities are used to estimate the fair value of the Company's long-term debt. The estimated fair value of the Company's long-term debt at December 31, 1998 and 1997 was $363,121 and $388,848, compared to a carrying amount of $355,968 and $377,738, respectively. (h) Fiscal Year The Company ends its fiscal year on December 31. Each of the first three quarters in the fiscal year ends on the Saturday nearest the calendar quarter end. (i) Goodwill Goodwill arises in connection with business combinations accounted for as purchases. Goodwill is amortized primarily on a straight-line basis over 40 years. Amortization charged to earnings was $2,437 in 1998, $2,518 in 1997 and $2,047 in 1996. (j) Impairment of Long-Lived Assets The Company accounts for long-lived assets in accordance with the provisions of FAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under FAS No. 121, the Company evaluates impairment of long-lived assets on a business unit basis, rather than on an aggregate entity basis, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss for long-lived assets is based on the fair value of the asset. (k) Effect of New Accounting Pronouncement In 1997, the FASB issued FAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which supersedes FAS No. 14, Financial Reporting for Segments of a Business Enterprise. This statement, which the Company was required to adopt in fiscal year 1998, requires public companies to report certain financial and descriptive information about their reportable operating segments, including related disclosures about products and services, geographic areas and major customers. The implementation of FAS No. 131 did not have a material effect on the Company's consolidated financial statements. 24 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (l) Reclassifications Certain prior period financial statement balances have been reclassified to conform with the current period's presentation. (2) ACQUISITIONS On July 23, 1997, the Company acquired certain assets of Diamond Rug & Carpet Mills, Inc. ("Diamond") and other assets owned by Diamond's principal shareholders for approximately $36,000, including acquisition costs, which consisted of $19,600 in cash, at closing, $7,000 in cash over the six-month period following closing and a $9,350 note payable in seven annual installments of principal plus interest at 6%. The acquisition was accomplished through a plan of reorganization filed by Diamond under Chapter 11 of the United States Bankruptcy Code. The Company completed its acquisitions of Newmark & James, Inc. and American Weavers, LLC on June 30, 1998 and August 10, 1998, respectively. Both of these acquisitions have been accounted for under the purchase method of accounting and their results are included in the Company's 1998 consolidated statement of earnings from the respective dates of acquisition. On November 12, 1998, the Company acquired all of the outstanding capital stock of World in exchange for approximately 4,900 shares of the Company's common stock. The acquisition of World has been accounted for under the pooling- of-interests basis of accounting and, accordingly, the Company's historical consolidated financial statements have been restated to include the accounts and results of operations of World. The Company incurred before tax, nonrecurring charges aggregating $20,600 in the fourth quarter of 1998 related to the Merger with World, of which $17,700 of the charge is recorded as non-operating expense and $2,900 of the charge is recorded as a write-down of World computer equipment that will be disposed of. The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are presented below:
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, ------------------------ SEPT. 26, 1998 1997 1996 --------------- ---------- --------- (UNAUDITED) Net sales: Mohawk............... $ 1,582,493 1,901,352 1,779,389 World................ 333,694 425,989 373,627 --------- --------- --------- Combined......... $ 1,916,187 2,327,341 2,153,016 ========= ========= ========= Net earnings: Mohawk............... $ 77,829 68,030 49,050 World................ 4,984 5,394 4,328 --------- --------- --------- Combined......... $ 82,813 73,424 53,378 ========= ========= =========
Prior to the combination, World's fiscal year ended on the Sunday closest to June 30. In recording the pooling-of-interests combination, World's financial statements for the year ended December 31, 1998 were combined with Mohawk's consolidated financial statements for the same period. World's financial statements for the years ended June 28, 1998 and June 29, 1997 were combined with Mohawk's financial statements for the years ended December 31, 1997 and 1996, respectively. An adjustment has been made to stockholders' equity in the year ended December 31, 1998 to eliminate the effect of including World's results of operations for the six months ended June 28, 1998 in the Company's consolidated financial statements for the years ended December 31, 1998 and 1997. There were no significant intercompany transactions between Mohawk and World prior to the combination. On January 29, 1999, the Company acquired certain assets of Image Industries, Inc. for approximately $193,000, including acquisition costs and the assumption of $30,000 of tax exempt debt. The acquisition will be accounted for using the purchase method of accounting. 25 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) On March 9, 1999, the Company acquired all of the outstanding capital stock of Durkan Patterned Carpets, Inc. ("Durkan") and certain notes payable to Durkan shareholders for 3,150 shares of the Company's common stock. The acquisition of Durkan will be accounted for under the pooling-of-interests basis of accounting and, accordingly, the Company's historical consolidated financial statements will be restated to include the accounts and results of operations of Durkan. (3) RECEIVABLES Receivables are as follows:
1998 1997 ----------- ------------- Customers, trade.......................................................... $ 375,448 337,520 Other..................................................................... 2,919 956 ----------- ------------- 378,367 338,476 Less allowance for discounts, returns, claims and doubtful accounts....... 57,241 51,605 Net receivables............................................ ----------- ------------- $ 321,126 286,871 =========== =============
(4) INVENTORIES The components of inventories are as follows:
1998 1997 ----------- ------------- Finished goods.................................................... $ 215,365 185,162 Work in process................................................... 57,829 53,892 Raw materials..................................................... 139,000 128,022 ----------- ------------- Total inventories......................................... $ 412,194 367,076 =========== =============
(5) PROPERTY, PLANT AND EQUIPMENT Following is a summary of property, plant and equipment:
1998 1997 ----------- ------------- Land...................................................................... $ 13,449 12,746 Buildings and improvements................................................ 160,917 153,486 Machinery and equipment................................................... 571,175 527,218 Furniture and fixtures.................................................... 32,306 18,590 Leasehold improvements.................................................... 4,143 3,256 Construction in progress.................................................. 43,237 20,666 ----------- ------------- 825,227 735,962 Less accumulated depreciation and amortization............................ 402,305 344,861 ----------- ------------- Net property, plant and equipment................................. $ 422,922 391,101 =========== =============
Property, plant and equipment includes capitalized interest of $1,661, $799 and $1,180 in 1998, 1997 and 1996, respectively. During 1998, the Company recorded a charge of $2,900 related to a write- down of computer equipment acquired in the World acquisition that will be disposed of. During 1997, the Company recorded a charge of $5,500 arising from a revision in the estimated fair value of certain property, plant and equipment held for sale based on current appraisals and other market information related to a mill closing in 1995. During 1996, the Company recorded a charge of $3,060 arising from (a) the write-down of property, plant and equipment to be disposed of related to the closing of a manufacturing facility in 1996 and (b) a revision in the estimate of fair value of certain property, plant and equipment based on current market conditions related to mill closings in 1995. 26 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (6) OTHER ASSETS The components of other assets are summarized below:
1998 1997 -------------- ------------- Goodwill, net of accumulated amortization of $10,363 and $8,266, respectively..................................................... $ 85,972 59,823 Other assets....................................................... 15,605 16,912 -------------- ------------- Total other assets........................................ $ 101,577 76,735 ============== =============
(7) LONG-TERM DEBT On April 15, 1997, the Company amended and restated its credit agreement to provide for an interest rate of either (i) LIBOR plus 0.2% to 0.5%, depending upon the Company's performance measured against certain financial ratios, or (ii) the prime rate less 1.0%. Additionally, the termination date of the credit agreement was extended to May 15, 2002. At December 31, 1998, the Company had credit availability of $250,000 under its revolving credit line of which $121,078 was unused. The credit agreement contains customary financial and other covenants and restricts cumulative dividend payments to $10,000 as adjusted based on the Company's performance and dividend payments. The Company must pay an annual facility fee ranging from .0015 to .0025 of the total credit commitment, depending upon the Company's performance measured against specific coverage ratios, under the revolving credit line. The capital stock of each of the Company's subsidiaries has been pledged as collateral under the credit agreement, the term loans and the senior notes. On February 7, 1997, World amended the terms of its revolving and term loan facility. Under the amended terms, World could borrow up to $102,000, based on eligible accounts receivable and inventory balances. Interest on the revolving credit facility is payable monthly at a rate equal to the prime rate minus 0.25% or LIBOR plus 2% (8.25% at June 28, 1998. Interest on the term loans is payable monthly at a rate equal to the prime rate plus 0.25% or LIBOR plus 2.5% (8.5% at June 28, 1998). The line of credit expires February 7, 2002. The term loans are payable in sixty equal monthly principal instalments of approximately $321, plus interest at the rate stated above. The loans are secured by substantially all accounts receivable, inventory and property, plant and equipment of World. Under the terms of the revolving line of credit agreement, World incurs a fee equal to 3/8% per year on the unused balance of the revolving line of credit. The fee is paid monthly. On January 28, 1999, the Company amended and restated its credit agreement to increase the total availability to $450,000, comprised of the Tranche A commitment of $250,000 due on January 28, 2004 and the Tranche B commitment of $200,000 due on January 27, 2000. Long-term debt consists of the following:
1998 1997 --------------- ------------- Revolving line of credit, due May 15, 2002..................................... $128,922 48,800 World revolving line of credit, due February 7, 2002........................... - 58,872 World term loans............................................................... - 21,857 8.46% senior notes, payable in annual principal installments beginning in 1998, due September 16, 2004, interest payable quarterly.................... 85,714 100,000 7.14%-7.23% senior notes, payable in annual principal installments beginning in 1997, due September 1, 2005, interest payable semiannually..... 66,111 75,556 8.48% term loans, payable in annual principal installments, due October 26, 2002, interest payable quarterly............................................ 22,857 28,571 9.5% senior notes, payable in annual principal installments, due April 1, 1998, interest payable semiannually......................................... - 3,750 7.58% senior notes, payable in annual principal installments beginning in 1997, due July 30, 2003, interest payable semiannually...................... 7,143 8,571
27 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6% term note, payable in annual principal and interest installments beginning in 1998, due July 23, 2004.............................. 8,014 9,350 Industrial Revenue Bonds and other................................................ 37,207 22,411 ----------- ---------- Total long-term debt........................................................... 355,968 377,738 Less current portion.............................................................. 34,176 41,529 ----------- ---------- Long-term debt, excluding current portion $ 321,792 336,209 =========== ==========
The aggregate maturities of long-term debt as of December 31, 1998 are as follows:
1999....................................................... $ 34,176 2000....................................................... 33,786 2001....................................................... 33,361 2002....................................................... 162,237 2003....................................................... 27,389 Thereafter................................................. 65,019 --------------- $ 355,968 ===============
(8) ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses are as follows:
1998 1997 ------------ ---------- Outstanding checks in excess of cash.................................... $ 26,894 33,655 Accounts payable, trade................................................. 153,217 138,699 Accrued expenses........................................................ 122,532 70,986 Accrued compensation.................................................... 50,871 41,744 ------------ ---------- Total accounts payable and accrued expenses......................... $ 353,514 285,084 ============ ==========
(9) STOCK OPTIONS AND STOCK COMPENSATION Under the Company's 1992 and 1993 stock option plans, options may be granted to directors and key employees through 2002 and 2003 to purchase a maximum of 2,250 and 675 shares of common stock, respectively. During 1998, options to purchase 165 and 9 shares, respectively, were granted under these plans. Options granted under each of these plans expire ten years from the date of grant and become exercisable at such dates and at prices as determined by the Compensation Committee of the Company's Board of Directors. During 1996, the Company adopted the 1997 Non-Employee Director Stock Compensation Plan. The plan provides for awards of common stock of the Company for non-employee directors to receive in lieu of cash for their annual retainers. During 1998, a total of 3 shares were awarded to the non-employee directors under the plan. During 1997, the Board of Directors adopted the 1997 Long-Term Incentive Plan whereby the Company reserved 2,550 shares of common stock for issuance in connection with options and awards. During 1998, a total of 21 shares were awarded to employees under this plan. Additional information relating to the Company's stock option plans follows:
1998 1997 1996 --------- -------- --------- Options outstanding at beginning of year............... 1,568 2,142 3,839 Options granted........................................ 174 65 621 Options exercised...................................... (316) (460) (2,069) Options canceled....................................... (39) (179) (249) --------- -------- --------- Options outstanding at end of year..................... 1,387 1,568 2,142 ========= ======== ========= Options exercisable at end of year..................... 686 742 655 ========= ======== =========
28 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Option prices per share: Options granted during the year...................... $ 17.23 - 32.31 5.67 - 19.38 9.94 - 11.33 =============== ============= ============= Options exercised during the year.................... $ 5.67 - 19.38 .02 - 19.17 .01 - 14.50 =============== ============= ============= Options canceled during the year..................... $ 5.67 - 31.94 5.67 - 19.17 5.67 - 19.17 =============== ============= ============= Options outstanding at end of year................... $ 5.61 - 32.31 5.61 - 19.38 .03 - 19.17 =============== ============= =============
A charge of $2,600 was recorded in the fourth quarter of 1997 for income tax reimbursements to be made to certain executives for the exercise of stock options. The income tax reimbursements were recorded in connection with stock options granted in 1988 and 1989 related to the Company's 1988 leveraged buyout. The agreements allowed the Company to receive an income tax benefit on its tax return for the tax effect of the taxable compensation provided to the individuals upon the exercise of these options. Such income tax benefit resulted in a direct increase in stockholders' equity of $7,606 in 1996 primarily from the exercise of these options. FAS No. 123, Accounting for Stock-Based Compensation, established a new method of accounting for stock-based compensation arrangements with an entity's employees. The new method is a fair value based method rather than the intrinsic value based method prescribed by APB No. 25, Accounting for Stock Issued to Employees. FAS No. 123 allows entities to retain the current approach set forth in APB No. 25 for recognizing stock-based compensation expense in the basic financial statements. Entities electing to apply the provisions of APB No. 25 are required to make pro forma disclosures of net earnings and earnings per share as if the fair value based method had been used. The Company continues to apply the provisions of APB No. 25 for purposes of measuring compensation cost in adopting FAS No. 123. The effect of the pro forma disclosure requirements of FAS No. 123 on the Company's results of operations for the years presented is immaterial. (10) EMPLOYEE BENEFIT PLANS The Company has a 401(k) retirement savings plan (the "Plan") open to substantially all of its employees who have completed one year of eligible service. The Company contributes $0.50 for every $1.00 of employee contributions up to a maximum of 4% of the employee's salary. Employee and employer contributions to the Plan were $12,345 and $4,213 in 1998, $9,334 and $3,075 in 1997 and $6,499 and $2,132 in 1996, respectively. A portion of the employees who were not eligible to participate in the Plan participated in a defined contribution profit sharing plan through June 1997. After June 1997, the employee balances in the profit sharing plan were rolled over into the 401(k) retirement savings plan. Contributions were discretionary and the Company expensed $991 and $2,130 for the years ended December 31, 1997 and 1996, respectively. World maintains the World Carpet Savings Retirement Plan (the "Plan"), a defined contribution 401(k) plan covering substantially all employees. Employees are eligible to participate upon completion of one year of service. Under the terms of the Plan, World may match employee contributions up to a maximum of 2% of the employee's salary and employees vest in the contributions based on years of credited service. For the years ended December 31, 1998, 1997 and 1996, the Company contributed approximately $703, $698 and $629 to the Plan, respectively. (11) RESTRUCTURING COSTS During the fourth quarter of 1996, the Company decided to close a spinning mill in Belton, South Carolina, the operations of which were consolidated into other Mohawk facilities. For the year ended December 31, 1996, the Company recorded restructuring costs of $700 related to employee termination benefits, environmental clean-up and other costs associated with the mill closing. The after-tax effect of the restructuring costs for the year was $415. Additionally, in 1996 the Company made payments of $1,125 and reclassed $5,266 to other liability or reserve accounts in connection with mill closings in 1996 and prior years. (12) INCOME TAXES Income tax expense attributable to earnings before income taxes for the years ended December 31, 1998, 1997 and 1996 consists of the following: 29 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CURRENT DEFERRED TOTAL ------------- ------------ ------------- 1998: U.S. federal...................................... $ 72,218 (11,767) 60,451 State and local................................... 17,099 (2,774) 14,325 ------------- ------------ ------------- $ 89,317 (14,541) 74,776 ============= ============ ============= 1997: U.S. federal...................................... $ 42,994 (2,800) 40,194 State and local................................... 8,600 (640) 7,960 ------------- ------------ ------------- $ 51,594 (3,440) 48,154 ============= ============ ============= 1996: U.S. federal...................................... $ 31,363 955 32,318 State and local................................... 2,574 3,393 5,967 ------------- ------------ ------------- $ 33,937 4,348 38,285 ============= ============ =============
Income tax expense attributable to earnings before income taxes differs from the amounts computed by applying the U.S. federal income tax rate of 35% for Mohawk and 34% for World to earnings before income taxes as follows:
1998 1997 1996 -------------- ------------- ------------- Computed "expected" tax expense........................ $ 63,836 42,461 31,993 State and local income taxes, net of federal income tax benefit................................... 9,311 4,810 2,377 Amortization of goodwill............................... 746 472 519 Other, net............................................. 883 411 3,396 -------------- ------------- ------------- $ 74,776 48,154 38,285 ============== ============= =============
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997 are presented below:
1998 1997 ------------- ------------- Deferred tax assets: Accounts receivable.............................................. $ 16,845 19,387 Inventories...................................................... 6,946 969 Accrued expenses................................................. 28,583 18,451 Purchased net operating loss carryforwards....................... - 6,025 Other............................................................ 1,990 1,385 ------------- ------------- Gross deferred tax assets................................ 54,364 46,217 ------------- ------------- Deferred tax liabilities: Plant and equipment.............................................. (31,895) (32,946) Other............................................................ - (4,500) ------------- ------------- Gross deferred tax liabilities............................... (31,895) (37,446) ------------- ------------- Net deferred tax asset....................................... $ 22,469 8,771 ============= =============
Based upon the level of historical and projected taxable income over periods which the deferred tax assets are deductible, the Company's management believes it is more likely than not the Company will realize the benefits of these deductible differences at December 31, 1998. (13) COMMITMENTS AND CONTINGENCIES The Company is obligated under various operating leases for office and manufacturing space, machinery and equipment. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) at December 31, 1998 are: 30 OHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEARS ENDING DECEMBER 31, ------------ 1999.......................................... $ 18,207 2000.......................................... 15,813 2001.......................................... 11,932 2002.......................................... 8,140 2003.......................................... 6,595 Thereafter.................................... 4,960 ----------- Total minimum lease payments.................. $ 65,647 ===========
Rental expense under operating leases was $26,882, $20,475 and $17,677 in 1998, 1997 and 1996, respectively. In December 1995, the Company and four other carpet manufacturers were added as defendants in a purported class action lawsuit, In re Carpet Antitrust Litigation, pending in the United States District Court for the Northern District of Georgia, Rome Division. The amended complaint alleges price fixing regarding polypropylene products in violation of Section One of the Sherman Act. In September 1997, the Court determined that the plaintiffs met their burden of establishing the requirements for class certification and granted the plaintiffs' motion to certify the class. The Company is a party to two consolidated lawsuits captioned Gaehwiler v. Sunrise Carpet Industries, Inc. et. al. and Patco Enterprises, Inc. v. Sunrise Carpet Industries, Inc. et. al.; both of which were filed in the Superior Court of the State of California, City and County of San Francisco in 1996. Both complaints were brought on behalf of a purported class of indirect purchasers of carpet in the State of California and seek damages for alleged violations of California antitrust and unfair competition laws. The complaints filed do not specify any amount of damages but do request for any unlawful conduct to be enjoined and treble damages plus reimbursement for fees and costs. In October 1998, two plaintiffs, on behalf of an alleged class of purchasers of nylon carpet products, filed a complaint in the United States District Court for the Northern District of Georgia against the Company and two of its subsidiaries as well as a competitor and one of its subsidiaries. The complaint alleges that the Company acted in concert with other carpet manufacturers to restrain competition in the sale of certain nylon carpet products. The Company has filed an answer and denied the allegations in the complaint and set forth its defenses. In February 1999, a similar complaint was filed in the Superior Court of the State of California, City and County of San Francisco, on behalf of a purported class based on indirect purchases of nylon carpet in the State of California and alleges violations of California antitrust and unfair competition laws. The complaints described above do not specify any specific amount of damages but do request injunctive relief and treble damages plus reimbursement for fees and costs. The Company believes it has meritorious defenses and intends to vigorously defend against these actions. (14) CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION Supplemental disclosures of cash flow information are as follows:
1998 1997 1996 ------------- ------------- ------------- Net cash paid during the year for: Interest.................................. $ 29,156 35,926 37,949 ============= ============= ============= Income taxes.............................. $ 72,174 52,368 23,721 ============= ============= =============
(15) QUARTERLY FINANCIAL DATA (UNAUDITED) The supplemental quarterly financial data are as follows:
QUARTERS ENDED --------------------------------------------------------------- MARCH 28, JUNE 27, SEPT. 26, DEC. 31, 1998 1998 1998 1998 ------------- -------------- ------------- ------------- Net sales...................................... $ 561,664 662,569 691,954 723,013 Gross profit................................... 124,839 165,963 167,293 182,202 Net earnings................................... 14,595 33,495 34,723 24,799 Basic earnings per share....................... 0.26 0.59 0.61 0.43 Diluted earnings per share..................... 0.25 0.58 0.60 0.43
31 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
QUARTERS ENDED ---------------------------------------------------- MARCH 29, JUNE 28, SEPT. 27, DEC . 31, 1997 1997 1997 1997 --------- ---------- ----------- ------------- Net sales.................................. $ 514,993 581,539 600,843 629,966 Gross profit............................... 109,881 129,852 136,231 143,240 Net earnings............................... 8,731 18,899 22,184 23,610 Basic earnings per share................... 0.15 0.33 0.39 0.41 Diluted earnings per share................. 0.15 0.33 0.39 0.41
32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference to information contained in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under the following headings: "Election of Directors-- Director, Director Nominee and Executive Officer Information"; "--Nominees for Director"; "--Continuing Directors"; "--Executive Officers;" and "--Section 16a Beneficial Ownership Reporting Compliance." ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to information contained in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under the following headings: "Executive Compensation and Other Information--Summary of Cash and Certain Other Compensation"; "-- Option Grants"; "--Option Exercises and Holdings"; "--Pension Plans"; "--Certain Relationships and Related Transactions"; and "Election of Directors--Meetings and Committees of the Board of Directors." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to information contained in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under the following heading: "Executive Compensation and Other Information--Principal Stockholders of the Company." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to information contained in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders under the following heading: "Executive Compensation and Other Information--Certain Relationships and Related Transactions." 33 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) 1. CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements of Mohawk Industries, Inc. and subsidiaries listed in Item 8 of Part II are incorporated by reference into this item. 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES Schedule I-Condensed Financial Information of Registrant............46 Schedule II-Consolidated Valuation and Qualifying Accounts..........49 Schedules not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. 3. EXHIBITS The exhibit number for the exhibit as originally filed is included in parentheses at the end of the description. MOHAWK EXHIBIT NUMBER DESCRIPTION ------ ----------- *2.1 Amended and Restated Agreement and Plan of Merger, including exhibits thereto, by and among Mohawk, Horizon Acquisition Corp. and Horizon dated as of July 29, 1992 and amended as of September 29, 1992. (Incorporated herein by reference to Exhibit 2 in Mohawk's Registration Statement on Form S-4, Registration No. 33-52542.) *2.2 Stock Purchase Agreement dated as of March 8, 1993 among Mohawk, John C. Thornton, William Robert Fowler, Dave M. Reynolds and American Rug Craftsmen, Inc. (Incorporated herein by reference to Exhibit 5 in Mohawk's Current Report on Form 8-K dated March 8, 1993.) *2.3 Asset Purchase Agreement dated as of June 3, 1993 between Fieldcrest Cannon, Inc. and Mohawk (Incorporated herein by reference to Exhibit 5 in Mohawk's Current Report on Form 8-K dated June 3, 1993.) *2.4 Agreement and Plan of Merger dated as of December 3, 1993 and amended as of January 17, 1994 among Mohawk, AMI Acquisition Corp., Aladdin and certain Shareholders of Aladdin. (Incorporated herein by reference to Exhibit 2(i)(a) in Mohawk's Registration Statement on Form S-4, Registration No. 33-74220.) *2.5 Stock Purchase Agreement by and among Mohawk, Galaxy and the Stockholder of Galaxy dated December 1, 1994. (Incorporated herein by reference to Exhibit 2 in Mohawk's Current Report on Form 8-K dated January 13, 1995.) *2.6 Agreement and Plan of Merger by and among Mohawk, WC Acquisition Corp., World Carpets, Inc. and the shareholders of World Carpets, Inc. dated as of October 22, 1998. (Incorporated herein by reference to Appendix A of the Mohawk Registration Statement on Form S-3, Registration No. 333-66061, as filed October 22, 1998). 34 *2.7 Asset Purchase Agreement by and among Aladdin Manufacturing Corporation, Image Industries, Inc. and The Maxim Group, Inc. dated as of November 12, 1998, as amended and restated on January 29, 1999. (Incorporated herein by reference to Exhibit 2.1 in Mohawk's Current Report on Form 8-K dated January 29, 1999). 3.1 Restated Certificate of Incorporation of Mohawk, as amended. *3.2 Amended and Restated Bylaws of Mohawk. (Incorporated herein by reference to Exhibit 3.2 in Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1996). *4.1 See Article 4 of the Restated Certificate of Incorporation of Mohawk. (Incorporated herein by reference to Exhibit 3.1 in Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) *4.2 See Articles 2, 6, and 9 of the Amended and Restated Bylaws of Mohawk. (Incorporated herein by reference to Exhibit 3.2 in Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) *10.1 Lease dated August 1, 1985 between Horizon and Kay D. Owens concerning Coater I and General Administration Offices and Plant at South Industrial Boulevard in Calhoun, Georgia. (Incorporated herein by reference to Exhibit 10.3 of Horizon's Annual Report on Form 10-K for the fiscal year ended September 28, 1985 (SEC File No. 0- 11492).) *10.2 Lease dated April 1, 1988 between Horizon and Kay D. Owens concerning the addition between the Tufting and Coater Buildings on South Industrial Boulevard in Calhoun, Georgia. (Incorporated herein by reference to Exhibit 10.24 in Mohawk's Registration Statement on Form S-1, Registration No. 33-53932.) *10.3 Lease dated August 15, 1989 between Joan Jones Webb and assigns and Aladdin related to a finished goods distribution warehouse in Miami, Florida. (Incorporated herein by reference to Exhibit 10.27 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.4 Lease dated October 15, 1990 between NBD Trust Company of Illinois and Aladdin related to a finished goods distribution warehouse in Romeoville, Illinois. (Incorporated herein by reference to Exhibit 10.28 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.5 Lease dated October 3, 1994 between Almoda and Aladdin related to a finished goods distribution warehouse in Columbus, Ohio. (Incorporated herein by reference to Exhibit 10.29 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) *10.6 Lease dated October 17, 1994 between Ventura County Employees' Retirement Association and Aladdin related to a finished goods distribution warehouse in Kent, Washington. (Incorporated herein by reference to Exhibit 10.34 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) *10.7 Lease dated March 1, 1994 between Design Leasing and Holding Company, Inc. and American Rug Craftsmen, Inc. related to a manufacturing facility and warehouse in Calhoun, Georgia. (Incorporated herein by reference to Exhibit 10.35 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) 35 10.8 Lease dated May 1, 1997 between Opus East, LLC and Mohawk concerning a distribution warehouse in Glen Burnie, Maryland. 10.9 Lease dated April 1, 1996 between Love Lock, LLC and Mohawk concerning a distribution warehouse in San Diego, California. 10.10 Lease dated September 23, 1996 between West End Road Associates and Mohawk concerning a distribution warehouse in Pompton Plains, New Jersey. 10.11 Lease dated September 1, 1996 between Catellus Development Corp. and Mohawk concerning a distribution warehouse in LaMirada, California. 10.12 Lease dated November 27, 1996 between CP-Regency Business Park LTD and Aladdin concerning a distribution warehouse in Grand Prairie, Texas. 10.13 Lease dated December 31, 1985 between General Bag & Burlap Company and Mohawk concerning a distribution warehouse in Philadelphia, Pennsylvania. 10.14 Lease dated May 23, 1996 between Echota Properties, LLC and American Weavers concerning a manufacturing and warehousing facility in Calhoun, Georgia. 10.15 Lease dated May 23, 1996 between Echota Properties, LLC and American Weavers concerning an addition to a manufacturing and warehousing facility in Calhoun, Georgia. 10.16 Lease dated May 23, 1996 between Echota Properties, LLC and American Weavers concerning an addition to a manufacturing and warehousing facility in Calhoun, Georgia. 10.17 Lease dated May 1, 1998 between Echota Properties, LLC and American Weavers concerning an addition to a manufacturing and warehousing facility in Calhoun, Georgia. 10.18 Lease dated February 1, 1998 between Hugh C. Hoodenpyle and American Weavers concerning a manufacturing and warehousing facility in Haiwassee, Georgia. 10.19 Lease dated October 1, 1998 between Hugh C. Hoodenpyle and American Weavers concerning an addition to a manufacturing and warehousing facility in Haiwassee, Georgia. 10.20 Lease dated September 14, 1993 between WBP Properties and Newmark concerning a distribution warehouse in Dalton, Georgia. 10.21 Lease dated November 21, 1987 between First American Bank of New York and Image, as amended on December 3, 1997 by an agreement between Charles Milford Morgan, Jr. d/b/a Morgan Trust Properties and Image, and as further amended on July 17, 1998 by an agreement between Milford Morgan Trust Properties and Image with respect to that certain warehouse located on Highway 114 in Lyerly, Georgia. 10.22 Lease dated November 19, 1997 between James S. Owens Residual Trust, Diana O. Layson, Trustee, and Image with respect to that certain warehouse located at 713 South River Street in Calhoun, Georgia. 10.23 Lease dated December 12, 1997 between Kay D. Owens Estate, Diana O. Layson, Executrix, and Image with respect to that certain warehouse located at 713 South River Street in Calhoun, Georgia. 36 10.24 Lease dated December 14, 1992, between First Union National Bank of Georgia, as Trustee under item 8 u/w of James E. Minge; First Union National Bank of Georgia, as Trustee u/a W. G. Minge, dated September 15, 1987; First Union National Bank of Georgia and Jerry L. Minge, co-executors u/w/o C. A. Minge and Image, as amended by that certain lease modification and extension agreement dated July 24, 1995 with respect to that certain warehouse located at 15 Old Airport Road in Rome, Georgia. 10.25 Lease dated June 1, 1998 between Intemark USA, Inc. and Image concerning a warehouse in Kensington, Georgia. 10.26 Lease dated November 10, 1997 between Mohawk and Hayward Industrial Park Associates concerning a warehouse in Hayward, California. *10.27 Consolidated Amended and Restated Note Agreement dated as of September 3, 1993 for $70 million of senior notes, including $20 million uncommitted shelf facility, among Mohawk, Mohawk Carpet and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.2 in Mohawk's quarterly report on Form 10-Q for the quarter ended October 2, 1993.) *10.28 Letter dated February 24, 1994 amending the Consolidated, Amended and Restated Note Agreement dated September 3, 1993 among Mohawk, Mohawk Carpet and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.2 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.29 Letter dated as of September 16, 1994 of the Second Modification to the Consolidated, Amended and Restated Note Agreement dated September 3, 1993 among Mohawk, Mohawk Carpet Corporation and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.2 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994.) *10.30 Letter dated as of July 19, 1995 of the Third Modification to the Consolidated, Amended and Restated Note Agreement dated as of September 3, 1993 among Mohawk, Mohawk Carpet Corporation and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.6 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.31 Letter dated as of September 29, 1995 of the Fourth Modification to the Consolidated, Amended and Restated Note Agreement dated as of September 3, 1993 among Mohawk, Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation) and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.10 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.32 Letter dated as of March 12, 1996 of the Fifth Modification to the Consolidated, Amended and Restated Note Agreement dated September 3, 1993 among Mohawk, Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation) and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.26 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) *10.33 Letter dated as of October 17, 1997 of the Sixth Modification to the Consolidated, Amended And Restated Note Agreement dated September 3, 1993 among Mohawk, Aladdin Manufacturing Corporation (f/n/a Mohawk Manufacturing Corporation and prior to that k/a Mohawk Carpet Corporation) and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.1 in Mohawk's Registration Statement on Form S-3, Registration No. 333-45683.) 37 *10.34 Second Amended and Restated Credit Agreement dated as of January 13, 1995 among Mohawk Carpet, Mohawk, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. (Incorporated herein by reference to Exhibit 10.3 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) *10.35 Third Amended and Restated Credit Agreement dated as of April 15, 1997 among Mohawk, Aladdin Manufacturing Corporation, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. (Incorporated herein by reference to Exhibit 10 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997.) *10.36 Fourth Amended and Restated Credit Agreement dated as of January 28, 1999 among Mohawk, Aladdin Manufacturing Corporation, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. (Incorporated herein by reference to Exhibit 99.1 of Mohawk's Current Report on Form 8-K dated February 2, 1999.) *10.37 First Amendatory Agreement dated as of June 23, 1995 to the Second Amended and Restated Credit Agreement dated as of January 13, 1995 among Mohawk Carpet Corporation, Mohawk, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. (Incorporated herein by reference to Exhibit 10.1 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended July 1, 1995.) *10.38 Second Amendatory Agreement and Waiver dated as of July 19, 1995 to the Second Amended and Restated Credit Agreement dated as of January 13, 1995 among Mohawk Carpet Corporation, Mohawk, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. (Incorporated herein by reference to Exhibit 10.1 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.39 Third Amendatory Agreement dated as of September 28, 1995 to the Second Amended and Restated Credit Agreement dated as of January 13, 1995 among Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), Mohawk, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. (Incorporated herein by reference to Exhibit 10.2 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.40 Fourth Amendatory Agreement dated as of December 22, 1995 to the Second Amended and Restated Credit Agreement dated as of January 13, 1995 among Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), Mohawk, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. (Incorporated herein by reference to Exhibit 10.31 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) *10.41 Fifth Amendatory Agreement dated as of December 31, 1995 to the Second Amended and Restated Credit Agreement dated as of January 13, 1995 among Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), Mohawk, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. (Incorporated herein by reference to Exhibit 10.32 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) *10.42 Sixth Amendatory Agreement dated as of December 31, 1996 to the Second Amended and Restated Credit Agreement dated as of January 13, 1995 among Aladdin Manufacturing Corporation (f/k/a Mohawk Manufacturing Corporation and prior to that known as Mohawk Carpet Corporation), Mohawk, Wachovia Bank of Georgia, N.A. and First Union National Bank of Georgia. *10.43 Note Purchase Agreement dated as of August 15, 1993 for 9.5% Senior Notes due April 1, 1998 among Mohawk Carpet, Mohawk, Horizon, American Rug Craftsmen, Burton Carpets & Rugs, Inc. and The Harbinger Company, Inc., and Alexander Hamilton Life Insurance Company of America, Connecticut Mutual Life Insurance Company, The Franklin Life Insurance Company and Principal Mutual Life 38 Insurance Company. (Incorporated herein by reference to Exhibit 10.5 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.44 First Amendment and Waiver Agreement dated as of February 25, 1994 of the Note Purchase Agreement dated as of August 15, 1993 for 9.5% Senior Notes due April 1, 1998 among Mohawk Carpet, Mohawk, American Rug Craftsmen, Inc., Burton Carpets & Rugs, Inc., Aladdin, Mohawk Marketing, Inc., Alexander Hamilton Life Insurance Company of America, Connecticut Mutual Life Insurance Company, Principal Mutual Life Insurance Company and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.6 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.45 Second and Third Amendment Agreements dated as of September 16, 1994 of the Note Purchase Agreement dated as of August 15, 1993 for 9.5% Senior Notes due April 1, 1998 among the Company, Mohawk Carpet Corporation, American Rug Craftsmen, Aladdin, Mohawk Marketing, Inc., Alexander Hamilton Life Insurance Company of America, Connecticut Mutual Life Insurance Company, The Franklin Life Insurance Company and Principal Mutual Life Insurance Company. (Incorporated herein by reference to Exhibit 10.3 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994.) *10.46 Fourth Amendment and Waiver Agreement dated as of July 19, 1995 of the Note Purchase Agreement dated as of August 15, 1993 for 9.5% Senior Notes due April 1, 1998 among Mohawk Carpet Corporation, Mohawk, Aladdin Mills, Inc., Mohawk Marketing, Inc., Galaxy Carpet Mills, Inc., Mohawk Mills, Inc., Mohawk Manufacturing Corporation, Alexander Hamilton Life Insurance Company of America, Connecticut Mutual Life Insurance Company, The Franklin Life Insurance Company and Principal Mutual Life Insurance Company. (Incorporated herein by reference to Exhibit 10.3 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.47 Fifth Amendment Agreement dated as of September 29, 1995 of the Note Purchase Agreement dated as of August 15, 1993 for 9.5% Senior Notes due April 1, 1998 among Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), Mohawk, Aladdin Mills, Inc., Mohawk Marketing, Inc., Galaxy Carpet Mills, Inc., Mohawk Mills, Inc., Mohawk Carpet Corporation, Alexander Hamilton Life Insurance Company of America, Connecticut Mutual Life Insurance Company, American General Life Insurance Company and Principal Mutual Life Insurance Company. (Incorporated herein by reference to Exhibit 10.7 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.48 Sixth Amendment Agreements dated as of March 12, 1996 of the Note Purchase Agreement dated as of August 15, 1993 for 9.5% Senior Notes due April 1, 1998 among the Company, Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), Aladdin, Mohawk Marketing, Inc., Galaxy Carpet Mills, Inc., Mohawk Mills, Inc., Mohawk Carpet Corporation, Alexander Hamilton Life Insurance Company of America, Connecticut Mutual Life Insurance Company, The Franklin Life Insurance Company and Principal Mutual Life Insurance Company. (Incorporated herein by reference to Exhibit 10.38 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) *10.49 Seventh Amendment Agreements dated as of October 17, 1997 of the Note Purchase Agreement dated as of August 15, 1993 for 9.5% Senior Notes due April 1, 1998 among the Company, Aladdin Manufacturing Corporation (f/k/a Mohawk Manufacturing Corporation and prior to that k/a Mohawk Carpet Corporation), Mohawk Marketing, Inc., Mohawk Mills, Inc., Mohawk Carpet Corporation (f/n/a Mohawk Limited), Alexander Hamilton Life Insurance Company of America, Massachusetts Mutual Life Insurance Company, The Franklin Life Insurance Company and Principal Mutual Life Insurance Company. (Incorporated herein by reference to Exhibit 10.4 in Mohawk's Registration Statement on Form S-3, Registration No. 333-45683.) 39 *10.50 Note Purchase Agreement dated as of August 15, 1993 for $85 million of Senior Notes due September 1, 2005 among Mohawk Carpet, Mohawk, Horizon, American Rug Craftsmen, Burton Carpets & Rugs, Inc. and The Harbinger Company, Inc., and John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company of America, Principal Mutual Life Insurance Company, Principal National Life Insurance Company, UNUM Life Insurance Company of America and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.7 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.51 First Amendment and Waiver Agreement dated as of February 25, 1994 of the Note Purchase Agreement dated as of August 15, 1993 for $85 million Senior Notes due September 1, 2005 among Mohawk Carpet, Mohawk, American Rug Craftsmen, Inc., Burton Carpets & Rugs, Inc., Aladdin, Mohawk Marketing, Inc., John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company of America, Principal Mutual Life Insurance Company, Principal National Life Insurance Company, UNUM Life Insurance Company and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.8 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.52 Second and Third Amendment Agreements dated as of September 16, 1994 of the Note PurchaseAgreement dated as of August 15, 1993 for $85 million Senior Notes due September 1, 2005 among the Company, Mohawk Carpet Corporation, American Rug Craftsmen, Aladdin, Mohawk Marketing, Inc., John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company of America, Principal Mutual Life Insurance Company, Principal National Life Insurance Company, UNUM Life Insurance Company and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.4 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994.) *10.53 Fourth Amendment and Waiver Agreement dated as of July 19, 1995 of the Note Purchase Agreement dated as of August 15, 1993 for $85 million of Senior Notes due September 1, 2005 among Mohawk Carpet Corporation, Mohawk, Aladdin Mills, Inc., Mohawk Marketing, Inc., Galaxy Carpet Mills, Inc., Mohawk Mills, Inc., Mohawk Manufacturing Corporation, John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company of America, Principal Mutual Life Insurance Company, UNUM Life Insurance Company of America and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.4 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.54 Fifth Amendment Agreement dated as of September 29, 1995 of the Note Purchase Agreement dated as of August 15, 1993 for $85 million of Senior Notes due September 1, 2005 among Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), Mohawk, Aladdin Mills, Inc., Mohawk Marketing, Inc., Galaxy Carpet Mills, Inc., Mohawk Mills, Inc., Mohawk Carpet Corporation, John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company of America, Principal Mutual Life Insurance Company, UNUM Life Insurance Company of America and American General Life Insurance Company. (Incorporated herein by reference to Exhibit 10.8 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.55 Sixth Amendment Agreement dated as of March 12, 1996 of the Note PurchaseAgreement dated as of August 15, 1993 for $85 million Senior Notes due September 1, 2005 among the Company, Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), Aladdin, Mohawk Marketing, Inc.,Galaxy Carpet Mills, Inc., Mohawk Mills, Inc., Mohawk Carpet Corporation, John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company of America, Principal Mutual Life Insurance Company, Principal National Life Insurance Company, UNUM Life Insurance Company and The Franklin Life Insurance Company. 40 (Incorporated herein by reference to Exhibit 10.44 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) *10.56 Seventh Amendment Agreement dated as of October 17, 1997 for $85 million Senior Notes due September 1, 2005 among the Company, Aladdin Manufacturing Corporation (f/k/a Mohawk Manufacturing Corporation and prior to that k/a Mohawk Carpet Corporation), Mohawk Marketing, Inc., Mohawk Mills, Inc., Mohawk Carpet Corporation (f/n/a Mohawk Limited), John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company of America, Principal Mutual Life Insurance Company, The Prudential Insurance Company of America and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.3 in Mohawk's Registration Statement on Form S-3, Registration No. 333-45683.) *10.57 Note Purchase Agreement dated as of September 16, 1994 for $100 million of Senior Notes due September 16, 2004 among the Company, Mohawk Carpet Corporation, American Rug Craftsmen, Aladdin, Mohawk Marketing, Inc., The Prudential Insurance Company of America, Principal Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company, Connecticut Mutual Life Insurance Company, Alexander Hamilton Life Insurance Company of America and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 4.1 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994.) *10.58 Letter dated as of July 19, 1995 of the First Modification to the Note Purchase Agreement dated as of September 16, 1994 for $100 million of Senior Notes due September 16, 2004 among Mohawk, Mohawk Carpet Corporation, The Prudential Insurance Company of America, Principal Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company, Connecticut Mutual Life Insurance Company, Alexander Hamilton Life Insurance Company of America and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.5 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.59 Letter dated as of September 29, 1995 of the Second Modification to the Note Purchase Agreement dated as of September 16, 1994 for $100 million of Senior Notes due September 16, 2004 among Mohawk, Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), The Prudential Insurance Company of America, Principal Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company, Connecticut Mutual Life Insurance Company, Alexander Hamilton Life Insurance Company of America and American General Insurance Company. (Incorporated herein by reference to Exhibit 10.9 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.) *10.60 Letter dated as of March 12, 1996 of the Third Modification to the Note Purchase Agreement dated as of September 16, 1994 for $100 million of Senior Notes due September 16, 2004 among Mohawk, Mohawk Manufacturing Corporation (f/k/a Mohawk Carpet Corporation), The Prudential Insurance Company of America, Principal Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company, Connecticut Mutual Life Insurance Company, Alexander Hamilton Life Insurance Company of America and American General Insurance Company. (Incorporated herein by reference to Exhibit 10.48 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) *10.61 Letter dated as of October 17, 1997 of the Fourth Modification to the Note Purchase Agreement dated as of September 16, 1994 for $100 million of Senior Notes due September 16, 2004 among Mohawk, Aladdin Manufacturing Corporation (f/k/a Mohawk Manufacturing Corporation and prior to that k/a Mohawk Carpet Corporation), The Prudential Insurance Company of America, Principal Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company of America, Massachusetts Mutual Life Insurance Company, Alexander Hamilton Life Insurance Company of America and The 41 Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.2 in Mohawk's Registration Statement on Form S-3, Registration No. 333-45683.) *10.62 Second Amended and Restated Intercreditor Agreement among the Collateral Agent, First UnionNational Bank of Georgia, Wachovia Bank of Georgia, N.A., The Prudential Insurance Company of America, John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company of America, Principal Mutual Life InsuranceCompany, Principal National Life Insurance Company, UNUM Life Insurance Company, The Franklin Life Insurance Company, Alexander Hamilton Life Insurance Company of America and Connecticut Mutual Life Insurance Company, and the related Amended and Restated Security Agreements dated as of September 16, 1994 between the Collateral Agent for the benefit of the parties to that Intercreditor Agreement and the Company and Mohawk Carpet Corporation. (Incorporated herein by reference to Exhibit 10.5 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended October 1, 1994.) *10.63 Registration Rights Agreement by and among Mohawk, Citicorp Investments, Inc., ML-Lee Acquisition Fund, L.P. and Certain Management Investors. (Incorporated herein by reference to Exhibit 10.14 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) *10.64 Voting Agreement, Consent of Stockholders and Amendment to 1992 Registration Rights Agreement dated December 3, 1993 by and among Aladdin, Mohawk, Citicorp Investments, Inc., ML-Lee Acquisition Fund, L.P., David L. Kolb, Donald G. Mercer, Frank A. Procopio and John D. Swift. (Incorporated herein by reference to Exhibit 10(b) of Mohawk's Registration Statement on Form S-4, Registration No. 33-74220.) *10.65 Registration Rights Agreement by and among Mohawk and the former shareholders of Aladdin. (Incorporated herein by reference to Exhibit 10.32 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.66 Waiver Agreement between Alan S. Lorberbaum and Mohawk dated as of March 23, 1994 to the Registration Rights Agreement dated as of February 25, 1994 between Mohawk and those other persons who are signatories thereto. (Incorporated herein by reference to Exhibit 10.3 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended July 2, 1994.) *10.67 Stock Restriction and Registration Rights Agreement dated as of October 22, 1998 by and among Mohawk and the former shareholders of World. (Incorporated herein by reference to Exhibit 99.1 of Mohawk's Current Report on Form 8-K dated February 19, 1999.) Exhibits Related to Executive Compensation Plans, Contracts and other Arrangements: *10.68 Mohawk Carpet Corporation Retirement Savings Plan, as amended. (Incorporated herein by reference to Exhibit 10.1 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) *10.69 Mohawk Carpet Corporation Supplemental Executive Retirement Plan, as amended. (Incorporated herein by reference to Exhibit 10.2 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) 10.70 World Carpets, Inc. Savings and Retirement Plan dated January 1, 1989. *10.71 Mohawk Industries, Inc. Employee Stock Purchase Plan together with forms of related Management Investment Agreement, Non-Qualified Stock Option Agreement, and amendments thereto. (Incorporated herein by reference to Exhibit 10.3 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) 42 *10.72 Stock Purchase Agreement dated as of December 30, 1988 between Mohawk and Mohasco as supplemented by Supplement to Stock Purchase Agreement dated December 30, 1988. (Incorporated herein by reference to Exhibit 10.4 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) *10.73 Securities Purchase and Holders Agreement dated as of December 31, 1988, as amended and restated March 30, 1989, together with amendments thereto and forms of related Non-Qualified Stock Option Agreement and amendments thereto. (Incorporated herein by reference to Exhibit 10.5 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) *10.74 Investment Agreement dated as of March 31, 1989 among Mohawk, Mohawk Carpet, Citicorp Capital Investors Ltd., Citicorp Venture Capital Ltd. and ML-Lee Acquisition Fund, L.P. (Incorporated herein by reference to Exhibit 10.6 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) *10.75 Equity Securities Agreement dated March 31, 1989 among Mohawk, ML-Lee Acquisition Fund, L.P. and Citicorp Venture Capital Ltd. (Incorporated herein by reference to Exhibit 10.7 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) *10.76 Securities Holders Agreement among Mohawk and Certain Management Investors dated as of March 6, 1992. (Incorporated herein by reference to Exhibit 10.40 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.) *10.77 Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.8 of Mohawk's Registration Statement on Form S-1, Registration No. 33-45418.) *10.78 Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.2 in Mohawk's quarterly report on Form 10-Q for the quarter ended July 3, 1993.) *10.79 Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.15 of Mohawk's Registration Statement on Form S-1, Registration Number 33-53932.) *10.80 Amendment dated July 22, 1993 to the Mohawk Industries, Inc. 1992 Mohawk- Horizon Stock Option Plan. (Incorporated herein by reference to Exhibit 10.1 of Mohawk's quarterly report on Form 10-Q for the quarter ended July 3, 1993.) *10.81 Mohawk Industries, Inc. 1993 Stock Option Plan. (Incorporated herein by reference to Exhibit 10.39 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.) *10.82 Form of Promissory Note between Mohawk and each of the following; David L. Kolb, John D. Swift and Frank A. Procopio. (Incorporated herein by reference to Exhibit 10.75 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) *10.83 The Mohawk Industries, Inc. Executive Deferred Compensation Plan. (Incorporated herein by reference to Exhibit 10.65 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) *10.84 The Mohawk Industries, Inc. Management Deferred Compensation Plan. (Incorporated herein by reference to Exhibit 10.66 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.) *10.85 1997 Non-Employee Director Stock Compensation Plan. (Incorporated herein by reference to Exhibit 43 10.79 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) *10.86 1997 Long-Term Incentive Plan. (Incorporated herein by reference to Exhibit 10.80 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) *10.87 Amendment No. 1 to 1997 Non-Employee Director Stock Compensation Plan. (Incorporated herein by reference to Exhibit 10.74 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1997.) 11 Statement re: Computation of Per Share Earnings. 21 Subsidiaries of the Registrant. 23.1 Independent Auditors' Consent - KPMG LLP. 23.2 Consent of Independent Accountants - PricewaterhouseCoopers LLP. 27.1 1998 Financial Data Schedule. 27.2 1997 Financial Data Schedule (restated). 27.3 1996 Financial Data Schedule (restated). ________ * Indicates exhibit incorporated by reference. (B) REPORTS ON FORM 8-K. 1. Current Report on Form 8-K dated February 5, 1998. 2. Current Report on Form 8-K dated October 15, 1998. 3. Current Report on Form 8-K dated November 12, 1998. 4. Current Report on Form 8-K dated November 12, 1998. 5. Current Report on Form 8-K dated November 20, 1998. 6. Current Report on Form 8-K dated December 23, 1998. 7. Current Report on Form 8-K dated January 29, 1999. 8. Current Report on Form 8-K dated February 2, 1999. 9. Current Report on Form 8-K dated February 4, 1999. 10. Current Report on Form 8-K dated February 19, 1999. 44 SIGNATURES 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. Mohawk Industries, Inc. Dated: March 2, 1999 By: /s/ David L. Kolb --------------------------------------------- David L. Kolb, Chairman of the Board 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 AND IN THE CAPACITIES AND ON THE DATES INDICATED. Dated: March 2, 1999 /s/ David L. Kolb ------------------------------------------------- David L. Kolb, Chairman of the Board and Chief Executive Officer (principal executive officer) Dated: March 2, 1999 /s/ John D. Swift ------------------------------------------------- John D. Swift, Chief Financial Officer, Vice President-Finance and Assistant Secretary (principal financial and accounting officer) Dated: March 2, 1999 /s/ Leo Benatar ------------------------------------------------- Leo Benatar, Director Dated: March 2, 1999 /s/ Bruce C. Bruckmann ------------------------------------------------- Bruce C. Bruckmann, Director Dated: March 2, 1999 /s/ Alan S. Lorberbaum ------------------------------------------------- Alan S. Lorberbaum, Director Dated: March 2, 1999 /s/ Jeffrey S. Lorberbaum ------------------------------------------------- Jeffrey S. Lorberbaum, Director Dated: March 2, 1999 /s/ Larry W. McCurdy ------------------------------------------------- Larry W. McCurdy, Director Dated: March 2, 1999 /s/ Robert N. Pokelwaldt ------------------------------------------------- Robert N. Pokelwaldt, Director 45 SCHEDULE I MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT MOHAWK INDUSTRIES, INC. BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS 1998 1997 ----------------------------- Current assets - intercompany receivable................................................. $ 40,729 38,765 Investment in subsidiaries............................................................... 545,980 438,368 ----------- -------- $ 586,709 477,133 =========== ======== STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; 60 shares authorized; no shares issued.................. $ - - Common stock, $.01 par value; 150,000 shares authorized; 57,383 and 57,067 shares issued in 1998 and 1997, respectively.......................................... 574 571 Additional paid-in capital............................................................... 168,797 164,140 Retained earnings........................................................................ 417,338 312,422 ----------- -------- $ 586,709 477,133 =========== ========
46 SCHEDULE I (CONTINUED) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT MOHAWK INDUSTRIES, INC. STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 ----------- ---------- ----------- Equity in earnings of subsidiaries........................................... $ 107,612 73,424 53,378 ----------- ---------- ----------- Net earnings......................................................... $ 107,612 73,424 53,378 =========== ========== ===========
47 SCHEDULE I (CONTINUED) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED FINANCIAL INFORMATION OF REGISTRANT MOHAWK INDUSTRIES, INC. STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 -------------- ------------ ------------ Cash flows from operating activities: Net earnings.................................................... $ 107,612 73,424 53,378 Adjustments to reconcile net earnings to net cash used in operating activities: Equity in earnings of subsidiaries........................ (107,612) (73,424) (53,378) Increase in intercompany receivable....................... (1,964) (4,662) (9,222) ------------ ----------- -------- Net cash used in operating activities..................... (1,964) (4,662) (9,222) ------------ ---------- -------- Cash flows from financing activities: Stock options exercised......................................... 4,417 3,636 1,323 Tax benefit from exercise of stock options...................... 243 1,050 7,606 Other........................................................... (2,696) (24) 293 ------------ ---------- -------- Net cash provided by financing activities................. 1,964 4,662 9,222 ------------ ---------- -------- Net change in cash.................................. - - - Cash, beginning of year................................................ - - - ------------ ---------- -------- Cash, end of year...................................................... $ - - - ============ ========== ========
48 SCHEDULE II MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
ADDITIONS ------------- BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF YEAR EXPENSES DEDUCTIONS (1) OF YEAR --------------- ------------- ------------------- ------------- Year ended December 31, 1996: Allowance for doubtful accounts - trade.. $ 17,956 13,213 15,466 15,703 Provision for cash discounts............. 5,879 48,577 47,407 7,049 Provision for claims and allowances...... 13,585 109,399 105,736 17,248 --------------- ------------- ------------------- ------------- Total............................... $ 37,420 171,189 168,609 40,000 =============== ============= =================== ============= Year ended December 31, 1997: Allowance for doubtful accounts - trade.. $ 15,703 8,434 7,069 17,068 Provision for cash discounts............. 7,049 51,023 48,111 9,961 Provision for claims and allowances...... 17,248 119,232 111,904 24,576 --------------- ------------- ------------------- ------------- Total............................... $ 40,000 178,689 167,084 51,605 =============== ============= =================== ============= Year ended December 31, 1998: Allowance for doubtful accounts - trade.. $ 17,068 13,173 7,362 22,879 Provision for cash discounts............. 9,961 72,275 70,074 12,162 Provision for claims and allowances...... 24,576 187,287 189,663 22,200 --------------- ------------- ------------------- ------------- Total............................... $ 51,605 272,735 267,099 57,241 =============== ============= =================== =============
_______________ (1) Represents charge offs, net of recoveries, to the reserves. 49 EXHIBIT INDEX MOHAWK EXHIBIT NUMBER DESCRIPTION ------ ----------- 3.1 Restated Certificate of Incorporation of Mohawk, as amended. 10.8 Lease dated May 1, 1997 between Opus East, LLC and Mohawk concerning a distribution warehouse in Glen Burnie, Maryland. 10.9 Lease dated April 1, 1996 between Love Lock, LLC and Mohawk concerning a distribution warehouse in San Diego, California. 10.10 Lease dated September 23, 1996 between West End Road Associates and Mohawk concerning a distribution warehouse in Pompton Plains, New Jersey. 10.11 Lease dated September 1, 1996 between Catellus Development Corp. and Mohawk concerning a distribution warehouse in LaMirada, California. 10.12 Lease dated November 27, 1996 between CP-Regency Business Park LTD and Aladdin concerning a distribution warehouse in Grand Prairie, Texas. 10.13 Lease dated December 31, 1985 between General Bag & Burlap Company and Mohawk concerning a distribution warehouse in Philadelphia, Pennsylvania. 10.14 Lease dated May 23, 1996 between Echota Properties, LLC and American Weavers concerning a manufacturing and warehousing facility in Calhoun, Georgia. 10.15 Lease dated May 23, 1996 between Echota Properties, LLC and American Weavers concerning an addition to a manufacturing and warehousing facility in Calhoun, Georgia. 10.16 Lease dated May 23, 1996 between Echota Properties, LLC and American Weavers concerning an addition to a manufacturing and warehousing facility in Calhoun, Georgia. 10.17 Lease dated May 1, 1998 between Echota Properties, LLC and American Weavers concerning an addition to a manufacturing and warehousing facility in Calhoun, Georgia. 10.18 Lease dated February 1, 1998 between Hugh C. Hoodenpyle and American Weavers concerning a manufacturing and warehousing facility in Haiwassee, Georgia. 10.19 Lease dated October 1, 1998 between Hugh C. Hoodenpyle and American Weavers concerning an addition to a manufacturing and warehousing facility in Haiwassee, Georgia. 10.20 Lease dated September 14, 1993 between WBP Properties and Newmark concerning a distribution warehouse in Dalton, Georgia. 10.21 Lease dated November 21, 1987 between First American Bank of New York and Image, as amended on December 3, 1997 by an agreement between Charles Milford Morgan, Jr. d/b/a Morgan Trust Properties and Image, and as further amended on July 17, 1998 by an agreement between Milford Morgan Trust Properties and Image with respect to that certain warehouse located on Highway 114 in Lyerly, Georgia. 50 10.22 Lease dated November 19, 1997 between James S. Owens Residual Trust, Diana O. Layson, Trustee, and Image with respect to that certain warehouse located at 713 South River Street in Calhoun, Georgia. 10.23 Lease dated December 12, 1997 between Kay D. Owens Estate, Diana O. Layson, Executrix, and Image with respect to that certain warehouse located at 713 South River Street in Calhoun, Georgia. 10.24 Lease dated December 14, 1992, between First Union National Bank of Georgia, as Trustee under item 8 u/w of James E. Minge; First Union National Bank of Georgia, as Trustee u/a W. G. Minge, dated September 15, 1987; First Union National Bank of Georgia and Jerry L. Minge, co-executors u/w/o C. A. Minge and Image, as amended by that certain lease modification and extension agreement dated July 24, 1995 with respect to that certain warehouse located at 15 Old Airport Road in Rome, Georgia. 10.25 Lease dated June 1, 1998 between Intemark USA, Inc. and Image concerning a warehouse in Kensington, Georgia. 10.26 Lease dated November 10, 1997 between Mohawk and Hayward Industrial Park Associates concerning a warehouse in Hayward, California. 10.70 World Carpets, Inc. Savings and Retirement Plan dated January 1, 1989. 11 Statement re: Computation of Per Share Earnings. 21 Subsidiaries of the Registrant. 23.1 Independent Auditors' Consent - KPMG LLP. 23.2 Consent of Independent Accountants - PricewaterhouseCoopers LLP. 27.1 1998 Financial Data Schedule. 27.2 1997 Financial Data Schedule (restated). 27.3 1996 Financial Data Schedule (restated). 51 EX-3.1 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF MOHAWK INDUSTRIES, INC. MOHAWK INDUSTRIES, INC. (the "Corporation") is a corporation duly organized and existing under the General Corporation Law of the State of Delaware. Its original Certificate of Incorporation was filed with the Secretary of State of Delaware on December 22, 1988. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. This Restated Certificate of Incorporation merely restates and integrates the provisions of the Corporation's Certificate of Incorporation as heretofore amended and supplemented, does not further amend such provisions and contains no discrepancy between such provisions and the provisions hereof. 1. Name. The name of the Corporation is Mohawk Industries, Inc. 2. Registered Office and Agent. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. Purpose. The purposes for which the Corporation is formed are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware and to possess and exercise all of the powers and privileges granted by such law and other law of Delaware. 4. Authorized Capital. The aggregate number of shares of stock which the Corporation shall have authority to issue is 75,060,000 shares, divided into two (2) classes consisting of 75,000,000 shares of common stock, par value $.01 per share ("Common Stock"), and 60,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"). The following is a statement of the designations, preferences, qualifications, limitations, restrictions and the special or relative rights granted to or imposed upon the shares of each such class. 1 (a) Common Stock (i) Dividends. Holders of Common Stock will be entitled to receive such dividends as may be declared by the Board of Directors. (ii) Distribution of Assets. In the event of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, holders of Common Stock will be entitled to receive pro rata all of the remaining assets of the Corporation available for distribution to its stockholders after all amounts to which the holders of Preferred Stock are entitled have been paid or set aside in cash for payment. (iii) Voting Rights. The holders of Common Stock shall have the general right to vote for all purposes, including the election of directors, as provided by law. Each holder of Common Stock shall be entitled to one vote for each share thereof held. (b) Preferred Stock (i) Issue in Series. Preferred Stock may be issued from time to time in one or more series, each such series to have the terms stated herein and in the resolution of the Board of Directors of the Corporation providing for its issue. All shares of any one series of Preferred Stock will be identical, but shares of different series of Preferred Stock need not be identical or rank equally except insofar as provided by law or herein. (ii) Creation of Series. The Board of Directors shall have authority by resolution to cause to be created one or more series of Preferred Stock, and to determine and fix with respect to each series prior to the issuance of any shares of the series to which such resolution relates: (A) The distinctive designation of the series and the number of shares which will constitute the series, which number may be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the Board of Directors; (B) The dividend rate and the times of payment of dividends on the shares of the series, whether dividends will be cumulative, and if so, from what date or dates; (C) Whether or not the shares of the series will be redeemable and, if redeemable, the price or prices at which, and the terms and conditions on which, the shares of the series may be redeemed at the option of the Corporation; (D) Whether or not the shares of the series will be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if so entitled, the amount of such fund and the terms and provisions relative to the operation thereof; (E) Whether or not the shares of the series will be convertible into, or exchangeable for, any other shares of 2 stock of the Corporation or other securities, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and any adjustments thereof, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (F) The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation; (G) Whether or not the shares of the series will have priority over or be on a parity with or be junior to the shares of any other series or class in any respect or will be entitled to the benefit of limitations restricting the issuance of shares of any other series or class having priority over or being on a parity with the shares of such series in any respect, or restricting the payments of dividends on or the making of other distributions in respect of shares of any other series or class ranking junior to the shares of the series as to dividends or assets, or restricting the purchase or redemption of the shares of any such junior series or class, and the terms of any such restriction; (H) Whether the series will have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; and (I) Any other preferences, qualifications, privileges, options and other relative or special rights and limitations of that series. (iii) Dividends. Holders of Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available for the payment thereof, dividends at the rates fixed by the Board of Directors for the respective series, and no more, before any dividends shall be declared and paid, or set apart for payment, on Common Stock with respect to the same dividend period. (iv) Preference on Liquidation. In the event of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, holders of each series of Preferred Stock will be entitled to receive the amount fixed for such series plus, in the case of any series on which dividends will have been determined by the Board of Directors to be cumulative, an amount equal to all dividends accumulated and unpaid thereon to the date of final distribution whether or not earned or declared before any distribution shall be paid, or set aside for payment, to holders of Common Stock. If the assets of the Corporation are not sufficient to pay such amounts in full, holders of all shares of Preferred Stock will participate in the distribution of assets ratably in proportion to the full amounts to which they are entitled or in such order of priority, if any, as will have been fixed in the resolution or resolutions providing for the issue of the series of Preferred Stock. Neither the merger nor consolidation of the Corporation into or with any other corporation, nor a sale, transfer or lease of all part of its assets, will be deemed a liquidation, dissolution or winding-up of the Corporation within the meaning of this paragraph except to the extent specifically provided for in the resolution or resolutions providing for the issue of the series of Preferred Stock. 3 (v) Redemption. The Corporation, at the option of the Board of Directors, may, if so provided for in the resolutions providing for its issue, redeem all or part of the shares of any series of Preferred Stock on the terms and conditions fixed for such series. (vi) Voting Rights. Except as otherwise required by law, as otherwise provided herein or as otherwise determined by the Board of Directors as to the shares of any series of Preferred Stock prior to the issuance of any such shares, the holders of Preferred Stock shall have no voting rights and shall not be entitled to any notice of meeting of stockholders. 5. Term. The Corporation shall have perpetual existence. 6. By-laws. The Board of Directors of the Corporation is expressly authorized to adopt, alter, amend or repeal the By-laws of the Corporation, except as otherwise specifically provided therein. 7. Elections of Directors. Election of directors need not be by written ballot unless the By-laws of the Corporation shall so provide. 8. Number of Directors. (a) The business and affairs of the Corporation shall be managed by, or under the direction of, a Board of Directors comprised as follows: (i) The number of directors of the Corporation shall be not less than two (2) and not more than eleven (11), the exact number within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the Board of Directors. (ii) The Board of Directors shall be divided into three classes consisting, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The first class of directors shall be elected for a year term expiring upon the next following Annual Meeting of Stockholders and the election and qualification of their respective successors, the second class of directors shall be elected for a term expiring upon the second next Annual Meeting of Stockholders and the election and qualification of their respective successors, and the third class of directors shall be elected for a term expiring upon the third next Annual Meeting of Stockholders and the election and qualification of their respective successors. At each succeeding Annual Meeting of Stockholders, successors to the class of directors whose term expires at that Annual Meeting of Stockholders shall be elected for a three-year term. If the number of directors has changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such a class shall hold office for a term that shall coincide with the remaining term of that class, unless otherwise required by law, but in no case shall a decrease in the number of directors for a class shorten the term of an incumbent director. (iii) A director shall hold office until the Annual Meeting of Stockholders upon which his term expires and until his successor shall be elected and qualified, subject, however, to prior death, resignation or removal from office. 4 (iv) Any vacancy on the Board of Directors that results from an increase in the number of directors or from the death, resignation or removal from office of a director shall be filled by a majority of the Board of Directors then in office, though less than a quorum, or by the sole remaining director, and any director so chosen shall have the same remaining term as that of his predecessor. (v) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an Annual or Special Meeting of Stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation and the resolution of the Board of Directors creating such class or series, to the extent applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Section (a) of Article 8 unless expressly provided by such terms. (b) Notwithstanding any other provision of this Certificate of Incorporation or the By-laws of the Corporation (and notwithstanding the fact that a lesser percentage for separate class vote for certain actions may be permitted by law, by this Certificate of Incorporation or by the By-laws of the Corporation), the affirmative vote of the holders of not less than 80% of the votes entitled to be cast by the holders of all then outstanding shares of capital stock, voting together as a single class, shall be required to make, alter, amend, change, add to or repeal any provision of this Article 8 or any other provision of this Certificate of Incorporation or the By-laws of the Corporation in a manner inconsistent with this Article 8. (c) The invalidity or unenforceability of this Article 8 or any portion hereof, or of any action taken pursuant to this Article 8, shall not affect the validity or enforceability of any other provision of this Certificate of Incorporation, any action taken pursuant to such other provision, or any action taken pursuant to this Article 8. 9. Written Consent. Action required to be taken or which may be taken at any Annual Meeting or Special Meeting of the Stockholders may be taken without a meeting, without prior notice and without a vote if a consent in writing, setting forth the action so taken, shall be signed by all the holders of outstanding shares of stock entitled to vote on such action. 10. Right to Amend. The Corporation reserves the right to amend the provisions in this Certificate, as the same may from time to time be in effect, in the manner now or hereafter provided by law, and all rights conferred on stockholders or others hereunder or thereunder are granted subject to such reservation. 11. Limited Liability. No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law ("DGCL"), or (iv) for any transaction from which the director derived an improper personal benefit. If the DCGL is amended hereafter to authorize the further elimination or limitation of the personal liability of directors, or to authorize the elimination or limitation of the personal liability of officers or other agents of the Corporation, then the liability of such person or persons shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this Article 11 shall be prospective only, and shall not affect to the detriment of any director, or officer or other agent if applicable thereto, of the Corporation any limitation on the personal liability of such person existing at the time of such repeal or modification. 5 12. Indemnification. The Corporation shall indemnify any person who is or was a director or officer of the Corporation, or any other person who is serving or did serve at the request of the Corporation in any such capacity with another corporation, partnership, joint venture, trust or other enterprise to the fullest extent permitted by the laws of the State of Delaware as in effect on the date hereof or as may hereafter be amended. IN WITNESS WHEREOF, the Company has caused its corporate seal to be hereunto affixed and this Certificate to be executed by David L. Kolb, its Chairman and Chief Executive Officer and by Barbara B. Lance its Secretary, this the 13th day of February, 1997. MOHAWK INDUSTRIES, INC. /s/ DAVID L. KOLB -------------------------------------- David L. Kolb Chairman and Chief Executive Officer Attest: /s/ BARBARA B. LANCE - ------------------------ Barbara B. Lance Secretary [CORPORATE SEAL] 6 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF MOHAWK INDUSTRIES, INC. MOHAWK INDUSTRIES, INC., a corporation organized and existing under and by virtue of the Delaware General Corporation Law (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That on February 27, 1998 the Board of Directors of the Corporation adopted resolutions setting forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and submitting the proposed amendment to the stockholders of the Corporation for their consideration and approval. The proposed amendment is as follows: NOW, THEREFORE, BE IT HEREBY RESOLVED, that the Board of Directors deems it advisable that the following amendment (the "Amendment") to the Corporation's Restated Certificate of Incorporation be adopted: "RESOLVED, that the Restated Certificate of Incorporation of the Corporation, as in force and effect on the date hereof, be and hereby is, amended by deleting the introductory paragraph of Article 4 in its entirety and by substituting in lieu thereof the following: 4. Authorized Capital. The aggregate number of shares of stock which the Corporation shall have authority to issue is 150,060,000 shares, divided into two (2) classes consisting of 150,000,000 shares of common stock, par value $.01 per share ("Common Stock"), and 60,000 shares of preferred stock, par value $.01 per share ("Preferred Stock")." SECOND: That thereafter on May 21, 1998, the stockholders of the Corporation approved the proposed amendment. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law. IN WITNESS WHEREOF, Mohawk Industries, Inc. has caused this certificate to be signed by a duly authorized officer this 2nd day of June, 1998. MOHAWK INDUSTRIES, INC. By: /s/ Barbara B. Lance ------------------------------ Barbara B. Lance Secretary EX-10.8 3 LEASE AGREEMENT EXHIBIT 10.8 STANDARD COMMERCIAL NET MOHAWK INDUSTRIES, INC. LEASE AGREEMENT 79 1910 Park 100 Drive Glen Burnie, MD 21061 187,200 Square Feet LEASE AGREEMENT THIS LEASE AGREEMENT, made and entered into by and between Opus East, L.L.C., a Delaware limited liability company hereinafter referred to as "Landlord" and Mohawk Industries, Inc. (a Delaware corporation) hereinafter referred to as "Tenant"; W I T N E S S E T H : 1. Premises and Term. In consideration of the obligation of Tenant to pay rent herein provided, and in consideration of the other terms, provisions and convenants hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby takes from Landlord certain premises situated within the County of Anne Arundel, State of Maryland, more particularly described on Exhibit "A" attached hereto and incorporated herein by reference, together with all rights, privileges, easements, appurtenances and immunities belonging to or in any way pertaining to the premises and together with the buildings and other improvements situated or to be upon said premises said real property, buildings and improvements being hereinafter referred to as the "premises"). TO HAVE AND TO HOLD the same for a term commencing on the "commencement date", as hereinafter defined, and ending 120 months thereafter, provided, however, that, in the event the "commencement date" is a date other than the first day of a calendar month said term shall extend for said number of months in addition to the remainder of the calendar month following the "commencement date." (see Addendum Paragraph 1) A. The "commencement date" shall be May 1, 1997. Tenant acknowledges that it has inspected and accepts the premises, and specifically the buildings and improvements comprising the same, in their present condition as suitable for the purpose to which the premises are leased. Taking of possession by Tenant shall be deemed conclusively to establish that said buildings and other improvements are in good and satisfactory condition as of when possession was taken. Tenant further acknowledges that no representations as to the repair of the premises, nor promises to alter, remodel or improve the premises have been made by Landlord, unless such are expressly set forth in this lease. If this lease is executed before the premises become vacant or otherwise available and ready for occupancy, or if any present tenant or occupant of the premises holds over, and Landlord cannot acquire possession of the premises prior to said "commencement date," Landlord shall not be deemed to be in default hereunder, and Tenant agrees to accept possession of the premises at such time as Landlord is able to tender the same, which date shall thenceforth be deemed the "commencement date"; and Landlord hereby waives payment of rent covering any period prior to the tendering of possession to Tenant hereunder. After the commencement date Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the premises. B. In the event this lease pertains to a building to be constructed, the provisions of this subparagraph B shall apply in lieu of the provisions of subparagraph A above and the "commencement date" shall be the date upon which the buildings and other improvements erected and to be erected upon the premises shall have been substantially completed in accordance with the plans and specifications described on Exhibit "B" attached hereto and incorporated herein by reference. Landlord shall notify Tenant in writing as soon as Landlord deems said buildings and other improvements to be completed and ready for occupancy as aforesaid. In the event that said buildings and other improvements have not in fact been substantially completed as aforesaid, Tenant shall notify Landlord in writing of its objections. Landlord shall have a reasonable time after delivery of such notice in which to take such corrective action as may be necessary, and shall notify Tenant in writing as soon as it deems such corrective action has been completed so that said buildings and other improvements are completed and ready for occupancy. Taking of possession by Tenant shall be deemed conclusively to establish that said buildings and other improvements have been competed in accordance with the plans and specifications and that the premises are in good and satisfactory condition, as of when possession was so taken. Tenant acknowledges that no representations as to the repair of the premises have been made by Landlord, unless such are expressly set forth in this lease. After such "commencement date" Tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the premises. In the event of any dispute as to substantial completion or work performed or required to be performed by Landlord, the certificate of Landlord's architect or general contractor shall be conclusive. 2. Base Rent and Security Deposits A. Tenant agrees to pay to Landlord rent for the premises in advance, without demand, deduction or set off, for months one (1) through forty-eight (48) of the [ILLEGIBLE] hereof at the rate of Sixty-Four Thousand Seven Hundred Forty and No/100 Dollars ($64,740.00) per month (See Addendum Paragraph 2). One such monthly installment shall be due and payable on the date hereof and a like monthly installment shall be due and payable, without demand, on or before the first day of each calendar month succeeding the "commencement date" during the hereby demised term, except that the rental payment for any fractional calendar month at the commencement of the lease term shall be prorated. B. In addition, Tenant agrees to deposit with Landlord on the date hereof the sum of Sixty-Four Thousand Seven Hundred Forty and No/100 Dollars ($64,740.00), which sum shall be held by Landlord, without obligation for interest, as security for the performance of Tenant's covenants and obligations under this lease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein or provided by law, use such fund to the extent necessary to make good any arrears of rent or other payments due Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default, and Tenant shall pay to Landlord, on demand, the amount so applied in order to restore the security deposit to its original amount. Although the security deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this lease that all of the Tenant's obligations under this lease have been fulfilled. 3. Use. The premises shall be used only for the purpose of receiving, storing, shipping and selling (other than retail) products, materials and merchandise made and/or distributed by Tenant, and for such other lawful purposes as may be incidental thereto. Outside storage is prohibited without Landlord's prior written consent. Tenant shall, as its own cost and expense, obtain any and all licenses and permits necessary for any such use. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the condition, occupancy and use of the premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with, the premises, all at Tenant's sole expense. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas noise or vibrations to emanate from the premises, nor take any other action which would constitute a nuisance or would disturb or endanger any other tenants of the building in which the premises are situated or unreasonably interfere with their use of their respective premises. Without Landlord's prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive or highly inflammable. Tenant will not permit the premises to be used for any purpose or in any manner (including without limitation any method of storage) which would render the insurance thereon void or the insurance risk more hazardous or cause the State Board of Insurance or other insurance authority to disallow any sprinkler credits. 4. Taxes A. Tenant agrees to pay before they become delinquent all taxes assessments, and governmental charges of any kind and nature whatsoever (hereinafter collectively referred to as the "taxes") lawfully levied or assessed against the building and the grounds, parking areas, driveways and alleys around the building. Tenant shall furnish to Landlord, not later than twenty (20) days before the date any such taxes become delinquent, official receipts of the appropriate taxing authority or other evidence satisfactory to Landlord evidencing payment thereof. If Tenant should fail to pay any taxes, assessments, or governmental charges required to be paid by Tenant hereunder, in addition to any other remedies provided herein, Landlord may, if it so elects, pay such taxes, assessments, and governmental charges. Any sums so paid by Landlord shall be deemed to be so much additional rental owing by Tenant to Landlord and due and payable, on demand, by Landlord. together with interest thereon, as the rate of ten per cent (10%) per annum from date paid by Landlord to data of repayment by Tenant. B. In the event the premises constitute a portion of a multiple occupancy building, In lieu of Tenant paying the "taxes" as above provided, Landlord agrees to pay, before they become delinquent, all "taxes" lawfully levied or assessed against such building and the grounds, parking areas, driveways and alleys around the building, and Tenant agrees to pay to Landlord, an additional rental, upon demand, the amount of Tenant's "proportionate share" of all such "taxes" paid by Landlord. Tenant's "proportionate share", as used in this lease, shall mean a fraction, the numerator of which is the space contained in the premises and the denominator of which is the entire space contained in the building. C. If, at any time during the term of this lease, the present method of taxation shall be changed so that in lieu of the whole or any part of any taxes, assessments or governmental charges levied, assessed or imposed on real estate and the improvements thereon, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents for the present or any future building or buildings on the premises, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term "taxes" for the purposes hereof. D. Tenant may, alone or along with any other tenants of said building, at its or their sole cost and expense, in its or their own name(s) and/or in the name of Landlord, dispute and contest any "taxes" by appropriate proceedings diligently conducted in good faith, but only after Tenant and all other tenants, if any, joining with Tenant in such contest, have deposited with Landlord the amount so contested and unpaid, or their proportionate shares thereof, as the case may be, which shall be held by Landlord without obligation for interest until the termination of the proceedings, as which time the amount(s) deposited shall be applied by Landlord toward the payments of the items held valid (plus any court costs, interest, penalties, and other liabilities associated with the proceedings), and Tenants share of any excess shall be returned to Tenant. Tenant further agrees to pay to Landlord, upon demand, Tenant's share (as among all tenants who participated in the contest) of all court costs, interest penalties, and other liabilities relating to such proceedings. Tenant hereby indemnifies and agrees to hold harmless the Landlord from and against any cost, damage, or expense (including attorneys' fees) in connection with any such proceedings. E. Any payment to be made pursuant to this Paragraph 4, with respect to the real estate tax year in which this lease commences or terminates shall be prorated. 5. Repairs and Maintenance A. Except as expressly set forth in Section 5.F below, Tenant shall, at its own cost and expense, keep and maintain all parts of the premises in good condition, promptly making all necessary repairs and replacements, interior and exterior, structural and non-structural, ordinary and extraordinary, including but not limited to, windows, glass and plate glass, doors and any special office entry, walls and finish work, floors and floor covering, roof, foundation, down- spouts, gutters, heating and air conditioning systems, dock boards, truck doors, dock bumpers, paving, plumbing work and fixtures, termite and pest extermination, regular removal of trash and debris, regular mowing of any grass, trimming, weed removal and general landscape maintenance, including rail spur areas, keeping the parking areas, driveways, alleys and the whole of the premises in a clean and sanitary condition, and maintaining any spur track serving the premises (Tenant agrees to sign a joint maintenance agreement with the railroad company servicing the premises, if requested by the railroad company). Tenant shall at its own cost and expense repaint exterior overhead doors, canopies, entries, handrails, gutters, and other exposed parts of the building which reasonably require periodic repainting to prevent deterioration or to maintain aesthetic standards. B. The cost of maintenance and repair of any common party wall (any wall, divider, partition or any other structure separating the premises from any adjacent premises occupied by other tenants) shall be shared equally by Tenant and the tenant occupying adjacent premises. Tenant shall not damage any party wall or disturb the integrity and support provided by any party wall and shall, as its sole cost and expense, promptly repair any damage or injury to any party wall caused by Tenant or its employees, agents or invitees. C. In the event the premises constitute a portion of a multiple occupancy building, Tenant and its employees, customers and licensees shall have the exclusive right to use the parking areas, if any, as may be designated by Landlord in writing, subject to such reasonable rules and regulations as Landlord may from time to time prescribe, Further, in multiple occupancy buildings, Landlord reserves the right to perform the roof, paving, and landscape maintenance, exterior painting and common sewage line plumbing which are otherwise Tenant's obligations under subparagraph A above, and Tenant shall, in lieu of the obligations set forth under subparagraph A above with respect to such items, be liable for its proportionate share (as defined in subparagraph 4(B) above) of the cost and expense of the care for the grounds around the building, including but not limited so, the mowing of grass, care of shrubs, general landscaping, maintenance of parking areas, driveways and alleys, roof maintenance, exterior repainting and common sewage line plumbing; provided, however, that Landlord shall have the right to require Tenant so pay such other reasonable proportion of said mowing, shrub care and general landscaping costs as may be determined by Landlord in its sole discretion; and further provided that if Tenant or any other particular tenant of the building can be clearly identified as being responsible for obstruction or stoppage of the common sanitary sewage lien then Tenant, if Tenant is responsible, or such other responsible tenant, shall pay the entire cost thereof, upon demand, as additional rent. Tenant shall pay when due its share, determined as aforesaid, of such costs and expenses along with the other tenants of the building to Landlord upon demand, as additional rent, for the amount of its share as aforesaid of such costs and expenses in the events Landlord elects to perform or cause to be performed such work. (See Addendum Paragraph 3) D. In the event the premises constitute a portion of a multiple occupancy building, Landlord shall be responsible for coordinating any repairs and other maintenance of any rail tracks serving or to serve the building, and if Tenant uses such rail tracks, Tenant shall reimburse Landlord from time to time upon demand, as additional rent, for a share of the costs of such repairs and maintenance and any other sums specified in any agreement to which Landlord is a party respecting such tracks, such share so be a fraction the numerator of which is the space contained in the premises, and the denominator of which is the entire space occupied by rail users in the building. E. Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing all heating and air conditioning systems and equipment within the premises. The maintenance contractor and the contract must be approved by Landlord. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective (and a copy thereof delivered to Landlord) within thirty (30) days of the date Tenant takes possession of the premises. (See Addendum Paragraph 4) 6. Alteration. Tenant shall not make any alterations, additions or improvements to the premises without the prior written consent of Landlord. Tenant may, without the consent of Landlord, but as its own cost and expense and in a good workmanlike manner make such minor alterations, additions or improvements or erect, remove or alter such partitions, or erect such shelves, bins, machinery and trade fixtures as it may deem advisable, without altering the basic character of the building or improvements and without overloading or damaging such building or improvements, and in each case complying with all applicable governmental laws, ordinances, regulations and other requirements. All alterations, additions, improvements and partitions erected by Tenant shall be and remain the property of Tenant during the term of this lease and Tenant shall unless Landlord otherwise elects as hereinafter provided, remove all alterations, additions, improvements and partitions erected by Tenant and restore the premises so their original condition by the date of termination of this lease; provided, however, that if Landlord so elects prior to termination of this lease, such alterations, additions, improvements and partitions shall become the property of Landlord as of the date of termination of this lease and shall be delivered up to the Landlord with the premises. All shelves, bins, machinery and trade fixtures installed by Tenant may be removed by Tenant prior to the termination of this lease if Tenant so elects, and shall be removed if required by Landlord; upon any such removal Tenant shall restore the premises to their original condition. All such removals and restoration shall be accomplished in a good workmanlike manner so as not to damage the primary structure or structural qualities of the buildings and other improvements situated on the premises. 7. Signs. Tenant shall have the right to install signs upon the premises only when first approved in writing by Landlord and subject to any applicable governmental laws, ordinances, regulations and other requirements. Tenant shall remove all such signs by the termination of this lease. Such installations and removals shall be made is such manner as to avoid injury or defacement of the building and other improvements, and Tenant shall repair any injury or defacement including without limitation discoloration, caused by such installation or removal. 8. Inspection. Landlord and Landlord's agents and representatives shall have the right to enter and inspect the premises at any reasonable time during business hours, for the purpose of ascertaining the condition of the premises or in order to make such repairs as may be required or permitted to be made by Landlord under the terms of this lease. During the period that is six (6) months prior to the end of the term hereof, Landlord and Landlord's agents and representatives shall have the right to enter the premises at any reasonable time during business hours for the purpose of showing the premises, and shall have the right to erect on the premises a suitable sign indicating that the premises are available. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the premises and shall arrange to meet with Landlord for joint inspection of the premises as the time of vacating. In the event of Tenant's failure to give such notice or arrange such joint inspection, Landlord's inspection at or after Tenant's vacating the premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. 9. Utilities. Landlord agrees to provide, as its cost, water, electricity and telephone service connections to the premises; but Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or from the premises, together with any taxes, penalties, surcharges or the like pertaining thereto, and maintenance charges for utilities, and shall furnish all electric light bulbs and fixtures. If any such services are not separately metered to Tenant, Tenant shall pay a reasonable proportion, as determined by Landlord, of all charges jointly metered with other premises. Landlord shall in no event be liable for any interruption or failure of utility services on the premises. 10. Assignment and Subletting. Tenant shall not have the right to assign this lease or to sublet the whole or any part of the premises without the prior written consent of Landlord. Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent herein specified and for compliance with all of Tenant's other obligations under the terms, provisions and covenants of this lease. Upon the occurrence of an "event of default" as hereinafter defined, if the premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided or provided by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant's obligations hereunder. 11. Insurance, Fire end Casualty Damages. A. Landlord agrees to maintain insurance covering the building of which the premises are a part in an amount not less than eighty percent (80%) (or such greater percentage as may be necessary to comply with the provisions of any co-insurance clauses of the policy) of the "replacement cost" thereof as such term is defined in the Replacement Cost Endorsement to be attached thereto, insuring against the perils of Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief, extended by Special Extended Coverage Endorsement to insure against all other Risks of Direct Physical Loss, such coverages and endorsements to be as defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the State in which the premises are situated for use by insurance companies admitted in such state for the writing of such insurance on risks located within such state. Subject to the provisions of subparagraphs 11B and 11D below, such insurance shall be for the sole benefit of Landlord and under its sole control. Tenant agrees to pay, to Landlord, as additional rental, Landlord's cost of maintaining such insurance on said building (or, in the event the premises constitute a portion of a multiple occupancy building, Tenant's full proportionate share (as defined in subparagraph 4(B) above) of such cost. Said payments shall be made to Landlord within ten (10) days after presentation to Tenant of Landlord's statement setting forth the amount due. Any payments to be made pursuant to this subparagraph A, with respect to the year in which this lease commences or terminates shall bear the same ratio to the payment which would be required to be made for the full year as that part of such year covered by the term of this lease bears to a full year. B. If the buildings situated upon the premises should be damaged or destroyed by any peril covered by the insurance to be provided by Landlord under subparagraph 11A above, Tenant shall give immediate notice thereof to Landlord and Landlord shall at its sole cost and expense thereupon proceed with reasonable diligence so rebuild and repair such buildings to substantially the condition in which they a existed prior to such damage or destruction, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the premises by Tenant and except that Tenant shall pay to Landlord, upon demand, any applicable deductible amount specified under Landlord's insurance. The rent payable hereunder shall in no event abate by reason of any damage or destruction. (See Addendum Paragraph 5) C. If the buildings situated upon the premises should he damaged or destroyed by a casualty other than a peril covered by the insurance to be provided by Landlord under subparagraph 11A. above, or if any other improvements situated on the premises should be in any manner damaged or destroyed, Tenant shall at its sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair such buildings and/or other improvements to substantially the condition in which they existed prior to such damage or destruction, subject to Landlord's approval of the plans and specifications for such rebuilding and repairing, which approval shall not be unreasonably withheld. D. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon all rights and obligations hereunder shall cease and terminate. E. Each of Landlord and Tenant hereby releases the other from any and all liability or responsibility to the other or any claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused by fire or any other perils insured in policies of insurance covering such property, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible, provided, however, that this release shall be applicable and in force and effect only with respect to loss or damage occurring during such times as the releasor's policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasor to recover thereunder and then only to the extent of the insurance proceeds payable under such policies. Each of Landlord and Tenant agrees that it will request its insurance carriers to include in its policies such a clause or endorsement. If extra cost shall be charged therefor, each party shall advise the other thereof and of the amount of the extra cost, and the other party, at its election, may pay the same, but shall not be obligated to do so. 12. Liabilities. Landlord shall not be liable to Tenant or Tenant's employees, agents, patrons or visitors, or to any other person whomsoever, for any injury to person or damage to property on or about the premises, resulting from and/or caused in part or whole by the negligence or misconduct of Tenant, its agents, servants or employees, or of any other person entering upon the premises, or caused by the buildings and improvements located on the premises becoming out of repair, or caused by leakage of gas, oil, water or steam, or by electricity emanating from the premises, or due to any cause whatsoever, and Tenant hereby covenants and agrees that it will at all times indemnify and hold safe and harmless the property, the Landlord (including without limitation the trustee and beneficiaries if Landlord is a trust), Landlord's agents and employees from any loss, liability, claims, suits, costs, expenses, including without limitation attorneys' fees and damages, both real and alleged, arising out of any such damages or injury; except injury to persons or damage to property the sole cause of which is the negligence of Landlord. Tenant shall procure and maintain throughout the term of this lease a policy or policies of insurance, at its sole cost and expense, insuring both Landlord and Tenant against all claims, demands, or actions arising out of or in connection with: (i) the premises; (ii) the condition of the premises; (iii) Tenant's operations in and maintenance and use of the premises; and (iv) Tenant's liability assumed under this lease, the limits of such policy or policies to be in the amount of not less than $2,000,000 per occurrence for bodily injury and property damage (See Addendum Paragraph 6). All such policies shall be procured by Tenant from responsible insurance companies satisfactory to Landlord. Certified copies of such policies, together with receipt evidencing payment of premiums therefor, shall be delivered to Landlord prior to the commencement date of this lease. Not less than fifteen (15) days prior to the expiration date of any such policies, certified copies of the renewals thereof (bearing notations evidencing the payment of renewal premiums) shall be delivered to the Landlord. Such policies shall further provide that not less than thirty (30) days' written notice shall be given to Landlord before such policy may be cancelled or changed to reduce insurance provided thereby. 13. Condemnation. A. If the whole or any substantial part of the premises should be taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the premises for the purpose for which they are then being used, this lease shall terminate and the rent shall be abated during the unexpired portion of this lease, effective when the physical taking of said premises shall occur. B. If part of the premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and this lease is not terminated as provided in the subparagraph above, this Lease shall not terminate, but the rent payable hereunder during the unexpired portion of the lease shall be reduced to such extent as may be fair and reasonable under all the circumstances. C. In the event of any such taking or private purchase in lieu thereof, Landlord and Tenant shall each be entitled to receive and retain such separate awards and/or portion of lump sum awards as may be allocated to their respective interests in any condemnation proceedings. 14. Holding Over. Tenant will, at the termination of this lease by lapse of time or otherwise, yield up immediate possession to Landlord. In the event of any holding over by Tenant or any of its successors in interest after the expiration or termination of this lease, unless the parties hereto otherwise agree to writing, the hold over tenancy shall be subject to termination by Landlord at any time upon not less than five (5) days advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice, and all of the other terms and provisions of this lease shall be applicable during that period, except that Tenant shall pay Landlord from time to time upon demand, as rental for the time of any hold over, an amount equal to one and one half (1 1/2) the rent in effect on the termination date, computed on a daily basis for each day of the holdover period. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided. 15. Quiet Enjoyment. Landlord covenants that it now has, or will acquire before Tenant takes possession of the premises, good title to the premises, free and clear of all liens and encumbrances excepting only the lien for current taxes not yet due, such mortgage or mortgages as are permitted by the terms of this lease, zoning ordinances, and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions, and other conditions of the record. In the event this lease is a sublease, then Tenant agrees to take the premises subject to the provisions of the prior leases. Landlord represents and warrants that it has full right and authority to enter into this lease and that Tenant, upon paying the rental herein set forth and performing its other covenants and agreements herein set forth, shall peaceably and quietly have, hold, and enjoy the premises for the term hereof without hindrance or molestation from Landlord, subject to the terms and provisions of this Lease. 16. Events of Default. The following events shall be deemed to be events of default by Tenant under this lease: (a) Tenant shall fall to pay any installment of the rent hereby reserved when due, or any payment with respect to taxes hereunder when due, or any other payment or reimbursement to Landlord required herein when due, and such failure shall continue for a period of five (5) days from the date such payment was due. (b) Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. (c) Tenant shall file a petition under any section or chapter of the National Bankruptcy Act, as amended, or under any similar law or statute of the United States or any State thereof; or Tenant shall be adjudged bankrupt or insolvent in proceeding filed against Tenant thereunder. (d) A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. (e) Tenant shall desert or vacate any substantial portion of the premises. (f) Tenant shall fail to comply with any term, provision, or covenant of this lease (other than the foregoing in this Paragraph 16), and shall not cure such failure within twenty (20) days after written notice thereof to Tenant. 17. Remedies, Upon the occurrence of any of such events of default described in Paragraph 16 hereof, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever: (a) Terminate this lease, in which event Tenant shall immediately surrender the premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the premises and expel or remove Tenant and any other person who may be occupying such premises or any thereof, by force if necessary, without being liable for prosecution or any claim or damages therefor; and Tenant agrees to pay to Landlord on demand the amount of any loss and damage which Landlord may suffer by reason of such termination (See addendum Paragraph 7), whether through inability to relet the premises on satisfactory terms or otherwise. (b) Enter upon and take possession of the premises and expel or remove Tenant and any other person who may be occupying such premises or any part thereof, by force if necessary, without being liable for prosecution or any claims for damages therefor, and Tenant agrees to pay to the Landlord on demand any deficiency that may arise by reason of such reletting. In the event Landlord is successful in reletting the premises at a rental in excess of that agreed to be paid by Tenant pursuant to the terms of this Agreement, Landlord and Tenant each mutually agree that Tenant shall not be entitled, under any circumstances, to such excess rental, and Tenant does hereby specifically waive any claim to such excess rental. (c) Enter upon the premises, by force if necessary, without being liable for prosecution or any claim for damages therefor, whatever Tenant is obligated to do under the terms of this lease; and Tenant agrees to reimburse Landlord, on demand, for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to the Tenant from such action, whether caused by the negligence of the Landlord or otherwise. Notwithstanding the foregoing, in the event of an emergency, Landlord shall have the right to perform for Tenant's account prior to the expiration of any cure period. In the event Tenant fails to pay any installment of rent hereunder as and when such installment is due, to help defray the additional cost to Landlord for processing late payments Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of and the failure to pay such amount within ten (10) days after demand therefor shall be an event of default hereunder. The provision for such late charges shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. No act or thing done by Landlord or its agents during the term hereby granted shall be decried a termination of this lease or an acceptance of the surrender of the premises, and no agreement to terminate this lease or to accept a surrender of said premises shall be valid unless in writing signed by Landlord. No waiver by Landlord or any violation or breach of any of the terms, provisions covenants herein contained. Landlord's acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default shall not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or of Landlord's right to enforce any such remedies with respect to such default or any subsequent default. If, on account of any breach or default by Tenant in Tenant's obligations under the terms and conditions of said lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning or to enforce or defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable attorneys' fees so incurred. 18. Landlord's Lien. In addition to any statutory lien for rent in Landlord's favor, Landlord shall have and Tenant hereby grants to Landlord a continuing security interest for all rentals and other sums of money becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture, inventory, accounts, contract rights, chattel paper and other personal property of Tenant, situated on the premises, and such property shall not be removed therefrom without the consent of Landlord until all arranges in rent as well as any and other sums of money then due to the hereunder shall first have been paid and discharged. In the event of default under this lease, Landlord shall have, in addition to any other remedies provided herein or by law, all rights and remedies under the Uniform Commercial Code, including without limitation the right to sell the property described in this Paragraph 18 at public or private sale upon five (5) days notice to Tenant. Tenant hereby agrees to execute such financing statements and other instruments necessary or desirable in Landlord's discretion to perfect the security interest hereby created. Any stationary lien for rent is not hereby waived, the express contractual lien herein granted being in addition and supplementary thereto. 19. Mortgages. Tenant accepts this lease subject and subordinate to any mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a lien or charge upon the premises or the improvements situated thereon; provided, however, that if the mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Tenant's interest in this lease superior to any such instrument, then by notice to Tenant from such mortgagee, trustee or holder, this lease shall be deemed superior to such lien, whether this lease was executed before or after said notice or deed of trust. Tenant shall at any time hereafter, on demand, execute any instruments, releases or other documents which may be required by any mortgagee for the purpose of subjecting and subordinating this lease to the lien of any such mortgage. 20. Landlord's Default. In the event Landlord should become in default in any payments due on any such mortgage described in Paragraph 19 hereof, Tenant is authorized and empowered, after giving Landlord five (5) days prior written notice of such default and Landlord's failure to cure such default, to pay any such items for and on behalf of Landlord, and use amount of any item so paid by Tenant for or on behalf of Landlord, together with any interest or penalty required to be paid in connection therewith, shall be payable on demand by Landlord to Tenant; provided, however that Tenant shall not be authorized and empowered to make any payment under the terms of this Paragraph 20, unless the item paid shall be superior to Tenant's interest hereunder. In the event Tenant pays any mortgage debt in full, in accordance with this paragraph, it shall, at its election, be entitled to the mortgage security by assignment or subrogation. 21. Mechanic's Liens. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance, of any kind or nature whatsoever upon, or in any maneuver to bind, the interest of Landlord in the premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim shall affect and each such lien shall attach to, if at all, only the leasehold interest granted to Tenant by this instrument. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the premises on which any lien is or can be validly and legally asserted against its leasehold interest in the premises or the improvements thereon and that it will save and hold Landlord harmless from any and loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the tight, title and interest of thus Landlord in the premises or under the terms of this lease. 22. Notices. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Landlord to Tenant or with reference to the sending, mailing or delivery of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken: (a) All rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at the address herein below set forth or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay rent and any other amounts to Landlord under the terms of this lease shall not be deemed satisfied until such rent and other amounts have been actually received by Landlord. (b) All payment required to be made by Landlord to Tenant hereunder shall be payable to Landlord at the address herein below set forth, or at such other address within the continental United States as Tenant may specify from time so time by written notice delivered in accordance herewith. (c) Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered when actually received when deposited in the United States Mail, postage prepaid, Certified or Registered Mail, hand delivery or overnight mail, addressed to the parties hereto at the respective addresses set out below, or as such other address as they have theretofore specified by written notice delivered in accordance herewith. Landlord: Tenant: Opus East, L.L.C. Mohawk Industries, Inc. 6707 Democracy Boulevard, Suite 510 1910 Park 100 Drive Bethesda, Maryland 20817 Glen Burnie, Maryland 21061 Attn: Geoffrey R. Lilja, Director Attn: Larrry Morris, Vice President of Leasing (See Addendum Paragraph 8) If and when included within the term "Landlord", as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual as some specific address for the receipt of notices and payments to Landlord; if and when included within the term "Tenant", as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Tenant. All parties included within the terms "Landlord" and "Tenant", respectively, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice. 23. Miscellaneous. A. Words of any gender used in this lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the contest otherwise requires. B. The terms, provisions, covenants, and conditions contained in this lease shall apply to, insure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns except as otherwise herein expressly provided. Each party agrees to furnish the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of such party to enter into this lease. C. The captions inserted in this lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this lease, or any provision hereof, or in any way affect the interpretation of this lease. D. Tenant agrees from time so time within ten (10) days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this lease is in full force and effect, the date to which rent has been paid, the unexpired term of this lease and such other matters pertaining so this lease as may be reasonably requested by Landlord. It is understood and agreed that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this lease. E. This lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto. F. All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this lease shall survive the expiration or earlier termination of the term hereof, including without limitation all payment obligations with respect to taxes and insurance and all obligations concerning the condition of the premises. Upon the expiration or earlier termination of the term hereof, and prior to Tenant vacating the premises, Tenant shall pay to Landlord any amount reasonably estimated by Landlord as necessary to put the premises, including without limitation all heating and air conditioning systems and equipment therein, in good condition and repair. Tenant shall also, prior to vacating the premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's obligation hereunder for real estate taxes and insurance premiums one year in which the lease expires or terminates. All such amounts shall be used and held by Landlord for payments of such obligations of Tenant hereunder, with Tenant being liable for any additional costs therefor upon demand by Landlord, or with any excess to be returned so Tenant after all such obligations have been determined and satisfied, as the case may be. Any security deposit held by Landlord shall be credited against the amount payable by Tenant under this Paragraph 23(F). G. If any clause or provision of this lease is illegal, invalid or unenforceable under present or future laws effective during the term of this lease, then and in that event, it is the intention of the parties hereto that the remainder of this lease shall not be affected thereby, and it is also the intention of the parties of this lease that in lieu of each clause or provision of this lease that is illegal, invalid or unenforceable, there be added as a part of this lease contract a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. H. Because the premises are on the open market and are presently being shown, this lease shall be treated as an offer with the premises being subject to prior lease and offer subject to withdrawal or non-acceptance by Landlord or to other use of the premises without notice, and this lease shall not be valid or binding unless and until accepted by Landlord in writing and a fully executed copy delivered to both parties hereto. I. All references in this lease to "the date hereof" or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this lease. 24. Additional Provisions. EXECUTED BY LANDLORD, this 14th day of March, 1997. LANDLORD: Attest/Witness OPUS EAST, L.L.C. ----------------------------------- /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] - ----------------------------------- ----------------------------------- Title: Vice President Title: President - ----------------------------------- ----------------------------------- EXECUTED BY TENANT, this 10th day of March, 1997. TENANT Attest/Witness: Theal E. Mackey, Jr. MOHAWK INDUSTRIES, INC. - ----------------------------------- ----------------------------------- /s/ Theal E. Mackey, Jr. By: /s/ [ILLEGIBLE] - ----------------------------------- ----------------------------------- Title: Controller Title: Exec. V.P. - ----------------------------------- ----------------------------------- ADDENDUM TO LEASE BY AND BETWEEN OPUS EAST, L.L.C. AND MOHAWK INDUSTRIES, INC. The printed part of the Lease Agreement is hereby modified and supplemented as follows. Wherever there is any conflict between this Addendum and the printed part of the Lease Agreement, the provisions of this Addendum are paramount and the Lease Agreement shall be construed accordingly. 1. Insert the following language at the end of Section 1, as indicated: "Termination. Tenant shall have the right to terminate this Lease effective 12:01 a.m. local time on the first day of the eighty-fifth (85th) full month of the Lease Term by providing Landlord with two hundred seventy (270) days prior written notice. Upon such termination, each party shall be relieved of its obligations to the other party hereunder, except with respect to indemnifications by each party relating to events occurring during the Lease term. It is understood that in the event of default, termination of the Lease will not release Tenant from any obligation under the Lease. Upon such termination, each party shall be relieved of its obligation to the other party hereunder, except with respect to indemnification by each party relating to events occurring during the Lease term, and any other matters which either expressly or by their very nature survive termination." 2. Insert the following language where indicated in Section 2.A: ";and, for months forty-nine (49) through eighty-four (84) of the term hereof at the rate of Sixty-Seven Thousand Eight Hundred Sixty and No/100 Dollars ($67,860.00) per month; and, for months eighty-five (85) through one hundred twenty (120) of the term hereof at the rate of Seventy-Four Thousand One Hundred and No/100 Dollars ($74,100.00) per month." 3. Insert the following language at the end of Section 5.C., as indicated: "During the term, Tenant will pay as additional rent to Landlord Tenant's proportionate share of common area expenses. The term "common area" shall mean those areas and facilities which may be furnished from time to time by the Landlord at or near the premises for the nonexclusive use of Landlord's tenants, their officers, employees, invitees and customers. The term "common area expense" shall include but not be limited to the total cost and expenses incurred by the Landlord, including property management fees not to exceed 3% of gross receipts from Tenant, landscaping maintenance, trash removal, exterior painting, utility casts, snow removal, policing of the premises, Anne Arundel County Fire Protection charge, and other costs of maintaining, repairing, lighting and cleaning the common areas or any off-site easement areas to the extent of any charges incurred by Landlord. Tenant agrees to pay its proportionate share of the common area expenses within ten (10) days after written request therefore by Landlord and Tenant further agrees that, in lieu thereof, that upon prior request of the Landlord, Tenant will pay the same in equal monthly installments as estimated in bills for each lease year with appropriate adjustments being made at the end of each lease year. The Tenant's proportionate share of common area expenses shall be one hundred percent (100%) of the project. Tenant acknowledges that the Premises are part of a larger development, and that certain dues or assessments may be levied in connection with maintenance and repair of signage serving the occupants of the development, as the same may be erected from time to time. In the event any such signage is erected and Tenant is included thereon, tenant shall be responsible for its prorata share of costs related to the maintenance and repair of the signage" 4. Insert the following language as Section 5F, as indicated: "5.F. Landlord shall at its expense maintain only the roof, foundation and the structural soundness of the exterior walls of the building in good repair, reasonable wear and tear excepted. Tenant shall repair, and pay for any damage caused by the negligence of Tenant, or Tenant's employees, agents or invitees, or caused by Tenant's default hereunder. The term "walls" as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entrys. Tenant shall immediately give Landlord written notice of defect or need for repairs, after which Landlord shall have reasonable opportunity to repair same or cure such defect. Landlord's liability with respect to any defects, repairs or maintenance for which Landlord is responsible under any of the provisions of this lease shall be limited to the cost of such repairs or maintenance or the curing of such defect." 5. Insert the following language at the end of Section 11B of the Lease as indicated: "If during the last two (2) years of the Lease term the premises or a substantial portion of the building in which the premises are located are rendered substantially or wholly untenantable as a result of fire, the elements, unavoidable accident or other casualty, Landlord shall have the option either to restore the premises to their condition immediately prior to the casualty or to terminate this Lease. In the event Landlord elects to terminate this Lease, such option shall be exercised by Landlord by written notice to Tenant within ninety (90) days after the fire, accident or casualty. In the event of such termination, the rent reserved hereunder shall be adjusted as of the date of the fire, accident or casualty." 6. Insert the following language where indicated in Section 12: "Additionally, Tenant shall at its expense procure and maintain throughout the Term the following insurance policies: (1) insurance covering the full value of Tenant's property and improvements, and other property (including property of others), in the Premises; (2) workman's compensation insurance, containing a waiver of subrogation endorsement reasonably acceptable to Landlord, and (3) business interruption insurance. Tenant's insurance shall provide primary coverage to Landlord when any policy issued to Landlord provides duplicate or similar coverage, and in such circumstance Landlord's policy will be excess over Tenant's policy. In addition, Tenant shall procure such other insurance and in such amounts as may from time to time be reasonably required by Landlord, against other insurable hazards which at the time are commonly insured against in the case of premises and/or buildings or improvements similar in construction, design, general location, use and occupancy to those on or appurtenant to the Premises. The insurance set forth in Paragraphs 11 and 12 shall be maintained by Tenant at not less than the limits set forth herein until reasonably required to be changed from time to time by Landlord, in writing, whereupon Tenant covenants to obtain and maintain thereafter such protection in the amount or amounts so required by Landlord." 7. Insert the following language where indicated in Section 17 of the Lease: "which may include all rental and other payments owed to Landlord hereunder accrued to the date of termination plus an amount equal to the present value of the total rental and other payments owed hereunder for the remainder of the lease term." 8. Insert the following additional notice addresses in Section 22 as indicated: "Additional notice addresses are as follows: if to Landlord: OPUS U.S. Corporation 700 Opus Center 9900 Bren Road Minnetonka, MN 55343 Attn: Dan F. Nicol, Esquire if to Tenant: Mohawk Industries, Inc. 2001 Antioch Road Dalton, Georgia 30720 Attn: Jack Sharpe" 9. Insert the following language as Section 25 of the Lease: "WAIVER OF TRIAL BY JURY. Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other with regard to any matter whatsoever arising out of, or in any way connected with this Lease, the relationship of Landlord and Tenant hereunder, Tenant's use or occupancy of the Leased Premise, and/or any claim of injury or damage." 10. Insert the following language as Section 26 of the Lease: "HAZARDOUS WASTE. The term "Hazardous Substances", as used in this lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the use and/or the removal of which is required or the use of which is restricted, prohibited or penalized by any "Environmental Law," which term shall mean any federal, state or local law, ordinance or other statute of a governmental or quasi-governmental authority relating to pollution or protection of the environment. Tenant hereby agrees that (i) no activity will be conducted on the Premises that will produce any Hazardous Substance, except for such activities that are part of the ordinary course of Tenant's business activities (the "Permitted Activities") provided said Permitted Activities are conducted in accordance with all Environmental Laws and have been approved in advance in writing by Landlord; Tenant shall be responsible for obtaining any required permits and paying any fees and providing any testing required by any governmental agency; (ii) the Premises will not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that are used in the ordinary course of Tenant's business (the "Permitted Materials") provided such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws and approved in advance in writing by Landlord; Tenant shall be responsible for obtaining any required permits and paying any fees and providing any testing required by any governmental agency, (iii) no portion of the Premises will be used as a landfill or a dump; (iv) Tenant will not install any underground tanks of any type; (v) Tenant will not allow any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute public or private nuisance; (vi) Tenant will not permit any Hazardous Substances to be brought onto the Premises, except for the Permitted Materials described below, and if so brought or found located thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws. Landlord or Landlord's representative shall have the right but not the obligation to enter the Premises for the purpose of inspecting the storage, use and disposal of Permitted Materials to ensure compliance with all Environmental Laws. Should it be determined, in Landlord's sole opinion, that said Permitted Materials are being improperly stored, used, or disposed of, then Tenant shall immediately take such corrective action as requested by Landlord. Should Tenant fail to take such corrective action within 24 hours, Landlord shall have the right to perform such work and Tenant shall promptly reimburse Landlord for any and all costs associated with said work. If at any time during or after the term of the lease, the Premises is found to be so contaminated or subject to said conditions, Tenant shall diligently institute proper and thorough cleanup procedures at Tenant's sole cost, and Tenant agrees to indemnify and hold Landlord harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from or as a result of the presence of Hazardous Substances, to the extent caused by Tenant, its agents, employees, contractors, invitees and the like. The foregoing indemnifications and the responsibilities of Tenant shall survive the termination or expiration of this Lease." 11. Insert the following language as Section 27 of the Lease: "RENEWAL. Provided that this lease is in full force and effect and provided that Tenant is not in default hereunder, (either at the time of the giving of notice or at the time of the commencement of the renewal term) Tenant (but no other person or entity, whether or not such person is a subtenant or assignee of Tenant) shall be entitled to renew this lease for one (1) additional term which is hereinafter referred to as "the Renewal Term") of five (5) years, commencing on the date on which (but for such renewal) the term would have expired and terminating on the fifth (5th) anniversary of such date (which anniversary shall, if this lease is so renewed, thereafter be the Termination Date for all purposes of the provisions of this lease as applicable thereafter), by and only by giving to the Landlord express, written notice of such renewal not less than two hundred seventy (270) days before the date on which the Renewal Term is to commence (in which event the Term shall automatically be deemed to have been extended by the length of the Renewal Term, and all reference to "the Term" in the provisions of this lease shall thereafter mean the Term as so extended). All terms and conditions of this lease shall continue in full force and effect, except that (i) the Monthly Base Rent during the Renewal Term shall be the greater of (a) the fair market rent ("Market Rate") for equivalent buildings in equivalent areas or (b) the rent in the last twelve (12) months of the original term and (ii) Tenant shall have no further renewal options. Tenant and Landlord shall make an effort in good faith to agree on such Market Rate. Any such determination of the Market Rate shall be for the period of time during which such rent is to be in effect and not for the period of time during which rental is being determined. In the event the Landlord and Tenant are unable to agree upon the Market Rate within 30 days of Tenant's notice to Landlord to renew, Landlord and Tenant shall each promptly appoint a real estate appraiser who is a member of the American Institute of Real Estate Appraisers (or its equivalent) to assist in the determination of the Market Rate, and the two appraisers shall appoint a third appraiser who is also a member of the American Institute of Real Estate Appraisers (or its equivalent). The determination of the Market Rate by the agreement of any two of such three appraisers shall be accepted by and binding upon Landlord and Tenant as the Market Rate, which rate shall thereafter be payable until further adjustment as provided hereunder. Landlord and Tenant will use all reasonable diligence to cause their appointed appraisers to perform in good faith and in a timely manner in order to make the determination of the Market Rate on or before the date on which the Market Rate is to become effective. In the event such appraisers shall not make such determination prior to the date on which the Market Rate is to become effective, this Lease shall nevertheless continue in full force and effect until such determination is made, and the rental for such period shall be payable at the rate otherwise payable hereunder. Upon the determination by such appraisers of the Market Rate, the payment of the Market Rate shall commence on the first day of the month following the date of such determination, and in addition to such monthly installment of rental, Tenant shall pay to Landlord the increase in the rental payable hereunder, if any, applicable to the period from the date on which the Market Rate was scheduled to become effective to the payment of the first installment at the Market Rate. Landlord and Tenant shall each bear the costs and fees of their respective appraisers and shall share equally the cost of the third appraiser." 12. Insert the following language as Section 28 of the Lease: "Landlord, at its sole cost and expense, shall improve the Premises in accordance with the Plans and Specifications, drawings A1-A3, prepared by Robert T. Hofmann & Associates dated February 17, 1997 which shall consist of the following: a) Minimum of twenty (20) dock doors (Series 426, 24 gauge sectional steel with single lite or equal) equipped with manual edge of dock plates and bumpers (MEOD 7220 or equal) and dock seals (TS183H or Equal); b) Metal halide light fixtures to provide 20 foot candles at floor level in a vacant warehouse; c) Approximately 8,000 square feet of office improvements built in accordance with the schematic shown in Exhibit B herein; and d) Up to $20,000 allowance for miscellaneous warehouse electric." 13. Insert the following language as Section 29 of the Lease: "LIABILITY OF SHAREHOLDERS. Any obligation or liability whatsoever of the Landlord (or Lessor) which may arise at any time under this Agreement or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be satisfied, if at all, out of the Landlord's (or Lessor's) interest in the Premises and the project which they form a part. No such obligations or liability shall be personally binding upon nor shall resort for the enforcement thereof be had to any other property of the Landlord (or Lessor) or the private property of any of its Trust Property Managers, Shareholders, officers, employees or agents, regardless of whether such obligations or liability is in the nature of contract, tort or otherwise." 14. Insert the following language as Section 30 of the Lease: "Notwithstanding any provision of this Lease to the contrary, if this Lease is entered into on or before March 14, 1997 and that certain Purchase and Sale Agreement dated February 28, 1997 between Opus East, L.L.C. and Trammell Crow NE, Inc. ("the Purchase Agreement") is subsequently terminated due to either (i) Trammell Crow NE, Inc. not issuing the Affirmative Notice under paragraph 5.1.1. of the Purchase Agreement or (ii) the failure of any other Condition Precedent in subsection 5.3 of the Purchase Agreement to be satisfied in accordance with the terms thereof, then this Lease shall automatically terminate." 15. Insert the following language as Section 31 of the Lease: "Landlord and Tenant represent to each other that they have not dealt with any brokers in connection with this Lease other than CB Commercial, whose commissions shall be paid by Landlord pursuant to separate agreements. Landlord and Tenant shall indemnify and hold each other harmless against any claims for brokerage or other commissions arising by reason of a breach of the aforesaid representation and warranty." 16. Insert the following language as Section 32 of the Lease: "This Lease shall be governed by and construed under the laws of the State of Maryland, without reference to its conflicts of laws principles. Tenant hereby consents to jurisdiction and venue in any court in the State of Maryland." EXHIBIT A BY AND BETWEEN OPUS EAST L.L.C. AND MOHAWK INDUSTRIES, INC. Lot 2-R, as shown on Administrative Plat recorded in Plat Book 190 at pages 27 and 28, being formerly part of Lot 2 and Reserved Parcel 3, PARK 100 INDUSTRIAL DEVELOPMENT, Section 1, as shown on plat recorded in Plat Book 135 at pages 47 and 48 among the land records of Anne Arundel County, Maryland, and Lots 41, 42, 43, 44, 51, 52 and 53 Block L, as shown on Plat entitled "ARUNDEL MANOR", as recorded among the land records of Anne Arundel County, Maryland, in Plat Book 15, Page 3. [GRAPHIC] EXHIBIT B BY AND BETWEEN OPUS EAST L.L.C. AND MOHAWK INDUSTRIES, INC. [GRAPHIC] EXHIBIT C BY AND BETWEEN OPUS EAST LL.C. AND MOHAWK INDUSTRIES, INC. Current Rules and Regulations 1. The sidewalks in front of premises shall not be obstructed by the Tenant or used for any purposes other than ingress and egress from and to the Tenant's offices. Tenant shall remove promptly at its own expense, without the use of chemical, any snow or other debris from the sidewalks in front of premises. The Landlord shall in all cases retain the right to control or prevent access thereto by any person whose presence, in the Landlord's judgment, would be prejudicial to the safety, peace, character or reputation of the Building or of any tenant of the Property. 2. The toilet rooms, water closets, sinks, faucets, plumbing and other service apparatus of any kind shall not be used by the Tenant for any purpose other than those for which they were installed, and no sweepings, rubbish, rags, ashes, chemicals or other refuse or injurious substances shall be placed therein or used in connection therewith by the Tenant. 3. No skylight, window, door or transom of the Building shall be covered or obstructed by the Tenant, and no window shade, blind curtain, screen, storm window, awning or other material shall be installed or placed on any window or in any window space, except as approved in writing by the landlord. If the Landlord has installed or hereafter installs any shade, blind or curtain in the premises, the Tenant shall not remove it without first obtaining the Landlord's written consent hereto. 4. No sign, lettering, insignia, advertisement, notice or other thing shall be inscribed, painted, installed, erected or placed in any portion of the premises which may be seen from outside the Building, or on any window, window space or other part of the exterior or interior of the Building, unless first approved in writing by the Landlord. Names on suite entrances shall be provided by and only by the Landlord and at the Tenant's expense, using in each instance lettering of a design and in a form consistent with the other lettering in the Building, and first approved in writing by the Landlord. The Tenant shall not erect any stand, booth or showcase or other article or matter in or upon the premises and/or the Building without first obtaining the Landlord's written consent thereto. 5. The Tenant shall not place any additional lock upon the door within the premises or elsewhere upon the Property without Landlord's written consent, and shall surrender all keys or all such locks at the end of the Term. The Landlord shall provide the Tenant with one set of keys to the premises when the Tenant assumes possession thereof. 6. The Tenant shall not do or permit to be done anything which obstructs or interferes with the rights of any other tenant of the Property. The Tenant shall not keep anywhere within the Property any matter having an offensive odor, or any kerosene, gasoline, benzine, camphene, fuel or other explosive or highly flammable material. No bird, fish or other animal shall be brought into or kept in or about the premises. 7. If the Tenant desires to install signaling, telegraphic, telephonic, protective alarm or other wires, apparatus or devices within the premises, the Landlord shall direct where and how they are to be installed and, except as so directed, no installation, boring or cutting shall be permitted. The Landlord shall have the right (a) to prevent or interrupt the transmission of excessive, dangerous or annoying current of electricity or otherwise into or through the Building or the premises, (b) to require compliance with such reasonable rules as the Landlord may establish relating thereto, and (c) in the event of noncompliance with such requirements or rules, immediately to cut wiring or do whatever else it considers necessary to remove the danger, the number of the office to which such wire leads and the purpose for which it is used, together with the names of the Tenant or other concern, if any, operating or using it. 8. The Tenant shall have access to the premises at all reasonable times. The Landlord shall in no event be responsible for admitting or excluding any person from the premises. In case of invasion, hostile attack, insurrection, mob violence, riot, public excitement or other commotion, explosion, fire or any casualty, the Landlord shall have the right to bar or limit access to the Building to protect the safety of occupants of the Property, or any property within the Property. 9. Tenant and its employees, agents and invitees, shall observe and comply with the driving and parking signs and markers on the premises surrounding the Building. 10. The Landlord shall have the right to rescind, suspend or modify the Rules and Regulations and to promulgate such other Rules or Regulations as, in the Landlord's reasonable judgment, are from time to time needed for the safety, care maintenance, operation and cleanliness of the Building, or for the preservation of good order therein. Upon the Tenant's having been given notice of the taking of any such action, the Rules and Regulations as so rescinded, suspended, modified or promulgated shall have the same force and effect as if in effect at the time at which the Tenant's lease was entered into (except that nothing in the Rules and Regulations shall be deemed in any way to alter or impair any provision of such lease). 11. The use of any room within the Building as sleeping quarters is strictly prohibited at all times. 12. Nothing in these Rules and Regulations shall give any Tenant any right or claim against the Landlord or any other person if the Landlord does not enforce any of them against any other tenant or person (whether or not the Landlord has the right to enforce them against such tenant or person), and no such nonenforcement with respect to any tenant shall constitute a waiver of the right to enforce them as to the Tenant or any other tenant person. SUBORDINATION NON-DISTURBANCE AND ATTORNMENT AGREEMENT This Subordination, Non-Disturbance and Attornment Agreement (this "Agreement") dated March 21, 1997, is made among Mohawk Industries, Inc., a Delaware Corporation ("Tenant"), Opus East, L.L.C., a Delaware L.L.C. ("Landlord") and NationsBank, N.A., a national banking association ("Mortgagee"). WHEREAS, Mortgagee is the owner of a promissory note (herein, as it may have been or may be from time to time renewed, extended, amended or supplemented, called the "Note") dated 10-30-96, executed by Opus East, L.L.C., (the "Borrower") payable to the order of Mortgagee in the principal face amount of $5,400,000, bearing interest and payable as therein provided, secured by, among other things, a Deed of Trust (herein, as it may have been or may be from time to time renewed, extended, amended or supplemented, called the "Mortgage"), recorded in Volume 7660. Page 411, real property records of Anne Arundel County, MD. covering, among other property, the land (the "Land") described in Exhibit "A" which is attached hereto and incorporated herein by reference, and the improvements ("Improvements") thereon (such Land and Improvements being herein together called the "Property"); WHEREAS, Tenant is the tenant under a lease which, including all amendments and supplements thereto, is described as follows: 187,200 SQUARE FEET AT 1910 PARK 100 DRIVE (herein, as it may from time to time be renewed, extended, amended or supplemented, called the "Lease"), covering a portion of the Property (said portion being herein referred to as the "Premises"); and WHEREAS, the term "Landlord" as used herein means the present landlord under the Lease or, if the landlord's interest is transferred in any manner, the successor(s) or assign(s) occupying the position of landlord under the Lease at the time in question; THEREFORE, in consideration of the mutual agreements herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Subordination. Tenant agrees and covenants that the Lease and the rights of Tenant thereunder, all of Tenant's right, title and interest in and to the property covered by the Lease, and any lease thereafter executed by Tenant covering any part of the Property, are and shall be subordinate and inferior to (a) the Mortgage and the rights of Mortgagee thereunder, and all right, title and interest of Mortgagee in the Property, and (b) all other security documents now or hereafter securing payment of say indebtedness of the Landlord (or any prior landlord) to Mortgagee which cover or affect the Property (the "Security Documents"). This Agreement is not intended and shall not be construed to subordinate the Lease to any mortgage, deed of trust or other security document other than those referred to in the preceding sentence, securing the indebtedness to Mortgagee. Without limitation of any other provision hereof, Mortgagee may, at its option and without joinder or further consent of Tenant, Landlord, or anyone else, at any time after the date hereof subordinate the lien of the Mortgage (or any other lien or security interest held by Mortgagee which covers or affects the Property) to the Lease by executing an instrument which is intended for that purpose and which specifies such subordination and, in the event of any such election by Mortgagee to subordinate, Tenant will execute any documents required to evidence such subordination; provided however, notwithstanding that the Lease may by unilateral subordination by Mortgagee hereafter be made superior to the lien of the Mortgage, the provisions of the Mortgage relative to the rights of Mortgagee with respect to proceeds arising from an eminent domain taking (including a voluntary conveyance by Landlord) and/or insurance payable by reason of damage to or destruction of the Premises shall be prior and superior to and shall control over any contrary provisions in the Lease. 2. Non-Disturbance. Mortgagee agrees that so long as the Lease is in full force and effect and Tenant is not in default in the payment of rent, additional rent, or other payments or in the performance of any of the other terms, covenants or conditions of the Lease on Tenant's part to be performed (beyond the period, if any. specified in the Lease within which Tenant may cure such default), (a) Tenants possession of the Premises under the Lease shall not be disturbed or interfered with by Mortgagee in the exercise of any of its rights under the Mortgage, including any foreclosure or conveyance in lieu of foreclosure, and (b) Mortgagee will not join Tenant as a party defendant for the purpose of terminating Tenant's interest and estate under the Lease in any proceeding for foreclosure of the Mortgage. 3. Attornment. (a) Tenant covenants and agrees that in the event of foreclosure of the Mortgage, whether by power of sale or by court action, or upon a transfer of the Property by conveyance in lieu of foreclosure (the purchaser at foreclosure or the transferee in lieu of foreclosure, including Mortgagee if it is such purchaser or transferee, being herein called "New Owner"), Tenant shall attorn to the New Owner as Tenants new landlord, and agrees that the Lease shall continue in full force and effect as a direct lease between Tenant and New Owner upon all of the terms, covenants, conditions and agreements set forth in the Lease and this Agreement, except for provisions which are impossible for Mortgagee to perform; provided, however, that in no event shall the New Owner be: (i) liable for any act, omission, default, misrepresentation, or breach of warranty, of any previous landlord (including Landlord) or obligations accruing prior to New Owner's actual ownership of the property; (ii) subject to any offset, defense, claim or counterclaim which Tenant might be entitled to assert against any previous landlord (including Landlord); SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Page 1 (iii) bound by any payment of rent, additional rent or other payments, made by Tenant to any previous landlord (including Landlord) for more than one (1) month in advance; (iv) bound by any amendment, or modification of the Lease hereafter made, or consent by any previous landlord (including Landlord) under the Lease to any assignment or sublease hereafter granted, without the written consent of Mortgagee; or (v) liable for any deposit that Tenant may have given to any previous landlord (including Landlord) which has nor, as such, been transferred to New Owner. (b) The provisions of this Agreement regarding attornment by Tenant shall be self-operative and effective without the necessity of execution of any new lease or other document on the part of any party hereto or the respective heirs, legal representatives, successors or assigns of any such party. Tenant agrees, however, to execute and deliver at any time and from time to time, upon the request of Landlord or of any holder(s) of any of the indebtedness or other obligations secured by the Mortgage, any instrument or certificate which, in the reasonable judgement of Landlord or of such holder(s), may be necessary or appropriate in any such foreclosure proceeding or otherwise to evidence such attornment, including, if requested, a new lease of the Premises on the same terms and conditions as the Lease for the then unexpired term of the Lease. 4. Estoppel Certificate. Tenant agrees to execute and deliver from time to time, upon the request of Landlord or of any holder(s) of any of the indebtedness or other obligations secured by the Mortgage, a certificate regarding the status of the Lease, consisting of statements, if true (or if not, specifying why not), (a) that the Lease is in full force and effect, (b) the date through which rentals have been paid, (c) the date of the commencement of the term of the Lease, (d) the nature of any amendments or modifications of the Lease, (e) that no default, or state of facts which with the passage of time or notice (or both) would constitute a default, exists under the Lease, and (f) such other matters as may be reasonably requested. 5. Acknowledgement and Agreement by Tenant. Tenant acknowledges and agrees as follows: (a) Tenant acknowledges that Landlord will execute and deliver to Mortgagee in connection with the financing of the Property an Assignment of Leases and Rents assigning absolutely the rent and all other sums due under the Lease. Tenant hereby expressly consents to such absolute assignment and agrees that such assignment shall, in all respects, be superior to any interest Tenant has in the Lease or the Property, subject to the provisions of this Agreement. Tenant will not amend, alter, terminate, or waive any provision of, or consent to the amendment, alteration, termination or waiver of any provision of the Lease without the prior written consent of Mortgagee, and no termination of the Lease, whether pursuant to the terms of the Lease or otherwise, will be effective without the prior written consent of Mortgagee. Tenant shall not prepay any rents or other sums due under the lease for more than one (1) month in advance of the due date therefor. Tenant acknowledges that Mortgagee will rely upon this instrument in connection with such financing. (b) Mortgagee, in making any disbursements to Landlord, is under no obligation or duty to oversee or direct the application of the proceeds of such disbursements, and such proceeds may be used by Landlord for purposes other than improvement of the Property. (c) From and after the date hereof, in the event of any act or omission by Landlord which would give Tenant the right, either immediately or after the lapse of time, to terminate the Lease or to claim a partial or total eviction, Tenant will not exercise any such right (i) until it has given written notice of such act or omission to the Mortgagee; and (ii) until the same period of time as is given to Landlord under the Lease to cure such act or omission shall have elapsed following such giving of notice to Mortgagee and following the time when Mortgagee shall have become entitled under the Mortgage to remedy the same, but in any event 30 days after receipt of such notice or such longer period of time as may be necessary to cure or remedy such default, act, or omission including such period of time necessary to obtain possession of the Property and thereafter cure such default, act, or omission, during which period of time Mortgagee shall be permitted to cure or remedy such default, act, or omission; provided, however, that Mortgagee shall have no duty or obligation to cure or remedy any breach or default. It is specifically agreed that Tenant stall not, as to Mortgagee, require cure of any such default which is personal to Landlord and therefore not susceptible to cure by Mortgagee. (d) In the event that Mortgagee notifies Tenant of a default under the Mortgage, Note, or Security Documents and demands that Tenant pay its rent and all other sums due under the Lease directly to Mortgagee, Tenant shall honor such demand and pay the full amount of its rent and all other sums due under the Lease directly to Mortgagee or as otherwise required pursuant to such notice beginning with the payment next due after such notice of default, without inquiry as to whether a default actually exists under the Mortgage, Security Documents or otherwise in connection with the Note, and notwithstanding any contrary instructions of or demands from Landlord. (e) Tenant shall send a copy of any notice or statement under the Lease to Mortgagee at the same time such notice or statement is sent to Landlord. (f) Tenant has no right or option of any nature whatsoever, whether pursuant to the Lease or otherwise, to purchase the Premises or the Property, or any portion thereof or any interest therein, and to the extent that Tenant has had, or hereafter acquires, any such right or option, same is hereby acknowledged to be subject and subordinate to the Mortgage and is hereby waived and released as against Mortgagee. (g) This Agreement satisfies any condition or requirement in the Lease relating to the granting of a non-disturbance agreement and Tenant waives any requirement to the contrary in the Lease. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Page 2 (h) Mortgagee and any New Owner shall have no liability to Tenant or any other party for any conflict between the provisions of the Lease and the provisions of any other lease affecting the Property, including, but not limited to, any provisions relating to exclusive or non-conforming uses or rights, renewal options and options to expand, and in the event of such a conflict, Tenant shall have no right to cancel the Lease or take any other remedial action against Mortgagee or New Owner, or against any other party for which Mortgagee or any New Owner would be liable. (i) Mortgagee and any New Owner shall have no obligation nor incur any liability with respect to the erection or completion of the improvements in which the Premises are located or for completion of the Premises or any improvements for Tenant's use and occupancy, either at the commencement of the term of the Lease or upon any renewal or extension thereof or upon the addition of additional space, pursuant to any expansion rights contained in the Lease. (j) Mortgagee and any New Owner shall have no obligation nor incur any liability with respect to any warranties of any nature whatsoever, whether pursuant to the Lease or otherwise, including, without limitation, any warranties respecting use, compliance with zoning, Landlord's title, Landlord's authority, habitability, fitness for purpose or possession. (k) In the event that Mortgagee or any New Owner shall acquire title to the Premises or the Property, Mortgagee or such New Owner shall have no obligation, nor incur any liability, beyond Mortgagee's or New Owners then equity interest, if any, in the Property or the Premises, and Tenant shall look exclusively to such equity interest of Mortgagee or New Owner, if any, for the payment and discharge of any obligations imposed upon Mortgagee or New Owner hereunder or under the Lease or for recovery of any judgment from Mortgagee, or New Owner, and in no event shall Mortgagee, New Owner, nor any of their respective officers, directors, shareholders, agents, representatives, servants, employees or partners ever be personally liable for such judgement. (l) Nothing heroin contained is intended, nor shall it be construed, to abridge or adversely affect any right or remedy of Landlord under the Lease in the event of any default by Tenant in the payment of rent and/or any other sums due under the Lease or in the performance of any of the other terms, covenants or conditions of the Lease on Tenant's part to be performed. (m) Landlord has not agreed to any abatement of rent or other sums or period of "free rent" for the Premises unless same is specifically provided in the Lease, and Tenant agrees that in the event Mortgagee, or any New Owner becomes the owner of the Property, no agreement for abatement of rent or any other sum not specifically provided in the Lease will be binding on Mortgagee or New Owner. (n) Tenant has never permitted, and will not permit, the generation, treatment, storage or disposal of any hazardous substance as defined under federal, state, or local law, on the Premises or Property except for such substances of a type and only in a quantity normally used in connection with the occupancy or operation of buildings (such as non-flammable cleaning fluids and supplies normally used in the day to day operation of first class industrial building, which substances are being held, stored, and used in strict compliance with federal, state, and local laws. Tenant shall be solely responsible for and shall reimburse Landlord for any loss, liability, claim or expense, including without limitation, cleanup and all other expenses, that Landlord may incur by reason of Tenant's violation of the requirements of this Paragraph 5(n). 6. Acknowledgement and Agreement by Landlord. Landlord, as landlord under the Lease and grantor under the Mortgage, acknowledges and agrees for itself and its heirs, representatives, successors and assigns, that: (a) this Agreement does not constitute a waiver by Mortgagee of any of its rights under the Mortgage, Note, or Security Documents, or in any way release Landlord from its obligations to comply with the terms, provisions, conditions, covenants, agreements and clauses of the Mortgage, Note, and Security Documents; (b) the provisions of the Mortgage, Note, or Security Documents remain in full force and effect and must be complied with by Landlord; and (c) Tenant is hereby authorized to pay its rent authorized and all other sums due under the Lease directly to Mortgagee upon receipt of a notice as set forth in paragraph 5(d) above from Mortgagee and that Tenant is not obligated to inquire as to whether a default actually exists under the Mortgage, Security Documents or otherwise in connection with the Note. Landlord hereby releases and discharges Tenant of and from any liability to Landlord resulting from Tenant's payment to Mortgagee in accordance with this Agreement. Landlord represents and warrants to Mortgagee that a true and complete copy of the Lease has been delivered by Landlord to Mortgagee. 7. Lease Status. Landlord and Tenant certify to Mortgagee that neither Landlord nor Tenant has knowledge of any default on the part of the other under the Lease, that the Lease is bona fide and contains all of the agreements of the parties thereto with respect to the letting of the Premises and that all of the agreements and provisions therein contained are in full force and effect. 8. Notices. All notices, requests, consents, demands and other communications required or which any party desires to give hereunder shall be in writing and shall be deemed sufficiently given or furnished if delivered by personal delivery, by telegram, telex, or facsimile, by expedited delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, at the addresses specified at the end of this Agreement (unless changed by similar notice in writing given by the particular party whose address is to be changed). Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of telegram, telex or facsimile, upon receipt. Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt. This Paragraph 8 shall not be construed in any way to affect or impair any waiver of notice or demand provided in this Agreement or in the lease or in any document evidencing, securing or pertaining to the loan evidenced by the Note or to require giving of notice or demand to or upon any person in any situation or for any reason. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Page 3 9. Miscellaneous. (a) This Agreement supersedes any inconsistent provision of the Lease. (b) Nothing contained in this Agreement shall be construed to derogate from or in any way impair or affect the lien, security interest or provisions of the Mortgage, Note, or Security Documents. (c) This Agreement shall inure to the benefit of the parties hereto, their respective successors and permitted assigns, and any New Owner, and its heirs, personal representatives, successors and assigns; provided, however, that in the event of the assignment or transfer of the interest of Mortgagee, all obligations and liabilities of the assigning Mortgagee under this Agreement shall terminate, and thereupon all such obligations and liabilities shall be the responsibility of the party to whom Mortgagee's interest is assigned or transferred; and provided further that the interest of Tenant under this Agreement may not be assigned or transferred without the prior written consent of Mortgagee. (4) THIS AGREEMENT AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND AND APPLICABLE UNITED STATES FEDERAL LAW EXCEPT ONLY TO THE EXTENT, IF ANY THAT THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED NECESSARILY CONTROL. (e) The words "herein", "hereof", "hereunder" and other similar compounds of the word "here" as used in this Agreement refer to this entire Agreement and not to any particular section or provision. (f) This Agreement may not be modified orally or in any manner other than by an agreement in writing signed by the parties hereto or their respective successors in interest. (g) If any provision of the Agreement shall be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not apply to or affect any other provision hereof, but this Agreement shall be construed as if such invalidity, illegality, or unenforceability did not exist. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. ADDRESS OF MORTGAGEE: MORTGAGE: 10 Light Street NATIONSBANK, N.A. Baltimore, Maryland 21202 Real Estate Finance Group By: /s/ Mindy Fang Attention: Mindy Fang ------------------------------------ Name: Mindy Fang Title: Vice President ADDRESS OF TENANT: TENANT: 1910 PARK 100 DRIVE MOHAWK INDUSTRIES, INC. GLEN BURNIE, MARYLAND 21061 Attention: LARRY MORRIS By: /s/ S.H. Sharpe ------------------------------------ Name: S.H. Sharpe Title: Exec. V.P. ADDRESS OF LANDLORD: LANDLORD: c/o Opus East, L.L.C. Opus East, L.L.C. 6707 Democracy Boulevard Suite 510 By: /s/ Joseph J. Rauenhorst Bethesda, Maryland 20817 ------------------------------------ Attention: Joseph J. Rauenhorst Name: Joseph J. Rauenhorst Title: PRESIDENT SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Page 4 GUARANTOR'S CONSENT _________________, guarantor of the Lease, signs below to express its consent to the foregoing Agreement and its agreement that its guaranty of the Lease is and shall remain in full force and effect. -------------------------------------- By: ---------------------------------- Title: ------------------------------- STATE OF MARYLAND CITY OF BALTIMORE This instrument was acknowledged before on March 21st, 1997, by Mindy Fang of NationsBank, a national banking association, on behalf of said association. /s/ Marcia L. Simpson -------------------------------------- Notary Public, State of Maryland My Commission Expires: Aug. 3, 1998 Marcia L. Simpson -------------------------------------- Printed Name of Notary Public STATE OF GEORGIA CITY OF WHITFIELD This instrument was acknowledged before me on MARCH 14, 1997 by S.H. Sharpe of [Tenant] Executive Vice President, on behalf of said MOHAWK INDUSTR. /s/ Cheryl W. Lindsey -------------------------------------- Notary Public, State of GEORGIA My Commission Expires: Notary Public, Whitfield County, Georgia My Commission Expires January 19, 1998 Cheryl W. Lindsey -------------------------------------- Printed Name of Notary Public STATE OF MARYLAND CITY OF MONTGOMERY This instrument was acknowledged before me on THE 19TH OF MARCH, 1997, by JOSEPH J. RAUENHORST of [Landlord] President, a _____________ on behalf of said OPUS EAST, L.L.C. /s/ Diane B. Defibaugh -------------------------------------- Notary Public, State of Maryland My Commission Expires: October 25, 1999 Diane B. Defibaugh -------------------------------------- Printed Name of Notary Public SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Page 1 EXHIBIT "A" LEGAL DESCRIPTION OF THE LAND Lot 2-R, as shown on Administrative Plat recorded in Plat Book 190 at pages 27 and 28, being formerly part of Lot 2 and Reserved Parcel 3, PARK 100 INDUSTRIAL DEVELOPMENT, Section 1, as shown on plat recorded in Plat Book 135 at pages 47 and 48 among the land records of Anne Arundel County, Maryland, and Lots 41, 42, 43, 44, 51, 52 and 53 Block L, as shown on Plat entitled "ARUNDEL MANOR", as recorded among the land records of Anne Arundel County, Maryland, in Plat Book 15, Page 3. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Page 3 STATE OF _______ ss. ss. COUNTY OF ______ ss. This instrument was acknowledged before me on ____________, 19__, by __________________________ of [Guarantor]____________, a ______________________, on behalf of said _____________. ______________________________________ Notary Public, State of ______________ My Commission Expires: ______________________ ______________________________________ Printed Name of Notary Public SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT Page 2 EX-10.9 4 LEASE AGREEMENT EXHIBIT 10.9 [LETTERHEAD OF LEE & ASSOCIATES] February 29, 1996 Mr. Jack Sharpe MOHAWK INDUSTRIES, INC. P.O. Box 2208 Dalton, GA 30722 Re: Confirmation of Lessor for 5225 Lovelock Street, San Diego, CA Dear Jack, This letter is written to formally confirm the legal name of the Lessor for the above referenced property. The lease as written was prepared with Escondido - Trafalgar Limited Partnership as Lessor. This partnership recently reformed itself as Lovelock LLC. The lease has been modified by hand by the representative of the Lessor, Mr. Harry Brown. The Federal Taxpayer's I.D. No. for Lovelock LLC is 33-0673063. In the event Mohawk needs to contact Mr. Brown his telephone number is (714) 498-4328 and his facsimile number is (714) 498-0260. Base rent payments and other notices for the Lessor should be sent to: Lovelock LLC Mr. Harry S. Brown P.O. Box 1431 San Clemente, CA 92674 Should you have any questions, please feel free to call me. Sincerely, LEE & ASSOCIATES COMMERCIAL REAL ESTATE SERVICES /s/ Chris Coyte Chris Coyte Senior Vice President STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-MODIFIED NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION [LOGO] 1. Basic Provisions ("Basic Provisions"). 1.1 Parties: This Lease ("Lease"), dated for reference purposes only, February 5, 1996, is made by and between Lovelock, L.L.C., ("Lessor") and Mohawk Industries, Inc. a Georgia Corporation ("Lessee") (collectively the "Parties," or individually a "Party"). 1.2(a) Premises: That certain portion of the Building, including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 5225 Lovelock Street, located in the City of San Diego, County of San Diego, State of California, with zip code 92110, as outlined on Exhibit a attached hereto ("Premises"). The "Building" is that certain building containing the Premises and generally described as (describe briefly the nature of the Building): An approximately 63,000 square foot Industrial/Office building on approximately 2.72 acres. Accessors Parcel # 436-400-25. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the Building or to any other buildings in the Industrial Center. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Industrial Center." (Also see Paragraph 2.) 1.2(b) Parking: See Addendum unreserved vehicle parking spaces ("Unreserved Parking Spaces"); and See Addendum reserved vehicle parking spaces ("Reserved Parking Spaces"). (Also see Paragraph 2.6.) 1.3 Term: 5 years and 6 months ("Original Term") commencing April 1, 1996 ("Commencement Date") and ending September 30, 2001 ("Expiration Date"). (Also see Paragraph 3). 1.4 Early Possession: February 15, 1996 ("Early Possession Date"). (Also see Paragraph 3.2 and 3.3.) 1.5 Base Rent: $_____________ per month ("Base Rent"), payable on the First day of each month commencing April 1, 1996. (Also see Paragraph 4.) |X| If this box is checked, this Lease provides for the Base Rent to be adjusted per Addendum 1, attached hereto. 1.6(a) Base Rent Paid Upon Execution: $3,655.00 as Base Rent for the period April 1, 1996 - April 30, 1996. 1.6(b) Lessee's Share of Common Area Operating Expenses: Thirteen percent (13.49%) ("Lessee's Share") as determined by prorata square footage of the Premises as compared to the total square footage of the Building or |_| other criteria as described in Addendum _____. 1.7 Security Deposit: $____________ ("Security Deposit"). (Also see Paragraph 5.) 1.8 Permitted Use: Warehousing, wholesaling and distribution of carpet and related products as well as general office use. ("Permitted Use"). (Also see Paragraph 6.) 1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph 8.) 1.10(a) Real Estate Brokers. The following real estate broker(s) (collectively, the "Brokers") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): |X| VOIT COMMERCIAL BROKERAGE represents Lessor exclusively ("Lessor's Broker); |X| LEE & ASSOC. COMMERCIAL REAL ESTATE represents Lessee exclusively ("Lessee's Broker"). |_| ____________________________ represents both Lessor and Lessee ("Dual Agency"). (Also see Paragraph 15.) 1.10(b) Payment to Brokers. Upon the excution of this Lease by both Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor an said Broker(s) (or in the event there is no separate written agreement between Lessor and said Broker(s), the sum of $____________) for brokerage services rendered by said Broker(s) in connection with this transaction. 1.11 Guarantor. The Obligations of the Lessee under this Lease are to be guaranteed by N/A ____________________________________________________________ ______________________________________________________________________________ ("Guarantor"). (Also see Paragraph 37.) 1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 54, and Exhibits A through ___________, all of which constitute a part of this Lease. 2. Premises, Parking and Common Areas. 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental and/or Common Area Operating Expenses, is an approximation which Lessor and Lessee agree is reasonable and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, electrical systems, fire sprinkler system. lighting, air conditioning and heating systems and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty (30) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.3 Compliance with Covenants, Restrictions and Building Code. Lessor warrants that any improvements (other than those constructed by Lessee or at Lessee's direction) shall comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Lessor further warrants to Lessee that Lessor has no knowledge of any claim having been made by any governmental agency that a violation or violations of applicable building codes, regulations, or ordinances exist with regard to the Premises as of the Commencement Date. Said warranties shall not apply to any Alterations or Utility Installations (defined in Paragraph 7.3 (a)) made or to be made by Lessee. If the Premises do not comply with said warranties, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee given within six (6) months following the Commencement Date and setting forth with specificity the nature and extent of such non-compliance, take such action, at Lessor's expense, as may be reasonable or appropriate to rectify the non-compliance. Lessor makes no warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined in Paragraph 2.4). 2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been advised by the Broker(s) to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, and compliance with the Americans with Disabilities Act and applicable zoning, municipal, county, state and federal laws, ordinances and regulations and any covenants or restrictions of record (collectively, "Applicable Laws") and the present and future suitability of the Premises for Lessee's intended use; (b) that Lessee has made such investigation as it deems necessary with reference to such matters, is satisfied with reference thereto, and assumes all responsibility therefore as the same relate to Lessee's occupancy of the Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. 2.6 Vehicle Parking. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and loaded or unloaded as directed by Lessor in the Rules and Regulations (as defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.) (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice to Lessee, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. (c) Lessor shall at the Commencement Date of this Lease, provide the parking facilities required by Applicable Law. 2.7 Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Industrial Center and interior utility raceways within the Premises that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas. 2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Industrial Center. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable, Rules and Regulations with respect thereto in accordance with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said rules and regulations by other lessees of the Industrial Center. 2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; (b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Industrial Center to be a part of the Common Areas (but Common Area Operating Expenses shall not be increased as a result of any such designation); (d) To add additional buildings and improvements to the Common Areas (e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Industrial Center, or any portion thereof; and (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Industrial Center as Lessor may, in the exercise of sound business judgment, deem to be appropriate. 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 Early Possession. If an Early Possession Date is specified in Paragraph 11.4 and if Lessee totally or partially occupies the Premises after the early Possession Date but prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early occupancy. All other terms of this lease, however, (including but not limited to carry the insurance required by Paragraph 8) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. 3.3 Delay in Possession. If for any reason Lessor cannot deliver possession of the Premises to Lessee by the Early Possession Date, if one is specified in Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days after the end of said sixty (60) day period, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder; provided further, however, that if such written notice of Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this lease hereunder shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the Original Term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to the period during which the Lessee would have otherwise enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. Rent. 4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as the same may be adjusted from time to time, to Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one full month shall be prorated based upon the actual number of days of the month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. -2- 5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefore deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor as an addition to the Security Deposit so that the total amount of the Security Deposit shall at all times bear the same proportion to the then current Base Rent as the initial Security Deposit bears to the initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any monies to be paid by Lessee under this Lease. 6. Use. 6.1 Permitted Use. (a) Lessee shall use and occupy the Premises only for the Permitted Use set forth in Paragraph 1.8, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to the Premises or neighboring premises or properties. (b) Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessee's assignees or subtenants, and by prospective assignees and subtenants of Lessee, its assignees and subtenants, for a modification of said Permitted Use, so long as the same will not impair the structural integrity of the improvements on the Premises or in the Building or the mechanical or electrical systems therein, does not conflict with uses by other lessees, is not significantly more burdensome to the Premises or the Building and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days after such request give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 Hazardous Substances. (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment, or the Premises; (ii) regulated or monitored by any governmental authority; or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products or by-products thereof. Lessee shall not engage in any activity in or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Requirements (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and (iii) the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Laws require that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but upon notice to Lessor and in compliance with all Applicable Requirements, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of the Permitted Use, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to any Reportable Use of Hazardous Substance by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefor, including but not limited to the installation (and, at Lessor's option, removal on or before Lease expiration or earlier termination) or reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give Lessor written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or proceeding given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Substance including but not limited to all such documents as may be involved in any Reportable Use involving the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including, without limitation, through the plumbing or sanitary sewer system). (c) Indemnification. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or permitted by Lessee, and the cost of investigation (including consultants' and attorneys' fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Requirements," which term is used in this Lease to mean all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill, or release of any Hazardous Substance), now in effect or which may hereafter come into effect. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Requirements specified by Lessor; and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Requirements. 6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to employ experts and/or consultants in connection therewith to advise Lessor with respect to Lessee's activities, including but not limited to Lessee's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a violation of Applicable Requirements or a contamination, caused or materially contributed to by Lessee, is found to exist, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing violation or contamination. In such case, Lessee shall, within twenty (20) days after receipt of invoice, reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations. 7.1 Lessee's Obligations. (a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment, or facilities specifically serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire hose connections if within the Premises, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors windows, doors, plate glass, and skylights, but excluding any items which are responsibility of Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (c) If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, in accordance with Paragraph 13.2 below. 7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 4.2 (Common Area Operating Expenses). 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls and structural condition of interior bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if located in the Common Areas) or other automatic fire extinguishing system including fire alarm -3- and/or smoke detection systems and equipment, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Building, Industrial Center or Common Areas in good order, condition and repair. 7.3 Utility Installations, Trade Fixtures, Alterations. (a) Definitions; Consent Required. The term "Utility Installations" is used in this Lease to refer to all air lines, power panels, electrical distribution, security, fire protection systems, communications systems, lighting fixtures, heating, ventilating and air conditioning equipment, plumbing, and [ILLEGIBLE] in, or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment which can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises which are provided by the Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be made any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without Lessor's consent but upon notice to Lessor, so long as they are not visible from the outside of the Premises, do not involve puncturing, relocating or removing the roof or any existing walls, or changing or interfering with the fire sprinkler or fire detection systems and the cumulative cost thereof during the term of this Lease as extended does not exceed $2,500.00. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities; (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon; and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and be in compliance with all Applicable Requirements. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may, (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation. (c) Lien Protection. Lessee shall pay when due all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on, or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 Ownership, Removal, Surrender, and Restoration. (a) Ownership. Subject to Lessor's right to require their removal and to cause Lessee to become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Installations made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises, Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee-Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon the Premises and be surrendered with the Premises by Lessee. (b) Removal. Unless otherwise agreed in writing, Lessor may require that any or all Lessee-Owned Alterations or Utility Installations be [ILLEGIBLE] by the expiration or earlier termination of this Lease, notwithstanding that their installation may have been consented to by Lessor. Lessor may [ILLEGIBLE] the removal at any time of all or part of any Alterations or Utility Installations made without the required consent of Lessor. (c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified herein, the Premises, as surrendered, shall include the Alterations and Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Lessee-Owned Alterations and Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Requirements and/or good practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. Insurance; Indemnity. 8.1 Payment of Premium Increases. (a) As used herein, the term "Insurance Cost Increase" is defined as any increase in the actual cost of the insurance applicable to the Building and required to be carried by Lessor pursuant to Paragraph 8.2(b), 8.3(a) and 8.3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter defined, calculated on an annual basis. "Insurance Cost Increase" shall include, but not be limited to, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, and/or a general premium rate increase. The term "Insurance Cost Increase" shall not, however, include any premium increases resulting from the nature of the occupancy of any other lessee of the Building. If the parties insert a dollar amount in Paragraph 1.9, such amount shall be considered the "Base Premium." If a dollar amount has not been inserted in Paragraph 1.9 and if the Building has been previously occupied during the twelve (12) month period immediately preceding the Commencement Date, the "Base Premium" shall be the annual premium applicable to such twelve (12) month period. If the Building was not fully occupied during twelve (12) month period, the "Base Premium" shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the Commencement Date, assuming the most nominal use possible of the Building. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability Insurance coverage in excess of $1,000,000 procured under Paragraph 8.2(b). (b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to Paragraph 4.2 Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement Date or Expiration Date. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in writing (as additional insureds) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" endorsement and contain the "Amendment of the Pollution Exclusion" endorsement for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contribution with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried by Lessor. Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 Property Insurance-Building, Improvements and Rental Value. (a) Building and Improvements. Lessor shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to any Lender(s), insuring against loss or damage to the Premises. Such insurance shall be for full replacement cost, as the same shall exist from time to time, or the amount required by any Lender(s), but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. Lessee-Owned Alterations and Utility Installations, Trade Fixtures and Lessee's personal property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and commercially appropriate, Lessor's policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender or included in the base premium), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Building required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered loss, but not including plate glass insurance. Said policy or policies shall also contain an agreed valuation provision in lieu of any co-insurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. (b) Rental Value. Lessor shall also obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and any Lender(s), insuring the loss of the full rental and other charges payable by all lessees of the Building to Lessor for one year (including all Real Property Taxes, insurance costs, all Common Area Operating Expenses and any scheduled rental increases). Said insurance may provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any co-insurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, Real Property Taxes, insurance premium costs and other expenses, if any, otherwise payable, for the next 12-month period. Common Area Operating Expenses shall include any deductible amount in the event of such loss. (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Industrial Center if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. -4- (d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee-Owned Alterations and Utility Installations unless the item in question become the property of Lessor under the terms of this Lease. 8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance shall be full replacement cost coverage with a deductible not to exceed $50,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request from Lessor, Lessee shall provide Lessor with written evidence that such insurance is in force. 8.5 Insurance Policies. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7) days after the earlier of the Early Possession Date or the Commencement Date, certified copies of, or certificates evidencing the existence and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to modification except after thirty (30) days' prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable be Lessee to Lessor upon demand. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss or damage to their property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Lessor and Lessee agree to have their respective insurance companies issuing property damage insurance waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 Indemnity. Except for Lessor' negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss, of rents and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action proceeding involved therein, and whether or not (in case of claims made against Lessor) litigated and/or reduced to judgment. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other lessee of Lessor nor from the failure by Lessor to enforce the provisions of any other lease in the Industrial Center. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility installations, the repair cost of which damage or destruction is less than fifty percent (50%) of the then Replacement Cost (as defined in Paragraph 9.1(d)) of Premises (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures) immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations, the repair cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and Utility installations and Trade Fixtures) immediately prior to such damage or destruction. In addition, damage or destruction to the Building, other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any lessees of the Building, the cost of which damage or destruction is fifty percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any lessees of the Building) of the Building shall, at the option of Lessor, be deemed to be Premises Total Destruction. (c) "Insured Loss" shall mean damage or destruction to the Premises, other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 Premises Partial Damage -- Insured Loss. If Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessors expense, repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility installations) as soon as reasonably possible and this Lease shall continue in full force and effect. In the event, however, that there is a shortage of insurance proceeds and such shortage is due to the fact that by reason of the unique nature of the improvements in the Premises, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, Lessor shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect, if Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within such ten (10) day period, and if Lessor does not so elect to restore and repair, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 Partial Damage - Uninsured Loss. if Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessees expense and this Lease shall continue in full force and effect), Lessor may at Lessor's option, either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee withIn thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease [ILLEGIBLE] of the date sixty (60) days following the date of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessees commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following such commitment from Lessee. In such event this Lease Shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available, if Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessors notice of termination. 9.4 Total Destruction. Notwithstanding any other provision hereof, if Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 9.7. 9.5 Damage Near End of Term. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by (a) exercising such option, and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten (10) days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate as of the date set forth in the first sentence of this Paragraph 9.5. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance Condition for which Lessee is not legally responsible, the Bass Rent Common Area Operating Expenses and other charges, if any, payable by Lessee hereunder for the period during which such damage or condition, its repair, remediation or restoration continues, Shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not in excess of proceeds from insurance required to be carried under Paragraph 8.3(b). Except for abatement of Base Rent Common Area Operating Expenses and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessee for any damage suffered by reason of any such damage, destruction, repair, remediation or restoration. -5- (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after the receipt of such notice, this Lease shall continue in full force and effect "commence" as used in this Paragraph 9.6 shall mean either the unconditional authorization of the preparation of the retired plans, or the beginning of the actual work on the Premises, whichever occurs first. 9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor on which case Lessee shall make the investigation and remediation thereof required by Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at Lessors option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000 whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the excess costs of (a) investigation and remediation of such Hazardous Substance Condition to the extent required by Applicable Requirements, over (b) an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following said commitment by Lessee. In such event this Lease shall continue In full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time period specified above, this Lease shall terminate as of the date specified In Lessors notice of termination. 9.8 Termination - Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment made by Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 Waiver of Statutes, Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premise and the Building with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent it is inconsistent therewith. 10. Real Property Taxes. 10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as otherwise provided in Paragraph 10.3, any increases in such amounts over the Base Real Property Taxes shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 10.2 Real Property Tax Definition. (a) As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Industrial Center by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage, or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Industrial Center or any portion thereof, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in Applicable Law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Industrial Center or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. (b) As used herein, the term "Base Real Property Taxes" shall be the amount of Real Property Taxes, which are assessed against the Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of which such calendar year and tax year have in common. 10.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Industrial Center by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request. 10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee-Owned Alterations and Utility Installations Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or stored within the Industrial Center. When possible, Lessee shall cause its Lessee-Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee shall pay directly for all utilities and services supplied to the Premises, including but not limited to electricity, telephone, security, gas and cleaning of the Premises, together with any taxes thereon. If any such utilities or services are not separately metered to the Premises or separately billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be determined by Lessor of all such charges jointly metered or billed with other premises in the Building, in the manner and within the time periods set forth in Paragraph 4.2(d). 12. Assignment and Subletting. 12.1 Lessor's Consent Required. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing refinancing. transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of full execution and delivery of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding any Guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessors option, be a [ILLEGIBLE] curable after notice per Paragraph 13.1, or a non-curable Breach without the necessity of any notice and grace period. If Lessor elects to treat such represented to assignment or subletting as a non-curable Breach, Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days' written notice ("Lessors Notice"), increase the monthly Base Rent for the Premises to the greater of the then fair market rental value of the Premises, as reasonably determined by Lessor, or one hundred ten percent (110%) of the Base Rent then in effect. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lease shall be subject to similar adjustment to the then fair market value as reasonably determined by Lessor (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition) or one hundred ten percent (110%) of the price previously in effect, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new rental bears to the Base Rent in effect immediately prior to the adjustment specified in Lessor's Notice. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief. 12.2 Terms and Conditions Applicable to Assignment and Subletting. (a) Regardless of Lessor's consent, any assignment or subletting shall not (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, nor (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent for performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the assignee or sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable under this Lease or the sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or the sublease. -6- (d) In the event of any Default or Breach of Lessee's obligation under this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of the Lessee's obligations under this Lease, including any sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to the portion of the Premises which is subject of the proposed assignment or sublease, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. 12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of the foregoing provision or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against such sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior defaults or breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee under a sublease approved by Lessor shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. Default; Breach; Remedies. 13.1 Default; Breach. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said default. A "Default by Lessee is defined as a failure by Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" by Lessee is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent, Lessee's Share of Common Area Operating Expenses, or any other monetary payment required to be made by Lessee hereunder as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (i) duly executed original form, if applicable) of (i) compliance with Applicable Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 18 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be observed, complied with or performed by Lessee, other than those described in Subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessees Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessees becoming a "debtor" as defined in 11 U.S. Code Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessees assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days: or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this Subparagraph 13.1(e) is contrary to any applicable law, such provision shall be of no force or effect, and shall not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement of Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially (g) If the performance of Lessee's oblIgations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurances of security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease. 13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without written notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor at its own option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District in which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph 13.2. If termination of this Lease is obtained -7- through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two (2) such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. Lessor and Lessee agree that the limitations on assignment and subletting this Lease are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under this Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions" shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor, as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by any Lender(s) whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the portion of the Common Areas designated for Lessee's parking, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminated this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the Premises. No reduction of Base Rent shall occur if the condemnation does not apply to any portion of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution of value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation, separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above Lessee's Share of the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage caused by such condemnation authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 15. Brokers' Fees. 15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the procuring cause of this Lease. 15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in paragraph 39.1) granted under this Lease or any Option subsequently granted, or (b) if Lessee acquires any rights to the Premises or other premises in which Lessor has an interest, or (c) if Lessee remains in possession of the Premises with the consent of Lessor after the expiration of the term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of any other lease or sale entered into between the Parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, or (e) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then as to any of said transactions, Lessor shall pay said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect at the time of the execution of this Lease. 15.3 Assumption of Obligations. Any buyer or transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be an intended third party beneficiary of the provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors. 15.4 Representations and Warranties. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder other than as named in Paragraph 1.10(a) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Broker(s) is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorney's fees reasonably incurred with respect thereto. 16. Tenancy and Financial Statements. 16.1 Tenancy Statement. Each Party (as "Responding Party") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in a form similar to the then most current "Tenancy Statement" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 Financial Statement. If Lessor desires to finance, refinance, or sell the Premises or the Building, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such public financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15.3, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within ten (10) days following the date on which it was due, shall bear interest from the date due at the prime rate charged by the largest state chartered bank in the state in which the Premises are located plus four percent (4%) per annum, but not exceeding the maximum rate allowed by law, in addition to the potential late charge provided for in Paragraph 13.4. 20. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. Each Broker shall be an intended third party beneficiary of the provisions of this Paragraph 22. -8- 23. Notices. 23.1 Notice Requirements. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission during normal business hours, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone or facsimile confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday or a Sunday or a legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or any other term, covenant or condition hereof. Lessor's consent to, or approval of, any such act shall not be deemed to render unnecessary the obtaining of such Lessors consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of any provision hereof. Any payment given Lessor by Lessee may be accepted by the Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. In the event that Lessee holds over in violation of this Paragraph 26 then the Base Rent payable from and after the time of the expiration or earlier termination of this Lease shall be increased to two hundred percent (200%) of the Base Rent applicable during the month immediately preceding such expiration or earlier termination. Nothing contained herein shall be construed as a consent by Lessor to any holding over by Lessee. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. 30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event or Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission or any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one month's rent. 30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys' fees, costs and expenses incurred in preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. Broker(s) shall be intended third party beneficiaries of this Paragraph 31. 32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the Building, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or Building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred eighty (180) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement or rent of liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. Consents. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to reasonable architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. In addition to the deposit described in Paragraph 12.2(e), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the impositions by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. -9- 38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and the performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. Options 39.1 Definition. As used in this Lease, the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 Options Personal to Original Lessee. Each Option granted to Lessee in the this Lease is personal to the original Lessee named in paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. 39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (i) during the commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of separate Defaults under Paragraph 13.1 during the twelve (12) month period immediately preceding the exercise of the Option, whether or not the Defaults are cured. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of separate Defaults under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. Rules and Regulations. Lessee agrees that it will abide by, and keep and observe all reasonable rules and regulations ("Rules and Regulations") which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Industrial Center and their invitees. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. Reservations. Lessor reserves the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights of way, utility raceways, and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights of way, utility raceways, dedications, maps and restrictions do not reasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor shall not be deemed an offer to lease. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 47. Amendments. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The Parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional insurance company or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such multiple parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. -10- LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at: ------------------------------ on: --------------------------------------- By LESSOR: - ------------------------------------------ - ------------------------------------------ By: -------------------------------------- Name Printed: Harry S. Brown Title: ------------------------------------ By: --------------------------------------- Name Printed: ----------------------------- Title: ------------------------------------ Address: ---------------------------------- - ------------------------------------------ Telephone: (714) 498-4328 -------------------------------- Facsimile: (714) 498-0260 -------------------------------- BROKER: Executed at: --------------------------------- on: --------------------------------------- By: --------------------------------------- Name Printed: Jeff Barnes ----------------------------- Title: ------------------------------------ Address: 4370 La Jolla Village Drive, #990 ---------------------------------- San Diego, CA 92122-1233 - ------------------------------------------ Telephone: (619) 453-0505 -------------------------------- Facsimile: (619) 453-1981 -------------------------------- Executed at: DALTON, GA ------------------------------ on: FEB. 19, 1996 --------------------------------------- By LESSEE: - ------------------------------------------ - ------------------------------------------ By: Mohawk Industries, Inc. a Georgia Corporate -------------------------------------- Name Printed: S.W. Sharpe ------------------------------------- Title: Exec. V.P. ------------------------------------ By: /s/ S.H. Sharpe --------------------------------------- Name Printed: ----------------------------- Title: ------------------------------------ Address: ---------------------------------- - ------------------------------------------ Telephone: ( ) -------------------------------- Facsimile: ( ) -------------------------------- BROKER: Executed at: --------------------------------- on: --------------------------------------- By: /s/ Chris Coyte --------------------------------------- Name Printed: Chris Coyte ----------------------------- Title: Senior Vice President ------------------------------------ Address: 3991 MacArthur Blvd., Suite 100 ---------------------------------- Newport Beach, CA 92660 - ------------------------------------------ Telephone: (714) 724-1000 -------------------------------- Facsimile: (714) 833-0608 -------------------------------- NOTICE: These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa St., Suite M-l, Los Angeles, California 90071 (213) 687-8777. -11- EXHIBIT A SITE PLAN OF PREMISES [GRAPHIC] WASHINGTON DISTRIBUTION CENTER 11954 E. WASHINGTON BOULEVARD o SANTA FE SPRINGS EXHIBIT "A" SITE PLAN OF PREMISES [GRAPHIC] 5225 LOVELOCK STREET SAN DIEGO NOT TO SCALE EX-10.10 5 LEASE AGREEMENT EXHIBIT 10.10 INTEROFFICE MEMO TO: THERAL MACKEY LINDA BARTENFIELD FROM: JACK SHARPE DATE: SEPTEMBER 23, 1996 SUBJECT: NEW WAREHOUSE - NORTHEAST REGION - -------------------------------------------------------------------------------- During the month of December of this year or January, 1997, we will move from our current New Jersey warehouse to a larger warehouse. We are in the process of signing a new lease as follows: LOCATION: 100 Alexander Ave., Industrial Park Pompton Plains, NJ EFFECTIVE DATE: January 01, 1997 TERMS: 7 1/2 years with right to cancel in 5 years. OPTIONS: One for 2 1/2 years, one for 5 years - Total 7 1/2 years SIZE: Total 164,437 sq. ft., initially we will only occupy 98,137 sq. ft. LANDLORD: Westend Road Associates C/O The Opper Group 1460 Valley Road P.O. Box 559 Wayne, NJ 07474-0559 RENT: BASE = $28,623.29 For January, 1997 DEPOSIT = $28,623.29 ---------- TOTAL = $57,246.58 Due 09/23/96 ========== ADDITIONAL DEPOSIT = 28,623.29 09/25/96 LEASE Between WEST END ROAD ASSOCIATES, a New Jersey Partnership Landlord and MOHAWK INDUSTRIES, INC., a Delaware Corporation Tenant Dated: September 23, 1996 SILLS CUMMIS ZUCKERMAN RADIN TISCHMAN EPSTEIN & GROSS, P.A. The Legal Center One Riverfront Plaza Newark, New Jersey 07102-5400 TABLE OF CONTENTS ----------------- Section - ------- Premises 1 Term 2 Rent 3 Proportionate Share 4 Additional Rent 5 Operating Costs 6 Landlord's Obligations 7 Intentionally Omitted 8 Net Lease 9 Additional Space 10 Purpose 11 Default in Payment of Rent - Abandonment of Premises - Relating 12 Subletting and Assignment 13 Condition of Premises; Repairs - Clean and Sanitary and Repairs 14 Utilities, Services, Costs, Expenses, Taxes 15 Mechanics' Liens 16 Non-Liability of Landlord - Landlord Indemnity 17 Liability Insurance 18 Tenant's Own Insurance 19 Mutual Waiver of Subrogation 20 Failure to Obtain Insurance 21 Unavailability of Fire Insurance 22 Right to Inspect and Exhibit 23 Total or Partial Destruction 24 Laws and Ordinances 25 Signs 26 Priority of Fee Mortgages 27 Security Deposit - First Month's Rent 28 Rules and Regulations 29 Tenant's Violation of Terms - Re-entry by Landlord 30 Notices 31 Entire Agreement; No Oral Changes 32 Insolvency of Tenant 33 Eminent Domain; Condemnation 34 Delivery of Lease 35 Lease Provisions Not Exclusive 36 Heirs, Etc. 37 Date of Possession 38 Real Estate Taxes 39 Tax Appeals by Landlord 40 Quiet Enjoyment 41 Reservation of Title 42 Outside Storage 43 Certificate of Occupancy 44 Holding Over 45 Consents to Defaults 46 Payments in Event of Default 47 Financial Statements 48 Table of Contents and Marginal Notes 49 Broker 50 Accord and Satisfaction 51 Consents 52 Hazardous Substances 53 Negotiated Agreement 54 Processing Charge 55 Mortgagee Protection Clause 56 Interpretation 57 Right of First Refusal 58 Modifications Requested by Mortgagee 59 Intentionally Omitted 60 Renewal Options 61 Cancellation Option 62 Parties Duly Authorized 63 Septic System Signatures Schedule "A" - Description of Premises Schedule "B" - Roof Work Schedule "C" - Landlord Alteration Schedule "D" - Letter from James C. Anderson Associates, Inc. Schedule "E" - Letter from The Whitman Companies, Inc. LEASE ----- THIS AGREEMENT, entered into this 23 day of September, 1996, between WEST END ROAD ASSOCIATES, a New Jersey Partnership, having offices c/o The Opper Group, 1460 Valley Road, P.O. Box 559, Wayne, New Jersey 07474-0559, hereinafter referred to as "Landlord", and MOHAWK INDUSTRIES, INC., a corporation of the State of Delaware, having offices at 2001 Antioch Road, Dalton, Georgia 30721, hereinafter referred to as "Tenant". W I T N E S S E T H: PREMISES: Landlord hereby demises and leases unto Tenant and Tenant hereby -------- hires and takes from Landlord, for the term and upon the rentals, terms and conditions hereinafter specified, the premises described on Schedule "A" (the "Premises") consisting of the entire building (the "Building") containing approximately 164,437 square feet of space and the common areas appurtenant thereto located at 100 Alexander Avenue Industrial Park, Pompton Plains, New Jersey (the "Park") ; provided, however, that until the approximately 62,000 square feet of the Park presently occupied by 3B Trucking (the "3B Space") and the approximately 4,300 square feet of the Park presently occupied by Peridot (the "Peridot Space") become part of the Premises pursuant to Section 9 below, Tenant's rights with respect to the common areas of the Park shall be limited to a right of access to the Premises and all common areas of the Park, including all trailer parking, together with thirty (30) designated parking spaces in the front of the Park. The Premises are to be delivered in the "AS IS" condition as of the date hereof, subject to normal wear from the date hereof to the date of delivery of the Premises (or respective part thereof), except that (a) Landlord shall cause the work set forth on Schedule "B" to be undertaken to the roof of the Building, so that the roof is to be delivered free of -1- leaks and in good repair, (b) all mechanicals (i.e. heating, ventilating, air conditioning, electrical and plumbing) are to be in good working order (and the heating system is to be in good working order at the beginning of the heating season), (c) the parking area and loading area are to be delivered in good condition, with patching or paving where needed, and with adequate drainage so that there are no large areas of freestanding water, and (d) broken glass is to be replaced, (e) all light fixtures are to be in working order, (f) the exterior of the Building is to be painted, (g) the oil water separator is to be pumped, (h) Landlord shall complete all of the alterations set forth on Schedule "C" (the "Landlord Alteration") , and (i) Landlord shall spend up to an aggregate of Ten Thousand ($10,000.00) Dollars as directed by Tenant on account of repairs, alterations and/or renovations to the Premises not delineated in (a) through (h) above. The Premises, the 3B Space and the Peridot Space may, at Tenant's option to be exercised prior to January 1, 1997, be measured by a licensed engineer or architect reasonably acceptable to Landlord, in which event the Basic Rent (as defined in Section 2 below) and Tenant's Proportionate Share (as defined in Section 3 below) shall be adjusted to reflect the square footages as certified by such engineer or architect. Tenant shall be responsible for the payment of the fees of the engineer or architect. SECTION 1: TERM: ---------------- The term of this demise shall be seven (7) years and six (6) months beginning on January 1, 1997 and ending at midnight on June 30, 2004 (the "Term"), subject, however, to the terms contained herein. Notwithstanding the foregoing, Tenant may occupy the Premises commencing on November 1, 1996, and in consideration therefore, Tenant shall comply with all of the terms and provisions of the Lease for the period from November 1, 1996 through December 31, 1996. In no event, however, shall Tenant be obligated to pay Rent (as defined below) with respect to the 3B Space and/or the Peridot Space for any period of time -2- prior to January 1, 1997, regardless of whether Tenant occupies the 3B Space and/or the Peridot Space at any time prior to January 1, 1997. SECTION 2: RENT: --------------- The basic rent during the Term of this Lease ("Basic Rent") shall be Four Million Five Hundred Sixty-three Thousand One Hundred Twenty-six and 75/100 ($4,563,126.75) Dollars. The Basic Rent from January 1, 1997 through December 31, 2001 shall accrue at an annual rate of Five Hundred Seventy-five Thousand Five Hundred Twenty-nine and 50/100 ($575,529.50) Dollars and be payable in equal monthly installments of Forty-seven Thousand Nine Hundred Sixty and 79/100 ($47,960.79) Dollars; and the Basic Rent from January 1, 2002 through June 30, 2004 shall accrue at an annual rate of Six Hundred Seventy-four Thousand One Hundred Ninety-one and 70/100 ($674,191.70) Dollars and be payable in equal monthly installments of Fifty-six Thousand One Hundred Eighty-two and 64/100 ($56,182.64) Dollars. Notwithstanding the foregoing, if any time during the Term either the 3B Space and/or the Peridot Space is, not part of the Premises, then for that period of time, Tenant shall receive a credit against the Basic Rent for the square footage of such space(s) not leased at the rate of $3.50 per square foot per annum for the first 5 years of the initial Term, $4.10 per square foot per annum for the last 2 years and 6 months of the initial Term, and the rates set forth in Section 60(c) below for the two renewal terms. Each monthly installment of Basic Rent shall be paid and be payable in equal monthly installments on or before the first day of each month, in advance, at the office of Landlord or at such other place as shall be designated by Landlord, without any prior notice or demand therefor and without any deduction, abatement or set- off for any reason whatsoever. The Basic Rent and any additional rent are hereinafter referred to as "Rent". -3- SECTION 3: PROPORTIONATE SHARE: ------------------------------ For the purposes of this Lease, Landlord and Tenant agree that the Premises constitute 100% of the Park ("Proportionate Share") , except as follows: (a) So long as the Premises excludes both the 3B Space and the Peridot Space, the Proportionate Share shall be 60%; (b) So long as the Premises excludes the 3B Space but includes the Peridot Space, the Proportionate Share shall be 62.3%; and (c) So long as the Premises excludes the Peridot Space but includes the 3B Space, the Proportionate Share shall be 97.4%. SECTION 4: ADDITIONAL RENT: -------------------------- Tenant shall pay, as Additional Rent, its Proportionate Share of all of the Operating Costs as defined in Section 5 of this Lease. So long as Tenant is paying all of the Operating Costs and the Premises exclude the 3B Space and/or the Peridot Space, Tenant shall receive a credit against the Basic Rent and/or additional rent such that the net result is that it is only paying its Proportionate Share of Operating Costs. However, notwithstanding anything to the contrary, Landlord shall continue to pay taxes and charge Tenant for its Proportionate Share as set forth in Section 5 below. SECTION 5: OPERATING COST: ------------------------- Operating Costs, for the purposes of this Lease, shall mean the aggregate of all expenses of operating the common areas of the Park and its appurtenances and shall include, but shall not be limited to, the following: all expenses for maintaining, operating and repairing the Park and its appurtenances, including the expenses of normal replacement of worn out equipment, facilities and installations; the cost of electricity, water, and other utilities; security; gardening and other landscaping; snow removal (notwithstanding anything to the contrary, Tenant shall undertake all snow removal in the Park at its sole cost, regardless of whether it occupies the entire Park, and if -4- Tenant's Proportionate Share is less than 100% at the time it undertakes any snow removal, Tenant shall receive a credit against the Basic Rent and/or additional rent which is a percentage of the cost of such snow removal equal to the difference between 100% and Tenant's Proportionate Share; however, such credit shall not duplicate any portion of the credit described in Section 4 above allocable to snow removal); maintenance and repair of the parking lot; fire insurance, liability insurance and rent insurance (if Tenant defaults under any provision of this Lease, or if Landlord's mortgagee so requires, Tenant's Proportionate Share of such insurance costs shall be payable monthly to Landlord in an amount equal to one-twelfth (1/12th) of the annual insurance costs); taxes as defined in Section 38 of this Lease (if Tenant defaults under any provision of this Lease, or if Landlord's mortgagee so requires, Tenant's Proportionate Share of such taxes shall be payable monthly to Landlord in an amount equal to one-twelfth (1/12th) of the annual taxes); painting; supplies; sales or use taxes on supplies or services; the charges of any independent contractor who performs or does any of the work of operating, maintaining, or repairing the Park and its appurtenances; and any other expenses or charges of any nature whatsoever, whether or not herein mentioned, which is in accordance with sound accounting and management principles generally accepted with respect to the operation of a first-class industrial park, would be considered as Operating Costs. Operating Costs shall not include, however, those matters described as Landlord's obligations in Section 6 below, executive salaries, leasing commissions, depreciation, interest on and amortization of mortgages, franchise, income and other taxes based upon the income of Landlord, provided the same shall not have been levied as a substitute for real property taxes and shall not include any items otherwise constituting such expense -5- to the extent payment therefor is received from, or payable by, another tenant of the Park. SECTION 6: LANDLORD'S OBLIGATIONS: --------------------------------- Landlord shall, at its own expense, make all structural repairs, to include replacement and major repairs of structural beams and columns, foundation and building slab, and any required replacement, maintenance and repairs to the roof, unless such replacement, maintenance and/or repairs are necessitated by negligence, acts or omissions of Tenant, its servants, agents or employees, in which event said replacement, maintenance and/or repairs shall be made by Landlord upon reasonable prior notice to Tenant at Tenant's expense. SECTION 7: INTENTIONALLY OMITTED. -------------------------------- SECTION 8: NET LEASE: --------------------- This Lease is a net lease and the Basic Rent shall be absolutely net to Landlord so that, except as expressly provided in this Lease, this Lease shall yield, net, to Landlord, the Basic Rent during the Term. SECTION 9: ADDITIONAL SPACE: --------------------------- Once the 3B Space becomes vacant, Landlord shall notify Tenant in writing, and the 3B Space shall be deemed part of the Premises upon the first to occur of (a) the thirtieth (30th) day following such notice from Landlord to Tenant, but in no event earlier than the day after 3B Trucking vacates the 3B Space and same is available for occupancy, or (b) Tenant's occupancy of all or part of said space; provided, however, that Tenant shall have the right to require that Landlord notify 3B Trucking to vacate said space on 30 days prior written notice, in which event the 3B Space shall be deemed part of the Premises upon 3B Trucking surrendering and delivering possession of same to Landlord; provided, however, that except in the event of a default by 3B Trucking under its lease, Landlord may not, without Tenant's consent, notify 3B Trucking to vacate the 3B Space. Once the Peridot Space becomes vacant (Peridot is obligated to vacate said -6- space on or before April 30, 1998), Landlord shall notify Tenant in writing, and the Peridot Space shall be deemed part of the Premises on the first to occur of (a) the thirtieth (30th) day following such notice from Landlord to Tenant, but in no event earlier than the day after Peridot vacates the Peridot Space and same is available for occupancy, or (b) Tenant's occupancy of all or part of the Peridot Space. When both spaces become part of the Premises, the Premises shall consist of the entire Park, and Tenant shall be responsible for, and shall directly pay for, all of the Operating Costs of the Park, except as set forth in the last sentence of Section 4 above, and except as limited by Section 6 above; provided, however, that Landlord shall have the right to continue to provide, at Tenant's cost, the insurance coverage constituting a part of Operating Costs, unless Tenant is able to provide insurance coverage in amounts no less than that carried by Landlord, insuring against the same liabilities, by a carrier duly authorized in New Jersey and having a Best's (or similar) rating comparable to that of Landlord's carrier, and which policies shall provide Landlord no less than thirty (30) days prior written notice of cancellation, in which event Tenant may maintain and pay for such insurance coverage as part of Operating Costs. SECTION 10: PURPOSE: -------------------- Tenant covenants and agrees to use the Premises for a distribution and trucking facility, which, however, shall not include the use of red-labeled material, and further agrees not to use or permit the Premises to be used for any other purposes without the prior written consent of Landlord, which consent shall not be unreasonably withheld. SECTION 11: DEFAULT IN PAYMENT OF RENT - ABANDONMENT ----------------------------------------------------- OF PREMISES - RELETTING: ----------------------- Tenant shall, without any previous demand therefor, pay to Landlord, or its agent, the Rent and at the times and in the manner herein provided. In the event of the non-payment of the Rent, or any installment thereof, at the times and in the manner -7- above provided, and if the same shall remain in default for five (5) days following written notice from Landlord to Tenant of such non-payment, or if Tenant shall be dispossessed for non-payment of Rent, or if the Premises shall be deserted or vacant, Landlord or its agents shall have the right to and may enter the Premises as the agent of Tenant, either by force or otherwise, without being liable for any prosecution or damages therefor, and may, but shall not be under any obligation to, relet the Premises as the agent of Tenant, and receive the rent therefor, upon such terms as shall be reasonably satisfactory to Landlord, and all rights of Tenant to repossess the Premises under this Lease shall be forfeited. Such re-entry by Landlord shall not operate to release Tenant from any Rent to be paid or covenants to be performed hereunder during the full term of this Lease. For the purpose of reletting, Landlord shall be authorized to make such reasonable repairs or alterations in or to the Premises as may be reasonably necessary to place the same in the condition they were at the commencement of the term. Tenant shall be liable to Landlord for the reasonable cost of such repairs or alterations and all reasonable expenses of such reletting. If the sum realized or to be realized from the reletting is insufficient to satisfy the Rent provided in this Lease, Landlord, at its option, may require Tenant to pay such deficiency month by month, or may hold Tenant in advance for the entire deficiency to be realized during the term of the reletting. Tenant shall not be entitled to any surplus accruing as a result of the reletting. Landlord shall have the right, as agent of Tenant, to take possession of any furniture, fixtures or other personal property of Tenant found in or about the Premises after Tenant has vacated or abandoned the Premises, and sell the same at public or private sale and to apply the proceeds thereof to the payment of any monies becoming due under this Lease, Tenant hereby waiving the benefit of all laws exempting property from execution, levy and sale on distress or judgment. Tenant agrees to pay, as -8- additional rent, all reasonable attorney's fees and other expenses incurred by Landlord in enforcing Tenant's obligation to pay Rent or any other default of Tenant, whether or not a trial ensues. SECTION 12: SUBLETTING AND ASSIGNMENT: ------------------------------------- Tenant shall not, without first obtaining the written consent of Landlord, assign, mortgage, pledge or encumber this Lease in whole or in part, or sublease the Premises or any part thereof, which consent shall not be unreasonably withheld. This covenant shall be binding upon the legal representatives of Tenant and on every person to whom Tenant's interest under this Lease passes by operation of law, but shall not apply to an assignment or subletting to the parent or another subsidiary of the parent or an affiliated corporation of the parent or a corporation under the same control as the parent, or a division of the parent, or the sale of Tenant's business including its equipment, or its transfer of its leasehold interest occasioned by a consolidation or merger involving Tenant so long as the net worth after such consolidation or merger is equal to or greater than the net worth of Tenant prior to such consolidation or merger. At the time Tenant makes a request to Landlord to assign or sublet the Premises, Tenant shall disclose all documents relating to the proposed assignment or sublease and all documents relating to the sale of Tenant's assets, including without limitation the financial statements of the proposed assignee or sublessee, the financial statements of Tenant, and the proposed sublease or assignment. In the event Landlord shall consent to an assignment or subletting, that fact shall not relieve Tenant from the obligations or liabilities of this Lease nor relieve Tenant from obtaining the consent of Landlord in the event of a further assignment or subletting. In the event that Tenant requests such an assignment or subletting except to the parent or another subsidiary of the parent or an affiliated corporation of the parent or a -9- corporation under the same control as the parent or to a division of the parent, or the sale of Tenant's business including its equipment, or its transfer of its leasehold interest occasioned by a consolidation or merger involving Tenant so long as the net worth after such consolidation or merger is equal to or greater than the net worth of Tenant prior to such consolidation or merger, Landlord reserves the right to (a) approve said assignment or subletting without releasing Tenant from any liability pursuant to this Lease, or (b) with respect to an assignment or a sublease of at least fifty (50%) percent of the floor space of the Premises, to terminate this Lease, take back the Premises and release Tenant from the obligation to further perform under the terms and conditions of this Lease, or (c) withhold its consent (but not unreasonably) to said assignment or subletting. Landlord shall have twenty (20) days from receipt of request for such assignment or subletting all information required hereunder in which to notify Tenant of its decision and shall notify Tenant in writing within said period of its decision. Landlord may enter into lease negotiations directly with such proposed subtenant (but only if the proposed sublease is for at least fifty (50%) percent of the floor space of the Premises) or such proposed assignee. Notwithstanding that Tenant shall remain primarily liable under this Lease, any assignment or sublease consented to by Landlord shall provide that such assignee or sublessee shall assume all of the obligations of Tenant hereunder. Tenant shall, at its expense, strictly enforce the terms and conditions of this Lease against such assignee or sublessee. If Tenant is in a payment default under this Lease, then on demand, any assignee or subtenant shall make payments directly to Landlord. If Landlord consents to any assignment or sublease where its consent is required hereunder, Tenant shall pay to Landlord, as Additional Rent, all consideration received by Tenant for any assignment, and all profit (determined on a dollar per square foot basis) received by Tenant on any sublease -10- transaction, net of tenant improvements required to be made in connection therewith, broker's fees reasonable legal fees, advertising and any other reasonable direct costs relating to the assignment or sublease. Notwithstanding anything to the contrary, except in the event of an assignment or subletting in connection with the sale of Tenant's business to a third party, Landlord shall have the absolute right to disapprove any assignment or subletting where the proposed assignee or subtenant has an S.I.C. number subject to the provisions of ISRA (as defined in Section 52 below) or where the proposed use would, in Landlord's reasonable judgment, subject the Premises to ISRA mandated cleanup obligations. SECTION 13: CONDITION OF PREMISES: REPAIRS-CLEAN AND SANITARY AND REPAIRS: -------------------------------------------------------------------------- Tenant shall keep the Premises in good condition, repair and appearance. Tenant shall quit and surrender the Premises at the end of the Term in good condition, reasonable wear and tear excepted, and shall not make any alterations, additions or improvements to the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld; provided, however, in the event Landlord does consent to Tenant's making any alterations, additions or improvements, Landlord reserves the right, thirty (30) days prior to the end of the Term, to demand that Tenant remove said alterations or improvements or leave same; provided, further, that Tenant may, without Landlord's consent, convert the offices so designated on Schedule "A" to warehouse use, without the obligation to restore same to office use at or prior to the end of the Term. In the event that Landlord requires the removal of said alterations or improvements, then Tenant shall restore the Premises to their condition prior to the installation of said additions or improvements. All erections, alterations, additions and improvements, which are permanent in character, which may be made upon the Premises either by Landlord or Tenant, except furniture or movable fixtures, machinery and equipment installed at the -11- expense of Tenant, shall be the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof at the expiration or sooner termination of this Lease, without compensation to Tenant, unless Landlord has required their removal as aforesaid. Tenant further agrees to keep the Premises and all parts thereof, including, but not limited to, the loading docks, electrical wiring, plumbing and heating, ventilating and air conditioning equipment, platforms, windows, walkways, exits and entrances to the Premises, in a clean and sanitary condition and free from trash, snow, ice, inflammable materials and other objectionable matter. SECTION 14: UTILITIES, SERVICES, COSTS, EXPENSES, TAXES: ------------------------------------------------------- (a) Tenant shall furnish heat and air conditioning at its own cost and expense. (b) Tenant shall repair all utility, ventilating, heating, air conditioning, electrical, gas and other utility lines within the Premises except if damage outside of the Premises is caused by the negligence, acts or omissions of Tenant, its agents, servants or employees, in which event Tenant shall likewise repair same outside of the Premises. Tenant shall replace, at its own expense, any and all glass which may be broken in and on the Premises. (c) Tenant shall pay all costs for electricity, water, standby sprinkler charges, repairs to the sprinkler system, gas and other utilities and services consumed by it. (d) In the event that any utility deposits are necessary, Tenant shall pay said deposits to the utility company. SECTION 15: MECHANICS' LIENS: ---------------------------- In the event that any mechanic's lien is filed against the Premises as a result of alterations, additions or improvements made by Tenant, Tenant shall, within ten (10) days after receiving notice from Landlord, remove said lien or post any bond which may be required, which bond shall be with adequate surety. In the event that Tenant fails to file a bond as set forth above, -12- then Landlord may, at its option, terminate this Lease and may pay said lien, without inquiring into the validity thereof, and Tenant shall forthwith reimburse Landlord the total expense incurred by Landlord in discharging said lien, as additional rent. SECTION 16: NON-LIABILITY OF LANDLORD - LANDLORD INDEMNITY: ---------------------------------------------------------- (a) Landlord shall not be liable or responsible for the loss of or damage to property, or injury to persons, including Tenant, occurring in or about the Premises or the Park by reason of any existing or future condition, defect, matter or thing in the Premises or the Park or for the acts, omissions or negligence of other persons or tenants in and about the Park, or for acts or omissions or defects in design or construction caused by the contractor or any subcontractors responsible for the construction of or repairs or alterations to the Park or the Premises. Tenant agrees to indemnify and save Landlord harmless from all claims and liability for loss of or damage to property, or injuries to persons occurring in or about the Premises or the Park due to the negligent acts or omissions of Tenant, its servants, agents, employees or invitees. Tenant's obligation pursuant to this Section 16 (a) shall be satisfied provided that it obtains insurance as set forth in Section 17. (b) The liability of Landlord shall in any event be limited to its interest in the Park and Tenant agrees that, in the event of any claim or action against Landlord, Tenant shall not look to any assets of Landlord or any of its partners other than the Park. SECTION 17: LIABILITY INSURANCE: ------------------------------- Tenant, at its cost, shall maintain public liability and property damage insurance with liability limits of not less than Five Million ($5,000,000) Dollars of Combined Single Limit insuring against all liability of Tenant, its agents, servants and employees arising out of and in connection with Tenant's use of the Premises and the Park. All of the aforesaid insurance -13- shall insure both Tenant and Landlord, who shall be named as co-insureds, and Tenant shall deliver to Landlord, ten (10) days prior to the expiration of said policy, a renewal thereof. SECTION 18: TENANT'S OWN INSURANCE: ---------------------------------- Tenant may effect, for its own account, any insurance not required under the provisions of this Lease, but any insurance effected by Tenant on the Premises, whether or not required pursuant to this Lease, shall be for the mutual benefit of Landlord and Tenant and shall be subject to all provisions of this Lease. SECTION 19: MUTUAL WAIVER OF SUBROGATION: ---------------------------------------- It is covenanted and agreed by and between the parties hereto that Tenant shall relieve Landlord of all liability for loss or damage to Tenant's property, whether real or personal, caused by fire and/or the perils covered in a standard form fire insurance policy with Extended Coverage, due to any acts of commission or omission of Landlord; and Landlord shall relieve Tenant of all liability for loss or damage to Landlord's property, whether real or personal, caused by fire and/or the perils covered in a standard form fire insurance policy with Extended Coverage, due to any acts of commission or omission of Tenant. SECTION 20: FAILURE TO OBTAIN INSURANCE: --------------------------------------- If any of the policies of insurance as in this Lease provided to be obtained and maintained by Tenant or Landlord cannot be obtained and/or kept in force through Tenant's fault, and Tenant shall fail to commence to cure, remedy and correct the condition which makes it impossible to obtain and keep in force said policies within fifteen (15) days after written notice given by Landlord to Tenant, and Tenant fails, neglects or refuses to proceed diligently to cure such condition, Landlord may terminate this Lease by giving at least fifteen (15) days' notice of such termination to Tenant, and this Lease shall terminate at the expiration of said fifteen (15) days with the same force and -14- effect as if that were the original expiration date thereof, and Tenant shall be and remain liable to Landlord for all damages and losses suffered by it in the same manner as if this Lease were terminated for any other default of Tenant. In lieu of exercising such right of termination, Landlord may, at its option, obtain such policies at regular or increased rates and pay the premiums therefor, and Tenant shall reimburse Landlord for the amount of such premium upon demand, and, if not paid, the amount thereof, together with interest at two (2%) per cent per month, shall be added to the amount of the next month's rent as Additional Rent. SECTION 21: UNAVAILABILITY OF FIRE INSURANCE: -------------------------------------------- If, because of Tenant's occupancy, it shall be impossible to obtain fire insurance on the Park in an amount and in the form and in fire insurance companies licensed in the State of New Jersey, Landlord may, if Landlord so elects, at any time thereafter, terminate this Lease and the Term thereof on giving to Tenant thirty (30) days' notice in writing of Landlord's intention so to do, and, upon the giving of such notice, this Lease and the Term thereof shall terminate and come to an end, and the parties shall have no liability from one to the other except for accrued obligations with respect to periods of time prior to the date of termination. SECTION 22: RIGHT TO INSPECT AND EXHIBIT: ---------------------------------------- Landlord, or its agent, shall have the right to enter the Premises at reasonable hours in the day, and at night in the case of emergency, upon reasonable prior verbal notice (except in the case of emergency), to examine the same, or to run telephone or other wires, or to make such repairs, additions or alterations as it shall deem necessary for the safety, preservation or restoration of the improvements, or for the safety or convenience of the occupants or users thereof (there being no obligation, however, unless expressly set forth herein, on the part of Landlord to make any such repairs, additions or alterations), or -15- to exhibit the same to prospective purchasers and put upon the Premises a suitable "To Let" sign during the six (6) months prior to the expiration of the Term. For twelve (12) months prior to the expiration of the Term, Landlord, or its agents, may similarly exhibit the Premises to prospective tenants. SECTION 23: TOTAL OR PARTIAL DESTRUCTION: ---------------------------------------- In the event of: (a) the total destruction of the Premises or the Park by fire, explosion, the elements or otherwise during the Term or previous thereto, or (b) such partial destruction thereof as to render the Premises wholly untenantable or unfit for occupancy, and, in the case of (a) or (b), should the Premises be so badly damaged that the same cannot be repaired within one hundred twenty (120) days from the happening of such damage, then and in such case the Term shall, at the option of Landlord or Tenant, to be exercised by notice to the other party sent within thirty (30) days from the date of such damage, cease and become null and void from the date of such damage or destruction, and Tenant shall immediately surrender the Premises and all Tenant's interest therein to Landlord, and shall pay Rent only to the time of such damage, in which event Landlord may re-enter and repossess the Premises thus discharged from this Lease and may remove all parties therefrom. If neither party exercises its option to cancel, or should the Premises be rendered untenantable and unfit for occupancy, but yet be repairable within one hundred twenty (120) days from the happening of said damage, Landlord shall enter and repair or rebuild the Premises as nearly as possible to their previous condition with reasonable speed and the Rent, to the extent hereinafter provided, shall continue to be paid while repairs are being made. The Rent accrued and accruing shall cease and determine if the Premises are totally unusable by Tenant, If a portion is usable, the Rent shall be reduced pro rata for the untenantable portion until the repairs are -16- completed. Tenant shall immediately notify Landlord in case of fire or other damage to the Premises. SECTION 24: LAWS AND ORDINANCES: ------------------------------- Tenant agrees to observe and comply with all laws, ordinances, rules and regulations of the Federal, state, county and municipal authorities applicable to the Premises, including the making of structural and non-structural alterations due to Tenant's occupancy. Tenant agrees not to do or permit to be done at any time during the Term anything in the Premises, or keep anything therein, which will increase the rate of fire insurance premiums on the improvements or any part thereof, or on the property kept therein, above the present rate. SECTION 25: SIGNS: ----------------- No sign shall be affixed to or placed upon any exterior part of the Premises by Tenant, except in such manner, and of such size, design and color as shall be approved in advance by Landlord in writing, which consent shall not be unreasonably withheld. SECTION 26: PRIORITY OF FEE MORTGAGES: ------------------------------------- This Lease shall be subject and subordinate to any present or future mortgages of the entire fee interest of the Park and any renewals, modifications, replacements or extensions thereof; provided, however, that as a condition to such subordination, Landlord shall obtain a standard form of nondisturbance agreement in favor of Tenant from the holders of all such mortgages. No further document shall be necessary to effect said subordination. Tenant shall, however, on demand of Landlord, execute, acknowledge and deliver to any mortgagee an agreement to attorn to such mortgagee as landlord if such mortgagee becomes landlord hereunder. If the holder of any mortgage of the entire fee interest of the land and building of which the Premises are a part requires that this Lease have priority over such mortgage. Tenant shall, upon request of such holder, execute, acknowledge -17- and deliver to such holder an agreement acknowledging such priority. SECTION 27: SECURITY DEPOSIT - FIRST MONTH'S RENT: ------------------------------------------------- (a) To secure the covenants and promises of Tenant contained herein, Tenant shall deposit with Landlord the sum of Fifty-seven Thousand Two Hundred Forty-six and 58/100 ($57,246.58) Dollars by check, subject to collection, as a security deposit (the "security deposit"). At any time that the Basic Rent increases hereunder, Tenant shall deposit with Landlord such additional sum so that the total security deposit shall equal two (2) months' Basic Rent then payable hereunder. The total sum shall be returned to Tenant without interest at the expiration of the Term provided Tenant has performed in accordance with the terms hereof. If Landlord applies any part of the security deposit to cure any default of Tenant, Tenant shall, upon demand, deposit with Landlord the amount so applied so that Landlord shall have the full security deposit on hand at all times during the Term of this Lease. If, at the end of the Term, repairs are necessary to correct any condition beyond ordinary wear and tear, then the security deposit, or a portion thereof, may be used by Landlord to make such repairs and the balance remaining shall be returned to Tenant. The security deposited under this Lease shall not be mortgaged, assigned or encumbered by Tenant without the written consent of Landlord. Tenant hereby waives any future law or laws which may require Landlord to segregate the security deposit or to pay interest on the security deposit. (b) Upon the execution hereof, Tenant shall pay to Landlord the first month's Basic Rent of Twenty-eight Thousand Six Hundred Twenty-three and 29/100 ($28,623.29) Dollars, which sum assumes that neither the 3B Space nor the Peridot Space will be part of the Premises as of January 1, 1997. (c) In the event that Landlord shall sell the Park, it shall deliver to the Purchaser the balance of the security -18- deposit and notify Tenant of the balance delivered to the purchaser of the Park. After the sale, Tenant shall have no further claim against Landlord for the security deposit. SECTION 28: RULES AND REGULATIONS: --------------------------------- Reasonable rules and regulations regarding the Premises, including the walkways and parking areas, and the use thereof, which may hereafter be promulgated by Landlord, shall be observed by Tenant and Tenant's employees, agents and business invitees. Landlord reserves the right to rescind any rules promulgated hereafter, and to make such other and further rules and regulations as in its reasonable judgment may from time to time be desirable for the safety, care and cleanliness of the Premises and for the preservation of good order therein, which rules, when so made and reasonable notice given to Tenant, shall have the same force and effect as if originally made a part of this Lease. Such other and further reasonable rules shall not, however, be inconsistent with the proper and rightful enjoyment by Tenant of the Premises in the conduct of its business. SECTION 29: TENANT'S VIOLATION OF TERMS - RE-ENTRY BY LANDLORD: -------------------------------------------------------------- In case of violation by Tenant of any of the covenants, agreements and conditions of this Lease (other than the nonpayment of Rent hereunder), or of the rules and regulations hereafter to be reasonably established by Landlord, and upon failure to discontinue such violation within twenty (20) days after notice thereof given to Tenant, unless a greater time is reasonably necessary to cure said violation, this Lease shall thenceforth, at the option of Landlord, become null and void, and Landlord may re-enter without further notice or demand. The Rent for the remainder of the Term in such case shall become due and be paid, and Tenant shall be liable for all loss or damage resulting from such violation as aforesaid. No waiver by Landlord of any violation or breach of condition by Tenant shall constitute or be construed as a waiver of any other violation or breach of condition, nor shall lapse of time after breach of -19- condition by Tenant before Landlord shall exercise its option under this Section operate to defeat the right of Landlord to declare this Lease null and void and to re-enter upon the Premises after the said breach or violation. Landlord shall have the option of correcting said default and charging the cost thereof to Tenant as additional rent, which shall be due and payable with the next rent payment. SECTION 30: NOTICES: ------------------- All notices and demands, legal or otherwise, incidental to this Lease, or the occupancy of the Premises, shall be in writing. If Landlord or its agent desires to give or serve upon Tenant any notice or demand, it shall be sufficient to send a copy thereof by certified mail, return receipt requested, or by nationally recognized overnight courier, addressed to Tenant at the Premises, and copies thereof to Tenant at the address at the beginning of this Lease, Attention: Jack Sharp, and to Schiffman, Berger, Abraham, Kaufman & Ritter, Attention: Robert L. Ritter, Esq., 25 Main Street, Court Plaza North, P.O. Box 568, Hackensack, New Jersey 07602-0568. Notices from Tenant to Landlord shall be sent by certified mail, return receipt requested, or by nationally recognized overnight courier, at the address at the beginning of this Lease and a copy thereof to Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., Attention: Morris Yamner, Esq., One Riverfront Plaza, Newark, New Jersey 07102- 5400 or to such other party or place as Landlord or Tenant may from time to time designate in writing. Notice shall be deemed given upon receipt or rejection as evidenced by the green certified mail receipt card or the records of the overnight courier, as the case may be. SECTION 31: ENTIRE AGREEMENT: NO ORAL CHANGES: --------------------------------------------- (a) There are no oral agreements between Landlord and Tenant and this Lease supersedes and cancels any and all previous negotiations, arrangements, letters of intent, lease proposals, brochures, agreements, representations, promises, warranties and -20- undertakings between Landlord and Tenant with respect to the subject matter hereof and none thereof shall be used to interpret or construe this Lease. (b) This Lease, including the exhibits hereto and any addenda hereto, sets forth all of the covenants, promises, agreements, conditions and undertakings between Landlord and Tenant concerning the Premises and the Park. No alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing, signed by them and mutually delivered between them. SECTION 32: INSOLVENCY OF TENANT: -------------------------------- It is further agreed that if at any time during the Term of this Lease Tenant shall make any assignment for the benefit of creditors, or be decreed insolvent or bankrupt according to law, or if a receiver shall be appointed for Tenant, and the same is not dismissed within thirty (30) days, then Landlord may, at its option, terminate this Lease, exercise of such option to be evidenced by notice to that effect served upon the assignee, receiver, trustee or other person in charge of the liquidation of the property of Tenant or Tenant's estate, but such termination shall not release or discharge any payment of rent payable hereunder and then accrued, or any liability then accrued by reason of any agreement or covenant herein contained on the part of Tenant or Tenant's legal representatives. Anything in this Section 32 to the contrary notwithstanding, if in any bankruptcy or reorganization proceedings the full rental due and payable to Landlord shall be paid and Tenant shall continue to observe all the other terms and conditions of this Lease, Landlord's right to terminate shall not be operative. SECTION 33: EMINENT DOMAIN; CONDEMNATION: ---------------------------------------- If the entire Park or any substantial part thereof wherein the Premises are located, including Tenant's loading area, shall be taken by public or quasi- public authority under any power of eminent domain or condemnation, this Lease shall terminate upon -21- the taking of actual possession by the condemning authority and Tenant shall have no claim or interest in or to any award or damages for such taking. If proceedings for such taking are instituted by such authority, a deed given by Landlord in lieu of condemnation shall have the same effect as a taking by eminent domain or condemnation. Tenant shall have no claim or right to claim or be entitled to any portion of money as a result of such condemnation proceedings, and all rights of Tenant thereto, if any, are hereby assigned to Landlord; provided, however, that Tenant shall be entitled to receive an award -------- ------- for any personalty or trade fixtures which are taken and, in addition, Tenant shall be entitled to claim its moving expenses and any separate award for loss of business; provided, however, that no award to Tenant shall diminish the award of Landlord. Tenant hereby irrevocably assigns to Landlord any award which may be made for its unexpired leasehold interest. SECTION 34: DELIVERY OF LEASE: ----------------------------- No rights are to be conferred upon Tenant until this Lease has been signed by Landlord and an executed copy of the Lease has been delivered to Tenant. SECTION 35: LEASE PROVISIONS NOT EXCLUSIVE: ------------------------------------------ The rights and remedies of Landlord contained in this Lease are not intended to be exclusive but as additional to all other rights and remedies Landlord would otherwise have by law. SECTION 36: HEIRS, ETC.: ---------------------- All of the terms, covenants and conditions of this Lease shall inure to the benefit of, and be binding upon, the respective heirs, executors, administrators, successors and assigns of the parties hereto, except as provided in Section 12 hereof. SECTION 37: DATE OF POSSESSION: ------------------------------ Landlord shall not be liable for failure to give possession of the Premises upon the commencement date by reason of the fact that the Premises are not ready for occupancy, or due to a prior -22- tenant wrongfully holding over or any other person wrongfully in possession, or because of Landlord's failure to complete the Landlord Alteration, or for any other reason; in such event, the Rent shall not commence until possession is given or is available. Landlord shall make reasonable efforts to remove all persons wrongfully in possession as soon as possible, and shall undertake the Landlord Alteration in a workmanlike and diligent manner. SECTION 38: REAL ESTATE TAXES: ----------------------------- The term "real estate taxes" shall mean all taxes imposed on the Park, special assessments, water and sewer charges and other governmental charges not levied against the land and buildings. If the system of taxation shall be changed during the term of this Lease, or any extension thereof, so that in lieu of, or in addition to, the regular municipal real estate taxes now assessed or levied against real property, a tax shall be imposed on such rental income or rental value, or on some other basis, and Landlord shall be burdened in part or in whole with such additional tax or taxes, Tenant shall pay or reimburse Landlord its Proportionate Share of the amount of such substitute or additional tax or taxes. If Landlord and Tenant cannot agree on such computation, the matter shall be submitted to arbitration in Newark, New Jersey in accordance with the rules of the American Arbitration Association. SECTION 39: TAX APPEALS BY LANDLORD: ----------------------------------- If Landlord shall institute a tax appeal, and said tax appeal shall result in a reduction in taxes, then Tenant shall pay to Landlord its Proportionate Share of Landlord's cost of said appeal, but in no event shall that amount exceed the reduction in taxes and Tenant shall receive or be credited with its Proportionate Share of any refund or reduction. Tenant shall cooperate in any proceedings described herein. The recovery, if any, shall be divided proportionately between -23- Landlord and Tenant after Landlord deducts any and all costs and expenses. SECTION 4O: QUIET ENJOYMENT: --------------------------- Landlord has the full right and power to execute and perform this Lease and to grant the estate demised herein, and Tenant, on payment of the Rent herein reserved and performing the covenants and agreements hereof, shall peaceably and quietly have, hold and enjoy the Premises and all rights, easements, appurtenances and privileges belonging or in anywise appertaining thereto during the Term without molestation or hindrance of any person whomsoever. SECTION 41: RESERVATION OF TITLE: -------------------------------- Tenant may not consent to the reservation of any title to property by any conditional vendor to any property which may be affixed to the Premises so as to become a part thereof (excluding trade fixtures and trade machinery and equipment used in Tenant's business), wholly or in any portion, without material injury to the Premises. Landlord hereby states that the reservation of any such title by any conditional vendor or similar party shall be null and void. SECTION 42: OUTSIDE STORAGE: --------------------------- Tenant shall not store any goods, other than temporarily in connection with the delivery of any item, outside of the Premises any place in the Park; provided, however, that subject to municipal laws, ordinances and requirements, Tenant may store goods in the outside trailer parking on the Premises. SECTION 43: CERTIFICATE OF OCCUPANCY: ------------------------------------ It is a condition of this Lease that Tenant be able to obtain, prior to commencement of the Term, a Certificate of Occupancy allowing the Premises to be used for the purpose described in Section 10 above, 24 hours a day, 7 days a week, failing which this Lease shall be deemed null and void, and Landlord shall return all monies paid by Tenant upon execution hereof. Landlord will cooperate with Tenant in obtaining said -24- Certificate of Occupancy, provided such cooperation is at no cost to Landlord; provided, however, that Landlord shall be responsible, at its sole costs, for correcting any building and/or fire code violations preventing the issuance of a Certificate of Occupancy, but Landlord shall not be responsible for any work required in order to obtain a Certificate of Occupancy as a result of Tenant's proposed use of the Premises. SECTION 44: HOLDING OVER: ------------------------ If Tenant shall hold over, with or without Landlord's consent, after the Term, then such holding over shall be constituted as a tenancy from month to month, subject to all of the provisions, conditions and obligations of this Lease, except that the Basic Rent shall be double the Basic Rent for the last month of the Term. SECTION 45: CONSENTS TO DEFAULTS: -------------------------------- No consent or waiver, express or implied, by Landlord, to or of any breach or default in the performance by Tenant of Tenant's obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by Tenant of the same or any other obligations of Tenant hereunder. Failure on the part of Landlord to complain of any act or failure to act of Tenant or to declare Tenant in default, irrespective of how long such act or failure continues, shall not constitute a waiver by Landlord of its rights hereunder. SECTION 46: PAYMENTS IN EVENT OF DEFAULT: ---------------------------------------- (a) In the event that Tenant fail to pay Rent on or before the tenth (10th) day of the month, Tenant shall pay to Landlord a late charge equal to two (2%) per cent per month of the Rent due, but in no event less than One Hundred ($100.00) Dollars. (b) In the event that Tenant fails, after notice, to take any action required of it under this Lease, which action is taken by Landlord, Tenant shall pay to Landlord any monies reasonably expended by Landlord to cure any default of Tenant together with -25- interest at the rate of two (2%) per cent per month until the date of payment. (c) All payments due pursuant to this Section 46 shall be deemed additional rent. In the event that said payments are not allowable by law, then the sum to be paid by Tenant to Landlord shall be the highest sum allowed by law. SECTION 47: FINANCIAL STATEMENTS: -------------------------------- Tenant shall, if required by Landlord's mortgagee or any future mortgagee, or prospective mortgagee or prospective purchaser, submit to Landlord, any prospective mortgagee or purchaser, without cost to Landlord, a copy of Tenant's financial statement which shall be considered "confidential" by the recipient. Tenant shall also, without cost to Landlord, submit to any prospective mortgagee or purchaser such prior statements as it may have, as and when required by Landlord or Landlord's mortgagee or prospective mortgagee or prospective purchaser. SECTION 48: TABLE OF CONTENTS AND CAPTIONS: ------------------------------------------ The Table of Contents, captions or notes in the margin of this Lease are inserted only as a matter of convenience and in no way to define, limit or describe the scope or intent of this Lease, or the terms, conditions and provisions hereof, nor as affecting the meaning of the text of any article or section hereof in any way. SECTION 49: BROKER: ------------------ Landlord agrees to pay, pursuant to a separate agreement, all brokerage commissions payable in connection with the negotiations for, and execution of, this Lease. Tenant and Landlord warrant that they have not dealt with any real estate brokers except SBWE, Inc., Charles Klatskin & Company, Inc. and Resource Realty in connection with this Lease. In the event of any misrepresentation by either Landlord or Tenant, each party agrees to hold the other harmless, including any costs, interest and legal fees. -26- SECTION 50: ACCORD AND SATISFACTION: ----------------------------------- No payment by Tenant or receipt by Landlord of lesser amount than the Rent stipulated in this Lease shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided in this Lease by law. SECTION 51: CONSENTS: -------------------- With respect to any provision of this Lease which requires that Landlord shall not unreasonably withhold or unreasonably delay any consent or approval, Tenant shall not make or assert any claim for, and Tenant hereby waives any claim for money damages. Tenant shall not claim any money damages by way of setoff, counterclaim or defense, based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed any consent or approval. Tenant's sole and exclusive remedy shall be an action or proceeding for specific performance, injunction or declaratory judgment. SECTION 52: HAZARDOUS SUBSTANCES: -------------------------------- (a) In the event that Tenant causes the Premises to become an "industrial establishment" (as such term is defined in the New Jersey Industrial Site Recovery Act, N.J.S.A. 13: 1K-6 et seq., and the regulations promulgated -- --- thereunder ("ISRA"), Tenant shall, at Tenant's sole cost and expense, comply with ISRA. Tenant's obligations under this paragraph (a) shall arise if there is any contemplated "closing, terminating or transferring of operations of any industrial establishment," or shifting, buying, selling, or transferring of corporate shares (as such term is currently or in the future defined in ISRA) at the Premises. Tenant shall, at Tenant's sole cost and expense, make all submissions to, provide all information to, and comply with -27- all requirements of, the New Jersey Department of Environmental Protection, or any agency or subdivision thereof or any agency or subdivision responsible for enforcing ISRA (collectively, the "DEP"). Should the DEP or any other governmental agency having jurisdiction determine that a cleanup plan be prepared and that a cleanup be undertaken because of any spills or discharges of hazardous substances or wastes at the Premises which occurred during the term of the Lease as a result of Tenant's use and occupancy of the Premises, then Tenant shall, at Tenant's sole cost and expense, prepare and submit the required plans and financial assurances, and carry out the approved plans. Tenant shall fully comply with ISRA and the requirements of the DEP prior to the end of the Term of the Lease. (b) In the event that ISRA compliance becomes necessary at the Premises as a result of Tenant's use and occupancy of the Premises, then, at Landlord's election: (i) Tenant shall comply with the requirements of ISRA inasmuch as such compliance relates to the Premises and Tenant shall be responsible for paying the costs of such compliance within 30 days after Landlord's demand therefor; or (ii) Tenant shall be responsible for promptly, and within the time frame established by Landlord, complying with ISRA inasmuch as such compliance relates to the Premises and to pay the costs of such ISRA compliance. Tenant shall also promptly, after Landlord's request (but in no event later than 30 days after Landlord's request), provide all information requested by Landlord, sign any factually accurate affidavits prepared by Landlord concerning ISRA and Tenant's use and occupancy of the Premises and pay all costs of such ISRA compliance that are attributable to Tenant's use and occupancy of the Premises. (c) Tenant shall indemnify and hold Landlord harmless from and against any loss, cost, liability or expense including, -28- without limitation, attorney's fees, resulting from any environmental condition caused or allowed to occur by Tenant, or from Tenant's failure to comply with ISRA, including, without limitation, any claims made by any succeeding tenant. Tenant shall vacate the Premises immediately upon fully complying with ISRA and the requirements of the DEP. (d) Tenant represents, covenants and warrants that Tenant shall not use the Premises to "discharge" (as such term is defined in the Spill Compensation and Control Acts, N.J.S.A. 58:10-23.11 et seq., ("Spill Act")) "hazardous ------- -- --- substances" (as such term is defined in the Spill Act). In the event that there should be filed a lien against the Premises pursuant to and in accordance with the Spill Act, arising from the intentional or unintentional action or omission of Tenant or Tenant's employees, agents, contractors, licensees, invitees, assigns or subtenants, then Tenant shall, within thirty (30) days after the date Tenant is given notice of the lien or in such shorter a period of time in the event that the State of New Jersey, or any agency or subdivision thereof, has commenced steps to cause the Premises to be sold pursuant to the lien, pay the claim and remove the lien from the Premises. If Tenant fails to do such by the said period, Landlord shall be entitled to resort to such remedies as are provided in the Lease as in the case of any default of the Lease, in addition to such as are permitted by law, in equity, or otherwise. (e) Tenant represents, covenants, and warrants that Tenant shall not use the Premises in such a manner so as to become liable under the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. 9601, et seq. -- --- ("CERCLA") . In the event that there shall be filed a lien against the Premises pursuant to and in accordance with CERCLA arising from the intentional or unintentional action or omission of Tenant or Tenant's employees, agents, contractors, licensees, invitees, assigns, or sub-tenants, then Tenant shall, within 30 -29- days from the date Tenant is given notice of the lien or in such shorter a period of time in the event that the United States, or any agency or subdivision thereof, has commenced steps to cause the Premises to be sold pursuant to the lien, pay the claim and remove the lien from the Premises. If Tenant fails to do so by said period, Landlord shall be entitled to resort to such remedies as such are provided in the Lease as in the case of any default of the Lease, in addition to such as are permitted by law, in equity or otherwise. (f) In amplification of these paragraphs related to environmental obligations, and not by way of limitation, Tenant shall indemnify, defend and hold harmless Landlord from and against all fines, suits, procedures, claims, actions, damages, liabilities, judgments, costs and expenses (including, without limitation, reasonable attorney's fees) of any kind arising out of or in any way connected with Tenant or Tenant's employees, agents, contractors, licensees, invitees, assignees or subtenants whose actions or inactions or failure to maintain the Premises results in any spills or discharges of hazardous substances, hazardous wastes, or pollutants at the Premises which occurred during the Term of this Lease; and from all fines, suits, procedures, claims, actions, damages, liabilities, judgments, costs and expenses (including, without limitation, reasonable attorney's fees) of any kind arising out of Tenant's failure to provide all information, make all submissions and take all actions required by the DEP in order to comply with ISRA, the Spill Act, CERCLA or any other environmental law. (g) Tenant's obligations and liabilities under this Section 52 shall continue after expiration of the Term of this Lease for so long as Landlord remains responsible for any spills or discharges of hazardous substances or hazardous wastes at the Premises which occur during the Term of this Lease. (h) Landlord and any employee, representative, agent or contractor of Landlord, the DEP or any other federal, state, or -30- local governmental body, agency or division having applicable jurisdiction, may enter the Premises for the purpose of inspecting same for compliance with any environmental law, at reasonable hours, upon reasonable prior notice. (i) Landlord shall indemnify and hold Tenant harmless from and against any loss, cost, liability or expense including, without limitation, attorney's fees, resulting from any environmental condition at the Premises pre-dating Tenant's occupancy thereof. Landlord represents that it knows of no such environmental condition at the Premises other than as disclosed in the letter from James C. Anderson Associates, Inc. dated May 22, 1995 set forth on Schedule "D", and the letter from The Whitman Companies, Inc. dated August 23, 1996 set forth on Schedule "E". SECTION 53: NEGOTIATED AGREEMENT: -------------------------------- This is a negotiated Lease Agreement, and this Lease Agreement shall not be construed against Landlord by reason of this Lease being prepared by Landlord and/or its attorneys. SECTION 54: PROCESSING CHARGE: ----------------------------- Tenant agrees to reimburse Landlord for reasonable attorneys' fees incurred by Landlord in connection with the processing and documentation of any assignment, subletting, license, concession, creation of a security interest, granting of a collateral assignment, change of ownership or other transfer required by Tenant for which Landlord's consent is required or sought, it being agreed that Tenant's obligation to reimburse Landlord for such reasonable attorneys' fees shall be deemed an additional rent obligation hereunder. SECTION 55: MORTGAGEE PROTECTION CLAUSE: Tenant agrees to give all --------------------------------------- mortgagees and/or trust deed holders, by certified mail, a copy of any notice of default served on Landlord, provided that prior to such notice Tenant has been notified, in writing (by way of notice of assignment of rents and leases or otherwise), of the name and address of such mortgagees and/or trust deed holders. -31- The mortgagees and/or trust deed holders shall have the same time within which to cure such default as is given to Landlord under this Lease. SECTION 56: INTERPRETATION: The laws of the State of New Jersey shall -------------------------- govern the validity, performance and enforcement of this Lease. The invalidity or unenforceability of any provision hereof shall not affect or impair any other provision. SECTION 57: RIGHT OF FIRST REFUSAL: ---------------------------------- In the event that any or all of Tenant's interest in the Premises and/or this Lease is transferred by operation of law to any trustee or receiver, or to Tenant as a debtor in possession, and subsequently any or all of Tenant's interest in the Premises and/or this Lease is offered or to be offered by Tenant or any trustee, receiver, or other representative or agent of Tenant as to its estate or property (such person, firm or entity being hereinafter referred to as the "Grantor"), for assignment, conveyance, lease, or other disposition to a person, firm or entity other than Landlord (each such transaction being hereinafter referred to as a "Disposition"), it is agreed that Landlord has and shall have a right of first refusal to purchase, take, or otherwise acquire, the same upon the same terms and conditions as the Grantor thereof shall accept upon such Disposition to such other person, firm, or entity; and as to each such Disposition the Grantor shall give written notice to Landlord in reasonable detail of all of the terms and conditions of such Disposition within twenty (20) days next following its determination to accept the same but prior to accepting the same, and Grantor shall not make the Disposition until and unless Landlord has failed or refused to accept such right of first refusal as to the Disposition, as set forth herein. Landlord shall have twenty (20) days next following its receipt of the written notice as to such Disposition in which to exercise the option to acquire Tenant's interest by such Disposition, and the exercise of the option by Landlord shall be -32- effected by written notice to that effect sent to the Grantor by certified or registered mail; but nothing herein shall require Landlord to accept a particular Disposition or any Disposition, nor does the rejection of any one such offer of first refusal constitute a waiver or release of the obligation of the Grantor to submit other offers hereunder to Landlord. In the event Landlord accepts such offer of first refusal, the transaction shall be consummated pursuant to the terms and conditions of the Disposition described in the notice to Landlord. In the event Landlord rejects such offer of first refusal, Grantor may consummate the Disposition with such other person, firm, or entity; but any decrease in price of more than two (2%) percent of the price sought from Landlord or any change in the terms of payment for such Disposition shall constitute a new transaction requiring a further option of first refusal to be given to Landlord hereunder. The provisions of this Section 57 shall not apply to an assignment or sublease permitted under the terms and provisions of Section 12 above. SECTION 58: MODIFICATIONS REQUESTED BY MORTGAGEE: In the event that a ------------------------------------------------ prospective mortgagee of the Park shall request a reasonable change in the language of the terms of this Lease, or the execution of any document in connection therewith, Tenant agrees to make such change or execute such document provided the same shall not increase Tenant's obligations or liabilities under this Lease. SECTION 59: INTENTIONALLY OMITTED. --------------------------------- SECTION 60: RENEWAL OPTIONS: Tenant is hereby granted two (2) options to --------------------------- renew this Lease upon the following terms and conditions: (a) At the time of the exercise of each option to renew and at the time of each said renewal, Tenant shall not be in default in accordance with the terms and provisions of this Lease, and shall be in possession of the Premises pursuant to this Lease. -33- (b) Notice of the exercise of each option shall be sent to Landlord, in writing, at least nine (9) months before the expiration of the Term, as same may have previously been renewed. (c) The first renewal term shall be for the term of two (2) years and six (6) months to commence on July 1, 2004 and end on December 31, 2006; the second renewal term shall be for the term of five (5) years to commence on January 1, 2007 and end on December 31, 2011; and all of the terms and conditions of this Lease, other than the Basic Rent, shall apply during the renewal terms. (d) The annual Basic Rent to be paid during the first renewal term shall be the square footage of the Premises multiplied by Four and 50/100 ($4.50) Dollars; and the annual Basic Rent to be paid during the second renewal term shall be the square footage of the Premises multiplied by the greater of (i) Four and 50/100 ($4.50) Dollars, or (ii) Three and 50/100 ($3.50) Dollars, increased by the percentage increase, if any, in the cost of living between October 1996 and October 2006. (e) The cost of living referred to in this Section, shall be determined from the revised Consumer Price Index for Urban Wage Earners and Clerical Workers - New York, N.Y. - Northeastern N.J., as published by the Bureau of Labor Statistics of the United States Department of Labor (1982-1984=100) and such Cost of Living Index shall be final and binding upon both Landlord and Tenant. If, at the time required for the determination of the annual Basic Rent for the renewal term, the aforesaid Index is no longer published or issued, the parties shall use such other index as is then generally recognized and accepted for similar determinations of cost of living increases. SECTION 61: CANCELLATION OPTION: ------------------------------- Tenant shall have the right to cancel this Lease by written notice provided to Landlord no later than June 30, 2001, and which cancellation shall only be effective as of December 31, 2001. In the event Tenant shall so elect to cancel this Lease, it shall -34- vacate and surrender the Premises to Landlord on or before December 31, 2001 as if same were the last day of the Term provided for herein, and in such event the parties hereto shall have no further obligations from one to the other, except for past due Rent obligations from Tenant to Landlord, past due monetary obligations from one party to the other, and any indemnification and/or hold harmless agreements by either party contained in this Lease. SECTION 62: PARTIES DULY AUTHORIZED: ----------------------------------- Landlord and Tenant represent and warrant one to the other that the individual(s) executing this Lease on their respective behalves have been duly authorized to do same by appropriate partnership (for Landlord) and corporate (for Tenant) action. SECTION 63: SEPTIC SYSTEM: ------------------------- Notwithstanding anything to the contrary, the parties acknowledge and agree that Tenant shall be responsible at its sole cost and expense for the pumping, maintenance and repair of the septic system serving the Premises; provided, however, that if the septic system is required to be replaced, Tenant shall be responsible for the first Twenty-five Thousand ($25,000.00) Dollars of the cost of replacement, and Landlord shall be responsible for any such cost in excess of Twenty-five Thousand ($25,000.00) Dollars. IN WITNESS WHEREOF, the parties have executed these presents the day and year first above written. WITNESS: WEST END ROAD ASSOCIATES, Landlord _____________________________ By________________________________ Melvin Opper, Partner ATTEST: MOHAWK INDUSTRIES, INC., Tenant /s/ Theral Mackey By /s/ Jack Sharpe - ----------------------------- -------------------------------- Jack Sharpe, Executive Vice President -35- SCHEDULE "A" ----------- DESCRIPTION OF PREMISES SCHEDULE "B" ----------- ROOF WORK MULLEN ENTERPRISES, INC. 4 LITTLE FALLS ROAD FAIRFIELD, NJ 07004 (201) 227-7866 FAX (201) 227-0778 August 12, 1996 Mr. Mel Opper West End Road Associates 1460 Valley Road P.O. Box 559 Wayne, NJ 07474-0559 RE: 100 Alexander Ave., Pompton Plains, NJ Dear Mel: After making a thorough inspection of the above mentioned roof we found the following: the roof membrane is made out of a rubber system. The field of the roof itself seems to be in very good condition, although we would recommend the following items be performed on this roof: 1. Re-flash skylights, vents, fans and any other penetrations through the roof. 2. Re-seal the gutter and all brackets holding the gutter to the roof. 3. Re-roof approximately 600 square feet of roofing where low spot is located. 4. Re-flash parapit walls. 5. Complete any minor repairs throughout the roof. 6. Re-do all the seams in the field of the roof with tape. 7. Roof will be cleaned out of any and all debris, drains and gutters will be functionable. If the above mentioned items are completed for a cost of $38,860.00, in our professional opinion this roof should give you many more years of good service. We will also guarantee this roof for 7 1/2 years after the completion of the repair work with the following conditions. You will agree to sign up with our maintenance program to inspect this roof twice a year starting in 1997. If you have any questions please call. Sincerely, /s/ John R. Mullen John R. Mullen SCHEDULE "C" ----------- LANDLORD ALTERATION EXHIBIT C SEPTEMBER 13, 1996 ALADDIN CARPET RENOVATION 100 ALEXANDER AVE PEQUANNOCK TOWNSHIP, NEW JERSEY Landlord to provide 19 new 8' by 10' overhead door openings, 19 new 8' by 10' overhead doors, 6 new 9' by 9' overhead doors at existing locations, 20 new dock levelers and 24 new dock seals. A detailed itemization for the cost of such work is as follows:
EA COST -- ---- MASON LABOR FOR DOOR OPENINGS 18 51,960.00 PREPARE 2 NEW DOCKS 2 4,200.00 ADD NEW DOOR AND STEPS 1 3,266.40 REVISE EXISTING DOOR AND STEPS 1 1,680.00 ADD BOLLARDS 4 1,920.00 NEW STEEL FRAMES 18 17,712.00 60,000 LB CAPACITY DOCK LEVELERS 20 93,550.20* REPAIR EXISTING DOCK LEVELERS 4 4,512.00 OVERHEAD DOORS, STEEL INSULATED 25 27,801.25 DOCK SEALS 8X10 INCLUDING LABOR 18 13,251.87 * 9X9 " " 6 4,975.35 * ELECTRICAL FOR NEW DOCK LEVELERS 20 20,400.00 ADD 3 NEW 400 WATT MH EXT FIXTURES 3 2,160.00 REGRADE DOCK AT WEST END 1 16,502.50 8'X15' PAD 1 828.00 DOCK CANOPY 6' DEEP 440 36,862.10 TWO DOCK OFFICES + 4 WINDOWS 6,379.20 DUMPSTERS 4 2,160.00 RENOVATE UPSTAIRS OFFICE (4,800 SF) 73,108.00 - See page 3 for breakdown TOTAL COST 383,228.87
Page 1 * See per unit cost on page 2 - total line cost on page 1 includes 15% add-on for Landlord's overhead and profit. EXHIBIT C SEPTEMBER 13, 1996 ALADDIN CARPET RENOVATION PEQUANNOCK TOWNSHIP, NEW JERSEY PRICES ARE FOR PEQUANNOCK PER NELSON LETTER BASIC DOCK LEVELER 3,229.41 WEATHER SEAL -NO CHARGE 9-5 LETTER 0.00 AUTO RETURN 241.17 TELESCOPING FOOT PROTECTION 66.30 MODEL H41218 LAM DOCK BUMPERS 35.29 FLOOR PANS PER 8-14 QUOTE 265.00 TOTALS 3,837.17 TAX 230.23 TOTAL COST PER DOCK LEVELER 4,067.40 DOOR SEALS MODEL 200P 8X10 DOOR 364.70 LABOR TO INSTALL 181.25 WEAR PLEATS 58.00 TOTALS 603.95 TAX 36.24 TOTAL COST PER DOCK SEAL 640.19 DOOR SEALS MODEL 200P 9X9 DOOR 441.00 LABOR TO INSTALL 181.25 WEAR PLEATS 58.00 TOTALS 680.25 TAX 40.82 TOTAL COST PER DOCK SEAL 721.07 Page 2 EXHIBIT C SEPTEMBER 13,1996 ALADDIN CARPET RENOVATION PEQUANNOCK TOWNSHIP, NEW JERSEY TRADE COST PERMITS 960.00 SUPERVISION 0.00 DEMOLITION INCLUDING 2ND FL CARPET 3,600.00 DRYWALL PARTITIONS + WALL INSULATION 13,200.00 DOORS AND FRAMES 4,320.00 TWO ALU DOORS 3,600.00 ACC CEILING REPAIR + NEW IN EXEC AREA 4,560.00 CARPET & VAT TILE BY ALADDIN 0.00 OFF PAINTING BY ALADDIN 0.00 ACCORDION DOOR BY ALADDIN 0.00 SHELVING BY ALADDIN 0.00 TOILET PART 3,240.00 PLUMBING 18,400.00 ADD SHOWER 2,880.00 SPRINKLER 2,880.00 CONCEALED HEADS IN EXEC AREA 2,760.00 H V A C (NEW REGISTERS IN EXEC AREA) 672.00 ELECTRICAL + NEW LENSES IN EXEC AREA 12,036.00 TOTAL COST 73,108.00 Page 3 SCHEDULE "D" ------------ LETTER FROM JAMES C. ANDERSON ASSOCIATES, INC. JAMES C. ANDERSON ASSOCIATES, INC. CONSULTING ENGINEERS, SCIENTISTS, PLANNERS. SURVETORS AND LICENSED DRILLERS 181 WESTFIELD AVENUE. CLARK NEW JERSEY 07066. (906) 388-2626. FAX 906(388- 2115) SENT VIA FACSIMILE AND REGULAR MAIL - ----------------------------------- May 22, 1995 Mr. Kris Bauman DKM Properties Corporation Princeton Pine Corporate Center 1009 Lenox Drive Post Office Box 6540 Lawrenceville, New Jersey 08648 Re: 100 Alexander Avenue Pompton Plains, New Jersey JCA Project No.: H95DKMM-319 JCA Proposal No.: H958MKT-582.B Dear Mr. Bauman: As we discussed on the telephone yesterday, James C. Anderson Associates, Inc. (JCA) has prepared a Scope of Services, Cost Estimate and Schedule for remediate the soils at the above referenced property. On December 7,1994, a cleanup, in the form of soil excavation of visually stained soils, was conducted at the above referenced facility. six small areas were remediated. A total of four 55-gallon drums of soil were excavated. One post-excavation sample was collected from each area and analyzed for total petroleum hydrocarbons (TPHC). Four of these samples contained over 1,000 milligrams per kilogram (mg/kg) TPHC, and following New Jersey Department of Environmental Protection (NJDEP) guidelines, were analyzed for volatile organic compounds (VOCs); no VOCs were detected. A single sample (B-1) exceeded the NJDEP Residential Direct Contact Soil Cleanup Criteria of 10,000 mg/kg total organic compounds. As such, JCA recommended an additional cleanup in this area in our letter to you dated January 19, 1995. The activities associated with this cleanup are described below. As noted in our letters of January 13 and 19, 1995, the data described above suggests that a release of hazardous materials has occurred at this site. Such a release should be reported to the NJDEP by the owner or his agent under the Spill Compensation and Control Act (N.J.A.C. 58:10-23.11 et seq.). A reported spill would be assigned a case number and instructions issued to conduct a site investigation/remedial action following the NJDEP's Technical Requirements for Site Remediation (N.J.A.C. 7:26E). Mr. Kris Bauman May 19 1996 Re: 100 Alexander Avenue, Pompton Plains, NJ Page 2 If a report has not been made, the remediation may be conducted under the Voluntary Cleanup Program. Under this program, an application would be filed for a Memorandum of Agreement (MOA). The remedial action could be conducted concurrent with the application process. Following the remediation, a Remedial Action Report would be filed with the NJDEP. If this report meets with the NJDEP's approval, they will issue a letter of No Further Action. The remediation itself consists of three steps: 1) obtain and review contractor bids; 2) supervise the remediation, and collect and analyze past- excavation soil samples; and, 3) prepare a report for the NJDEP documenting remedial activities. The estimated costs associated with these tasks are attached. Please note that the actual remedial costs will depend on the bids received. For your planning purposes, we have estimated these costs. Also attached is a schedule to complete these tasks. You may indicate your acceptance of this proposal by signing in the space provided below and returning the original copy of JCA. As we discussed, I will return from vacation or Wednesday, May 31, 1995. Should you have any questions or comments regarding this estimate before that time, you may contact Kristen Main in my absence or I will be happy to answer any of your questions upon my return, James C. Anderson Associates, Inc. appreciates the opportunity to propose our environmental consulting services to you. Sincerely, James C. Anderson Associates, Inc. /s/ Kathleen M. Murray Kathleen M. Murray Associate /s/ Douglass G. Hill, P.G. Douglass G. Hill, P.G. Principal KMM/vag Attachment Authorized By: _________________________________________________________________ Signature Name: _________________________________ Date: __________________________________ COST ESTIMATE Remediation & Post Excavation Sampling 100 Alexander Avenue Pompton Plains, New Jersey - -------------------------------------------------------------------------------- Task 1: Coordination with NJDEP & Application for Memorandum of Agreement Associate: 2 Hours @ $105/hour $ 210.00 Environmental Scientist: 4 Hours @ $45/hour 180.00 ---------- Task 1 Total: $ 390.00 Task 2: Obtain and Review Bids from Remediation Contractors Associate: 4 Hours @ $105/hour $ 420.00 Engineer: 4 Hours @ $105/hour 420.00 ---------- Task 2 Total: $ 840.00 Task 3: Soil Remediation, Oversight and Post-Excavation Sample Collection and Analysis . Soil Excavation (separately contracted): Labor; 8 Hours @ $35/hour $ 280.00 Truck: 8 Hours @ $30/hour 240.00 Drums: 4 Drums @ $30/drum 120.00 Clean Fill: 4 Drums @ $50/drum 200.00 Compressor: 1 Compressor @ $150/day 150.00 ---------- Soil Excavation Total: $ 990.00 . Transportation & Disposal (separately contracted): Disposal of 4 Drums of Nonhazardous Soil @ $140/drum $ 560.00 Transportation/Approval Lump Sum 650.00 ---------- Transportation & Disposal Total: $ 1,210.00 . Sample Collection & Oversight: Geologist: 10 Hours @ $85/hour $ 850.00 ---------- Sample Collection & Oversight Total: $ 850.00
100 Alexander Avenue - JCA Coal Estimate Attachment Page 1 COST ESTIMATE Remediation & Post Excavation Sampling 100 Alexander Avenue Pompton Plains, New Jersey - -------------------------------------------------------------------------------- Task 3: Soil Remediation, Oversight and Post-Excavation Sample Collection and Analysis (cont'd) . Sample Analysis: 5 Samples for TPHC at $50/sample $ 250.00 1 Sample for VOC+10, B/N+15 and PP Metals @ $705/sample $ 705.00 1 Field Blank for VO+10 @ $203 203.00 ---------- Sample Analysis Total: $ 1,158.00 Task 3 Total: $ 4,209.00 Task4: Report Preparation: Associate: 6 Hours @ $105/hour $ 630.00 Environmental Scientist: 12 Hours @ $45/hour 540.00 ---------- Task 4 Total: $ 1,170.00 GRAND TOTAL: $ 6,608.00 ----------
100 ALEXANDER AVENUE - JCA COST ESTIMATE ATTACHMENT PAGE 11 PROJECT SCHEDULE 100 Alexander Avenue Soil Remediation & Post Excavation Samples [GRAPH APPEARS HERE] SCHEDULE "E" ------------ LETTER FROM THE THE WHITMAN COMPANIES, INC. [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] August 23, 1996 Mr. Al Schneider Aladdin Mills 487 Edward Ross Drive Elmwood Park, New Jersey 07407 RE: Environmental Services 100 Alexander Avenue Pequannock Township, New Jersey Whitman Project No. 96-07-13 Dear Mr. Schneider: The Whitman Companies, Inc. is pleased to present this letter report for environmental services performed at 100 Alexander Avenue in Pequannock Township, New Jersey. The site is identified as Block 309, Lot 1 on Sheet 23 of the Official Tax Map for Pequannock Township. Several significant areas of environmental concern (AECs) were addressed by Arrow Group Industries, the former operator of the site (1969-1991), under the New Jersey Department of Environmental Protection (NJDEP) Industrial Site Recovery Act (ISRA). A summary of the individual AECs investigated under ISRA is provided In Section 1.0. Additional cleanup work is being conducted at the site, subsequent to the ISRA investigation, under the NJDEP's voluntary cleanup program. A description of these remedial activities is provided in Section 2.0. Based on information obtained by the NJDEP Northern Field Office, there is one (1) AEC at the property that may require further investigation and/or remediation. 1.0 ISRA (FORMERLY ECRA) FILE REVIEW -------------------------------- Arrow Group Industries, a former industrial establishment located at the property, was subject to a previous environmental Investigation (Case #88578) under the New Jersey Environmental Cleanup Recovery Act (ECRA). A file review was conducted at NJDEP's offices in Trenton on August 7. 1996. The file review was conducted to determine the nature and extent of the prior cleanup actions conducted at the site. [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 2 The property was subject to ECRA for the cessation of Arrow Group Industries' operations. The ISRA initial notice forms were submitted to the NJDEP during 1988. A Negative Declaration Approval was issued by NJDEP in December 1991. Arrow Group Industries (Arrow) operated at the site from when it was developed in 1968 until approximately December 1991. Arrow's operations at the property included corporate offices and warehousing of unassembled storage sheds manufactured at other Arrow facilities. A small print shop for printing flyers and Instruction sheets was present on the east side of the building. A small area on the west side of the building was used for the repair and maintenance of delivery trucks and equipment. Waste oil from the repair and maintenance operations was stored in a 275 gallon aboveground storage tank. Six (6) areas of environmental concern (AECs) were identified during the ECRA site investigation and cleanup. The areas identified included the following: 1. Transformers 2. Main Septic System 3. Side Septic System 4. Old Septic System Leach Field 5. 4,000 Gallon Underground Diesel Fuel Tank 6. Diesel Fuel Spills The investigation of the ABCs included soil sampling, soil excavation and disposal, and ground water sampling. The ECRA activities conducted at each of the AECs are described below. 1.1 Transformers A letter obtained from JCP&L indicates that absent of testing of the transformer's dielectric fluid, the transformers are assumed to be PCB contaminated. Therefore, soil samples were collected from the perimeter of the transformer pad for Polychlorinated Biphenyls (PCBs). The samples were collected to verify that the transformers had not [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 3 leaked. The analytical results indicated no detected levels of PCBs. NJDEP approved no further actions for this AEC. 1.2 Main Septic System The main septic system is one of three (3) septic systems present on the property. The main septic system is located in front of the building and is active. The main septic system is connected to the buildings' bathrooms and a sink in a former darkroom. The main septic system is composed of two (2) settling tanks in series. Overflow from the settling tanks flows to one of four effluent discharge tanks. Samples were collected of the settling tank sludge and aqueous phases, and from soils adjacent to the settling and effluent discharge tanks. Samples were analyzed for Petroleum Hydrocarbons (PHC), Volatile Organics + 15 (VO+IS), Priority Pollutant Metals (Metals), and Cyanides. The contaminants detected in the soil samples above the NJDEP soil cleanup criteria in effect in 1988 included Cadmium, Beryllium, Thallium, and Lead. Methylene Chloride, Toluene, and PHCs were detected in the sludge sample above the NJDEP soil cleanup criteria in effect in 1988. The contents of the septic system tanks were removed and disposed off site. The contaminated soil was left in place pending the results of a ground water investigation. Based on the ground water investigation results, NJDEP required no further actions for this AEC. Some of the NJDEP soil cleanup criteria have changed since 1988. If the property were to become subject to ISRA, current NJDEP procedures would require an order of magnitude analysis to determine if the contaminant levels remaining from former sampling/remedial actions exceed the current NJDEP soil cleanup criteria for unrestricted property use. If the remaining contaminant levels are more than ten (10) times the current standard, then either additional soil remediation or a Declaration of Environmental Restrictions (DER) for the contaminated area would be required. A DER is similar to a deed notice, which restricts the use of the contaminated area. A comparison of the soil sample results to the current NJDEP soil cleanup criteria indicate the presence of Cadmium, Beryllium. and Thallium above the current NJDEP soil cleanup criteria of 39 ppm, 1 ppm, and 2 ppm, respectively. However, these contaminants [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23. 1996 Page 4 do not exceed the current NJDEP soil cleanup criteria for unrestricted use by an order of magnitude. Therefore, additional soil remediation and/or a DER are not required. 1.3 Side Septic System The side septic system was located on the west side of the building. This septic system received discharges from a sink located in the former repair and maintenance area. The side septic system was composed of a single settling tank. Samples were collected of the settling tank sludge and aqueous phases, and from soils adjacent to the settling tank. Samples were analyzed for PHC and Base/Neutrals + 15 (BN + 15). PHCs were detected in the soil and settling tank samples in concentrations above the NJDEP soil cleanup criteria in effect in 1988. The settling tank and adjacent contaminated soil were excavated on April 28, 1988. Past-excavation samples collected for PHCS verified remediation to below the NJDEP cleanup criteria in effect in 1988. The soil samples collected from this area did not include analysis for VO+ 15 or Metals. These contaminants are a potential concern based on the use of a parts washer. Based on the ground water investigation results and an affidavit provided by Arrow, NJDEP required no further actions for this AEC. A comparison of the soil sample results to the current NJDEP soil cleanup criteria indicated that the remediation meets the current NJDEP soil cleanup criteria for unrestricted property use. 1.4 Old Septic System The old septic system was located in approximately the same location as the main septic system. The [each field for the aid system was just west of the main system settling tanks. Soil samples were collected from the old septic system leach field for PHC, VO + 15, Metals, and Cyanide analyses. The contaminants detected in the soil samples above the NJDEP soil cleanup criteria in effect in 1988 included Cadmium, Beryllium, and Thallium. The contaminated soil was left in place pending the results of a ground water investigation. Based on the ground water investigation results, NJDEP required no further actions for this AEC. [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 5 A comparison of the soil sample results to the current NJDEP soil cleanup criteria indicated the presence of Cadmium, Beryllium, and Thallium above the current NJDEP soil cleanup criteria of 39 ppm, 1 ppm, and 2 ppm, respectively. However, these contaminants do not exceed the current NJDEP soil cleanup criteria for unrestricted use by an order of magnitude. 1.5 4,000 GALLON UNDERGROUND DIESEL FUEL TANK A 4,000 gallon underground diesel fuel tank was located on the west side of the building. The rank was excavated on April 28, 1988. Post-excavation soil samples were collected from the tank excavation for PHC and Polycyclic Aromatic Hydrocarbons (PAHs) analyses. The presence of PHCs or PAHs was not detected. NJDEP approved no further actions for this AEC. 1.6 DIESEL FUEL SPILLS Two diesel fuel spills occurred at the northwest corner of the building. The contaminated soil was excavated on April 28, 1988. Post-excavation soil samples were collected for PHC and PAR analyses. PHCs were detected above the NJDEP soil cleanup criteria in effect in 1988. Therefore, additional soil was excavated from this area on July 27, 1988. Additional post-excavation soil samples were collected for PHC analysis. The presence of PHCs was not detected in the additional post-excavation soil samples. NJDEP approved no further actions for this AEC. 1.7 GROUND WATER INVESTIGATION Based on the results of sampling conducted at the main and old septic systems, a ground water investigation was required by NJDEP. On April 13 and 14, 1989, four (4) ground water monitoring wells were installed at the property. Three (3) wells were installed near three of the septic tanks and the fourth was installed upgradient from the septic system. Ground water was encountered at a depth of approximately ten (10) feet below grade. Ground water flow was from southwest to northeast. [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 6 Three (3) rounds of ground water samples were collected during April, June and August 1989. The first two (2) rounds of samples were analyzed for PHC, VO + 15, BN + 15, and Metals. The third round was analyzed for BN + 15 and Metals only. The first sampling round indicated the presence of BN + 15 and the metals Arsenic, Chromium, and Lead above the NJDEP ground water cleanup criteria in effect in 1989. The highest contaminant levels were detected in the upgradient well. This indicated the source of ground water contamination was likely from an off-site source. No contamination above the NJDEP ground water cleanup criteria in effect in 1989 was detected in the second and third round of samples. The second and third round of samples for metals analysis were filtered, which removes sediment from the sample. This is likely why the level of metals detected was significantly lower than in the first sampling round. Based on the results of the second and third sampling rounds and likely off-site source of contamination detected, NJDEP approved no further actions with respect to ground water. The four (4) monitoring wells were subsequently sealed. The NJDEP ground water cleanup criteria have changed since 1989. A comparison of the PHC, VO + 15, and BN + 15 results to the current NJDEP ground water cleanup criteria indicated that these contaminants are not a concern. One (1) BN + 15, bis(2-Ethyl-hexyl)phthalate, was detected in the first sampling round above the current cleanup criteria in one well, but was not detected in the subsequent sampling rounds. A comparison of the Metals results to the current NJDEP ground water cleanup criteria indicated the presence of the metals Arsenic, Cadmium, Chromium, Lead, and Nickel above their respective current cleanup criteria in the unfiltered ground water samples. Chromium and Thallium were detected above their respective current cleanup criteria in the third round of filtered ground water samples. The NJDEP currently does not accept the results of filtered metals samples. None of the metals detected in the unfiltered samples exceed the current cleanup criteria by an order of magnitude. Furthermore, the sample results indicated an off-site source of ground water contamination. One (1) copy of the materials reproduced from the NJDEP ISRA file are provided with this letter report. [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 7 2.0 MOA FILE REVIEW --------------- A copy of a letter report prepared by James C. Anderson Associates, Inc. (JCA), dated May 22, 1995, was obtained by Whitman from Aladdin Mills. The report indicates that soil excavation of visually stained soils was conducted at six (6) small areas on the property on December 7, 1994. Four (4) 55 gallon drums of soil were excavated from these areas and remain on site in the rear parking lot area. The specific locations where soil was removed was not identified in the letter report. A copy of the letter is provided as Attachment 1. One (1) post-excavation soil sample was collected from each area and analyzed for total petroleum hydrocarbons (TPH). Four (4) of these samples contained TPH concentrations above 1,000 parts per million (ppm). Following NJDEP guidelines, each of these samples was analyzed for Volatile Organic Compounds (VOCs). No VOCs were detected. One (1) of the samples (B-1), however, exhibited a TPH concentration above the applicable Soil Cleanup Criteria of 10,000 ppm. 3B Warehouse and Distribution, Inc., the current tenant at the property, entered into a Memorandum of Agreement (MOA) with the NJDEP in April 1996 (Case #96-4-9-1613-06) for remedial action of the area in the vicinity where sample B-1 was collected. The MOA is a process whereby the applicant proposes to perform a voluntary cleanup in response to a reported discharge. The case has been assigned to the NJDEP Northern Field Office. Tom McClachrie, the NJDEP Case Manager, was contacted by telephone for information on the current status of the remedial activity. According to Mr. McClachrie, JCA submitted a letter report to NJDEP on June 13, 1996 with the results of additional sampling conducted in the vicinity where sample B-1 was originally collected. The report indicated the following items: . A volume of approximately 10 cubic yards of soil was to be remediated to an approximate depth of 18 to 24 inches, above the abandoned railroad siding. . The contaminated soil would be disposed off site. . Five (5) post-excavation samples would be collected. [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 8 As of August 22, 1996, the NJDEP Northern Field Office has not received the post-excavation soil sample results. A small soil pile, estimated at two (2) cubic yards, remains stockpiled on site in the rear parking lot area, in addition to the four (4) drums of contaminated soil generated in December 1994. According to Mr. McClachrie, prior sampling activity conducted along the railroad siding may not have been representative of worst case conditions since the samples were collected from loose soil material located within the gravel pack. He indicated that the Department may require the collection of soil samples from material beneath the gravel railroad bed to establish actual site conditions. The MOA case remains open at this time, pending NJDEP receipt and review of the most recent sampling data. Department approval of the remedial activity conducted under the MOA program would be strictly limited to the specific area investigated and would not make any representation regarding the environmental conditions of any other areas at the property. 3.0 ENVIRONMENTAL DATABASE SEARCH ----------------------------- Whitman conducted a review of Standard Environmental Record Sources (Federal/State) as determined by ASTM Standard E1527-94. This review was facilitated by obtaining a radius search report for the required environmental databases from EcoSearch Environmental Resources (EER), Indianapolis, Indiana, a commercial database service. The purpose of obtaining such a report is to identify any history of hazardous waste activity known to have taken place at the subject property or at any site within the approximate minimum search distance specified in the ASTM Standard E1527-94. The subject property was listed as a RCRA Generator site in connection with prior disposal of hazardous materials generated by Arrow Group Industries. The property was also listed as a UST site in connection with the former underground diesel tank. The subject property was not listed in any of the other environmental databases researched by EER. [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 9 Edwards Engineering Corp. located on the adjoining southern property, is listed as a RCRA Generator and Toxic Release Inventory (TRI) site. The TRI database contains information from facilities that manufacture, process, or import any of over 300 listed toxic chemicals which are released directly into the air, water or land, or are transported off site. The database includes facts on amounts of chemica1s stored and emitted from the facility. This database is released on an infrequent basis by the USEPA. TRI data for Edwards Engineering Corp from 1989 to 1991 indicates that various metals compounds and VOCs were released into the air or transferred off site during this period. There were no reports of a release into water or land at the site. The Pequannock Township Department of Public Works facility, located just to the west of the subject property, is listed as a RCRA Generator and a Registered New Jersey Underground Storage Tank (UST) site. This township site is not listed in the Leaking Underground Storage Tank (LUST) database. The nearest contaminated sites listed in the EER report are identified below. . Franks Chevron - 0.3 miles west of the subject property. . Citgo Service Station - 0.3 miles west-southwest of the subject property . Merit Service Station - 0.35 miles east of the subject property . Getty Service Station - 0.35 miles northeast of the subject property . Rentals Unlimited, Inc. - 0.36 miles east-southeast of the subject property No other contaminated sites were identified within a 0.5 mile radius of the subject property. A copy of the EER report is provided as Attachment 2. 4.0 SITE INSPECTION --------------- Whitman conducted inspections of the site on July 29, 1996 and August 16, 1996. No sampling or testing of air quality, soil, water or other materials (e.g. asbestos) was conducted. The following site conditions were observed: [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 10 Outside Areas ------------- . A transformer is located outside the southwest corner of the building. No evidence of staining or spillage was found at the base of the transformer. A blue sticker "no PCBs" was affixed to the transformer indicating that its contents do not contain PCBs. . A propane storage shed is located outside the northwest corner of the building. . The area being investigated under the MOA program is located above a railroad siding near the northwest corner of the building. The excavation measures approximately 12 feet (length) by 5 feet (width) by 1 foot (depth). This area is enclosed by temporary orange fencing. . Four (4) 55 gallon steel drums of contaminated soil are staged in the rear parking lot area near the northwest corner of the building. Hazardous waste labels are affixed to each of the drums. The labels indicate that the waste material was generated on December 7, 1994. . Spillage of a petroleum product was found adjacent to a 5 gallon pail in the rear parking lot area. The spillage was confined to a small area of pavement and was located approximately 20 feet from the nearest storm water drain. . Approximately 2 cubic yards of soil were covered with plastic sheeting and stockpiled in the rear parking lot area. It is believed that this material was generated during recent excavation of contaminated soils above the railroad siding. . Numerous stormwater drains are located in the rear loading dock and parking lot areas. Visual observations indicate that the discharge point of the drains is to Woodland Lake, located immediately to the north and east of the site. Inside Areas ------------ . The building is currently used for office and warehousing purposes, primarily storage of food and beverage products. [LETTERHEAD OF THE WHITMAN COMPANIES APPEARS HERE] Mr. Al Schneider Aladdin Mills August 23, 1996 Page 11 . Two (2) 55 gallon drums of antifreeze were located along the interior north wall of the warehouse. Three (3) 15 gallon drums of multi-purpose grease were also stored at this location. . Two (2) unidentified 55 gallon drums were located along the interior north wall of the warehouse. Oil spillage was evident on the top of these drums. One (1) 15-gallon drum of gear lubricant was also stored at this location. . A vehicle service area, with one (1) electric lift, was located at the northwest corner of the warehouse. A Safety-Kleen parts washer, wash sink, and miscellaneous small containers of automotive fluids were located in this area. A closet adjoining the vehicle service area contained a 275-gallon aboveground motor oil tank, one (1) 55-gallon drum of antifreeze and two (2) 15-gallon drums of gear oil. Several other closets were locked and inaccessible at the time of the site inspections. . Some oil staining was evident on the slab floor in the vehicle service area; however, no significant spillage was found and there were no floor drains visible in this area. No records of adverse environmental history were found at the Pequannock Township municipal offices. A review of building permits recorded by the Township from January 1988 to the present revealed no permits for environmental work, including, but not limited to, UST removal or asbestos abatement projects. A historical aerial photograph review for 1961, 1966, 1976, 1986 and 1990 was conducted by Whitman at the Morris County Planning Department on August 12, 1996. The results of the aerial photograph review are presented below. The subject property was occupied by several small buildings/sheds and facilities, which may be consistent with a sand/gravel mining operation from pre-1961 through 1966. The existing warehouse facility was evident on the 1976, 1986, and 1990 aerial photographs. Several small sheds, formerly located on the northeast portion of the site, were removed between 1986 and 1990. The parking lot area may have been unpaved prior to 1976. The adjoining northern and eastern properties have been occupied by Woodland Lake from pre-1961 to the present. The existing industrial building has been located on the adjoining southern property from pre-1961 to present. Land use on the adjoining western properties was residential and agricultural in nature from pre-1961 through 1976. Farmland was abandoned and converted into residential land use between 1976 and 1986. Mr. Al Schneider Aladdin Mills August 23, 1996 Page 12 6.0 SUMMARY AND RECOMMENDATIONS --------------------------- Several significant areas of environmental concern (AECs) were addressed by Arrow Group Industries, the former operator of the site (1969-1991), under the NJDEP ISRA program. The ISRA initial notice forms were submitted to the NJDEP during 1988. A Negative Declaration Approval was issued by NJDEP in December 1991. Additional cleanup work is being conducted at the site, subsequent to the ISRA investigation, under the NJDEP'S voluntary cleanup program. Based on information obtained from the NJDEP Northern Field Office, there is one (1) AEC that may require further investigation and/or remediation. The case remains open at this time, pending NJDEP receipt and review of the most recent sampling data. Whitman recommends that Aladdin Mills receive some assurance from the current tenant that the remedial activity specified in the MOA will be completed in a timely manner and that the cleanup will not extend to other areas of the site. The subject property was listed as a RCRA Generator site in connection with prior disposal of hazardous materials generated by Arrow Group Industries. The property was also listed as a UST site in connection with the former underground diesel tank. The subject property was not listed in any of the other environmental databases researched by EER. Contaminated soil remains on site at two (2) locations in the rear parking lot area. The drums of contaminated soil generated on December 7, 1994 are of particular concern, since RCRA regulations require that all hazardous materials be disposed within 90 days. The small pile of stockpiled soil was generated much more recently, apparently within the past several weeks. Whitman recommends that all chemical products, including known or suspected hazardous materials, be properly removed or disposed off site, prior to occupancy of the building by Aladdin Mills. In addition to the drums of contaminated soil located outside the building, several drums located inside the facility may need to be identified, prior to disposal. Mr. Al Schneider Aladdin Mills August 23, 1996 Page 13 We appreciate the opportunity to assist your company with the anticipated move to the warehouse facility in Pequannock Township, New Jersey. If you have any questions, please contact our office at (908) 390-5858. Very truly yours, /s/ Gary Rakow Gary Rakow Project Scientist cc: Robert Ritter, Esquire Janet Hennick, SBWE Mel Opper, The Opper Group EX-10.11 6 LEASE AGREEMENT EXHIBIT 10.11 DUPLICATE ORIGINAL SINGLE TENANT INDUSTRIAL LEASE ------------------------------ Effective Date: December 4, 1995 (The date set forth below Landlord's signature.) BASIC LEASE INFORMATION ----------------------- Landlord: CATELLUS DEVELOPMENT CORPORATION, a Delaware corporation Landlord's Address For Notice: 1065 N, PacifiCenter Drive, Suite 200 Anaheim, CA 92806 Attn: Asset Management Telephone: (714) 630-8100 Fax: (714) 237-7416 Landlord's Address For Payment of Rent: File #53694 Los Angeles, CA 90074-3694 Tenant: MOHAWK INDUSTRIES, INC., a Georgia corporation Tenant's Address P.O. Box 2208 ----------------------------------- For Notice: Dalton, CA, 30722 ----------------------------------- Attn: JACK SHARPE ----------------------------- Telephone: 706-277-1100 ------------------------ Fax: 706-277-1440 ------------------------------ Project: 16400 Trojan Way Building: Approximately 220,000 rentable square feet as shown in Exhibit A. --------- Building Address: Street: 16400 Trojan Way City and State: La Mirada, CA 90638 Lot: The tax parcel on which the Building is located. Term: Sixty (60) months Estimated Commencement Date: September 1, 1996 Base Rent Per Month: Seventy Four Thousand Eight Hundred Dollars ($74,800.00) Security Deposit: None Broker: Lee & Associates Lease Year: Shall refer to each three hundred sixty-five (365) day period during the Term commencing on the Commencement Date and on each anniversary thereof. Permitted Uses: Warehousing and distribution of carpet and no other uses shall be permitted without the prior written consent of Landlord. (i) EXHIBITS A - Building/Lot - Premises B - Work Letter B-I - Space Plan C - Commencement Date Memorandum D - Insurance Certificate E - Prohibited Uses F - Correction Items G - Estoppel Certificate The Basic Lease Information set forth above and the Exhibits attached hereto are incorporated into and made a part of the following Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the provisions of the Lease, the latter shall control. LANDLORD (ILLEGIBLE) AND TENANT (JV) AGREE. ------ ------ initial initial X (ii) Table of Contents -----------------
Page 1. PREMISES...................................................... 1 1.1 Premises................................................ 1 1.2 Reserved Rights......................................... 1 2. TERM.......................................................... 1 2.1 Lease Term and Commencement Date........................ 1 2.2 Possession.............................................. 1 3. RENT.......................................................... 2 3.1 Rent.................................................... 2 3.2 Late Charge and Interest................................ 2 3.3 Intentionally Omitted................................... 2 4. UTILITIES..................................................... 2 5. TAXES......................................................... 2 5.1 Real Property Taxes..................................... 2 5.2 Personal Property Taxes................................. 3 6. TRIPLE NET LEASE.............................................. 3 7. INSURANCE..................................................... 3 7.1 Landlord................................................ 3 7.2 Tenant.................................................. 3 7.3 General................................................. 4 7.4 Indemnity............................................... 4 7.5 Exemption of Landlord from Liability.................... 5 8. REPAIRS AND MAINTENANCE....................................... 5 8.1 Landlord................................................ 5 8.2 Tenant.................................................. 5 8.3 Roof - Repair and Replacement........................... 6 8.4 Condition of the Premises............................... 6 9. ALTERATIONS................................................... 6 9.1 Trade Fixtures; Alterations............................. 6 9.2 Damage; Removal......................................... 6 9.3 Liens................................................... 6 10. USE........................................................... 7 11. ENVIRONMENTAL MATTERS......................................... 7 11.1 Hazardous Meterials..................................... 7 11.2 Indemnification......................................... 7 11.3 Landlord's Disclosure................................... 8 11.4 Storage Tank Removal.................................... 8 12. DAMAGE AND DESTRUCTION........................................ 8 12.1 Casualty................................................ 8 12.2 Tenant's Fault.......................................... 8 12.3 Uninsured Casualty...................................... 9 12.4 Waiver.................................................. 9 13. EMINENT DOMAIN................................................ 9 13.1 Total Condemnation...................................... 9 13.2 Partial Condemnation.................................... 9 13.3 Award................................................... 9 13.4 Temporary Condemnation.................................. 9
(iii) 14. DEFAULT....................................................... 9 14.1 Events of Defaults..................................... 9 14.2 Remedies............................................... 10 14.3 Cumulative............................................. 11 15. ASSIGNMENT AND SUBLETTING.................................... 11 16. ESTOPPEL, ATTORNMENT AND SUBORDINATION....................... 11 16.1 Estoppel............................................... 11 16.2 Subordination.......................................... 11 16.3 Attornment............................................. 12 17. MISCELLANEOUS................................................ 12 17.1 General................................................ 12 17.2 Signs.................................................. 12 17.3 Waiver................................................. 12 17.4 Financial Statements................................... 13 17.5 Limitation of Liability................................ 13 17.6 Notices................................................ 13 17.7 Brokerage Commission................................... 13 17.8 Authorization.......................................... 13 17.9 Holding Over; Surrender................................ 13 17.10 Joint and Several...................................... 13 17.11 Covenants and Conditions............................... 13 17.12 Addenda................................................ 13
(iv) 1. PREMISES. 1.1 Premises. Landlord hereby leases to Tenant the Building and that -------- portion of the Lot (or all thereof if the Building constitutes the material improvement thereon) upon which the same is situated (hereinafter collectively referred to as the "Premises") as shown on Exhibit A attached hereto. --------- 1.2 Reserved Rights. Landlord reserves the right to enter the Premises --------------- upon reasonable notice to Tenant (except in case of an emergency) and/or to undertake the following: inspect the Premises and/or the performance by Tenant of the terms and conditions hereof; grant easements on the Project, dedicate for public use portions thereof and record covenants, conditions and restrictions ("CC&R's") affecting the Project and/or amendments to existing CC&R's which do not unreasonably interfere with Tenant's use of the Premises; change the name of the Project; and, during the last nine (9) months of the Term, show the Premises to prospective tenants. 2. TERM. ---- 2.1 Lease Term and Commencement Date. The Term of the Lease shall be for a -------------------------------- period of sixty (60) months, subject to extension in accordance with Section 20 below. The Term shall commence (the "Commencement Date") on the first day of the first full calendar month following the Possession Date (as defined in Section 2.2.2), except that if the Possession Date occurs on the first day of a month, that day shall also be the Commencement Date. Tenant shall execute and deliver to Landlord, upon request by Landlord, a Commencement Date Memorandum in the form attached hereto as Exhibit C acknowledging (i) the Commencement Date (and, --------- if requested, the Possession Date and Rent Commencement Date, as defined below), (ii) the final square footage of the Premises, and (iii) Tenant's acceptance of the Premises. 2.2 Possession. ---------- 2.2.1 Landlord's Possession. Tenant acknowledges that the Premises --------------------- are currently occupied by an existing tenant thereof and that Landlord's delivery of possession of the Premises is contingent upon such tenant vacating the Premises. Landlord presently anticipates that the current tenant will vacate the Premises and restore possession thereof to Landlord on or about September 1 1996 and Landlord shall use its commercially reasonable efforts to recover possession on such date or as soon as practicable thereafter. In the event that Landlord does not recover possession of the Premises on or before such date, as a result of the failure of the existing tenant to vacate the Premises on or before such date, Landlord shall not be subject to any liability therefor and such failure shall not affect the validity of this Lease or the obligations of either party hereunder, provided, however, that if the existing tenant fails to vacate the Premises on or before November 1, 1996 (subject to Force Majeure events), either Landlord or Tenant may, at its option, by written notice to the other party given within ten (10) days thereafter, terminate this Lease, in which event Landlord shall return to Tenant all funds paid in advance and the Parties shall be discharged from all further obligations hereunder. Notwithstanding anything set forth in this Section 2.2, Tenant shall not be obligated to pay Base Rent for its use and occupancy of the Premises until the Rent Commencement Date, as defined in Section 3.1. 2.2.2 Tender of Possession to Tenant. Landlord shall tender ------------------------------ possession of the Premises to Tenant as soon as practicable following the date on which Landlord receives possession thereof. Tenant's possession and use of the Premises from the date on which Landlord tenders possession thereof to Tenant (the "Possession Date") to the Commencement Date (the "Early Possession Period") shall be subject to all the provisions of this Lease. During the Early Possession Period, Tenant shall (i) arrange for and pay for all utilities delivered to the Premises (ii) arrange for, and maintain in effect, the insurance coverages required to be obtained by Tenant pursuant to Section 7.2 of this Lease, (iii) pay to Landlord as and when due, all sums payable to Landlord hereunder, including, without limitation. amounts payable for Real Property Taxes (as defined in Section 5) and insurance premiums, and (iv) perform all other obligations required by Tenant pursuant to this Lease. 2.2.3 Tenant Improvements. Landlord shall arrange for the ------------------- construction of certain Tenant improvements (as defined in the Work Letter attached hereto as Exhibit B) in accordance with and subject to the terms of the --------- Work Letter. Landlord shall commence the construction of the Tenant improvements and diligently pursue such construction to completion as soon as reasonably practicable following the Possession Date. Tenant's use of the Premises shall not unreasonably interfere with Landlord's contractor(s) or otherwise impede the completion of the Tenant Improvements. The construction of the Tenant improvements shall not delay the occurrence of the Commencement Date. Tenant has determined that the Premises are acceptable for Tenant's use and Tenant acknowledges that, except as set forth in the Work Letter, neither Landlord nor any broker or agent has made any representations or warranties in connection with the physical condition of the Premises or their fitness for Tenant's use upon which Tenant has relied directly or indirectly for any purpose. 2.2.4 Substantial Completion. The Tenant improvements shall be ---------------------- deemed to be "Substantially Complete" on the date on which Landlord files or causes to be filed with the City in which the Premises are located (if required) and 1. delivers to Tenant an architect's notice of substantial completion, or similar written notice that the Tenant Improvements are Substantially Complete. As used herein, the term "Substantially Complete" means that the Tenant Improvements have been constructed in substantial compliance with the applicable plans and specifications, except only minor "punchlist" items. Landlord shall promptly complete such punchlist items to the reasonable satisfaction of Tenant. 3. RENT. ---- 3.1 Rent. ---- 3.1.1 Tenant's obligation to pay Base Rent shall commence on the first (1st) calendar day following the date on which the Tenant Improvements are Substantially Complete and possession of the Premises has been tendered to Tenant (the "Rent Commencement Date"). Tenant shall pay to Landlord, at Landlord's Address for Payment of Rent designated in the Basic Lease Information, or at such other address as Landlord may from time to time designate in writing to Tenant for the payment of Rent, the Base Rent, without notice, demand, offset or deduction, in advance, on the first day of each calendar month. Upon the execution of this Lease, Tenant shall pay to Landlord the first month's Base Rent. Base Rent for the period from the Rent Commencement Date to the first day of the next calendar month shall be prorated on a per diem basis. All sums other than Base Rent which Tenant is obligated to pay under this Lease shall be deemed to be additional rent due hereunder, whether or not such sums are designated "additional rent." The term "Rent" means the Base Rent and all additional rent payable hereunder. 3.1.2 As set forth in the Basic Lease Information, the initial Base Rent shall be the sum of $74,800.00 per month which is calculated on the basis of $0.34 per square foot. Tenant acknowledges that the Premises contains approximately 220,000 rentable square feet of space. The parties acknowledge that such measurement is an estimate and that the Base Rent shall not be adjusted on the basis of a difference in the actual number of rentable square feet. 3.2 Late Charge and Interest. The late payment of any Rent will cause ------------------------ Landlord to incur additional costs, including administration and collection costs and processing and accounting expenses and increased debt service ("Delinquency Costs"). If Landlord has not received any installment of Rent within ten (l0) days after such amount is due, Tenant shall pay a late charge of five percent (5%) of the delinquent amount, which is agreed to represent a reasonable estimate of the Delinquency Costs incurred by Landlord. In addition, all such delinquent amounts shall bear interest from the date such amount was due until paid in full at a rate per annum ("Applicable Interest Rate") equal to the lesser of (a) the maximum interest rate permitted by law or (b) five percent (5%) above the rate publicly announced by Bank of America, N.A. (or if Bank of America, N.A. ceases to exist, the largest bank then headquartered in the State of California ("Bank") as its "Reference Rate." If the use of the announced Reference Rate is discontinued by the Bank, then the term Reference Rate shall mean the announced rate charged by the Bank which is, from time to time, substituted for the Reference Rate. Landlord and Tenant recognize that the damage which Landlord shall suffer as a result of Tenant's failure to pay such amounts is difficult to ascertain and said late charge and interest are the best estimate of the damage which Landlord shall suffer in the event of late payment If a late charge becomes payable for any three (3) installments of Rent within any twelve (l2) month period, then the Rent shall automatically become due and payable quarterly in advance. 3.3 Intentionally Omitted. --------------------- 4. UTILITIES. Tenant shall make all arrangements for and shall pay all charges --------- for heat, water, gas, electricity, telephone and any other utilities used on or provided to the Premises including, without limitation, paying any deposits and "hook up charges." Landlord shall not be liable to Tenant for interruption in or curtailment of any utility service, nor shall any such interruption or curtailment constitute constructive eviction or grounds for rental abatement. The cost of maintaining and repairing the plumbing, electrical distribution, and mechanical systems, and other utility installations shall be borne by the parties as provided in Section 8. 5. TAXES. ----- 5.1 Real Property Taxes. Landlord shall pay to the proper taxing ------------------- authorities as the same become due all Real Property Taxes applicable to the Premises, subject to reimbursement by Tenant as provided below. The term "Real Property Taxes" shall be the sum of the following: all real property taxes, possessory-interest taxes, business or license taxes or fees, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit and traffic charges, housing fund assessments, open space charges, child care fees, school, sewer and parking fees or any other assessments, levies, fees, executions or charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen (including fees "in-lieu" of any such tax or assessment) which are assessed, levied, charged, conferred or imposed by any public authority upon the Premises (or any real property comprising any portion thereof) or its operations, together with all taxes, assessments or other fees imposed by any public authority upon or measured by any Rent or other charges payable hereunder, including any gross receipts tax or excise tax levied by any governmental authority with respect to receipt of rental income, or upon, with respect to or by reason of the development, possession, leasing, operation, management, maintenance alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof, or documentary transfer taxes upon this transaction or 2. any document to which Tenant is a party creating or transferring an interest in the Premises, together with any tax imposed in substitution, partially or totally, of any tax previously included within the aforesaid definition or any additional tax the nature of which was previously included within the aforesaid definition, together with the costs and expenses (including attorneys and expert witness fees and costs) of challenging any of the foregoing or seeking the reduction in or abatement, redemption or return of any of the foregoing, but only to the extent of any such reduction, abatement, redemption or return. Nothing contained in this Lease shall require Tenant to pay any franchise, corporate, estate or inheritance tax of Landlord, or any income, profits or revenue tax or charge upon the net income of Landlord. 5.1.1 Reimbursement By Tenant. Tenant shall pay to Landlord an ----------------------- amount equal to the Real Property Taxes then due within fifteen (15) days after delivery to Tenant by Landlord of an invoice for the same, together with a copy of the corresponding tax bill. Landlord may, at Landlord's option, deliver statements from different taxing authorities at different times or deliver all such statements at one time; provided however, that Landlord shall not change the method of invoicing Tenant for Real Property Taxes more than one (1) time in each three (3) year period and, in each case, shall give Tenant thirty (30) days notice prior to any change in such method of invoicing Tenant. In addition, Landlord may elect to collect such Real Property Taxes from Tenant in advance, on a monthly or quarterly basis, based upon Landlord's reasonable estimate of such Real Property Taxes. If the amount of monthly or quarterly payments for estimated Real Property Taxes received by Landlord from Tenant is more or less than the actual Real Property Taxes due, an appropriate adjustment shall be made by Landlord and Tenant. 5.1.2 Partial Years. Real Property Taxes for partial tax fiscal ------------- years, if any, falling within the Term, shall be prorated. Tenant's obligations for Real Property Taxes for the last full or partial year of the Term shall survive the expiration or earlier termination of this Lease. 5.2 Personal Property Taxes. Prior to delinquency, Tenant shall pay all ----------------------- taxes and assessments levied upon trade fixtures, alterations, additions, improvements, inventories and other personal property located and/or installed on the Premises by Tenant; and Tenant shall provide Landlord copies of receipts for payment of all such taxes and assessments. To the extent any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced by Landlord. 6. TRIPLE NET LEASE. It is intended that this Lease be a "triple net lease." ---------------- and that the Rent to be paid hereunder by Tenant will be received by Landlord without any deduction or offset whatsoever by Tenant, foreseeable or unforeseeable. Except as expressly provided to the contrary in this Lease, Landlord shall not be required to make any expenditure, incur any obligation, or incur any liability of any kind whatsoever in connection with this Lease or the ownership, construction, maintenance, operation or repair of the Premises. Notwithstanding the foregoing. Tenant shall reimburse Landlord monthly, as additional rent, for all costs and fees reasonably incurred by Landlord in connection with the management of this Lease and the Premises including the cost of those services which are customarily performed by a property management services company. 7. INSURANCE. --------- 7.1 Landlord. Landlord shall maintain insurance insuring the Building -------- against fire and extended coverage (including, if Landlord elects, "all risk" coverage, earthquake/volcanic action, flood and/or surface water insurance) for the full replacement cost of the Building, with deductibles and the form and endorsements of such coverage as selected by Landlord, together with rental abatement insurance against loss of Rent in an amount equal to the amount of Rent for a period of at least twelve (12) months commencing on the date of loss. Landlord may also carry such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine. Tenant shall pay to Landlord an amount equal to the premiums then due within fifteen (15) days after delivery to Tenant by Landlord of an invoice for any such premiums. Landlord may, at Landlord's option, elect to collect such premiums from Tenant in advance, on a monthly or quarterly basis, based upon Landlord's reasonable estimate of such premiums. If the amount of monthly or quarterly payments for estimated premiums received by Landlord from Tenant are more or less than the actual premiums due, an appropriate adjustment shall be made by Landlord and Tenant. 7.2 Tenant. Tenant shall, at Tenant's expense, obtain and keep in force at ------ all times the following insurance: 7.2.1 Commercial General Liability Insurance (Occurrence Form). A ------------------------------------------------------- policy of commercial general liability insurance (occurrence form) having a combined single limit of not less than Two Million Dollars ($2,000.000) per occurrence and Two Million Dollars ($2,000,000) aggregate per location if Tenant has multiple locations, providing coverage for, among other things, blanket contractual liability, premises, products/completed operations and personal and advertising injury coverage, with deletion of (a) the exclusion for operations within fifty (50) feet of a railroad track (railroad protective liability), if applicable, and (b) the exclusion for explosion, collapse or underground hazard, if applicable, and, if necessary, Tenant shall provide for restoration of the aggregate limit; 3. 7.2.2 Automobile Liability Insurance. Comprehensive automobile ------------------------------ liability insurance having a combined single limit of not less than Two Million Dollars ($2,000,000) per occurrence and insuring Tenant against liability for claims arising out of ownership, maintenance, or use of any owned, hired or non- owned automobiles; 7.2.3 Workers' Compensation and Employer's Liability Insurance. -------------------------------------------------------- Workers' compensation insurance having limits not less than those required by state statute and federal statute, if applicable, and covering all persons employed by Tenant in the conduct of its operations on the Premises (including the all states endorsement and, if applicable, the volunteers endorsement), together with employer's liability insurance coverage in the amount of at least One Million Dollars ($1,000,000); and 7.2.4 Property Insurance. "All risk" property insurance including ------------------ boiler and machinery comprehensive form, if applicable, covering damage to or loss of any of Tenant's personal property, fixtures, equipment and alterations, including electronic data processing equipment (collectively "Tenant's Property") (and coverage for the full replacement cost thereof including business interruption of Tenant), together with, if the property of Tenant's invitee's is to be kept in the Premises, warehouser's legal liability or bailee customers insurance for the full replacement cost of the property belonging to invitee's and located in the Premises. 7.3 General. ------- 7.3.1 Insurance Companies. Insurance required to be maintained by ------------------- Tenant shall be written by companies licensed to do business in the state in which the Premises are located and having a "General Policyholders Rating" of at least A 8 (or such higher rating as may be required by a lender having a lien on the Premises) as set forth in the most current issue of "Best's Insurance Guide." 7.3.2 Certificates of Insurance. Tenant shall deliver to Landlord ------------------------- certificates of insurance for all insurance required to be maintained by Tenant in the form of Exhibit D, attached hereto, no later than seven (7) days prior to --------- the date of possession of the Premises. Tenant shall, at least ten (10) days prior to expiration of the policy, furnish Landlord with certificates of renewal or "binders" thereof. Each certificate shall expressly provide that such policies shall not be cancelable or otherwise subject to modification except after sixty (60) days prior written notice to the parties named as additional insured in this Lease (except in the case of cancellation for nonpayment of premium in which case cancellation shall not take effect until at least (10) days' notice has been given to Landlord). If Tenant fails to maintain any insurance required in this Lease, Tenant shall be liable for all losses and cost resulting from said failure. 7.3.3 Additional Insured. Landlord and any property management ------------------ company of Landlord for the Premises shall be named as additional insured under all of the policies required by Section 7.2.1. The policies required under Section 7.2.1 shall provide for severability of interest. 7.3.4 Primary Coverage. All insurance to be maintained by Tenant ---------------- shall, except for workers' compensation and employer's liability insurance, be primary, without right of contribution from insurance of Landlord. Any umbrella liability policy or excess liability policy (which shall be in "following form") shall provide that if the underlying aggregate is exhausted, the excess coverage will drop down as primary insurance. The limits of insurance maintained by Tenant shall not limit Tenant's liability under this Lease. 7.3.5 Mutual Waiver of Subrogation. Tenant waives any right to ---------------------------- recover against Landlord for claims for damages to Tenant's Property to the extent covered, or required by this Lease to be covered by insurance. Landlord waives any right to recover against Tenant for damages to Landlord's property to the extent covered, or required by this Lease to be covered by property insurance. This provision is intended to waive fully, and for the benefit of Landlord and Tenant, any rights and/or claims which might give rise to a right of subrogation in favor of any insurance carrier. The coverage obtained by Landlord and Tenant pursuant to this Lease shall include, without limitation, a waiver of subrogation endorsement attached to the certificate of insurance. 7.3.6 Notification of Incidents. Tenant shall notify Landlord ------------------------- within seventy-two (72) hours after the occurrence of any accidents or incidents in the Premises which could give rise to a claim under any of the insurance policies required under this Section 7. 7.4 Indemnity. --------- 7.4.1 Tenant's Indemnity. Tenant shall indemnify, protect, defend ------------------ (by counsel reasonably acceptable to both Landlord and Tenant) and hold harmless Landlord and its partners, directors, officers, employees, shareholders, lenders, agents, contractors and each of their successors and assigns from and against any and all claims, judgments, causes of action, damages, penalties, costs, liabilities, and expenses, including all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon, arising at any time during or after the Term as a result (directly or indirectly) of or in connection with (i) any default in the performance of any obligation on Tenant's part to be 4. performed under the terms of this Lease, or (ii) Tenant's use of the Premises, the conduct of Tenant's business or any activity, work or things done, permitted or suffered by Tenant in or about the Premises or other portions of the Project, except to the extent caused by Landlord's gross negligence or wilful misconduct. The obligations of Tenant under this Section 7.4 shall survive the termination of this Lease with respect to any claims or liability arising out of any act, omission, or event occurring on or before the date of such termination. 7.4.2 Landlord's Indemnity. Except as expressly provided in this -------------------- Lease, and subject to the limitations of Section 17.5, Landlord shall indemnify, protect, defend (by counsel reasonably acceptable to both Landlord and Tenant) and hold harmless Tenant and its partners, directors, officers, employees, shareholders, lenders, agents, contractors and each of their successors and assigns from and against any and all claims, judgments, causes of action, damages, penalties, costs, liabilities, and expenses, including all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon, arising at any time during or after the Term as a result (directly or indirectly) of or in connection with (i) any default in the performance of any obligation on Landlord's part to be performed under the terms of this Lease, or (ii) Landlord's gross negligence or intentional misconduct in connection with Landlord's activities in or about the Premises. The obligations of Landlord under this Section 7.4 shall survive the termination of this Lease with respect to any claims or liability arising out of any act, omission, or event occurring on or before the date of such termination. 7.5 Exemption of Landlord from Liability. Tenant, as a material part of ------------------------------------ the consideration to Landlord, hereby assumes all risk of damage to property including, but not limited to, Tenant's fixtures, equipment, furniture and alterations or injury to persons in, upon or about the Premises or other portions of the Project arising from any cause, and Tenant hereby waives all claims in respect thereof against Landlord, except to the extent such claims are caused by the gross negligence or wilful misconduct of Landlord, its employees, agents, and contractors. Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for damage to the property of Tenant, or injury to or death of Tenant, Tenant's employees, invitee's, customers, agents or contractors or any other person in or about the Premises or the Project, whether such damage or injury is caused by fire, steam, electricity, gas, water or rain, or from the breakage, leakage or other defects of sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Tenant, except to the extent caused by the gross negligence or wilful misconduct of Landlord, its employees, agents, and contractors. 8. REPAIRS AND MAINTENANCE. ----------------------- 8.1 Landlord. Landlord shall, subject to the following sentence, maintain -------- the structural portions of the roof, foundation, and load-bearing portions of walls (excluding wall coverings, painting, glass and doors) of the Improvements. Landlord shall not be required to make any repair resulting from (i) any alteration or modification to the Improvements or to mechanical equipment within the Improvements performed by, for or because of Tenant or to special equipment or systems installed by, for or because of Tenant, (ii) the installation, use or operation of Tenant's property, fixtures and equipment, (iii) the moving of Tenant's property in or out of the Improvements or in and about the Premises, (iv) Tenant's use or occupancy of the Premises in violation of Section l0 of this Lease or in the manner not contemplated by the parties at the time of the execution of this Lease, (v) the acts or omissions of Tenant and Tenant's employees, agents, invitees, subtenants, licensees or contractors, (vi) fire and other casualty, except as provided by Section 12 of this Lease or (vii) condemnation, except as provided in Section 13 of this Lease. Landlord shall make repairs under this Section 8.1 as soon as reasonably practicable after receipt of written notice from Tenant of the need for such repairs. Landlord shall procure and maintain, at Tenant's expense, regularly scheduled preventive maintenance/service contracts for (i) the maintenance and repair of the fire detection and sprinkler system, and (ii) the regular and routine maintenance and annual inspection of the roof membrane. Tenant shall reimburse Landlord upon thirty (30) days written notice for the reasonable cost thereof. Tenant waives any right to repair the Premises at the expense of Landlord under any applicable governmental laws, ordinances, statutes, orders or regulations now or hereafter in effect which might otherwise apply. 8.2 Tenant. Except for the portions of the Premises expressly required to ------ be maintained by Landlord under Section 8.1, Tenant, at Tenant's expense, shall maintain the Premises in good order, condition and repair, including, without limitation, subfloors and floor coverings, walls and wall coverings, mechanical, electrical, and plumbing systems, doors, windows, parking lots, and truck aprons, gutters and downspouts, landscaping and any signage. During the Term of this Lease, or any extensions thereof, Tenant shall procure and maintain, at Tenant's expense, regularly scheduled preventive maintenance/service contracts with maintenance contractors reasonably acceptable to Landlord for (i) servicing all hot water and heating and air conditioning systems and equipment ("HVAC") in the Premises, and (ii) the landscape maintenance. Tenant shall provide Landlord with a copy of the HVAC contract and shall furnish a copy of all reports and correspondence involving the condition of the HVAC equipment to Landlord. Each contract shall provide that the maintenance contractor will notify Landlord in writing at least ten (10) days prior to any termination of the contract. Notwithstanding the foregoing, Landlord reserves the right to procure and maintain the foregoing maintenance/service contracts, and Tenant shall promptly reimburse Landlord upon thirty (30) days written notice for the cost thereof. In the event Tenant fails, in the reasonable judgment of Landlord, to maintain the Premises in good order, condition and repair. Landlord shall have the right to perform such maintenance, repairs or refurbishing at Tenant's expense. 5. 8.3 Roof - Repair and Replacement. As provided in Section 8.1, Landlord, ----------------------------- at its cost, shall maintain the structural portions of the roof during the Term of this Lease. In addition, Landlord shall arrange for regular and routine maintenance and annual inspection of the roof surface and membrane, subject to Tenant's reimbursement to Landlord for the reasonable cost thereof within thirty (30) days' written notice. In the event that the surface and membrane of the roof needs to be replaced as a matter of prudent building management and ownership, as reasonably determine by an independent and qualified roofing consultant, during the initial Term of this Lease or, if the Term is extended pursuant to Section 20, during the First Extension Term, Landlord shall arrange and pay for the replacement thereof at Landlord's sole cost and expense. If the Term of this Lease is further extended, either pursuant to Section 20 or by other agreement of the parties, and the roof surface and membrane needs to be replaced as a matter of prudent building management and ownership, as reasonably determined by an independent and qualified roofing consultant, during such additionally extended term. Tenant shall arrange and pay for the replacement thereof at Tenant's sole cost and expense. 8.4 Condition of the Premises. ------------------------- 8.4.1 Landlord warrants to Tenant that the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Tenant will put the Premises or to any alterations or utility installations made or to be made by Tenant. If the Premises do not comply with said warranty, Landlord shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Tenant setting forth with specificity the nature and extent of such condition of non-compliance, rectify the same at Landlord's expense. If Tenant fails to give Landlord written notice of a condition of non-compliance with this warranty within six (6) months after the Possession Date, the correction of such condition of non-compliance shall be the obligation of Tenant at Tenant's sole cost and expense. 8.4.2 Landlord and Tenant have jointly conducted a walk-through of the Premises and have agreed that those items which are set forth in Exhibit F --------- hereto require correction and that such items shall be corrected by Landlord, at its sole cost and expense. On or about the Possession Date, Landlord and Tenant shall conduct a subsequent walk-through of the Premises and shall jointly and reasonably determine if there are any new and additional items in the Premises which require correction and, if so, such items shall be added to Exhibit F. --------- Landlord shall cause the items set forth in Exhibit F, as the same may be --------- revised following the Possession Date walk through, to be corrected promptly and at Landlord's sole cost and expense. 9. ALTERATIONS. ----------- 9.1 Trade Fixtures: Alterations. Tenant may install necessary trade --------------------------- fixtures, equipment and furniture in the Premises, provided that such items are installed and are removable without structural or material damage to the Premises or the Project. Tenant shall not construct, nor allow to be constructed, any alterations or physical additions in, about or to the Premises without obtaining the prior written consent of Landlord, which consent shall be conditioned upon Tenant's compliance with Landlord's reasonable requirements regarding construction of improvements and alterations but such consent otherwise shall not be unreasonably withheld. Tenant shall submit plans and specifications to Landlord with Tenant's request for approval and shall reimburse Landlord for all costs which Landlord may incur in connection with granting approval to Tenant for any such alterations and additions, including any costs or expenses which Landlord may incur in electing to have outside architects and engineers review said matters. Tenant shall file a notice of completion after completion of such work and provide Landlord with a copy thereof. Tenant shall provide Landlord with a set of "as-built" drawings for any such work. 9.2 Damage: Removal. Tenant shall repair all damage to the Premises caused --------------- by the installation or removal of Tenant's fixtures, equipment, furniture and alterations. Upon the termination of this Lease, Tenant shall remove any or all alterations, additions, improvements and partitions made or installed by Tenant and restore the Premises to its condition existing prior to the construction of any such items; provided, however, Landlord may permit, upon written notice to Tenant, any such items designated by Landlord to remain on the Premises, in which event (and if Tenant elects to leave such items on the Premises) they shall be and become the property of Landlord upon the termination of this Lease. All such removals and restoration shall be accomplished in a good and workmanlike manner and so as not to cause any damage to the Premises or the Project whatsoever. 9.3 Liens. Tenant shall promptly pay and discharge all claims for labor ----- performed, supplies furnished and services rendered at the request of Tenant and shall keep the Premises free of all mechanics' and materialmen's liens in connection therewith. Tenant shall provide at least ten (l0) days prior written notice to Landlord before any labor is performed, supplies furnished or services rendered on or at the Premises and Landlord shall have the right to post on the Premises notices of non-responsibility. If any lien is filed, Tenant shall cause such lien to be released and removed within ten (10) days after the date of filing, and if Tenant fails to do so. Landlord may take such action as may be necessary to remove such lien and Tenant shall pay Landlord such amounts expended by Landlord together with interest thereon at the Applicable Interest Rate from the date of expenditure. 6. 10. USE. The Premises shall be used only for the Permitted Uses set forth in --- the Basic Lease Information and for no other uses. Tenant's use of the Premises shall be in compliance with and subject to all applicable governmental laws, ordinances, statutes, orders and regulations and any CC&R's or any supplement thereto recorded in any official or public records with respect to the Project or any portion thereof. In no event shall the Premises be used for any of the Prohibited Uses set forth on Exhibit E attached hereto. Tenant shall comply with --------- the reasonable rules and regulations as Landlord may from time to time prescribe. Tenant shall not commit waste, overload the floors or structure of the Premises, subject the Premises or the Project to any use which would damage the same or increase the risk of loss or violate any insurance coverage, permit any unreasonable odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises, take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants of the Project, take any action which would abrogate any warranties, or use or allow the Premises to be used for any unlawful purpose. Tenant shall have the right to use for its employees and invitees, the parking areas on the Premises. Landlord shall not be responsible for non-compliance by any other tenant or occupant of the Project with, or Landlord's failure to enforce, any of the rules or regulations or any other terms or provisions of such tenant's or occupant's lease. Tenant shall promptly comply with the reasonable requirements of any board of fire insurance underwriters or other similar body now or hereafter constituted. Tenant shall not do any act which shall in any way encumber the title of Landlord in and to the Premises or the Project. 11. ENVIRONMENTAL MATTERS. --------------------- 11.1 Hazardous Materials. Tenant shall not cause nor permit, nor allow any ------------------- of Tenant's employees, agents, customers, visitors, invitee's, licensees, contractors, assignees or subtenants (collectively, "Tenant's Parties") to cause or permit, any Hazardous Materials to be brought upon, stored, manufactured, generated, blended, handled, recycled, treated, disposed or used on, under or about the Premises or the Project, except for routine office and janitorial supplies in usual and customary quantities stored, used and disposed of in accordance with all applicable Environmental Laws. As used herein, "Hazardous Materials" means any chemical, substance, material, controlled substance, object, condition, waste, living organism or combination thereof which is or may be hazardous to human health or safety or to the environment due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytotoxicity, infectiousness or other harmful or potentially harmful properties or effects, including, without limitation, petroleum and petroleum products, asbestos, radon, polychlorinated biphenyls (PCBs) and all of those chemicals, substances, materials, controlled substances, objects, conditions, wastes, living organisms or combinations thereof which are now or become in the future listed, defined or regulated in any manner by any Environmental Law based upon, directly or indirectly, such properties or effects. As used herein, "Environmental Laws" means any and all federal, state or local environmental, health and/or safety-related laws, regulations, standards, decisions of courts, ordinances, rules, codes, orders, decrees, directives, guidelines, permits or permit conditions, currently existing and as amended, enacted, issued or adopted in the future which are or become applicable to Tenant, the Premises, the Building or the Project. Tenant and Tenant's Parties shall comply with all Environmental Laws and promptly notify Landlord of the violation of any Environmental Law or presence of any Hazardous Materials, other than office and janitorial supplies as permitted above, on the Premises. Landlord shall have the right to enter upon and inspect the Premises and to conduct tests, monitoring and investigations. If such tests indicate the presence of any environmental condition which occurred during the Term of this Lease, Tenant shall reimburse Landlord for the cost of conducting such tests. The phrase "environmental condition" shall mean any adverse condition relating to any Hazardous Materials or the environment, including surface water, groundwater. drinking water supply, land, surface or subsurface strata or the ambient air and includes air, land and water pollutants, noise, vibration, light and odors. In the event of any such environmental condition. Tenant shall promptly take any and all steps necessary to rectify the same to Landlord's reasonable satisfaction or shall, at Landlord's election, reimburse Landlord, upon demand, for the cost to Landlord of performing rectifying work. The reimbursement shall be paid to Landlord in advance of Landlord's performing such work, based upon Landlord's reasonable estimate of the cost thereof, and upon completion of such work by Landlord, Tenant shall pay to Landlord any shortfall within thirty (30) days after Landlord bills Tenant therefore or Landlord shall within thirty (30) days refund to Tenant any excess deposit, as the case may be. 11.2 Indemnification. Tenant shall indemnify, protect, defend (by --------------- counsel acceptable to Landlord) and hold harmless Landlord and its partners, directors, officers, employees, shareholders, lenders, agents, contractors and each of their respective successors and assigns (individually and collectively, "Indemnitees") from and against any and all claims, judgments, causes of action, damages, penalties, fines, taxes, costs, liabilities, losses and expenses arising at any time during or after the Term as a result (directly or indirectly) of or in connection with (a) Tenant and/or Tenant's Parties' breach of any prohibition or provision of the preceding section, or (b) the presence of Hazardous Materials on, under or about the Premises or other property as a result (directly or indirectly) of Tenant's and/or Tenant's Parties' activities, or failure to act, in connection with the Premises. This indemnity shall include the cost of any required or necessary repair, cleanup or detoxification, and the preparation and implementation of any closure, monitoring or other required plans, whether such action is required or necessary prior to or following the termination of this Lease. Neither the written consent by Landlord to the presence of Hazardous Materials on, under or about the Premises, nor the strict compliance by Tenant with all Environmental Laws, shall excuse Tenant from Tenant's obligation of indemnification pursuant hereto. Tenant's obligations pursuant to the foregoing indemnity shall survive the termination of this Lease. 7. 11.3 Landlord's Disclosure. Landlord has no actual knowledge and has --------------------- received no written notice that (i) any Hazardous Materials are located on, under, or in the Premises, or (ii) there is a pending proceeding, inquiry, investigation, or order by any governmental authority with respect to any Hazardous Materials on, under, or in the Premises. As use herein, the term "actual knowledge" means that the specific matter has come to the actual attention of the person or persons employed by Landlord who are responsible and authorized to act with respect to such matter. 11.4 Storage Tank Removal. The parties acknowledge that the previous -------------------- tenant of the Premises had installed a 10,000 gallon underground diesel storage tank (the "Tank"). Landlord shall remove or cause the Tank to be removed in accordance with all applicable laws and regulations and within sixty (60) days following the Commencement Date. Landlord further acknowledges and agrees that Tenant shall have no liability for any cost or expense arising out of the installation, use, or removal of the Tank. 12. DAMAGE AND DESTRUCTION. ---------------------- 12.1 Casualty. If the Premises should be damaged or destroyed by fire or -------- other casualty, Tenant shall give immediate written notice to Landlord. Within thirty (30) days after receipt thereof. Landlord shall notify Tenant whether the necessary repairs can reasonably be made: (a) within ninety (90) days; (b) in more than ninety (90) days but in less than one hundred eighty (180) days; or (c) in more than one hundred eighty (180) days from the date of such notice. 12.1.1 Less Than 90 Days. If the Premises should be damaged only to ----------------- such extent that rebuilding or repairs can reasonably be completed within ninety (90) days, this Lease shall not terminate and, provided that insurance proceeds are available to fully repair the damage. Landlord shall repair the Premises utilizing such insurance proceeds and shall not recover any of such repair costs from Tenant pursuant to Section 6. Landlord shall not be required to rebuild, repair or replace any alterations, partitions, fixtures, additions and other improvements (collectively, "Improvements") which may have been placed in, on or about the Premises by or for the benefit of Tenant, it being the intent of the parties that Tenant shall replace such Improvements utilizing insurance proceeds available to Tenant pursuant to Section 7.2.4. If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately from the date Tenant vacates all or a portion of the Premises only to the extent rental abatement insurance proceeds are received by Landlord and only during the period the Premises are unfit for occupancy. 12.1.2 Greater Than 90 Days. If the Premises should be damaged only -------------------- to such extent that rebuilding or repairs can reasonably be completed in more than ninety (90) days but in less than one hundred eighty (180) days, then Landlord shall have the option of: (a) terminating the Lease effective upon the occurrence of such damage, in which event the Rent shall be abated from the date Tenant vacates the Premises; or (b) electing to repair the Premises, provided insurance proceeds are available to fully repair the damage (except that Landlord shall not be required to rebuild, repair or replace any part of the Improvements which may have been placed In, on or about the Premises by or for the benefit of Tenant). If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately from the date Tenant vacates all or a portion of the Premises only to the extent rental abatement insurance proceeds are received by Landlord and only during the period the Premises are unfit for occupancy. In the event that Landlord should fail to substantially complete such repairs within one hundred eighty (180) days after the date upon which Landlord is notified by Tenant of the casualty (such period to be extended for delays caused by Tenant or because of any items of Force Majeure, as hereinafter defined) and Tenant has not re-occupied the Premises, Tenant shall have the right, as Tenant's exclusive remedy, within ten (10) days after the expiration of such one hundred eighty (180) day period, to terminate this Lease by delivering written notice to Landlord as Tenant's exclusive remedy, whereupon all rights hereunder shall cease and terminate thirty (30) days after Landlord's receipt of such notice. 12.1.3 Greater Than 180 Days. If the Premises should be so damaged --------------------- that rebuilding or repairs cannot be completed within one hundred eighty (180) days, either Landlord or Tenant may terminate this Lease by giving written notice within ten (10) days after notice from Landlord specifying such time period of repair; and this Lease shall terminate and the Rent shall be abated from the date Tenant vacates the Premises. In the event that neither party elects to terminate this Lease, Landlord shall promptly commence and diligently prosecute to completion the repairs to the Premises, provided insurance proceeds are available to repair the damage (except that Landlord shall not be required to rebuild, repair or replace any Improvements which may have been placed in, on or about the Premises by or for the benefit of Tenant). If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately from the date Tenant vacates all or a portion of the Premises only to the extent rental abatement insurance proceeds are received by Landlord and only during the period that the Premises are unfit for occupancy. 12.2 Tenant's Fault. If the Premises or any portion of the Premises is -------------- damaged resulting from the negligence or breach of this Lease by Tenant or any of Tenant's Parties, Rent shall not be reduced during the repair of such damage and Tenant shall be liable to Landlord for the cost of the repair caused thereby to the extent such cost is not covered by insurance proceeds. 8. 12.3 Uninsured Casualty. In the event that the Premises or any portion of ------------------ the Premises is damaged to the extent Tenant is unable to use the Premises and such damage is not covered by insurance proceeds received by Landlord or in the event that the holder of any indebtedness secured by the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right at Landlord's option either (i) to repair such damage as soon as reasonably possible at Landlord's expense, or (ii) to give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord's intention to terminate this Lease as of the date of the occurrence of such damage. In the event Landlord elects to terminate this Lease, Tenant shall have the right (but not the obligation) within ten (10) days after receipt of such notice to give written notice to Landlord of Tenant's intention to pay the cost of repair of such damage, in which event this Lease shall continue in full force and effect, Landlord shall make such repairs as soon as reasonably possible and Tenant shall reimburse Landlord for such repairs within fifteen (15) days after receipt of an invoice from Landlord. If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately from the date Tenant vacates all or a portion of the Premises only to the extent rental abatement insurance proceeds are received by Landlord and only during the period that the Premises are unfit for occupancy. If Tenant does not give such notice within the ten (l0) day period, this Lease shall terminate automatically as of the date of the occurrence of the damage. 12.4 Waiver. With respect to any damage or destruction which Landlord is ------ obligated to repair or may elect to repair, Tenant waives all rights to terminate this Lease pursuant to rights otherwise presently or hereafter accorded by law and not specifically set forth herein. 13. EMINENT DOMAIN. -------------- 13.1 Total Condemnation. If all of the Premises is condemned by eminent ------------------ domain, inversely condemned or sold under threat of condemnation for any public or quasi-public use or purpose ("Condemned"), this Lease shall terminate as of the earlier of the date the condemning authority takes title to or possession of the Premises, and Rent shall be adjusted to the date of termination. 13.2 Partial Condemnation. If any portion of the Premises is Condemned and -------------------- such partial condemnation materially impairs Tenant's ability to use the Premises for Tenant's business as reasonably determined by Landlord, Landlord shall have the option of either (i) relocating Tenant to comparable space within the Project or (ii) terminating this Lease as of the earlier of the date title vests in the condemning authority or as of the date an order of immediate possession is issued and Rent shall be adjusted to the date of termination. If such partial condemnation does not materially impair Tenant's ability to use the Premises for the business of Tenant, Landlord shall promptly restore the Premises to the extent of any condemnation proceeds recovered by Landlord, excluding the portion thereof lost in such condemnation, and this Lease shall continue in full force and effect except that after the date of such title vesting Rent shall be adjusted as reasonably determined by Landlord. 13.3 Award. If the Premises are wholly or partially Condemned, Landlord ----- shall be entitled to the entire award paid for such condemnation, and Tenant waives any claim to any part of the award from Landlord or the condemning authority; provided, however, Tenant shall have the right to recover from Landlord such compensation, if any, as may be specifically awarded to Landlord in connection with costs in removing Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment to a new location. No condemnation of any kind shall be construed to constitute an actual or constructive eviction of Tenant or a breach of any express or implied covenant of quiet enjoyment. 13.4 Temporary Condemnation. In the event of a temporary condemnation not ---------------------- extending beyond the Term, this Lease shall remain in effect, Tenant shall continue to pay Rent and Tenant shall receive any award made for such condemnation except damages to any of Landlord's property. If a temporary condemnation is for a period which extends beyond the Term, this Lease shall terminate as of the date of initial occupancy by the condemning authority and any such award shall be distributed in accordance with the preceding section. If a temporary condemnation remains in effect at the expiration or earlier termination of this Lease, Tenant shall pay Landlord the reasonable cost of performing any obligations required of Tenant with respect to the surrender of the Premises, unless Landlord receives such costs from the condemning authority. 14. DEFAULT ------- 14.1 Events of Defaults. The occurrence of any of the following events ------------------ shall, at Landlord's option, constitute an "Event of Default": 14.1.1 Vacation or abandonment of the Premises for a period of thirty (30) consecutive days; 14.1.2 Failure to pay Rent on the date when due and the failure continuing for a period of five (5) days after such payment is due; 14.1.3 Failure to perform Tenant's covenants and obligations hereunder (except default in the payment of Rent) where such failure continues for a period of thirty (30) days after written notice from Landlord: provided, however, if the 9. nature of the default is such that more than thirty (30) days are reasonably required for its cure. Tenant shall not be deemed to be in default if Tenant commences the cure within the thirty (30) day period and diligently prosecutes such cure to completion; 14.l.4 The making of a general assignment by Tenant for the benefit of creditors: the filing of a voluntary petition by Tenant or the filing of an involuntary petition by any of Tenant's creditors seeking the rehabilitation, liquidation or reorganization of Tenant under any law relating to bankruptcy, insolvency or other relief of debtors and, in the case of an involuntary action, the failure to remove or discharge the same within sixty (60) days of such filing; the appointment of a receiver or other custodian to take possession of substantially all of Tenant's assets or this leasehold: Tenant's insolvency or inability to pay Tenant's debts or failure generally to pay Tenant's debts when due; any court entering a decree or order directing the winding up or liquidation of Tenant or of substantially all of Tenants assets; Tenant taking any action toward the dissolution or winding up of Tenant's affairs: the cessation or suspension of Tenant's use of the Premises; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets or this leasehold; 14.1.5 The making of any material misrepresentation or omission by Tenant or any successor in interest of Tenant in any materials delivered by or on behalf of Tenant to Landlord or Landlord's lender pursuant to this Lease; or 14.l.6 The occurrence of an Event of Default set forth in Section 14.l.4 or l5.l.5 with respect to any guarantor of this Lease, if applicable. 14.2 Remedies. -------- 14.2.1 Termination. In the event of the occurrence of any Event of ----------- Default, Landlord shall have the right to give a written termination notice to Tenant and, on the date specified in such notice, this Lease shall terminate unless on or before such date all arrears of Rent and all other sums payable by Tenant under this Lease and all costs and expenses incurred by or on behalf of Landlord hereunder shall have been paid by Tenant and all other Events of Default at the time existing shall have been fully remedied to the satisfaction of Landlord. 14.2.l.l Repossession. Following termination, without ------------ prejudice to other remedies Landlord may have, Landlord may (i) peaceably re- enter the Premises upon voluntary surrender by Tenant or remove Tenant therefrom and any other persons occupying the Premises, using such legal proceedings as may be available; (ii) repossess the Premises or relet the Premises or any part thereof for such term (which may be for a term extending beyond the Term), at such rental and upon such other terms and conditions as Landlord in Landlord's sole discretion shall determine, with the right to make reasonable alterations and repairs to the Premises; and (iii) remove all personal property therefrom. 14.2.l.2 Unpaid Rent. Landlord shall have all the rights ----------- and remedies of a landlord provided by applicable law, including the right to recover from Tenant: (a) the worth, at the time of award, of the unpaid Rent that bad been earned at the time of termination, (b) the worth, at the time of award, of the amount by which the unpaid Rent that would have been earned after the date of termination until the time of award exceeds the amount of loss of rent that Tenant proves could have been reasonably avoided, (c) the worth, at the time of award, of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided, and (d) any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. The phrase "worth, at the time of award," as used in (a) and (b) above, shall be computed at the Applicable Interest Rate, and as used in (c) above, shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). 14.2.2 Continuation. Even though an Event of Default may ------------ have occurred, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession; and Landlord may enforce all of Landlord's rights and remedies under this Lease, including the right to recover Rent as it becomes due. Landlord, without terminating this Lease, may, during the period Tenant is in default, enter the Premises and relet the same, or any portion thereof, to third parties for Tenant's account and Tenant shall be liable to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, brokers' commissions, expenses of remodeling the Premises and like costs. Reletting may be for a period shorter or longer than the remaining Term. Tenant shall continue to pay the Rent on the date the same is due. No act by Landlord hereunder, including acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver upon application of Landlord to protect Landlord's interest under this Lease, shall terminate this Lease unless Landlord notifies Tenant that Landlord elects to terminate this Lease. In the event that Landlord elects to relet the Premises, the rent that Landlord receives from reletting shall be applied to the payment of, first, any indebtedness from Tenant to Landlord other than Base Rent and Real Property Taxes: second, all costs, including maintenance, incurred by Landlord in reletting; and, third, Base Rent and Real Property Taxes under this Lease. After deducting the payments referred to above, any sum remaining from the rental Landlord receives from reletting shall be held by Landlord and applied in payment of future Rent as Rent becomes due under this Lease. In no event, and notwithstanding anything in Section 15 to the contrary, shall Tenant be entitled to any excess rent received by Landlord. If, on the date Rent is due under this Lease, the rent received from the reletting is less than the Rent due on that date. Tenant shall pay to Landlord, in addition to the remaining 10. Rent due, all costs, including maintenance, which Landlord incurred in reletting the Premises that remain after applying the rent received from reletting as provided hereinabove. So long as this Lease is not terminated, Landlord shall have the right to remedy any default of Tenant, to maintain or improve the Premises, to cause a receiver to be appointed to administer the Premises and new or existing subleases and to add to the Rent payable hereunder all of Landlord's reasonable costs in so doing, with interest at the Applicable Interest Rate from the date of such expenditure. 14.3 Cumulative. Each right and remedy of Landlord provided for herein or ---------- now or hereafter existing at law, in equity, by statute or otherwise shall be cumulative and shall not preclude Landlord from exercising any other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity, by statute or otherwise. No payment by Tenant of a lesser amount than the Rent nor any endorsement on any check or letter accompanying any check or payment as Rent shall be deemed an accord and satisfaction of full payment of Rent; and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. 15. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, sublet or otherwise ------------------------- transfer, whether voluntarily or involuntarily or by operation of law, the Premises or any part thereof without Landlord's prior written approval, which shall not be unreasonably withheld. The merger of Tenant with any other entity or the transfer of any controlling or managing ownership or beneficial interest in Tenant, or the assignment of a substantial portion of the assets of Tenant, whether or not located at the Premises, shall constitute an assignment hereunder. If Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant shall give Landlord written notice thereof with copies of all related documents and agreements associated with the assignment or sublease, including without limitation, the financial statements of any proposed assignee or subtenant, forty-five (45) days prior to the anticipated effective date of the assignment or sublease. Tenant shall pay Landlord's reasonable attorneys' fees incurred in the review of such documentation plus an administrative fee of Three Hundred Fifty Dollars ($350.00) for each proposed transfer. Landlord shall have a period of thirty (30) days following receipt of such notice and all related documents and agreements to notify Tenant in writing of Landlord's approval or disapproval of the proposed assignment or sublease. If Landlord fails to notify Tenant in writing of such election, Landlord shall be deemed to have approved such assignment or subletting. This Lease may not be assigned by operation of law. Any purported assignment or subletting contrary to the provisions hereof shall be void and shall constitute an Event of Default hereunder. If Tenant receives rent or other consideration for any such transfer in excess of the Rent, or in case of the sublease of a portion of the Premises, in excess of such Rent that is fairly allocable to such portion, after appropriate adjustments to assure that all other payments required hereunder are appropriately taken into account, Tenant shall pay landlord fifty percent (50%) of the difference between each such payment of rent or other consideration and the Rent required hereunder. During any period in which an Event of Default (as defined in Section 14.1) remains uncured, Landlord may, without waiving any other rights or remedies, collect rent from the assignee, subtenant or occupant and apply the net amount collected to the Rent herein reserved and apportion any excess rent so collected in accordance with the terms of the preceding sentence. Tenant shall continue to be liable as a principal and not as a guarantor or surety to the same extent as though no assignment or subletting had been made. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to the Lease by assignees of Tenant without notifying Tenant or any successor of Tenant and without obtaining their consent. No permitted transfer shall be effective until there has been delivered to Landlord a counterpart of the transfer instrument in which the transferee agrees to be and remain jointly and severally liable with Tenant for the payment of Rent pertaining to the Premises and for the performance of all the terms and provisions of this Lease relating thereto arising on or after the date of the transfer. Subject to the provisions hereof and provided Landlord receives thirty (30) days prior written notice and a true and correct copy of the assignment instrument. Landlord hereby consents to the assignment of Tenant's interest in and to this Lease to any wholly owned subsidiary of Tenant. 16. ESTOPPEL ATTORNMENT AND SUBORDINATION. ------------------------------------- l6.l Estoppel. Within ten (l0) days after request by Landlord, Tenant -------- shall deliver an Estoppel certificate duly executed (and acknowledged if required by any lender), in the form attached hereto as Exhibit G, or in such --------- other form as may be acceptable to the lender, which form may include some or all of the provisions contained in Exhibit G, to any proposed mortgagee, --------- purchaser or Landlord. Tenant's failure to deliver said statement in such time period shall be an Event of Default hereunder and shall be conclusive upon Tenant that (a) this Lease is in full force and effect, without modification except as may be represented by Landlord; (b) there are no uncured defaults in Landlord's performance and Tenant has no right of offset, counterclaim or deduction against Rent hereunder, and (c) no more than one month's Base Rent has been paid in advance. If any financier should require that this Lease be amended (other than in the description of the Premises, the Term, the Permitted Use, the Rent or as will substantially, materially and adversely affect the rights of Tenant), Landlord shall give written notice thereof to Tenant, which notice shall be accompanied by a Lease supplement embodying such amendments. Tenant shall, within ten (10) days after the receipt of Landlord's notice, meet and confer with Landlord in good faith with respect to such proposed amendments. l6.2 Subordination. This Lease shall be subject and subordinate to all ------------- ground leases and the lien of all mortgages and deeds of trust which now or hereafter affect the Premises or the Project or Landlord's interest therein, and all amendments thereto, all without the necessity of Tenant's executing further instruments to effect such subordination. If requested, Tenant shall execute and deliver to Landlord within ten (10) days after Landlord's request whatever documentation that may 11. reasonably be required to further effect the provisions of this paragraph. With respect to any new mortgage or deed of trust encumbering the Premises after the date of this Lease, Landlord shall use its best efforts to obtain from such mortgagee or beneficiary under the deed of trust a non-disturbance agreement in such party's usual and customary form protecting the interest of Tenant hereunder. l6.3 Attornment. In the event of a foreclosure proceeding, the exercise ---------- of the power of sale under any mortgage or deed of trust or the termination of a ground lease, Tenant shall, if requested, attorn to the purchaser thereupon and recognize such purchaser as Landlord under this Lease; provided, however, Tenant's obligation to attorn to such purchaser shall be conditioned upon Tenant's receipt of a non-disturbance agreement protecting the interest of Tenant hereunder. 17. MISCELLANEOUS ------------- 17.1 General. ------- 17.1.1 Entire Agreement. This Lease sets forth all the agreements ---------------- between Landlord and Tenant concerning the Premises; and there are no agreements either oral or written other than as set forth herein. 17.1.2 Time of Essence. Time is of the essence of this Lease. --------------- 17.13 Attorneys' Fees. In any action or proceeding which either --------------- party brings against the other to enforce its rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party, including reasonable attorneys' fees, which amounts shall be a part of the judgment in said action or proceeding. 17.1.4 Severability. If any provision of this Lease or the ------------ application of any such provision shall be held by a court of competent jurisdiction to be invalid, void or unenforceable to any extent, the remaining provisions of this Lease and the application thereof shall remain in full force and effect and shall not be affected, impaired or invalidated. 17.1.5 Law. This Lease shall be construed and enforced in --- accordance with the laws of the state in which the Premises are located. 17.1.6 No Option. Submission of this Lease to Tenant for --------- examination or negotiation does not constitute an option to lease, offer to lease or a reservation of, or option for, the Premises; and this document shall become effective and binding only upon the execution and delivery hereof by Landlord and Tenant. 17.1.7 Successors and Assigns. This Lease shall be binding upon and ---------------------- inure to the benefit of the successors and assigns of Landlord and, subject to compliance with the terms of Section 15, Tenant. 17.1.8 Third Party Beneficiaries. Nothing herein is intended to ------------------------- create any third party benefit. 17.1.9 Memorandum of Lease. Tenant shall not record this Lease or a ------------------- short form memorandum hereof without Landlord's prior written consent. 17.1.10 Agency. Partnership or Joint Venture. Nothing contained ------ herein nor any acts of the parties hereto shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or of partnership or of joint venture by the parties hereto or any relationship other than the relationship of landlord and tenant. 17.1.11 Merger. The voluntary or other surrender of this Lease by ------ Tenant or a mutual cancellation thereof or a termination by Landlord shall not work a merger and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 17.1.12 Headings. Section headings have been inserted solely as a -------- matter of convenience and are not intended to define or limit the scope of any of the provisions contained therein. 17.2 Signs. All signs and graphics of every kind visible in or from ----- public view or the exterior of the Premises shall be subject to Landlord's prior written approval and shall be subject to any applicable governmental laws, ordinances, and regulations and in compliance with Landlord's signage program. Tenant shall remove all such signs and graphics prior to the termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury or defacement of the Premises; and Tenant shall repair any injury or defacement, including without limitation, discoloration caused by such installation or removal. 17.3 Waiver. No waiver of any default or breach hereunder shall be ------ implied from any omission to take action on account thereof, notwithstanding any custom and practice or course of dealing. No waiver by either party of any provision under this Lease shall be effective unless in writing and signed by such party. No waiver shall affect any default other than 12. the default specified in the waiver and then such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant shall not be construed as a waiver of any subsequent breach of the same. 17.4 Financial Statements. Tenant shall provide to any lender, purchaser -------------------- or Landlord, within ten (10) days after request, a current, accurate, certified financial statement for Tenant and Tenant's business prepared under generally accepted accounting principles consistently applied and such other certified financial information as may be reasonably required by Landlord, purchaser or any lender of either. 17.5 Limitation of Liability. The obligations of Landlord under this Lease ----------------------- are not personal obligations of the individual partners, directors, officers, shareholders, agents or employees of Landlord; and Tenant shall look solely to the Premises for satisfaction of any liability of Landlord and shall not look to other assets of Landlord nor seek recourse against the assets of the individual partners, directors, officers, shareholders, agents or employees of Landlord. Whenever Landlord transfers its interest, Landlord shall be automatically released from further performance under this Lease and from all further liabilities and expenses hereunder and the transferee of Landlord's interest shall assume all liabilities and obligations of Landlord hereunder from the date of such transfer. 17.6 Notices. All notices to be given hereunder shall be in writing and ------- mailed postage prepaid by certified or registered mail, return receipt requested, or delivered by personal or courier delivery, or sent by facsimile (immediately followed by one of the preceding methods), to Landlord's Address and Tenant's Address, or to such other place as Landlord or Tenant may designate in a written notice given to the other party. Notices shall be deemed served upon the earlier of receipt or three (3) days after the date of mailing. 17.7 Brokerage Commission. Landlord shall pay a brokerage commission to -------------------- Broker in accordance with a separate agreement between Landlord and Broker. Tenant warrants to Landlord that Tenant's sole contact with Landlord or with the Premises in connection with this transaction has been directly with Landlord and Broker, and that no other broker or finder can properly claim a right to a commission or a finder's fee based upon contacts between the claimant and Tenant. Tenant agrees to indemnify and hold Landlord harmless from any claims or liability, including reasonable attorneys' fees, in connection with a claim by any person for a real estate broker's commission, finder's fee or other compensation based upon any statement, representation or agreement of Tenant, and Landlord agrees to indemnify and hold Tenant harmless from any such claims or liability, including reasonable attorneys' fees, based upon any statement, representation or agreement of Landlord. 17.8 Authorization. Each individual executing this Lease on behalf of ------------- Tenant represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of Tenant and that such execution is binding upon Tenant. 17.9 Holding Over Surrender. ---------------------- 17.9.1 Holding Over. If Tenant holds over the Premises or any part ------------ thereof after expiration of the Term, such holding over shall constitute a month-to-month tenancy, at a rent equal to one hundred twenty-five percent (125%) of the Base Rent in effect immediately prior to such holding over and shall otherwise be on all the other terms and conditions of this Lease. This paragraph shall not be construed as Landlord's permission for Tenant to hold over. Acceptance of Rent by Landlord following expiration or termination shall not constitute a renewal of this Lease or extension of the Term except as specifically set forth above. If Tenant fails to surrender the Premises upon expiration or earlier termination of this Lease. Tenant shall indemnify and hold Landlord harmless from and against all loss or liability resulting from or arising out of Tenant's failure to surrender the Premises, including, but not limited to, any amounts required to be paid to any tenant or prospective tenant who was to have occupied the Premises after the expiration or earlier termination of this Lease and any related attorneys' fees and brokerage commissions. l7.9.2 Surrender. Upon the termination of this Lease or Tenant's --------- right to possession of the Premises, Tenant will surrender the Premises, together with all keys, in good condition and repair, reasonable wear and tear excepted. Conditions existing because of Tenant's failure to perform maintenance, repairs or replacements shall not be deemed "reasonable wear and tear." 17.l0 Joint and Several. If Tenant consists of more than one person, the ----------------- obligation of all such persons shall be joint and several. 17.1l Covenants and Conditions. Each provision to be performed by Tenant ------------------------ hereunder shall be deemed to be both a covenant and a condition. l7.l2 Addenda. The Addenda attached hereto, if any, and identified with ------- this Lease are incorporated herein by this reference as if fully set forth herein. 13. IN WITNESS WHEREOF, the parties have executed this Lease as of the date set forth above. "Landlord" "Tenant" CATELLUS DEVELOPMENT CORPORATION, MOHAWK INDUSTRIES. INC., a Delaware corporation a Georgia corporation By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE] ---------------------------- ---------------------------- Its: VP Its: PRESIDENT --------------------------- ------------------------ Date: 12-4-95 Date: 11-28-95 --------------------------- ------------------------ ADDENDUM TO LEASE ----------------- THIS ADDENDUM TO LEASE ("Addendum") is attached to and constitutes an integral part of the Lease between CATELLUS DEVELOPMENT CORPORATION, as Landlord, and MOHAWK INDUSTRIES, INC., as Tenant. The terms of this Addendum shall be incorporated in the Lease for all purposes. In the event of a conflict between the provisions of the Lease and the provisions of this Addendum, this Addendum shall control. THE FOLLOWING NEW SECTIONS ARE HEREBY ADDED TO THE LEASE WHICH STATE IN THEIR ENTIRETY AS FOLLOWS: 18. Force Majeure Event. For purposes of this Lease, the term "Force Majeure ------------------- Event" shall mean and include the following: any delay caused by any action, inaction, order, ruling, moratorium, regulation, statute, condition or other decision of any governmental agency having jurisdiction over any portion of the Project, over the construction anticipated to occur thereon or over any uses thereof, or by fire, flood, inclement weather, strikes, lockouts or other labor or industrial disturbance (whether or not on the part of agents or employees of either party hereto engaged in the construction of the Premises), civil disturbance, order of any government, court or regulatory body claiming jurisdiction or otherwise, act of public enemy, war, riot, sabotage, blockade, embargo, failure or inability to secure materials, supplies or labor through ordinary sources by reason of shortages or priority, discovery of hazardous or toxic materials, earthquake, or other natural disaster, or any cause whatsoever beyond the reasonable control (excluding financial inability) of the party whose performance is required, or any of its contractors or other representatives, whether or not similar to any of the causes hereinabove stated. 19. CPI Adjustment. Effective as of the first day of the thirty-first (31st) -------------- month of the Term (the "CPI Adjustment Date"), the Base Rent in effect immediately before the CPI Adjustment Date shall be increased, in accordance with the percentage increase, if any, in the Consumer Price Index, to an amount which is equal to the product of (i) the Index (as hereinafter defined) for the third month preceding the CPI Adjustment Date, multiplied by (ii) the initial Base Rent set forth in the Basic Lease Information, divided by (iii) the Basic Index (as hereinafter defined); provided, however, in no event shall the Base Rent (as adjusted) in effect immediately prior to the CPI Adjustment Date be decreased, nor shall it be increased as a result of a CPI adjustment by more than six percent (6%) per Lease Year, compounded annually. The "Index" shall mean the Consumer Price Index, All Items, 1982-1984 = 100, All Urban Consumers, for the Los Angeles/Riverside/Anaheim Area, as published by the United States Department of Labor, Bureau of Labor Statistics, or its successor index, and the "Basic Index" shall mean the Index published for the third month preceding the Commencement Date. The adjusted Base Rent shall be rounded to the nearest $1.00. If the Index required for the calculation specified in this subsection is not available on the CPI Adjustment Date in question, Tenant shall continue to pay the same amount of Base Rent payable during the period immediately preceding the CPI Adjustment Date until the Index is available and the necessary calculation is made. As soon as such calculation is made, Tenant shall immediately pay to Landlord the amount of any underpayment of Base Rent for the month(s) that may have elapsed. In the event the compilation or publication of the Index shall be transferred to any other governmental department, bureau or agency or shall be discontinued, the index most nearly the same as the Index shall be used to make such calculation. 15. 20. Options to Extend. ----------------- 20.1 Terms of Options. Provided (i) Tenant is not in default under the ---------------- terms of this Lease at the time each renewal option is exercised or at the commencement of the applicable Extension Term (as hereinafter defined), (ii) Tenant is occupying at least ninety percent (90%) of the Premises, including any expansion space, and (iii) Landlord has not given more than two (2) notices of default in any twelve (12) month period for nonpayment of monetary obligations, Tenant shall have two (2) options to renew this Lease for an additional period of sixty (60) months each (the "First and Second Extension Terms"). The Extension Terms shall be on all the terms and conditions of this Lease, except that Landlord shall have no additional obligation for free rent, leasehold improvements or for any other tenant inducements for the Extension Terms. Base Rent shall be increased (but not decreased) as set forth below. There shall be no additional extension terms beyond the Extension Terms set forth herein. Tenant must exercise its options to extend this Lease by giving Landlord written notice of its election to do so not less than one hundred eighty (180) days prior to the end of the initial Term, or the First Extension Term, as applicable. Any notice not given in a timely manner shall be void, and Tenant shall be deemed to have waived its extension rights. The extension options set forth herein are personal to Tenant and shall not be included in any assignment of this Lease. 20.2 Base Rent During First Extension Term. Effective as of the first day ------------------------------------- of the First Extension Term, and on the first day of the thirty-first (31st) month thereafter (the "First Extension CPI Adjustment Date(s)"), the monthly Base Rent shall be increased in accordance with the percentage increase, if any, in the Consumer Price Index, calculated in the manner set forth in Section 19; provided, however, in no event shall the Base Rent (as adjusted) in effect immediately prior to the applicable First Extension CPI Adjustment Date be decreased, nor shall it be increased as a result of a CPI adjustment by more than six percent (6%) per Lease Year, compounded annually. 20.3 Base Rent During Second Extension Term. The monthly Base Rent payable -------------------------------------- for the first thirty (30) months of the Second Extension Term shall be increased (but not decreased) to 98% of the fair market rental rate ("Market Rent") to be determined as follows: 20.3.1 Agreement on Base Rent. Landlord and Tenant shall have thirty ---------------------- (30) days after Landlord receives the exercise notice in which to agree on the Base Rent during the Second Extension Term. Notwithstanding anything in this Section 20.3 to the contrary, in no event shall the Base Rent for the Second Extension Term be less than the Base Rent in effect immediately prior to the Second Extension Term. 20.3.2 Appraisal. If Landlord and Tenant are unable to agree upon the --------- Base Rent for the Second Extension Term within such thirty (30) day period, then within fifteen (15) days after the expiration of the thirty (30) day period, each party, by giving notice to the other party, shall appoint a real estate appraiser who is a current member of the American Institute of Real Estate Appraisers, with at least five (5) years of experience appraising building space comparable to the Premises in the city and county where the Premises is located to determine the Market Rent. Market Rent shall mean the monthly amount per rentable square foot in the Premises that a willing, non-equity new tenant would pay and a willing landlord would accept at arm's length for space in a comparable building or buildings, with comparable tenant improvements, in a comparable location, giving appropriate consideration to monthly rental rates per rentable square foot, the presence or absence of rent escalation clauses such as operating expense and tax pass-throughs, length of lease term, size and location of premises being leased and other 16. generally applicable terms and conditions of tenancy for a similar building or buildings. If the two (2) appraisers are unable to agree on the Market Rent for the Second Extension Term within twenty (20) days, they shall select a third appraiser meeting the qualifications stated in this Section within five (5) days after the last day the two (2) appraisers are given to set the Market Rent for the Second Extension Term. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party. Within twenty (20) days after the selection of the third appraiser, a majority of the appraisers shall set the Market Rent for the Second Extension Term. If a majority of the appraisers is unable to set the Market Rent within the twenty (20) day period, the two (2) closest appraisals shall be added together and their total divided by two (2). The resulting quotient shall be the Market Rent for the first thirty (30) months of the Second Extension Term. Each party shall be responsible for the costs, charges and fees of the appraiser appointed by that party plus one-half of the cost of the third appraiser. 20.3.3 Amendment of Lease. Immediately after the Base Rent is ------------------ determined pursuant to this Section 20.3, Landlord and Tenant shall execute an amendment to this Lease stating the new Base Rent in effect. 20.3.4 Base Rent Increase During Second Extension Term. Effective ----------------------------------------------- as of the first day of the thirty-first (31st) month of the Second Extension Term (the "Second Extension CPI Adjustment Date"), the monthly Base Rent shall be increased in accordance with the percentage increase, if any, in the Consumer Price Index, calculated in the manner set forth in Section 19; except that the Index shall be multiplied by the monthly Base Rent payable during the first thirty (30) months of the Second Extension Term, and the Basic Index shall mean the Index published for the third month preceding the commencement of the Second Extension Term; provided, however, in no event shall the Base Rent in effect after the Second Extension CPI Adjustment Date be less than the Base Rent in effect immediately preceding the Second Extension CPI Adjustment Date. LANDLORD'S INITIALS ILLEGIBLE TENANT'S INITIALS JL ----------- -------- 17. EXHIBIT A [PLAN APPEARS HERE] EXHIBIT B --------- WORK LETTER ----------- Tenant Improvements. - ------------------- 1.1 Landlord shall construct or cause to be constructed in and to the Premises, at Landlord's cost and expense, not to exceed One Hundred Eighty Thousand Dollars ($180,000.00), certain tenant improvements, including space planning, permits and related costs (the "Tenant Improvements"), substantially in accordance with the space plan or other appropriate exhibit (the "Space Plan") attached hereto, marked Exhibit B-1 and made a part hereof and in accordance ----------- with Landlord's current building standards. If said Exhibit is not attached, the Space Plan shall be prepared by Landlord and submitted to Tenant for approval, which approval shall be given within five (5) days following receipt thereof, and evidenced by Tenant's signature thereon. A failure by Tenant to respond within said five (5) day period shall be deemed approval. Upon approval by both parties, the Space Plan shall be deemed incorporated herein by reference, although not attached hereto. 1.2 The Tenant Improvements shall include costs approved by Landlord and associated with the design, permit process and construction (including, a fee equal to five percent (5%) of the total cost thereof as reimbursement for the expense of Landlord's administration and coordination) of the Tenant Improvements, including but not limited to, architect's fees, plan check and permit fees, and fees for utility and telephone service hook-ups. The Tenant Improvements shall not include any improvements which Landlord, in its sole discretion, considers specialized, or any equipment or trade fixtures of Tenant, nor any improvements not shown on the Space Plan which Tenant may desire or governing agencies may require. 1.3 In the event that Tenant desires any change in the Tenant Improvements which is reasonable and practical (which shall be conclusively determined by the Architect), such change may only be requested by the delivery to Landlord by Tenant of a proposed written "Change Order" specifically setting forth the requested change. Landlord shall have five (5) business days from the receipt of the proposed Change Order to provide Tenant with the Architect's disapproval of the proposed change stating the reason(s) for such disapproval, or if the Architect approves the proposed change, the following items: (i) a summary of any increase in the cost caused by such change (the "Change Order Cost"), (ii) a statement of the number of days of any delay caused by such proposed change (the "Change Order Delay"), and (iii) a statement of the cost of the Change Order Delay (the "Change Order Delay Expense"), which Change Order Delay Expense shall be the product of the number of days of delay multiplied by $2,500.00. Tenant shall then have three (3) business days to approve the Change Order Cost, the Change Order Delay and the Change Order Delay Expense. If Tenant gives timely written notice of approval of the Change Order Cost, the Change Order Delay and the Change Order Delay Expense, Landlord shall promptly execute the Change Order and cause the appropriate changes to the Plans and Specifications to be made. Tenant's approval shall include full payment of the Change Order Cost and Change Order Delay Expense. If Tenant fails to respond to Landlord within said three (3) business day period, the Change Order Cost, the Change Order Delay and the Change Order Delay Expense shall be deemed disapproved by Tenant and Landlord shall have no further obligation to perform any work set forth in the proposed Change Order. The Change Order Cost shall include all costs associated with the Change Order, including, without limitation, architectural fees and construction costs, as conclusively determined by the Architect and the General Contractor, respectively, together with a five percent (5%) fee of these costs as reimbursement for the expense of administration and coordination of such Change Order by Landlord. The Change Order Delay shall include all delays caused by the Change Order, including, without limitation, all architectural and construction delays, as conclusively determined by the Architect and the General Contractor, respectively. 1.4 Landlord hereby to assign to Tenant, upon request, the benefit of any and all contractor's and manufacturer's warranties received by Landlord in connection with the construction of the Tenant Improvements. LANDLORD'S INITIALS ILLEGIBLE TENANT'S INITIALS ______ ---------- EXHIBIT B-1 ----------- SPACE PLAN ---------- EXHIBIT C --------- COMMENCEMENT DATE MEMORANDUM ---------------------------- With respect to that certain lease ("Lease") dated ___________, 19 __, between __________________, a_________________("Tenant"), and Catellus Development Corporation, a Delaware corporation ("Landlord"), whereby Landlord leased to Tenant and Tenant leased from Landlord approximately _______ rentable square feet of the building located at ________________________("Premises"), Tenant hereby acknowledges and certifies to Landlord as follows: (1) Landlord delivered possession of the Premises to Tenant in a Substantially completed condition on _____________________ ("Possession Date"); (2) The Commencement Date is _________________________ (3) The Premises contain ________ square feet of space; and (4) Tenant has accepted and is currently in possession of the Premises and the Premises are acceptable for Tenant's use. IN WITNESS WHEREOF, this Commencement Date Memorandum is executed this _____ day of _____________, 199_. "Tenant" _______________________________ a _____________________________ By: ___________________________ Its: ________________________ By: ___________________________ Its: ________________________ [LOGO] CERTIFICATE OF INSURANCE ISSUE DATE (MM/DD/YY) - -------------------------------------------------------------------------------- PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. -------------------------------------------------------------------------------- COMPANIES AFFORDING COVERAGE (Must have "Best" Rating of "A, B" or better) -------------------------------------------------------------------------------- COMPANY LETTER A -------------------------------------------------------------------------------- - ---------------------------------- COMPANY INSURED LETTER B -------------------------------------------------------------------------------- COMPANY LETTER C -------------------------------------------------------------------------------- COMPANY D LETTER -------------------------------------------------------------------------------- COMPANY E LETTER - --------------------------------------------------------------------------------------------------------------------------------
COVERAGES THIS IS TO CERTIFY THAT POLICIES OF INSURANCE LISTED BELOW HAVE SEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS, AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
- -------------------------------------------------------------------------------------------------------------------------------- CO TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION LTR DATE (MM/DD/YY) DATE (MM/DD/YY) DATE (MM/DD/YY) - -------------------------------------------------------------------------------------------------------------------------------- GENERAL LIABILITY [X] COMMERICAL GENERAL LIABILITY [_] [_] CLAIMS MADE [X] OCCURRENCE [X] OWNER'S & CONTRACTORS PROTECTIVE [X] Railroad Prot. Liab. [X] X C 11 Included - -------------------------------------------------------------------------------------------------------------------------------- AUTOMOBILE LIABILITY [X] ANY AUTO [_] ALL DAMAGED AUTOS [_] SCHEDULED AUTOS [X] HIRED AUTOS [X] NON-OWNED AUTOS [X] GARAGE LIABILITY [_] ___________________ - -------------------------------------------------------------------------------------------------------------------------------- EXCESS LIABILITY [X] Following Form [_] OTHER THAN UMBRELLA FORM - -------------------------------------------------------------------------------------------------------------------------------- WORKERS COMPENSATION AND EMPLOYERS' LIABILITY - -------------------------------------------------------------------------------------------------------------------------------- OTHER - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- CO TYPE OF INSURANCE ALL LIMITS IN THOUSANDS LTR - -------------------------------------------------------------------------------------------------------------------- GENERAL LIABILITY GENERAL AGGREGATE $ 2,000 -------------------------------------------------- [X] COMMERICAL GENERAL LIABILITY PRODUCTS -COMP/OPS AGGREGATE $ 2,000 -------------------------------------------------- [_] [_] CLAIMS MADE [X] OCCURRENCE PERSONAL & ADVERTISING [ILLEGIBLE] $ 2,000 -------------------------------------------------- [X] OWNER'S & CONTRACTORS PROTECTIVE EACH OCCURRENCE $ 2,000 -------------------------------------------------- [X] Railroad Prot. Liab. FIRE DAMAGE (ANY ONE FIRE) $ 50 -------------------------------------------------- [X] X C 11 Included MEDICAL EXPENSE (ANY ONE PERSON) $ 5 - -------------------------------------------------------------------------------------------------------------------- AUTOMOBILE LIABILITY [X] ANY AUTO CK $ 2,000 -------------------------------------------------- [_] ALL DAMAGED AUTOS BODILY INJURY [_] SCHEDULED AUTOS PER PERSON $ -------------------------------------------------- [X] HIRED AUTOS BODILY INJURY [X] NON-OWNED AUTOS PER ACCIDENT -------------------------------------------------- [X] GARAGE LIABILITY PROPERTY DAMAGE $ [_] ___________________ - -------------------------------------------------------------------------------------------------------------------- EXCESS LIABILITY EACH AGGREGATE OCCURRENCE [X] Following Form $ $ [_] OTHER THAN UMBRELLA FORM - -------------------------------------------------------------------------------------------------------------------- STATUTORY --------------------------------------------------- WORKERS COMPENSATION $ 1,000 (EACH ACCIDENT) AND $ 1,000 ([ILLEGIBLE] POLICY EMPLOYERS' LIABILITY $ 1,000 ([ILLEGIBLE]- EACH EMPLOYEE - -------------------------------------------------------------------------------------------------------------------- OTHER - --------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/RESTRICTIONS/SPECIAL ITEMS Certificate holder is named as additional insured as respects: ___________________________________________________________________ (Location) Refer to Additional Insured endorsement attached. Aggregate limits apply per location.
CERTIFICATE HOLDER CANCELLATION CATELLUS DEVELOPMENT CORPORATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE 1065 N. PACIFICENTER DRIVE, SUITE 200 EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO ANAHEIM, CA 92806 MAIL 60 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE ATTN: ASSET MANAGEMENT LEFT FAX (714) 237-7416 ____________________________________________________________________ AUTHORIZED REPRESENTATIVE
ACORD EVIDENCE OF PROPERTY INSURANCE DATE (MM/DD/YY) THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY. (Must have "Best" Rating of "A 8" OR Better [ILLEGIBLE] Company CODE SUB-CODE [ILLEGIBLE] LOAN NUMBER POLICY NUMBER EFFECTIVE DATE (MM/DD/YY) OPERATION DATE (MM/DD/YY) CONT. UNTIL TERMINATED [ILLEGIBLE] [ILLEGIBLE] REPLACES FROM EVIDENCE DATED: - ------------------------------------------------------------------------------------------------------------------------
PROPERTY INFORMATION LOCATION/DESCRIPTION (provide address of leased premises)
- -------------------------------------------------------------------------------------------------------------------------- COVERAGE INFORMATION COVERAGE INFORMATION AMOUNT OF INSURANCE DEDUCTABLE Business Personal Property (including Tenants Improvements and Betterments, if applicable) $ ______________ $ _____________ Business Income (100% contribution) $ ______________ $ _____________ Boiler & Machinery (if applicable) $ ______________ $ _____________ Warehousers legal liability (if applicable) $ ______________ $ _____________ Replacement Cost Coverage, special form - -------------------------------------------------------------------------------------------------------------------------- REMARKS (Including Special Conclusions) Waiver of Subrogation provision included (per lease) - --------------------------------------------------------------------------------------------------------------------------
CANCELLATION THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE ADDITIONAL INTEREST IDENTIFIED BELOW 60 DAYS WRITTEN NOTICE, AND WILL SEND NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST. IN ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW.
- -------------------------------------------------------------------------------------------------------------------------- ADDITIONAL INTEREST NAME AND ADDRESS NATURE OF INTEREST CATELLUS DEVELOPMENT CORPORATION [ILLEGIBLE] ADDITIONAL [ILLEGIBLE] 1065 N. PACIFICENTER DRIVE, SUITE 200 ANAHEIM, CA 92808 LOSS PATEE (OTHERS) Landlord ----------------------------------------------------------------------------- ATTN: ASSET MANAGEMENT SIGNATURE OF AUTHORIZED AGENT OF COMPANY FAX 714) 237-7416 ACORD 27 (2/88) D ACORD CORPORATION 19[ILLEGIBLE] - --------------------------------------------------------------------------------------------------------------------------
EXHIBIT E ---------- PROHIBITED USES --------------- The following types of operations and activities are expressly prohibited on the Premises: 1. automobile/truck maintenance, repair or fueling; 2. battery manufacturing or reclamation; 3. ceramics and jewelry manufacturing or finishing; 4. chemical (organic or inorganic) storage, use or manufacturing; 5. drum recycling; 6. dry cleaning; 7. electronic components manufacturing; 8. electroplating and metal finishing; 9. explosives manufacturing, use or storage; 10. hazardous waste treatment, storage, or disposal; 11. leather production, tanning or finishing; 12. machinery and tool manufacturing; 13. medical equipment manufacturing and hospitals; 14. metal shredding, recycling or reclamation; 15. metal smelting and refining; 16. mining; 17. paint, pigment and coating operations; 18. petroleum refining; 19. plastic and synthetic materials manufacturing; 20. solvent reclamation; 21. tire and rubber manufacturing; 22. above- and/or underground storage tanks; and 23. residential use or occupancy. EXHIBIT F --------- CORRECTION ITEMS ---------------- EXHIBIT G --------- TENANT ESTOPPEL CERTIFICATE --------------------------- To: Bank of America National Trust and Savings Association ("Bank") Real Estate Industries Division No. _______ ____________________________________ ____________________________________ Attn: ______________________________ Re: Lease Dated: __________________ Current Landlord: __________________ Current Tenant: __________________ Square Feet: Approximately ____ Floor(s): __________________ Located at: __________________ ____________ ("Tenant") hereby certifies that as of ________________, 199_. 1. Tenant is the present owner and holder of the tenant's interest under the lease described above, as it may be amended to date (the "Lease") with ________________ as Landlord (who is called "Borrower" for the purposes of this Certificate). (USE THE NEXT SENTENCE IF THE LANDLORD OR TENANT NAMED IN THE ------------------------------------------------------------ LEASE IS A PREDECESSOR TO THE CURRENT LANDLORD OR TENANT.) [The original - -------------------------------------------------------- landlord under the Lease was _____________________, and the original tenant under the Lease was ________________.] The Lease covers the premises commonly known as ________________ (the "Premises") in the building (the "Building") at the address set forth above. (CHOOSE ONE OF THE FOLLOWING SECTION 2(a)s BELOW) ------------------------------------------------- [2. (a) A true, correct and complete copy of the Lease (including all modifications, amendments, supplements, side letters, addenda and riders of and to it) is attached to this Certificate as Exhibit A.] [2 (a) The attached Exhibit A accurately identifies the Lease and all --------- modifications, amendments, supplements, side letters, addenda and riders of and to it.] (b) (IF APPLICABLE) [The Lease provides that in addition to the ------------- Premises, Tenant has the right to use or rent ______ [assigned/unassigned] parking spaces near the Building or in the garage portion of the building during the term of the Lease.] (c) The term of the Lease commenced on _________ 199__ and will expire on ______________, ___, including any presently exercised option or renewal term. (CHOOSE ONE OF THE FOLLOWING TWO SENTENCES.) [Tenant has no option ----------------------------------------- or right to renew, extend or cancel the Lease, or to lease additional space in the Premises or Building, or to use any parking (IF APPLICABLE) [other than that ------------- specified in Section 2(b) above].] [Except as specified in Paragraph(s) _______ of the Lease (copy attached), Tenant has no option or right to renew, extend or cancel the Lease, or to lease additional space in the Premises or Building, or to use any parking (IF APPLICABLE) [other than that specified in Section 2(b) ------------- above].] (CHOOSE ONE OF THE FOLLOWING SECTION 2(d)s) ----------------------------------------- [(d) Tenant has no option or preferential right to purchase all or any part of the Premises (or the land of which the Premises are a part). Tenant has no right or interest with respect to the Premises or the Building other than as Tenant under the Lease.] [(d) Except as specified in Paragraph(s) ___________ of the Lease (copy attached), Tenant has no option or preferential right to purchase all or any part of the Premises (or the land of which the Premises are a part). Except for the foregoing, Tenant has no right or interest with respect to the Premises or the Building other than as Tenant under the Lease.] (e) The annual minimum rent currently payable under the Lease is $___________ and such rent has been paid through _____________, 199__. (IF -- APPLICABLE) [The annual percentage rent currently payable under the Lease is at - ---------- the rate of _______ and such rent has been paid through ______________, 199_.] (f) (IF APPLICABLE) [Additional rent is payable under the Lease ------------- for (i) operating, maintenance or repair expenses, (ii) property taxes, (iii) consumer price index cost of living adjustments, or (iv) percentage of gross sales adjustments (i.e., adjustments made based on underpayments of percentage ---- rent). Such additional rent has been paid in accordance with Borrower's rendered bills through ___________, 199_. The base year amounts for additional rental items are as follows: (1) operating, maintenance or repair expenses $________________ (2) property taxes $___________, and (3) consumer price index ______________ (please indicate base year CPI level).] (g) Tenant has made no agreement with Borrower or any agent, representative or employee of Borrower CONCERNING FREE RENT, PARTIAL rent, rebate of rental payments or any other similar rent concession (IF APPLICABLE) ------------- [except as expressly set forth in Paragraph(s) ___ of the Lease (copy attached)]. (h) Borrower currently holds a security deposit in the amount of $_____________ which is to be applied by Borrower or returned to Tenant in accordance with Paragraph(s) __ of the Lease. Tenant acknowledges and agrees that Bank shall have no responsibility or liability for any security deposit, except to the extent that any security deposit shall have been actually received by Bank. 3. (a) The Lease constitutes the entire agreement between Tenant and Borrower with respect to the Premises, has not been modified changed, altered or amended and is in full force and effect in the form (CHOOSE ONE) [attached ---------- as/described in] Exhibit A. There are no other agreements, written or oral, which affect Tenant's occupancy of the Premises. (b) All insurance required of Tenant under the Lease has been provided by Tenant and all premiums have been paid. (c) To the best knowledge of Tenant, no party is in default under the Lease. To the best knowledge of Tenant, no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default. (d) The interest of Tenant in the Lease has not been assigned or encumbered. Tenant is not entitled to any credit against any rent or other charge or rent concession under the Lease except as set forth in the Lease. No rental payments have been made more than one month in advance. 4. All contributions required to be paid by Borrower to date for improvements to the Premises have been paid in full and all of Borrower's obligations with respect to tenant improvements have been fully performed. Tenant has accepted the Premises, subject to no conditions other than those set forth in the Lease. 5. Neither Tenant nor any guarantor of Tenant's obligations under the Lease is the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships. 6. (a) As used here, "Hazardous Substance" means any substance, material or waste (including petroleum and petroleum products) which is designated, classified or regulated as being "toxic" or "hazardous" or a "pollutant" or which is similarly designated, classified or regulated, under any federal, state or local law, regulation or ordinance. (b) Tenant represents and warrants that it has not used, generated, released, discharged, stored or disposed of any Hazardous Substances on, under, in or about the Building or the land on which the Building is located (IF -- APPLICABLE) [,other than Hazardous Substances used in the ordinary and - ---------- commercially reasonable course of Tenant's business in compliance with all applicable laws]. (IF APPLICABLE) [Except for such commercially reasonable use ------------- by Tenant,] Tenant has no actual knowledge that any Hazardous Substance is present, or has been used, generated, released, discharged, stored or disposed of by any party, on, under, in or about such Building or land. 2 7. Tenant hereby acknowledges that Borrower (CHOOSE ONE) [intends to ---------- encumber/has encumbered] the property containing the Premises with a Deed of Trust in favor of Bank. Tenant acknowledges the right of Borrower, Bank and any and all of Borrower's present and future lenders to rely upon the statements and representations of Tenant contained in this Certificate and further acknowledges that any loan secured by any such Deed of Trust or further deeds of trust will be made and entered into in material reliance on this Certificate. 8. Tenant hereby agrees to furnish Bank with such other and further estoppel as Bank may reasonably request. ___________________________ By:________________________ Name:______________________ Title: ____________________ 3 PARTICIPATION AGREEMENT ----------------------- THIS PARTICIPATION AGREEMENT ("Agreement") is made and entered into as of this 4/th/ day of DEC., 1995 by and between LA MIRADA REDEVELOPMENT AGENCY, a public body, corporate and politic ("Agency"), and MOHAWK INDUSTRIES, INC., a Georgia corporation ("Participant"), with reference to the following: RECITALS -------- A. Agency exists and is organized under, and exercises governmental functions and powers pursuant, to the Community Redevelopment Law of the State of California (California Health and Safety Code Section 33000, et seq.). --------------------------------- ------ B. Agency desires to implement that certain Redevelopment Plan For Project Area I adopted by Ordinance No. 221 of the City Council of the City of La Mirada ("City") on July 16, 1974, as amended by Ordinance No. 390 on December 23, 1986 and further amended by Ordinance No. 420 on June 28, 1998 (the "Redevelopment Plan"). C. Participant has acquired, or intends to acquire, fee title to, or a leasehold interest in, certain real property located at 16400 Trojan Way, La Mirada, California, which real property had previously been developed urban use property and which real property, is identified and described in Exhibit A --------- attached hereto (the "Property"), for the purpose of developing and operating an approximately 220,000 square foot distribution and sales facility for sale and/or distribution of carpeting and related products. D. In connection with implementation of the Redevelopment Plan, Agency desires to encourage and provide for Participant's proposed development, improvement and use of the Property on the terms and conditions contained herein. AGREEMENT --------- NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Agency and Participant agree as follows: 1. Recitals. Each of the recitals set forth above is true and correct, -------- and is incorporated herein by this reference. 2. Purpose. This Agreement is intended to effectuate the California ------- Community Redevelopment Law of the State of California (California Health and --------------------- Safety Code Section 33000, et seq.) by - ----------- ------ providing for the development, improvement and use of the Property. In particular, but without limitation, the development, improvement and use of the Property as contemplated in this Agreement will assist in the generation of additional sales tax and property tax revenues to the City and Agency as well as assist in the creation of additional jobs and economic opportunities for the residents of the City. Consequently, the development, improvement and use of the Property as contemplated herein, and the fulfillment generally of this Agreement, are in the vital and best interests of the City and the welfare of its residents, and in accordance with the public purposes and provisions of applicable federal, state and local laws and requirements. 3. Financial Assistance. In consideration of Participant's development, -------------------- improvement, use and operation of the Property and its entry into this Agreement, for a period of up to ten (10) years Agency shall periodically pay to Participant the Specified Amount (as defined below) at the times, in the amounts and subject to the conditions contained herein. 3.1 Conditions Precedent. Notwithstanding anything to the contrary -------------------- contained in this Agreement, Agency's obligation to pay the Specified Amount to Participant is expressly contingent and conditional upon (i) Participant paying any and all taxes applicable to or arising out of Participant's ownership (whether a fee or leasehold interest), operation, use and/or enjoyment of the Property (including, without limitation, all taxes attributable to sales occurring on the Property), (ii) Participant timely delivering to Agency full and complete copies of the Sales Tax Reports (as defined below), (iii) City receiving and having the legal right under state law to retain and control the disposition of its portion of all Sales Tax Revenues (as defined below), (iv) Participant retaining and continuing to solely own either fee title or a leasehold interest in the Property in its entirety, and (v) Participant's continued use and occupancy of substantially all of the Property in compliance with all of the terms of this Agreement including, without limitation, use and operation of the Property for the purpose of sale and distribution of carpeting and related products (the "Specified Use") as provided in Paragraph 5.1 below, ------------- maintenance of the Property as provided in Paragraph 5.2 below, and compliance ------------- with the non-discrimination provisions of Paragraph 19 below. In the event that ------------ any or all of conditions (i) through (v) above shall not be satisfied or shall no longer be satisfied, Agency shall be relieved of its obligations under this Agreement for payment of the Specified Amount and Agency may terminate this Agreement upon written notice to Participant. 3.2 Specified Amount. As used herein, the term "Specified Amount" ---------------- shall mean the following: -2- (a) for the first and second Contract Years (as defined below), the Specified Amount shall be an amount equal to the sum of (1) one hundred percent (100%) of the Sales Tax Revenues for each Contract Year in excess of $150,000 but not exceeding $300,000, and (2) fifty percent (50%) of the Sales Tax Revenue for each Contract Year in excess of $300,000. (b) for the third, fourth and fifth Contract Years, the Specified Amount shall be an amount equal to the sum of (1) one hundred percent (100%) of the Sales Tax Revenues for each Contract Year in excess of $200,000 but not exceeding $400,000, and (2) fifty percent (50%) of the Sales Tax Revenue for each Contract Year in excess of $400,000. (c) for the sixth through tenth Contract Years, the Specified Amount shall be an amount equal to the sum of (1) one hundred percent (100%) of the Sales Tax Revenues for each Contract Year in excess of $250,000 but not exceeding $500,000, and (2) fifty percent (50%) of the Sales Tax Revenue for each Contract Year in excess of $500,000. The Specified Amount due Participant under this Agreement shall be paid by Agency in arrears, on an annual basis, within sixty (60) days of City's and/or Agency's receipt of all of its share of such Sale Tax Revenues during the preceding four (4) calendar quarters. 3.3 Contract Year. As used herein, the term "Contract Year" shall ------------- mean a period of four (4) full calendar quarters. The first Contract Year shall be deemed to have commenced as of the first day of the calendar quarter in which Participant shall have substantially opened for business at the Property. For example, if Participant were to substantially open for business on July 15, 1995, the first Contract Year would be deemed to have commenced as of July 1, 1995 and each subsequent Contract Year would be deemed to have commenced as of July 1 of such subsequent years. 3.4 Sales Tax Revenues. As used herein, the term "Sales Tax Revenues" ------------------ shall mean the total tax revenues paid by Participant and ultimately remitted by the State Board of Equalization to City and/or Agency (the disposition of which under then applicable state law is controlled by City and/or Agency) with respect to the sale of any carpeting, related products or incidental goods sold on the Property, or from a point of sale location outside the City, pursuant to the Bradley-Burns Uniform Sales and Use Tax Law (California Revenue and Taxation ------------------------------- Code Section 7200 et seq.), as such law may be amended from time to time; - ---- ------ provided, however, that such tax revenues, for the purposes of this Agreement, shall be deemed never to exceed a maximum of one percent (1%) of the total taxable sales on the -3- Property or from such other point of sale location outside the City. 3.5 Sales Tax Reports. As used herein, the term "Sales Tax Reports" ----------------- shall mean the statements and quarterly reports, and any other or supplemental reports, statements or submissions, actually filed or required to be filed by Participant with the State Board of Equalization relating to or in connection with the collection, remittance and/or calculation of Sales Tax Revenues from the Property and/or any other facilities owned or operated by Participant within the State of California. The Sales Tax Reports shall be delivered by Participant to Agency on or before January 31, April 30, July 31 and October 31 of each fiscal year (July 1-June 30). 3.6 Termination. Agency's obligations under this Agreement for ----------- periodic payment of the Specified Amount to Participant shall terminate upon the earlier of (i) written notice by Agency to Participant of the occurrence of any of the events specified in Paragraph 3.1(i) through (v) above, (ii) breach of ---------------------------- this Agreement by Participant, (iii) expiration of the tenth (10th) Contract Year, or (iv) written notice of termination by Participant to Agency pursuant to Paragraph 7 below. In addition, this Agreement shall terminate in the event that - ----------- Participant shall fail to acquire fee title to, or a leasehold interest in, all of the Property, and thereby qualify as "participant" within the meaning of the Redevelopment Plan, on or before December 31, 1995. 4. Compliance With Laws and Requirements. Participant acknowledges and ------------------------------------- agrees that the execution of this Agreement by Agency does not in any way constitute, nor shall the same be inferred to constitute, waiver by Agency or City of any applicable laws, regulations, requirements, permits, fees or agreements pertaining to or affecting Participant's acquisition, or proposed development, improvement, construction, occupancy or use, of the Property all of which shall continue to be and remain fully applicable and effective with the same force and effect as if this Agreement had never been executed by Agency and Participant. 5. Use and Maintenance of the Property. As additional consideration to ----------------------------------- Agency to enter into this Agreement, and as a material and substantial inducement to Agency in the absence of which Agency would not have entered into this Agreement, Participant agrees to use and maintain the Property as provided herein. 5.1 Use of the Property. Participant shall continuously use and ------------------- operate substantially all of the Property for the Specified Use. Participant specifically acknowledges and agrees that, as provided in Paragraph 3.1(v) ---------------- above, Participant's -4- continued use and operation of the Property for the Specified Use is a condition precedent to Agency's obligations under this Agreement. Participant covenants and agrees that Participant shall not either directly or indirectly, in its own name or in the name of any affiliated entity, enter into any other sales tax subsidy agreement or a similar agreement with any other governmental agency or take any other action which would cause or facilitate the transfer to another location or locations of the sales contemplated in this Agreement to occur from the Property's operation for the Specified Use. In addition, Participant expressly covenants and agrees that for the full remaining term of the Redevelopment Plan and irrespective of the earlier expiration or termination of this Agreement, Participant shall not use or permit the use of the Property for any purpose other than the purposes authorized in the Redevelopment Plan. 5.2 Maintenance of the Property. Participant covenants and agrees to --------------------------- maintain all improvements on the Property in good condition and repair (and, as to landscaping, in a healthy condition) and in accordance with all other applicable laws, rules, ordinances, orders, and regulations of all federal, state, county, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials. In addition, Participant shall keep the Property free from all graffiti and any accumulation of debris or waste material. Participant shall make all repairs and replacements necessary to keep the improvements in good condition and repair and shall promptly eliminate all graffiti and replace dead and diseased plants and landscaping with comparable approved materials. In the event that Participant breaches any of the covenants contained in this Paragraph --------- 5.2 and such default continues for a period of five (5) business days after - --- written notice from Agency (with respect to landscaping, graffiti, debris, waste material, and general maintenance) or thirty (30) days after written notice from Agency (with respect to building improvements), then Agency and/or City, in addition to whatever other remedy it may have at law or in equity, shall have the right to enter upon the Property and perform or cause to be performed all such acts and work necessary to cure the default. Pursuant to such right of entry, Agency and/or City shall be permitted (but are not required) to enter upon the Property and perform all acts and work necessary to protect, maintain, and preserve the improvements and landscaped areas on the Property, and to attach a lien on the Property, or to assess the Property, in the amount of the expenditures arising from such acts and work of protection, maintenance, and preservation by Agency and/or City and/or costs of such cure, including a fifteen percent (15%) administrative charge, which amount shall be promptly paid by Participant to Agency upon demand. -5- In addition to any other remedy that Agency may have, it shall be entitled to pay to the City the amount of any duly imposed assessments against the Property, and to reduce the Specified Amount in a corresponding sum. Such assessments might include, but shall not be limited to, the amounts required for parking lot maintenance, landscape maintenance, graffiti removal or debris or hazardous waste removal. No such assessment shall be made unless the provisions of this Agreement have been complied with and the City's nuisance abatement procedures. 6. No Third-Party Beneficiaries. Nothing contained in this Agreement is ---------------------------- intended nor shall this Agreement be construed as creating any third party beneficiary to this Agreement, and no person or entity other than Agency and Participant, and to the extent expressly permitted hereunder their permitted successors and assigns, shall be authorized to enforce the provisions of this Agreement. 7. Indemnification. Participant shall indemnify, defend (with counsel --------------- selected by Agency), protect and hold harmless Agency and City, and each of their officers, officials, employees and agents from and against any and all challenges (including, without limitation, CEQA challenge to the development, improvement or use of the Property as contemplated herein), claims, damages, liabilities, causes of action, losses and expenses (including, without limitation, attorneys' fees and costs) arising out of or incurred in connection with this Agreement and/or Participant's performance or non-performance hereof; provided, however, (i) in the event that any judicial action is filed against Agency by any third party challenging the validity or enforceability of this Agreement or seeking to prohibit the performance of this Agreement (including, without limitation, CEQA challenge to the development, improvement or use of the Property as contemplated herein), within thirty (30) days of receipt of written notice of such judicial action Participant may terminate this Agreement by written notice of termination to Agency, (ii) after that date which is one (1) year from the date Participant shall substantially open for business at the Property, Participant's obligation to indemnify, defend, protect and hold harmless Agency and City as provided in this paragraph shall be limited to challenges, claims, damages, liabilities, causes of action, losses and expenses (including, without limitation, attorneys' fees and costs) arising out of or incurred in connection with Participant's performance or non-performance hereof, and (iii) Participant shall have no obligation under this paragraph to indemnify, defend, protect and hold harmless Agency and the City from any challenges, claims, damages, liabilities, causes of action, losses and expenses (including, without limitation, attorneys' fees and costs) arising out of or incurred by reason of negligent acts or intentional misconduct of Agency or City. -6- 8. Attorneys' Fees. If Agency or Participant institutes any legal action --------------- or arbitration proceeding against the other in connection with any controversy related to, concerning or arising out of the Agreement, or any facts based upon or involving the Agreement, the prevailing party, whether in court, through arbitration, or by way of out-of-court settlement, shall be entitled to recover from the non-prevailing party such prevailing party's attorney's fees, court costs, expert witness fees and other expenses relating to such controversy, including such fees, costs and expenses on appeal, if any, and the arbitrator(s), if any, is hereby authorized to make such an award to the prevailing party in arbitration. 9. Entire Agreement. This Agreement shall constitute the entire agreement ---------------- between Agency and Participant with respect to the subject matter hereof, and all prior or contemporaneous negotiations and agreements relating thereto, whether oral or written, are merged herein and shall be of no further force or effect. 10. Time of the Essence. Time is of the essence of this Agreement and each ------------------- and every provision hereof. 11. Counterparts. Agency and Participant agree that this Agreement may be ------------ executed in two or more counterparts, each of which shall be an original but all of the same when taken together shall be deemed one and the same instrument. 12. Modifications. This Agreement may only be modified in writing pursuant ------------- to a written agreement executed by both Agency and Participant. 13. Notices. Any notice required or permitted to be given under this ------- Agreement, shall be in writing and personally delivered or sent by United States mail, registered or certified mail, or sent by Federal Express or other nationally recognized overnight delivery service, postage prepaid, return receipt requested, and addressed to the addressee at the address set forth below (or such other address as either party may from time to time specify in writing to the other in the manner provided herein), and shall be deemed to have been given upon the date of actual delivery (or refusal to accept delivery) as indicated on the return receipt. If to Agency: La Mirada Redevelopment Agency 13700 La Mirada Boulevard La Mirada, CA 90638 Attn: Economic Development Department -7- If to Participant: Mohawk Industries, Inc. P.O. Box 2208 --------------------------- Dalton GA 30722 --------------------------- Attn: Jack Sharpe ------------------- 14. Assignment. Participant acknowledges and agrees that the rights, ---------- benefits, duties and obligations of Participant as provided in this Agreement are personal to Participant. Neither this Agreement nor any rights, benefits, duties or obligations of Participant may be assigned or delegated to any other person or entity except as follows: (a) upon compliance with the requirements of subparagraph (b) below, without the prior consent of Agency, Participant may assign all, but not a portion, of Participant's rights, benefits, duties and obligations under this Agreement to (i) any affiliated person or entity, any successor by merger or other entity resulting from a corporate reorganization ("Affiliated Transferee"), or (ii) any unaffiliated person or entity which will use and operate the Property for a retail sales and distribution center which is reasonably anticipated to produce Sales Tax Revenues from the Property comparable or in excess of that produced by Participant from the Property ("Unaffiliated Transferee"); (b) each Affiliated Transferee or Unaffiliated Transferee (collectively, "Transferee") shall (i) acquire Participant's entire interest in the Property, (ii) continue to use, operate and maintain the Property as provided in this Agreement, and (iii) execute, acknowledge and deliver to Agency a written assumption agreement in form and substance reasonably acceptable to Agency. Except as provided in subparagraph (a) above, any purported assignment or delegation by Participant without such consent, at Agency's option, shall be void and of no force or effect. Agency expressly reserves the right to assign and delegate its obligations under this Agreement. 15. Captions. The paragraph headings or captions used herein are for -------- convenience only and are not a part of this instrument and do not in any way limit, define or amplify the scope or intent of the terms and provisions hereof. 16. Invalidity of Provision. If any provision of this Agreement shall be ----------------------- adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the same shall in no way affect (to the maximum extent permissible by law) any other provision of this Agreement or the application of any such provision under circumstances different from those adjudicated by -8- the court, or the validity or enforceability of the instrument as a whole. 17. Recording. At Agency's sole option to evidence of record Agency's --------- acquisition of certain interests in the Property as specifically provided in this Agreement, within ten (10) days of Agency's written request to Participant, Participant shall execute, acknowledge and deliver to Agency a memorandum of this Agreement in the form attached hereto as Exhibit B, which memorandum may be --------- filed and/or recorded by Agency in the office of the County Recorder of Los Angeles County, California. 18. Governing Law. This Agreement and the terms hereof shall be governed ------------- by and construed in accordance with the laws of the State of California. 19. Non-Discrimination. ------------------ 19.1 Obligation to Refrain from Discrimination. There shall be no ----------------------------------------- discrimination against, or segregation of, any persons, or group of persons, on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the enjoyment of the Property, nor shall Participant itself, or any person claiming under or through it, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, subtenants, sublessees, or vendees of the Property or any portion thereof. 19.2 Form Non-Discrimination and Non-Segregation Clauses. Participant --------------------------------------------------- shall refrain from restricting the rental, sale, or lease of any portion of the Property, or contracts relating to the Property, on the basis of race, color, creed, religion, sex, marital status, ancestry, or national origin of any person. All such deeds, leases or contracts shall contain or be subject to substantially the following non-discrimination or non-segregation clauses: (a) In deeds: "The grantee herein covenants by and for himself or herself, his or her heirs, executors, administrators, and assigns, and all persons claiming under or through them, that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure, or enjoyment of the land herein conveyed, nor shall the grantee or any person claiming under or through him or her, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, sublessees, -9- or vendees in the land herein conveyed. The foregoing covenants shall run with the land." (b) In leases: "The lessee herein covenants by and for himself or herself, his or her heirs, executors, administrators, and assigns, and all persons claiming under or through him or her, and this lease is made and accepted upon and subject to the following conditions: "That there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of the land herein leased, nor shall the lessee himself, or any person claiming under or through him or her, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, sublessees, subtenants, or vendees in the land herein leased." (c) In contracts: "That there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, religion, sex, marital status, ancestry, or national origin in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of the land herein leased, nor shall the transferee himself, or any person claiming under or through him or her establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy of tenants, lessees, sublessees, subtenants, or vendees of land." 19.3 Effect of Covenants. Agency is deemed a beneficiary of the terms ------------------- and provisions of this Agreement and of the restrictions and covenants for and in its own right and for the purposes of protecting the interests of the community and other parties, public or private, in whose favor and for whose benefit the covenants have been provided. Agency shall have the right, if any of the covenants set forth in this Agreement which are provided for its benefit are breached, to exercise all rights and remedies and to maintain any actions or suits at law or in equity or other proper proceedings to enforce the curing of such -10- breaches to which it or any other beneficiaries of such covenants may be entitled. IN WITNESS WHEREOF, Agency and Participant have executed this Agreement in duplicate as of the day and year first above written. AGENCY: - ------ LA MIRADA REDEVELOPMENT AGENCY By: /s/ C. David Peters ---------------------------- C. David Peters, Chairman Attest: /s/ Gail A. Vasquez ----------------------- Gail A. Vasquez Assistant Secretary Approved as to form: /s/ Scott D. Rogers ------------------------- Scott D. Rogers Landels, Ripley & Diamond Attorneys for Agency PARTICIPANT: - ----------- MOHAWK INDUSTRIES, INC., a Georgia corporation By: /s/ [SIGNATURE ILLEGIBLE] ---------------------------- Its: President --------------------------- By: /s/ [SIGNATURE ILLEGIBLE] ---------------------------- Its: ILLEGIBLE --------------------------- -11- EXHIBIT A DESCRIPTION OF PROPERTY ----------------------- PARCEL 1 OF PARCEL MAP NO. 1492 AS SHOWN ON MAP FILED IN BOOK 28, PAGE 88, OF PARCEL MAPS FILED NOVEMBER 18, 1990 IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA EXHIBIT B Recording Requested By and When Recorded Mail To: LA MIRADA REDEVELOPMENT AGENCY 13700 La Mirada Boulevard La Mirada, CA 90638 Attn: Economic Development Department - -------------------------------------------------------------------------------- MEMORANDUM OF AGREEMENT ----------------------- THIS MEMORANDUM OF AGREEMENT (this "Memorandum") is made and entered into as of the 4th day of December, 1995 by and among MOHAWK INDUSTIES, INC., a Georgia corporation ("Participant"), and LA MIRADA REDEVELOPMENT AGENCY, a public body, corporate and politic ("Agency"), with reference to the following: R E C I T A L S --------------- A: Participant is the current owner of a leasehold or fee title interest in and to certain real property located in the City of La Mirada, State of California and more particularly described in attached Exhibit 1 (the "Property"). B. Participant and Agency have entered that certain unrecorded Participation Agreement dated as of ___________, 1995 (the "Agreement"). The Agreement provides, among other things, that Agency will make certain financial assistance available to Participant and that Participant will develop, improve, use and maintain the Property, all as more specifically provided therein. C. Pursuant to the Agreement, Participant and Agency have agreed to record this Memorandum to reflect of record and provide notice of the Agreement and Agency's acquisition of certain interests in the Property. A G R E E M E N T ----------------- NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Participant and Agency for themselves and all of their respective successors and assigns acknowledge and agree as follows: 1. Recitals; Incorporation of Agreement: Definitions. Each of the ------------------------------------------------- recitals set forth above is true and correct and is incorporated herein by this reference. All of the terms and conditions of the Agreement are incorporated herein by this -13- reference with the same effect as if set forth herein in full. All words and phrases having their initial letters capitalized in this Memorandum and not specifically defined herein shall have the meanings set forth in the Agreement. 2. Financial Assistance From Agency. As provided in the Agreement, Agency -------------------------------- does hereby agree to pay to Participant the Specified Amount at the times, in the amounts and subject to the terms and conditions set forth in the Agreement. 3. Grant of Interest; Covenants of Participant. As provided in the ------------------------------------------- Agreement, Participant does hereby agree to, and grants to Agency an interest in the Property sufficient to cause Participant to, comply with applicable laws, use and maintain the Property and indemnify Agency and the City of La Mirada as provided in and subject to the terms and conditions set forth in the Agreement. Without limiting the foregoing, as provided in the Agreement, Participant specifically covenants and agrees that the Property shall only be used and operated for the purpose of sale and distribution of carpeting and related products. 4. Covenant Running With the Land. The Agreement and this Memorandum ------------------------------ shall be and constitute a covenant running with the land, such that this Agreement and this Memorandum shall be binding and effective against the Property and each and every current and subsequent owner of all or any portion of the Property or right or interest therein. 5. Interpretation. In the event of any conflict between the terms -------------- contained in this Memorandum and the terms contained in -14- the Agreement, the terms contained in the Agreement shall prevail and be controlling. IN WITNESS WHEREOF, Agency and Participant have executed this Memorandum effective as of the date first set forth above. AGENCY: - ------ LA MIRADA REDEVELOPMENT AGENCY By: _______________________________ C. David Peters, Chairman Attest: _____________________ Gail A. Vasquez, Assistant Secretary Approved as to form: ___________________ Scott D. Rogers Landels, Ripley & Diamond Attorneys for Agency PARTICIPANT : - ----------- MOHAWK INDUSTRIES, INC. a Georgia corporation By: _________________________ Its : _______________________ By : ________________________ Its: ________________________ [ALL SIGNATURES TO BE ACKNOWLEDGED] -15- EXHIBIT 1 DESCRIPTION OF PROPERTY ----------------------- PARCEL 1 OF PARCEL MAP NO. 1492 AS SHOWN ON MAP FILED IN BOOK 28, PAGE 88, OF PARCEL MAPS FILED NOVEMBER 18, 1990 IN THE OFFICE OF THE COUNTY RECORDER OF LOS ANGELES COUNTY, CALIFORNIA -16- SINGLE TENANT INDUSTRIAL LEASE ------------------------------ Effective Date: December 4, 1995 (The date set forth below Landlord's signature.) BASIC LEASE INFORMATION ----------------------- Landlord: CATELLUS DEVELOPMENT CORPORATION, a Delaware corporation Landlord's Address For Notice: 1065 N. PacifiCenter Drive, Suite 200 Anaheim, CA 92806 Attn: Asset Management Telephone: (714) 630-8100 Fax: (714) 237-7416 Landlord's Address For Payment of Rent: File #53694 Los Angeles, CA 90074-3694 Tenant: MOHAWK INDUSTRIES, INC., a Georgia corporation Tenant's Address For Notice: P.O. Box 2208 --------------------------------- Dalton CA, 30722 --------------------------------- Attn: Jack Sharpe ---------------------------- Telephone: 706-277-1100 ----------------------- Fax: 706-277-1440 ----------------------------- Project: 16400 Trojan Way Building: Approximately 220,000 rentable square feet as shown in Exhibit A. --------- Building Address: Street: 16400 Trojan Way City and State: La Mirada, CA 90638 Lot: The tax parcel on which the Building is located. Term: Sixty (60) months Estimated Commencement Date: September 1, 1996 Base Rent Per Month: Seventy Four Thousand Eight Hundred Dollars ($74,800.00) Security Deposit: None Broker: Lee & Associates Lease Year: Shall refer to each three hundred sixty-five (365) day period during the Term commencing on the Commencement Date and on each anniversary thereof. Permitted Uses: Warehousing and distribution of carpet and no other uses shall be permitted without the prior written consent of Landlord. (i) EXHIBITS A - Building\Lot-Premises B - Work Letter B-1 - Space Plan C - Commencement Date Memorandum D - Insurance Certificate E - Prohibited Uses F - Correction Items G - Estoppel Certificate The Basic Lease Information set forth above and the Exhibits attached hereto are incorporated into and made a part of the following Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the provisions of the Lease, the latter shall control. LANDLORD [ILLEGIBLE] AND TENANT (JV) AGREE. initial initial (ii) Table of Contents -----------------
Page ---- 1. PREMISES......................................................... 1 1.1 Premises.................................................. 1 1.2 Reserved Rights........................................... 1 2. TERM............................................................. 1 2.1 Lease Term and Commencement Date........................... 1 2.2 Possession................................................. 1 3. RENT............................................................. 2 3.1 Rent....................................................... 2 3.2 Late Charge and Interest................................... 2 3.3 Intentionally Omitted...................................... 2 4. UTILITIES........................................................ 2 5. TAXES............................................................ 2 5.1 Real Property Taxes........................................ 2 5.2 Personal Property Taxes.................................... 3 6. TRIPLE NET LEASE................................................. 3 7. INSURANCE........................................................ 3 7.1 Landlord................................................... 3 7.2 Tenant .................................................... 3 7.3 General.................................................... 4 7.4 Indemnity.................................................. 4 7.5 Exemption of Landlord from Liability....................... 5 8. REPAIRS AND MAINTENANCE.......................................... 5 8.1 Landlord................................................... 5 8.2 Tenant..................................................... 5 8.3 Roof - Repair and Replacement.............................. 6 8.4 Condition of the Premises.................................. 6 9. ALTERATIONS...................................................... 6 9.1 Trade Fixtures; Alterations................................ 6 9.2 Damage; Removal............................................ 6 9.3 Liens...................................................... 6 10. USE.............................................................. 7 11. ENVIRONMENTAL MATTERS............................................ 7 11.1 Hazardous Materials........................................ 7 11.2 Indemnification............................................ 7 11.3 Landlord's Disclosure...................................... 8 11.4 Storage Tank Removal....................................... 8 12. DAMAGE AND DESTRUCTION........................................... 8 12.1 Casualty................................................... 8 12.2 Tenant's Fault ............................................ 8 12.3 Uninsured Casualty......................................... 9 12.4 Waiver..................................................... 9 13. EMINENT DOMAIN................................................... 9 13.1 Total Condemnation ........................................ 9 13.2 Partial Condemnation....................................... 9 13.3 Award...................................................... 9 13.4 Temporary Condemnation..................................... 9
(iii) 14. DEFAULT............................................................. 9 14.1 Events of Defaults............................................ 9 14.2 Remedies...................................................... 10 14.3 Cumulative.................................................... 11 15. ASSIGNMENT AND SUBLETTING........................................... 11 16. ESTOPPEL, ATTORNMENT AND SUBORDINATION.............................. 11 16.1 Estoppel...................................................... 11 16.2 Subordination................................................. 11 16.3 Attornment.................................................... 12 17. MISCELLANEOUS....................................................... 12 17.1 General....................................................... 12 17.2 Signs ........................................................ 12 17.3 Waiver........................................................ 12 17.4 Financial Statements.......................................... 13 17.5 Limitation of Liability....................................... 13 17.6 Notices....................................................... 13 17.7 Brokerage Commission ......................................... 13 17.8 Authorization................................................. 13 17.9 Holding Over, Surrender....................................... 13 17.10 Joint and Several............................................. 13 17.11 Covenants and Conditions...................................... 13 17.12 Addenda....................................................... 13
(iv) 1. PREMISES. -------- 1.1 Premises. Landlord hereby leases to Tenant the Building and that -------- portion of the Lot (or all thereof if the Building constitutes the material improvement thereon) upon which the same is situated (hereinafter collectively referred to as the "Premises") as shown on Exhibit A attached hereto. --------- 1.2 Reserved Rights. Landlord reserves the right to enter the Premises --------------- upon reasonable notice to Tenant (except in case of an emergency) and/or to undertake the following: inspect the Premises and/or the performance by Tenant of the terms and conditions hereof; grant easements on the Project, dedicate for public use portions thereof and record covenants, conditions and restrictions ("CC&R's") affecting the Project and/or amendments to existing CC&R's which do not unreasonably interfere with Tenant's use of the Premises; change the name of the Project; and, during the last nine (9) months of the Term, show the Premises to prospective tenants. 2. TERM. ---- 2.1 Lease Term and Commencement Date. The Term of the Lease shall be for a -------------------------------- period of sixty (60) months, subject to extension in accordance with Section 20 below. The Term shall commence (the "Commencement Date") on the first day of the first full calendar month following the Possession Date (as defined in Section 2.2.2), except that if the Possession Date occurs on the first day of a month, that day shall also be the Commencement Date. Tenant shall execute and deliver to Landlord, upon request by Landlord, a Commencement Date Memorandum in the form attached hereto as Exhibit C acknowledging (i) the Commencement Date (and, --------- if requested, the Possession Date and Rent Commencement Date, as defined below), (ii) the final square footage of the Premises, and (iii) Tenant's acceptance of the Premises. 2.2 Possession. ---------- 2.2.1 Landlord's Possession. Tenant acknowledges that the Premises --------------------- are currently occupied by an existing tenant thereof and that Landlord's delivery of possession of the Premises is contingent upon such tenant vacating the Premises. Landlord presently anticipates that the current tenant will vacate the Premises and restore possession thereof to Landlord on or about September 1, 1996 and Landlord shall use its commercially reasonable efforts to recover possession on such date or as soon as practicable thereafter. In the event that Landlord does not recover possession of the Premises on or before such date, as a result of the failure of the existing tenant to vacate the Premises on or before such date, Landlord shall not be subject to any liability therefor and such failure shall not affect the validity of this Lease or the obligations of either party hereunder, provided, however, that if the existing tenant fails to vacate the Premises on or before November 1, 1996 (subject to Force Majeure events), either Landlord or Tenant may, at its option, by written notice to the other party given within ten (10) days thereafter, terminate this Lease, in which event Landlord shall return to Tenant all funds paid in advance and the Parties shall be discharged from all further obligations hereunder. Notwithstanding anything set forth in this Section 2.2, Tenant shall not be obligated to pay Base Rent for its use and occupancy of the Premises until the Rent Commencement Date, as defined in Section 3.1. 2.2.2 Tender of Possession to Tenant. Landlord shall tender ------------------------------ possession of the Premises to Tenant as soon as practicable following the date on which Landlord receives possession thereof. Tenant's possession and use of the Premises from the date, on which Landlord tenders possession thereof to Tenant (the "Possession Date") to the Commencement Date (the "Early Possession Period") shall be subject to all the provisions of this Lease. During the Early Possession Period, Tenant shall (i) arrange for and pay for all utilities delivered to the Premises, (ii) arrange for, and maintain in effect, the insurance coverages required to be obtained by Tenant pursuant to Section 7.2 of this Lease, (iii) pay to Landlord, as and when due, all sums payable to Landlord hereunder, including, without limitation, amounts payable for Real Property Taxes (as defined in Section 5) and insurance premiums, and (iv) perform all other obligations required by Tenant pursuant to this Lease. 2.2.3 Tenant Improvements. Landlord shall arrange for the ------------------- construction of certain Tenant Improvements (as defined in the Work Letter attached hereto as Exhibit B) in accordance with and subject to the terms of the --------- Work Letter. Landlord shall commence the construction of the Tenant improvements and diligently pursue such construction to completion as soon as reasonably practicable following the Possession Date. Tenant's use of the Premises shall not unreasonably interfere with Landlord's contractor(s) or otherwise impede the completion of the Tenant improvements. The construction of the Tenant Improvements shall not delay the occurrence of the Commencement Date. Tenant has determined that the Premises are acceptable for Tenant's use and Tenant acknowledges that, except as set forth in the Work Letter, neither Landlord nor any broker or agent has made any representations or warranties in connection with the physical condition of the Premises or their fitness for Tenant's use upon which Tenant has relied directly or indirectly for any purpose. 2.2.4 Substantial Completion. The Tenant Improvements shall be deemed ---------------------- to be "Substantially Complete" on the date on which Landlord files or causes to be filed with the City in which the Premises are located (if required) and 1. delivers to Tenant an architect's notice of substantial completion, or similar written notice that the Tenant Improvements are Substantially Complete. As used herein, the term "Substantially Complete" means that the Tenant Improvements have been constructed in substantial compliance with the applicable plans and specifications, except only minor "punchlist" items. Landlord shall promptly complete such punchlist items to the reasonable satisfaction of Tenant. 3. RENT. ---- 3.1 Rent. ---- 3.1.1 Tenant's obligation to pay Base Rent shall commence on the first (1st) calendar day following the date on which the Tenant Improvements are Substantially Complete and possession of the Premises has been tendered to Tenant (the "Rent Commencement Date"). Tenant shall pay to Landlord, at Landlord's Address for Payment of Rent designated in the Basic Lease Information, or at such other address as Landlord may from time to time designate in writing to Tenant for the payment of Rent, the Base Rent, without notice, demand, offset or deduction, in advance, on the first day of each calendar month. Upon the execution of this Lease, Tenant shall pay to Landlord the first month's Base Rent. Base Rent for the period from the Rent Commencement Date to the first day of the next calendar month shall be prorated on a per diem basis. All sums other than Base Rent which Tenant is obligated to pay under this Lease shall be deemed to be additional rent due hereunder, whether or not such sums are designated "additional rent." The term "Rent" means the Base Rent and all additional rent payable hereunder. 3.1.2 As set forth in the Basic Lease Information, the initial Base Rent shall be the sum of $74,800.00 per month, which is calculated on the basis of $0.34 per square foot. Tenant acknowledges that the Premises contains approximately 220,000 rentable square feet of space. The parties acknowledge that such measurement is an estimate and that the Base Rent shall not be adjusted on the basis of a difference in the actual number of rentable square feet. 3.2 Late Charge and Interest. The late payment of any Rent will cause ------------------------ Landlord to incur additional costs, including administration and collection costs and processing and accounting expenses and increased debt service ("Delinquency Costs"). If Landlord has not received any installment of Rent within ten (10) days after such amount is due, Tenant shall pay a late charge of five percent (5%) of the delinquent amount, which is agreed to represent a reasonable estimate of the Delinquency Costs incurred by Landlord. In addition, all such delinquent amounts shall bear interest from the date such amount was due until paid in full at a rate per annum ("Applicable Interest Rate") equal to the lesser of(a) the maximum interest rate permitted by law or (b) five percent (5%) above the rate publicly announced by Bank of America, N.A. (or if Bank of America, N.A. ceases to exist, the largest bank then headquartered in the State of California ("Bank") as its "Reference Rate." If the use of the announced Reference Rate is discontinued by the Bank, then the term Reference Rate shall mean the announced rate charged by the Bank which is, from time to time, substituted for the Reference Rate. Landlord and Tenant recognize that the damage which Landlord shall suffer as a result of Tenant's failure to pay such amounts is difficult to ascertain and said late charge and interest are the best estimate of the damage which Landlord shall suffer in the event of late payment. If a late charge becomes payable for any three (3) installments of Rent within any twelve (12) month period, then the Rent shall automatically become due and payable quarterly in advance. 3.3 Intentionally Omitted. --------------------- 4. UTILITIES. Tenant shall make all arrangements for and shall pay all charges --------- for heat, water, gas, electricity, telephone and any other utilities used on or provided to the Premises including, without limitation, paying any deposits and "hook up charges." Landlord shall not be liable to Tenant for interruption in or curtailment of any utility service, nor shall any such interruption or curtailment constitute constructive eviction or grounds for rental abatement. The cost of maintaining and repairing the plumbing, electrical distribution, and mechanical systems, and other utility installations shall be borne by the parties as provided in Section 8. 5. TAXES. ----- 5.1 Real Property Taxes. Landlord shall pay to the proper taxing ------------------- authorities as the same become due all Real Property Taxes applicable to the Premises, subject to reimbursement by Tenant as provided below. The term "Real Property Taxes" shall be the sum of the following: all real property taxes, possessory-interest taxes, business or license taxes or fees, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit and traffic charges, housing fund assessments, open space charges, child care fees, school, sewer and parking fees or any other assessments, levies, fees, exactions or charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen (including fees "in-lieu" of any such tax or assessment) which are assessed, levied, charged, conferred or imposed by any public authority upon the Premises (or any real property comprising any portion thereof) or its operations, together with all taxes, assessments or other fees imposed by any public authority upon or measured by any Rent or other charges payable hereunder, including any gross receipts tax or excise tax levied by any governmental authority with respect to receipt of rental income, or upon, with respect to or by reason of the development, possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof, or documentary transfer taxes upon this transaction or 2. any document to which Tenant is a party creating or transferring an interest in the Premises, together with any tax imposed in substitution, partially or totally, of any tax previously included within the aforesaid definition or any additional tax the nature of which was previously included within the aforesaid definition, together with the costs and expenses (including attorneys and expert witness fees and costs) of challenging any of the foregoing or seeking the reduction in or abatement, redemption or return of any of the foregoing, but only to the extent of any such reduction, abatement, redemption or return. Nothing contained in this Lease shall require Tenant to pay any franchise, corporate, estate or inheritance tax of Landlord, or any income, profits or revenue tax or charge upon the net income of Landlord. 5.1.1 Reimbursement By Tenant. Tenant shall pay to Landlord an amount ----------------------- equal to the Real Property Taxes then due within fifteen (15) days after delivery to Tenant by Landlord of an invoice for the same, together with a copy of the corresponding tax bill. Landlord may, at Landlord's option, deliver statements from different taxing authorities at different times or deliver all such statements at one time; provided, however, that Landlord shall not change the method of invoicing Tenant for Real Property Taxes more than one (1) time in each three (3) year period and, in each case, shall give Tenant thirty (30) days notice prior to any change in such method of invoicing Tenant. In addition, Landlord may elect to collect such Real Property Taxes from Tenant in advance, on a monthly or quarterly basis, based upon Landlord's reasonable estimate of such Real Property Taxes. If the amount of monthly or quarterly payments for estimated Real Property Taxes received by Landlord from Tenant is more or less than the actual Real Property Taxes due, an appropriate adjustment shall be made by Landlord and Tenant. 5.1.2 Partial Years. Real Property Taxes for partial tax fiscal ------------- years, if any, falling within the Term, shall be prorated. Tenant's obligations for Real Property Taxes for the last full or partial year of the Term shall survive the expiration or earlier termination of this Lease. 5.2 Personal Property Taxes. Prior to delinquency, Tenant shall pay all ----------------------- taxes and assessments levied upon trade fixtures, alterations, additions, improvements, inventories and other personal property located and/or installed on the Premises by Tenant; and Tenant shall provide Landlord copies of receipts for payment of all such taxes and assessments. To the extent any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced by Landlord. 6. TRIPLE NET LEASE. It is intended that this Lease be a "triple net lease," ---------------- and that the Rent to be paid hereunder by Tenant will be received by Landlord without any deduction or offset whatsoever by Tenant, foreseeable or unforeseeable. Except as expressly provided to the contrary in this Lease, Landlord shall not be required to make any expenditure, incur any obligation, or incur any liability of any kind whatsoever in connection with this Lease or the ownership, construction, maintenance, operation or repair of the Premises. Notwithstanding the foregoing, Tenant shall reimburse Landlord monthly, as additional rent, for all costs and fees reasonably incurred by Landlord in connection with the management of this Lease and the Premises including the cost of those services which are customarily performed by a property management services company. 7. INSURANCE. --------- 7.1 Landlord. Landlord shall maintain insurance insuring the Building -------- against fire and extended coverage (including, if Landlord elects, "all risk" coverage, earthquake/volcanic action, flood and/or surface water insurance) for the full replacement cost of the Building, with deductibles and the form and endorsements of such coverage as selected by Landlord, together with rental abatement insurance against loss of Rent in an amount equal to the amount of Rent for a period of at least twelve (12) months commencing on the date of loss. Landlord may also carry such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine. Tenant shall pay to Landlord an amount equal to the premiums then due within fifteen (15) days after delivery to Tenant by Landlord of an invoice for any such premiums. Landlord may, at Landlord's option, elect to collect such premiums from Tenant in advance, on a monthly or quarterly basis, based upon Landlord's reasonable estimate of such premiums. If the amount of monthly or quarterly payments for estimated premiums received by Landlord from Tenant are more or less than the actual premiums due, an appropriate adjustment shall be made by Landlord and Tenant. 7.2 Tenant. Tenant shall, at Tenant's expense, obtain and keep in force at ------ all times the following insurance: 7.2.1 Commercial General Liability Insurance (Occurrence Form). A -------------------------------------------------------- policy of commercial general liability insurance (occurrence form) having a combined single limit of not less than Two Million Dollars ($2,000,000) per occurrence and Two Million Dollars ($2,000,000) aggregate per location if Tenant has multiple locations, providing coverage for, among other things, blanket contractual liability, premises, products/completed operations and personal and advertising injury coverage, with deletion of (a) the exclusion for operations within fifty (50) feet of a railroad track (railroad protective liability), if applicable, and (b) the exclusion for explosion, collapse or underground hazard, if applicable, and, if necessary, Tenant shall provide for restoration of the aggregate limit. 3. 7.2.2 Automobile Liability Insurance. Comprehensive automobile ------------------------------ liability insurance having a combined single limit of not less than Two Million Dollars ($2,000,000) per occurrence and insuring Tenant against liability for claims arising out of ownership, maintenance, or use of any owned, hired or non- owned automobiles: 7.2.3 Workers' Compensation and Employer's Liability Insurance. -------------------------------------------------------- Workers' compensation insurance having limits not less than those required by state statute and federal statute, if applicable, and covering all persons employed by Tenant in the conduct of its operations on the Premises (including the all states endorsement and, if applicable, the volunteers endorsement), together with employer's liability insurance coverage in the amount of at least One Million Dollars ($1,000,000); and 7.2.4 Property Insurance. "All risk" property insurance including ------------------ boiler and machinery comprehensive form, if applicable, covering damage to or loss of any of Tenant's personal property, fixtures, equipment and alterations, including electronic data processing equipment (collectively "Tenant's Property") (and coverage for the full replacement cost thereof including business interruption of Tenant), together with, if the property of Tenant's invitee's is to be kept in the Premises, warehouser's legal liability or bailee customers insurance for the full replacement cost of the property belonging to invitee's and located in the Premises. 7.3 General. ------- 7.3.1 Insurance Companies. Insurance required to be maintained by ------------------- Tenant shall be written by companies licensed to do business in the state in which the Premises are located and having a "General Policyholders Rating" of at least A 8 (or such higher rating as may be required by a lender having a lien on the Premises) as set forth in the most current issue of "Best's Insurance Guide." 7.3.2 Certificates of Insurance. Tenant shall deliver to Landlord ------------------------- certificates of insurance for all insurance required to be maintained by Tenant in the form of Exhibit D, attached hereto, no later than seven (7) days prior to --------- the date of possession of the Premises. Tenant shall, at least ten (10) days prior to expiration of the policy, furnish Landlord with certificates of renewal or "binders" thereof. Each certificate shall expressly provide that such policies shall not be cancelable or otherwise subject to modification except after sixty (60) days prior written notice to the parties named as additional insured in this Lease (except in the case of cancellation for nonpayment of premium in which case cancellation shall not take effect until at least (10) days' notice has been given to Landlord). If Tenant fails to maintain any insurance required in this Lease, Tenant shall be liable for all losses and cost resulting from said failure. 7.3.3 Additional Insured. Landlord and any property management ------------------ company of Landlord for the Premises shall be named as additional insured under all of the policies required by Section 7.2.1. The policies required under Section 7.2.1 shall provide for severability of interest. 7.3.4 Primary Coverage. All insurance to be maintained by Tenant ---------------- shall, except for workers' compensation and employer's liability insurance, be primary, without right of contribution from insurance of Landlord. Any umbrella liability policy or excess liability policy (which shall be in "following form") shall provide that if the underlying aggregate is exhausted, the excess coverage will drop down as primary insurance. The limits of insurance maintained by Tenant shall not limit Tenant's liability under this Lease. 7.3.5 Mutual Waiver of Subrogation. Tenant waives any right to ---------------------------- recover against Landlord for claims for damages to Tenant's Property to the extent covered, or required by this Lease to be covered by insurance. Landlord waives any right to recover against Tenant for damages to Landlord's property to the extent covered, or required by this Lease to be covered by property insurance. This provision is intended to waive fully, and for the benefit of Landlord and Tenant, any rights and/or claims which might give rise to a right of subrogation in favor of any insurance carrier. The coverage obtained by Landlord and Tenant pursuant to this Lease shall include, without limitation, a waiver of subrogation endorsement attached to the certificate of insurance. 7.3.6 Notification of Incidents. Tenant shall notify Landlord within ------------------------- seventy-two (72) hours after the occurrence of any accidents or incidents in the Premises which could give rise to a claim under any of the insurance policies required under this Section 7. 7.4 Indemnity. --------- 7.4.1 Tenant's Indemnity. Tenant shall indemnify, protect, defend (by ------------------ counsel reasonably acceptable to both Landlord and Tenant) and hold harmless Landlord and its partners, directors, officers, employees, shareholders, lenders, agents, contractors and each of their successors and assigns from and against any and all claims, judgments, causes of action, damages, penalties, costs, liabilities, and expenses, including all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon, arising at any time during or after the Term as a result (directly or indirectly) of or in connection with (i) any default in the performance of any obligation on Tenant's part to be 4. performed under the terms of this Lease, or (ii) Tenant's use of the Premises, the conduct of Tenant's business or any activity, work or things done, permitted or suffered by Tenant in or about the Premises or other portions of the Project, except to the extent caused by Landlord's gross negligence or willful misconduct. The obligations of Tenant under this Section 7.4 shall survive the termination of this Lease with respect to any claims or liability arising out of any act, omission, or event occurring on or before the date of such termination. 7.4.2 Landlord's Indemnity. Except as expressly provided in this -------------------- Lease, and subject to the limitations of Section 17.5, Landlord shall indemnify, protect, defend (by counsel reasonably acceptable to both Landlord and Tenant) and hold harmless Tenant and its partners, directors, officers, employees, shareholders, lenders, agents, contractors and each of their successors and assigns from and against any and all claims, judgments, causes of action, damages, penalties, costs, liabilities, and expenses, including all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon, arising at any time during or after the Term as a result (directly or indirectly) of or in connection with (i) any default in the performance of any obligation on Landlord's part to be performed under the terms of this Lease, or (ii) landlord's gross negligence or intentional misconduct in connection with Landlord's activities in or about the Premises. The obligations of Landlord under this Section 7.4 shall survive the termination of this Lease with respect to any claims or liability arising out of any act, omission, or event occurring on or before the date of such termination. 7.5 Exemption of Landlord from Liability. Tenant, as a material part of ------------------------------------ the consideration to Landlord, hereby assumes all risk of damage to property including, but not limited to, Tenant's fixtures, equipment, furniture and alterations or injury to persons in, upon or about the Premises or other portions of the Project arising from any cause, and Tenant hereby waives all claims in respect thereof against Landlord, except to the extent such claims are caused by the gross negligence or willful misconduct of Landlord, its employees, agents, and contractors. Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for damage to the property of Tenant, or injury to or death of Tenant, Tenant's employees, invitee's, customers, agents or contractors or any other person in or about the Premises or the Project, whether such damage or injury is caused by fire, steam, electricity, gas, water or rain, or from the breakage, leakage or other defects of sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether said damage or injury results from conditions arising upon the Premises, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Tenant, except to the extent caused by the gross negligence or willful misconduct of Landlord, its employees, agents, and contractors. 8. REPAIRS AND MAINTENANCE. ----------------------- 8.1 Landlord. Landlord shall, subject to the following sentence, maintain -------- the structural portions of the roof, foundation, and load-bearing portions of walls (excluding wall coverings, painting, glass and doors) of the Improvements. Landlord shall not be required to make any repair resulting from (i) any alteration or modification to the Improvements or to mechanical equipment within the Improvements performed by, for or because of Tenant or to special equipment or systems installed by, for or because of Tenant, (ii) the installation, use or operation of Tenant's property, fixtures and equipment, (iii) the moving of Tenant's property in or out of the Improvements or in and about the Premises, (iv) Tenant's use or occupancy of the Premises in violation of Section 10 of this Lease or in the manner not contemplated by the parties at the time of the execution of this Lease, (v) the acts or omissions of Tenant and Tenant's employees, agents, invitees, subtenants, licensees or contractors, (vi) fire and other casualty, except as provided by Section 12 of this Lease or (vii) condemnation, except as provided in Section 13 of this Lease. Landlord shall make repairs under this Section 8.1 as soon as reasonably practicable after receipt of written notice from Tenant of the need for such repairs. Landlord shall procure and maintain, at Tenant's expense, regularly scheduled preventive maintenance/service contracts for (i) the maintenance and repair of the fire detection and sprinkler system, and (ii) the regular and routine maintenance and annual inspection of the roof membrane. Tenant shall reimburse Landlord upon thirty (30) days written notice for the reasonable cost thereof. Tenant waives any right to repair the Premises at the expense of Landlord under any applicable governmental laws, ordinances, statutes, orders or regulations now or hereafter in effect which might otherwise apply. 8.2 Tenant. Except for the portions of the Premises expressly required to ------ be maintained by Landlord under Section 8.1, Tenant, at Tenant's expense, shall maintain the Premises in good order, condition and repair, including, without limitation, subfloors and floor coverings, walls and wall coverings, mechanical, electrical, and plumbing systems, doors, windows. parking lots, and truck aprons, gutters and downspouts, landscaping and any signage. During the Term of this Lease, or any extensions thereof, Tenant shall procure and maintain, at Tenant's expense, regularly scheduled preventive maintenance/service contracts with maintenance contractors reasonably acceptable to Landlord for (i) servicing all hot water and heating and air conditioning systems and equipment ("HVAC") in the Premises, and (ii) the landscape maintenance. Tenant shall provide Landlord with a copy of the HVAC contract and shall furnish a copy of all reports and correspondence involving the condition of the HVAC equipment to Landlord. Each contract shall provide that the maintenance contractor will notify Landlord in writing at least ten (10) days prior to any termination of the contract. Notwithstanding the foregoing, Landlord reserves the right to procure and maintain the foregoing maintenance/service contracts, and Tenant shall promptly reimburse Landlord upon thirty (30) days written notice for the cost thereof. In the event Tenant fails, in the reasonable judgment of Landlord, to maintain the Premises in good order, condition and repair, Landlord shall have the right to perform such maintenance, repairs or refurbishing at Tenant's expense. 5. 8.3 Roof -- Repair and Replacement. As provided in Section 8.1. Landlord, ------------------------------ at its cost, shall maintain the structural portions of the roof during the Term of this Lease. In addition, Landlord shall arrange for regular and routine maintenance and annual inspection of the roof surface and membrane, subject to Tenant's reimbursement to Landlord for the reasonable cost thereof within thirty (30) days' written notice. In the event that the surface and membrane of the roof needs to be replaced as a matter of prudent building management and ownership, as reasonably determine by an independent and qualified roofing consultant, during the initial Term of this Lease or, if the Term is extended pursuant to Section 20, during the First Extension Term, Landlord shall arrange and pay for the replacement thereof at Landlord's sole cost and expense. If the Term of this Lease is further extended, either pursuant to Section 20 or by other agreement of the parties, and the roof surface and membrane needs to be replaced as a matter of prudent building management and ownership, as reasonably determined by an independent and qualified roofing consultant, during such additionally extended term, Tenant shall arrange and pay for the replacement thereof at Tenant's sole cost and expense. 8.4 Condition of the Premises. ------------------------- 8.4.1 Landlord warrants to Tenant that the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Tenant will put the Premises or to any alterations or utility installations made or to be made by Tenant. If the Premises do not comply with said warranty, Landlord shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Tenant setting forth with specificity the nature and extent of such condition of non- compliance, rectify the same at Landlord's expense. If Tenant fails to give Landlord written notice of a condition of non-compliance with this warranty within six (6) months alter the Possession Date, the correction of such condition of non-compliance shall be the obligation of Tenant at Tenant's sole cost and expense. 8.4.2 Landlord and Tenant have jointly conducted a walk-through of the Premises and have agreed that those items which are set forth in Exhibit F --------- hereto require correction and that such items shall be corrected by Landlord, at its sole cost and expense. On or about the Possession Date, Landlord and Tenant shall conduct a subsequent walk-through of the Premises and shall jointly and reasonably determine if there are any new and additional items in the Premises which require correction and, if so, such items shall be added to Exhibit F. --------- Landlord shall cause the items set forth in Exhibit F, as the same may be --------- revised following the Possession Date walk through, to be corrected promptly and at Landlord's sole cost and expense. 9. ALTERATIONS. ----------- 9.1 Trade Fixtures; Alterations. Tenant may install necessary trade --------------------------- fixtures, equipment and furniture in the Premises, provided that such items are installed and are removable without structural or material damage to the Premises or the Project. Tenant shall not construct, nor allow to be constructed, any alterations or physical additions in, about or to the Premises without obtaining the prior written consent of Landlord, which consent shall be conditioned upon Tenant's compliance with Landlord's reasonable requirements regarding construction of improvements and alterations but such consent otherwise shall not be unreasonably withheld. Tenant shall submit plans and specifications to Landlord with Tenant's request for approval and shall reimburse Landlord for all costs which Landlord may incur in connection with granting approval to Tenant for any such alterations and additions, including any costs or expenses which Landlord may incur in electing to have outside architects and engineers review said matters. Tenant shall file a notice of completion after completion of such work and provide Landlord with a copy thereof. Tenant shall provide Landlord with a set of "as-built" drawings for any such work. 9.2 Damage; Removal. Tenant shall repair all damage to the Premises caused --------------- by the installation or removal of Tenant's fixtures, equipment, furniture and alterations. Upon the termination of this Lease, Tenant shall remove any or all alterations, additions, improvements and partitions made or installed by Tenant and restore the Premises to its condition existing prior to the construction of any such items; provided, however, Landlord may permit, upon written notice to Tenant, any such items designated by Landlord to remain on the Premises, in which event (and if Tenant elects to leave such items on the Premises) they shall be and become the property of Landlord upon the termination of this Lease. All such removals and restoration shall be accomplished in a good and workmanlike manner and so as not to cause any damage to the Premises or the Project whatsoever. 9.3 Liens. Tenant shall promptly pay and discharge all claims for labor ----- performed, supplies furnished and services rendered at the request of Tenant and shall keep the Premises free of all mechanics' and materialmen's liens in connection therewith. Tenant shall provide at least ten (10) days prior written notice to Landlord before any labor is performed, supplies furnished or services rendered on or at the Premises and Landlord shall have the right to post on the Premises notices of non-responsibility. If any lien is filed, Tenant shall cause such lien to be released and removed within ten (10) days after the date of filing, and if Tenant fails to do so, Landlord may take such action as may be necessary to remove such lien and Tenant shall pay Landlord such amounts expended by Landlord together with interest thereon at the Applicable interest Rate from the date of expenditure. 6. 10. USE. The Premises shall be used only for the Permitted Uses set forth in the --- Basic Lease Information and for no other uses. Tenant's use of the Premises shall be in compliance with and subject to all applicable governmental laws, ordinances, statutes, orders and regulations and any CC&R's or any supplement thereto recorded in any official or public records with respect to the Project or any portion thereof. In no event shall the Premises be used for any of the Prohibited Uses set forth on Exhibit E attached hereto. Tenant shall comply with --------- the reasonable rules and regulations as Landlord may from time to time prescribe. Tenant shall not commit waste, overload the floors or structure of the Premises, subject the Premises or the Project to any use which would damage the same or increase the risk of loss or violate any insurance coverage, permit any unreasonable odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises, take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants of the Project, take any action which would abrogate any warranties, or use or allow the Premises to be used for any unlawful purpose. Tenant shall have the right to use for its employees and invitees, the parking areas on the Premises. Landlord shall not be responsible for non-compliance by any other tenant or occupant of the Project with, or Landlord's failure to enforce, any of the rules or regulations or any other terms or provisions of such tenant's or occupant's lease. Tenant shall promptly comply with the reasonable requirements of any board of fire insurance underwriters or other similar body now or hereafter constituted. Tenant shall not do any act which shall in any way encumber the title of Landlord in and to the Premises or the Project. 11. ENVIRONMENTAL MATTERS. --------------------- 11.1 Hazardous Materials. Tenant shall not cause nor permit, nor allow any ------------------- of Tenant's employees, agents, customers, visitors, invitees, licensees, contractors, assignees or subtenants (collectively, "Tenant's Parties") to cause or permit, any Hazardous Materials to be brought upon, stored, manufactured, generated, blended, handled, recycled, treated, disposed or used on, under or about the Premises or the Project, except for routine office and janitorial supplies in usual and customary quantities stored, used and disposed of in accordance with all applicable Environmental Laws. As used herein, "Hazardous Materials" means any chemical, substance, material, controlled substance, object, condition, waste, living organism or combination thereof which is or may be hazardous to human health or safety or to the environment due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytotoxicity, infectiousness or other harmful or potentially harmful properties or effects, including, without limitation, petroleum and petroleum products, asbestos, radon, polychlorinated biphenyls (PCBs) and all of those chemicals, substances, materials, controlled substances. objects, conditions, wastes, living organisms or combinations thereof which are now or become in the future listed, defined or regulated in any manner by any Environmental Law based upon, directly or indirectly, such properties or effects. As used herein, "Environmental Laws" means any and all federal, state or local environmental, health and/or safety-related laws, regulations, standards, decisions of courts, ordinances, rules, codes, orders, decrees, directives, guidelines, permits or permit conditions, currently existing and as amended, enacted, issued or adopted in the future which are or become applicable to Tenant, the Premises, the Building or the Project. Tenant and Tenant's Parties shall comply with all Environmental Laws and promptly notify Landlord of the violation of any Environmental Law or presence of any Hazardous Materials, other than office and janitorial supplies as permitted above, on the Premises. Landlord shall have the right to enter upon and inspect the Premises and to conduct tests, monitoring and investigations. If such tests indicate the presence of any environmental condition which occurred during the Term of this Lease, Tenant shall reimburse Landlord for the cost of conducting such tests. The phrase "environmental condition" shall mean any adverse condition relating to any Hazardous Materials or the environment, including surface water, groundwater, drinking water supply, land, surface or subsurface strata or the ambient air and includes air, land and water pollutants, noise, vibration, light and odors. In the event of any such environmental condition, Tenant shall promptly take any and all steps necessary to rectify the same to Landlord's reasonable satisfaction or shall, at Landlord's election, reimburse Landlord, upon demand, for the cost to Landlord of performing rectifying work. The reimbursement shall be paid to Landlord in advance of Landlord's performing such work, based upon Landlord's reasonable estimate of the cost thereof; and upon completion of such work by Landlord, Tenant shall pay to Landlord any shortfall within thirty (30) days after Landlord bills Tenant therefore or Landlord shall within thirty (30) days refund to Tenant any excess deposit, as the case may be. 11.2 Indemnification. Tenant shall indemnify, protect, defend (by counsel --------------- acceptable to Landlord) and hold harmless Landlord and its partners, directors, officers, employees, shareholders, lenders, agents, contractors and each of their respective successors and assigns (individually and collectively, "Indemnitees") from and against any and all claims, judgments, causes of action, damages, penalties, fines, taxes, costs, liabilities, losses and expenses arising at any time during or after the Term as a result (directly or indirectly) of or in connection with (a) Tenant and/or Tenant's Parties' breach of any prohibition or provision of the preceding section, or (b) the presence of Hazardous Materials on, under or about the Premises or other property as a result (directly or indirectly) of Tenant's and/or Tenant's Parties' activities, or failure to act, in connection with the Premises. This indemnity shall include the cost of any required or necessary repair, cleanup or detoxification, and the preparation and implementation of any closure, monitoring or other required plans, whether such action is required or necessary prior to or following the termination of this Lease. Neither the written consent by Landlord to the presence of Hazardous Materials on, under or about the Premises, nor the strict compliance by Tenant with all Environmental Laws, shall excuse Tenant from Tenant's obligation of indemnification pursuant hereto. Tenant's obligations pursuant to the foregoing indemnity shall survive the termination of this Lease. 7. 11.3 Landlord's Disclosure. Landlord has no actual knowledge and has --------------------- received no written notice that (i) any Hazardous Materials are located on, under, or in the Premises, or (ii) there is a pending proceeding, inquiry, investigation, or order by any governmental authority with respect to any Hazardous Materials on, under, or in be Premises. As use herein, the term "actual knowledge" means that the specific matter has come to the actual attention of the person or persons employed by Landlord who are responsible and authorized to act with respect to such matter. 11.4 Storage Tank Removal. The parties acknowledge that the previous -------------------- tenant of the Premises had installed a 10,000 gallon underground diesel storage tank (the "Tank"). Landlord shall remove or cause the Tank to be removed in accordance with all applicable laws and regulations and within sixty (60) days following the Commencement Date. Landlord further acknowledges and agrees that Tenant shall have no liability for any cost or expense arising out of the installation, use, or removal of the Tank. 12. DAMAGE AND DESTRUCTION. ---------------------- 12.1 Casualty. If the Premises should be damaged or destroyed by fire or -------- other casualty, Tenant shall give immediate written notice to Landlord. Within thirty (30) days after receipt thereof, Landlord shall notify Tenant whether the necessary repairs can reasonably be made: (a) within ninety (90) days; (b) in more than ninety (90) days but in less than one hundred eighty (180) days; or (c) in more than one hundred eighty (180) days from the date of such notice. 12.1.1 Less Than 90 Days. If the Premises should be damaged only to ----------------- such extent that rebuilding or repairs can reasonably be completed within ninety (90) days, this Lease shall not terminate and, provided that insurance proceeds are available to fully repair the damage. Landlord shall repair the Premises utilizing such insurance proceeds and shall not recover any of such repair costs from Tenant pursuant to Section 6. Landlord shall not be required to rebuild, repair or replace any alterations, partitions, fixtures, additions and other improvements (collectively, "Improvements") which may have been placed in, on or about the Premises by or for the benefit of Tenant, it being the intent of the parties that Tenant shall replace such Improvements utilizing insurance proceeds available to Tenant pursuant to Section 7.2.4. If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately from the date Tenant vacates all or a portion of the Premises only to the extent rental abatement insurance proceeds are received by Landlord and only during the period the Premises are unfit for occupancy. 12.1.2 Greater Than 90 Days. If the Premises should be damaged only -------------------- to such extent that rebuilding or repairs can reasonably be completed in more than ninety (90) days but in less than one hundred eighty (180) days, then Landlord shall have the option of: (a) terminating the Lease effective upon the occurrence of such damage, in which event the Rent shall be abated from the date Tenant vacates the Premises; or (b) electing to repair the Premises, provided insurance proceeds are available to fully repair the damage (except that Landlord shall not be required to rebuild, repair or replace any part of the Improvements which may have been placed in, on or about the Premises by or for the benefit of Tenant). If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately from the date Tenant vacates all or a portion of the Premises only to the extent rental abatement insurance proceeds are received by Landlord and only during the period the Premises are unfit for occupancy. In the event that Landlord should fail to substantially complete such repairs within one hundred eighty (180) days after the date upon which Landlord is notified by Tenant of the casualty (such period to be extended for delays caused by Tenant or because of any items of Force Majeure, as hereinafter defined) and Tenant has not re-occupied the Premises. Tenant shall have the right, as Tenant's exclusive remedy, within ten (10) days after the expiration of such one hundred eighty (180) day period, to terminate this Lease by delivering written notice to Landlord as Tenant's exclusive remedy, whereupon all rights hereunder shall cease and terminate thirty (30) days after Landlord's receipt of such notice. 12.1.3 Greater Than 180 Days. If the Premises should be so damaged --------------------- that rebuilding or repairs cannot be completed within one hundred eighty (180) days, either Landlord or Tenant may terminate this Lease by giving written notice within ten (10) days after notice from Landlord specifying such time period of repair; and this Lease shall terminate and the Rent shall be abated from the date Tenant vacates the Premises. In the event that neither party elects to terminate this Lease. Landlord shall promptly commence and diligently prosecute to completion the repairs to the Premises, provided insurance proceeds are available to repair the damage (except that Landlord shall not be required to rebuild, repair or replace any Improvements which may have been placed in, on or about the Premises by or for the benefit of Tenant). If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately from the date Tenant vacates all or a portion of the Premises only to the extent rental abatement insurance proceeds are received by Landlord and only during the period that the Premises are unfit for occupancy. 12.2 Tenant's Fault. If the Premises or any portion of the Premises is -------------- damaged resulting from the negligence or breach of this Lease by Tenant or any of Tenant's Parties. Rent shall not be reduced during the repair of such damage and Tenant shall be liable to Landlord for the cost of the repair caused thereby to the extent such cost is not covered by insurance proceeds. 8. 12.3 Uninsured Casualty. In the event that the Premises or any portion of ------------------ the Premises is damaged to the extent Tenant is unable to use the Premises and such damage is not covered by insurance proceeds received by Landlord or in the event that the holder of any indebtedness secured by the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right at Landlord's option either (i) to repair such damage as soon as reasonably possible at Landlord's expense, or (ii) to give written notice to Tenant within thirty (30) days after the date of the occurrence of such damage of Landlord's intention to terminate this Lease as of the date of the occurrence of such damage. In the event Landlord elects to terminate this Lease, Tenant shall have the right (but not the obligation) within ten (10) days after receipt of such notice to give written notice to landlord of Tenant's intention to pay the cost of repair of such damage, in which event this Lease shall continue in full force and effect, Landlord shall make such repairs as soon as reasonably possible and Tenant shall reimburse Landlord for such repairs within fifteen (15) days after receipt of an invoice from Landlord. If Tenant is required to vacate all or a portion of the Premises during Landlord's repair thereof, the Base Rent payable hereunder shall be abated proportionately from the date Tenant vacates all or a portion of the Premises only to the extent rental abatement insurance proceeds are received by Landlord and only during the period that the Premises are unfit for occupancy. If Tenant does not give such notice within the ten ( 10) day period, this Lease shall terminate automatically as of the date of the occurrence of the damage. 12.4. Waiver. With respect to any damage or destruction which Landlord is ------ obligated to repair or may elect to repair, Tenant waives all rights to terminate this Lease pursuant to rights otherwise presently or hereafter accorded by law and not specifically set forth herein. 13. EMINENT DOMAIN. -------------- 13.1 Total Condemnation. If all of the Premises is condemned by eminent ------------------ domain, inversely condemned or sold under threat of condemnation for any public or quasi-public use or purpose ("Condemned"), this Lease shall terminate as of the earlier of the date the condemning authority takes title to or possession of the Premises, and Rent shall be adjusted to the date of termination. 13.2 Partial Condemnation, If any portion of the Premises is Condemned and -------------------- such partial condemnation materially impairs Tenant's ability to use the Premises for Tenant's business as reasonably determined by Landlord. Landlord shall have the option of either (i) relocating Tenant to comparable space within the Project or (ii) terminating this Lease as of the earlier of the date title vests in the condemning authority or as of the date an order of immediate possession is issued and Rent shall be adjusted to the date of termination. If such partial condemnation does not materially impair Tenant's ability to use the Premises for the business of Tenant, Landlord shall promptly restore the Premises to the extent of any condemnation proceeds recovered by Landlord, excluding the portion thereof lost in such condemnation, and this Lease shall continue in full force and effect except that after the date of such title vesting Rent shall be adjusted as reasonably determined by Landlord. 13.3 Award. If the Premises are wholly or partially Condemned, Landlord ----- shall be entitled to the entire award paid for such condemnation, and Tenant waives any claim to any part of the award from Landlord or the condemning authority; provided, however, Tenant shall have the right to recover from Landlord such compensation, if any, as may be specifically awarded to Landlord in connection with costs in removing Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment to a new location. No condemnation of any kind shall be construed to constitute an actual or constructive eviction of Tenant or a breach of any express or implied covenant of quiet enjoyment. 13.4 Temporary Condemnation. In the event of a temporary condemnation not ---------------------- extending beyond the Term, this Lease shall remain in effect, Tenant shall continue to pay Rent and Tenant shall receive any award made for such condemnation except damages to any of Landlord's property. If a temporary condemnation is for a period which extends beyond the Term, this Lease shall terminate as of the date of initial occupancy by the condemning authority and any such award shall be distributed in accordance with the preceding section. If a temporary condemnation remains in effect at the expiration or earlier termination of this Lease, Tenant shall pay Landlord the reasonable cost of performing any obligations required of Tenant with respect to the surrender of the Premises, unless Landlord receives such costs from the condemning authority. 14. DEFAULT. ------- 14.1 Events of Defaults. The occurrence of any of the following events ------------------ shall, at Landlord's option, constitute an "Event of Default": 14.1.1 Vacation or abandonment of the Premises for a period of thirty (30) consecutive days; 14.1.2 Failure to pay Rent on the date when due and the failure continuing for a period of five (5) days after such payment is due: 14.1.3 Failure to perform Tenant's covenants and obligations hereunder (except default in the payment of Rent) where such failure continues for a period of thirty (30) days after written notice from Landlord: provided, however, if the 9. nature of the default is such that more than thirty (30) days are reasonably required for its cure. Tenant shall not be deemed to be in default if Tenant commences the cure within the thirty (30) day period and diligently prosecutes such cure to completion; 14.1.4 The making of a general assignment by Tenant for the benefit of creditors: the filing of a voluntary petition by Tenant or the filing of an involuntary petition by any of Tenant's creditors seeking the rehabilitation, liquidation or reorganization of Tenant under any law relating to bankruptcy, insolvency or other relief of debtors and, in the case of an involuntary action, the failure to remove or discharge the same within sixty (60) days of such filing; the appointment of a receiver or other custodian to take possession of substantially all of Tenant's assets or this leasehold; Tenant's insolvency or inability to pay Tenant's debts or failure generally to pay Tenant's debts when due; any court entering a decree or order directing the winding up or liquidation of Tenant or of substantially all of Tenant's assets; Tenant taking any action toward the dissolution or winding up of Tenant's affairs; the cessation or suspension of Tenant's use of the Premises; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets or this leasehold; 14.1.5 The making of any material misrepresentation or omission by Tenant or any successor in interest of Tenant in any materials delivered by or on behalf of Tenant to Landlord or Landlord's lender pursuant to this Lease; or 14.1.6 The occurrence of an Event of Default set forth in Section 14.1.4 or 15.1.5 with respect to any guarantor of this Lease, if applicable. 14.2 Remedies. -------- 14.2.1 Termination. In the event of the occurrence of any Event of ----------- Default, Landlord shall have the right to give a written termination notice to Tenant and, on the date specified in such notice, this Lease shall terminate unless on or before such date all arrears of Rent and all other sums payable by Tenant under this Lease and all costs and expenses incurred by or on behalf of Landlord hereunder shall have been paid by Tenant and all other Events of Default at the time existing shall have been fully remedied to the satisfaction of Landlord. 14.2.1.1 Repossession. Following termination, without ------------ prejudice to other remedies Landlord may have, Landlord may (i) peaceably re- enter the Premises upon voluntary surrender by Tenant or remove Tenant therefrom and any other persons occupying the Premises, using such legal proceedings as may be available; (ii) repossess the Premises or relet the Premises or any part thereof for such term (which may be for a term extending beyond the Term), at such rental and upon such other terms and conditions as Landlord in Landlord's sole discretion shall determine, with the right to make reasonable alterations and repairs to the Premises; and (iii) remove all personal property therefrom. 14.2.1.2 Unpaid Rent. Landlord shall have all the rights and ----------- remedies of a landlord provided by applicable law, including the right to recover from Tenant: (a) the worth, at the time of award, of the unpaid Rent that had been earned at the time of termination, (b) the worth, at the time of award, of the amount by which the unpaid Rent that would have been earned after the date of termination until the time of award exceeds the amount of loss of rent that Tenant proves could have been reasonably avoided, (c) the worth, at the time of award, of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided, and (d) any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default, The phrase "worth, at the time of award," as used in (a) and (b) above, shall be computed at the Applicable Interest Rate, and as used in (c) above, shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). 14.2.2 Continuation. Even though an Event of Default may have ------------ occurred, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession; and Landlord may enforce all of Landlord's rights and remedies under this Lease, including the right to recover Rent as it becomes due. Landlord, without terminating this Lease, may, during the period Tenant is in default, enter the Premises and relet the same, or any portion thereof, to third parties for Tenant's account and Tenant shall be liable to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, brokers' commissions, expenses of remodeling the Premises and like costs. Reletting may be for a period shorter or longer than the remaining Term. Tenant shall continue to pay the Rent on the date the same is due. No act by Landlord hereunder, including acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver upon application of Landlord to protect Landlord's interest under this Lease, shall terminate this Lease unless Landlord notifies Tenant that Landlord elects to terminate this Lease. In the event that Landlord elects to relet the Premises, the rent that Landlord receives from reletting shall be applied to the payment of, first, any indebtedness from Tenant to Landlord other than Base Rent and Real Property Taxes; second, all costs, including maintenance, incurred by Landlord in reletting; and, third, Base Rent and Real Property Taxes under this Lease. After deducting the payments referred to above, any sum remaining from the rental Landlord receives from reletting shall be held by Landlord and applied in payment of future Rent as Rent becomes due under this Lease. In no event, and notwithstanding anything in Section 15 to the contrary, shall Tenant be entitled to any excess rent received by Landlord. If, on the date Rent is due under this Lease, the rent received from the reletting is less than the Rent due on that date. Tenant shall pay to Landlord, in addition to the remaining 10. Rent due, all costs, including maintenance, which Landlord incurred in reletting the Premises that remain after applying the rent received from reletting as provided hereinabove. So long as this Lease is not terminated, Landlord shall have the right to remedy any default of Tenant, to maintain or improve the Premises, to cause a receiver to be appointed to administer the Premises and new or existing subleases and to add to the Rent payable hereunder all of Landlord's reasonable costs in so doing, with interest at the Applicable Interest Rate from the date of such expenditure. 14.3 Cumulative. Each right and remedy of Landlord provided for herein or ---------- now or hereafter existing at law, in equity, by statute or otherwise shall be cumulative and shall not preclude Landlord from exercising any other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity, by statute or otherwise. No payment by Tenant of a lesser amount than the Rent nor any endorsement on any check or letter accompanying any check or payment as Rent shall be deemed an accord and satisfaction of full payment of Rent; and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. 15. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, sublet or otherwise ------------------------- transfer, whether voluntarily or involuntarily or by operation of law, the Premises or any part thereof without Landlord's prior written approval, which shall not be unreasonably withheld. The merger of Tenant with any other entity or the transfer of any controlling or managing ownership or beneficial interest in Tenant, or the assignment of a substantial portion of the assets of Tenant, whether or not located at the Premises, shall constitute an assignment hereunder. If Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant shall give Landlord written notice thereof with copies of all related documents and agreements associated with the assignment or sublease, including without limitation, the financial statements of any proposed assignee or subtenant, forty-five (45) days prior to the anticipated effective date of the assignment or sublease. Tenant shall pay Landlord's reasonable attorneys' fees incurred in the review of such documentation plus an administrative fee of Three Hundred Fifty Dollars ($350.00) for each proposed transfer. Landlord shall have a period of thirty (30) days following receipt of such notice and all related documents and agreements to notify Tenant in writing of Landlord's approval or disapproval of the proposed assignment or sublease. If Landlord fails to notify Tenant in writing of such election, Landlord shall be deemed to have approved such assignment or subletting. This Lease may not be assigned by operation of law. Any purported assignment or subletting contrary to the provisions hereof shall be void and shall constitute an Event of Default hereunder. If Tenant receives rent or other consideration for any such transfer in excess of the Rent, or in case of the sublease of a portion of the Premises, in excess of such Rent that is fairly allocable to such portion after appropriate adjustments to assure that all other payments required hereunder are appropriately taken into account, Tenant shall pay Landlord fifty percent (50%) of the difference between each such payment of rent or other consideration and the Rent required hereunder. During any period in which an Event of Default (as defined in Section 14.1) remains uncured, Landlord may, without waiving any other rights or remedies, collect rent from the assignee, subtenant or occupant and apply the net amount collected to the Rent herein reserved and apportion any excess rent so collected in accordance with the terms of the preceding sentence. Tenant shall continue to be liable as a principal and not as a guarantor or surety to the same extent as though no assignment or subletting had been made. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to the Lease by assignees of Tenant without notifying Tenant or any successor of Tenant and without obtaining their consent. No permitted transfer shall be effective until there has been delivered to Landlord a counterpart of the transfer instrument in which the transferee agrees to be and remain jointly and severally liable with Tenant for the payment of Rent pertaining to the Premises and for the performance of all the terms and provisions of this Lease relating thereto arising on or after the date of the transfer. Subject to the provisions hereof and provided Landlord receives thirty (30) days prior written notice and a true and correct copy of the assignment instrument. Landlord hereby consents to the assignment of Tenant's interest in and to this Lease to any wholly owned subsidiary of Tenant. 16. ESTOPPEL ATTORNMENT AND SUBORDINATION. ------------------------------------- 16.1 Estoppel. Within ten (10) days after request by Landlord, Tenant -------- shall deliver an estoppel certificate duly executed (and acknowledged if required by any lender), in the form attached hereto as Exhibit G, or in such --------- other form as may be acceptable to the lender, which form may include some or all of the provisions contained in Exhibit G, to any proposed mortgagee, --------- purchaser or Landlord. Tenant's failure to deliver said statement in such time period shall be an Event of Default hereunder and shall be conclusive upon Tenant that (a) this Lease is in full force and effect, without modification except as may be represented by Landlord; (b) there are no uncured defaults in Landlord's performance and Tenant has no right of offset, counterclaim or deduction against Rent hereunder; and (c) no more than one month's Base Rent has been paid in advance. If any financier should require that this Lease be amended (other than in the description of the Premises, the Term, the Permitted Use, the Rent or as will substantially, materially and adversely affect the rights of Tenant). Landlord shall give written notice thereof to Tenant, which notice shall be accompanied by a Lease supplement embodying such amendments. Tenant shall, within ten ( 10) days after the receipt of Landlord's notice, meet and confer with Landlord in good faith with respect to such proposed amendments. 16.2 Subordination. This Lease shall be subject and subordinate to all ------------- ground leases and the lien of all mortgages and deeds of trust which now or hereafter affect the Premises or the Project or Landlord's interest therein, and all amendments thereto, all without the necessity of Tenant's executing further instruments to effect such subordination. If requested, Tenant shall execute and deliver to Landlord within ten (10) days after Landlord's request whatever documentation that may 11. reasonably be required to further effect the provisions of this paragraph. With respect to any new mortgage or deed of trust encumbering the Premises after the date of this Lease, Landlord shall use its best efforts to obtain from such mortgagee or beneficiary under the deed of trust a non-disturbance agreement in such party's usual and customary form protecting the interest of Tenant hereunder. 16.3 Attornment. In the event of a foreclosure proceeding, the exercise of ---------- the power of sale under any mortgage or deed of trust or the termination of a ground lease, Tenant shall, if requested, attorn to the purchaser thereupon and recognize such purchaser as Landlord under this Lease; provided, however, Tenant's obligation to attorn to such purchaser shall be conditioned upon Tenant's receipt of a non-disturbance agreement protecting the interest of Tenant hereunder. 17. MISCELLANEOUS. ------------- 17.1 General. ------- 17.1.1 Entire Agreement. This Lease sets forth all the agreements ---------------- between Landlord and Tenant concerning the Premises; and there are no agreements either oral or written other than as set forth herein. 17.1.2 Time of Essence. Time is of the essence of this Lease. --------------- 17.1.3 Attorneys' Fees. In any action or proceeding which either --------------- party brings against the other to enforce its rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party, including reasonable attorneys' fees, which amounts shall be a part of the judgment in said action or proceeding. 17.1.4 Severability. If any provision of this Lease or the ------------ application of any such provision shall be held by a court of competent jurisdiction to be invalid, void or unenforceable to any extent, the remaining provisions of this Lease and the application thereof shall remain in full force and effect and shall not be affected, impaired or invalidated. 17.1.5 Law. This Lease shall be construed and enforced in --- accordance with the laws of the state in which the Premises are located. 17.1.6 No Option. Submission of this Lease to Tenant for --------- examination or negotiation does not constitute an option to lease, offer to lease or a reservation of, or option for, the Premises; and this document shall become effective and binding only upon the execution and delivery hereof by Landlord and Tenant. 17.1.7 Successors and Assigns. This Lease shall be binding upon ---------------------- and inure to the benefit of the successors and assigns of Landlord and, subject to compliance with the terms of Section 15, Tenant. 17.1.8 Third Party Beneficiaries. Nothing herein is intended to ------------------------- create any third party benefit. 17.1.9 Memorandum of Lease. Tenant shall not record this Lease or ------------------- a short form memorandum hereof without Landlord's prior written consent. 17.1.10 Agency Partnership or Joint Venture. Nothing contained ----------------------------------- herein nor any acts of the parties hereto shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or of partnership or of joint venture by the parties hereto or any relationship other than the relationship of landlord and tenant. 17.1.11 Merger. The voluntary or other surrender of this Lease by ------ Tenant or a mutual cancellation thereof or a termination by Landlord shall not work a merger and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 17.1.12 Headings. Section headings have been inserted solely as a -------- matter of convenience and are not intended to define or limit the scope of any of the provisions contained therein. 17.2 Signs. All signs and graphics of every kind visible in or from public ----- view or the exterior of the Premises shall be subject to Landlord's prior written approval and shall be subject to any applicable governmental laws, ordinances, and regulations and in compliance with Landlord's signage program. Tenant shall remove all such signs and graphics prior to the termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury or defacement of the Premises; and Tenant shall repair any injury or defacement, including without limitation, discoloration caused by such installation or removal. 17.3 Waiver. No waiver of any default or breach hereunder shall be implied ------ from any omission to take action on account thereof, notwithstanding any custom and practice or course of dealing. No waiver by either party of any provision under this Lease shall be effective unless in writing and signed by such party. No waiver shall affect any default other than 12. the default specified in the waiver and then such waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant shall not be construed as a waiver of any subsequent breach of the same. 17.4 Financial Statements. Tenant shall provide to any lender, purchaser -------------------- or Landlord, within ten (10) days after request, a current, accurate, certified financial statement for Tenant and Tenant's business prepared under generally accepted accounting principles consistently applied and such other certified financial information as may be reasonably required by Landlord, purchaser or any lender of either. 17.5 Limitation of Liability. The obligations of Landlord under this Lease ----------------------- are not personal obligations of the individual partners, directors, officers, shareholders, agents or employees of Landlord; and Tenant shall look solely to the Premises for satisfaction of any liability of Landlord and shall not look to other assets of Landlord nor seek recourse against the assets of the individual partners, directors, officers, shareholders, agents or employees of Landlord. Whenever Landlord transfers its interest, Landlord shall be automatically released from further performance under this Lease and from all further liabilities and expenses hereunder and the transferee of Landlord's interest shall assume all liabilities and obligations of Landlord hereunder from the date of such transfer. 17.6 Notices. All notices to be given hereunder shall be in writing and ------- mailed postage prepaid by certified or registered mail, return receipt requested, or delivered by personal or courier delivery, or sent by facsimile (immediately followed by one of the preceding methods), to Landlord's Address and Tenant's Address, or to such other place as Landlord or Tenant may designate in a written notice given to the other party. Notices shall be deemed served upon the earlier of receipt or three (3) days after the date of mailing. 17.7 Brokerage Commission. Landlord shall pay a brokerage commission to -------------------- Broker in accordance with a separate agreement between Landlord and Broker. Tenant warrants to Landlord that Tenant's sole contact with Landlord or with the Premises in connection with this transaction has been directly with Landlord and Broker, and that no other broker or finder can properly claim a right to a commission or a finder's fee based upon contacts between the claimant and Tenant. Tenant agrees to indemnify and hold Landlord harmless from any claims or liability, including reasonable attorneys' fees, in connection with a claim by any person for a real estate broker's commission, finder's fee or other compensation based upon any statement, representation or agreement of Tenant, and Landlord agrees to indemnify and hold Tenant harmless from any such claims or liability, including reasonable attorneys' fees, based upon any statement, representation or agreement of Landlord. 17.8 Authorization. Each individual executing this Lease on behalf of ------------- Tenant represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of Tenant and that such execution is binding upon Tenant. 17.9 Holding Over; Surrender. ----------------------- 17.9.1 Holding Over. If Tenant holds over the Premises or any part ------------ thereof after expiration of the Term, such holding over shall constitute a month-to-month tenancy, at a rent equal to one hundred twenty-five percent (125%) of the Base Rent in effect immediately prior to such holding over and shall otherwise be on all the other terms and conditions of this Lease. This paragraph shall not be construed as Landlord's permission for Tenant to hold over. Acceptance of Rent by Landlord following expiration or termination shall not constitute a renewal of this Lease or extension of the Term except as specifically set forth above. If Tenant falls to surrender the Premises upon expiration or earlier termination of this Lease, Tenant shall indemnify and hold Landlord harmless from and against all loss or liability resulting from or arising out of Tenant's failure to surrender the Premises, including, but not limited to, any amounts required to be paid to any tenant or prospective tenant who was to have occupied the Premises after the expiration or earlier termination of this Lease and any related attorneys' fees and brokerage commissions. 17.9.2 Surrender. Upon the termination of this Lease or Tenant's --------- right to possession of the Premises, Tenant will surrender the Premises, together with all keys, in good condition and repair, reasonable wear and tear excepted. Conditions existing because of Tenant's failure to perform maintenance, repairs or replacements shall not be deemed "reasonable wear and tear." 17.10 Joint and Several. If Tenant consists of more than one person, the ----------------- obligation of all such persons shall be joint and several. 17.11 Covenants and Conditions. Each provision to be performed by Tenant ------------------------ hereunder shall be deemed to be both a covenant and a condition. 17.12 Addenda. The Addenda attached hereto, if any, and identified with ------- this Lease are incorporated herein by this reference as if fully set forth herein. 13. IN WITNESS WHEREOF, the parties have executed this Lease as of the date set forth above. "Landlord" "Tenant" CATELLUS DEVELOPMENT CORPORATION, MOHAWK INDUSTRIES. INC., a Delaware corporation a Georgia corporation By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE] ----------------------------- ------------------------------ Its: VP Its: PRESIDENT ------------------------- -------------------------- Date: 12-4-95 Date: 11-28-95 --------------------------- ------------------------- 14. ADDENDUM TO LEASE ----------------- THIS ADDENDUM TO LEASE ("Addendum") is attached to and constitutes an integral part of the Lease between CATELLUS DEVELOPMENT CORPORATION, as Landlord, and MOHAWK INDUSTRIES, INC., as Tenant. The terms of this Addendum shall be incorporated in the Lease for all purposes. In the event of a conflict between the provisions of the Lease and the provisions of this Addendum, this Addendum shall control. THE FOLLOWING NEW SECTIONS ARE HEREBY ADDED TO THE LEASE WHICH STATE IN THEIR ENTIRETY AS FOLLOWS: 18. Force Majeure Event. For purposes of this Lease, the term "Force Majeure ------------------- Event" shall mean and include the following: any delay caused by any action, inaction, order, ruling, moratorium, regulation, statute, condition or other decision of any governmental agency having jurisdiction over any portion of the Project, over the construction anticipated to occur thereon or over any uses thereof, or by fire, flood, inclement weather, strikes, lockouts or other labor or industrial disturbance (whether or not on the part of agents or employees of either party hereto engaged in the construction of the Premises), civil disturbance, order of any government, court or regulatory body claiming jurisdiction or otherwise, act of public enemy, war, riot, sabotage, blockade, embargo, failure or inability to secure materials, supplies or labor through ordinary sources by reason of shortages or priority, discovery of hazardous or toxic materials, earthquake, or other natural disaster, or any cause whatsoever beyond the reasonable control (excluding financial inability) of the party whose performance is required, or any of its contractors or other representatives, whether or not similar to any of the causes hereinabove stated. 19. CPI Adjustment. Effective as of the first day of the thirty-first (31st) -------------- month of the Term (the "CPI Adjustment Date"), the Base Rent in effect immediately before the CPI Adjustment Date shall be increased, in accordance with the percentage increase, if any, in the Consumer Price Index, to an amount which is equal to the product of (i) the Index (as hereinafter defined) for the third month preceding the CPI Adjustment Date, multiplied by (ii) the initial Base Rent set forth in the Basic Lease Information, divided by (iii) the Basic Index (as hereinafter defined); provided, however, in no event shall the Base Rent (as adjusted) in effect immediately prior to the CPI Adjustment Date be decreased, nor shall it be increased as a result of a CPI adjustment by more than six percent (6%) per Lease Year, compounded annually. The "Index" shall mean the Consumer Price Index, All Items, 1982-1984 = 100, All Urban Consumers, for the Los Angeles/Riverside/Anaheim Area, as published by the United States Department of Labor, Bureau of Labor Statistics, or its successor index, and the "Basic Index" shall mean the Index published for the third month preceding the Commencement Date. The adjusted Base Rent shall be rounded to the nearest $1.00. If the Index required for the calculation specified in this subsection is not available on the CPI Adjustment Date in question, Tenant shall continue to pay the same amount of Base Rent payable during the period immediately preceding the CPI Adjustment Date until the Index is available and the necessary calculation is made. As soon as such calculation is made, Tenant shall immediately pay to Landlord the amount of any underpayment of Base Rent for the month(s) that may have elapsed. In the event the compilation or publication of the Index shall be transferred to any other governmental department, bureau or agency or shall be discontinued, the index most nearly the same as the Index shall be used to make such calculation. 15. 20. Options to Extend. ----------------- 20.1 Terms of Options. Provided (i) Tenant is not in default under the ---------------- terms of this Lease at the time each renewal option is exercised or at the commencement of the applicable Extension Term (as hereinafter defined). (ii) Tenant is occupying at least ninety percent (90%) of the Premises, including any expansion space, and (iii) Landlord has not given more than two (2) notices of default in any twelve (12) month period for nonpayment of monetary obligations, Tenant shall have two (2) options to renew this Lease for an additional period of sixty (60) months each (the "First and Second Extension Terms"). The Extension Terms shall be on all the terms and conditions of this Lease, except that Landlord shall have no additional obligation for free rent, leasehold improvements or for any other tenant inducements for the Extension Terms. Base Rent shall be increased (but not decreased) as set forth below. There shall be no additional extension terms beyond the Extension Terms set forth herein. Tenant must exercise its options to extend this Lease by giving Landlord written notice of its election to do so not less than one hundred eighty (180) days prior to the end of the initial Term, or the First Extension Term, as applicable. Any notice not given in a timely manner shall be void, and Tenant shall be deemed to have waived its extension rights. The extension options set forth herein are personal to Tenant and shall not be included in any assignment of this Lease. 20.2 Base Rent During First Extension Term. Effective as of the first day ------------------------------------- of the First Extension Term, and on the first day of the thirty-first (31st) month thereafter (the "First Extension CPI Adjustment Date(s)"), the monthly Base Rent shall be increased in accordance with the percentage increase, if any, in the Consumer Price Index, calculated in the manner set forth in Section 19; provided, however, in no event shall the Base Rent (as adjusted) in effect immediately prior to the applicable First Extension CPI Adjustment Date be decreased, nor shall it be increased as a result of a CPI adjustment by more than six percent (6%) per Lease Year, compounded annually. 20.3 Base Rent During Second Extension Term. The monthly Base Rent payable -------------------------------------- for the first thirty (30) months of the Second Extension Term shall be increased (but not decreased) to 98% of the fair market rental rate ("Market Rent") to be determined as follows: 20.3.1 Agreement on Base Rent. Landlord and Tenant shall have thirty ---------------------- (30) days after Landlord receives the exercise notice in which to agree on the Base Rent during the Second Extension Term. Notwithstanding anything in this Section 20.3 to the contrary, in no event shall the Base Rent for the Second Extension Term be less than the Base Rent in effect immediately prior to the Second Extension Term. 20.3.2 Appraisal. If Landlord and Tenant are unable to agree upon the --------- Base Rent for the Second Extension Term within such thirty (30) day period, then within fifteen (15) days after the expiration of the thirty (30) day period, each party, by giving notice to the other party, shall appoint a real estate appraiser who is a current member of the American Institute of Real Estate Appraisers, with at least five (5) years of experience appraising building space comparable to the Premises in the city and county where the Premises is located to determine the Market Rent. Market Rent shall mean the monthly amount per rentable square foot in the Premises that a willing, non-equity new tenant would pay and a willing landlord would accept at arm's length for space in a comparable building or buildings, with comparable tenant improvements, in a comparable location, giving appropriate consideration to monthly rental rates per rentable square foot, the presence or absence of rent escalation clauses such as operating expense and tax pass-throughs, length of lease term, size and location of premises being leased and other 16. generally applicable terms and conditions of tenancy for a similar building or buildings. If the two (2) appraisers are unable to agree on the Market Rent for the Second Extension Term within twenty (20) days, they shall select a third appraiser meeting the qualifications stated in this Section within five (5) days after the last day the two (2) appraisers are given to set the Market Rent for the Second Extension Term. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party. Within twenty (20) days after the selection of the third appraiser, a majority of the appraisers shall set the Market Rent for the Second Extension Term. If a majority of the appraisers is unable to set the Market Rent within the twenty (20) day period, the two (2) closest appraisals shall be added together and their total divided by two (2). The resulting quotient shall be the Market Rent for the first thirty (30) months of the Second Extension Term. Each party shall be responsible for the costs, charges and fees of the appraiser appointed by that party plus one-half of the cost of the third appraiser. 20.3.3 Amendment of Lease. Immediately after the Base Rent is ------------------ determined pursuant to this Section 20.3, Landlord and Tenant shall execute an amendment to this Lease stating the new Base Rent in effect. 20.3.4 Base Rent Increase During Second Extension Term. Effective as ----------------------------------------------- of the first day of the thirty-first (31st) month of the Second Extension Term (the "Second Extension CPI Adjustment Date"), the monthly Base Rent shall be increased in accordance with the percentage increase, if any, in the Consumer Price Index, calculated in the manner set forth in Section 19; except that the Index shall be multiplied by the monthly Base Rent payable during the first thirty (30) months of the Second Extension Term, and the Basic Index shall mean the Index published for the third month preceding the commencement of the Second Extension Term; provided, however, in no event shall the Base Rent in effect after the Second Extension CPI Adjustment Date be less than the Base Rent in effect immediately preceding the Second Extension CPI Adjustment Date. LANDLORD'S INITIALS ?? TENANT'S INITIALS JL ----- ----- 17. EXHIBIT A [PLAN APPEARS HERE] EXHIBIT B --------- WORK LETTER ----------- Tenant Improvements. - ------------------- 1.1 Landlord shall construct or cause to be constructed in and to the Premises, at Landlord's cost and expense, not to exceed One Hundred Eighty Thousand Dollars ($180,000.00), certain tenant improvements, including space planning, permits and related costs (the "Tenant Improvements"), substantially in accordance with the space plan or other appropriate exhibit (the "Space Plan") attached hereto, marked Exhibit B-1 and made a part hereof and in accordance ----------- with Landlord's current building standards. If said Exhibit is not attached, the Space Plan shall be prepared by Landlord and submitted to Tenant for approval, which approval shall be given within five (5) days following receipt thereof, and evidenced by Tenant's signature thereon. A failure by Tenant to respond within said five (5) day period shall be deemed approval. Upon approval by both parties, the Space Plan shall be deemed incorporated herein by reference, although not attached hereto. 1.2 The Tenant Improvements shall include costs approved by Landlord and associated with the design, permit process and construction (including, a fee equal to five percent (5%) of the total cost thereof as reimbursement for the expense of Landlord's administration and coordination) of the Tenant Improvements, including but not limited to, architect's fees, plan check and permit fees, and fees for utility and telephone service hook-ups. The Tenant Improvements shall not include any improvements which Landlord, in its sole discretion, considers specialized, or any equipment or trade fixtures of Tenant, nor any improvements not shown on the Space Plan which Tenant may desire or governing agencies may require. 1.3 In the event that Tenant desires any change in the Tenant Improvements which is reasonable and practical (which shall be conclusively determined by the Architect), such change may only be requested by the delivery to Landlord by Tenant of a proposed written "Change Order" specifically setting forth the requested change. Landlord shall have five (5) business days from the receipt of the proposed Change Order to provide Tenant with the Architect's disapproval of the proposed change stating the reason(s) for such disapproval, or if the Architect approves the proposed change, the following items: (i) a summary of any increase in the cost caused by such change (the "Change Order Cost"), (ii) a statement of the number of days of any delay caused by such proposed change (the "Change Order Delay"), and (iii) a statement of the cost of the Change Order Delay (the "Change Order Delay Expense"), which Change Order Delay Expense shall be the product of the number of days of delay multiplied by $2,500.00. Tenant shall then have three (3) business days to approve the Change Order Cost, the Change Order Delay and the Change Order Delay Expense. If Tenant gives timely written notice of approval of the Change Order Cost, the Change Order Delay and the Change Order Delay Expense, Landlord shall promptly execute the Change Order and cause the appropriate changes to the Plans and Specifications to be made. Tenant's approval shall include full payment of the Change Order Cost and Change Order Delay Expense. If Tenant fails to respond to Landlord within said three (3) business day period, the Change Order Cost, the Change Order Delay and the Change Order Delay Expense shall be deemed disapproved by Tenant and Landlord shall have no further obligation to perform any work set forth in the proposed Change Order. The Change Order Cost shall include all costs associated with the Change Order, including, without limitation, architectural fees and construction costs, as conclusively determined by the Architect and the General Contractor, respectively, together with a five percent (5%) fee of these costs as reimbursement for the expense of administration and coordination of such Change Order by Landlord. The Change Order Delay shall include all delays caused by the Change Order, including, without limitation, all architectural and construction delays, as conclusively determined by the Architect and the General Contractor, respectively. 1.4 Landlord hereby to assign to Tenant, upon request, the benefit of any and all contractor's and manufacturer's warranties received by Landlord in connection with the construction of the Tenant Improvements. LANDLORD'S INITIALS ?? TENANT'S INITIALS _____ ----- EXHIBIT B-1 ----------- SPACE PLAN ---------- EXHIBIT C --------- COMMENCEMENT DATE MEMORANDUM ---------------------------- With respect to that certain lease ("Lease") dated ______, 19__ , between ____________________________, a _____________________ ("Tenant"), and Catellus Development Corporation, a Delaware corporation ("Landlord"), whereby Landlord leased to Tenant and Tenant leased from Landlord approximately ________ rentable square feet of the building located at ______________________ ("Premises"), Tenant hereby acknowledges and certifies to Landlord as follows: (1) Landlord delivered possession of the Premises to Tenant in a Substantially completed condition on ________________________ ("Possession Date"); (2) The Commencement Date is______________________________. (3) The Premises contain ________________ square feet of space; and (4) Tenant has accepted and is currently in possession of the Premises and the Premises are acceptable for Tenant's use. IN WITNESS WHEREOF, this Commencement Date Memorandum is executed this ____ day of ________________, 199__ . "Tenant" __________________________ a ________________________ By: _____________________ Its: ____________________ By: _____________________ Its: ____________________ [LOGO] CERTIFICATE OF INSURANCE. ISSUE DATE (MM/DD/YY) PRODUCER - -------------------------------------------------------------------------------- THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. ------------------------------------------------- COMPANIES AFFORDING COVERAGE (Must have "Best" Rating or "A B" or better) ------------------------------------------------- COMPANY LETTER A ------------------------------------------------- COMPANY - ---------------------------- INSURED LETTER B ------------------------------------------------- COMPANY LETTER C ------------------------------------------------- COMPANY LETTER D ------------------------------------------------- COMPANY LETTER E - -------------------------------------------------------------------------------- COVERAGES - -------------------------------------------------------------------------------- THIS IS TO CERTIFY THAT POLICIES OF INSURANCE LISTED BELOW HAVE SEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS, AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS
- ------------------------------------------------------------------------------------------------------------------------------------ CO TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION ALL LIMITS IN THOUSANDS LTR DATE (MM/DD/YY) DATE (MM/DD/YY) - ------------------------------------------------------------------------------------------------------------------------------------ GENERAL LIABILITY GENERAL AGGREGATE $2,000 ----------------------------------------- [X] COMMERCIAL GENERAL LIABILITY PRODUCTS-COMP/OPS AGGREGATE $2,000 ----------------------------------------- [_] [_] CLAIMS MADE [x] OCCURRENCE PERSONAL AND ADVERTISING xxx $2,000 ----------------------------------------- [X] OWNERS & CONTRACTORS PROCECTIVE EACH OCCURRENCE $2,000 ----------------------------------------- [X] RAILROAD Prot. Liab. FIRE DAMAGE (ANY ONE FIRE) $ 50 ------------------------------- ----------------------------------------- [X] X C 11 Included MEDICAL EXPENSE (ANY ONE PERSON)$ 5 ------------------------------- ----------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ AUTOMOBILE LIABILITY [X] ANY AUTO CK. $2000 [_] ALL OWNED AUTOS BODILY INJURY PER PERSON $ ----------------------------------------- [_] SCHEDULED AUTOS [X] HIRED AUTOS BODILY INJURY PER ACCIDENT $ ----------------------------------------- [X] NON-OWNED AUTOS [_] GARAGE LIABILITY PROPERTY DAMAGE $ [_] _______________________________ - ------------------------------------------------------------------------------------------------------------------------------------ EXCESS LIABILITY EACH AGGREGATE [X] Following Form OCCURRENCE [_]OTHER THAN UMBRELLA FORM $ $ - ------------------------------------------------------------------------------------------------------------------------------------ STATUTORY ----------------------------------------- WORKERS' COMPENSATION $1, 000 (EACH ACCIDENT) ----------------------------------------- AND $1, 000 (DISEASE POLICY LIMIT) ----------------------------------------- EMPLOYERS' LIABILITY $1, 000 (DISEASE EACH EMPLOYEE) - ------------------------------------------------------------------------------------------------------------------------------------ OTHER - ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/RESTRICTIONS/SPECIAL ITEMS Certificate holder is named as additional insured as respects: _______________________________________________________________ (Location) REFER to Additional Insured endorsement attached. Aggregate limits apply per location. - -------------------------------------------------------------------------------- CERTIFICATE HOLDER CANCELLATION - --------------------------------------------------------------------------------
CATELLUS DEVELOPMENT CORPORATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED 1065 N. PACIFICENTER DRIVE , SUITE 200 OR LIMITS REDUCED BEFORE THE EXPIRATION DATE THEREOF. THE ISSUING ANAHEIM, CA 92806 COMPANY WILL ENDEAVOR TO MAIL 60 DAYS WRITTEN NOTICE TO THE ATTN: ASSET MANAGEMENT CERTIFICATE HOLDER NAMED TO THE LEFT. FAX (714) 237--7416 ------------------------------------------------------------------------ AUTHORIZED REPRESENTATIVE - ------------------------------------------------------------------------------------------------------------------------------------
EVIDENCE OF PROPERTY INSURANCE THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN FORCE, AND CONVEYS ALL, THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY. (MUST HAVE "BEST" RATING OF "A 8" OR BETTER [ILLEGIBLE] COMPANY CODE SUB--CODE LOAN NUMBER POLICY NUMBER INSURED EFFECTIVE DATE (MM/DD/YY) EXPIRATION DATE (MM/DD/YY) CONT. UNTIL TERMINATED IF CHECKED THIS REPLACES PRIOR EVIDENCE DATED: - -----------------------------------------------------------------------------------------------------------------
PROPERTY INFORMATION LOCATION/DESCRIPTION (provide address of leased PREMISES) - ----------------------------------------------------------------------------- COVERAGE INFORMATION
COVERAGE/PERSONAL/FORMS AMOUNT OF INSURANCE DEDUCTIBLE Business Personal. Property (including Tenants Improvements $ ________________ $ _____________ and Betterments, if applicable) Business Income (100% contribution) $ ________________ $ _____________ Boiler & Machinery (if applicable) $ ________________ $ _____________ Warehousers legal liability (if applicable) $ ________________ $ _____________ Replacement Cost Coverage, special form - -----------------------------------------------------------------------------------------------------------------
REMARKS INCLUDING SPECIAL CONDITIONS: Waiver of Subrogation provision included (per lease) - ------------------------------------------------------------------------------ CANCELLATION THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE ADDITIONAL INTEREST IDENTIFIED BELOW 60 days WRITTEN NOTICE. AND WILL SEND NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST, IN ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW. - -------------------------------------------------------------------------------- ADDITIONAL INTEREST
NAME AND ADDRESS NATURE OF INTEREST MORTGAGEE ADDITIONAL INSURED CATELLUS DEVELOPMENT CORPORATION 1065 N. PACIFICENTER DRIVE, SUITE 200 ANAHEIM, CA 92806 LOSS PAYEE X (OTHER) Landlord ----------------------------------------------------------------- ATTN: ASSET MANAGEMENT SIGNATURE OF AUTHORIZED AGENT OF COMPANY FAX 714) 237-7416 - -----------------------------------------------------------------------------------------------------------------
EXHIBIT E --------- PROHIBITED USES --------------- The following types of operations and activities are expressly prohibited on the Premises: 1. automobile/truck maintenance, repair or fueling; 2. battery manufacturing or reclamation; 3. ceramics and jewelry manufacturing or finishing; 4. chemical (organic or inorganic) storage, use or manufacturing; 5. drum recycling; 6. dry cleaning; 7. electronic components manufacturing; 8. electroplating and metal finishing; 9. explosives manufacturing, use or storage; 10. hazardous waste treatment, storage, or disposal; 11. leather production, tanning or finishing; 12. machinery and tool manufacturing; 13. medical equipment manufacturing and hospitals; 14. metal shredding, recycling or reclamation; 15. metal smelting and refining; 16. mining; 17. paint, pigment and coating operations; 18. petroleum refining; 19. plastic and synthetic materials manufacturing; 20. solvent reclamation; 21. tire and rubber manufacturing; 22. above- and/or underground storage tanks; and 23. residential use or occupancy. EXHIBIT F --------- CORRECTION ITEMS ---------------- EXHIBIT G --------- TENANT ESTOPPEL CERTIFICATE To: Bank of America National Trust and Savings Association ("Bank") Real Estate Industries Division No.____ ___________________________________ ___________________________________ Attn: _____________________________ Re: Lease Dated: Current Landlord: ___________________________ Current Tenant: ___________________________ Square Feet Approximately _____________ Floor(s): ___________________________ Located at: ___________________________ _______________________ ("Tenant") hereby certifies that as of __________, 199__. 1. Tenant is the present owner and holder of the tenant's interest under the lease described above, as it may be amended to date (the "Lease") with ___________________ as Landlord (who is called "Borrower" for the purposes of this Certificate). (USE THE NEXT SENTENCE IF THE LANDLORD OR TENANT NAMED IN THE LEASE IS A PREDECESSOR TO THE CURRENT LANDLORD OR TENANT.) [The original landlord under the Lease was ______________________, and the original tenant under the Lease was ______________.] The Lease covers the premises commonly known as (the "Premises") in the building (the "Building") at the address set forth above. (CHOOSE ONE OF THE FOLLOWING SECTION 2(a)s BELOW) ------------------------------------------------- [2. (a) A true, correct and complete copy of the Lease (including all modifications, amendments, supplements, side letters, addenda and riders of and to it) is attached to this Certificate as Exhibit A.] --------- [2 (a) The attached Exhibit A accurately identifies the Lease and all --------- modifications, amendments, supplements, side letters, addenda and riders of and to it.] (b) (IF APPLICABLE) [The Lease provides that in addition to the Premises, Tenant has the right to use or rent ______ [assigned/unassigned] parking spaces near the Building or in the garage portion of the building during the term of the Lease.] (c) The term of the Lease commenced on _________ 199__ and will expire on ____________, ___, including any presently exercised option or renewal term. (CHOOSE ONE OF THE FOLLOWING TWO SENTENCES:) [Tenant has no option or ------------------------------------------ right to renew, extend or cancel the Lease, or to lease additional space in the Premises or Building, or to use any parking (IF APPLICABLE) [other than that ------------- specified in Section 2(b) above].] [Except as specified in Paragraph(s) _______ of the Lease (copy attached), Tenant has no option or right to renew, extend or cancel the Lease, or to lease additional space in the Premises or Building, or to use any parking (IF APPLICABLE) [other than that specified in Section 2(b) ------------- above].] (CHOOSE ONE OF THE FOLLOWING SECTION 2(d)s) ----------------------------------------- [(d) Tenant has no option or preferential right to purchase all or any part of the Premises (or the land of which the Premises are a part). Tenant has no right or interest with respect to the Premises or the Building other than as Tenant under the Lease.] [(d) Except as specified in Paragraph(s) ____________ of the Lease (copy attached), Tenant has no option or preferential right to purchase all or any part of the Premises (or the land of which the Premises are a part). Except for the foregoing, Tenant has no right or interest with respect to the Premises or the Building other than as Tenant under the Lease.] (e) The annual minimum rent currently payable under the Lease is $________ and such rent has been paid through ________________, 199__. (IF -- APPLICABLE) [The annual percentage rent currently payable under the Lease is at - ---------- the rate of and such rent has been paid through _______________, 199__.] (f) (IF APPLICABLE) [Additional rent is payable under the Lease for ------------- (i) operating, maintenance or repair expenses, (ii) property taxes, (iii) consumer price index cost of living adjustments, or (iv) percentage of gross sales adjustments (i.e., adjustments made based on underpayments of percentage rent). Such additional rent has been paid in accordance with Borrower's rendered bills through _______________, 199__. The base year amounts for additional rental items are as follows: (1) operating, maintenance or repair expenses $______________ (2) property taxes $____________, and (3) consumer price index ______________ (please indicate base year CPI level).] (g) Tenant has made no agreement with Borrower or any agent, representative or employee of Borrower concerning free rent, partial rent, rebate of rental payments or any other similar rent concession (IF APPLICABLE) ------------- (except as expressly set forth in Paragraph(s) _____ of the Lease (copy attached)]. (h) Borrower currently holds a security deposit in the amount of $___________ which is to be applied by Borrower or returned to Tenant in accordance with Paragraph(s) of the Lease. Tenant acknowledges and agrees that bank shall have no responsibility or liability for any security deposit, except to the extent that any security deposit shall have been actually received by Bank. 3. (a) The Lease constitutes the entire agreement between Tenant and Borrower with respect to the Premises, has not been modified changed, altered or amended and is in full force and effect in the form (CHOOSE ONE) [attached ---------- as/described in] Exhibit A. There are no other agreements, written or oral, which affect Tenant's occupancy of the Premises. (b) All insurance required of Tenant under the Lease has been provided by Tenant and all premiums have been paid. (c) To the best knowledge of Tenant, no party is in default under the Lease. To the best knowledge of Tenant, no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default. (d) The interest of Tenant in the Lease has not been assigned or encumbered. Tenant is not entitled to any credit against any rent or other charge or rent concession under the Lease except as set forth in the Lease. No rental payments have been made more than one month in advance. 4. All contributions required to be paid by Borrower to date for improvements to the Premises have been paid in full and all of Borrower's obligations with respect to tenant improvements have been fully performed. Tenant has accepted the Premises, subject to no conditions other than those set forth in the Lease. 5. Neither Tenant nor any guarantor of Tenant's obligations under the Lease is the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships. 6. (a) As used here. "Hazardous Substance" means any substance, material or waste (including petroleum and petroleum products) which is designated, classified or regulated as being "toxic" or "hazardous" or a "pollutant" or which is similarly designated, classified or regulated, under any federal, state or local law, regulation or ordinance. (b) Tenant represents and warrants that it has not used, generated, released, discharged, stored or disposed of any Hazardous Substances on, under, in or about the Building or the land on which the Building is located (IF -- APPLICABLE) [, other than Hazardous Substances used in the ordinary and - ----------- commercially reasonable course of Tenant's business in compliance with all applicable laws]. (IF APPLICABLE) [Except for such commercially reasonable use ------------- by Tenant,] Tenant has no actual knowledge that any Hazardous Substance is present, or has been used, generated, released, discharged, stored or disposed of by any party, on, under, in or about such Building or land. 2 7. Tenant hereby acknowledges that Borrower (CHOOSE ONE) [intends to ---------- encumber/has encumbered] the property containing the Premises with a Deed of Trust in favor of Bank. Tenant acknowledges the right of Borrower, Bank and any and all of Borrower's present and future lenders to rely upon the statements and representations of Tenant contained in this Certificate and further acknowledges that any loan secured by any such Deed of Trust or further deeds of trust will be made and entered into in material reliance on this Certificate. 8. Tenant hereby agrees to furnish Bank with such other and further estoppel as Bank may reasonably request. ________________________ By:_____________________ Name:___________________ Title:__________________ 3 EX-10.12 7 LEASE AGREEMENT EXHIBIT 10.12 INDUSTRIAL LEASE AGREEMENT DATE: NOVEMBER 27, 1996 BETWEEN CP-REGENCY BUSINESS PARK, LTD., A TEXAS LIMITED PARTNERSHIP AND ALADDIN MANUFACTURING CORPORATION, A DELAWARE CORPORATION (A DIVISION OF MOHAWK CARPET CORPORATION, INC.) TABLE OF CONTENTS
Page ARTICLE I - DEFINITIONS...................................................................... 1 ARTICLE II - LEASE GRANT..................................................................... 1 ARTICLE III- CONSTRUCTION OF LEASEHOLD IMPROVEMENTS.......................................... 2 Section 3.1 Landlord's Improvements..................................................... 2 Section 3.2 Leasehold Improvements...................................................... 2 Section 3.3 Construction Guaranty....................................................... 3 ARTICLE IV - RENT............................................................................ 3 Section 4.1 Payment of Rent............................................................. 3 Section 4.2 Periodic Payment of Reimbursable Expenses; Adjustments...................... 3 Section 4.3 Rent Adjustment............................................................. 3 Section 4.4 [INTENTIONALLY OMITTED]..................................................... 4 Section 4.5 Survival of Obligations..................................................... 4 Section 4.6 Delinquent Payments......................................................... 4 Section 4.7 Independent Obligations..................................................... 4 ARTICLE V - OTHER ASSESSMENTS................................................................ 4 Section 5.1 Payment of Impositions...................................................... 4 Section 5.2 Other Impositions........................................................... 4 Section 5.3 Landlord's Right to Contest................................................. 5 ARTICLE VI - UTILITIES....................................................................... 5 ARTICLE VII - USE; COMPLIANCE WITH LAWS...................................................... 5 Section 7.1 Permitted Use............................................................... 5 Section 7.2 Hazardous Materials......................................................... 5 Section 7.3 Compliance with Laws and Ordinances......................................... 6 Section 7.4 Compliance with Permitted Encumbrances...................................... 7 ARTICLE VIII - REPAIRS AND MAINTENANCE....................................................... 7 Section 8.1 By Landlord................................................................. 7 Section 8.2 By Tenant................................................................... 7 Section 8.3 Prohibition Against Waste................................................... 7 Section 8.4 Landlord's Right so Effect Repairs.......................................... 7 Section 8.5 Misuse or Neglect........................................................... 7 Section 8.6 Maintenance/Service Contracts............................................... 8 Section 8.7 Common Area................................................................. 8 ARTICLE IX - ALTERATIONS AND IMPROVEMENTS.................................................... 9 ARTICLE X - INDEPENDENT OBLIGATIONS.......................................................... 9 ARTICLE XI - ASSIGNMENT AND SUBLETTING....................................................... 10 ARTICLE XII - LIABILITY...................................................................... 10 ARTICLE XIII - MORTGAGES..................................................................... 11 ARTICLE XIV - INSPECTION..................................................................... 11 ARTICLE XV - INSURANCE; WAIVER OF SUBROGATION................................................ 11 ARTICLE XVI - DESTRUCTION AND RESTORATION.................................................... 12 ARTICLE XVII - CONDEMNATION.................................................................. 12 ARTICLE XVIII - HOLDING OVER................................................................. 13 ARTICLE XIX - TAXES ON TENANT'S PROPERTY..................................................... 13 ARTICLE XX - EVENTS OF DEFAULT............................................................... 13 ARTICLE XXI - LANDLORD'S REMEDIES............................................................ 13 ARTICLE XXII - SURRENDER OF PREMISES......................................................... 14 ARTICLE XXIII - ATTORNEYS' FEES.............................................................. 14
ARTICLE XXIV - [INTENTIONALLY OMITTED]....................................................... 15 ARTICLE XXV - MECHANIC'S LIEN................................................................ 15 ARTICLE XXVI - SIGNS......................................................................... 15 ARTICLE XXVII - NOTICES...................................................................... 15 ARTICLE XXVIII - SEPARABILITY................................................................ 16 ARTICLE XXIX - QUIET ENJOYMENT............................................................... 16 ARTICLE XXX - EXISTENCE OF BROKER............................................................ 16 ARTICLE XXXI - TENANT'S REMEDIES............................................................. 16 ARTICLE XXXII - ESTOPPEL CERTIFICATES........................................................ 17 ARTICLE XXXIII - NOTICE TO LENDER............................................................ 17 ARTICLE XXXIV - LANDLORD APPROVALS........................................................... 17 ARTICLE XXXV - JOINT AND SEVERAL LIABILITY................................................... 17 ARTICLE XXXVI - GENDER....................................................................... 18 ARTICLE XXXVII - CAPTIONS.................................................................... 18 ARTICLE XXXVIII - ENTIRE AGREEMENT; AMENDMENTS; BINDING EFFECT............................... 18 ARTICLE XXXIX - GOVERNING LAW AND PLACE OF PERFORMANCE....................................... 18 ARTICLE XL - GOOD STANDING/DUE AUTHORIZATION................................................. 18 ARTICLE XLI - MEMORANDUM OF LEASE............................................................ 18 ARTICLE XLII - RENEWAL OPTION................................................................ 19 SCHEDULES AND EXHIBITS - ---------------------- SCHEDULE 1 - TENANT FINISH CONTRACTORS....................................................... 21 EXHIBIT "A" - LAND........................................................................... 22 EXHIBIT "A-l" - FLOOR PLAN................................................................... 23 EXHIBIT "B" - PERMITTED ENCUMBRANCES......................................................... 25 EXHIBIT "C" - DESIGN CRITERIA................................................................ 26 EXHIBIT "C-1" - PLANS AND SPECIFICATIONS..................................................... 27 EXHIBIT "D" - GUARANTEE...................................................................... 28
INDUSTRIAL LEASE AGREEMENT THIS INDUSTRIAL LEASE AGREEMENT (the "Lease") is made and entered into by and between the Landlord and Tenant hereinafter named. ARTICLE I DEFINITIONS The following definitions and basic provisions shall be used in conjunction with and limited by the reference thereto in the provisions of this Lease: (a) "Landlord": CP-REGENCY BUSINESS PARK, LTD., a Texas limited partnership. (b) "Tenant": ALADDIN MANUFACTURING CORPORATION, a Delaware corporation (a division of Mohawk Carpet Corporation, Inc., a Delaware corporation). (c) "Premises": That portion of the Building (herein so called) identified on Exhibit "A-1" attached hereto and made a part hereof, which Building is situated on that certain real property described on Exhibit "A" attached hereto and made a part hereof (the "Land"). The Building and the Land are hereinafter collectively referred to as the "Property". (d) "Lease Term": A period commencing December 1, 1996 (the "Commencement Date") and ending on five (5) years and six (6) months thereafter (the "Expiration Date"). (e) "Basic Rental": $52,413.25 per month. (f) [INTENTIONALLY OMITTED] (g) "Permitted Use": Warehousing, cutting and distribution of carpet and related items (herein, the "Primary Use") and all other lawful uses permitted by applicable zoning. (h) "Maximum Rate": The maximum rate of interest permitted by applicable law or two percent (2%) above the prime rate of interest, as announced from time to time by NationsBank, N.A. for its banks in Dallas, Texas, whichever is less. (i) "Additional Rent": All sums of money, other than Basic Rental, which become due under Article V, Section 8.7 or Article XV this Lease, or are otherwise specified to be "Additional Rent" under this Lease. Basic Rental and Additional Rent shall collectively constitute the "Rent" or "Rentals" due or to become due under this Lease and are herein so called. (j) "Common Area": All areas and facilities that may exist, from time to time, outside the Building and within the perimeter boundary line of the Property for the general, non-exclusive use of the Landlord, the Tenant and other tenants within the Building and their respective employees, suppliers, shippers, customers and invitees, including (without limitation, however) parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, alleys and landscaped areas. (k) "Tenant's Share": A fraction, the numerator of which is the total number of square feet of space contained within the Premises and the denominator of which is the total number of square feet of space contained within the Building and all other buildings, if any, on the Property. Under no circumstances shall Tenant's Share ever exceed Tenant's Share as of the date hereof, which the parties acknowledge to be 50%. ARTICLE II LEASE GRANT Landlord, in consideration of the Basic Rental to be paid and the other covenants and agreements to be performed by Tenant and upon the terms and conditions hereinafter stated, does hereby lease, demise and let unto Tenant the Premises commencing on the Commencement Date (as defined in Article I(d) hereof), or as adjusted as hereinafter provided) and ending on the last day of the Lease Term, unless sooner terminated as herein provided. If this Lease is executed before the Premises are available and ready for occupancy, and Landlord cannot deliver possession on the Commencement Date, then Landlord shall not be deemed to be in default hereunder, and Tenant agrees to accept possession of the Premises at such time as the Premises are available and ready for occupancy and such date shall be deemed to be the Commencement Date, and the Expiration Date set forth in Article I(d) hereof shall be extended for a period equal to the number of days that the Premises are not available and ready for occupancy beyond the Commencement Date specified in Article I(d) hereof plus the number of ---- days necessary for the Lease Term to expire on the last day of a month; provided, however, that if the Leasehold Initial: ________ INDUSTRIAL LEASE AGREEMENT - Page 1 ________ - -------------------------- Improvements (as defined in Section 3.2 below) have not been substantially completed within ninety (90) days following the date upon which Landlord and Tenant mutually approve the final plans and specifications for the Leasehold Improvements (as defined in Section 3.2 hereof) (herein, the "Outside Completion Date"), subject to Excused Delays (as hereinafter defined), then Tenant shall have the right to terminate this Lease at any time prior to substantial completion of the Leasehold Improvements, and this Lease shall thereafter be null and void and of no further force or effect and the Commencement Date hereunder shall never occur. If the Tenant fails to terminate this Lease prior to substantial completion or within ten (10) days after Landlord notifies Tenant that the Leasehold Improvements will not be completed on time, then Tenant shall be deemed to have waived its right of termination contained herein. If the delay in completing the Leasehold Improvements by the Outside Completion Date is caused or contributed to by act or neglect of Tenant, or those acting for or under Tenant, labor disputes, casualties, acts of God or the public enemy, governmental embargo restrictions, shortages of fuel, labor, or building materials, action or non-action of public utilities, or of local, state or federal governments affecting the work, or other causes beyond Landlord's reasonable control, then the time of completion of said construction shall be extended for the additional time caused by such delay. Such delays are each referred to as an "Excused Delay." Landlord hereby waives payment of Basic Rental and all Additional Rental and other payments to be made by Tenant hereunder, all of which shall only commence upon the Commencement Date covering any period prior to the date the Premises are available and ready for occupancy; however, should Tenant occupy the Premises prior to the Commencement Date specified in Article I(d) hereof, the Commencement Date and Lease Term shall be altered to coincide with said occupancy with the Expiration Date of this Lease remaining unchanged. For the purpose hereof, the Premises shall be deemed "available and ready for occupancy" at such time as Landlord has substantially completed the construction or installation of any Leasehold Improvements (as defined in Section 3.2 hereof), if any, required to be completed by Landlord pursuant to Section 3.2 of this Lease to the extent reasonably necessary to as to allow Tenant to occupy the Premises and commence operations of its business therein, notwithstanding the fact that there may remain as incomplete certain minor, "punchlist" items which do not materially interfere with Tenant's intended use of the Premises; Landlord agrees to promptly attend to and complete the punchlist items in a good and workmanlike manner. The Leasehold Improvements shall be deemed to have been substantially completed when the following having occurred: (i) the issuance of a certificate of occupancy permitting Tenant to occupy the Premises (or the taking of such other action as may be customary to permit occupancy or use thereof); and (ii) the issuance of a certificate of substantial completion by Landlord's architect. Tenant shall endeavor to provide Landlord with a list of deficiencies in the construction of the Leasehold Improvements within thirty (30) days after it has taken possession of the Premises with all Leasehold Improvements completed; provided, further that nothing herein shall reduce or impair Landlord's Construction Guaranty set forth in Section 3.3 below. After the Commencement Date of this Lease, Tenant shall, upon request from Landlord, execute and deliver to Landlord a letter of acceptance of delivery of the Premises, which letter shall describe any deficiencies with respect to the Leasehold Improvements of which Tenant has actual knowledge and shall also state the Commencement Date and Expiration Date; provided, however, that Landlord also confirms to Tenant the Commencement and Expiration Dates. The Premises are subject to, and Tenant covenants and agrees to comply with, the easements, restrictions, reservations and other matters set forth in Exhibit "B" attached hereto and made a part hereof (collectively, the "Permitted Encumbrances"). Landlord represents to Tenant that none of the Permitted Encumbrances will materially interfere with or preclude Tenants occupancy of the Premises for the Primary Use identified in Article I(g) above. ARTICLE III CONSTRUCTION OF LEASEHOLD IMPROVEMENTS Section 3.1 Landlord's Improvements. The "Landlord's Work" (so called herein) is described by the Design Criteria set forth on Exhibit "C" attached hereto and made a part hereof. Section 3.2 Leasehold Improvements. Any improvements to be made to the Premises other than the Landlord's Work as described in Section 3.1 above are herein referred to as the "Leasehold Improvements". Immediately after the execution hereof, Landlord and Tenant will cooperate with one another to prepare final plans and specifications for the construction and installation of the Leasehold Improvements. Such final plans and specifications, when approved in writing by Landlord and Tenant, shall be attached to this Lease as Exhibit "C-1" and shall become a part hereof. No failure or refusal on the part of Tenant to approve final plans and specifications within a reasonable time after the execution hereof shall render this Lease void or voidable nor shall it delay the Commencement Date set forth in Article I(d) hereof. No delay caused by Tenant during the construction or installation of the Leasehold Improvements shall delay the Commencement Date of this Lease from what it would have been had such delay not occurred. Landlord and Tenant acknowledge that Landlord has computed the Basic Rental by budgeting an allowance of $600,000.00 (the "Allowance") for the Leasehold Improvements to be constructed within the Premises. Landlord and Tenant acknowledge that the Allowance is not a firm budget nor final estimate of costs. Upon mutual approval of the final plans and specifications, Landlord agrees to obtain competitive bids for the cost of the Leasehold Improvements from no fewer than three (3) of the contractors listed on Schedule I attached hereto and made a part hereof. Landlord will provide to Tenant copies of any bids received by Landlord. It is understood, however, that Landlord need not necessarily select the contractor providing the lowest bid; however, unless Landlord provides Tenant a reasonable basis for rejecting the lowest bid, Landlord will select the contractor providing the lowest bid. Landlord shall promptly inform Tenant of Landlord's selection of the contractor and the final cost of the Leasehold Improvements. Should the total cost of the Leasehold Improvements exceed the Allowance, the Tenant shall pay such excess, in cash, to Landlord within ten (10) days following the date Landlord informs Tenant of such excess, and Landlord will not be required to commence construction of the Leasehold Improvements until Tenant pays such Initial: ________ INDUSTRIAL LEASE AGREEMENT - Page 2 ________ excess to Landlord. Any delay in Landlord's commencement of construction resulting from Tenant's failure to pay such amount to Landlord as required herein shall not delay the Commencement Date of this Lease from what is would have been had such delay not occurred. Should the total cost of the Leasehold Improvements be less than the Allowance, the Tenant shall be entitled to receive such amount by crediting the first installment(s) of Basic Rental due to the Landlord following the Abatement Period (as defined in Section 4.1 hereof). Section 3.3 Construction Guaranty. Landlord guarantees the Leasehold Improvements against defective workmanship and/or materials or non-compliance with the final plans and specifications for the Leasehold Improvements for a period of one year from the date of substantial completion of the Leasehold Improvements, and Landlord agrees, at its sole cost and expense, to repair or replace any defective item occasioned by poor workmanship and/or materials or non-compliance with the final plans and specifications for the Leasehold Improvements during said one-year period, and performance of such one-year guaranty shall be Landlord's sole and exclusive obligation with respect to defective workmanship and/or materials, and Tenant's rights to enforce such one-year guaranty shall be Tenant's sole and exclusive remedy with respect to such defective workmanship and/or materials in limitation of any contract, warranty or other rights, whether express or implied, that Tenant may otherwise have under applicable law. From and after the expiration of the one year guaranty of Landlord against defective workmanship and materials, Landlord agrees to cooperate with Tenant in the enforcement by Tenant, at Tenant's sole cost and expense, of any express warranties or guaranties of workmanship or materials given by subcontractors or materialmen that guarantee or warrant against defective workmanship or materials for a period of time in excess of the one-year period described above and to cooperate with Tenant in the enforcement by Tenant, at Tenant's sole cost and expense, of any service contracts that provide service, repair or maintenance to any item incorporated in the Building for a period of time in excess of such one-year period. ARTICLE IV RENT Section 4.1 Payment of Rent. In consideration of this Lease, Tenant promises and agrees to pay Landlord the Basic Rental, without deduction or set off, except for any set off explicitly provided for herein, for each and every month of the Lease Term and further promises and agrees to pay all Additional Rent which becomes due hereunder. The nonpayment of any Additional Rent or any other sums due by Tenant to Landlord under this Lease shall afford Landlord all the rights and remedies as are herein provided in the case of nonpayment of the Basic Rental. Any term or provision of this Lease to the contrary notwithstanding, the covenant and obligation of Tenant to pay Rent hereunder shall be independent from any obligations, warranties, representations, express or implied, if any, of Landlord herein contained. Tenant's obligation to pay the Basic Rental shall abate for a period commencing on the Commencement Date and continuing through and until, and including, May 31, 1997 (the "Abatement Period"). The abatement provided herein shall apply to Basic Rental only and shall not include any other costs, charges or expenses payable by Tenant. Section 4.2 Periodic Payment of Reimbursable Expenses; Adjustments. Landlord may estimate in advance the amount of any taxes, reimbursable maintenance expenses and insurance premiums due from Tenant under this Lease (the "Reimbursable Expenses") for each calendar year during the Lease Term, and the same shall be payable quarterly, during each twelve (12) month period of the Lease Term on the same day as Basic Rental is due hereunder, with an adjustment to be made between the parties at a later date as hereinafter provided. As soon as practicable following the end of each calendar year, but no later than the first day of May, beginning with the end of the first calendar year, Landlord shall submit to Tenant a statement setting forth the exact amount of the Reimbursable Expenses for the calendar year just completed. Further, Landlord shall notify Tenant of the difference, if any, between the actual amount of the Reimbursable Expenses for the calendar year just completed and the estimated amount of the Reimbursable Expenses (which was paid in accordance with this paragraph) for such year. Such statement shall also set forth the amount of the estimated Reimbursable Expenses for the new calendar year computed in accordance with the foregoing provisions. To the extent that the actual Reimbursable Expenses for any period covered by such statement is greater than the estimated amounts which Tenant previously paid during the calendar year just completed, Tenant shall pay to Landlord the difference within ten (10) days following receipt of said statement from Landlord. To the extent that the actual Reimbursable Expenses for the period covered by the statement is less than the estimated payment previously paid by Tenant during the calendar year just completed, Landlord shall credit the difference against the Tenant's estimated payment of Reimbursable Expenses for the current calendar year and such credit will be applied to the next payment or payments due from Tenant to Landlord. In addition, until Tenant receives such statement, Tenant's payment of the Reimbursable Expenses for the new calendar year shall continue to be paid at the rate for the previous calendar year, but Tenant shall commence payment to Landlord of the quarterly installments of Reimbursable Expenses on the basis of the new statement beginning on the first installment date following the date upon which Tenant receives such statement. If the statement reflects a change in the reimbursement amount, such difference shall be adjusted by increasing or decreasing the first reimbursement payment after the statement is given in order to bring the reimbursement amount for the new calendar year current as of such date. Landlord shall retain its records relating to the taxes, insurance and other reimbursable expenses at Landlord's principal office (or such other office as Landlord may designate in writing to Tenant), and upon reasonable prior notice to Landlord, Tenant shall have the right to inspect all of Landlord's records relating to such costs. Appropriate adjustments shall be made for errors in the computation of such costs revealed by such audit or inspection. If any audit by Tenant indicates an overcharge in the amount of Tenant's Share by more than five percent (5%), the reasonable cost of such audit (up to a maximum of Initial: ________ INDUSTRIAL LEASE AGREEMENT - Page 3 ________ $1,500.00) shall be paid on demand by Landlord to Tenant. Landlord shall retain said records for at least twenty-four (24) months. Section 4.3 Rent Adjustment. The Basic Rental installment for the first month of the Lease Term shall be due and payable by Tenant to Landlord contemporaneously with the execution hereof, and a like monthly installment shall be due and payable, without demand, on or before the first day of each calendar month during the Lease Term. Basic Rental for any fractional month at the beginning or end of the Lease Term shall be prorated. Should a prorated payment of Basic Rental be owing for a fractional month at the beginning of the Lease Term, Tenant shall pay such amount to Landlord within ten (10) days following receipt of Landlord's invoice therefor. Section 4.4 [INTENTIONALLY OMITTED] Section 4.5 Survival of Obligations. Notwithstanding any expiration or earlier termination of this Lease, Tenant's obligation to pay any and all Additional Rent and other sums due by Tenant to Landlord under this Lease shall continue and shall cover all periods up to the date this Lease expires or is terminated. Tenant's obligation to pay any and all Additional Rent and other sums under this Lease and Landlord's and Tenant's obligation to make the adjustments referred to in this Lease shall survive any expiration or termination of this Lease. Section 4.6 Delinquent Payments. If any Basic Rental payment required to be paid or which becomes due under this Lease is not paid by the tenth (10th) day following the day on which it is due, a service charge of five percent (5%) of such amounts due shall become due and payable in addition to the amounts due. Said service charge is for the purpose of reimbursing Landlord for the extra costs and expenses in connection with the handling and processing of late payments. In addition to such service charge, if any Basic Rental payment is not paid by the tenth (10th) day following the day on which is becomes due, Tenant shall pay to Landlord, in addition to such Basic Rental payment and the service charge, interest on such Basic Rental payment calculated at the Maximum Rate from the date such Basic Rental payment was due until paid by Tenant. If any Additional Rent required to be paid or which becomes due under this Lease is not paid when due, Tenant shall pay to Landlord, in addition to such amounts, interest on such amounts at the Maximum Rate from the date such amounts were due until paid by Tenant. Section 4.7 Independent Obligations. Any term or provision of this Lease to the contrary notwithstanding, except as explicitly set forth herein, the covenants and obligations of Tenant to pay Basic Rental and Additional Rent hereunder shall be independent from any obligations, warranties or representations, express or implied, if any, of Landlord herein contained. ARTICLE V OTHER ASSESSMENTS Section 5.1 Payment of Impositions. Tenant covenants and agrees to pay during the term of this Lease, as Additional Rent, before any fine, penalty, interest or cost may be added thereto for the nonpayment thereof, Tenant's Share of all real estate taxes and special assessments (all of which are sometimes herein referred to as "Impositions"), which at any time during the term may have been or maybe assessed, levied, confirmed, imposed upon, or become a lien on the Property, or any portion thereof, or any appurtenance thereto. Tenant shall pay Tenant's Share of all special (or similar) assessments for public improvements or benefits which, during the term of this Lease shall be laid, assessed, levied or imposed upon or become payable or become a lien upon the Property, or any portion thereof; provided, however, that if by law any special assessment is payable (without default) or, at the option of Landlord, may be paid (without default) in installments (whether or not interest shall accrue on the unpaid balance of such special assessment), Tenant may pay the same, together with any interest accrued on the unpaid balance of such special assessment in installments as the same respectively become payable and before any fine, penalty, interest or cost may be added thereto for the nonpayment of any such installment and the interest thereon. Landlord represents to Tenant that as of the date of this Lease, Landlord has no knowledge of and has not received any written notice of any special assessments payable, levied or assessed with respect to the Property. Tenant shall pay Tenant's Share of all special assessments or installments thereof (including interest accrued thereon), whether heretofore or hereafter laid, assessed, levied or imposed upon the Property, or any portion thereof, which are due and payable during the term of this Lease. Landlord shall pay all installments of special assessments (including interest accrued on the unpaid balance) which are payable prior to the commencement and after the termination date of the term of this Lease. Tenant shall pay all real estate taxes, whether heretofore or hereafter levied or assessed upon the Property, or any portion thereof, which are due and payable during the term of this Lease. Landlord shall pay all real estate taxes and special assessments which are payable prior to the commencement of the term of this Lease. Provisions herein to the contrary notwithstanding, Landlord shall pay that portion of the real estate taxes and installments of special assessments due and payable in respect to the Property during the year the term commences and the year in which this term ends which the number of days in said year not within the term of this Lease bears to 365, and Tenant shall pay Tenant's Share of the balance of said real estate taxes and installments of special assessments during said years. Notwithstanding anything to the contrary, Tenant shall not be obligated to pay any assessment arising from or related to the original construction of the Building and/or development of the Property. Section 5.2 Other Impositions. If at any time during the term of this Lease, the present method of taxation shall be changed so that in lieu of the whole or any part of any taxes, assessments or governmental charges levied, assessed or imposed on real estate and the improvements thereon, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the Basic Rentals received therefrom and/or a franchise tax assessment, levy or charge measured by or Initial: ________ INDUSTRIAL LEASE AGREEMENT - Page 4 ________ based, in whole or in part, upon such Basic Rentals for the present or any future building or buildings on the Land, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term "Impositions" for the purposes hereof. Section 5.3 Landlord's Right to Contest. The Landlord shall have the right to employ a tax consulting firm to attempt to assure a fair tax burden on the Premises within the applicable taxing jurisdiction. Tenant shall pay to Landlord upon demand from time to time, as Additional Rent, Tenant's Share of the reasonable cost of such service. ARTICLE VI UTILITIES Landlord agrees to provide water, gas, sewer, electricity, and telephone service connections to the Premises; but Tenant shall pay for all water, gas, heat, light, power, telephone, sewer, fire sprinkler, lawn sprinkler charges and other utilities and services used on or from the Premises, together with any taxes, penalties, surcharges or the like pertaining thereto and any maintenance charges for utilities and shall furnish all electric light bulbs and tubes. Landlord shall in no event be liable for any interruption or failure of utility services on the Premises not caused by or attributable to the negligent acts or omissions of Landlord, its employees, agents, invitees or contractors. Prior to the Commencement Date, Tenant shall pay for all utilities or services at the Premises used by it or its agents, employees or contractors. Subject to the provisions of Section 8.7 and Tenant's responsibility for the payment of Tenant's Share of Common Area expenses, Landlord agrees to maintain all utilities and utility lines within the Common Area not maintained by public utilities, and the expenses relating to such maintenance shall be Common Area expenses. ARTICLE VII USE; COMPLIANCE WITH LAWS Section 7.1 Permitted Use. Tenant shall use the Premises only for the Permitted Use (as defined in Article 1(g) hereof). Tenant will not occupy or use the Premises, or permit any portion of the Premises to be occupied or used, for any business or purpose other than the Permitted Use without Landlord's prior written consent or for any use or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner or extrahazardous on account of fire, nor permit anything to be done which will in any way increase the rate of fire insurance on the Building or contents; and in the event that, by reason of acts of Tenant, there shall be any increase in the rate of insurance on the Building or contents created by Tenant's acts or conduct of business then such acts of Tenant shall be deemed to be an event of default hereunder, unless Tenant hereby agrees to pay to Landlord the amount of such increase on demand and acceptance of such payment shall not constitute a waiver of any of Landlord's other rights provided herein. Tenant will conduct its business and control its agents, employees and invitees in such a manner as not to create any nuisance, nor interfere wish, annoy or disturb other tenants or Landlord in management of the project of which the Premises form a part. Landlord agrees to include a provision substantially similar to the preceding sentence within other tenant leases respecting the Building. Tenant will maintain the Premises in a clean, healthful and safe condition and will comply with all laws, ordinances, orders, rules and regulations (state, federal, municipal and other agencies or bodies having any jurisdiction thereof) as provided for in Section 7.3 below. Tenant will not, without the prior written consent of Landlord, paint, install lighting or decoration, or install any signs, window or door lettering or advertising media of any type on or about the Premises or any part thereof. Should Landlord agree in writing to any of the items in the preceding sentence, Tenant will maintain such permitted item in good condition and repair at all times. Outside storage, including but not limited to trucks or other vehicles, is also prohibited without Landlord's prior written consent. Section 7.2 Hazardous Materials. (a) As used in this Lease, the term "Hazardous Material" means any flammable items, explosives, radioactive materials, hazardous or toxic substances, material or waste or related materials, including any substances defined as or included in the definition of "hazardous substances", "hazardous wastes", "infectious wastes", "hazardous materials" or "toxic substances" now or subsequently regulated under any applicable federal, state or local laws or regulations including, without limitation, oil, petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs and similar compounds, and including any different products and materials which are subsequently found to have adverse effects on the environment or the health and safety of persons. (h) As used in this Lease, the term "Hazardous Materials Laws" shall mean all federal, state and local laws, ordinances and regulations relating to industrial hygiene, environmental protection or the use, analysis, generation, manufacture, storage, presence, disposal or transportation of any Hazardous Materials. (c) Tenant shall not cause or permit any Hazardous Material to be generated, produced, brought upon, used, stored, treated or disposed of in or about the Premises or the Property, by Tenant, its agents, employees, licensees, invitees, business associates, sublessees, assigns, contractors, subcontractors or others acting for or on behalf of Tenant (collectively, "Tenant Related Party") without the prior written consent of Landlord. Landlord shall be entitled to take into account such other factors or facts as Landlord may in its good faith business judgment determine to be Initial: ________ INDUSTRIAL LEASE AGREEMENT - Page 5 ________ - -------------------------- relevant in determining whether to grant, condition or withhold consent to Tenant's proposed activity with respect to Hazardous Material. Landlord acknowledges that incidental to Tenant's business operations, Tenant plans to store carpet and adhesives which may contain Hazardous Materials, office supplies, cleaning materials and other similar substances of the type and quantities typically associated with the operation and maintenance of a warehouse operation (the "Permitted Substances"). Tenant may store and utilize the Permitted Substances as long as Tenant complies with all Hazardous Materials Laws and obtains all permits and approvals relating to the use, treatment and disposal thereof and (except for office supplies, cleaning materials and similar substances) so long as all such Permitted Substances remain, at all times, in their original container and are not used for any purposes in or about the Premises or the Property. Tenant shall indemnify, defend and hold Landlord and each of Landlord's partners, shareholders, officers, directors, employees, agents, attorneys, investment advisors, portfolio managers, trustees, ancillary trustees, and their affiliates, successors and assigns and their respective partners, shareholders, officers, directors and employees (collectively, "Indemnitees") free and harmless from any and all actions (including, without limitation, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages), expenses (including, without limitation, attorneys', consultants' and experts' fees, court costs and amounts paid in settlement of any claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses (economic or other) (collectively, the "Claims") arising from a breach of this prohibition by Tenant or any Tenant Related Party or arising from the use, storage, treatment or disposal of any Permitted Substances. In no event, however, shall Landlord be required to consent to the installation or use of any storage tanks in, on or under the Premises or the Property. If Landlord consents to the generation, production, use, storage, treatment or disposal of Hazardous Materials (including, bus not limited to the Permitted Substances) in or about the Premises by Tenant or any Tenant Related Party, then, in addition to any other requirements or conditions that Landlord may impose in connection with such consent, (1) Tenant promptly shall deliver to Landlord copies of all permits, approvals, filings, reports and hazardous waste manifests reflecting the legal and proper generation, production, use, storage, treatment or disposal of all Hazardous Materials generated, used, stored, treated or removed from the Premises and the Property and, upon Landlord's request, copies of all hazardous waste manifests relating thereto, and (2) upon expiration or earlier termination of this Lease, Tenant shall cause all Hazardous Materials arising out of or related to the use or occupancy of the Premises and the Property by Tenant or any Tenant Related Party to be removed from the Premises and transported for use, storage or disposal in accordance with all applicable laws, regulations and ordinances, and Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord of compliance with all applicable laws, regulations and ordinances. (d) In the event that Hazardous Materials are discovered upon, in, or under the Premises, and the applicable governmental agency or entity having jurisdiction over the Premises requires the removal of such Hazardous Materials, Tenant shall be responsible for removing those Hazardous Materials arising out of or related to the use or occupancy of the Premises by Tenant or any Tenant Related Party. Landlord warrants and represents to Tenant that, to Landlord's actual knowledge, no Hazardous Materials are located on, in or under the Property that would interfere with Tenant's use or occupancy of the Premises or would cause Tenant any liability, cost or expense. Notwithstanding the foregoing, Tenant shall not take any remedial action in or about the Premises or the Property, nor enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to any Hazardous Material in any way connected with the Premises or the Property without first notifying Landlord of Tenant's intention to do so and affording Landlord the opportunity to appear, intervene or otherwise appropriately assert and protect Landlord's interest with respect thereto. Tenant immediately shall notify Landlord in writing of: (1) any spill, release, discharge or disposal of any Hazardous Material in, on or under the Premises or the Property or any portion thereof, (2) any enforcement, cleanup, removal or other governmental or regulatory action instituted, contemplated or threatened pursuant to any Hazardous Materials Laws; (3) any claim made or threatened by any person against Tenant or the Premises or the Property relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Materials; and (4) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials in, on or removed from the Premises or the Property, including any complaints, notices, warnings, reports or asserted violations in connection therewith. Tenant also shall supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant first receives or sends the same, copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises, the Property or Tenant's use thereof. (e) In the event (i) Hazardous Materials are discovered upon, in or under the Premises or the Property and (ii) Landlord has been given written notice of the discovery of such Hazardous Materials, then and in that event Landlord may voluntarily, but shall not be obligated to (unless the existence of such Hazardous Materials has resulted from the acts of Landlord), take all necessary action to bring the Premises and the Property into compliance with Hazardous Materials Laws as Landlord's sole cost (`Landlord's Remediation Activities"). Tenant agrees not to interfere unreasonably with Landlord's Remediation Activities, and should Landlord elect to pursue Landlord's Remediation Activities, Landlord agrees to perform such activities to as not to interfere unreasonably with Tenant's occupancy and operations of the Premises. (f) The respective rights and obligations of Landlord and Tenant under this Section 7.2 shall survive the expiration or earlier termination of this Lease. Initial: ________ INDUSTRIAL LEASE AGREEMENT - Page 6 ________ - -------------------------- Section 7.3 Compliance with Laws and Ordinances. Tenant shall, throughout the term of this Lease, and at Tenant's sole cost and expense, promptly comply or cause compliance with or remove or cure any violation of any and all present and future laws, ordinances, orders, rules, regulations and requirements of all federal, state, municipal and other governmental bodies having jurisdiction over the Premises and the appropriate departments, commissions, boards and officers thereof, and the orders, rules and regulations of any other body now or hereafter constituted exercising lawful or valid authority over the Premises, or any portion thereof, or the sidewalks, curbs, roadways, alleys, entrances or railroad track facilities adjacent or appurtenant thereto, or exercising authority with respect to the use or manner of use of the Premises, or such adjacent or appurtenant facilities, and whether the compliance, curing or removal of any such violation and the costs and expenses necessitated thereby shall have been foreseen or unforeseen, ordinary or extraordinary, and whether or not the same shall be presently within the contemplation of Landlord or Tenant or shall involve any change of governmental policy, or require structural or extraordinary repairs, alterations or additions by Tenant and irrespective of the costs thereof. Landlord represents to Tenant that as of the date of this Lease, Landlord has received no notice of the Property or any portion thereof failing to comply with any applicable laws, ordinances, orders, rules, regulations or requirements of any federal, state, municipal and other governmental bodies having jurisdiction over the Premises. Notwithstanding anything herein to the contrary, Tenant shall have no obligation to comply with any current or future laws, ordinances, orders, rules, regulations or requirements that would require any alterations to the structure or foundation of the Building and which apply generally to all occupants of buildings and are not specifically occasioned by Tenant's Permitted Use (as opposed to the general use of the Premises by any lessee); provided, however, that, if any alteration to the Building is required to comply with Tenant's particular use of the Premises, then Tenant shall be responsible for such compliance. As to any law, regulation or ordinance the compliance of which is Tenant's responsibility under this Section 7.3. Tenant shall have the right to contest the application or enforcement thereof so long as such contest is conducted in good faith and at no cost or expense to Landlord and would not result in any liability to Landlord. Section 7.4 Compliance with Permitted Encumbrances. Tenant, at its sole cost and expense, shall comply with all agreements, contracts, easements, restrictions, reservations or covenants, if any, set forth in Exhibit "B" attached, or hereafter created by Tenant or consented to, in writing, by Tenant or requested, in writing, by Tenant. Tenant shall also comply with, observe and perform all provisions and requirements of all policies of insurance at any time in force with respect to the Premises and required to be obtained and maintained under the terms of Article XV hereof. ARTICLE VIII REPAIRS AND MAINTENANCE Section 8.1 By Landlord. Landlord shall at its expense maintain (except in the event of casualty or other damage contemplated in Article XVI hereof, in which event the terms of that Article will control) only the roof, foundation and the structural soundness of the exterior walls of the Building (excluding all windows, window glass, plate glass, and all doors) in good repair and condition, except for reasonable wear and tear. Tenant shall give prompt written notice to Landlord of the need for repairs or corrections and Landlord shall proceed within a reasonable time after receiving such notice to make such repairs or corrections. Except as otherwise expressly provided in Article XXXI hereof, Landlord's liability hereunder shall be limited to the cost of such repairs or corrections. Tenant shall repair and pay for any damage caused by the negligence or default hereunder of or by Tenant, its employees, agents or invitees; the cost of any such damage which is paid by Landlord shall be deemed Additional Rent which is immediately due and owing from Tenant within ten (10) days after written demand therefor by Landlord. Section 8.2 By Tenant. Tenant shall at its own cost and expense keep and maintain all parts of the Premises (except those for which Landlord is expressly responsible under the terms of this Lease) in good condition, reasonable wear and tear excepted, promptly making all necessary repairs and replacements, including but not limited to, windows, glass and plate glass, doors, and special office entries, interior walls and finish work, floors and floor coverings (other than normal wear and tear), downspouts, gutters, heating, air conditioning and ventilation systems, dock boards, truck doors, dock bumpers, plumbing work and fixtures, pest extermination, regular removal of trash and debris, keeping the whole of the Premises in a clean and sanitary condition. Tenant shall not be obligated to repair any damage caused by fire, tornado or other casualty covered by the insurance to be maintained by Landlord pursuant to the provisions of this Lease, except that Tenant shall be obligated to repair all wind damage to glass not covered by the insurance Landlord is required to maintain hereunder (or actually covered by any of Landlord's insurance) except with respect to tornado or hurricane damage and with respect to any damage required to be covered by Landlord's insurance, as provided for in Article XV below, or is actually covered by insurance carried by Landlord. Section 8.3 Prohibition Against Waste. Tenant shall not do or suffer any waste or damage, disfigurement or injury to the Premises, or any improvements hereafter erected thereon, or to the fixtures or equipment therein, or permit or suffer any overloading of the floors or other use of the Building or the Premises that would place an undue stress on the same or any portion thereof beyond that for which the same was designed. Section 8.4 Landlord's Right to Effect Repairs. If Tenant should fail to perform any of its obligations under this Article VIII, then Landlord may, if it so elects, in addition to any other remedies provided herein, effect such repairs and maintenance. Any sums expended by Landlord in effecting such repairs and maintenance shall be due and payable, on demand, together with interest thereon at the Maximum Rate from the date of each such expenditure by Landlord to the date of repayment by Tenant prior to effecting such repairs on behalf of Tenant, Landlord shall provide Tenant with the opportunity Page 7 to cure provided for in subparagraph (b) of Article XX (except, however, in case of emergencies or in order to mitigate Landlord's damages, in which case, such notice as is reasonable shall be given). Section 8.5 Misuse or Neglect. Tenant shall be responsible for all repairs to the Building which are made necessary by any misuse or neglect by: (i) Tenant or any of its officers, agents, employees, contractors, licensees, or subtenants; or (ii) any visitors, patrons, guests, or invitees of Tenant or its subtenant while in or upon the Premises. Landlord shall be responsible for all repairs to the Building arising after the Commencement Date caused by the negligence or default hereunder of or by Landlord or any of its employees or agents. Section 8.6 Maintenance/Service Contracts. Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a reputable maintenance contractor for servicing all heating, ventilation and air conditioning systems within or serving the Premises. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective (and a copy thereof delivered to Landlord) within thirty (30) days of the date Tenant takes possession of the Premises. Section 8.7 Common Area. (a) Landlord hereby grants to Tenant for the term of this Lease (including all extensions and renewals thereof) the non-exclusive easement and right to use the Common Areas in common with Landlord and the other tenants of the Property for parking, ingress and egress, loading and unloading and other Common Area purposes. Landlord expressly reserves the right, however, to designate any areas located on the western half of the Property as cross-hatched on Exhibit "A-2") for the exclusive use of any other tenant. Landlord shall be responsible for the operation, maintenance and management of the Common Area and the facilities located therein, the manner of maintenance and the expenditures therefor to be in the discretion of Landlord, but shall in all events keep the Common Areas in good condition and repair so as not to materially interfere with Tenant's use and occupancy of the Premises for its Permitted Use. In this regard, Landlord shall perform or have performed the paving (including striping and bumpers), landscape maintenance, landscape replacement, exterior painting, maintenance of exterior lighting fixtures, maintenance of tenant directories and the maintenance of the irrigation systems and common sewerage line plumbing. (b) Tenant shall be liable to Landlord for Tenant's Share of all the costs and expenses relating to the maintenance and operation of the Common Area, including but not limited to, the cost for mowing of grass; care of shrubs; landscape replacement; general landscaping; maintenance of parking areas, parking lot improvements, driveways and alleys; exterior repainting, maintenance of the exterior lighting fixtures; maintenance of tenant directories; the maintenance of the irrigation systems and common sewerage line plumbing; the cost of insurance and any fee incurred by Landlord incidental to the management of the Premises (herein, the "Management Fee"). Landlord agrees that Tenant's Share of the Management Fee shall not exceed $12,600.00 per year, commencing with calendar year 1997, and Tenant's Share of the Management Fee shall not be increased by more than three percent (3%) for each calendar year thereafter over the Tenant's Share of the Management Fee for the previous calendar year. Additionally included within the costs and expenses relating to the operation and maintenance of the Common Area are any costs incurred in complying with or removing or curing any violation of all present and future laws, ordinances, orders, rules, regulations and requirements of all federal, state, municipal and other governmental bodies having jurisdiction over the Property or any portion thereof. Following calendar year 1997, Tenant's Share of "controllable Common Area expenses" shall not be increased by more than five percent (5%) over Tenant's Share of "controllable Common Area expenses" for the previous calendar year. For the purposes hereof, the term "controllable Common Area expenses" shall be limited to those expenses relating to the Common Area which are within the direct control and discretion of Landlord, but shall not include, without limitation, utility charges, insurance premiums, the cost of effecting compliance with any applicable laws and the Management Fee. If Tenant is identified as being responsible for any damage to the Common Area or any facilities located therein (including, without limitation obstructions or stoppage of the common sanitary sewerage line), then Tenant shall pay the entire cost of repairing same upon demand by Landlord. Tenant's Share of all Common Area costs and expenses shall be payable by Tenant to Landlord within ten (10) days after a statement of actual expenses is presented to Tenant, and shall be subject to periodic estimated payments as provided in Section 4.2 hereof. Common Area costs and expenses to be shared by Tenant shall not include (i) expenses incurred in leasing space, such as legal expense, brokerage commissions or advertising or promotional expenses, (ii) interest and amortization under mortgages or any other secured or unsecured loan payable by Landlord, (iii) expenses separately reimbursed by any other tenants of the Property other than pursuant to the proportionate Common Area costs and expenses provisions in their respective leases, (iv) financing and refinancing costs, including fees paid by Landlord to obtain financing or refinancing such as origination fees and brokerage commissions, (v) non-cash depreciation, (vi) costs incurred in connection with the enforcement of leases, including attorneys' fees or other costs and expenses incurred in connection with summary proceedings to dispossess any other tenant, (vii) costs for repaving and restriping of the entirety of the parking area to the extent such costs exceed the reasonable costs for such paving and striping, but Common Area costs and expenses may include repaving and restriping performed not more often than once every ten (10) years for paving and more often than once every four (4) years for striping, and shall also include any patching or repairs of paved areas, (viii) any expenses associated with any special requirements of a particular tenant in connection with the Common Areas or the maintenance thereof and (ix) any insurance premium increase caused by Page 8 the use of its premises by Landlord or any tenant other than Tenant or any such increase in premium attributable to vacant space. (c) Landlord shall have the right to coordinate any repairs and other maintenance of any rail tracks serving or to serve the Building, and if Tenant uses such rail tracks, Tenant shall reimburse Landlord from time to time upon demand, as Additional Rent, for a share of the costs of such repairs and maintenance and any other sums specified in any agreement to which Landlord is a party respecting such tracks, such share to be a fraction, the numerator of which is the space contained in the Premises, and the denominator of which is the entire space occupied by rail users in the Building. (d) Landlord or such other person as Landlord may appoint shall have the exclusive control and management of the Common Area and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations with respect thereto. Tenant agrees to abide by and conform to all such rules and regulations and to cause its employees, suppliers, shippers, customers and invitees to so abide and conform. Landlord shall not be responsible to Tenant for the non-compliance with said rules and regulations by any other tenants within the Building. Notwithstanding anything herein to the contrary, no rule or regulation not contained herein or attached as an exhibit hereto shall be binding upon Tenant unless same is reasonable in nature, does not unreasonably interfere with Tenant's use of the Premises for the Permitted Use, is applicable to all other tenants and occupants of the Property and is administered by Landlord in a reasonable manner for the beneficial operation of the Property by all tenants thereof. (e) Under no circumstances shall the Tenant have the right to store any property, temporarily or permanently, within the Common Area. Any such storage shall be permitted only with the prior written consent by Landlord or Landlord's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur, then Landlord shall have the right, with the notice provided for in subparagraph (b) of Article XX (or earlier in the case of emergencies or to mitigate Landlord's damages), in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Tenant, which cost shall be immediately payable within ten (10) days after invoice therefor by Landlord. Landlord acknowledges that trucks will be loading and unloading Tenant's inventories in the loading areas adjacent to the Premises and that same may be parked only on that portion of the Common Areas along the east side of the Building. (f) Landlord shall have the right, at Landlord's sole discretion and from time to time to (i) make changes to the Common Area, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas and walkways; (ii) close temporarily any portion of the Common Area for maintenance purposes so long as reasonable access to the Premises remains available; (iii) designate other land outside the boundaries of the Property to be a part of the Common Area; (iv) add additional buildings and improvements to the Common Area; (v) use the Common Area while engaged in making additional improvements or alterations to the Building, the Property, or any portions thereof; and (vi) do and perform such other acts and make such other changes in, to or with respect to the Common Area and the Property as Landlord may, in its discretion, deem to be appropriate, as long as none of the foregoing materially and unreasonably interferes with Tenant's use of the Premises or Common Areas as to parking, access or loading, unloading or shipping articles contained in the Premises. Additionally, no material change to the Common Areas shall be made that would materially adversely affect Tenant without Tenant's prior written consent, such consent not to be unreasonably withheld or delayed and which consent shall be deemed granted unless expressly denied in writing within five (5) business days following Landlord's request therefor. ARTICLE IX ALTERATIONS AND IMPROVEMENTS At the expiration or earlier termination of this Lease, Tenant shall deliver up the Premises with all improvements located thereon (including all mechanical, plumbing and HVAC systems) in good repair and condition, reasonable wear and tear excepted and also excepting any casualty to the extent Landlord is adequately and sufficiently compensated therefor by means of available insurance proceeds, and shall deliver to Landlord all keys to the Premises. Tenant shall also remove all trash and debris from the Premises and leave same in a "broom clean" condition. The cost and expense repairs necessary to restore the condition of the Premises to the condition in which they are to be delivered to Landlord according to the immediately preceding sentence shall be borne by Tenant. Tenant will not make or allow to be made any alterations or physical additions in or to the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld as to interior, cosmetic, non- structural alterations. All alterations, additions or improvements (whether temporary or permanent in character) made in or upon the Premises, either by Landlord or Tenant, shall be Landlord's property on expiration or earlier termination of this Lease and shall remain on the Premises without compensation to Tenant. All furniture, movable trade fixtures and equipment installed by Tenant may be removed by Tenant at the expiration or earlier termination of this Lease if Tenant so elects, and shall be so removed if required by Landlord, or if not so removed shall, at the option of Landlord, become the property of Landlord. All such installations, removals and restoration shall be accomplished in a good, workmanlike manner so as not to damage the Premises or the primary structure or structural qualities of the Building, the other improvements or the plumbing, electrical lines or other utilities. Page 9 ARTICLE X INDEPENDENT OBLIGATIONS All Basic Rental and Additional Rent shall be paid by Tenant to Landlord without abatement, deduction, diminution, deferment, suspension, reduction or setoff, except as otherwise explicitly provided for herein, and the obligations of Tenant shall not be affected by reason of damage to or destruction of the Premises from whatever cause; nor shall the obligations of Tenant be affected by reason of any condemnation, eminent domain or hike takings (except as provided in Articles XVI and XVII hereof). It is the further express intent of Landlord and Tenant that (a) the obligations of Landlord and Tenant hereunder shall be separate and independent covenants and agreements and that the Basic Rental and Additional Rent, and all other charges and sums payable by Tenant hereunder, shall commence at the times provided herein and shall continue to be payable in all events unless the obligations to pay the same shall be terminated or modified pursuant to an express provision in this Lease; (b) all Impositions, insurance premiums, utility expense, repair and maintenance expense (except as expressly stated to be otherwise herein), and all other costs, fees, interest, charges, expenses, reimbursements and obligations of every kind and nature whatsoever relating to the Premises, or any portion thereof, which Tenant has agreed to pay pursuant to this Lease during the term of this Lease, or any extension or renewal thereof, shall be paid or discharged by Tenant as Additional Rent. ARTICLE XI ASSIGNMENT AND SUBLETTING Tenant shall not assign this Lease, or allow it to be assigned, in whole or in part, by operation of law or otherwise or mortgage or pledge the same, or sublet the Premises, or any part thereof, without the prior written consent of Landlord and in no event shall any such assignment or sublease ever release Tenant from any obligation or liability hereunder. No assignee or sublessee of the Premises or any portion thereof may assign or sublet the Premises or any portion thereof. If the Tenant desires to assign or sublet all or any part of the Premises, it shall so notify Landlord at least thirty (30) days in advance of the date on which Tenant desires to make such assignment or sublease. Tenant shall provide Landlord with a copy of the proposed assignment or sublease, and such information as Landlord might request concerning the proposed assignee or subtenant(s) to allow Landlord to make informed judgments as to the financial condition, reputation, operations and general desirability of the proposed assignee or subtenant(s). Landlord shall request said information no later than fifteen (15) days after is has received Tenant's proposed assignment or sublease. Within fifteen (15) days after Landlord's actual receipt of Tenant's proposed assignment or sublease, and all required information concerning the proposed assignee or subtenant(s), Landlord shall have the option to: (a) Cancel this Lease as to the Premises or portion thereof proposed to be assigned or sublet effective on the proposed effective date of the assignment or subletting; or (b) Consent to the assignment or sublease, or (c) Withhold (but not unreasonably) its consent to the proposed assignment or sublease, but allow Tenant to continue in the search for an assignee or sublessee that may be acceptable to Landlord. Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the Rent herein specified and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an "event of default" as hereinafter defined, if the Premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided, or provided by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rents against any sums due to Landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant's obligations hereunder. In the event of the transfer and assignment by Landlord of its interest in this Lease and the Premises, and the assumption of Landlord's future obligations hereunder by the transferee, Landlord shall thereby be released from any further obligations hereunder, and Tenant agrees to look solely to such successor in interest of the Landlord for performance of such obligations occurring after the date of such transfer. If Landlord consents to Tenant assigning its interest under this Lease or subletting all or any portion of the Premises, or in the event this Lease is assigned incidental to the sale of assets at contemplated by the following paragraph. Tenant shall pay to Landlord (in addition to the Basic Rental and all other amounts payable by Tenant under this Lease) one hundred percent (100%) of the aggregate rents and other considerations payable by any assignee or subtenant(s) in excess of the Basic Rental otherwise payable by Tenant from time to time under this Lease but in no event will the Basic Rental be reduced as a result of the same of all assignment and sublease rents and consideration being less than the Basic Rental. Said additional amount shall be paid to Landlord immediately upon receipt by Tenant of such rent or other considerations from the assignee or subtenant. Page 10 Notwithstanding anything in this Lease to the contrary, no consents from Landlord shall be required with respect to an assignment of this Lease or a sublease of all or any portion of the Premises to any party that controls, is controlled by or is under common control with Tenant or any guarantor of this Lease or an assignment of this Lease incidental to the sale of all or substantially all Aladdin Manufacturing Corporation's assets in the State of Texas; provided, however, that any assignee assumes the obligations of Tenant relating to this Lease. Tenant shall promptly provided Landlord with written notice of such assignment or subletting. ARTICLE XII LIABILITY Landlord shall not be liable to Tenant or Tenant's employees, agents, patrons or visitors, or to any other person whomsoever, for any injury to person or damage to property on or about the Premises, resulting from and/or caused in part or whole by the negligence or misconduct of Tenant, its agents, servants or employees, or of any other person entering upon the Premises, or caused by the Building or other improvements becoming out of repair, or caused by leakage of gas, oil, water or steam or by electricity emanating from the Premises, or due to any cause whatsoever, except injury to persons or damage to property the sole cause of which is the negligence or willful misconduct of Landlord, and Tenant hereby covenants and agrees that it will at all times indemnify and hold safe and harmless the Premises, the Landlord, Landlord's agents and employees from any loss, liability, claims, suits, costs, expenses, including without limitation attorney's fees and damages, both real and alleged, arising out of any such damage or injury or out of breach or default by Tenant hereunder. The provisions of this paragraph shall survive the expiration or earlier termination of this Lease. Landlord agrees to indemnify and hold Tenant harmless from and against any and all liabilities, costs, expenses, claims, damages or causes of action for damages (including without limitation reasonable attorneys' fees and other costs of legal representation) arising from or attributable to Landlord's gross negligence or willful misconduct or Landlord's breach or default of its obligations under this Lease following the expiration of the applicable period for the cure thereof. ARTICLE XIII MORTGAGES Tenant accepts this Lease subject to any deeds of trust, security interests or mortgages which might now or hereafter constitute a lien upon the Premises and to deed restrictions, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of the Premises. Tenant shall at any time hereafter, on demand, execute any instruments, releases or other documents that may be required by any mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such deed of trust, security interest or mortgage. Tenant agrees to attorn to any mortgagee, trustee under a deed of trust or purchaser at a foreclosure sale or trustee's sale as Landlord under this Lease. With respect to any deed of trust, security interest or mortgage hereafter constituting a lien on the Premises, Landlord, at its sole option, shall have the right to waive the applicability of this paragraph to that this Lease will not be subject and subordinate to any such deed of trust, security interest or mortgage. Tenant shall upon request by Landlord, execute and deliver from time to time, one or more instruments certifying that this Lease is in full force and unmodified (or if modified stating the date and nature of each modification), the date through which the Basic Rental has been paid, the unexpired term of this Lease, and such other matters pertaining to this Lease as may be requested by Landlord. Notwithstanding the foregoing, this Lease shall not be subordinate to mortgages or deeds or trust hereafter arising unless and until Landlord has provided Tenant with an agreement (herein, "Non-Disturbance Agreement") from the holder of such lien confirming that so long as Tenant is not in default in the performance of any covenants, conditions, terms or provisions of this Lease, Tenant's right of occupancy under this Lease shall not be disturbed. ARTICLE XIV INSPECTION Landlord and Landlord's agents and representatives shall have the right to enter upon and inspect the Premises at any reasonable time during business hours, for the purpose of ascertaining the condition of the Premises or in order to make such repairs as may be required or permitted to be made by Landlord, and Landlord's agents and representatives shall have the right to enter upon the Premises at any reasonable time during business hours for the purpose of showing the Premises and shall have the right to erect on the Premises a suitable sign indicating the Premises are available for lease or for sale. ARTICLE XV INSURANCE; WAIVER OF SUBROGATION Landlord agrees to maintain an "all risk" (Special Form) insurance policy covering the Building in an amount equal to the "replacement cost" thereof at such term is defined in the Replacement Cost Endorsement to be attached thereto, insuring against the perils of fire, lightning, vandalism, malicious mischief and loss of rent, extended by a Special Extended Coverage Endorsement to insure against all other risks of direct physical loss, such coverages and endorsements to be as defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the State in which the Premises Page 11 are situated for use by insurance companies admitted in such state for the writing of such insurance or risks located within such state. Subject to the provisions of this Lease, such insurance for the Building shall be for the sole benefit of Landlord and under its sole control. Tenant agrees to pay to Landlord, as Additional Rent, Tenant's Share of Landlord's cost of maintaining such insurance, together with such other insurance as Landlord deems reasonable and prudent. Said payments shall be made to Landlord immediately upon presentation to Tenant of Landlord's statement setting forth the amount due which statement shall be accompanied by a copy of the premium notice received by Landlord. In the event any such amount is not paid within twenty (20) days after the presentation to Tenant of the amount so due, the unpaid amount shall bear interest at the Maximum Rate from the date of such presentation until paid by Tenant. Any payment to be made pursuant to this paragraph with respect to the year in which this Lease commences, expires or otherwise terminates shall bear the same ratio to the payment which would be required to be made for the full year as the part of such year covered by the term of this Lease bears to a full year. Tenant shall procure and maintain throughout the term of this Lease a policy or policies of general commercial liability insurance, at its sole cost and expense, naming as additional insureds Landlord, and Landlord's managing agent and Tenant against all claims, demands or actions arising out of or in connection with: (i) the Premises; (ii) the condition of the Premises; (iii) Tenant's operations in and maintenance and use of the Premises; and (iv) Tenant's liability assumed under this Lease, the limits of such policy or policies to be in the amount of not less than $2,000,000.00 combined single limited/aggregate coverage. All such policies shall be procured by Tenant from responsible insurance companies satisfactory to Landlord. Certificates evidencing such coverage, together with receipts evidencing payment of premiums therefor, shall be delivered to Landlord prior to the Commencement Date of this Lease. Not less than fifteen (15) days prior to the expiration date of such coverage, certificates evidencing the renewal thereof (bearing notations evidencing the payment of renewal premiums) shall be delivered to Landlord. Such certificates shall further provide that not less than thirty (30) days written notice shall be given to Landlord before such coverage may be canceled or changed. Anything in this Lease to the contrary notwithstanding, the parties hereto waive any and all rights of recovery, claim, action or cause of action against each other, their agents, partners, officers, and employees, for any loss or damage that may occur to the Premises hereby demised, or any improvements thereto, or the Building, or any improvements thereto, by reason of fire, the elements, or any other cause which could be insured against under the terms of "all-risk" Special Form insurance policies, regardless of cause or origin, including negligence of the parties hereto, their agents, partners, officers, and employees. Each party shall cause any policy of insurance carried by it to include a waiver of subrogation in favor of the other party affecting the waiver of claims set forth in the immediately preceding sentence. ARTICLE XVI DESTRUCTION AND RESTORATION If the Building should be damaged or destroyed by fire, tornado or other casualty, Tenant shall give prompt written notice thereof to Landlord. If the Building should be totally destroyed by fire, tornado or other casualty, or if it should be so damaged thereby that rebuilding or repairs cannot in Landlord's estimation be completed within one hundred eighty (180) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall terminate and the Rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage. Landlord shall notify Tenant in writing within forty-five (45) days after such damage or destruction, whether Landlord shall rebuild the Building within one hundred eighty (180) days. If Landlord does not so notify Tenant, Tenant shall be at liberty to terminate this Lease by written notice to Landlord given after said forty-five (45) day period but prior to the date that Landlord has notified Tenant that it shall rebuild the Premises. If the Building should be damaged by any peril covered by the insurance to be provided by Landlord pursuant to the provisions of this paragraph, but only to such extent that rebuilding or repairs can in Landlord's estimation be completed within one hundred eighty (180) days after the date upon which Landlord is notified by Tenant of such damage, this Lease shall not terminate, and Landlord shall at its sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair the Building to substantially the condition in which it existed prior to such damage, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements (other than the Leasehold Improvements described in Section 3.2 hereof) which may have been placed in, on or about the Premises by Tenant and except that Tenant shall pay to Landlord, upon demand, Tenant's Share of any applicable deductible amount specified under Landlord's insurance to a maximum of $5,000.00 for Tenant's Share. The Rent payable hereunder, except to the extent covered by insurance, shall in no event abate by reason of damage or destruction; however, to the extent insurance is collectible by Landlord for loss of Rent, then the Rent payable under this Lease shall abate. In the event that Landlord should fail to commence such repairs and rebuilding with ninety (90) days or to complete such repairs and rebuilding within one hundred eighty (180) days after the date upon which Landlord is notified by Tenant of such damage, Tenant may at its option terminate this Lease by delivering written notice of termination to Landlord at Tenant's exclusive remedy, whereupon all rights and obligations hereunder (other than those which survive the termination of this Lease) shall cease and terminate. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Building or the Premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within fifteen (15) Page 12 days after such requirement is made by any such holder, whereupon all rights and obligations hereunder (other than those which survive the termination of this Lease) shall cease and terminate, subject, however, to in terms of the Non- Disturbance Agreement. ARTICLE XVII CONDEMNATION If the whole or any substantial part of the Premises should be taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof and the taking would prevent or materially interfere with the use of the Premises for the purposes contemplated by the Permitted Use, this Lease shall terminate and the Basic Rental shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall occur. If part of the Premises shall be taken for any public or quasi-public use under any governmental law, ordinance or by right of eminent domain, or by private purchase in lieu thereof, and this Lease is not terminated as provided in this paragraph, this Lease shall not terminate but the Basic Rental payable hereunder during the unexpired portion of this Lease shall be reduced to such extent as may be fair and reasonable under all of the circumstances. In the event of any such taking or private purchase in lieu thereof, Landlord shall be entitled to receive the entire price or award from any such taking or private purchase in lieu thereof without any payment to Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such award. Landlord shall have full power and authority to negotiate with any public authority and to direct and control any legal proceedings involving or related to any such taking or private purchase in lieu thereof. Tenant shall have the right, to the extent that same shall not diminish Landlord's award, to make a separate claim against the condemning authority (but not Landlord) for such compensation as may be separately awarded or recoverable by Tenant for loss of business or good will or for the taking of Tenant's trade fixtures, if a separate award for such items is made to Tenant. ARTICLE XVIII HOLDING OVER Should Tenant, or any of its successors in interest, hold over the Premises, or any part thereof, after the expiration of the Lease Term, unless otherwise agreed in writing, such holding over shall constitute and be construed as tenancy from month to month only, at a Basic Rental equal to the Basic Rental payable for the last month of the term of this Lease plus fifty percent (50%) of such amount. The holding over by Tenant, or any of its successors, for any part of a month shall entitle Landlord to collect the Rent called for under this paragraph for the entirety of such month. The provisions of this paragraph shall not be construed as Landlord's consent for the Tenant to hold over. ARTICLE XIX TAXES ON TENANT'S PROPERTY Tenant shall be liable for all taxes levied or assessed against personal property, furniture or fixtures placed by Tenant in the Premises. If any such taxes for which Tenant is liable are levied or assessed against Landlord or Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property is increased by inclusion of personal property, furniture or fixtures placed by Tenant in the Premises, and Landlord elects to pay the taxes based on such increase, Tenant shall pay to Landlord upon demand that part of such taxes for which Tenant is primarily liable hereunder. ARTICLE XX EVENTS OF DEFAULT The following events shall be deemed to be events of default by Tenant under this Lease: (a) Tenant shall fail to pay any of the Basic Rental, Additional Rent or any other sums due by Tenant to Landlord under this Lease, and such failure shall continue for a period of ten (10) days after written notice thereof to Tenant; provided, however, that if Landlord has given Tenant two (2) or more such notices in any twelve (12) month period, no further notice need be given, and Tenant shall be in default under this Lease if Tenant fails to make any such payments when due. (b) Tenant shall fail to comply with any term, provision or covenant of this Lease, other than the payment of Rent, and shall not cure such failure within thirty (30) days after written notice thereof to Tenant (or such longer time as may be reasonable if Tenant commences the cure of such default or breach within said thirty (30) day period diligently pursues the cure thereafter). (c) Tenant shall make an assignment for the benefit of creditors. INDUSTRIAL LEASE AGREEMENT - Page (d) Tenant shall file a petition under any section or chapter of the United States Bankruptcy Code, as amended, or under any similar law or statute of the United States or any State thereof; or Tenant shall be adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder and such adjudication shall not be vacated or set aside within sixty (60) days. (e) A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant and such receivership shall not be terminated or stayed within sixty (60) days. (f) Tenant shall desert or vacate any substantial portion of the Premises for a period of ten (10) or more days; provided, however, vacation of the Premises shall not constitute an event of default hereunder if, and so long as, (i) Tenant provides Landlord as least sixty (60) days prior written notice of Tenant's intent to vacate, (ii) Tenant pays any additional insurance premiums which may result from such vacation, (iii) Tenant takes such action as Landlord may reasonably request to protect the Premises and Building from vandalism and trespass, and (iv) Tenant otherwise continues to observe and perform all Tenant's obligations and covenants contained in this Lease. Should Tenant desert or vacate the Premises, Landlord shall have the continuing right to enter the Premises and Building at any time to market the Premises and show the Premises to prospective tenants. Further, in the event the Premises remain vacant for sixty (60) days, Landlord may, but shall have no obligation to, cancel and terminate this Lease by providing written notice of such election to Tenant, whereupon all rights and obligations hereunder shall cease and terminate except those which otherwise survive the termination of this Lease. ARTICLE XXI LANDLORD'S REMEDIES Upon the occurrence of any event of default specified in Article XX hereof, Landlord shall have the option to pursue any one or more of the following remedies without any further notice or demand whatsoever: (a) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in Rent, enter upon and take possession and expel or remove Tenant and any other person who may be occupying said Premises or any part thereof, without being liable for prosecution or any claim for damages thereof; and Tenant agrees to pay to Landlord on demand the amount of all loss and damage which Landlord may suffer by reason of such termination, whether through inability to relet the Premises on satisfactory terms or otherwise, including the loss of Rent for the remainder of the Lease Term. (b) Enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor, and if Landlord so elects, relet the Premises on such terms as Landlord shall deem advisable and receive the Basic Rental thereof; and Tenant agrees to pay to Landlord on demand any deficiency that may arise by reason of such reletting for the remainder of the Lease Term. The deficiency to be paid by Tenant to Landlord shall be the equivalent of the amount of the Basic Rental and Additional Rent which would be payable under this Lease by Tenant, less the net proceeds of any ---- reletting effected pursuant to this subsection (b) after deducting all of Landlord's reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, alteration costs and expenses of preparation of the Premises or any portion thereof, for such reletting. Landlord need not give Tenant any written notice whatsoever, other than that which is required by Article XX above, of Landlord's intent to take possession of the Premises and expel or remove Tenant. (c) Enter upon the Premises, without being liable for prosecution or any claim for damages therefor, and do whatever Tenant is obligated to do under the terms of this Lease; and Tenant agrees to reimburse Landlord on demand for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease, and Tenant further agrees that Landlord shall not be liable for any damages resulting to the Tenant from such action. (d) As any time after an event of default, whether or not Landlord shall have collected any monthly deficiency as set forth in subsection (b) above, Landlord shall be entitled to recover from Tenant, and Tenant shall pay to Landlord, on demand, as and for final damages for Tenant's default, an amount equal to the difference between the then present worth of the aggregate of the Basic Rental and Additional Rent and any other charges to be paid by Tenant hereunder for the unexpired portion of the Lease Term (assuming this Lease had not been terminated), and the then present worth of the then aggregate reasonable fair market rent of the Premises for the same period. In computation of present worth, a discount at the rate of 6% per annum shall be employed. No re-entry or taking possession of the Premises by Landlord shall be construed as an election on its part to terminate this Lease, unless a written notice of such intention be given to Tenant. Notwithstanding any such reletting or re-entry or taking possession, Landlord may at any time thereafter elect to terminate this Lease for a previous default. Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any Rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. Landlord's acceptance of Rent following an event of default hereunder shall not be construed as Landlord's waiver of such event of default. No waiver by Landlord of any violation or breach of any of the terms, provisions, and Page 14 covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions, and covenants herein contained. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of any other violation or default. The loss or damage that Landlord may suffer by reason of termination of this Lease or the deficiency from any reletting as provided for above shall include the expense of repossession and any repairs or remodeling undertaken by Landlord following possession. Should Landlord at any time terminate this Lease for any default, in addition to any other remedy Landlord may have, Landlord may recover from Tenant all damages Landlord may incur by reason of such default, including the cost of recovering the Premises and the loss of Rent for the remainder of the Lease Term. ARTICLE XXII SURRENDER OF PREMISES No act or thing done by the Landlord or its agents during the term hereby granted shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender of the Premises shall be valid unless the same be made in writing and subscribed by the Landlord. ARTICLE XXIII ATTORNEYS' FEES If on account of any breach or default by either party of its respective obligations under this Lease is should be necessary or appropriate for the non- defaulting to bring any action under this Lease or to enforce or defend any of the non-defaulting's rights hereunder, then the defaulting party agrees in each and any such case to pay to the non-defaulting a reasonable attorneys' fee. ARTICLE XXIV [INTENTIONALLY OMITTED] ARTICLE XXV MECHANIC'S LIEN Tenant shall have no authority, express or implied, to create, place or allow any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the Premises or to charge the Rent payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim shall attach to, if at all, only the leasehold interest granted to Tenant by this instrument. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Premises or under the terms of this Lease. ARTICLE XXVI SIGNS Tenant shall have the right to install signs upon the Premises only when first approved in writing by Landlord and subject to any applicable governmental laws, ordinances, restrictions, regulations and other requirements. Tenant shall remove all such signs upon the expiration or other termination of this Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of any buildings or other improvements on the Premises, and Tenant shall repair any injury or defacement, including without limitation discoloration, caused by such installation or removal. ARTICLE XXVII NOTICES Each provision of this Lease, or of any applicable governmental laws, ordinances, regulations, and other requirements with reference to the sending, mailing or delivery of any notice, or with reference to the making of any payment by Tenant to Landlord, shall be deemed to be complied with when and if the following steps are taken: (a) All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord in Dallas County, Texas, at 1245 Three Lincoln Centre, 5430 LBJ Freeway, Dallas, Texas 75240, or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Page 15 (b) Except as otherwise specifically set forth herein, any notice or document required to be delivered hereunder shall be in writing and shall be deemed received when delivered if sent by a recognized, commercial courier for same day delivery and shall be deemed received on the next business day if sent by a nationally recognized overnight courier (such as Federal Express or Purolator) with delivery specified for the next business day or two (2) business days after being deposited in the United States mail, postage prepaid, certified or registered mail, return receipt requested, addressed to the parties hereto at the respective addresses set out opposite their names below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith: LANDLORD: CP-REGENCY BUSINESS PARK, LTD. 5430 LBJ Freeway, Suite 1245 Dallas, Texas 75240 WITH COPY TO: Stanley K. Barth Andrews & Barth, P.C. 8235 Douglas Avenue, Suite 1120 Dallas, Texas 75225 TENANT: Aladdin Manufacturing Corporation 2001 Antioch Road Dalton, Georgia 30720 Attention: S. H. Sharpe, Executive Vice President WITH COPY TO: Mohawk Carpet Corporation, Inc. 1755 The Exchange Atlanta, Georgia 30339 Attention: Salvatore J. Perillo, Esquire ARTICLE XXVIII SEPARABILITY If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid, or unenforceable, there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. ARTICLE XXIX QUIET ENJOYMENT Provided Tenant has performed all of the terms, covenants, agreements and conditions of this Lease, including the payment of Rent, to be performed by Tenant, Tenant shall peaceably and quietly hold and enjoy the Premises for the term hereof, without hindrance from Landlord, subject to the Permitted Encumbrances and the terms and conditions of this Lease. Landlord covenants and warrants that Landlord is the true and lawful owner of the Premises (including, without limitation, the Common Areas), subject only to the Permitted Encumbrances and has good right and full power to let and lease the same. ARTICLE XXX EXISTENCE OF BROKER Tenant represents and warrants that it has not contacted or dealt with any real estate broker or agent to connection with the execution of this Lease other than CB Commercial Real Estate Group, Inc. (the "Agent"). Landlord will be responsible for the payment of a commission to the Agent pursuant to a separate written agreement. Tenant agrees to indemnify and hold harmless Landlord against all liabilities and costs (including but not limited to attorney's fees) incurred by Landlord as a result of Tenant's breach of any covenant, agreement, warranty or representation contained in this Article XXX. Landlord warrants and represents to Tenant that, except for the commission to be paid to Agent by Landlord, Landlord has not dealt with any other real estate broker or agent in connection with the execution of this Lease. Landlord hereby agrees to indemnify and hold Tenant harmless from and against any and all costs, expenses (including attorneys' fees) incurred by Tenant as a result of Landlord's breach of any covenant, agreement, warranty or representation contained in this Article XXX. ARTICLE XXXI Page 16 TENANT'S REMEDIES In the event Landlord defaults in the performance of any of its obligations to Tenant hereunder, or breaches any warranty or representation, express or implied, to Tenant in connection with this Lease or the Premises, and such default or breach continues for a period of thirty (30) days following written notice thereof from Tenant to Landlord (or such longer time as may be reasonable if Landlord commences the cure of such default or breach within said 30 day period and diligently pursues the cure thereafter), then Tenant may, as it sole remedies (i) if the default relates to the Landlord's obligations under Section 8.1 hereof, Tenant may take such action as is reasonably necessary to cure Landlord's default if Tenant includes in its written notice to Landlord a provision that Tenant will take such action (ii) bring suit against Landlord for damages or (iii) bring suit to specifically enforce Landlord's obligations under this Lease. Further, if the default relates to Landlord's obligations under Section 8.1, Landlord shall pay the amount of Tenant's deductible (up to a maximum amount of $1,000.00) relating to Tenant's insurance claim for any damage to Tenant's consents. In the event Tenant cures such default by Landlord as provided in item (i), then Landlord will reimburse Tenant all reasonable costs and expenses incurred by Tenant in curing Landlord's default. Notwithstanding the foregoing provisions, if Landlord has failed to maintain the roof as required by Section 8.1 and the contents of the Premises are in imminent danger of damage due to water leaking or other elements, then Tenant may cure Landlord's obligations if Landlord fails to commence the cure thereof within twenty-four (24) hours following Tenant's notice to Landlord. Tenant shall have no right of set-off against payments due to Landlord hereunder and shall have no right to terminate this Lease, and Tenant hereby waives such remedies. It is expressly agreed that the obligations of Landlord hereunder are independent of Tenant's obligations. Landlord shall have no personal liability to Tenant for any such default or breach by Landlord, and have no personal liability to Tenant for any such default or breach by Landlord, and Tenant specifically agrees to look solely to Landlord's interest in the Building and the Land situated thereunder for payment of any damages suffered by Tenant. Pending resolution of any controversy hereunder (as evidenced by a final, nonappealable order issued by a court of competent jurisdiction), Tenant shall continue to pay to Landlord all sums which are and become due to Landlord hereunder, without deduction or set-off. Following a final, nonappealable order issued by a court of competent jurisdiction evidencing a monetary sum owed by Landlord to Tenant, Tenant may offset the amount owed by Landlord from the Basic Rental owed by Tenant to Landlord; provided, however, the amount of offset each month shall in no event exceed twenty percent (20%) of the installment of Basic Rental due that month, unless the aggregate amount to be offset exceeds the total Basic Rental to accrue for the remainder of the Lease Term, in which event the monthly limitation as to the amount which may be offset shall be limited to the total amount owing by Landlord to Tenant divided by the number of months remaining during the Lease Term. Any sums owed by Landlord to Tenant shall bear interest at the Maximum Rate. Tenant hereby expressly waives and disclaims any lien or claim which Tenant has or may have in and to any property belonging to the Landlord or on the Rent due to the Landlord under this Lease. The term "Landlord," as used in this Lease so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of the fee of the Premises, and in the event of any transfer or transfers or conveyance of the Premises and this Lease and the assumption by the transferee of Landlord's obligations hereunder, the then grantor shall be automatically freed and relieved from and after the date of such transfer or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed (but not as to matters theretofore occurring), provided that any funds in the hands of such landlord or the then grantor as the time of such transfer, in which Tenant has an interest, shall be turned over to the grantee, and any amount then due and payable to Tenant by Landlord or the then grantor under any provision of this Lease shall be paid to Tenant. The covenants and obligations contained in this Lease on the part of Landlord shall, subject to the aforesaid, be binding on Landlord's successors and assigns, during and in respect of their respective successive periods of ownership. If Landlord fails to perform any of its obligations under this Lease and Tenant recovers a money judgment against Landlord, such judgment may be satisfied only out of (i) proceeds produced upon execution of such judgment and levy thereon against Landlord's interest in the Property and improvements thereon, (ii) the rents or other income from the Property receivable by Landlord, and (iii) if Landlord's failure of performance is in respect of any covenant or obligation under Articles XVI or XVII, Landlord's share of any condemnation award and the proceeds of any casualty insurance maintained by Landlord in respect of the Property. The foregoing provisions shall not relieve Landlord from the performance of any of Landlord's obligations under this Lease, but only to limit Landlord's liability in the case of the recovery of a monetary judgment against it, nor shall the foregoing provisions limit or otherwise affect Tenant's right to obtain injunctive relief or specific performance or avail itself of any other right or remedy that this Lease or the law may accord Tenant. ARTICLE XXXII ESTOPPEL CERTIFICATES Landlord and Tenant agree to furnish from time to time when requested by the other, a signed certificate confirming and containing such factual certifications and representations reasonably deemed appropriate by the party requesting such certificate, and shall, within thirty (30) days following receipt of said proposed certificate and request for execution, return a fully executed copy of said certificate to the requesting party. In the event the party being requested to execute such certificate shall fail to return a fully executed copy of such certificate to the other party within the foregoing Page 17 thirty (30) day period, then the party being requested to execute such certificate shall be deemed to have approved and confirmed all of the terms, certifications and representations contained in such certificate. ARTICLE XXXIII NOTICE TO LENDER If the Premises or the Building or any part thereof are at any time subject to a first mortgage or a first deed of trust or other similar instrument and this Lease or the rentals are assigned to a mortgagee, trustee or beneficiary and the Tenant is given written notice thereof, including the post office address of such assignee, then the Tenant shall not take any action on account of any default on the part of the Landlord that would bind or affect said assignee without first giving written notice by certified or registered mail, return receipt requested, or by personal or courier delivery or as otherwise provided for in the Non-Disturbance Agreement, to such assignee, specifying the default in reasonable detail, and affording such assignee a reasonable opportunity to perform, as its election, for and on behalf of the Landlord. ARTICLE XXXIV LANDLORD APPROVALS Any approval by Landlord or Landlord's architects and/or engineers of any of Tenant's drawings, plans and specifications which are prepared in connection with any construction of improvements in the Premises shall not in any way be construed or operate to bind Landlord or to constitute a representation or warranty of Landlord as to the adequacy or sufficiency of such drawings, plans and specifications, or the improvements to which they relate, for any use, purpose, or condition, but such approval shall merely be the consent of Landlord as may be required hereunder in connection with Tenant's construction of improvements in the Premises in accordance with such drawings, plans and specifications. Landlord shall be responsible for the payment of any drawings, plans and specifications which are prepared by or on behalf of Landlord. ARTICLE XXXV JOINT AND SEVERAL LIABILITY If there be more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. If there be a guarantor of Tenant's obligations hereunder, the obligations hereunder imposed upon Tenant shall be the joint and several obligations of Tenant and such guarantor and Landlord need not first proceed against the Tenant hereunder before proceeding against such guarantor, nor shall any such guarantor be released from its guaranty for any reason whattoever, including without limitation, in case of any amendments hereto, waivers hereof or failure to give such guarantor any notices hereunder. ARTICLE XXXVI GENDER Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. ARTICLE XXXVII CAPTIONS The captions contained in this Lease are for convenience of reference only, and in no way limit or enlarge the terms and conditions of this Lease. ARTICLE XXXVIII ENTIRE AGREEMENT; AMENDMENTS; BINDING EFFECT Neither party to this Lease has made or relied on any representations, warranties, covenants or agreements with respect to the Premises or any other matters affecting or relating to this Lease except as contained herein and this Lease supersedes and replaces any prior representations, warranties, covenants or agreements, whether written or oral, which may have been made by either party with respect to the Premises or other matters contained in this Lease. This Lease contains the entire agreement between the parties hereto with respect to the Premises and all other matters contained in this Lease and this Lease may not be altered, changed or amended, except by instrument in writing signed by both parties hereto. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord and addressed to Tenant, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be construed to waive or lessen the right of Landlord to insist upon the performance by Tenant in strict accordance with the terms hereof. Page 18 The terms, provisions, covenants and conditions contained in this Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto, and upon their respective successors in interest and legal reprensentatives, except as otherwise herein expressly provided. ARTICLE XXXIX GOVERNING LAW AND PLACE OF PERFORMANCE This Lease shall be governed by the laws of the State wherein the Land is located. Tenant shall perform all covenants, conditions and agreements contained herein, including but not limited to payment of Rent, in Dallas County, Texas. ARTICLE XL GOOD STANDING/DUE AUTHORIZATION Contemporaneous with the execution of this Lease, Tenant shall provide to Landlord the following: (a) A copy of Tenant's Good Standing, or similar certificate, issued by the Secretary of State of the state of Tenant's incorporation; and (b) A copy of the appropriate corporate resolutions, certified by the secretary or the assistant secretary of the Tenant, evidencing the authorization of the Tenant to execute this Lease. In the event a guaranty agreement is executed with respect to this Lease, Tenant shall additionally provide to Landlord, contemporaneous with the execution of this Lease, the items listed above for the guarantor. ARTICLE XLI MEMORANDUM OF LEASE Upon not less than ten (10) days prior written request by either party, the parties hereto agree to execute and deliver to each other a Memorandum of Lease, in recordable form, setting forth the following: (a) The date of this Lease; (b) The parties of this Lease; (c) The term of this Lease; (d) The legal description of the Land; and (e) Such other matters reasonably requested by Landlord to be stated therein. Page 19 ARTICLE XLII RENEWAL OPTION Landlord hereby grants Tenant (but no assignee or subtenant) two (2) options to renew this Lease, each option to be for a period of sixty (60) months, for a total of one hundred twenty (120) months in the event both renewal options are exercised. Each said renewal option shall be exercised by Tenant notifying Landlord thereof in writing not more than two hundred sen (210) and as least one hundred eighty (180) days prior to the expiration of the then current lease or renewal term, as the case may be. In the event a renewal agreement has not been executed as least one hundred twenty (120) days prior to the expiration date of the current lease or renewal term, the option shall automatically become null and void. Each such renewal shall be subject to all of the terms and conditions of this Lease except that (i) the rentals payable during each renewal term shall be as set forth below and (ii) no further renewal option shall exist during the second renewal term. It shall be a condition to Tenant's exercising any renewal option herein granted that (y) Tenant not be then in default under this Lease and (z) Tenant shall have previously exercised the immediately preceding renewal option, if any, so that the second renewal option may not be exercised if Tenant has failed to exercise the first renewal option. The Basic Rental for each renewal term shall be based on the then prevailing rental rates for properties of equivalent quality, size, utility and location in the Dallas/Forth Worth market, with the length of the lease term and the creditworthiness of the Tenant taken into account; provided, however, that in no event shall the Basic Rental in any renewal period be less than the Basic Rental for the last month immediately preceding said renewal period. Upon notification from Tenant of its intent to exercise each renewal option, Landlord shall, within fifteen (15) days thereafter, notify Tenant in writing of the Basic Rental for the applicable renewal term; Tenant shall, within fifteen (15) days following receipt of same, notify Landlord in writing of the acceptance or rejection of the proposed Basic Rental. In the event of rejection by Tenant, the Basic Rental for the applicable renewal term shall be determined as follows: (a) Within fifteen (15) days following notification of rejection, Landlord and Tenant shall each select an arbitrator who shall be a Licensed Texas real estate broker having a minimum of five (5) years experience in leasing industrial space and being a member of the North Chapter of the Texas Society of Office and Industrial Realtors (or its successor organization). Notice shall be given to the other party of the name of the arbitrator selected. If either Landlord or Tenant fails to appoint such an arbitrator within the allocated time, the arbitrator appointed by the other party shall make the determination of the Basic Rental and this determination shall be final and binding on both parties. (b) If both Landlord and Tenant appoint an arbitrator in accordance with the provisions above and the two arbitrators cannot agree upon a Basic Rental for the renewal term within thirty (30) days following their appointment, the two arbitrators shall forthwith select a third disinterested and qualified arbitrator having like qualifications and each of the original arbitrators will immediately submit his or her judgment as to the appropriate Basic Rental in writing to the third arbitrator. Within ten (10) days after such submittal, the third arbitrator shall make the determination of the Basic Rental for such renewal period and the determination of the third arbitrator shall be final and binding on both parties. In the event the two arbitrators appointed by the Tenant and Landlord cannot agree upon a third arbitrator, then the third arbitrator shall be appointed by the then President of the North Chapter of the Texas Society of Office and Industrial Realtors (or its successor organization). The Basic Rental agreed to by the two appointed arbitrators or, if applicable, the Basic Rental determined by the third arbitrator shall be final and binding upon the parties hereto. Landlord and Tenant shall each bear the expense of their arbitrator and the expense of a third arbitrator, if needed, shall be shared equally by both parties. ARTICLE XLIII GENERAL PROVISION (a) Landlord shall be responsible for and shall pay according to law any transfer or conveyance taxes or for any documentary stamps, if any, required to be paid in connection with the making of this Lease or the recordation of a memorandum hereof. (b) Whenever a period of time is herein prescribed for action to be taken by Landlord or Tenant, there shall be excluded from the computation for any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions or any other causes of any kind whatsoever which are beyond the control of the party required to take such action; however, there shall be no extension for the payment of any monetary sums, nor shall any such matter extend any of the time periods provided in Article XLII hereof. (c) Except as otherwise expressly provided in this Lease to the contrary, any consent or approval required to be given or obtained hereunder by either party shall not be unreasonably withheld, delayed or conditioned by either party hereto, and any exercise of discretion to be made INDUSTRIAL LEASE AGREEMENT - Page 20 hereunder by either party shall be reasonably made without undue delay. Any matter that is described herein to be to a party's satisfaction shall be to such party's reasonable satisfaction. Executed by Landlord to be effective as of the 27th day of November, 1996. LANDLORD: CP-REGENCY BUSINESS PARK, LTD., a Texas limited partnership By: Champion-Regency, Ltd., a Texas limited partnership, its General Partner By: Regency-Champion, Inc., a Texas corporation, its General Partner By:________________________________ Jeffrey L. Swope, President ATTEST: ________________ Executed by Tenant to be effective as of the 27th day of November, 1996. TENANT: ALADDIN MANUFACTURING CORPORATION, a Delaware corporation (a division of Mohawk Carpet Corporation, Inc.) ATTEST: By:________________________________ Printed Name:______________________ Title:_____________________________ ________________ INDUSTRIAL LEASE AGREEMENT - Page 21 SCHEDULE 1 TENANT FINISH CONTRACTORS ------------------------- REGENCY I --------- C.D. Henderson Incorporated 1917 Copper Street Garland, Texas 75042 Contact: Chris Sorrells (972) 272-5466 Heartland Construction, Inc. 9241 LBJ Freeway, Suite 104 Dallas, Texas 75243 Contact: Milton South (972) 918-0660 Abstract Construction 11157 Ables Lane Dallas, Texas 75229 Contact: Cindy Jacobs (214) 620-9438 G.C.I. Construction Service 801 Stadium Drive Arlington, Texas Contact: Paul Hamilton (817) 543-1293 Stillwell Building Systems, Inc. 6220 North Beltline Road, Suite 212 Irving, Texas 75063 Contact: Alan Stillwell (972) 550-8292 INDUSTRIAL LEASE AGREEMENT - 22 EXHIBIT "A" LAND ---- EXHIBIT "A-1" FLOOR PLAN ---------- EXHIBIT "A-2" Exclusive Easement Area ----------------------- EXHIBIT "B" PERMITTED ENCUMBRANCES ---------------------- 1. Easement to Trinity River Authority of Texas, filed October 29, 1979, recorded in Volume 6833, Page 612, Deed Records of Tarrant County, Texas. 2. Easement to Trinity River Authority of Texas, filed October 16, 1979, recorded in Volume 6825, Page 1210, Deed Records of Tarrant County, Texas. 3. Terms and conditions of Ordinance No. 71-100, entitled Airport Zoning Ordinance of the Dallas-Fort Worth Regional Airport, filed September 1, 1982, recorded in volume 7349, Page 1106, Deed Records of Tarrant County, Texas. 4. Easement to Enserch Corporation, filed October 17, 1995, recorded in Volume 12137, Page 1159, Deed Records of Tarrant County, Texas. 5. Masters as shown on plat recorded in Cabinet A, Slide 2676, Plat Records of Tarrant County, Texas. 6. Any mortgage, security agreement or other document recorded in the Real Estate Records of Tarrant County, Texas relating to that certain loan in the amount of $10,068,000.00 from NationsBank of Texas, N.A. to Landlord. EXHIBIT "C" DESIGN CRITERIA --------------- EXHIBIT "C-1" PLANS AND SPECIFICATIONS ------------------------ EXHIBIT "D" GUARANTEE This is a guarantee of an Industrial Lease Agreement dated as of November 27, 1996 (the "Lease"), by and between CP-REGENCY BUSINESS PARK, LTD., a Texas limited partnership, hereinafter called "Landlord", and ALADDIN MANUFACTURING CORPORATION, a Delaware corporation, hereinafter called "Tenant". FOR VALUE RECEIVED, and in consideration for, and as an inducement to Landlord to enter into the foregoing Lease, the undersigned hereby jointly and severally (if more than one) guarantee to Landlord and its successors and assigns the payment of all rentals specified thereunder and all other payments to be made by Tenant under the Lease, and the full performance and observance by Tenant of all the terms, covenants, conditions and agreements therein provided to be performed and observed by Tenant for which each of the undersigned shall be jointly and severally liable with Tenant, without requiring any notice of nonpayment, nonperformance or nonobservance, or proof of notice or demand, whereby to charge the undersigned, all of which each of the undersigned does hereby expressly waive, and each of the undersigned expressly agrees that the Landlord and its successors and assigns may proceed against the undersigned separately or jointly, before, after or simultaneously with the proceedings against Tenant for default, and that this Guarantee shall not be terminated, affected or impaired in any way or manner whatsoever by reason of the assertion by Landlord against Tenant of any of the rights or remedies reserved to Landlord pursuant to the provisions of the Lease, or by reason of summary or other proceedings against Tenant, or by the omission of Landlord to enforce any of its rights against Tenant or by reason of any extensions of time or indulgences granted by Landlord to Tenant. Each of the undersigned further covenants and agrees (i) that the undersigned will be bound by all of the provisions, terms, conditions, restrictions and limitations contained in the Lease, the same as though the undersigned was named therein as Tenant; and (ii) that this Guarantee shall be absolute and unconditional and shall remain and continue in full force and effect as to any renewal, extension, amendment, addition, assignment, sublease, transfer or other modification of the Lease, whether or not the undersigned shall have any knowledge or have been notified of or agreed or consented to any such renewal, extension, amendment, addition, assignment, sublease, transfer or other modification of the Lease; however, the undersigned shall not be bound by any and all modifications to the Lease which are not consented to in writing by the undersigned. If Landlord at any time is compelled to take any action or proceeding in court or otherwise to enforce or compel compliance with the terms of this Guarantee, each of the undersigned shall, in addition to any other rights and remedies to which the Landlord may be entitled hereunder or as a matter of law or in equity, be obligated to pay all costs, including attorneys' fees, incurred or expended by Landlord in connection with any enforcement by Landlord if Landlord is successful in enforcing or compelling compliance of any of the terms of this Guarantee. Further, each of the undersigned hereby covenants and agrees to assume the Lease and to perform all of the terms and conditions thereunder for the balance of the original term should the Lease be disaffirmed by any Trustee in Bankruptcy for Tenant. All obligations and liabilities of the undersigned pursuant to this Guarantee shall be binding upon the heirs, legal representatives, successors and assigns of each of the undersigned, and each of the undersigned and its heirs, legal representatives, successors and assigns shall remain fully liable under the Lease and this Guarantee regardless of any merger, corporate reorganization or restructuring involving Tenant regardless of the resulting organization, structure or ownership of Tenant. This Guarantee shall be governed by and construed in accordance with the laws of the State of Texas. Each of the undersigned hereby unconditionally consents and agrees that any legal action brought under this Guarantee may be brought in any State Court of the State of Texas, or in a Federal United States Court in Texas and each of the undersigned hereby unconditionally consents to the jurisdiction of such courts in connection with any cause of action brought by or against Tenant and/or Guarantor(s) in any way directly or indirectly related to the Lease or this Guarantee. This Guarantee shall be enforceable against each person signing this Guarantee, even if only one person signs and regardless of any failure of other persons to sign this Guarantee. If there be more than one signer, all agreements and promises herein shall be construed to be, and are hereby declared to be, joint and several, in each and every particular and shall be fully binding upon and enforceable against either, any or all of the undersigned. Further, the liability of each of the undersigned shall not be affected or impaired by any full or partial release of, settlement with, or agreement not to sue, Tenant or any other guarantor or other person liable in respect of the Lease, which Landlord is expressly authorized to do, omit or suffer from time to time, without notice to or approval by any of the undersigned. The singular herein shall include the plural and the plural shall include the singular when referring to the undersigned. At any time that Tenant is required to furnish a certificate pursuant to the Lease, each of the undersigned, by guarantying the terms and conditions of the Lease, agree that such Guarantor, upon thirty (30) days prior written request to Tenant, shall certify (by written instrument, duly executed, acknowledged and delivered to Landlord and to any third person designated by Landlord in such request) whether such person concurs with the statements set forth in said certificate by Tenant (and, if not, identifying specifically the items or matters to which such Guarantor does not concur) and that the guarantee of such person remains in full force and effect as to all obligations of Tenant under the Lease. Failure to deliver such certificate to Landlord (and any such designated third party) within such thirty (30) day period shall constitute automatic approval of the requested certificate as though such certificate had been fully executed and delivered by such Guarantor to Landlord and such designated third party. IN WITNESS WHEREOF, the undersigned have set their hands as of ___ day of ________, 19__. MOHAWK INDUSTRIES, INC., a Delaware corporation By:________________________________________ Printed Name:______________________________ Title:_____________________________________ EX-10.13 8 LEASE AGREEMENT EXHIBIT 10.13 GENERAL PROPERTIES COMPANY 301 City Line Avenue Bala Cynwyd, PA 19004-1722 (610) 667-2711 FAX (610) 667-3485 June 19, 1995 Mohawk Carpet Corporation c/o Mohawk Industries, Inc. Attn: Mr. A. Spencer Division Vice President PO Box 1707 Greenville, NC 27835 Re: 3400 East Allen Street Philadelphia, PA ---------------------- Dear Mr. Spencer: The purpose of this letter is to confirm the agreement of Mohawk Carpet Corporation and General Properties Company to extend the term of our present Lease with you. We have agreed that the term of the Agreement of Lease dated December 15, 1970, as stated in Paragraph 2 thereof and as subsequently renewed pursuant to Paragraph 42 thereof through December 31, 1985, and extended through December 31, 1990, and extended to December 31, 1995 is hereby extended to December 31, 2000. In addition, the minimum annual rent as stated in Paragraph 4 of the Lease and as subsequently increased to $55,000, will be reduced to $50,000 annually, $4,1667.67 monthly and will remain at $50,000 through December 31, 2000. All other terms of the Lease will remain in effect during the extended term. Please confirm your agreement of these terms by signing the enclosed additional copy of this letter and returning it to me for our file. If you have any questions regarding this matter, please do not hesitate to contact us. Sincerely, APPROVED AND ACCEPTED: By: /s/ A. C. Spencer ----------------------------- Eric E. Korngold Secretary/Treasurer Title: Dir V.P. Weal Operator ------------------------- EEK/mh Date: 6-28-95 Enclosure ------------------------- cc: C. Fowler By: /s/ John D. Gault ---------------------------- Title: Vice President of Finance -------------------------- Date: 6-30-95 --------------------------- THIS AGREEMENT OF LEASE made this 15/th/ day of December 1970, by and between GENERAL BAG & BURLAP COMPANY, a partnership, (hereinafter called "Landlord") and DELAWARE VALLEY WOOL SCOURING CO., a Pennsylvania corporation, (hereinafter called "Tenant"), W I T N E S S E T H: - - - - - - - - - - 1. Premises. Landlord does hereby demise and let unto Tenant and -------- Tenant does hereby lease and take from Landlord, for the term and upon the terms and conditions set forth in this lease, the property located at 3400 E. Allen Street, Philadelphia, Pennsylvania, (being hereinafter referred to as "the Premises"). 2. Term. The original term of this lease shall commence and possession ---- shall be given on January 1, 1971 and unless further extended or sooner terminated as hereinafter provided shall end on December 31, 1975. 3. Use of Premises. The Premises shall be used for any lawful purpose --------------- not harmful to the building. 4. Minimum Annual Rent. Commencing on January 1, 1971 and thereafter ------------------- throughout the original term of this Lease, Tenant agrees to pay to Landlord, without notice or demand, and without setoff, a net minimum annual rent of Forty Thousand Dollars ($40,000), payable in advance in equal monthly installments of $3,333.33 for eleven months, the twelfth payment to be in the amount of $3,333,37. 5. Additional Rent. (a) Taxes and Other Impositions. -------------- ------------------------------- Subject to the provisions of Article 6 hereof, Tenant shall pay, as additional rent, throughout the term hereof and any renewal or extension thereof, before any fine, penalty, interest or cost may be added thereto for the non-payment thereof (or sooner if elsewhere herein required), all levies, taxes, assessments, water and sewer rents and charges, liens, charges and imposts and each and every levy or charge of the same nature, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever (all of which are hereinafter referred to as "impositions") which may hereafter be created, levied, assessed, adjudged, imposed or charged upon or with respect to the Premises or any improvements made thereto, or on any part of the foregoing, or indirectly upon this lease or the rents payable hereunder, or against Landlord, because of Landlord's estate or interest herein, by any federal, state or municipal government, or under any law, ordinance or regulation thereof or of any public authority whatsoever, including, among others, all special tax bills and general, special or other assessments and liens or charges made on local or general improvements or under any governmental or public power or authority whatsoever; provided however, if any imposition shall be created, levied, assessed, adjudged, imposed, charged or become a lien with respect to a period of time which commences before or ends after the expiration of the term of this lease (other than by reason of breach of the terms hereof by Tenant), then Tenant shall only be required to pay that proportion of such imposition which is, equal to the proportion of said period which falls within the terms of this lease; and further provided -2- that Tenant's obligation to pay real estate taxes shall begin when rent commences to accrue. (b) Right to Contest. Tenant shall furnish Landlord, not later than ---------------- five (5) days before the last day upon which they may be paid without any fine, penalty or interest, receipts or other evidence satisfactory to Landlord of the payment of all impositions. Tenant may bring proceedings for contesting the validity or amount of any imposition, or to recover payments therefor, and Tenant agrees to save Landlord harmless from all costs and expenses in connection therewith and may postpone the tax payment only if it does not constitute a mortgage default or cause the premises to be exposed to a tax sale. Landlord shall cooperate with Tenant with respect to such proceedings to the extent reasonably necessary, but all costs,fees and expenses incurred in connection with such proceedings shall be borne by Tenant. (c) Possible Payment of Impositions to Mortgagees. Notwithstanding the --------------------------------------------- foregoing, if the holder of any mortgage upon the fee title to the Premises requires that payments be made to such holder on account of any imposition, then deposits by Tenant with such mortgagee of amounts otherwise required to be paid hereunder shall, to the extent thereof, be in satisfaction of the obligation of Tenant hereunder, provided that Tenant shall furnish proof satisfactory to Landlord that such deposits have been made. Tenant agrees, upon notice from Landlord, to make such deposits on account of impositions with any such mortgagee according to the terms of any such mortgage. 6. Net Lease. It is understood and agreed that this is a net lease. --------- It is the intention of the parties that Landlord shall receive all rentals payable hereunder free from -3- charges required to be paid to maintain and carry the Premises; provided, however, that nothing herein contained shall require Tenant to pay the principal of, or interest on, or any other payment under any mortgage of fee title to the Premises or any estate,inheritance, succession or capital levy tax of Landlord, or any income, excess profits or revenue tax, or any other tax, assessment, charge or levy which Landlord is required to pay by reason of the income represented by the rents reserved hereunder. 7. Insurance. --------- (a) Tenant, at Tenant's sole cost and expense, shall maintain and keep in effect throughout the term insurance (evidenced by policies or certificates delivered to and held by Landlord): (i) Insurance against loss or damage to the Premises and all other improvements upon the Premises of such kind and such amounts as are satisfactory to Landlord; and also boiler insurance; (ii) Insurance against abatement or loss of rental by reason of any of the occurrences described in the preceding subparagraph in an amount equal to minimum and additional rental for the term of this lease, the cost thereof for twelve (12) months following the occurrence of any such casualty to be borne by Tenant and the balance of the cost thereof to be borne by Landlord. (iii) Insurance against loss or liability in connection with bodily injury or death or property damage in or upon the Premises, under policies of general public liability insurance, with such limits as to each as may be reasonably required by Landlord from time to time but not less than $500,000 for each person or $1,000,000 for each occurrence in respect to bodily injury or death and $100,000 for each occurrence in respect to property damage. (b) The policies or certificates of insurance provided for in subparagraph (a) of this Article 7 shall provide for payment -4- solely to the Landlord and any mortgagees designated by the Landlord, in accordance with the standard mortgagee endorsement. The policies will also insure the interests of Tenant and any other tenants in the building. The policies of general public liability insurance shall name inter alia, Landlord and Tenant as the insured parties. (c) All policies (or certificates) shall provide that they shall not be cancellable without at least thirty (30) days' prior written notice, to Landlord and to any mortgagee designated as aforesaid by Landlord and shall be issued by insurers of recognized responsibility licensed to do business in the State of Pennsylvania. At least five (5) days prior to the commencement of the term, the originals and a signed duplicate copy of such policies (or in the alternative a certificate, if the Tenant has blanket policies) shall be delivered by Tenant to Landlord and at least thirty (30) days before any such policy shall expire Tenant shall deliver the original and a signed duplicate copy of a replacement policy (or certificate) to Landlord. (d) Each of the parties hereto hereby releases the other, to the extent of the releasing party's actual recovery under its insurance policies, from any and all liability for any loss or damage which may be inflicted upon the property of such party even if such loss or damage shall be brought about by the fault or negligence of the other party, its agents or employees; provided, however that this release shall be effective only with respect to loss or damage occurring during such time as the appropriate policy of insurance shall contain a clause to the effect that this release shall not affect said policy or the right of the insured to recover thereunder. If any policy does not provide for such waiver, and if the party to benefit therefrom requests that such a waiver be obtained, the insured party agrees to obtain an endorsement to its insurance policies permitting such a waiver of subrogation if it is available. If an additional premium is -5- charged for such waiver,the party benefitting therefrom if it desires to have the waiver, agrees to pay to the other the amount of such additional premium promptly upon being billed therefor. 8. Public Utility Charges. Tenant agrees to pay or cause to be paid ---------------------- all charges for gas, electricity, light, heat, steam, power, water and sewerage, telephone or other communication services used, and other services rendered or supplied upon or in connection with the Premises throughout the term of this lease, and to indemnify Landlord and save Landlord harmless against any liability or damages on such account. 9. Repairs and Maintenance. ----------------------- (a) Tenant covenants throughout the term of this lease, at Tenant's sole cost and expense, to take good care of the Premises, all equipment and system within it, and the sidewalks and curbs adjoining thereto, and subject to the provisions of this lease elsewhere set forth, to keep the same in good order and condition, and promptly at Tenant's own cost and expense to make all necessary repairs, interior and exterior, structural and non-structural, ordinary as well as extraordinary, foreseen as well as unforeseen. When used in this Article, the term "repairs" shall include replacements and renewals, and all such repairs made by Tenant shall be at least equal in quality and usefulness to the original improvements and equipment. (b) Tenant shall keep and maintain all portions of the Premises including the sidewalks and curbs adjacent thereto, and including any portions of the building used in common with Landlord or other Tenants, in a clean and orderly condition, free of accumulations of dirt, rubbish, ice and snow and shall keep such portion of the street, properly maintained. The boiler(s), whether used by Tenant or not, must be maintained in good operating condition, with permits renewed as necessary and with boiler insurance in effect. -6- (c) All improvements, repairs and alterations made or installed on the Premises by or on behalf of Tenant shall immediately upon completion or installation thereof be and become the property of Landlord without payment therefor by Landlord and shall be surrendered to Landlord upon the expiration or earlier termination of the term of this lease, except that any machinery, equipment or fixtures installed by Tenant and used in the conduct of Tenant's business and not to service of the building generally, shall remain Tenant's property, and shall be removed at the termination of this lease provided that Tenant fully and promptly restores any damage to the Premises occasioned by the installation or removal thereof. (d) Anything elsewhere herein to the contrary notwithstanding, Landlord covenants throughout the term of this lease, at Landlord's sole cost and expense, to make all necessary repairs to the roof and exterior structural walls of the Premises. 10. Compliance with Rules, Ordinances, etc. Tenant covenants -------------------------------------- throughout the term of this lease, at Tenant's sole cost and expense, promptly to comply with all laws and ordinances and notices, orders, rules, regulations and requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof, and notices, orders, rules and regulations of the National Board of Fire Underwriters, or any other body now or hereafter constituted exercising similar functions, relating to all or any part of the Premises, exterior as well as interior, foreseen or unforeseen, ordinary as well as extraordinary, structural as well as non- structural, or to the fixtures and equipment thereof and the sidewalks and curbs in or adjoining the Premises or to the use or manner of use of the Premises, provided, however, anything elsewhere herein to the contrary notwithstanding, that Tenant is not obligated -7- to make structural changes in the Premises, at its expense, which are necessary by reason of deterioration by wear and tear other than wear and tear caused by Tenant's use of the Premises. 11. Alterations and Additions by Tenant. Tenant agrees ----------------------------------- that it will not, without on each occasion first obtaining Landlord's prior written consent (which shall not unreasonably be delayed or withheld), make or permit to be made any a1terations or additions to the building and other improvements upon the Premises. 12. Inspection of Premises by Landlord. ---------------------------------- (a) Tenant agrees to permit Landlord and the authorized representatives of Landlord to enter the Premise. at all, reasonable times during usual business hours for the purpose of (1) inspecting the same and (2) making any necessary repairs thereto and performing any work therein that may be necessary by reason of Tenant's default under the terms of this lease, after notice to the Tenant of the need therefor. Nothing herein shall imply any duty upon the part of Landlord to do any such work which under any provisions of this lease Tenant may be required to perform and the performance thereof by Landlord shall not constitute a waiver of Tenant's default in failing to perform the same. Landlord may during the progress of any work in the Premises keep and store therein all necessary materials, tools and equipment. Landlord shall not in any event be liable for inconvenience, annoyance, disturbance, loss of business or other damage to Tenant by reason of making such repairs or the performance of such work in the Premises, or on account of bringing materials, supplies and equipment into or through the Premises during the course thereof and the obligations of Tenant under this lease shall not thereby be affected in any manner whatsoever. -8- (b) Landlord is hereby given the right during usual business hours to enter the Premises and to exhibit the same for the purposes of sale or mortgage and, to exhibit the same to any prospective tenant. 13. Surrender. Tenant agrees, at the expiration or earlier --------- termination of the term hereof, promptly to yield up, clean and neat and free from objectionable odors, and in the same condition of order and repair in which they are required to be kept throughout the term hereof, the Premises and all improvements, alterations and additions thereto, and all fixtures and equipment servicing the building; and to remove Tenant's goods and effects and any machinery, fixtures and equipment installed by Tenant, and to repair any damage caused by the installation or removal thereof. Tenant further agrees that this lease shall, unless sooner terminated, pursuant to the provisions hereof, expire absolutely on the expiration of the term hereof without the requirement of any notice from Landlord to Tenant. 14. Damage by Fire or other Casualty. -------------------------------- (a) In case of damage to the Premises by fire or other insured casualty to such extent that the Premises cannot be restored to their former condition within 180 days or in the alternative to such extent that more than 75% of the value of the improvements on the Premises has been destroyed, either party shall have the right to terminate this lease and all the unaccrued obligations of the parties hereto (inclusive of minimum and Additional rent) by sending written notice of such termination to the other party within thirty (30) days of the occurrence of such damage, the notice to specify a termination date no less than fifteen (15) days after its transmission. In case of lesser damage to the Premises by fire or other insured casualty, -9- Tenant shall promptly notify Landlord, and Tenant shall repair the damage. The work shall be commenced promptly and completed with due diligence, except for delays due to governmental regulation, unusual scarcity of or inability to obtain labor or materials, or causes beyond Tenant's reasonable control. Provided, however, that if the damage occurs during the last three (3) years of the original term hereof and Tenant does not within thirty (30) days after the occurrence exercise any renewal option that Tenant has, or, if the damage occurs during the last three (3) years of any renewal term, and in either case requires an expenditure of more than the minimum annual rent payable hereunder from the date of such damage to the end of the term, either party shall have the right to terminate this lease and all the unaccrued obligations of. the parties hereto plus any written notice of such termination to the other party within thirty (30) days of the occurrence of such damage, the notice to specify a termination date no less then fifteen (15) days after its transmission. (b) Tenant's obligation to pay minimum and additional rent (except in the event of termination pursuant to the provision contained in the first sentence of paragraph 14(a) shall not in any way be affected by damage to, or destruction of, the Premises or any part thereof, regardless of cause, and there shall be no abatement, diminution or reduction of rent by reason thereof, subject to credit for rent insurance payments under Article 7(a)(ii). 15. Signs. Tenant agrees it will not erect or maintain any ----- exterior sign upon the building which is too heavy for the structure. 16. Assignment and Subletting. Tenant agrees not to assign, ------------------------- mortgage, pledge or encumber this lease, or sublet the Premises in whole -10- or in part (except the office portion) without first obtaining the written consent of Landlord, which consent shall not be withheld or delayed unreasonably. It is contemplated that Tenant will sublet the office portion subject to the terms and provisions of this lease but Tenant will remain responsible for compliance with all of the terms and provisions of this lease and Landlord's reasonable prior approval of the subtenant shall first be obtained. Tenant shall pay all commissions due by reason of any subletting of all or any portion of the Premises and shall indemnify, defend and save Landlord harmless from any claim for any such commission. Tenant agrees that, in the event of any such subletting or any permitted assignment, it will deliver to Landlord, at the time of any such assignment or subletting, the assumption by the assignee or subtenant of all of the obligations. 17. Eminent Domain. If the Premises or any part thereof are -------------- taken or condemned for a public or quasi-public use (a sale in lieu of condemnation to be deemed a taking or condemnation), this lease shall, as to the part taken, terminate as of the date title shall vest in the condemnor. In any such event, Tenant waives all claims against Landlord and as against the condemning authority or party and Tenant covenants and agrees that Tenant will make no claim by reason of the complete or partial taking of the Premises, except for "special" damages provided for the Tenant in the Eminent Domain Code. If this lease is not terminated after the exercise of -11- eminent domain the minimum annual rent (and correspondingly the monthly installments thereof) shall be equitably reduced for the balance of the term taking into account the character and amount of such taking. If the parties are unable to agree, within thirty (30) days after the notice of the taking is given to Tenant, on the extent of the abatement, their dispute shall be referred to arbitration by the American Arbitration Association in accordance with the rules of the Association then obtaining. The decision of the arbitrators shall be final and binding upon the parties and no appeal shall be taken therefrom. 18. Curing Tenant's Defaults. If Tenant shall be in default in ------------------------ the performance of any of its obligations hereunder, Landlord may (but shall not be obligated to do so), in addition to any other rights it may have in law or equity and after written notice to Tenant except in case of emergency, cure such default on behalf of Tenant, and Tenant shall reimburse Landlord for any sums paid or costs incurred by Landlord in curing such default, including interest at the rate of eight percent (8%) per annum on all sums advanced by Landlord as aforesaid, which sums and costs together with interest thereon shall be deemed additional rent hereunder. 19. Responsibility of Tenant. Tenant agrees to relieve and ------------------------ hereby relieves Landlord from and agrees to indemnify Landlord against all liability by reason of any injury or damage to Tenant or to any other person or to property in the Premises, or the building of which the Premises is a part, whether belonging to Tenant or to any other person, caused by any fire, breakage, leakage, collapse or other event or occurrence in any portion of the Premises, -12- or the building of which the Premises is a part, unless such fire, breakage, leakage, collapse or other event or occurrence, injury or damage be caused by the negligence of Landlord. 20. Subordination. This lease shall be subject and subordinate ------------- at all times to the lien of any mortgages and/or rents and/or other encumbrances now or hereafter placed on the Premises, or the building of which the Premises is a part, without the necessity of any further instrument or act on the part of the Tenant to effectuate such subordination but, Tenant covenants and agrees to execute and deliver upon demand such further instrument or instruments evidencing such subordination of this lease to the lien of any such mortgage and/or ground rent and/or other encumbrances as shall be desired by any mortgagee or proposed mortgagee or by any person. Landlord agrees that so long as Tenant continues to pay the rent and additional rent reserved in this lease and otherwise complies with the terms and provisions hereof, no mortgagee or other lienholder shall disturb the rights of possession of Tenant in the Premises and Tenant shall not be made a party to any foreclosure or proceedings in lieu thereof by any mortgagee or other lienholder affecting the Property. Provided, however, that the foregoing provisions of this Article shall be effective only in the event that any such mort- -13- gage or other encumbrance provides, or the holder thereof agrees with Tenant that, neither such holder nor its successors or assigns will take any action to interfere with the rights of Tenant, its successors and assigns in the Premises so long as Tenant is not in default hereunder. Notwithstanding the foregoing, however, any such holder may subordinate its mortgage or other encumbrance to this lease, without Tenant's consent, by notice in writing to Tenant. In such event, this lease shall thereupon be deemed prior in lien to such mortgage or other encumbrance without regard to their respective dates of execution and delivery; and in such event such holder shall have only the same rights with respect to this lease as though it had been executed and delivered prior to the execution and delivery of the mortgage or, other encumbrance. 21. Remedies of Landlord. If the Tenant -------------------- (a) Does not pay in full when due any and all installments of rent and/or any other charge or payment herein reserved, included, or agreed to be treated or collected as rent and/or any other charge, expense or cost herein agreed to be paid by the Tenant, or (b) Violates or fails to perform or otherwise breaks any covenant or agreement herein contained; or (c) Becomes insolvent, or makes an assignment for the benefit of creditors, or if a petition in bankruptcy is filed by or against the Tenant, or a bill in equity or other proceeding -14- for the appointment of a receiver for the Tenant is filed, or if proceedings for reorganization or for composition with creditors under any State or Federal law be instituted by or against Tenant, not discharged within sixty (60) days thereafter, or if the real or personal property of the Tenant shall be sold or levied upon by any Sheriff, Marshall or Constable. Then and in any or either of said events, there shall be deemed to be a breach of this lease, and thereupon ipso facto and without entry or other action by Landlord (1) The rent for the entire unexpired balance of the term of this lease, as well as all other charges, payments, costs and expenses herein agreed to be paid by the Tenant, or at the option of Landlord any part thereof, and also all costs and officers' commissions including the five per cent (5%) chargeable by Act of Assembly to the Landlord, shall, in addition to any and all installments of rent already due and payable and in arrears and/or any other charge or payment herein reserved, included or agreed to be treated or collected as rent, and/or any other charge, expense or cost herein agreed to be paid by the Tenant which may be due and payable and in arrears, be taken to be due and payable and in arrears as if by the terms and provisions of this lease, the whole balance of unpaid rent and other charges, payments, taxes, costs and expenses were on that date payable in advance; and if this lease or any part thereof is assigned, or if the Premises or any part thereof is sublet, Tenant hereby irrevocably constitutes and -15- appoints Landlord Tenant's agent to collect the rents due by such assignee or sublessee and apply the same to the rent hereunder without in any way affecting Tenant's obligation to pay any unpaid balance of rent due hereunder; (2) This lease and the term hereby created shall determine and become absolutely void without any right on the part of the Tenant to save the forfeiture by payment of any sum due or by other performance of any condition, term or covenant broken; whereupon, Landlord shall be entitled to recover damages for such breach in an amount equal to an amount of rent reserved for the balance of the term of this lease, less the fair rental value of the said Premises, for the residue of said term. In the event of any default as above set forth, the Landlord, or anyone acting on Landlord's behalf, at Landlord's option may lease the Premises or any part or parts thereof for a term less than or exceeding the balance of the term of this lease to such person or persons as may in Landlord's discretion seem best and the Tenant shall be liable for any loss of rent for the balance of the then current term. When this lease shall be determined by condition broken, either during the original term of this lease or any renewal or extension thereof, and also when and as soon as the term hereby created or any extension thereof shall have expired, it shall be lawful for any attorney as attorney for Tenant to file an agreement for entering in any competent Court an amicable action and judgment in ejectment against Tenant and all persons claiming under Tenant for the recovery by Landlord the possession of the Premises, for which this lease shall be his sufficient warrant, whereupon, if Landlord so desires, a writ of Execution or of Possession may issue forthwith, -16- without any prior writ or proceedings whatsoever, and provided that if for any reason after such action shall have been commenced the same shall be determined and the possession of the Premises hereby demised remain in or be restored to Tenant, Landlord shall have the right upon any subsequent default or defaults, or upon the termination of this lease as hereinbefore set forth, to bring one or more amicable action or actions as hereinbefore set forth to recover possession of said Premises. In any amicable action of ejectment, Landlord shall first cause to be filed in such action an affidavit made by Landlord or someone acting for Landlord setting forth the facts necessary to authorize the entry of judgment, of which facts such affidavit shall be sufficient evidence, and if a true copy of this lease (and of the truth of the copy such affidavit shall be sufficient evidence) be filed in such action, it shall not be necessary to file the original as a warrant of attorney, any rule of Court, custom or practice to the contrary notwithstanding. 22. Waivers by Tenant, Stay, Exemption, Inquisition. If ----------------------------------------------- Proceedings shall be commenced by Landlord to recover possession under the -17- Acts of Assembly, either at the end of the term or sooner termination of this lease, or for nonpayment of rent or any other reason Tenant specifically waives the right to the three (3) months' notice and/or the fifteen (15) or thirty (30) days' notice required by the Act of April 6, 1951, P. L. 69, and agrees that five (5) days' notice shall be sufficient in either or any other case. 23. Right of Assignee of Landlord. The right to enter judgment ----------------------------- against Tenant and to enforce all of the other provisions of this lease hereinabove provided for may, at the option of any assignee of this lease, be exercised by any assignee of the Landlord's right, title and interest in this lease in his, her or their own name, notwithstanding the fact that any or all assignments of the said right, title and interest may not be executed and/or witnessed in accordance with the Act of Assembly of May 28, 1715, 1. Sm. L. 90, and all supplements and amendments thereto that have been or may hereafter be passed and Tenant hereby expressly waives the requirements of said Act of Assembly and any and all laws regulating the manner and/or form in which such assignments shall be executed and witnessed. 24. Forbearance. The failure of Landlord to insist in any one or ----------- more instances upon the performance of any of the covenants or conditions of this lease or to exercise any right or privilege herein conferred shall not be construed as thereafter waiving or relinquishing any such covenants, conditions, rights or privileges and the same shall continue and remain in full force and effect, and waiver of one default or right shall not constitute waiver of any other default; and the receipt of any rent by Landlord from Tenant or any assignee or subtenant of Tenant, whether the same be rent that originally was reserved or that which may become payable under any covenants herein contained, or of any portion -18- thereof, shall not operate as a waiver of the right of Landlord to enforce the payment of the additional rent or of any of the other obligations of this lease by such remedies as may be appropriate, and shall not waive or avoid the right of Landlord at any time thereafter to elect to terminate this lease, on account of such assignment, subletting, transferring of this lease or any other breach of any covenant herein, or condition of this lease, unless evidenced by Landlord's written waiver. 25. Grace Period. Notwithstanding anything hereinabove stated, ------------ it is understood and agreed that neither party hereto will exercise any right or remedy provided for in the lease or allowed by law because of any default of the other, unless such party shall have first given written notice thereof by registered mail to the other, and the other, within a period of ten (10) days thereafter, shall have failed to pay the sum or sums due if the default consists of the failure to pay money, or if the default consists of something other than the payment of money, shall have failed, within thirty (30) days thereafter to begin and actively and diligently in good faith to proceed with the correction of the default until it shall be fully corrected; provided, however, that no such notice from Landlord shall be required nor shall Landlord be required to allow any part of the said notice period more than two (2) times during any twelve (12) month period or if Tenant shall have removed from or shall be in the course of removing from the Premises or if a petition in bankruptcy or for reorganization shall have been filed by or against Tenant, resulting in an adjudication of bankruptcy or for reorganization or if a Receiver or Trustee is appointed for Tenant and such appointment and such receivership or trusteeship is not terminated within sixty (60) days or Tenant makes an assignment for the benefit -19- of creditors or if Tenant is levied upon and is about to be sold out upon the Premises by any sheriff, marshal or constable. So long as Tenant is not in default, Landlord warrants Tenant's possession will not be disturbed by Landlord or anyone claiming through Landlord. 26. Notices. All notices required or permitted hereunder from ------- either of the parties to the other shall be in writing and sent by registered mail, return receipt requested, postage prepaid. Notices shall be addressed to Tenant, at the premises with a copy to General Counsel, Fieldcrest Mills, Inc., Eden, North Carolina, 27288, and to Landlord at 101 East Princeton Road, Bala- Cynwyd, Pennsylvania 19004. Either party may at any time, in the manner set forth for giving notices to the other, set forth a different address to which notices to it shall be sent. 27. Short Form; Tenant's Certificate. It is understood and -------------------------------- agreed that the parties will execute and acknowledge simultaneously with the execution of this lease, a short form thereof for recording purposes, if such is required by any present or proposed mortgagee of the Premises. Tenant agrees at any time and from time to time within ten (10) days after Landlord's written request, to execute, acknowledge and deliver to Landlord a written instrument in recordable form certifying that this lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications); that Tenant has accepted possession of the Premises; the dates to which minimum and additional rent and other charges have been paid in advance, if any; stating whether or not to the best knowledge of the signer of such certificate Landlord is in default in the performance of any covenant, agreement or condition contained in this lease, and if so, specifying each -20- such default of which the signers may have knowledge, and stating that it is understood that such instrument may be relied upon by any prospective purchaser of the fee or any mortgagee. 28. Definition of "Landlord". The word "Landlord" is used herein ----------------------- to include the Landlord named above as well as its partners, successors and assigns, and any other subsequent owner of the Premises, as well as the heirs, personal representatives or successors and assigns of any such subsequent owner, each of whom shall have the same rights, remedies, powers, authorities and privileges as he would have had had he originally signed this lease as Landlord, but any such person, whether or not named herein, shall have no liability hereunder after he ceases to hold title to the said real estate, except for obligations which may have theretofore accrued. 29. Definition of "Tenant". The word "Tenant" is used herein to --------------------- include the Tenant named above as well as its successors and assigns, each of which shall be under the same obligations, liabilities and disabilities and have only such rights, privileges, and powers as it would have possessed had it originally signed this lease as Tenant. However, no such rights, privileges or powers shall inure to the benefit of any assignee of Tenant, immediate or remote, unless the assignment to such assignee is permitted or has been approved in writing by Landlord as aforesaid. 30. Entire Agreement. It is expressly understood and agreed by ---------------- and between the parties hereto that this lease sets forth all the promises, agreements, conditions and undertakings between Landlord and Tenant with respect to the Premises, and that there are no promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth. -21- 3l. Commissions. Tenant represents and warrants to Landlord that ----------- Tenant was not shown and did not learn of the availability of the property by or through any broker or agent and that to the best of the knowledge and belief of Tenant, no commission is payable in connection with the within transaction. 32. Operation. Tenant or any permitted subtenant or assignee of --------- Tenant shall at all times, commencing thirty (30) days after the term begins, during the balance of the term of this lease, operate its business on the Premises or provide twenty-four (24) hours watchman or electronic service at the demised Premise. 33. Zoning. It is understood and agreed that the Landlord hereof ------ does not warrant or undertake that the Tenant shall be able to obtain a permit under any Zoning Ordinance or Regulation for such use as Tenant intends to make of the Premises, and nothing in this lease contained shall obligate the Landlord to assist Tenant in obtaining such permits; the Tenant further agrees that in the event a permit cannot be obtained by Tenant under any Zoning ordinance or Regulation, this lease shall not terminate without Landlord's consent, and the Tenant shall use the Premises only in a manner permitted under such Zoning Ordinance or Regulation. 34. Landlord's Consent. In any situation in which Tenant is ------------------ required to obtain Landlord's consent to perform any act in connection with this lease or the Premises, Landlord agrees that such consent shall not unreasonably be withheld or delayed. -22- 35. Captions. It is agreed that the captions of this lease are -------- for convenience only and are not a part of this lease and do not in any way limit or amplify the terms and provisions of this lease. 36. Assignment by Landlord. Upon the assignment of Landlord's ---------------------- rights, all rights, benefits, powers and remedies, but not duties or obligations, of the Landlord hereunder shall belong to and be exercisable by the assignee, its successors and assigns, and Tenant will render performance of Tenant's obligations hereunder to the assignee, its successors and assigns, pursuant to the terms of the assignment; provided, however, until written notice from assignee, its successors or assigns, to the contrary, tenant shall render performance of all of its obligations under this Lease to Landlord. 37. No Amendments After Assignment. Upon notice of assignment of ------------------------------ this Lease, Tenant will not, without the assignee's prior written consent, be a party to any changes or modifications in or abbrogation of the agreements contained in this Lease. 38. Rent Payments After Assignment. Upon receipt of written ------------------------------ notice from the assignee, its successors and assigns, addressed to the Tenant at the address set forth in this Lease or to such other address as may have been specified by the Tenant from time to time for the receipt of notices, Tenant shall pay all rent thereafter falling due after the date of receipt of such notice directly to the assignee, its successors or assigns, without declaration or set-off, as aforesaid. -23- 39. Delivery of the Premises. Landlord will make delivery of the ------------------------ Premises to Tenant in a broom-clean condition and will make no alterations to the Premises prior to delivery thereof to Tenant. If Landlord is unable to give Tenant possession of the Premises, as herein provided, by reason of casualty or some other cause beyond the control of the Landlord, the Landlord shall not be liable for damages to the Tenant therefor, and during the period during which the Landlord is unable to give possession, all rights and remedies of all parties hereunder shall be suspended. 40. Sprinkler System. Tenant may, at Tenant's expense, change ---------------- the sprinkler system from a wet system to a dry system but Tenant must restore same at Landlord's request and at Tenant's expense, prior to termination of this Lease. 41. Roof Signs. Tenant will not place any signs upon the roof of ---------- the Premises and Landlord may continue to rent and collect rent for the existing sign thereon and the Lessee thereof will be permitted access to said sign through the Premises, during business hours, for the purpose of maintenance and repair thereof. 42. Renewal Options. Provided that Tenant is not in default --------------- thereof, Tenant will have the option to renew the Lease for an additional period of five (5) years at an annual minimum rental of $47,500 per annum. Provided that the first option has been exercised, and Tenant is not in default thereunder, Tenant will have a second option to renew this Lease for an additional period of five (5) years at a minimum annual rental of $55,000 per annum. -24- Tenant must give Landlord six (6) months' prior notice of Tenant's intention to exercise any option. All terms and provisions of this Lease not in conflict with the terms of this paragraph will apply during any option period. 43. Sublease to Landlord. Landlord reserves the right to -------------------- sublease from Tenant an area currently occupied by Finishing range measuring about 14' x 100', at the rate of 80(cents) per square foot per annum for the period of six (6) months from the commencement of the term herein or any portion thereof, rental to be payable monthly in advance, pending dismantling. 44. Liens on Tenant's Inventory. Tenant is hereby given --------------------------- permission to acquire and keep upon the demised premises inventory under any device or devices by which the title thereto or a lien thereon is reserved in a person or entity other than Tenant or Landlord. Landlord agrees to execute any and all waivers and other instruments that may be necessary to enable Lessee to obtain any such inventory under such device or devices for the retention of title thereto or a lien thereon, and Landlord shall use its best efforts to obtain the signature of any mortgagee, lienholder or encumbrancer of the demised premises to any waiver of such mortgagee's, lienholder's or encumbrancer's interest in any of the said inventory which is required by the owner, seller or lienor of the same. IN WITNESS WHEREOF, the parties hereto have executed this -25- agreement under seal the day and year first above written. GENERAL BAG & BURLAP COMPANY By /s/ [SIGNATURE ILLEGIBLE] -------------------------------- Partner By /s/ [SIGNATURE ILLEGIBLE] -------------------------------- Partner DELAWARE VALLEY WOOL SCOURING CO. By /s/ [SIGNATURE ILLEGIBLE] -------------------------------- President Attest: /s/ [SIGNATURE ILLEGIBLE] ---------------------------- Secretary AMENDMENT TO LEASE AGREEMENT ---------------------------- This Amendment made this day of March 1971, by and between General Bag & Burlap Company, a partnership (hereinafter called "Landlord") and Delaware Valley Wool Scouring Co., a Pennsylvania corporation, (hereinafter called "Tenant"). WITNESSETH, whereas Landlord and Tenant under date of December 15, 1970 entered into a Lease Agreement (hereinafter called "Lease Agreement") of premises 3400 East Allen Street, Philadelphia, Pennsylvania (hereinafter referred to as "the Premises"); and WHEREAS Landlord and Tenant desire to amend the Lease Agreement in the manner here following: Now, therefore, LandLord and Tenant covenant and agree with each other as follows: 1. Attached hereto, hereby made a part hereof and marked Exhibit "A" is a plan numbered EIB-27151, R-42502. On the ground floor of the Premises in Building 10 and colored red is an area of slightly less than 7,000 square feet wherein a wood floor has been laid over a concrete sub-floor. The Tenant agrees to leave said wood floor in place and Landlord agrees that Tenant will not be responsible for any future damages thereto which are caused by the ordinary day-to-day operations of Tenant in the Premises. 2. Also on the first floor of the Premises is a cinder block wall at the point marked in blue on Exhibit "A". Said wall may be removed by Tenant, at Tenant's expense, provided that this is done in a good and workmanlike fashion and provided that the floor below the existing wall is property leveled so that the two sections making up Building 10 will be on the same level and will be one continuous floor. 3. In all other respects the Lease Agreement is hereby ratified and confirmed. IN WITNESS WHEREOF, Landlord and Tenant have caused these presents to be executed under seal the day and year first above written. GENERAL BAG & BURLAP COMPANY By:________________________________ Partner DELAWARE VALLEY WOOL SCOURING CO. By:________________________________ President Attest:____________________________ Secretary -2- EX-10.14 9 LEASE AGREEMENT EXHIBIT 10.14 STATE OF GEORGIA COUNTY OF GORDON COMMERCIAL LEASE THIS LEASE, MADE THIS 23RD DAY OF MAY, 1996, BY AND BETWEEN ECHOTA PROPERTIES, L.L.C. (HEREINAFTER REFERRED TO AS "LANDLORD"); AND AMERICAN WEAVERS, L.P. (HEREINAFTER REFERRED TO AS "TENANT"); WITNESSETH: A FIVE (5) YEAR LEASE AGREEMENT BETWEEN ECHOTA PROPERTIES, L.L.C. (LANDLORD) AND AMERICAN WEAVERS, L.P. (TENANT). THIS AGREEMENT ALSO INCLUDES AN OPTION TO RENEW. PREMISES 1. THAT LANDLORD, FOR AND IN CONSIDERATION OF THE RENTS, COVENANTS, AGREEMENTS, AND STIPULATIONS HEREINAFTER MENTIONED, RESERVED, AND CONTAINED, TO BE PAID, KEPT AND PERFORMED BY TENANT, HAS LEASED AND RENTED, AND BY THESE PRESENTS DOES LEASE AND RENT, UNTO TENANT, AND TENANT HEREBY LEASES AND TAKES UPON THE TERMS AND CONDITIONS WHICH HEREINAFTER APPEAR, THE FOLLOWING DESCRIBED PROPERTY (HEREINAFTER CALLED "PREMISES"), TO WIT: THAT TRACT OR PARCEL OF LAND LYING, BEING AND SITUATED IN LAND LOTS 168 AND 169 IN THE 14TH DISTRICT AND 3RD SECTION OF GORDON COUNTY, GEORGIA, AND BEING A PORTION OF 3.49 ACRES MORE OR LESS, THEREOF AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BUILDING SIZE IS 150 FT-4 IN. BY 200 FT. BY 18 FT. FOR MANUFACTURING AND WAREHOUSING AREA. RETAINING APRON BEING DESCRIBED ON THE ATTACHED EXHIBIT "A". 2. TENANT SHALL HAVE AND HOLD PREMISES FOR A TERM BEGINNING ON THE 1ST DAY OF SEPTEMBER, 1996, AND ENDING ON THE 31ST DAY OF AUGUST, 2001, AT MIDNIGHT UNLESS SOONER TERMINATED OR EXTENDED AS HEREINAFTER SPECIFICALLY PROVIDED IN THIS LEASE. RENTAL 3. TENANT SHALL PAY LANDLORD AT THE ADDRESS OF LANDLORD SET FORTH HEREINAFTER 1 IN THIS LEASE OR OF WHICH TENANT SHALL FROM TIME TO TIME OTHERWISE BE NOTIFIED PROMPTLY ON THE 1ST DAY OF EACH MONTH IN ADVANCE, DURING ALL TERMS OF THIS LEASE A MONTHLY RENTAL OF $6,000.00 (30,000 SQ. FT @ $.20 PER SQ. FT.) UTILITY BILLS 4. TENANT SHALL PAY ALL WATER, SEWER, SEWER SERVICE CHARGES, GAS, ELECTRICITY, FUEL, LIGHT, HEAT AND POWER BILLS FOR PREMISES OR USED BY TENANT IN CONNECTION THERE WITH, DURING ALL TERMS OF THIS LEASE. USE OF PREMISES 5. PREMISES SHALL NOT BE USED FOR ANY ILLEGAL PURPOSES; NOR IN ANY MANNER TO CREATE ANY NUISANCE OR TRESPASS; NOR IN ANY MANNER TO VITIATE THE INSURANCE OR INCREASE THE RATE OF INSURANCE ON PREMISES. ABANDONMENT OF PREMISES 6. TENANT SHALL NOT ABANDON OR VACATE PREMISES DURING ANY TERM OF THIS LEASE. REPAIRS BY LANDLORD 7. LANDLORD SHALL KEEP IN GOOD REPAIR THE ROOF, FOUNDATIONS AND EXTERIOR WALLS OF PREMISES, AND SEWER PIPES OUTSIDE THE EXTERIOR WALLS OF THE BUILDING IN WHICH PREMISES LOCATED, EXCEPT REPAIRS RENDERED NECESSARY BY THE NEGLIGENCE, WILLFUL ACT OR OMISSION OF TENANT, TENANT'S AGENTS, EMPLOYEES AND INVITES. LANDLORD HEREBY GIVES TENANT EXCLUSIVE CONTROL OF PREMISES AND SHALL BE UNDER NO OBLIGATION TO INSPECT PREMISES. TENANT SHALL PROMPTLY REPORT IN WRITING TO LANDLORD ANY DEFECTIVE CONDITION KNOWN TO TENANT WHICH LANDLORD IS REQUIRED TO REPAIR, AND FAILURE TO SO REPORT SUCH DEFECTS SHALL MAKE TENANT RESPONSIBLE TO LANLORD FOR ANY LIABILITY INCURRED BY LANDLORD BY REASON OF SUCH DEFECTS. REPAIRS BY TENANT 8. TENANT ACCEPTS PREMISES IN ITS PRESENT CONDITION AND AS SUITED FOR THE USES INTENDED BY TENANT. TENANT SHALL, THROUGHOUT ALL TERMS OF THIS LEASE, AT TENANT'S 2 EXPENSE, MAINTAIN PREMISES IN GOOD ORDER AND REPAIR, EXCEPT THOSE REPAIRS EXPRESSLY REQUIRED IN PARAGRAPH 7 HEREOF, TO BE MADE BY LANDLORD. TENANT FURTHER AGREES TO CARE FOR AND CLEAN THE GROUNDS AROUNDING THE BUILDING, INCLUDING THE MOWING OF GRASS, CLEANING OF THE PAVED AREAS, AND GENERAL LANDSCAPING. TENANT SHALL RETURN PREMISES TO LANDLORD AT THE EXPIRATION, OR PRIOR TO TERMINATION, OF THE TERM OF THIS LEASE IN AS GOOD CONDITION AND REPAIR AS WHEN FIRST RECEIVED, NATURAL WEAR AND TEAR, DAMAGE BY STORM, FIRE, LIGHTNING, EARTHQUAKE OR OTHER CASUALTY ALONE EXCEPTED. DESTRUCTION OF OR DAMAGE TO PREMISES 9. IF PREMISES ARE TOTALLY DESTROYED BY STORM, FIRE, LIGHTNING, EARTH- QUAKE OR OTHER CASUALTY, THIS LEASE SHALL TERMINATE AS OF THE DATE OF SUCH DESTRUCTION, AND RENTAL SHALL BE ACCOUNTED FOR AS BETWEEN LANDLORD AND TENANT AS OF THAT DATE. IF PREMISES ARE DAMAGED BUT NOT WHOLLY DESTROYED BY ANY OF SUCH CASUALTIES, THE TENANT AND LANDLORD RESERVE THE RIGHT TO CO-DETERMINE THE DEGREE OF DAMAGE OR LOSS TO THE FACILITY, AND SHOULD LANDLORD ELECT TO RESTORE THE PREMISES TO SUBSTANTIALLY THE SAME CONDITION AS BEFORE DAMAGE THEN FULL RENTAL SHALL RECOMMENCE UPON COMPLETION OF SAID RESTORATION. LANDLORD HAS ONE HUNDRED TWENTY (120) DAYS TO MAKE RESTORATIONS TO THE ORIGINAL CONDITION OR TENANT MAY HAVE THE OPTION TO TERMINATE THE LEASE AGREEMENT. INDEMNITY 10. TENANT AGREES TO AND HEREBY DOES, INDEMNIFY AND SAVE LANDLORD HARMLESS AGAINST ALL CLAIMS FOR DAMAGES TO PERSONS OR PROPERTY BY REASON OF TENANT'S USE OR OCCUPANCY OF PREMISES, AND ALL EXPENSES INCURRED BY THE LANDLORD AND MANAGER BECAUSE THEREOF, INCLUDING REASONABLE ATTORNEY'S FEES AND COURT COSTS. GOVERNMENTAL ORDERS 11. TENANT AGREES, AT TENANT'S OWN EXPENSE, TO PROMPTLY COMPLY WITH ALL REQUIREMENTS OF ANY LEGALLY CONSTITUTED PUBLIC AUTHORITY MADE NECESSARY BY REASON 3 OF TENANT'S OCCUPANCY OF PREMISES. CONDEMNATION 12. IF THE WHOLE OF PREMISES, OR SUCH PORTION THEREOF AS WILL MAKE PREMISES UNUSABLE FOR THE PURPOSES HEREIN LEASED, BE CONDEMNED BY ANY LEGALLY CONSTITUTED AUTHORITY FOR ANY PUBLIC USE OR PURPOSE, THEN IN EITHER OF SAID EVENTS THIS LEASE SHALL CEASE FROM THE TIME WHEN POSSESSION THEREOF IS TAKEN BY PUBLIC AUTHORITIES, AND RENTAL SHALL BE ACCOUNTED FOR AS BETWEEN LANDLORD AND TENANT AS OF THAT DATE SUCH TERMINATION, HOWEVER, SHALL BE WITHOUT PREJUDICE TO THE RIGHTS OF EITHER LANDLORD OR TENANT TO RECOVER COMPENSATION AND DAMAGE CAUSED BY CONDEMNATION FROM THE CONDEMNOR. IT IS UNDERSTOOD THAT CONDEMNATION BY A PRE-EXISTING CONDITION IS NOT THE RESPONSIBILITY OF THE TENANT. IT IS FURTHER UNDERSTOOD AND AGREED THAT NEITHER TENANT NOR LANDLORD SHALL HAVE ANY RIGHTS IN ANY AWARD MADE TO THE OTHER BY ANY CONDEMNATION AUTHORITY NOTWITHSTANDING THE TERMINATION OF THIS LEASE AS HEREIN PROVIDED. ASSIGNMENT AND SUBLETTING 13. TENANT SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LANDLORD ENDORSED HEREON, ASSIGN OR ENCUMBER THIS LEASE OR ANY INTEREST HEREUNDER, OR SUBLET PREMISES OR ANY PART THEREOF, OR PERMIT THE USE OF PREMISES BY ANY OTHER PARTY OTHER THAN TENANT. LANDLORD'S CONSENT TO ANY ASSIGNMENT, ENCUMBRANCE OR SUBLEASE SHALL NOT NULLIFY THIS PROVISION, AND ALL LATER ASSIGNMENTS, ENCUMBRANCES OR SUBLEASES SHALL BE MADE LIKEWISE ONLY ON THE PRIOR WRITTEN CONSENT OF LANDLORD. ASSIGNEE OF TENANT, AT OPTION OF LANDLORD, SHALL BECOME DIRECTLY LIABLE TO LANDLORD FOR ALL OBLIGATIONS OF TENANT HEREUNDER, BUT NO SUBLEASE OR ASSIGNMENT BY TENANT SHALL RELIEVE TENANT OF ANY LIABILITY HEREUNDER REMOVAL OF FIXTURES AND PROPERTY 14. TENANT MAY (IF NOT IN DEFAULT HEREUNDER) PRIOR TO THE EXPIRATION OF THIS LEASE, 4 OR ANY EXTENSION THEREOF, REMOVE ALL PERSONAL PROPERTY, FIXTURES AND EQUIPMENT WHICH TENANT HAS PLACED IN PREMISES, PROVIDED TENANT SIMULTANEOUSLY REPAIRS ALL DAMAGE TO PREMISES CAUSED BY SUCH REMOVAL. IF TENANT IS AT THE TIME OF ANY TERMINATION OF THIS LEASE IN DEFAULT UNDER ANY TERM OR CONDITION HEREOF, TENANT SHALL NOT BE ENTITLED TO REMOVE ANY OF SUCH PERSONAL PROPERTY, FIXTURES OR EQUIPMENT AND LANDLORD SHALL HAVE ALL RIGHTS THEREIN AS ARE THEN AVAILABLE TO LANDLORD BY LAW. CANCELLATION OF LEASE BY LANDLORD 15. IT IS MUTUALLY AGREED THAT, IN THE EVENT TENANT SHALL DEFAULT IN THE PAYMENT OF RENT HEREIN RESERVED, WHEN DUE, AND FAILS TO CURE SAID DEFAULT WITHIN (5) DAYS AFTER THE GIVING OF WRITTEN NOTICE THEREOF BY LANDLORD; OR IF TENANT SHALL BE IN DEFAULT IN PERFORMING ANY OF THE TERMS OR PROVISIONS OF THIS LEASE OTHER THAN THE PROVISIONS REQUIRING THE PAYMENT OF RENT, AND FAILS TO CURE SUCH DEFAULT WITHIN THIRTY (30) DAYS AFTER THE DATE OF WRITTEN NOTICE OF DEFAULT FROM LANDLORD; OR IF TENANT IS ADJUDICATED BANKRUPT; OR IF A PERMANENT RECEIVER IS APPOINTED FOR TENANT'S PROPERTY AND SUCH RECEIVER IS NOT REMOVED WITHIN SIXTY (60) DAYS AFTER WRITTEN NOTICE FROM LANDLORD TO TENANT TO OBTAIN SUCH REMOVAL; OR IF, WHETHER VOLUNTARILY OR INVOLUNTARILY, TENANT TAKES ADVANTAGE OF ANY DEBTOR RELIEF PROCEEDINGS UNDER ANY PRESENT OR FUTURE LAW, WHEREBY THE RENT OR ANY PART THEREOF, OR IS PROPOSED TO BE, REDUCED OR PAYMENT THEREOF DEFERRED; OR IF TENANT MAKES AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS; OR IF TENANT'S EFFECTS SHALL BE LEVIED UPON OR ATTACHED UNDER PROCESS AGAINST TENANT, NOT SATISFIED OR DISSOLVED WITHIN THIRTY (30) DAYS AFTER WRITTEN NOTICE FROM LANDLORD TO TENANT TO OBTAIN SATISFACTION THEREOF; THEN, AND IN ANY OF SAID EVENTS, LANDLORD AT ITS OPTIONS MAY AT ONCE, OR WITHIN SIX (6) MONTHS THEREAFTER (BUT ONLY DURING THE CONTINUANCE OF SUCH DEFAULT OR CONDITION), TERMINATE THIS LEASE BY WRITTEN NOTICE TO TENANT; WHEREUPON THIS LEASE SHALL END. AFTER AN AUTHORIZED ASSIGNMENT OR SUBLEASE OF THE ENTIRE PREMISES COVERED BY THIS LEASE, THE OCCURRING OF ANY OF THE FOREGOING 5 DEFAULTS OR EVENTS SHALL AFFECT THIS LEASE ONLY IF CAUSED BY, OR HAPPENING TO, SUCH ASSIGNEE OR SUBLESSEE. ANY NOTICE PROVIDED IN THIS PARAGRAPH 16 MAY BE GIVEN BY LANDLORD OR ITS ATTORNEY. UPON SUCH TERMINATION BY LANDLORD, TENANT WILL AT ONCE SURRENDER POSSESSION OF PREMISES TO LANDLORD AND REMOVE THEREFROM ALL OF TENANT'S EFFECTS IN WHICH LANDLORD CLAIMS NO INTEREST UNDER PARAGRAPH 15 OF THIS LEASE; AND LANDLORD SHALL HAVE THE RIGHT FORTHWITH TO RE-ENTER PREMISES AND REPOSSESS ITSELF THEREOF, AND REMOVE ALL PERSONS AND EFFECTS THEREFROM, USING SUCH FORCE AS MAY BE NECESSARY WITHOUT BEING GUILTY OF TRESPASS, FORCIBLE ENTRY OR DETAINER OR OTHER TORT. RELETTING BY LANDLORD 16. LANDLORD SHALL HAVE THE RIGHT AT LANDLORD'S OPTION WITHOUT TERMINATING THIS LEASE, UPON TENANT'S BREACHING THIS CONTRACT, TO ENTER UPON AND, AS TENANT'S AGENT, RENT PREMISES AT THE BEST PRICE OBTAINABLE BY REASONABLE EFFORT, WITHOUT ADVERTISEMENT AND BY PRIVATE NEGOTIATIONS AND FOR ANY TERM LANDLORD DEEMS PROPER. TENANT SHALL BE LIABLE TO LANDLORD FOR THE DEFICIENCY, IF ANY, BETWEEN THE TENANT'S RENT HEREUNDER AND THE PRICE OBTAINED BY THE LANDLORD ON RELETTING. EXTERIOR SIGNS 17. TENANT SHALL PLACE NO SIGNS UPON THE OUTSIDE WALLS OR ROOF OF PREMISES EXCEPT WITH THE WRITTEN CONSENT OF LANDLORD. ANY AND ALL SIGNS PLACED ON THE WITHIN LEASED PREMISES BY TENANT SHALL BE MAINTAINED IN COMPLIANCE WITH ALL GOVERNMENTAL ORDINANCES, RULES, AND REGULATIONS GOVERNING SUCH SIGNS, AND TENANT SHALL BE RESPONSIBLE TO LANDLORD FOR ANY DAMAGE CAUSED BY INSTALLATION, USE OR MAINTENANCE OF SAID SIGNS OR VIOLATION OF ORDINANCE, RULE OR REGULATION WITH REGARD THERETO. UPON ANY REMOVAL OF SAID SIGNS TENANT SHALL SIMULTANEOUSLY REPAIR ALL DAMAGE INCIDENT TO SUCH REMOVAL. LANDLORD SHALL FREELY GIVE TENANT PERMISSION TO INSTALL SIGNS. INTERRUPTION OF SERVICES OR OF OCCUPANCY 18. INTERRUPTION OR CURTAILMENT OF ANY SERVICE TO THE PREMISES, SUCH AS (BUT NOT 6 LIMITED TO) UTILITIES, IF CAUSED BY STRIKES, MECHANICAL DIFFICULTIES OR OTHER CAUSES BEYOND THE LANDLORD'S CONTROL WILL NOT ENTITLE TENANT TO ANY CLAIM AGAINST LANDLORD OR ANY ABATEMENT IN RENT, NOR WILL IT CONSTITUTE CONSTRUCTIVE OR PARTIAL EVICTION, UNLESS LANDLORD FAILS TO TAKE MEASURES THAT ARE REASONABLE IN THE CIRCUMSTANCES TO RESTORE THE SERVICE WITHOUT UNDUE DELAY. IT IS UNDERSTOOD THAT ANY PRE-EXISTING ENVIRONMENTAL CONDITION IS NOT THE RESPONSIBILITY OF THE TENANT. IT IS ASSUMED THAT NO SUCH CONDITION EXISTS. CONSTRUCTIVE EVICTION 19. TENANT WILL NOT BE ENTITLED TO CLAIM A CONSTRUCTIVE EVICTION FROM PREMISES UNLESS TENANT WILL HAVE FIRST NOTIFIED LANDLORD IN WRITING OF THE CONDITION GIVING RISE TO THE CLAIM AND, IF THE COMPLAINTS ARE JUSTIFIED, UNLESS LANDLORD FAILS TO REMEDY THE CONDITION WITHIN A REASONABLE TIME AFTER RECEIPT OF THE NOTICE. ENTRY FOR CARDING 20. LANDLORD MAY CARD PREMISES "FOR RENT" OR "FOR SALE" THIRTY (30) DAYS BEFORE THE TERMINATION OF THIS LEASE. LANDLORD SHALL HAVE THE RIGHT TO ENTER PREMISES, AFTER CONFIDENTIALITY AGREEMENT IS MADE BETWEEN LANDLORD AND TENANT, AT REASONABLE HOURS TO EXHIBIT SAME TO PROSPECTIVE PURCHASERS OR TENANTS AND TO MAKE REPAIRS REQUIRED OF LANDLORD UNDER THE TERMS HEREOF OR TO MAKE REPAIRS TO LANDLORD'S ADJOINING PROPERTY, IF ANY. EFFECT OF TERMINATION OF LEASE 21. NO TERMINATION OF THIS LEASE PRIOR TO THE NORMAL ENDING THEREOF, BY LAPSE OF TIME OR 0THERWISE, SHALL AFFECT LANDLORD'S RIGHT TO COLLECT RENT FOR THE PERIOD PRIOR TO TERMINATION THEREOF. MORTGAGEE'S RIGHTS 22. TENANT'S RIGHTS SHALL BE SUBJECT TO ANY BONA FIDE MORTGAGE OR DEED TO SECURE DEBT WHICH IS NOW, OR MAY HEREAFTER BE, PLACED UPON THE PROPERTY OF WHICH PREMISES 7 CONSTITUTE A PART. NO ESTATE IN LAND 23. THIS LEASE SHALL CREATE THE RELATIONSHIP OF LANDLORD AND TENANT BETWEEN THE PARTIES HERETO; NO ESTATE SHALL PASS OUT OF LANDLORD. TENANT HAS ONLY A USUFRUCT, NOT SUBJECT TO LEVY AND SALE, AND NOT ASSIGNABLE BY TENANT EXCEPT BY LANDLORD'S CONSENT. NEITHER LANDLORD NOR TENANT SHALL CAUSE THIS LEASE TO BE RECORDED WITHOUT PRIOR WRITTEN CONSENT OF THE OTHER PARTY TO SUCH RECORDING. HOLDING OVER 24. IF TENANT REMAINS IN POSSESSION OF PREMISES AFTER EXPIRATION OF THE TERM HEREOF, WITH LANDLORD'S ACQUIESCENCE AND WITHOUT ANY EXPRESS AGREEMENT OF PARTIES, TENANT SHALL BE A TENANT AT WILL AT TWO TIMES THE RENTAL RATE IN EFFECT AT END OF LEASE; AND THERE SHALL BE NO RENEWAL OF THIS LEASE BY OPERATION OF LAW. ATTORNEY'S FEES AND HOMESTEAD 25. IF ANY RENT OWING UNDER THIS LEASE IS COLLECTED BY OR THROUGH AN ATTORNEY AT LAW, TENANT AGREES TO PAY THE FULL AMOUNT OF SUCH REASONABLE ATTORNEY'S FEES AS LANDLORD INCURS IN SUCH COLLECTION. TENANT WAIVES ALL HOMESTEAD RIGHTS AND EXEMPTIONS WHICH TENANT MAY HAVE UNDER ANY LAW AS AGAINST ANY OBLIGATION OWING UNDER THIS LEASE. TENANT HEREBY ASSIGNS TO LANDLORD TENANT'S HOMESTEAD AND EXEMPTION. SERVICE OF NOTICE 26. TENANT HEREBY APPOINTS AS TENANTS AGENT TO RECEIVE SERVICE OF ALL DISPOSSESSORY OR OTHER LEGAL PROCEEDINGS AND NOTICES THEREUNDER, AND ALL NOTICES REQUIRED UNDER THIS LEASE, THE PERSON IN CHARGE OF PREMISES OR OCCUPYING PREMISES AT THE TIME OF DELIVERY OR SERVICE OF SUCH NOTICE; AND IF NO PERSON IS IN CHARGE OF OR OCCUPYING PREMISES AT SUCH TIME, THEN SUCH SERVICE OR NOTICE MAY BE MADE BY ATTACHING THE SAME ON THE MAIN ENTRANCE TO PREMISES. A COPY OF ALL NOTICES UNDER THIS LEASE SHALL 8 ALSO BE SENT TO TENANT'S ADDRESS: AMERICAN WEAVERS, INC. ATTENTION: MR. SCOTT FLETCHER, 965 NORTH WALL STREET, CALHOUN, GA 30701. ALL NOTICES GIVEN HEREUNDER BY TENANT TO LANDLORD SHALL BE SENT TO LANDLORD IN CARE OF LANDLORD AT LANDLORD'S ADDRESS SET FORTH HEREINAFTER IN THIS LEASE, UNLESS IT HAS OTHERWISE NOTIFIED TENANT OF ANOTHER ADDRESS FOR LANDLORD. MISCELLANEOUS 27. ALL RIGHTS, POWERS AND PRIVILEGES CONFERRED HEREUNDER UPON PARTIES HERETO SHALL BE CUMULATIVE BUT NOT RESTRICTIVE TO THOSE GIVEN BY LAW. NO FAILURE OF LANDLORD TO EXERCISE ANY POWER GIVEN LANDLORD HEREUNDER, OR TO INSIST UPON STRICT COMPLIANCE BY TENANT WITH HIS OBLIGATION HEREUNDER, AND NO CUSTOM OR PRACTICE OF COMPLIANCE BY TENANT WITH HIS OBLIGATION HEREUNDER, AND NO CUSTOM OR PRACTICE OF THE PARTIES AT VARIANCE WITH THE TERMS HEREOF SHALL CONSTITUTE A WAIVER OF LANDLORD'S RIGHT TO DEMAND EXACT COMPLIANCE WITH THE TERMS HEREOF. "LANDLORD" AS USED IN THIS LEASE SHALL INCLUDE LANDLORD, HIS OR ITS HEIRS, EXECUTORS, ADMINISTRATORS, LEGAL REPRESENTATIVE, ASSIGNS AND SUCCESSORS IN TITLE TO PREMISES. "TENANT" SHALL INCLUDE TENANT, HIS OR ITS HEIRS, EXECUTORS, ADMINISTRATORS, LEGAL REPRESENTATIVES, AND, IF THIS LEASE SHALL BE VALIDLY ASSIGNED OR SUBLET, SHALL ALSO INCLUDE TENANT'S ASSIGNEES OR SUBLEASES, AS TO PREMISES COVERED BY SUCH ASSIGNMENT OR SUBLEASE. "LANDLORD", AND "TENANT" SHALL INCLUDE MALE AND FEMALE, SINGULAR AND PLURAL, CORPORATION, PARTNERSHIP OR INDIVIDUAL, AS MAY FIT THE PARTICULAR PARTIES. TIME IS OF THE ESSENCE OF THIS LEASE. OPTION TO RENEW 28. TENANT IS GIVEN AN OPTION TO EXTEND THE TERM OF THIS LEASE BY A PERIOD OF THREE (3) YEARS. TENANT MAY EXERCISE THIS OPTION AT ANY TIME BY NOTICE IN WRITING TO LANDLORD SERVED AT LEAST NINETY (90) DAYS PRIOR TO THE END OF THE INITIAL TERM. IF TENANT SHALL NOT BE IN DEFAULT, EXCEPT AS THE TERMS MAY NOT BE RELEVANT OR APPLICABLE. ALL THE TERMS AND CONDITIONS OF THE LEASE SHALL APPLY FOR THE EXTENDED PERIOD, EXCLUDING THE MONTHLY 9 RENTAL WHICH SHALL REMAIN AT $6,000.00 OR $.20 PER SQUARE FOOT OF RENTED SPACE AFTER THE EIGHT YEAR TERM, OPTION TO RENEW WILL BE GRANTED PERPETUALLY IN THREE YEAR INCREMENTS WITH THE RENTAL RATE BEING INCREASED AT EACH RENEWAL BASED ON THE ACCUMULATIVE YEARLY INFLATION RATE AS DETERMINED BY THE STATE OF GEORGIA DEPARTMENT OF COMMERCE. THIS RATE SHALL BE FROM THE INITIAL TERM OF THE LEASE. TENANT'S OBLIGATION TO INSURE: ALL-INCLUSIVE FORM 29. DURING THE TERM OF THIS LEASE, TENANT, AT ITS SOLE COST AND EXPENSE, AND FOR THE MUTUAL BENEFIT OF LANDLORD AND TENANT, SHALL CARRY AND MAINTAIN THE FOLLOWING TYPES OF INSURANCE IN THE AMOUNTS SPECIFIED: COMPREHENSIVE PUBLIC LIABILITY INSURANCE, INCLUDING PROPERTY DAMAGE, INSURING LANDLORD AND TENANT AGAINST LIABILITY FOR INJURY TO PERSONS OR PROPERTY OCCURRING IN OR ABOUT THE LEASED PREMISES OR ARISING OUT OF THE OWNERSHIP, MAINTENANCE, USE, OR OCCUPANCY THEREOF. THE LIABILITY UNDER SUCH INSURANCE SHALL NOT BE LESS THAN $1,000,000.00 FOR ANY ONE PERSON INJURED OR KILLED AND NOT LESS THAN $5,000,000.00 FOR ANY ONE ACCIDENT AND NOT LESS THAN $1,000,000.00 FOR PERSONAL PROPERTY DAMAGE PER ACCIDENT. WRITTEN PROOF OF THIS INSURANCE COVERAGE SHALL BE REQUIRED BY ECHOTA PROPERTIES, L.L.C. DURING THE TERM OF THIS LEASE. 10 ENTIRE AGREEMENT 30. THIS LEASE CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND NO REPRESENTATIONS, INDUCEMENTS, PROMISES, OR AGREEMENTS, ORAL OR OTHERWISE, BETWEEN THE PARTIES, NOT EMBODIED HEREIN, SHALL BE OF ANY FORCE OR EFFECT. IN WITNESS WHEREOF, THE PARTIES HEREIN HAVE HEREUNTO SET THEIR HANDS AND SEALS OR CAUSED THIS INSTRUMENT TO BE EXECUTED THROUGH AUTHORIZED OFFICIALS IN THEIR NAME, IN TRIPLICATE, THE DAY AND YEAR FIRST ABOVE WRITTEN. SIGNED, SEALED AND DELIVERED LANDLORD: IN THE PRESENCE OF: STEPHEN FOX, RANDALL FOX, RAYMOND KING D/B/A ECHOTA PROPERTIES, L.L.C. [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] (SEAL) - ---------------------- --------------------- UNOFFICIAL WITNESS [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] (SEAL) - ---------------------- --------------------- NOTARY PUBLIC GA STATE AT LARGE MY COMMISSION EXPIRES 4/30/98 ADDRESS: P O Box 2409 ------------ Calhoun GA 30703 --------------------- SIGNED, SEALED AND DELIVERED TENANT: IN THE PRESENCE OF: AMERICAN WEAVERS, L.P. BY ITS GENERAL PARTNER AMERICAN WEAVERS MANAGEMENT, INC. [SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE] (SEAL) - --------------------- --------------------- UNOFFICIAL WITNESS [SIGNATURE ILLEGIBLE] _____________________ (SEAL) - --------------------- NOTARY PUBLIC GA. STATE AT LARGE MY COMMISSION EXPIRES 4/30/98 ADDRESS: 965 North Wall St. ------------------ Calhoun GA 30701 ----------------- 11 MR. SCOTT FLETCHER 7/13/94 AMERICAN WEAVERS 903 NORTH WALL STREET CALHOUN, GEORGIA EXHIBIT "A" PERMITS: ALL PERMITS ARE INCLUDED GRADING AND SITEWORK: EXISTING FOOTINGS: EXISTING CONCRETE APRONS: EXISTING SIDEWALKS: FURNISH AND INSTALL A 5 FT. X 75 FT. SIDEWALK AT SPECIFIED LOCATION RETAINING WALLS: EXISTING PRE-ENGINEERED BUILDING: THE AGREED UPON RENTED SPACE THE STEEL BUILDING DIMENSIONS WILL BE 150 FT. X 4 IN. WIDE BY 200 FT. LONG WITH AN EAVELINE HEIGHT OF 18 FT. THE BUILDING WILL BE A TAPERED COLUMN TYPE BUILDING WITH INTERIOR PIPE COLUMNS PER FRAME. THE BUILDING WILL HAVE 50 FT. SPANS RUNNING THE WIDTH OF THE BUILDING. LENGTHWISE, THE BUILDING SHALL HAVE VARIABLE BAYS. THE ROOF SLOPE WILL BE 1:12". THE BUILDING IS DESIGNED TO CARRY AN 80 MPH WIND AND A 20 PSF LIVE LOAD WITH AN ADDITIONAL 3 PSF AUXILIARY LOAD SYSTEM AND MISCELLANEOUS LOAD. THE TOTAL RENTED SPACE SHALL BE 30,000 SQ. FT. CANOPY: ONE (1) 5 FT. X 50 FT. AT THE ENDWALL DOCK DOORS WALLS OF SAID BUILDING SHALL BE SHEETED WITH 26 GAUGE ARCHITECTURAL WALL PANELS. ROOF OF SAID BUILDING SHALL BE 26 GAUGE GALVALUME. WALLS SHALL HAVE BAKED ON PAINT. AMERICAN WEAVERS PAGE 2 FURNISH AND INSTALL TWO (2) 3 FT. X 7 FT. STEEL WALK DOORS AT THE SPECIFIED LOCATIONS. THIS INCLUDES FRAMES, MORTISE LOCKSETS, DOORS AND THRESHOLDS. ROOF AND WALLS SHALL BE INSULATED WITH VINYL FACE METAL BUILDING INSULATION. ROLL-UP DOORS: 5 EACH 8 FT. X 10 STEEL ROLLING DOORS 4 EACH EDGE OF DOCK LEVELERS 4 EACH DOCK SEALS INTERIOR OFFICES: COMPLETE RESTROOM COMBINATION SHALL BE 20 FT. X 16 FT. 2ND FLOOR OPEN AND PLYWOOD DECKED. CEILING: RESTROOM SHALL HAVE ACOUSTICAL CEILINGS. FLOORS: RESTROOM SHALL BE VINYL ASPHALT TILE STEEL DOORS: TWO (2) IN RESTROOM WALLS PAINTING: INTERIOR STRUCTURAL STEEL SHALL HAVE ONE FACTORY APPLIED COAT OF RED OXIDE PAINT AND ONE FIELD COAT OF SHERWIN WILLIAMS DTM. INTERIOR BLOCK WALLS SHALL HAVE ONE PRIMER COAT AND ONE FINISH COAT OF LATEX SEMI-GLOSS ENAMEL. AMERICAN WEAVERS PAGE 3 GYPSUM WALLS SHALL HAVE ONE PRIMER COAT AND ONE FINISH COAT OF LATEX WALL PAINT. PLUMBING: 4 EACH WALL HUNG LAVATORIES 2 EACH HANDICAP FLUSH VALVE COMMODES 1 EACH FLUSH VALVE URINAL 1 EACH ELONGATED FLUSH VALVE COMMODE 1 EACH GALLON ELECTRIC WATER COOLER 1 EACH SIX (6) GALLON WATER HEATED 2 EACH EXTERIOR HOSE BIBS ELECTRICAL AND LIGHTING: IN PLACE AS EXISTS 6 EACH EXTERIOR WALL WASHER UNITS 8 EACH RANDOM 110 VOLT OUTLETS 2 EACH EXIT SIGNS AS REQUIRED 2 EACH LOADING DOCK LIGHTS OVER CANOPY 6 EACH ELECTRICAL OUTLETS FOR VENDING MACHINES SPRINKLER SYSTEM: FURNISH AND INSTALL A SPRINKLER SYSTEM. SPRINKLER SYSTEM SHALL MEET INSURANCE SPECIFICATIONS. SPRINKLER SYSTEM SPECIFICATIONS ARE ATTACHED. HEATING, VENTILATION AND AIR CONDITIONING: 4 EACH 36 IN. HORSEPOWER WALL FANS 2 EACH 300,000 BTU GAS UNIT HEATERS VENTED AS PER CODE REPAIRS/PAINTING; THE PLYWOOD PROTECTIVE SHEETS AROUND THE INTERIOR PERIMETER OF THE BUILDING, IN PLACES WHICH NEED REPAIR. EX-10.15 10 LEASE AGREEMENT EXHIBIT 10.15 STATE OF GEORGIA COUNTY OF GORDON COMMERCIAL LEASE THIS LEASE, MADE THIS 23RD DAY OF MAY, 1996, BY AND BETWEEN ECHOTA ------ PROPERTIES, L.L.C. (HEREINAFTER REFERRED TO AS "LANDLORD"); AND AMERICAN - ----------- WEAVERS, L.L.C. (HEREINAFTER REFERRED TO AS "TENANT"); WITNESSETH: A FIVE (5) YEAR LEASE AGREEMENT BETWEEN ECHOTA PROPERTIES (LANDLORD) AND AMERICAN WEAVERS, L.L.C. (TENANT). THIS AGREEMENT ALSO INCLUDES AN OPTION TO RENEW. PREMISES 1. THAT LANDLORD, FOR AND IN CONSIDERATION OF THE RENTS, COVENANTS, AGREEMENTS, AND STIPULATIONS HEREINAFTER MENTIONED, RESERVED, AND CONTAINED, TO BE PAID, KEPT AND PERFORMED BY TENANT, HAS LEASED AND RENTED, AND BY THESE PRESENTS DOES LEASE AND RENT, UNTO TENANT, AND TENANT HEREBY LEASES AND TAKES UPON THE TERMS AND CONDITIONS WHICH HEREINAFTER APPEAR, THE FOLLOWING DESCRIBED PROPERTY (HEREINAFTER CALLED "PREMISES"), TO WIT: THAT TRACT OR PARCEL OF LAND LYING, BEING AND SITUATED IN LAND LOTS 168 AND 169 IN THE 14TH DISTRICT AND 3RD SECTION OF GORDON COUNTY, GEORGIA, AND BEING A PORTION OF 3.49 ACRES MORE OR LESS, THEREOF AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BUILDING SIZE IS 54,046 SQUARE FEET X 22 FT. FOR MANUFACTURING AND WAREHOUSING AREA. RETAINING APRON BEING DESCRIBED ON THE ATTACHED EXHIBIT "C". 2. TENANT SHALL HAVE AND HOLD PREMISES FOR A TERM BEGINNING ON THE 1ST DAY OF SEPTEMBER, 1996, AND ENDING ON THE 31ST DAY OF AUGUST, 2001, AT MIDNIGHT UNLESS SOONER TERMINATED OR EXTENDED AS HEREINAFTER SPECIFICALLY PROVIDED IN THIS LEASE. RENTAL 3. TENANT SHALL PAY LANDLORD AT THE ADDRESS OF LANDLORD SET FORTH HEREINAFTER 1 IN THIS LEASE OR OF WHICH TENANT SHALL FROM TIME TO TIME OTHERWISE BE NOTIFIED, PROMPTLY ON THE 1ST DAY OF EACH MONTH IN ADVANCE, DURING ALL TERMS OF THIS LEASE A MONTHLY RENTAL OF $10,809.00 (54,046 SQ. FT @ $.20 PER SQ. FT.) UTILITY BILLS 4. TENANT SHALL PAY ALL WATER, SEWER, SEWER SERVICE CHARGES, GAS, ELECTRICITY, FUEL, LIGHT, HEAT AND POWER BILLS FOR PREMISES OR USED BY TENANT IN CONNECTION THERE WITH, DURING ALL TERMS OF THIS LEASE. USE OF PREMISES 5. PREMISES SHALL NOT BE USED FOR ANY ILLEGAL PURPOSES; NOR IN ANY MANNER TO CREATE ANY NUISANCE OR TRESPASS; NOR IN ANY MANNER TO VITIATE THE INSURANCE OR INCREASE THE RATE OF INSURANCE ON PREMISES. ABANDONMENT OF PREMISES 6. TENANT SHALL NOT ABANDON OR VACATE PREMISES DURING ANY TERM OF THIS LEASE. REPAIRS BY LANDLORD 7. LANDLORD SHALL KEEP IN GOOD REPAIR THE ROOF, FOUNDATIONS AND EXTERIOR WALLS OF PREMISES, AND SEWER PIPES OUTSIDE THE EXTERIOR WALLS OF THE BUILDING IN WHICH PREMISES IS LOCATED, EXCEPT REPAIRS RENDERED NECESSARY BY THE NEGLIGENCE, WILLFUL ACT OR OMISSION OF TENANT, TENANT'S AGENTS, EMPLOYEES AND INVITES. LANDLORD HEREBY GIVES TENANT EXCLUSIVE CONTROL OF PREMISES AND SHALL BE UNDER NO OBLIGATION TO INSPECT PREMISES. TENANT SHALL PROMPTLY REPORT IN WRITING TO LANDLORD ANY DEFECTIVE CONDITION KNOWN TO TENANT WHICH LANDLORD IS REQUIRED TO REPAIR, AND FAILURE TO SO REPORT SUCH DEFECTS SHALL MAKE TENANT RESPONSIBLE TO LANDLORD FOR ANY LIABILITY INCURRED BY LANDLORD BY REASON OF SUCH DEFECTS. REPAIRS BY TENANT 8. TENANT ACCEPTS PREMISES IN ITS PRESENT CONDITION AND AS SUITED FOR THE USES INTENDED BY TENANT. TENANT SHALL, THROUGHOUT ALL TERMS OF THIS LEASE, AT TENANT'S 2 EXPENSE, MAINTAIN PREMISES IN GOOD ORDER AND REPAIR, EXCEPT THOSE REPAIRS EXPRESSLY REQUIRED IN PARAGRAPH 7 HEREOF, TO BE MADE BY LANDLORD. TENANT FURTHER AGREES TO CARE FOR AND CLEAN THE GROUNDS AROUNDING THE BUILDING, INCLUDING THE MOWING OF GRASS, CLEANING OF THE PAVED AREAS, AND GENERAL LANDSCAPING. TENANT SHALL RETURN PREMISES TO LANDLORD AT THE EXPIRATION, OR PRIOR TO TERMINATION, OF THE TERM OF THIS LEASE IN AS GOOD CONDITION AND REPAIR AS WHEN FIRST RECEIVED, NATURAL WEAR AND TEAR, DAMAGE BY STORM, FIRE, LIGHTNING, EARTHQUAKE OR OTHER CASUALTY ALONE EXCEPTED. DESTRUCTION OF OR DAMAGE TO PREMISES 9. IF PREMISES ARE TOTALLY DESTROYED BY STORM, FIRE, LIGHTNING, EARTHQUAKE OR OTHER CASUALTY, THIS LEASE SHALL TERMINATE AS OF THE DATE OF SUCH DESTRUCTION, AND RENTAL SHALL BE ACCOUNTED FOR AS BETWEEN LANDLORD AND TENANT AS OF THAT DATE. IF PREMISES ARE DAMAGED BUT NOT WHOLLY DESTROYED BY ANY OF SUCH CASUALTIES, THE TENANT AND LANDLORD RESERVE THE RIGHT TO CO-DETERMINE THE DEGREE OF DAMAGE OR LOSS TO THE FACILITY, AND SHOULD LANDLORD ELECT TO RESTORE THE PREMISES TO SUBSTANTIALLY THE SAME CONDITION AS BEFORE DAMAGE THEN FULL RENTAL SHALL RECOMMENCE UPON COMPLETION OF SAID RESTORATION. LANDLORD HAS ONE HUNDRED TWENTY (120) DAYS TO MAKE RESTORATIONS TO THE ORIGINAL CONDITION OR TENANT MAY HAVE THE OPTION TO TERMINATE THE LEASE AGREEMENT. INDEMNITY 10. TENANT AGREES TO AND HEREBY DOES, INDEMNIFY AND SAVE LANDLORD HARMLESS AGAINST ALL CLAIMS FOR DAMAGES TO PERSONS OR PROPERTY BY REASON OF TENANT'S USE OR OCCUPANCY OF PREMISES, AND ALL EXPENSES INCURRED BY THE LANDLORD AND MANAGER BECAUSE THEREOF, INCLUDING REASONABLE ATTORNEY'S FEES AND COURT COSTS. GOVERNMENTAL ORDERS 11. TENANT AGREES, AT TENANT'S OWN EXPENSE, TO PROMPTLY COMPLY WITH ALL REQUIREMENTS OF ANY LEGALLY CONSTITUTED PUBLIC AUTHORITY MADE NECESSARY BY REASON 3 OF TENANT'S OCCUPANCY OF PREMISES. CONDEMNATION 12. IF THE WHOLE OF PREMISES, OR SUCH PORTION THEREOF AS WILL MAKE PREMISES UNUSABLE FOR THE PURPOSES HEREIN LEASED, BE CONDEMNED BY ANY LEGALLY CONSTITUTED AUTHORITY FOR ANY PUBLIC USE OR PURPOSE, THEN IN EITHER OF SAID EVENTS THIS LEASE SHALL CEASE FROM THE TIME WHEN POSSESSION THEREOF IS TAKEN BY PUBLIC AUTHORITIES, AND RENTAL SHALL BE ACCOUNTED FOR AS BETWEEN LANDLORD AND TENANT AS OF THAT DATE. SUCH TERMINATION, HOWEVER, SHALL BE WITHOUT PREJUDICE TO THE RIGHTS OF EITHER LANDLORD OR TENANT TO RECOVER COMPENSATION AND DAMAGE CAUSED BY CONDEMNATION FROM THE CONDEMNOR. IT IS UNDERSTOOD THAT CONDEMNATION BY A PRE-EXISTING CONDITION IS NOT THE RESPONSIBILITY OF THE TENANT. IT IS FURTHER UNDERSTOOD AND AGREED THAT NEITHER TENANT NOR LANDLORD SHALL HAVE ANY RIGHTS IN ANY AWARD MADE TO THE OTHER BY ANY CONDEMNATION AUTHORITY NOTWITHSTANDING THE TERMINATION OF THIS LEASE AS HEREIN PROVIDED. ASSIGNMENT AND SUBLETTING 13. TENANT SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LANDLORD ENDORSED HEREON, ASSIGN OR ENCUMBER THIS LEASE OR ANY INTEREST HEREUNDER, OR SUBLET PREMISES OR ANY PART THEREOF, OR PERMIT THE USE OF PREMISES BY ANY OTHER PARTY OTHER THAN TENANT. LANDLORD'S CONSENT TO ANY ASSIGNMENT, ENCUMBRANCE OR SUBLEASE SHALL NOT NULLIFY THIS PROVISION, AND ALL LATER ASSIGNMENTS, ENCUMBRANCES OR SUBLEASES SHALL BE MADE LIKEWISE ONLY ON THE PRIOR WRITTEN CONSENT OF LANDLORD. ASSIGNEE OF TENANT, AT OPTION OF LANDLORD, SHALL BECOME DIRECTLY LIABLE TO LANDLORD FOR ALL OBLIGATIONS OF TENANT HEREUNDER, BUT NO SUBLEASE OR ASSIGNMENT BY TENANT SHALL RELIEVE TENANT OF ANY LIABILITY HEREUNDER. REMOVAL OF FIXTURES AND PROPERTY 14. TENANT MAY (IF NOT IN DEFAULT HEREUNDER) PRIOR TO THE EXPIRATION OF THIS LEASE, 4 OR ANY EXTENSION THEREOF, REMOVE ALL PERSONAL PROPERTY, FIXTURES AND EQUIPMENT WHICH TENANT HAS PLACED IN PREMISES, PROVIDED TENANT SIMULTANEOUSLY REPAIRS ALL DAMAGE TO PREMISES CAUSED BY SUCH REMOVAL. IF TENANT IS AT THE TIME OF ANY TERMINATION OF THIS LEASE IN DEFAULT UNDER ANY TERM OR CONDITION HEREOF, TENANT SHALL NOT BE ENTITLED TO REMOVE ANY OF SUCH PERSONAL PROPERTY, FIXTURES OR EQUIPMENT AND LANDLORD SHALL HAVE ALL RIGHTS THEREIN AS ARE THEN AVAILABLE TO LANDLORD BY LAW. CANCELLATION OF LEASE BY LANDLORD 15. IT IS MUTUALLY AGREED THAT, IN THE EVENT TENANT SHALL DEFAULT IN THE PAYMENT OF RENT HEREIN RESERVED, WHEN DUE, AND FAILS TO CURE SAID DEFAULT WITHIN (5) DAYS AFTER THE GIVING OF WRITTEN NOTICE THEREOF BY LANDLORD; OR IF TENANT SHALL BE IN DEFAULT IN PERFORMING ANY OF THE TERMS OR PROVISIONS OF THIS LEASE OTHER THAN THE PROVISIONS REQUIRING THE PAYMENT OF RENT, AND FAILS TO CURE SUCH DEFAULT WITHIN THIRTY (30) DAYS AFTER THE DATE OF WRITTEN NOTICE OF DEFAULT FROM LANDLORD; OR IF TENANT IS ADJUDICATED BANKRUPT; OR IF A PERMANENT RECEIVER IS APPOINTED FOR TENANT'S PROPERTY AND SUCH RECEIVER IS NOT REMOVED WITHIN SIXTY (60) DAYS AFTER WRITTEN NOTICE FROM LANDLORD TO TENANT TO OBTAIN SUCH REMOVAL; OR IF, WHETHER VOLUNTARILY OR INVOLUNTARILY, TENANT TAKES ADVANTAGE OF ANY DEBTOR RELIEF PROCEEDINGS UNDER ANY PRESENT OR FUTURE LAW, WHEREBY THE RENT OR ANY PART THEREOF, OR IS PROPOSED TO BE, REDUCED OR PAYMENT THEREOF DEFERRED; OR IF TENANT MAKES AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS; OR IF TENANT'S EFFECTS SHALL BE LEVIED UPON OR ATTACHED UNDER PROCESS AGAINST TENANT, NOT SATISFIED OR DISSOLVED WITHIN THIRTY (30) DAYS AFTER WRITTEN NOTICE FROM LANDLORD TO TENANT TO OBTAIN SATISFACTION THEREOF; THEN, AND IN ANY OF SAID EVENTS, LANDLORD AT ITS OPTIONS MAY AT ONCE, OR WITHIN SIX (6) MONTHS THEREAFTER (BUT ONLY DURING THE CONTINUANCE OF SUCH DEFAULT OR CONDITION), TERMINATE THIS LEASE BY WRITTEN NOTICE TO TENANT; WHEREUPON THIS LEASE SHALL END. AFTER AN AUTHORIZED ASSIGNMENT OR SUBLEASE OF THE ENTIRE PREMISES COVERED BY THIS LEASE, THE OCCURRING OF ANY OF THE FOREGOING 5 DEFAULTS OR EVENTS SHALL AFFECT THIS LEASE ONLY IF CAUSED BY, OR HAPPENING TO, SUCH ASSIGNEE OR SUBLESSEE. ANY NOTICE PROVIDED IN THIS PARAGRAPH 16 MAY BE GIVEN BY LANDLORD OR ITS ATTORNEY. UPON SUCH TERMINATION BY LANDLORD, TENANT WILL AT ONCE SURRENDER POSSESSION OF PREMISES TO LANDLORD AND REMOVE THEREFROM ALL OF TENANT'S EFFECTS IN WHICH LANDLORD CLAIMS NO INTEREST UNDER PARAGRAPH 15 OF THIS LEASE: AND LANDLORD SHALL HAVE THE RIGHT FORTHWITH TO RE-ENTER PREMISES AND REPOSSESS ITSELF THEREOF, AND REMOVE ALL PERSONS AND EFFECTS THEREFROM, USING SUCH FORCE AS MAY BE NECESSARY WITHOUT BEING GUILTY OF TRESPASS, FORCIBLE ENTRY OR DETAINER OR OTHER TORT. RELETTING BY LANDLORD 16. LANDLORD SHALL HAVE THE RIGHT AT LANDLORD'S OPTION WITHOUT TERMINATING THIS LEASE, UPON TENANT'S BREACHING THIS CONTRACT, TO ENTER UPON AND, AS TENANT'S AGENT, RENT PREMISES AT THE BEST PRICE OBTAINABLE BY REASONABLE EFFORT, WITHOUT ADVERTISEMENT AND BY PRIVATE NEGOTIATIONS AND FOR ANY TERM LANDLORD DEEMS PROPER. TENANT SHALL BE LIABLE TO LANDLORD FOR THE DEFICIENCY, IF ANY, BETWEEN THE TENANT'S RENT HEREUNDER AND THE PRICE OBTAINED BY THE LANDLORD ON RELETTING. EXTERIOR SIGNS 17. TENANT SHALL PLACE NO SIGNS UPON THE OUTSIDE WALLS OR ROOF OF PREMISES EXCEPT WITH THE WRITTEN CONSENT OF LANDLORD. ANY AND ALL SIGNS PLACED ON THE WITHIN LEASED PREMISES BY TENANT SHALL BE MAINTAINED IN COMPLIANCE WITH ALL GOVERNMENTAL ORDINANCES, RULES, AND REGULATIONS GOVERNING SUCH SIGNS, AND TENANT SHALL BE RESPONSIBLE TO LANDLORD FOR ANY DAMAGE CAUSED BY INSTALLATION, USE OR MAINTENANCE OF SAID SIGNS OR VIOLATION OF ORDINANCE, RULE OR REGULATION WITH REGARD THERETO. UPON ANY REMOVAL OF SAID SIGNS TENANT SHALL SIMULTANEOUSLY REPAIR ALL DAMAGE INCIDENT TO SUCH REMOVAL. INTERRUPTION OF SERVICES OR OF OCCUPANCY 18. INTERRUPTION OR CURTAILMENT OF ANY SERVICE TO THE PREMISES, SUCH AS (BUT NOT 6 LIMITED TO) UTILITIES, IF CAUSED BY STRIKES, MECHANICAL DIFFICULTIES OR OTHER CAUSES BEYOND THE LANDLORD'S CONTROL WILL NOT ENTITLE TENANT TO ANY CLAIM AGAINST LANDLORD OR ANY ABATEMENT IN RENT, NOR WILL IT CONSTITUTE CONSTRUCTIVE OR PARTIAL EVICTION, UNLESS LANDLORD FAILS TO TAKE MEASURES THAT ARE REASONABLE IN THE CIRCUMSTANCES TO RESTORE THE SERVICE WITHOUT UNDUE DELAY. IT IS UNDERSTOOD THAT ANY PRE-EXISTING ENVIRONMENTAL CONDITION IS NOT THE RESPONSIBILITY OF THE TENANT. IT IS ASSUMED THAT NO SUCH CONDITION EXISTS. CONSTRUCTIVE EVICTION 19. TENANT WILL NOT BE ENTITLED TO CLAIM A CONSTRUCTIVE EVICTION FROM PREMISES UNLESS TENANT WILL HAVE FIRST NOTIFIED LANDLORD IN WRITING OF THE CONDITION GIVING RISE TO THE CLAIM AND, IF THE COMPLAINTS ARE JUSTIFIED, UNLESS LANDLORD FAILS TO REMEDY THE CONDITION WITHIN A REASONABLE TIME AFTER RECEIPT OF THE NOTICE. ENTRY FOR CARDING 20. LANDLORD MAY CARD PREMISES "FOR RENT" OR "FOR SALE" THIRTY (30) DAYS BEFORE THE TERMINATION OF THIS LEASE. LANDLORD SHALL HAVE THE RIGHT TO ENTER PREMISES, AFTER CONFIDENTIALITY AGREEMENT IS MADE BETWEEN LANDLORD AND TENANT, AT REASONABLE HOURS TO EXHIBIT SAME TO PROSPECTIVE PURCHASERS OR TENANTS AND TO MAKE REPAIRS REQUIRED OF LANDLORD UNDER THE TERMS HEREOF OR TO MAKE REPAIRS TO LANDLORD'S ADJOINING PROPERTY, IF ANY. EFFECT OF TERMINATION OF LEASE 21. NO TERMINATION OF THIS LEASE PRIOR TO THE NORMAL ENDING THEREOF, BY LAPSE OF TIME OR OTHERWISE, SHALL AFFECT LANDLORD'S RIGHT TO COLLECT RENT FOR THE PERIOD PRIOR TO TERMINATION THEREOF. MORTGAGEE'S RIGHTS 22. TENANT'S RIGHTS SHALL BE SUBJECT TO ANY BONA FIDE MORTGAGE OR DEED TO SECURE DEBT WHICH IS NOW, OR MAY HEREAFTER BE, PLACED UPON THE PROPERTY OF WHICH PREMISES 7 CONSTITUTE A PART. NO ESTATE IN LAND 23. THIS LEASE SHALL CREATE THE RELATIONSHIP OF LANDLORD AND TENANT BETWEEN THE PARTIES HERETO; NO ESTATE SHALL PASS OUT OF LANDLORD. TENANT HAS ONLY A USUFRUCT, NOT SUBJECT TO LEVY AND SALE, AND NOT ASSIGNABLE BY TENANT EXCEPT BY LANDLORD'S CONSENT. NEITHER LANDLORD NOR TENANT SHALL CAUSE THIS LEASE TO BE RECORDED WITHOUT PRIOR WRITTEN CONSENT OF THE OTHER PARTY TO SUCH RECORDING. HOLDING OVER 24. IF TENANT REMAINS IN POSSESSION OF PREMISES AFTER EXPIRATION OF THE TERM HEREOF, WITH LANDLORD'S ACQUIESCENCE AND WITHOUT ANY EXPRESS AGREEMENT OF PARTIES, TENANT SHALL BE A TENANT AT WILL AT TWO TIMES THE RENTAL RATE IN EFFECT AT END OF LEASE; AND THERE SHALL BE NO RENEWAL OF THIS LEASE BY OPERATION OF LAW. ATTORNEY'S FEES AND HOMESTEAD 25. IF ANY RENT OWING UNDER THIS LEASE IS COLLECTED BY OR THROUGH AN ATTORNEY AT LAW, TENANT AGREES TO PAY THE FULL AMOUNT OF SUCH REASONABLE ATTORNEY'S FEES AS LANDLORD INCURS IN SUCH COLLECTION. TENANT WAIVES ALL HOMESTEAD RIGHTS AND EXEMPTIONS WHICH TENANT MAY HAVE UNDER ANY LAW AS AGAINST ANY OBLIGATION OWING UNDER THIS LEASE. TENANT HEREBY ASSIGNS TO LANDLORD TENANT'S HOMESTEAD AND EXEMPTION. SERVICE OF NOTICE 26. TENANT HEREBY APPOINTS AS TENANT'S AGENT TO RECEIVE SERVICE OF ALL DISPOSSESSORY OR OTHER LEGAL PROCEEDINGS AND NOTICES THEREUNDER, AND ALL NOTICES REQUIRED UNDER THIS LEASE, THE PERSON IN CHARGE OF PREMISES OR OCCUPYING PREMISES AT THE TIME OF DELIVERY OR SERVICE OF SUCH NOTICE; AND IF NO PERSON IS IN CHARGE OF OR OCCUPYING PREMISES AT SUCH TIME, THEN SUCH SERVICE OR NOTICE MAY BE MADE BY ATTACHING THE SAME ON THE MAIN ENTRANCE TO PREMISES. A COPY OF ALL NOTICES UNDER THIS LEASE SHALL 8 ALSO BE SENT TO TENANT'S ADDRESS: AMERICAN WEAVERS, L.L.C. ATTENTION: MR. SCOTT FLETCHER, 965 NORTH WALL STREET, CALHOUN, GA 30701. ALL NOTICES GIVEN HEREUNDER BY TENANT TO LANDLORD SHALL BE SENT TO LANDLORD IN CARE OF LANDLORD AT LANDLORD'S ADDRESS SET FORTH HEREINAFTER IN THIS LEASE, UNLESS IT HAS OTHERWISE NOTIFIED TENANT OF ANOTHER ADDRESS FOR LANDLORD. MISCELLANEOUS 27. ALL RIGHTS, POWERS AND PRIVILEGES CONFERRED HEREUNDER UPON PARTIES HERETO SHALL BE CUMULATIVE BUT NOT RESTRICTIVE TO THOSE GIVEN BY LAW. NO FAILURE OF LANDLORD TO EXERCISE ANY POWER GIVEN LANDLORD HEREUNDER, OR TO INSIST UPON STRICT COMPLIANCE BY TENANT WITH HIS OBLIGATION HEREUNDER, AND NO CUSTOM OR PRACTICE OF COMPLIANCE BY TENANT WITH HIS OBLIGATION HEREUNDER, AND NO CUSTOM OR PRACTICE OF THE PARTIES AT VARIANCE WITH THE TERMS HEREOF SHALL CONSTITUTE A WAIVER OF LANDLORD'S RIGHT TO DEMAND EXACT COMPLIANCE WITH THE TERMS HEREOF. "LANDLORD" AS USED IN THIS LEASE SHALL INCLUDE LANDLORD, HIS OR ITS HEIRS, EXECUTORS, ADMINISTRATORS, LEGAL REPRESENTATIVE, ASSIGNS AND SUCCESSORS IN TITLE TO PREMISES. "TENANT" SHALL INCLUDE TENANT, HIS OR ITS HEIRS, EXECUTORS, ADMINISTRATORS, LEGAL REPRESENTATIVES, AND, IF THIS LEASE SHALL BE VALIDLY ASSIGNED OR SUBLET, SHALL ALSO INCLUDE TENANT'S ASSIGNEES OR SUBLEASES, AS TO PREMISES COVERED BY SUCH ASSIGNMENT OR SUBLEASE. "LANDLORD", AND "TENANT" SHALL INCLUDE MALE AND FEMALE, SINGULAR AND PLURAL, CORPORATION, PARTNERSHIP OR INDIVIDUAL, AS MAY FIT THE PARTICULAR PARTIES. TIME IS OF THE ESSENCE OF THIS LEASE OPTION TO RENEW 28. TENANT IS GIVEN AN OPTION TO EXTEND THE TERM OF THIS LEASE BY A PERIOD OF THREE (3) YEARS. TENANT MAY EXERCISE THIS OPTION AT ANY TIME BY NOTICE IN WRITING TO LANDLORD SERVED AT LEAST NINETY (90) DAYS PRIOR TO THE END OF THE INITIAL TERM, IF TENANT SHALL NOT BE IN DEFAULT. EXCEPT AS THE TERMS MAY NOT BE RELEVANT OR APPLICABLE, ALL THE TERMS AND CONDITIONS OF THE LEASE SHALL APPLY FOR THE EXTENDED PERIOD, EXCLUDING THE MONTHLY 9 RENTAL WHICH SHALL REMAIN AT $10,809.00 OR $.20 PER SQUARE FOOT OF RENTED SPACE AFTER THE FIVE YEAR TERM, OPTION TO RENEW WILL BE GRANTED PERPETUALLY IN THREE YEAR INCREMENTS WITH THE RENTAL RATE BEING INCREASED AT EACH RENEWAL BASED ON THE ACCUMLATIVE YEARLY INFLATION RATE AS DETERMINED BY THE STATE OF GEORGIA DEPARTMENT OF COMMERCE. THIS RATE SHALL BE FROM THE INITIAL TERM OF THE LEASE. TENANT'S OBLIGATION TO INSURE: ALL-INCLUSIVE FORM 29. DURING THE TERM OF THIS LEASE, TENANT, AT ITS SOLE COST AND EXPENSE, AND FOR THE MUTUAL BENEFIT OF LANDLORD AND TENANT, SHALL CARRY AND MAINTAIN THE FOLLOWING TYPES OF INSURANCE IN THE AMOUNTS SPECIFIED: COMPREHENSIVE PUBLIC LIABILITY INSURANCE, INCLUDING PROPERTY DAMAGE, INSURING LANDLORD AND TENANT AGAINST LIABILITY FOR INJURY TO PERSONS OR PROPERTY OCCURRING IN OR ABOUT THE LEASED PREMISES OR ARISING OUT OF THE OWNERSHIP, MAINTENANCE, USE, OR OCCUPANCY THEREOF. THE LIABILITY UNDER SUCH INSURANCE SHALL NOT BE LESS THAN $1,000,000.00 FOR ANY ONE PERSON INJURED OR KILLED AND NOT LESS THAN $5,000,000.00 FOR ANY ONE ACCIDENT AND NOT LESS THAN $1,000,000.00 FOR PERSONAL PROPERTY DAMAGE PER ACCIDENT. WRITTEN PROOF OF THIS INSURANCE COVERAGE SHALL BE REQUIRED BY ECHOTA PROPERTIES, L.L.C. DURING THE TERM OF THIS LEASE. 10 ENTIRE AGREEMENT 30. THIS LEASE CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND NO REPRESENTATIONS, INDUCEMENTS, PROMISES, OR AGREEMENTS, ORAL OR OTHERWISE, BETWEEN THE PARTIES, NOT EMBODIED HEREIN, SHALL BE OF ANY FORCE OR EFFECT. IN WITNESS WHEREOF, THE PARTIES HEREIN HAVE HEREUNTO SET THEIR HANDS AND SEALS OR CAUSED THIS INSTRUMENT TO BE EXECUTED THROUGH AUTHORIZED OFFICIALS IN THEIR NAME, IN TRIPLICATE, THE DAY AND YEAR FIRST ABOVE WRITTEN. SIGNED, SEALED AND DELIVERED LANDLORD: IN THE PRESENCE OF: STEPHEN FOX, RANDALL FOX, RAYMOND KING D/B/A ECHOTA PROPERTIES, L.L.C. /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE] - ---------------------------- ----------------------------(SEAL) UNOFFICIAL WITNESS /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE] - ---------------------------- ----------------------------(SEAL) NOTARY PUBLIC GA STATE AT LARGE MY COMMISSION EXPIRES 4/30/98 ADDRESS: P.O Box 2409 ------------------------ Calhoun, GA. 30703 -------------------------------- SIGNED, SEALED AND DELIVERED TENANT: IN THE PRESENCE OF: AMERICAN WEAVERS, L.L.C. PRESIDENT /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE] - ---------------------------- ----------------------------(SEAL) UNOFFICIAL WITNESS /s/ [SIGNATURE ILLEGIBLE] ___________________________(SEAL) - ---------------------------- NOTARY PUBLIC GA. STATE AT LARGE MY COMMISSION EXPIRES 4/30/98 ADDRESS 965 North Wall St. ------------------- Calhoun, GA 30701 --------------------------- 11 MR. SCOTT FLETCHER 1-14-95 AMERICAN WEAVERS 903 NORTH WALL STREET CALHOUN, GEORGIA EXHIBIT "C" PERMITS: ALL PERMITS ARE INCLUDED GRADING AND SITEWORK: INCLUDED FOOTINGS: INCLUDED CONCRETE APRONS: EXISTING RETAINING WALLS: EXISTING PRE-ENGINEERED BUILDING: THE AGREED UPON RENTED SPACE THE STEEL BUILDING DIMENSIONS WILL BE 220 60/61FT. WIDE BY 435/380 FT. LONG WITH AN EAVELINE HEIGHT OF 22 FT. THE BUILDING WILL BE A TAPERED COLUMN TYPE BUILDING WITH A MAXIMUM OF TWO INTERIOR PIPE COLUMNS PER FRAME. THE BUILDING WILL HAVE 60 FT. SPANS RUNNING THE WIDTH OF THE BUILDING. LENGTHWISE, THE BUILDING SHALL HAVE 25 FT. BAYS. THE ROOF SLOPE WILL BE 1:12". THE BUILDING IS DESIGNED TO CARRY AN 80 MPH WIND AND A 20 PSF LIVE LOAD WITH AN ADDITIONAL 3 PSF AUXILIARY LOAD SYSTEM AND MISCELLANEOUS LOAD. THE TOTAL RENTED SPACE SHALL BE 54,043 SQUARE FEET. CANOPY: ONE (1)5' X 50' AT THE ENDWALL DOCK DOORS. WALLS OF SAID BUILDING SHALL BE SHEETED WITH 26 GAUGE ARCHITECTURAL WALL PANELS. ROOF OF SAID BUILDING SHALL BE 26 GAUGE GALVALUME. WALLS SHALL HAVE BAKED ON PAINT. THE SOUTH ENDWALL AND 75 FT. OF ADJACENT SIDEWALL SHALL HAVE BRICK TO MATCH THE EXISTING OFFICE APPROXIMATELY 12 FT. IN HEIGHT. AMERICAN WEAVERS PAGE 2 FURNISH AND INSTALL 225 FEET OF NEW VALLEY GUTTER INCLUDING DOWNSPOUTS AND DRAINAGE SYSTEM. FURNISH AND INSTALL FRENCH DRAINAGE SYSTEM AS PER WEMMER DRAWING #9415. FURNISH AND INSTALL A LOADING DOCK DRAINAGE SYSTEM AS PER WEMMER DRAWING #9415. FURNISH AND INSTALL TWO (2) 3' X 7' STEEL WALK DOORS AT THE SPECIFIED LOCATIONS. THIS INCLUDES FRAMES, MORTISE LOCKSETS, DOORS AND THRESHOLDS. ROOF AND WALLS SHALL BE INSULATED WITH VINYL FACE METAL BUILDING INSULATION. ROLL-UP DOORS: 4 EACH 8' X 10' STEEL ROLLING DOORS 4 EACH EDGE OF DOCK LEVELERS 4 EACH DOCK SEALS 1 EACH 12 FT. X 14 FT. STEEL ROLLING DOOR PAINTING: INTERIOR STRUCTURAL STEEL SHALL HAVE ONE FACTORY APPLIED COAT OF RED OXIDE PAINT AND ONE FIELD COAT OF SHERWIN WILLIAMS DTM. INTERIOR CONCRETE WALLS SHALL HAVE ONE PRIMER COAT AND ONE FINISH COAT OF LATEX SEMI-GLOSS ENAMEL. AMERICAN WEAVERS PAGE 3 ELECTRICAL: 1 EACH 2000 AMPERE, MAIN CIRCUIT BREAKER, 277/480 VOLT SWITCHBOARD WITH THE FOLLOWING DEVICES: 2 EACH 400 AMPERE CIRCUIT BREAKERS 5 EACH 200 AMPERE CIRCUIT BREAKERS 1 EACH 800 AMPERE CIRCUIT BREAKERS 1 EACH 200 AMPERE MAIN LUG ONLY PANELBOARD, 277/480 VOLT WITH 20 EACH 20/1 CIRCUIT BREAKERS AND 1 EACH 70/1 CIRCUIT BREAKER 1 EACH 45 KVA TRANSFORMER 1 EACH 150 AMPERE, MAIN CIRCUIT BREAKER, 120/208 VOLT PANELBOARD 72 EACH 400 WATT METAL HALIDE HIGH BAY LIGHTING FIXTURES 2 EACH 8 FT. HIGH OUTPUT FLUORESCENT LIGHTING FIXTURES (OVER THE DOCKS) 12 EACH TWIN HEAD 6 VOLT EMERGENCY LIGHT PACKS WITH 90 MINUTE BATTERY PACK 2 EACH LIGHTED EXIT SIGNS WITH 90 MINUTE BATTERY PACK 10 EACH DUPLEX RECEPTACLES (RANDOMLY SPACED ABOUT THE BLDG) ***NOTE: 1. ALL RACEWAY WILL BE E.M.T. 2. ALL CONDUCTOR WILL BE COPPER 3. NO FEEDERS OF WIRING OF MACHINES IS INCLUDED 4. NO HVAC WIRING IS INCLUDED AMERICAN WEAVERS PAGE 4 SPRINKLER SYSTEM: FURNISH AND INSTALL A SPRINKLER SYSTEM. SPRINKLER SYSTEM SHALL MEET INSURANCE SPECIFICATIONS. SPRINKLER SYSTEM SPECIFICATIONS ARE ATTACHED. HEATING, VENTILATION AND AIR CONDITIONING: 4 EACH 300,000 BTU GAS UNIT HEATERS VENTED AS PER CODE EX-10.16 11 LEASE AGREEMENT EXHIBIT 10.16 STATE OF GEORGIA COUNTY OF GORDON COMMERCIAL LEASE THIS LEASE, MADE THIS 23RD DAY OF MAY, 1996, BY AND BETWEEN ECHOTA PROPERTIES, L.L.C. (HEREINAFTER REFERRED TO AS "LANDLORD"); AND AMERICAN WEAVERS, L.L.C. (HEREINAFTER REFERRED TO AS "TENANT"); WITNESSETH: A FIVE (5) YEAR LEASE AGREEMENT BETWEEN ECHOTA PROPERTIES, L.L.C. (LANDLORD) AND AMERICAN WEAVERS, L.L.C. (TENANT). THIS AGREEMENT ALSO INCLUDES AN OPTION TO RENEW. PREMISES 1. THAT LANDLORD, FOR AND IN CONSIDERATION OF THE RENTS, COVENANTS, AGREEMENTS, AND STIPULATIONS HEREINAFTER MENTIONED, RESERVED, AND CONTAINED, TO BE PAID, KEPT AND PERFORMED BY TENANT, HAS LEASED AND RENTED, AND BY THESE PRESENTS DOES LEASE AND RENT, UNTO TENANT, AND TENANT HEREBY LEASES AND TAKES UPON THE TERMS AND CONDITIONS WHICH HEREINAFTER APPEAR, THE FOLLOWING DESCRIBED PROPERTY (HEREINAFTER CALLED "PREMISES"), TO WIT: THAT TRACT OR PARCEL OF LAND LYING, BEING AND SITUATED IN LAND LOTS 168 AND 169 IN THE 14TH DISTRICT AND 3RD SECTION OF GORDON COUNTY, GEORGIA, AND BEING A PORTION OF 2.85 ACRES MORE OR LESS, THEREOF AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BUILDING SIZE IS 63,648 SQUARE FEET X 22 FT. FOR MANUFACTURING AND WAREHOUSING AREA. RETAINING APRON BEING DESCRIBED ON THE ATTACHED EXHIBIT "D". 2. TENANT SHALL HAVE AND HOLD PREMISES FOR A TERM BEGINNING ON THE 1ST DAY OF SEPTEMBER, 1996, AND ENDING ON THE 31ST DAY OF AUGUST, 2001. AT MIDNIGHT UNLESS SOONER TERMINATED OR EXTENDED AS HEREINAFTER SPECIFICALLY PROVIDED IN THIS LEASE. RENTAL 3. TENANT SHALL PAY LANDLORD AT THE ADDRESS OF LANDLORD SET FORTH HEREINAFTER 1 IN THIS LEASE OR OF WHICH TENANT SHALL FROM TIME TO TIME OTHERWISE BE NOTIFIED, PROMPTLY ON THE 1ST DAY OF EACH MONTH IN ADVANCE, DURING ALL TERMS OF THIS LEASE A MONTHLY RENTAL OF $ 12,729.00 (63,648 SQ. FT @ $.20 PER SQ. FT.) UTILITY BILLS 4. TENANT SHALL PAY ALL WATER, SEWER, SEWER SERVICE CHARGES, GAS, ELECTRICITY, FUEL, LIGHT, HEAT AND POWER BILLS FOR PREMISES OR USED BY TENANT IN CONNECTION THERE WITH, DURING ALL TERMS OF THIS LEASE. USE OF PREMISES 5. PREMISES SHALL NOT BE USED FOR ANY ILLEGAL PURPOSES; NOR IN ANY MANNER TO CREATE ANY NUISANCE OR TRESPASS; NOR IN ANY MANNER TO VITIATE THE INSURANCE OR INCREASE THE RATE OF INSURANCE ON PREMISES. ABANDONMENT OF PREMISES 6. TENANT SHALL NOT ABANDON OR VACATE PREMISES DURING ANY TERM OF THIS LEASE. REPAIRS BY LANDLORD 7. LANDLORD SHALL KEEP IN GOOD REPAIR THE ROOF, FOUNDATIONS AND EXTERIOR WALLS OF PREMISES, AND SEWER PIPES OUTSIDE THE EXTERIOR WALLS OF THE BUILDING IN WHICH PREMISES LOCATED, EXCEPT REPAIRS RENDERED NECESSARY BY THE NEGLIGENCE, WILLFUL ACT OR OMISSION OF TENANT, TENANT'S AGENTS, EMPLOYEES AND INVITES. LANDLORD HEREBY GIVES TENANT EXCLUSIVE CONTROL OF PREMISES AND SHALL BE UNDER NO OBLIGATION TO INSPECT PREMISES. TENANT SHALL PROMPTLY REPORT IN WRITING TO LANDLORD ANY DEFECTIVE CONDITION KNOWN TO TENANT WHICH LANDLORD IS REQUIRED TO REPAIR, AND FAILURE TO SO REPORT SUCH DEFECTS SHALL MAKE TENANT RESPONSIBLE TO LANDLORD FOR ANY LIABILITY INCURRED BY LANDLORD BY REASON OF SUCH DEFECTS. REPAIRS BY TENANT 8. TENANT ACCEPTS PREMISES IN ITS PRESENT CONDITION AND AS SUITED FOR THE USES INTENDED BY TENANT. TENANT SHALL, THROUGHOUT ALL TERMS OF THIS LEASE, AT TENANT'S 2 EXPENSE, MAINTAIN PREMISES IN GOOD ORDER AND REPAIR, EXCEPT THOSE REPAIRS EXPRESSLY REQUIRED IN PARAGRAPH 7 HEREOF, TO BE MADE BY LANDLORD. TENANT FURTHER AGREES TO CARE FOR AND CLEAN THE GROUNDS AROUNDING THE BUILDING, INCLUDING THE MOWING OF GRASS, CLEANING OF THE PAVED AREAS, AND GENERAL LANDSCAPING. TENANT SHALL RETURN PREMISES TO LANDLORD AT THE EXPIRATION, OR PRIOR TO TERMINATION, OF THE TERM OF THIS LEASE IN AS GOOD CONDITION AND REPAIR AS WHEN FIRST RECEIVED, NATURAL WEAR AND TEAR, DAMAGE BY STORM, FIRE, LIGHTNING, EARTHQUAKE OR OTHER CASUALTY ALONE EXCEPTED. DESTRUCTION OF OR DAMAGE TO PREMISES 9. IF PREMISES ARE TOTALLY DESTROYED BY STORM, FIRE, LIGHTNING, EARTHQUAKE OR OTHER CASUALTY, THIS LEASE SHALL TERMINATE AS OF THE DATE OF SUCH DESTRUCTION, AND RENTAL SHALL BE ACCOUNTED FOR AS BETWEEN LANDLORD AND TENANT AS OF THAT DATE. IF PREMISES ARE DAMAGED BUT NOT WHOLLY DESTROYED BY ANY OF SUCH CASUALTIES, THE TENANT AND LANDLORD RESERVE THE RIGHT TO CO-DETERMINE THE DEGREE OF DAMAGE OR LOSS TO THE FACILITY, AND SHOULD LANDLORD ELECT TO RESTORE THE PREMISES TO SUBSTANTIALLY THE SAME CONDITION AS BEFORE DAMAGE THEN FULL RENTAL SHALL RECOMMENCE UPON COMPLETION OF SAID RESTORATION. LANDLORD HAS ONE HUNDRED TWENTY (120) DAYS TO MAKE RESTORATIONS TO THE ORIGINAL CONDITION OR TENANT MAY HAVE THE OPTION TO TERMINATE THE LEASE AGREEMENT. INDEMNITY 10. TENANT AGREES TO AND HEREBY DOES, INDEMNIFY AND SAVE LANDLORD HARMLESS AGAINST ALL CLAIMS FOR DAMAGES TO PERSONS OR PROPERTY BY REASON OF TENANT'S USE OR OCCUPANCY OF PREMISES, AND ALL EXPENSES INCURRED BY THE LANDLORD AND MANAGER BECAUSE THEREOF, INCLUDING REASONABLE ATTORNEY'S FEES AND COURT COSTS. GOVERNMENTAL ORDERS 11. TENANT AGREES, AT TENANT'S OWN EXPENSE, TO PROMPTLY COMPLY WITH ALL REQUIREMENTS OF ANY LEGALLY CONSTITUTED PUBLIC AUTHORITY MADE NECESSARY BY REASON 3 OF TENANT'S OCCUPANCY OF PREMISES. CONDEMNATION 12. IF THE WHOLE OF PREMISES, OR SUCH PORTION THEREOF AS WILL MAKE PREMISES UNUSABLE FOR THE PURPOSES HEREIN LEASED, BE CONDEMNED BY ANY LEGALLY CONSTITUTED AUTHORITY FOR ANY PUBLIC USE OR PURPOSE, THEN IN EITHER OF SAID EVENTS THIS LEASE SHALL CEASE FROM THE TIME WHEN POSSESSION THEREOF IS TAKEN BY PUBLIC AUTHORITIES, AND RENTAL SHALL BE ACCOUNTED FOR AS BETWEEN LANDLORD AND TENANT AS OF THAT DATE. SUCH TERMINATION, HOWEVER, SHALL BE WITHOUT PREJUDICE TO THE RIGHTS OF EITHER LANDLORD OR TENANT TO RECOVER COMPENSATION AND DAMAGE CAUSED BY CONDEMNATION FROM THE CONDEMNOR IT IS UNDERSTOOD THAT CONDEMNATION BY A PRE-EXISTING CONDITION IS NOT THE RESPONSIBILITY OF THE TENANT. IT IS FURTHER UNDERSTOOD AND AGREED THAT NEITHER TENANT NOR LANDLORD SHALL HAVE ANY RIGHTS IN ANY AWARD MADE TO THE OTHER BY ANY CONDEMNATION AUTHORITY NOTWITHSTANDING THE TERMINATION OF THIS LEASE AS HEREIN PROVIDED. ASSIGNMENT AND SUBLETTING 13. TENANT SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LANDLORD ENDORSED HEREON, ASSIGN OR ENCUMBER THIS LEASE OR ANY INTEREST HEREUNDER, OR SUBLET PREMISES OR ANY PART THEREOF, OR PERMIT THE USE OF PREMISES BY ANY OTHER PARTY OTHER THAN TENANT. LANDLORD'S CONSENT TO ANY ASSIGNMENT, ENCUMBRANCE OR SUBLEASE SHALL NOT NULLIFY THIS PROVISION, AND ALL LATER ASSIGNMENTS, ENCUMBRANCES OR SUBLEASES SHALL BE MADE LIKEWISE ONLY ON THE PRIOR WRITTEN CONSENT OF LANDLORD. ASSIGNEE OF TENANT, AT OPTION OF LANDLORD, SHALL BECOME DIRECTLY LIABLE TO LANDLORD FOR ALL OBLIGATIONS OF TENANT HEREUNDER, BUT NO SUBLEASE OR ASSIGNMENT BY TENANT SHALL RELIEVE TENANT OF ANY LIABILITY HEREUNDER. REMOVAL OF FIXTURES AND PROPERTY 14. TENANT MAY (IF NOT IN DEFAULT HEREUNDER) PRIOR TO THE EXPIRATION OF THIS LEASE, 4 OR ANY EXTENSION THEREOF, REMOVE ALL PERSONAL PROPERTY, FIXTURES AND EQUIPMENT WHICH TENANT HAS PLACED IN PREMISES, PROVIDED TENANT SIMULTANEOUSLY REPAIRS ALL DAMAGE TO PREMISES CAUSED BY SUCH REMOVAL. IF TENANT IS AT THE TIME OF ANY TERMINATION OF THIS LEASE IN DEFAULT UNDER ANY TERM OR CONDITION HEREOF, TENANT SHALL NOT BE ENTITLED TO REMOVE ANY OF SUCH PERSONAL PROPERTY, FIXTURES OR EQUIPMENT AND LANDLORD SHALL HAVE ALL RIGHTS THEREIN AS ARE THEN AVAILABLE TO LANDLORD BY LAW. CANCELLATION OF LEASE BY LANDLORD 15. IT IS MUTUALLY AGREED THAT, IN THE EVENT TENANT SHALL DEFAULT IN THE PAYMENT OF RENT HEREIN RESERVED, WHEN DUE, AND FAILS TO CURE SAID DEFAULT WITHIN (5) DAYS AFTER THE GIVING OF WRITTEN NOTICE THEREOF BY LANDLORD; OR IF TENANT SHALL BE IN DEFAULT IN PERFORMING ANY OF THE TERMS OR PROVISIONS OF THIS LEASE OTHER THAN THE PROVISIONS REQUIRING THE PAYMENT OF RENT, AND FAILS TO CURE SUCH DEFAULT WITHIN THIRTY (30) DAYS AFTER THE DATE OF WRITTEN NOTICE OF DEFAULT FROM LANDLORD; OR IF TENANT IS ADJUDICATED BANKRUPT; OR IF A PERMANENT RECEIVER IS APPOINTED FOR TENANT'S PROPERTY AND SUCH RECEIVER IS NOT REMOVED WITHIN SIXTY (60) DAYS AFTER WRITTEN NOTICE FROM LANDLORD TO TENANT TO OBTAIN SUCH REMOVAL; OR IF, WHETHER VOLUNTARILY OR INVOLUNTARILY, TENANT TAKES ADVANTAGE OF ANY DEBTOR RELIEF PROCEEDINGS UNDER ANY PRESENT OR FUTURE LAW, WHEREBY THE RENT OR ANY PART THEREOF, OR IS PROPOSED TO BE, REDUCED OR PAYMENT THEREOF DEFERRED; OR IF TENANT MAKES AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS; OR IF TENANT'S EFFECTS SHALL BE LEVIED UPON OR ATTACHED UNDER PROCESS AGAINST TENANT, NOT SATISFIED OR DISSOLVED WITHIN THIRTY (30) DAYS AFTER WRITTEN NOTICE FROM LANDLORD TO TENANT TO OBTAIN SATISFACTION THEREOF; THEN, AND IN ANY OF SAID EVENTS, LANDLORD AT ITS OPTIONS MAY AT ONCE, OR WITHIN SIX (6) MONTHS THEREAFTER (BUT ONLY DURING THE CONTINUANCE OF SUCH DEFAULT OR CONDITION), TERMINATE THIS LEASE BY WRITTEN NOTICE TO TENANT; WHEREUPON THIS LEASE SHALL END. AFTER AN AUTHORIZED ASSIGNMENT OR SUBLEASE OF THE ENTIRE PREMISES COVERED BY THIS LEASE, THE OCCURRING OF ANY OF THE FOREGOING 5 DEFAULTS OR EVENTS SHALL AFFECT THIS LEASE ONLY IF CAUSED BY, OR HAPPENING TO, SUCH ASSIGNEE OR SUBLESSEE. ANY NOTICE PROVIDED IN THIS PARAGRAPH 16 MAY BE GIVEN BY LANDLORD OR ITS ATTORNEY. UPON SUCH TERMINATION BY LANDLORD, TENANT WILL AT ONCE SURRENDER POSSESSION OF PREMISES TO LANDLORD AND REMOVE THEREFROM ALL OF TENANT'S EFFECTS IN WHICH LANDLORD CLAIMS NO INTEREST UNDER PARAGRAPH 15 OF THIS LEASE; AND LANDLORD SHALL HAVE THE RIGHT FORTHWITH TO RE-ENTER PREMISES AND REPOSSESS ITSELF THEREOF, AND REMOVE ALL PERSONS AND EFFECTS THEREFROM, USING SUCH FORCE AS MAY BE NECESSARY WITHOUT BEING GUILTY OF TRESPASS, FORCIBLE ENTRY OR DETAINER OR OTHER TORT. RELETTING BY LANDLORD 16. LANDLORD SHALL HAVE THE RIGHT AT LANDLORD'S OPTION WITHOUT TERMINATING THIS LEASE, UPON TENANT'S BREACHING THIS CONTRACT, TO ENTER UPON AND, AS TENANT'S AGENT, RENT PREMISES AT THE BEST PRICE OBTAINABLE BY REASONABLE EFFORT, WITHOUT ADVERTISEMENT AND BY PRIVATE NEGOTIATIONS AND FOR ANY TERM LANDLORD DEEMS PROPER. TENANT SHALL BE LIABLE TO LANDLORD FOR THE DEFICIENCY, IF ANY, BETWEEN THE TENANT'S RENT HEREUNDER AND THE PRICE OBTAINED BY THE LANDLORD ON RELETTING. EXTERIOR SIGNS 17. TENANT SHALL PLACE NO SIGNS UPON THE OUTSIDE WALLS OR ROOF OF PREMISES EXCEPT WITH THE WRITTEN CONSENT OF LANDLORD. ANY AND ALL SIGNS PLACED ON THE WITHIN LEASED PREMISES BY TENANT SHALL BE MAINTAINED IN COMPLIANCE WITH ALL GOVERNMENTAL ORDINANCES, RULES, AND REGULATIONS GOVERNING SUCH SIGNS, AND TENANT SHALL BE RESPONSIBLE TO LANDLORD FOR ANY DAMAGE CAUSED BY INSTALLATION, USE OR MAINTENANCE OF SAID SIGNS OR VIOLATION OF ORDINANCE, RULE OR REGULATION WITH REGARD THERETO. UPON ANY REMOVAL OF SAID SIGNS TENANT SHALL SIMULTANEOUSLY REPAIR ALL DAMAGE INCIDENT TO SUCH REMOVAL. INTERRUPTION OF SERVICES OR OF OCCUPANCY 18. INTERRUPTION OR CURTAILMENT OF ANY SERVICE TO THE PREMISES, SUCH AS (BUT NOT 6 LIMITED TO) UTILITIES, IF CAUSED BY STRIKES, MECHANICAL DIFFICULTIES OR OTHER CAUSES BEYOND THE LANDLORD'S CONTROL WILL NOT ENTITLE TENANT TO ANY CLAIM AGAINST LANDLORD OR ANY ABATEMENT IN RENT, NOR WILL IT CONSTITUTE CONSTRUCTIVE OR PARTIAL EVICTION, UNLESS LANDLORD FAILS TO TAKE MEASURES THAT ARE REASONABLE IN THE CIRCUMSTANCES TO RESTORE THE SERVICE WITHOUT UNDUE DELAY. IT IS UNDERSTOOD THAT ANY PRE-EXISTING ENVIRONMENTAL CONDITION IS NOT THE RESPONSIBILITY OF THE TENANT. IT IS ASSUMED THAT NO SUCH CONDITION EXISTS. CONSTRUCTIVE EVICTION 19. TENANT WILL NOT BE ENTITLED TO CLAIM A CONSTRUCTIVE EVICTION FROM PREMISES UNLESS TENANT WILL HAVE FIRST NOTIFIED LANDLORD IN WRITING OF THE CONDITION GIVING RISE TO THE CLAIM AND, IF THE COMPLAINTS ARE JUSTIFIED, UNLESS LANDLORD FAILS TO REMEDY THE CONDITION WITHIN A REASONABLE TIME AFTER RECEIPT OF THE NOTICE. ENTRY FOR CARDING 20. LANDLORD MAY CARD PREMISES "FOR RENT" OR "FOR SALE" THIRTY (30) DAYS BEFORE THE TERMINATION OF THIS LEASE. LANDLORD SHALL HAVE THE RIGHT TO ENTER PREMISES, AFTER CONFIDENTIALITY AGREEMENT IS MADE BETWEEN LANDLORD AND TENANT, AT REASONABLE HOURS TO EXHIBIT SAME TO PROSPECTIVE PURCHASERS OR TENANTS AND TO MAKE REPAIRS REQUIRED OF LANDLORD UNDER THE TERMS HEREOF OR TO MAKE REPAIRS TO LANDLORD'S ADJOINING PROPERTY, IF ANY. EFFECT OF TERMINATION OF LEASE 21. NO TERMINATION OF THIS LEASE PRIOR TO THE NORMAL ENDING THEREOF, BY LAPSE OF TIME OR OTHERWISE, SHALL AFFECT LANDLORD'S RIGHT TO COLLECT RENT FOR THE PERIOD PRIOR TO TERMINATION THEREOF. MORTGAGEE'S RIGHTS 22. TENANT'S RIGHTS SHALL BE SUBJECT TO ANY BONA FIDE MORTGAGE OR DEED TO SECURE DEBT WHICH IS NOW, OR MAY HEREAFTER BE, PLACED UPON THE PROPERTY OF WHICH PREMISES 7 CONSTITUTE A PART. NO ESTATE IN LAND 23. THIS LEASE SHALL CREATE THE RELATIONSHIP OF LANDLORD AND TENANT BETWEEN THE PARTIES HERETO; NO ESTATE SHALL PASS OUT OF LANDLORD. TENANT HAS ONLY A USUFRUCT, NOT SUBJECT TO LEVY AND SALE, AND NOT ASSIGNABLE BY TENANT EXCEPT BY LANDLORD'S CONSENT. NEITHER LANDLORD NOR TENANT SHALL CAUSE THIS LEASE TO BE RECORDED WITHOUT PRIOR WRITTEN CONSENT OF THE OTHER PARTY TO SUCH RECORDING. HOLDING OVER 24. IF TENANT REMAINS IN POSSESSION OF PREMISES AFTER EXPIRATION OF THE TERM HEREOF, WITH LANDLORD'S ACQUIESCENCE AND WITHOUT ANY EXPRESS AGREEMENT OF PARTIES, TENANT SHALL BE A TENANT AT WILL AT TWO TIMES THE RENTAL RATE IN EFFECT AT END OF LEASE; AND THERE SHALL BE NO RENEWAL OF THIS LEASE BY OPERATION OF LAW. ATTORNEY'S FEES AND HOMESTEAD 25. IF ANY RENT OWING UNDER THIS LEASE IS COLLECTED BY OR THROUGH AN ATTORNEY AT LAW, TENANT AGREES TO PAY THE FULL AMOUNT OF SUCH REASONABLE ATTORNEY'S FEES AS LANDLORD INCURS IN SUCH COLLECTION. TENANT WAIVES ALL HOMESTEAD RIGHTS AND EXEMPTIONS WHICH TENANT MAY HAVE UNDER ANY LAW AS AGAINST ANY OBLIGATION OWING UNDER THIS LEASE. TENANT HEREBY ASSIGNS TO LANDLORD TENANT'S HOMESTEAD AND EXEMPTION. SERVICE OF NOTICE 26. TENANT HEREBY APPOINTS AS TENANT'S AGENT TO RECEIVE SERVICE OF ALL DISPOSSESSORY OR OTHER LEGAL PROCEEDINGS AND NOTICES THEREUNDER, AND ALL NOTICES REQUIRED UNDER THIS LEASE, THE PERSON IN CHARGE OF PREMISES OR OCCUPYING PREMISES AT THE TIME OF DELIVERY OR SERVICE OF SUCH NOTICE; AND IF NO PERSON IS IN CHARGE OF OR OCCUPYING PREMISES AT SUCH TIME, THEN SUCH SERVICE OR NOTICE MAY BE MADE BY ATTACHING THE SAME ON THE MAIN ENTRANCE TO PREMISES. A COPY OF ALL NOTICES UNDER THIS LEASE SHALL 8 ALSO BE SENT TO TENANT'S ADDRESS: AMERICAN WEAVERS, L.L.C. ATTENTION: MR. SCOTT FLETCHER, 965 NORTH WALL STREET, CALHOUN, GA 30701. ALL NOTICES GIVEN HEREUNDER BY TENANT TO LANDLORD SHALL BE SENT TO LANDLORD IN CARE OF LANDLORD AT LANDLORD'S ADDRESS SET FORTH HEREINAFTER IN THIS LEASE, UNLESS IT HAS OTHERWISE NOTIFIED TENANT OF ANOTHER ADDRESS FOR LANDLORD. MISCELLANEOUS 27. ALL RIGHTS, POWERS AND PRIVILEGES CONFERRED HEREUNDER UPON PARTIES HERETO SHALL BE CUMULATIVE BUT NOT RESTRICTIVE TO THOSE GIVEN BY LAW. NO FAILURE OF LANDLORD TO EXERCISE ANY POWER GIVEN LANDLORD HEREUNDER, OR TO INSIST UPON STRICT COMPLIANCE BY TENANT WITH HIS OBLIGATION HEREUNDER, AND NO CUSTOM OR PRACTICE OF COMPLIANCE BY TENANT WITH HIS OBLIGATION HEREUNDER, AND NO CUSTOM OR PRACTICE OF THE PARTIES AT VARIANCE WITH THE TERMS HEREOF SHALL CONSTITUTE A WAIVER OF LANDLORD'S RIGHT TO DEMAND EXACT COMPLIANCE WITH THE TERMS HEREOF. "LANDLORD" AS USED IN THIS LEASE SHALL INCLUDE LANDLORD, HIS OR ITS HEIRS, EXECUTORS, ADMINISTRATORS, LEGAL REPRESENTATIVE, ASSIGNS AND SUCCESSORS IN TITLE TO PREMISES. "TENANT" SHALL INCLUDE TENANT, HIS OR ITS HEIRS, EXECUTORS, ADMINISTRATORS, LEGAL REPRESENTATIVES, AND, IF THIS LEASE SHALL BE VALIDLY ASSIGNED OR SUBLET, SHALL ALSO INCLUDE TENANT'S ASSIGNEES OR SUBLEASES, AS TO PREMISES COVERED BY SUCH ASSIGNMENT OR SUBLEASE. "LANDLORD", AND "TENANT" SHALL INCLUDE MALE AND FEMALE, SINGULAR AND PLURAL, CORPORATION, PARTNERSHIP OR INDIVIDUAL, AS MAY FIT THE PARTICULAR PARTIES. TIME IS OF THE ESSENCE OF THIS LEASE OPTION TO RENEW 28. TENANT IS GIVEN AN OPTION TO EXTEND THE TERM OF THIS LEASE BY A PERIOD OF THREE (3) YEARS. TENANT MAY EXERCISE THIS OPTION AT ANY TIME BY NOTICE IN WRITING TO LANDLORD SERVED AT LEAST NINETY (90) DAYS PRIOR TO THE END OF THE INITIAL TERM, IF TENANT SHALL NOT BE IN DEFAULT. EXCEPT AS THE TERMS MAY NOT BE RELEVANT OR APPLICABLE, ALL THE TERMS AND CONDITIONS OF THE LEASE SHALL APPLY FOR THE EXTENDED PERIOD, EXCLUDING THE MONTHLY 9 RENTAL WHICH SHALL REMAIN AT $12,729.00 OR $.20 PER SQUARE FOOT OF RENTED SPACE AFTER THE EIGHT YEAR TERM, OPTION TO RENEW WILL BE GRANTED PERPETUALLY IN THREE YEAR INCREMENTS WITH THE RENTAL RATE BEING INCREASED AT EACH RENEWAL BASED ON THE ACCUMULATIVE YEARLY INFLATION RATE AS DETERMINED BY THE STATE OF GEORGIA DEPARTMENT OF COMMERCE. THIS RATE SHALL BE FROM THE INITIAL TERM OF THE LEASE. TENANT'S OBLIGATION TO INSURE: ALL-INCLUSIVE FORM 29. DURING THE TERM OF THIS LEASE, TENANT, AT ITS SOLE COST AND EXPENSE, AND FOR THE MUTUAL BENEFIT OF LANDLORD AND TENANT, SHALL CARRY AND MAINTAIN THE FOLLOWING TYPES OF INSURANCE IN THE AMOUNTS SPECIFIED: COMPREHENSIVE PUBLIC LIABILITY INSURANCE, INCLUDING PROPERTY DAMAGE, INSURING LANDLORD AND TENANT AGAINST LIABILITY FOR INJURY TO PERSONS OR PROPERTY OCCURRING IN OR ABOUT THE LEASED PREMISES OR ARISING OUT OF THE OWNERSHIP, MAINTENANCE, USE, OR OCCUPANCY THEREOF. THE LIABILITY UNDER SUCH INSURANCE SHALL NOT BE LESS THAN $1,000,000.00 FOR ANY ONE PERSON INJURED OR KILLED AND NOT LESS THAN $5,000,000.00 FOR ANY ONE ACCIDENT AND NOT LESS THAN $1,000,000.00 FOR PERSONAL PROPERTY DAMAGE PER ACCIDENT. WRITTEN PROOF OF THIS INSURANCE COVERAGE SHALL BE REQUIRED BY ECHOTA PROPERTIES, L.L.C. DURING THE TERM OF THIS LEASE. 10 ENTIRE AGREEMENT 30. THIS LEASE CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND NO REPRESENTATIONS, INDUCEMENTS, PROMISES, OR AGREEMENTS, ORAL OR OTHERWISE, BETWEEN THE PARTIES, NOT EMBODIED HEREIN, SHALL BE OF ANY FORCE OR EFFECT. IN WITNESS WHEREOF, THE PARTIES HEREIN HAVE HEREUNTO SET THEIR HANDS AND SEALS OR CAUSED THIS INSTRUMENT TO BE EXECUTED THIROUGH AUTHORIZED OFFICIALS IN THEIR NAME, IN TRIPLICATE, THE DAY AND YEAR FIRST ABOVE WRITTEN. SIGNED, SEALED AND DELIVERED LANDLORD: IN THE PRESENCE OF: STEPHEN FOX, RANDALL FOX, RAYMOND KING D/B/A ECHOTA PROPERTIES, L.L.C. /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE] (SEAL) - --------------------------- --------------------------- UNOFFICIAL WITNESS /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE] (SEAL) - --------------------------- --------------------------- NOTARY PUBLIC G.A STATE AT LARGE MY COMMISSION EXPIRES 4/30/98 ADDRESS: P.O Box 2409 ------- ------------------- Calhoun, GA 30703 --------------------------- SIGNED, SEALED AND DELIVERED TENANT: IN THE PRESENCE OF: AMERICAN WEAVERS, L.L.C. PRESIDENT /s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE] (SEAL) - --------------------------- --------------------------- UNOFFICIAL WITNESS /s/ [SIGNATURE ILLEGIBLE] ___________________________ (SEAL) - --------------------------- NOTARY PUBLIC GA. STATE AT LARGE MY COMMISSION EXPIRES 4/30/98 ADDRESS: 965 [ILLEGIBLE] Wall St. -------- ------------------------ Calhoun, GA 30701 -------------------------------- 11 ECHOTA PROPERTIES, L.L.C. 5/22/96 CALHOUN, GEORGIA PERMITS: BUILDING PERMIT AND EXCAVATION PERMIT IS INCLUDED. TAP FEES: NOT REQUIRED GRADING AND SITEWORK: BRING THE BUILDING SITE TO THE PROPER SUBGRADE. ALL FILL MATERIAL SHALL BE TRUCKED IN AND COMPACTED TO 95% STANDARD PROCTOR DENSITY. DO NECESSARY FINE GRADING. THE EXISTING GRADE SHALL BE NO MORE THAN PLUS OR MINUS ONE TENTH OF A FOOT. FOOTINGS: COLUMN FOOTINGS SUPPORTING PRE-ENGINEERED BUILDING SHALL BE DESIGNED BY A GEORGIA REGISTERED ARCHITECT OR ENGINEER AFTER THE DESIGN REACTIONS ARE RECEIVED FROM THE METAL BUILDING MANUFACTURER. COLUMN FOOTINGS WILL BE 6 INCHES BELOW FLOOR LEVEL THE CONCRETE USED IN FOOTINGS WILL BE 3000 P.S.I. CONCRETE. THE FOOTING DESIGNS ARE BASED ON SOIL BEARING PRESSURE OF 2500 P.S.F. EXCAVATE FOR AND POUR A 12 FT. X 12 IN. TURNDOWN FOOTING AROUND THE PERIMETER OF THE CONCRETE FLOOR AT THE REMAINING STEEL BUILDING WALLS WITH TWO (2) RUNS OF #4 REBAR. FLOOR SLAB: THE FLOOR WILL BE SIX INCHES OF 3000 P.S.I. CONCRETE POURED OVER THREE INCHES OF COMPACTED CRUSHED STONE BASE. THE FLOOR SHALL BE REINFORCED WITH 6 IN. X 6 IN. X 10 GAUGE WIRE. THE FLOOR WILL HAVE A 4 MIL POLYETHYLENE VAPOR BARRIER. THE FLOOR WILL RECEIVE A HARD STEEL TROWEL FINISH AND WILL BE SEALED WITH ONE COAT OF CONCRETE CURING COMPOUND. THE CONTROL JOINTS IN THE FLOOR WILL BE SAW CUT ON A NINE HUNDRED SQUARE FOOT GRID. CONTRACTOR SHALL BE RESPONSIBLE FOR BROOM SWEEPING THE FLOOR AND NOTIFYING THE TENANT OF FINAL COMPLETION. SHOULD THE TENANT OCCUPY THE BUILDING BEFORE COMPLETION, THE CONTRACTOR SHALL NOT BE RESPONSIBLE FOR CLEANING FLOORS. ECHOTA PROPERTIES, L.L.C. PAGE -2- RETAINING WALLS: FORM AND POUR APPROXIMATELY 175 LINEAR FEET OF 8 IN. THICK CONCRETE RETAINING WALL ALONG THE WEST SIDE OF SAID BUILDING. SAID WALL SHALL BE APPROXIMATELY 2 FT. -4 FT. HIGH. REINFORCED WITH #4 REBAR AT 12 INCH ON CENTER VERTICALLY AND HORIZONTALLY. THE WALL SHALL BE PLACED ON A FOOTING 12 IN. X 24 IN. WITH THREE #4 REBAR RUN CONTINUOUS, AND VERTICAL BENDS AT 24 IN. ON CENTERS. CONCRETE/STEEL STEPS: FURNISH AND INSTALL ONE SET OF STEEL STEPS AT THE WEST DOCK INCLUDING 42 INCH HANDRAILS. CONCRETE APRONS/ROADS: FORM AND POUR A CONCRETE APRON AT THE LOADING DOCKS. THIS APRON SHALL BE 16,000 SQ. FT. ON THE WEST SIDE. THE CONCRETE SHALL BE 3000 P.S.I. REINFORCED WITH 6 IN. X 6 IN. X 10 GAUGE WIRE MESH AND HAVE A BROOM FINISH. PRE-ENGINEERED BUILDING: THE STEEL BUILDING DIMENSIONS WILL BE 221 FT. WIDE BY 288 FT. LONG WITH AN EAVELINE HEIGHT OF 22 FT. THE NEW FACILITY SHALL TIE TO THE EXISTING FACILITY ON THE SOUTH ENDWALL. THE BUILDING WILL HAVE THREE (3)60 FT., AND ONE (1)41 FT. INTERIOR SPANS RUNNING THE WIDTH OF THE BUILDING. LENGTHWISE, THE BUILDING SHALL HAVE 26 FT. AND 27 FT. BAYS RUNNING THE FULL LENGTH OF THE BUILDING. THE ROOF SLOPE WILL BE 1/2:12. THE BUILDING WILL BE DESIGNED TO CARRY AN 80 MPH WIND AND A 20 PSF LIVE LOAD WITH AN ADDITIONAL 3 PSF AUXILIARY LOAD SYSTEM AND MISCELLANEOUS LOAD. ROOF SYSTEM SHALL BE 26 GAUGE GALVALUME ROOF SHEETS INSTALLED OVER PURLINS. THIS ROOF SYSTEM SHALL BE INSULATED WITH 3 INCH VINYL REINFORCED VINYL BACKED FIBERGLASS INSULATION. SIDEWALLS AND ENDWALLS OF BUILDING SHALL BE SHEETED WITH 26 GAUGE ARCHITECTURAL WALL PANELS. THE WALLS SHALL HAVE BAKED ON PAINT, COLOR TO MATCH THE EXISTING FACILITY. THIS WALL SYSTEM SHALL BE INSULATED WITH 3 INCH VINYL REINFORCED VINYL BACKED FIBERGLASS INSULATION. ECHOTA PROPERTIES, L.L.C. PAGE -3- FURNISH AND INSTALL THREE (3) 3 FT. X 7 FT. STEEL WALK DOORS AT THE SPECIFIED LOCATIONS. THIS INCLUDES FRAMES, MORTISE LOCKSETS, DOORS AND THRESHOLDS. ONE (1) WALK DOOR SHALL BE CUT INTO THE EXISTING SOUTH ENDWALL. ROLL-UP DOORS: 5 EACH 8 FT. X 10 FT. MS SOUTHWESTERN MODEL 200 STEEL ROLLING DOORS 5 EACH 8 FT. X 10 FT. DOCK SEALS, 20 IN. PROJECTION, WITH HEAD FLAP 5 EACH 25,000 LB. DLM LEVELERS 1 EACH 14.4 FT. X 14 FT. STRIP DOOR 8 EACH PIPE BOLLARDS 6 IN. X 6 IN. FILLED WITH CONCRETE AND PAINTED SAFETY YELLOW, TWO (2) AT EACH DOOR NOTE CUT AND FRAME FOR 12 FT. X 14 FT. DOOR THRU THE EXISTING SOUTH - ---- ENDWALL CANOPIES: FURNISH AND INSTALL A STRUCTURAL CANOPY OVER THE LOADING DOCK THIS CANOPY SHALL HAVE A 4 FT. PROJECTION. CABINETS: NOT IN CONTRACT HARDWARE: EXTERIOR STEEL DOORS. PANIC DEVICES AT ALL EMERGENCY EXITS WITH CLOSURES. PAINTING: INTERIOR STRUCTURAL STEEL...... ONE (1) FACTORY APPLIED COAT OF RED OXIDE PAINT AND ONE (1) FIELD APPLIED COAT OF DTM ECHOTA PROPERTIES, L.L.C. PAGE -4- ELECTRICAL SYSTEM: FURNISH AND INSTALL A COMPLETE NEW ELECTRICAL SYSTEM FOR SAID BUILDING. SEE THE ATTACHED ELECTRICAL SPECIFICATIONS. SPRINKLER SYSTEM: FURNISH AND INSTALL A SPRINKLER SYSTEM. THE SPRINKLER SYSTEM SHALL MEET INSURANCE SPECIFICATIONS. SEE THE ATTACHED SPRINKLER SYSTEM SPECIFICATIONS. HEATING, VENTILATION AND AIR CONDITIONING: 4 EACH 42 INCH WALL MOUNTED EXHAUST FANS 4 EACH 5 FT. X 4 FT. IN-TAKE AIR LOUVERS WITH STATIC DAMPERS 8 EACH 250,000 BTU GAS FIRED UNIT HEATERS INCLUDING GAS PIPING (PAINTING OF PIPE IS NOT INCLUDED) ECHOTA PROPERTIES, L.L.C. PAGE -5- ELECTRICAL SPECIFICATIONS: FURNISH AND INSTALL THE FOLLOWING: 1. 400 AMPERE, 277/480 VOLT SERVICE EXTENDED FROM THE EXISTING SWITCHBOARD TO SOUTHWEST CORNER OF EXISTING BUILDING. 2. 400 AMPERE, M.L.O., 42 SPACE, 277/480 VOLT, COPPER BUSS PANELBOARD WITH 1 EACH 100A/3 AND 1 EACH 70A/3 CIRCUIT BREAKERS. 3. 1 EACH 100 AMPERE, 277/480 VOLT, M.C.B., 42 SPACE LIGHTING PANEL-BOARD AND CIRCUIT BREAKERS. 4. 1 EACH 45 KVA TRANSFORMER. 5. 1 EACH 150 AMPERE, 120/208 VOLT, M.C.B., 42 SPACE PANELBOARD AND CIRCUIT BREAKERS. 6. 85 EACH 400 WATT, METAL HALIDE, HIGH-BAY LIGHTING FIXTURES WITH 17 IN. ALUMINUM REFLECTORS. 7. 9 EACH (SAME AS ABOVE) TO BE EQUIPPED WITH RESTRIKE OPTION. 8. 20 EACH EMERGENCY LIGHTING FIXTURES WITH BATTERY BACKUP. 9. 4 EACH LIGHTED EXIT SIGNS WITH BATTERY BACKUP. 10. 120 VOLT POWER TO 6 EACH UNIT HEATERS. 11. 6 EACH (EXTERIOR) METAL HALIDE WALL PACKS. 12. 480 VOLT POWER TO 4 EACH EXHAUST FANS. ECHOTA PROPERTIES, L.L.C. PAGE -6- SPRINKLER SPECIFICATIONS COMPLETE INSTALLATION OF TWO (2) AUTOMATIC WET SPRINKLER SYSTEMS HYDRAULICALLY DESIGNED TO PROVIDE A DENSITY OF .60 GPM OVER THE MOST REMOTE 2000 SQUARE FEET WITH 500 GPM HOSE ALLOWANCE USING 17/32 ELO-231 X 2860 BRASS UPRIGHT SPRINKLERS. RELOCATION OF EXISTING VALVE PIT, EXISTING SPRINKLER RISERS AND FIRE HYDRANT IS INCLUDED IN THIS PROPOSAL NEW 8 INCH UNDERGROUND TO EXTEND TO THE CORNER OF THE NEW PROPOSED ADDITION. ALL WORK AND MATERIALS TO MEET STATE/LOCAL FIRE MARSHAL AND INSURANCE COMPANY HAVING JURISDICTION APPROVALS. ALARM VALVES: - ------------ TWO (2) 8 INCH ALARM VALVES WITH TRIM AND ACCESSORIES, LOCATED IN THE MAIN SUPPLY TO TWO (2) SYSTEMS. RELOCATION OF EXISTING RISERS IS INCLUDED IN THIS PROPOSAL. WATER TYPE ALARMS: - ----------------- TWO (2) WATER MOTOR ALARMS TO BE FURNISHED AND CONNECTED TO TWO (2) ALARM VALVES. THE GONG IS TO BE LOCATED ON THE BUILDING WALL AT A POINT SELECTED BY THE CONTRACTOR. IF NECESSARY TO RUN DISCHARGE FROM WATER MOTORS TO SEWER, OWNER IS TO PROVIDE SEWER CONNECTIONS AND RECEPTACLE CONFORMING TO LOCAL PLUMBING REQUIREMENTS, AT POINTS OF WATER MOTOR DRAINS. ELECTRIC ALARMS: - --------------- CONTRACTOR TO FURNISH AND INSTALL TWO (2) ELECTRICAL FLOW ALARMS REQUIRED. OWNER IS TO DO ALL NECESSARY WIRING IN ACCORDANCE WITH APPLICABLE ELECTRICAL REQUIREMENTS. GATE VALVE: - ---------- RELOCATION OF ONE (1) GATE VALVE FOR WATER CONTROL IN VALVE PIT IS INCLUDED IN THIS PROPOSAL. CHECK VALVE: - ----------- RELOCATION OF ONE (1) DOUBLE CHECK VALVE FOR BACKFLOW IN VALVE PIT IS INCLUDED IN THIS PROPOSAL ECHOTA PROPERTIES, L.L.C. PAGE -7- DRAIN PIPING: - ------------ DRAIN PIPING TO PROPERLY DRAIN SYSTEM TO BE RUN TO ACCESSIBLE PLACE FOR DISCHARGE, AT POINTS SELECTED BY CONTRACTOR. IF NECESSARY TO DISCHARGE DRAINS TO SEWER, OWNER IS TO PROVIDE SEWER CONNECTIONS AND RECEPTACLE CONFORMING TO APPLICABLE PLUMBING REQUIREMENTS, AT POINTS OF SYSTEM DRAINS. HANGERS: - ------- NECESSARY HANGERS IN PLACE FOR SUPPORTING THE SPRINKLER PIPING AS PER NFPA #13. SPRINKLER CABINET: - ----------------- TWO (2) SPRINKLER CABINETS WITH TWELVE (12) SPRINKLERS AND SPRINKLER WRENCH FOR EMERGENCY USE. RELOCATION OF TWO (2) EXISTING IS INCLUDED IN THIS PROPOSAL. FIRE DEPARTMENT CONNECTION: - -------------------------- RELOCATION OF EXISTING FIRE DEPARTMENT CONNECTION IS INCLUDED IN THIS PROPOSAL. SUPPLY PIPING AND EXTRA CONNECTIONS: - ----------------------------------- SUPPLY TO BE TAKEN FROM EXISTING 8 INCH TAP AND RELOCATED VALVE PIT. UNDERGROUND PIPE AND FITTINGS: - ----------------------------- 320 FEET OF 8 INCH UNDERGROUND FIRE MAIN IS INCLUDED IN THIS PROPOSAL. ALL FITTINGS AND PIPE TO CONFORM TO NFPA STANDARDS AS IS APPLICABLE. CITY WATER CONNECTION: EXISTING - --------------------- HYDRANTS: - -------- RELOCATION OF ONE (1) EXISTING FIRE HYDRANT WITH 3 FT. -6 IN. BURY AS REQUIRED BY AUTHORITY HAVING JURSIDICTION. INTERIOR HOSE STATIONS: - ---------------------- FOUR (4) SMALL INTERIOR HOSE STATIONS WITH EQUIPMENT ARE INCLUDED IN THIS PROPOSAL, TAKING SUPPLY ADJACENT SYSTEM. ECHOTA PROPERTIES, L.L.C. PAGE -8- TRENCH WORK: - ----------- TRENCH WORK FOR PROPER INSTALLATION OF UNDERGROUND PIPING INCLUDING EXCAVATION AND BACKFILLING. IF WATER, QUICKSAND, ROCK, OR ANY OTHER UNFORESEEN OBSTRUCTIONS ARE ENCOUNTERED, OR SHORING IS REQUIRED, OWNER IS TO PAY FOR AS AN EXTRA TO THE CONTRACT PRICE, THE ADDITIONAL COST INVOLVED. INSTALLATION: - ------------ ALL LABOR REQUIRED FOR THE INSTALLATION OF THE PROPOSED SPRINKLER SYSTEM WILL BE PERFORMED DURING NORMAL WORKING HOURS (8:00 A.M. UNTIL 5:00 P.M.) MONDAY THROUGH FRIDAY. IF WORK IS REQUESTED BY THE OWNER DURING ANY OTHER TIME OF THE DAY OR NIGHT, WEEKENDS OR HOLIDAYS, THE OWNER IS TO PAY FOR ALL ADDITIONAL COST INVOLVED. MASONRY AND CARPENTRY WORK: - -------------------------- PROVIDE ALL OPENINGS FOR PROPER INSTALLATION OF THE WORK, AS SPECIFIED ABOVE IN WALLS, FLOORS, CEILINGS AND PARTITIONS AND OWNER IS TO DO ALL PATCHING AND REPAINTING REQUIRED. PAINTING: PAINTING IS NOT INCLUDED IN THIS PROPOSAL - -------- SPECIAL: - ------- 1. DELIVER MATERIALS TO OWNERS BUILDING SITE AND DO ALL LOCAL HAULING AND HANDLING. 2. THIS PROPOSAL DOES NOT INCLUDE ANY ELECTRICAL WIRING. 3. THIS PROPOSAL DOES NOT INCLUDE ANY REPLACEMENT SHRUBBERY, TREES, SOD OR REGRASSING THAT MAY BE REQUIRED DUE TO TRENCH EXCAVATION OR BACKFILL. 4. AUTOMATIC SPRINKLERS ARE NOT INCLUDED IN THIS PROPOSAL FOR ANY PROCESSING EQUIPMENT, SUCH AS OVENS, DRYERS, COATERS, ETC. 5. AUTOMATIC SPRINKLERS ARE NOT INCLUDED UNDER ANY HVAC DUCTS. 6. AUTOMATIC SPRINKLERS ARE NOT INCLUDED IN THIS PROPOSAL FOR ANY TYPE OF STORAGE RACKS OR RACK MEZZANINES. 7. FOX & BRINDLE CONSTRUCTION CO., INC. WILL NOT BE RESPONSIBLE FOR THE INADEQUACY OF THE WATER SUPPLY. EX-10.17 12 LEASE AGREEMENT EXHIBIT 10.17 STATE OF GEORGIA COUNTY OF GORDON COMMERCIAL LEASE THIS LEASE, MADE THIS 1ST DAY OF MAY, 1998, BY AND BETWEEN ECHOTA PROPERTIES (HEREINAFTER REFERRED TO AS "LANDLORD"); AND AMERICAN WEAVERS, LLC. (HEREINAFTER REFERRED TO AS "TENANT"); WITNESSETH: A FIVE (5) YEAR LEASE AGREEMENT BETWEEN ECHOTA PROPERTIES (LANDLORD) AND AMERICAN WEAVERS, L.L.C. (TENANT). THIS AGREEMENT ALSO INCLUDES AN OPTION TO RENEW. PREMISES 1. THAT LANDLORD, FOR AND IN CONSIDERATION OF THE RENTS, COVENANTS, AGREEMENTS, AND STIPULATIONS HEREINAFTER MENTIONED, RESERVED, AND CONTAINED, TO BE PAID, KEPT AND PERFORMED BY TENANT, HAS LEASED AND RENTED, AND BY THESE PRESENTS DOES LEASE AND RENT, UNTO TENANT, AND TENANT HEREBY LEASES AND TAKES UPON THE TERMS AND CONDITIONS WHICH HEREINAFTER APPEAR, THE FOLLOWING DESCRIBED PROPERTY (HEREINAFTER CALLED "PREMISES'), TO WIT: THAT TRACT OR PARCEL OF LAND LYING, BEING AND SITUATED IN LAND LOTS 168 AND 169 IN THE 14TH DISTRICT AND 3RD SECTION OF GORDON COUNTY, GEORGIA, AND BEING A PORTION OF 3.49 ACRES MORE OR LESS, THEREOF AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BUILDING SIZE IS (219 FT.-8 1/2 IN. X 375 FT. X 22 FT.) AND 86,400 SQUAREFEET FOR WAREHOUSING AREA. 2. TENANT SHALL HAVE AND HOLD PREMISES FOR A TERM BEGINNING ON THE 1ST DAY OF MAY, 1998, AND ENDING ON THE 30TH DAY OF APRIL, 2003, AT MIDNIGHT UNLESS SOONER TERMINATED OR EXTENDED AS HEREINAFTER SPECIFICALLY PROVIDED IN THIS LEASE. 1 RENTAL 3. TENANT SHALL PAY LANDLORD AT THE ADDRESS OF LANDLORD SET FORTH HEREINAFTER IN THIS LEASE OR OF WHICH TENANT SHALL FROM TIME TO TIME OTHERWISE BE NOTIFIED, PROMPTLY ON THE 1ST DAY OF EACH MONTH IN ADVANCE, DURING ALL TERMS OF THIS LEASE A MONTHLY RENTAL OF $ 17,280. (86,400 SQ. FT. @ $.20 PER SQ. FT.) UTIUTY BILLS 4. TENANT SHALL PAY ALL WATER, SEWER, SEWER SERVICE CHARGES, GAS, ELECTRICITY, FUEL, LIGHT, HEAT AND POWER BILLS FOR PREMISES OR USED BY TENANT IN CONNECTION THERE WITH, DURING ALL TERMS OF THIS LEASE. USE OF PREMISES 5. PREMISES SHALL NOT BE USED FOR ANY ILLEGAL PURPOSES; NOR IN ANY MANNER TO CREATE ANY NUISANCE OR TRESPASS; NOR IN ANY MANNER TO VITIATE THE INSURANCE OR INCREASE THE RATE OF INSURANCE ON PREMISES. ABANDONMENT OF PREMISES 6. TENANT SHALL NOT ABANDON OR VACATE PREMISES DURING ANY TERM OF THIS LEASE. REPAIRS BY LANDLORD 7. LANDLORD SHALL KEEP IN GOOD REPAIR THE ROOF, FOUNDATIONS AND EXTERIOR WALLS OF PREMISES, AND SEWER PIPES OUTSIDE THE EXTERIOR WALLS OF THE BUILDING IN WHICH PREMISES LOCATED, EXCEPT REPAIRS RENDERED NECESSARY BY THE NEGLIGENCE, WILLFUL ACT OR OMISSION OF TENANT, TENANT'S AGENTS, EMPLOYEES AND INVITES. LANDLORD HEREBY GIVES TENANT EXCLUSIVE CONTROL OF PREMISES AND SHALL BE UNDER NO OBLIGATION TO INSPECT PREMISES. TENANT SHALL PROMPTLY REPORT IN WRITING TO LANDLORD ANY DEFECTIVE CONDITION KNOWN TO TENANT WHICH LANDLORD IS REQUIRED TO REPAIR, AND FAILURE TO SO REPORT SUCH DEFECTS SHALL MAKE TENANT RESPONSIBLE TO LANDLORD FOR ANY LIABILITY INCURRED BY LANDLORD BY REASON OF SUCH DEFECTS. 2 REPAIRS BY TENANT 8. TENANT ACCEPTS PREMISES IN ITS PRESENT CONDITION AND AS SUITED FOR THE USES INTENDED BY TENANT. TENANT SHALL, THROUGHOUT ALL TERMS OF THIS LEASE, AT TENANT'S EXPENSE, MAINTAIN PREMISES IN GOOD ORDER AND REPAIR, EXCEPT THOSE REPAIRS EXPRESSLY REQUIRED IN PARAGRAPH 7 HEREOF, TO BE MADE BY LANDLORD. TENANT FURTHER AGREES TO CARE FOR AND CLEAN THE GROUNDS AROUNDING THE BUILDING, INCLUDING THE MOWING OF GRASS, CLEANING OF THE PAVED AREAS, AND GENERAL LANDSCAPING. TENANT SHALL RETURN PREMISES TO LANDLORD AT THE EXPIRATION, OR PRIOR TO TERMINATION, OF THE TERM OF THIS LEASE IN AS GOOD CONDITION AND REPAIR AS WHEN FIRST RECEIVED, NATURAL WEAR AND TEAR, DAMAGE BY STORM, FIRE, LIGHTNING, EARTHQUAKE OR OTHER CASUALTY ALONE EXCEPTED. DESTRUCTION OF OR DAMAGE TO PREMISES 9. IF PREMISES ARE TOTALLY DESTROYED BY STORM, FIRE, LIGHTNING, EARTHQUAKE OR OTHER CASUALTY, THIS LEASE SHALL TERMINATE AS OF THE DATE OF SUCH DESTRUCTION, AND RENTAL SHALL BE ACCOUNTED FOR AS BETWEEN LANDLORD AND TENANT AS OF THAT DATE. IF PREMISES ARE DAMAGED BUT NOT WHOLLY DESTROYED BY ANY OF SUCH CASUALTIES, THE TENANT AND LANDLORD RESERVE THE RIGHT TO CO-DETERMINE THE DEGREE OF DAMAGE OR LOSS TO THE FACILITY, AND SHOULD LANDLORD ELECT TO RESTORE THE PREMISES TO SUBSTANTIALLY THE SAME CONDITION AS BEFORE DAMAGE THEN FULL RENTAL SHALL RECOMMENCE UPON COMPLETION OF SAID RESTORATION. LANDLORD HAS ONE HUNDRED TWENTY (120) DAYS TO MAKE RESTORATIONS TO THE ORIGINAL CONDITION OR TENANT MAY HAVE THE OPTION TO TERMINATE THE LEASE AGREEMENT. INDEMNITY 10. TENANT AGREES TO AND HEREBY DOES, INDEMNIFY AND SAVE LANDLORD HARMLESS AGAINST ALL CLAIMS FOR DAMAGES TO PERSONS OR PROPERTY BY REASON OF TENANT'S USE OR OCCUPANCY OF PREMISES, AND ALL EXPENSES INCURRED BY THE LANDLORD AND MANAGER BECAUSE THEREOF, INCLUDING REASONABLE ATTORNEY'S FEES AND COURT COSTS. 3 GOVERNMENTAL ORDERS 11. TENANT AGREES, AT TENANT'S OWN EXPENSE, TO PROMPTLY COMPLY WITH ALL REQUIREMENTS OF ANY LEGALLY CONSTITUTED PUBLIC AUTHORITY MADE NECESSARY BY REASON OF TENANT'S OCCUPANCY OF PREMISES. CONDEMNATION 12. IF THE WHOLE OF PREMISES, OR SUCH PORTION THEREOF AS WILL MAKE PREMISES UNUSABLE FOR THE PURPOSES HEREIN LEASED, BE CONDEMNED BY ANY LEGALLY CONSTITUTED AUTHORITY FOR ANY PUBLIC USE OR PURPOSE, THEN IN EITHER OF SAID EVENTS THIS LEASE SHALL CEASE FROM THE TIME WHEN POSSESSION THEREOF IS TAKEN BY PUBLIC AUTHORITIES, AND RENTAL SHALL BE ACCOUNTED FOR AS BETWEEN LANDLORD AND TENANT AS OF THAT DATE. SUCH TERMINATION, HOWEVER, SHALL BE WITHOUT PREJUDICE TO THE RIGHTS OF EITHER LANDLORD OR TENANT TO RECOVER COMPENSATION AND DAMAGE CAUSED BY CONDEMNATION FROM THE CONDEMNOR. IT IS UNDERSTOOD THAT CONDEMNATION BY A PRE-EXISTING CONDITION IS NOT THE RESPONSIBILITY OF THE TENANT. IT IS FURTHER UNDERSTOOD AND AGREED THAT NEITHER TENANT NOR LANDLORD SHALL HAVE ANY RIGHTS IN ANY AWARD MADE TO THE OTHER BY ANY CONDEMNATION AUTHORITY NOTWITHSTANDING THE TERMINATION OF THIS LEASE AS HEREIN PROVIDED. ASSIGNMENT AND SUBLETTING 13. TENANT SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OR THE LANDLORD ENDORSED HEREON, ASSIGN OR ENCUMBER THIS LEASE OR ANY INTEREST HEREUNDER, OR SUBLET PREMISES OR ANY PART THEREOF, OR PERMIT THE USE OF PREMISES BY ANY OTHER PARTY OTHER THAN TENANT. LANDLORD'S CONSENT TO ANY ASSIGNMENT, ENCUMBRANCE OR SUBLEASE SHALL NOT NULLIFY THIS PROVISION, AND ALL LATER ASSIGNMENTS, ENCUMBRANCES OR SUBLEASES SHALL BE MADE LIKEWISE ONLY ON THE PRIOR WRITTEN CONSENT OF LANDLORD. ASSIGNEE OF TENANT, AT OPTION OF LANDLORD, SHALL BECOME DIRECTLY LIABLE TO LANDLORD FOR ALL OBLIGATIONS OF TENANT HEREUNDER, BUT NO SUBLEASE OR ASSIGNMENT BY TENANT SHALL RELIEVE TENANT OF ANY LIABILITY HEREUNDER 4 REMOVAL OF FIXTURES AND PROPERTY 14. TENANT MAY (IF NOT IN DEFAULT HEREUNDER) PRIOR TO THE EXPIRATION OF THIS LEASE, OR ANY EXTENSION THEREOF, REMOVE ALL PERSONAL PROPERTY, FIXTURES AND EQUIPMENT WHICH TENANT HAS PLACED IN PREMISES, PROVIDED TENANT SIMULTANEOUSLY REPAIRS ALL DAMAGE TO PREMISES CAUSED BY SUCH REMOVAL. IF TENANT IS AT THE TIME OF ANY TERMINATION OF THIS LEASE IN DEFAULT UNDER ANY TERM OR CONDITION HEREOF, TENANT SHALL NOT BE ENTITLED TO REMOVE ANY OF SUCH PERSONAL PROPERTY, FIXTURES OR EQUIPMENT AND LANDLORD SHALL HAVE ALL RIGHTS THEREIN AS ARE THEN AVAILABLE TO LANDLORD BY LAW. CANCELLATION OF LEASE BY LANDLORD 15. IT IS MUTUALLY AGREED THAT, IN THE EVENT TENANT SHALL DEFAULT IN THE PAYMENT OF RENT HEREIN RESERVED, WHEN DUE, AND FAILS TO CURE SAID DEFAULT WITHIN (5) DAYS AFTER THE GIVING OF WRITTEN NOTICE THEREOF BY LANDLORD; OR IF TENANT SHALL BE IN DEFAULT IN PERFORMING ANY OF THE TERMS OR PROVISIONS OF THIS LEASE OTHER THAN THE PROVISIONS REQUIRING THE PAYMENT OF RENT, AND FAILS TO CURE SUCH DEFAULT WITHIN THIRTY (30) DAYS AFTER THE DATE OF WRITTEN NOTICE OF DEFAULT FROM LANDLORD; OR IF TENANT IS ADJUDICATED BANKRUPT; OR IF A PERMANENT RECEIVER IS APPOINTED FOR TENANT'S PROPERTY AND SUCH RECEIVER IS NOT REMOVED WITHIN SIXTY (60) DAYS AFTER WRITTEN NOTICE FROM LANDLORD TO TENANT TO OBTAIN SUCH REMOVAL; OR IF, WHETHER VOLUNTARILY OR INVOLUNTARILY, TENANT TAKES ADVANTAGE OF ANY DEBTOR RELIEF PROCEEDINGS UNDER ANY PRESENT OR FUTURE LAW, WHEREBY THE RENT OR ANY PART THEREOF, OR IS PROPOSED TO BE, REDUCED OR PAYMENT THEREOF DEFERRED; OR IF TENANT MAKES AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS; OR IF TENANTS EFFECTS SHALL BE LEVIED UPON OR ATTACHED UNDER PROCESS AGAINST TENANT, NOT SATISFIED OR DISSOLVED WITHIN THIRTY (30) DAYS AFTER WRITTEN NOTICE FROM LANDLORD TO TENANT TO OBTAIN SATISFACTION THEREOF; THEN, AND IN ANY OF SAID EVENTS, LANDLORD AT ITS OPTIONS MAY AT ONCE, OR WITHIN SIX (6) MONTHS THEREAFTER (BUT ONLY DURING THE CONTINUANCE OF SUCH DEFAULT OR CONDITION), TERMINATE THIS LEASE BY WRITTEN NOTICE TO TENANT; WHEREUPON THIS LEASE SHALL END. AFTER AN AUTHORIZED ASSIGNMENT OR SUBLEASE 5 OF THE ENTIRE PREMISES COVERED BY THIS LEASE, THE OCCURRING OF ANY OF THE FOREGOING DEFAULTS OR EVENTS SHALL AFFECT THIS LEASE ONLY IF CAUSED BY, OR HAPPENING TO, SUCH ASSIGNEE OR SUBLESSEE. ANY NOTICE PROVIDED IN THIS PARAGRAPH 16 MAY BE GIVEN BY LANDLORD OR ITS ATTORNEY. UPON SUCH TERMINATION BY LANDLORD, TENANT WILL AT ONCE SURRENDER POSSESSION OF PREMISES TO LANDLORD AND REMOVE THEREFROM ALL OF TENANT'S EFFECTS IN WHICH LANDLORD CLAIMS NO INTEREST UNDER PARAGRAPH 15 OF THIS LEASE; AND LANDLORD SHALL HAVE THE RIGHT FORTHWITH TO RE- ENTER PREMISES AND REPOSSESS ITSELF THEREOF, AND REMOVE ALL PERSONS AND EFFECTS THEREFROM, USING SUCH FORCE AS MAY BE NECESSARY WITHOUT BEING GUILTY OF TRESPASS, FORCIBLE ENTRY OR DETAINER OR OTHER TORT. RELETTING BY LANDLORD 16. LANDLORD SHALL HAVE THE RIGHT AT LANDLORD'S OPTION WITHOUT TERMINATING THIS LEASE, UPON TENANTS BREACHING THIS CONTRACT, TO ENTER UPON AND, AS TENANTS AGENT, RENT PREMISES AT THE BEST PRICE OBTAINABLE BY REASONABLE EFFORT, WITHOUT ADVERTISEMENT AND BY PRIVATE NEGOTIATIONS AND FOR ANY TERM LANDLORD DEEMS PROPER TENANT SHALL BE LIABLE TO LANDLORD FOR THE DEFICIENCY, IF ANY, BETWEEN THE TENANT'S RENT HEREUNDER AND THE PRICE OBTAINED BY THE LANDLORD ON RELETTING. EXTERIOR SIGNS 17. TENANT SHALL PLACE NO SIGNS UPON THE OUTSIDE WALLS OR ROOF OF PREMISES EXCEPT WITH THE WRITTEN CONSENT OF LANDLORD. ANY AND ALL SIGNS PLACED ON THE WITHIN LEASED PREMISES BY TENANT SHALL BE MAINTAINED IN COMPLIANCE WITH ALL GOVERNMENTAL ORDINANCES, RULES, AND REGULATIONS GOVERNING SUCH SIGNS, AND TENANT SHALL BE RESPONSIBLE TO LANDLORD FOR ANY DAMAGE CAUSED BY INSTALLATION, USE OR MAINTENANCE OF SAID SIGNS OR VIOLATION OF ORDINANCE, RULE OR REGULATION WITH REGARD THERETO. UPON ANY REMOVAL OF SAID SIGNS TENANT SHALL SIMULTANEOUSLY REPAIR ALL DAMAGE INCIDENT TO SUCH REMOVAL. 6 INTERRUPTION OF SERVICES OR OF OCCUPANCY 18. INTERRUPTION OR CURTAILMENT OF ANY SERVICE TO THE PREMISES, SUCH AS (BUT NOT LIMITED TO) UTILITIES, IF CAUSED BY STRIKES, MECHANICAL DIFFICULTIES OR OTHER CAUSES BEYOND THE LANDLORD'S CONTROL WILL NOT ENTITLE TENANT TO ANY CLAIM AGAINST LANDLORD OR ANY ABATEMENT IN RENT, NOR WILL IT CONSTITUTE CONSTRUCTIVE OR PARTIAL EVICTION, UNLESS LANDLORD FAILS TO TAKE MEASURES THAT ARE REASONABLE IN THE CIRCUMSTANCES TO RESTORE THE SERVICE WITHOUT UNDUE DELAY. IT IS UNDERSTOOD THAT ANY PRE-EXISTING ENVIRONMENTAL CONDITION IS NOT THE RESPONSIBILITY OF THE TENANT. IT IS ASSUMED THAT NO SUCH CONDITION EXISTS. CONSTRUCTIVE EVICTION 19. TENANT WILL NOT BE ENTITLED TO CLAIM A CONSTRUCTIVE EVICTION FROM PREMISES UNLESS TENANT WILL HAVE FIRST NOTIFIED LANDLORD IN WRITING OF THE CONDITION GIVING RISE TO THE CLAIM AND, IF THE COMPLAINTS ARE JUSTIFIED, UNLESS LANDLORD FAILS TO REMEDY THE CONDITION WITHIN A REASONABLE TIME AFTER RECEIPT OF THE NOTICE. ENTRY FOR CARDING 20. LANDLORD MAY CARD PREMISES "FOR RENT" OR "FOR SALE" THIRTY (30) DAYS BEFORE THE TERMINATION OF THIS LEASE. LANDLORD SHALL HAVE THE RIGHT TO ENTER PREMISES, AFTER CONFIDENTIALITY AGREEMENT IS MADE BETWEEN LANDLORD AND TENANT, AT REASONABLE HOURS TO EXHIBIT SAME TO PROSPECTIVE PURCHASERS OR TENANTS AND TO MAKE REPAIRS REQUIRED OF LANDLORD UNDER THE TERMS HEREOF OR TO MAKE REPAIRS TO LANDLORD'S ADJOINING PROPERTY, IF ANY. EFFECT OF TERMINATION OF LEASE 21. NO TERMINATION OF THIS LEASE PRIOR TO THE NORMAL ENDING THEREOF, BY LAPSE OF TIME OR OTHERWISE, SHALL AFFECT LANDLORD'S RIGHT TO COLLECT RENT FOR THE PERIOD PRIOR TO TERMINATION THEREOF. 7 MORTGAGEE'S RIGHTS 22. TENANT'S RIGHTS SHALL BE SUBJECT TO ANY BONA FIDE MORTGAGE OR DEED TO SECURE DEBT WHICH IS NOW, OR MAY HEREAFTER BE, PLACED UPON THE PROPERTY OF WHICH PREMISES CONSTITUTE A PART. NO ESTATE IN LAND 23. THIS LEASE SHALL CREATE THE RELATIONSHIP OF LANDLORD AND TENANT BETWEEN THE PARTIES HERETO; NO ESTATE SHALL PASS OUT OF LANDLORD. TENANT HAS ONLY A USUFRUCT, NOT SUBJECT TO LEVY AND SALE, AND NOT ASSIGNABLE BY TENANT EXCEPT BY LANDLORD'S CONSENT. NEITHER LANDLORD NOR TENANT SHALL CAUSE THIS LEASE TO BE RECORDED WITHOUT PRIOR WRITTEN CONSENT OF THE OTHER PARTY TO SUCH RECORDING. HOLDING OVER 24. IF TENANT REMAINS IN POSSESSION OF PREMISES AFTER EXPIRATION OF THE TERM HEREOF, WITH LANDLORD'S ACQUIESCENCE AND WITHOUT ANY EXPRESS AGREEMENT OF PARTIES, TENANT SHALL BE A TENANT AT WILL AT TWO TIMES THE RENTAL RATE IN EFFECT AT END OF LEASE; AND THERE SHALL BE NO RENEWAL OF THIS LEASE BY OPERATION OF LAW. ATTORNEY'S FEES AND HOMESTEAD 25. IF ANY RENT OWING UNDER THIS LEASE IS COLLECTED BY OR THROUGH AN ATTORNEY AT LAW, TENANT AGREES TO PAY THE FULL AMOUNT OF SUCH REASONABLE ATTORNEY'S FEES AS LANDLORD INCURS IN SUCH COLLECTION. TENANT WAIVES ALL HOMESTEAD RIGHTS AND EXEMPTIONS WHICH TENANT MAY HAVE UNDER ANY LAW AS AGAINST ANY OBLIGATION OWING UNDER THIS LEASE. TENANT HEREBY ASSIGNS TO LANDLORD TENANT'S HOMESTEAD AND EXEMPTION. SERVICE OF NOTICE 26. TENANT HEREBY APPOINTS AS TENANT'S AGENT TO RECEIVE SERVICE OF ALL DISPOSSESSORY OR OTHER LEGAL PROCEEDINGS AND NOTICES THEREUNDER, AND ALL NOTICES REQUIRED UNDER THIS LEASE, THE PERSON IN CHARGE OF PREMISES OR OCCUPYING PREMISES AT THE TIME OF DELIVERY OR SERVICE OF SUCH NOTICE; AND IF NO PERSON IS IN CHARGE OF OR 8 OCCUPYING PREMISES AT SUCH TIME, THEN SUCH SERVICE OR NOTICE MAY BE MADE BY ATTACHING THE SAME ON THE MAIN ENTRANCE TO PREMISES. A COPY OF ALL NOTICES UNDER THIS LEASE SHALL ALSO BE SENT TO TENANTS ADDRESS: AMERICAN WEAVERS, L.L.C. ATTENTION: MR SCOTT FLETCHER, 965 NORTH WALL STREET, CALHOUN, GA 30701. ALL NOTICES GIVEN HEREUNDER BY TENANT TO LANDLORD SHALL BE SENT TO LANDLORD IN CARE OF LANDLORD AT LANDLORD'S ADDRESS SET FORTH HEREINAFTER IN THIS LEASE, UNLESS IT HAS OTHERWISE NOTIFIED TENANT OF ANOTHER ADDRESS FOR LANDLORD. MISCELLANEOUS 27. ALL RIGHTS, POWERS AND PRIVILEGES CONFERRED HEREUNDER UPON PARTIES HERETO SHALL BE CUMULATIVE BUT NOT RESTRICTIVE TO THOSE GIVEN BY LAW. NO FAILURE OF LANDLORD TO EXERCISE ANY POWER GIVEN LANDLORD HEREUNDER, OR TO INSIST UPON STRICT COMPLIANCE BY TENANT WITH HIS OBLIGATION HEREUNDER, AND NO CUSTOM OR PRACTICE OF COMPLIANCE BY TENANT WITH HIS OBLIGATION HEREUNDER, AND NO CUSTOM OR PRACTICE OF THE PARTIES AT VARIANCE WITH THE TERMS HEREOF SHALL CONSTITUTE A WAIVER OF LANDLORD'S RIGHT TO DEMAND EXACT COMPLIANCE WITH THE TERMS HEREOF. "LANDLORD" AS USED IN THIS LEASE SHALL INCLUDE LANDLORD, HIS OR ITS HEIRS, EXECUTORS, ADMINISTRATORS, LEGAL REPRESENTATIVE, ASSIGNS AND SUCCESSORS IN TITLE TO PREMISES. "TENANT" SHALL INCLUDE TENANT, HIS OR ITS HEIRS, EXECUTORS, ADMINISTRATORS, LEGAL REPRESENTATIVES, AND, IF THIS LEASE SHALL BE VALIDLY ASSIGNED OR SUBLET, SHALL ALSO INCLUDE TENANT'S ASSIGNEES OR SUBLEASES, AS TO PREMISES COVERED BY SUCH ASSIGNMENT OR SUBLEASE. "LANDLORD", AND "TENANT" SHALL INCLUDE MALE AND FEMALE, SINGULAR AND PLURAL, CORPORATION, PARTNERSHIP OR INDIVIDUAL, AS MAY FIT THE PARTICULAR PARTIES. TIME IS OF THE ESSENCE OF THIS LEASE OPTION TO RENEW 28. TENANT IS GIVEN AN OPTION TO EXTEND THE TERM OF THIS LEASE BY A PERIOD OF THREE (3) YEARS. TENANT MAY EXERCISE THIS OPTION AT ANY TIME BY NOTICE IN WRITING TO LANDLORD SERVED AT LEAST NINETY (90) DAYS PRIOR TO THE END OF THE INITIAL TERM, IF TENANT SHALL NOT BE IN DEFAULT. EXCEPT AS THE TERMS MAY NOT BE RELEVANT OR APPLICABLE, ALL THE TERMS AND 9 CONDITIONS OF THE LEASE SHALL APPLY FOR THE EXTENDED PERIOD, EXCLUDING THE MONTHLY RENTAL WHICH SHALL REMAIN AT $ 17,077.40 FOR RENTED SPACE AFTER THE FIVE YEAR TERM, OPTION TO RENEW WILL BE GRANTED PERPETUALLY IN THREE YEAR INCREMENTS WITH THE RENTAL RATE BEING INCREASED AT EACH RENEWAL BASED ON THE ACCUMULATIVE YEARLY INFLATION RATE AS DETERMINED BY THE STATE OF GEORGIA DEPARTMENT OF COMMERCE. THIS RATE SHALL BE FROM THE INITIAL TERM OF THE LEASE. TENANT'S OBLIGATION TO INSURE: ALL-INCLUSIVE FORM 29. DURING THE TERM OF THIS LEASE, TENANT, AT ITS SOLE COST AND EXPENSE, AND FOR THE MUTUAL BENEFIT OF LANDLORD AND TENANT, SHALL CARRY AND MAINTAIN THE FOLLOWING TYPES OF INSURANCE IN THE AMOUNTS SPECIFIED: COMPREHENSIVE PUBLIC LIABILITY INSURANCE, INCLUDING PROPERTY DAMAGE, INSURING LANDLORD AND TENANT AGAINST LIABILITY FOR INJURY TO PERSONS OR PROPERTY OCCURRING IN OR ABOUT THE LEASED PREMISES OR ARISING OUT OF THE OWNERSHIP, MAINTENANCE, USE, OR OCCUPANCY THEREOF. THE LIABILITY UNDER SUCH INSURANCE SHALL NOT BE LESS THAN $1,000,000.00 FOR ANY ONE PERSON INJURED OR KILLED AND NOT LESS THAN $5,000,000.00 FOR ANY ONE ACCIDENT AND NOT LESS THAN $1,000,000.00 FOR PERSONAL PROPERTY DAMAGE PER ACCIDENT. WRITTEN PROOF OF THIS INSURANCE COVERAGE SHALL BE REQUIRED BY ECHOTA PROPERTIES DURING THE TERM OF THIS LEASE. 10 ENTIRE AGREEMENT 30. THIS LEASE CONTAINS THE ENTIRE AGREEMENT OF THE PARTIES HERETO AND NO REPRESENTATIONS, INDUCEMENTS, PROMISES, OR AGREEMENTS, ORAL OR OTHERWISE, BETWEEN THE PARTIES, NOT EMBODIED HEREIN, SHALL BE OF ANY FORCE OR EFFECT. IN WITNESS WHEREOF, THE PARTIES HEREIN HAVE HEREUNTO SET THEIR HANDS AND SEALS OR CAUSED THIS INSTRUMENT TO BE EXECUTED THROUGH AUTHORIZED OFFICIALS IN THEIR NAME, IN TRIPLICATE, THE DAY AND YEAR FIRST ABOVE WRITTEN. SIGNED, SEALED AND DELIVERED LANDLORD: IN THE PRESENCE OF: STEPHEN FOX, RANDALL FOX, RAYMOND KING D/B/A ECHOTA PROPERTIES /s/[SIGNATURE ILLEGIBLE] /s/STEPHEN FOX (SEAL) __________________________ ______________________ UNOFFICIAL WITNESS /s/[SIGNATURE ILLEGIBLE] /s/RANDALL FOX (SEAL) - -------------------------- ---------------------- NOTARY PUBLIC GA STATE AT LARGE MY COMMISSION EXPIRES 4/30/98 ADDRESS: P.O. Box 2409 Calhoun, Georgia 30703 SIGNED, SEALED AND DELIVERED TENANT: IN THE PRESENCE OF: AMERICAN WEAVERS, L.L.C. PRESIDENT /S/ Robert Livingston /s/ Scott Fletcher (SEAL) - --------------------------- -------------------------- UNOFFICIAL WITNESS /S/ Tyka Robinson - -------------------------- NOTARY PUBLIC GA. STATE AT LARGE MY COMMISSION EXPIRES: 12/20/98 ADDRESS: P.O. Box 369 Calhoun, Georgia 30703 11 EX-10.18 13 LEASE AGREEMENT EXHIBIT 10.18 Form R140 COMMERCIAL LEASE This lease is made between H.C. Hoodenpyle of P.O. Box 272, Hiawassee, GA 50546, herein called Lessor, and American Weavers, L.L.C., of P.O. Box 369, Calhoun, GA 30703, herein called Lessee. Lessee hereby offers to lease from Lessor the premises situated in the City of N/A, county of Towns, State of Georgia, described as Hoodenpyle building off US Highway 76 (Building), upon the following TERMS and CONDITIONS: 1. Term and Rent. Lessor demises the above premises for a term of 13 Months, commencing January 1, 1998, and termination on February 1, 1998 or sooner as provided herein at the annual rental of $1.75 per square foot (26,000 sq. ft.) Forty Five Thousand, Five Hundred Dollars ($45,500.00), payable in equal installments in advance on the first day of each month for the month's rental, during the term of this lease. All rental payments shall be made to Lessor, at the address specified above. 2. Use. Lessee shall use and occupy the premises for manufacturing. The premises shall be used for no other purpose. Lessor represents that the premises may lawfully be used for such purpose. 3. Care and Maintenance of Premises. Lessee acknowledges that the premises are in good order and repair, unless otherwise indicated herein. Lessee shall, at his own expense and at all times, maintain the premises in good and safe condition, including plate glass, electrical wiring, plumbing and heating installations and any other system or equipment upon the premises and shall surrender the same, at termination hereof, in as good condition as received, normal wear and tear excepted. Lessee shall be responsible for all repairs required, excepting the roof, exterior walls, structural foundations, and: None, which shall be maintained by Lessor. Lessee shall also maintain in good condition such portions adjacent to the premises, such as sidewalks, driveways, lawns and shrubbery, which would otherwise be required to be maintained by Lessor. 4. Alterations. Lessee shall not, without first obtaining the written consent of Lessor, make any alterations, additions, or improvements, in, to or about the premises. 5. Ordinances and Statutes. Lessee shall comply with all statutes, ordinances and requirements of all municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the premises, occasioned by or affecting the use thereof by Lessee. 6. Assignment and Subletting. Lessee shall not assign this lease or sublet any portion of the premises without prior written consent of the Lessor, which shall not be unreasonably withheld. Any such assignment or subletting without consent shall be void and, at the option of the Lessor, may terminate this lease. 7. Utilities. All applications and connections for necessary utility services on the demised premises shall be made in the name of Lessee only, and Lessee shall be solely liable for utility charges as they become due, including those for sewer, water, gas, electricity and telephone services. 8. Entry and Inspection. Lessee shall permit Lessor or Lessor's agents to enter upon the premises at reasonable times and upon reasonable notice, for the purpose of inspecting the same, and will permit Lessor at any time within sixty (60) days prior to the expiration of this lease, to place upon the premises any usual "To Let" or "For Lease" signs, and permit persons desiring to lease the same to inspect the premises thereafter. 13. Destruction of Premises. In the event of a partial destruction of the premises during the term hereof, from any cause, Lessor shall forthwith repair the same, provided that such repairs can be made within sixty (60) days under existing governmental laws and regulations, but such partial destruction shall not terminate this lease, except that Lessee shall be entitled to a proportionate reduction of rent while such repairs are being made, based upon the extent to which the making of such repairs shall interfere with the business of Lessee on the premises. If such repairs cannot be made within said sixty (60) days, Lessor, at his option, may make the same within a reasonable time, this lease continuing in effect with the rent proportionately abated as aforesaid, and in the event that Lessor shall not elect to make such repairs which cannot be made within sixty (60) days, this lease may be terminated at the option of either party. In the event that the building in which the demised premises may be situated is destroyed to an extent of not less than one-third of the replacement costs thereof, Lessor may elect to terminate this lease whether the demised premises be injured or not. a total destruction of the building in which the premises may be situated shall terminate this lease 14. Lessor's Remedies on Default. If Lessee defaults in the payment of rent, or any additional rent, or defaults in the performance of any of the other covenants or conditions hereof, Lessor may give Lessee notice of such default and if Lessee does not cure any such default within 30 days, after the giving of such notice (or if such other default is of such nature that it cannot be completely cured within such period, if Lessee does not commence such curing within such 30 days and thereafter proceed with reasonable ================================================================================ [ILLEGIBLE] CERTIFICATE OF LIABILITY INSURANCE OP ID MT Date (MM/DD/YY) AMERI - 2 05/15/98 - -------------------------------------------------------------------------------- PRODUCER THIS CERTIFICATE ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS Huffines-Russell & Associates UPON THE CERTIFICATE HOLDER. THIS P.O. Box 2190 CERTIFICATE DOES NOT AMEND, EXTEND OR haretta GA 30023-2190 ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. ------------------------------------------ COMPANIES AFFORDING COVERAGE ------------------------------------------ Scott Russell - Direct COMPANY Tel No. 770-664-6818 A Kemper National Insurance Co Fax No. 770-475-0341 ------------------------------------------ COMPANY American Weavers, L.L.C. B 965 N. Wall Street ------------------------------------------ P.O. Box 369 COMPANY Calhoun GA 30703 C ------------------------------------------ COMPANY D ================================================================================ COVERAGES - -------------------------------------------------------------------------------- THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
- ------------------------------------------------------------------------------------------------------------------------------------ CO POLICY EFFECTIVE POLICY EXPIRATION LTR TYPE OF INSURANCE POLICY NUMBER DATE (MM/DD/YY) DATE (MM/DD/YY) LIMITS ==================================================================================================================================== GENERAL LIABILITY GENERAL AGGREGATE $ 2,000,000 -------------------------------------- A |X| COMMERCIAL GENERAL LIABILITY 3MH305120-00 07/01/97 07/01/98 PRODUCTS - COMP/OP AGG $ 1,000,000 -------------------------------------- |_| |_| CLAIMS MADE |X| OCCUR PERSONAL & ADV INJURY $ 1,000,000 -------------------------------------- |_| OWNER'S & CONTRACTOR'S PROT EACH OCCURRENCE $ 1,000,000 -------------------------------------- A |X| BROAD FORM FIRE DAMAGE (Any one fire) $ 50,000 -------------------------------- -------------------------------------- |_| VENDORS INCL. MED EXP (Any one person) $ 5,000 ==================================================================================================================================== AUTOMOBILE LIABILITY A |X| ANY AUTO F3Y019890-00 07/01/97 07/01/98 COMBINED SINGLE LIMIT $ 1,000,000 -------------------------------------- |_| ALL OWNED AUTOS BODILY INJURY $ (Per person) -------------------------------------- |_| SCHEDULED AUTOS BODILY INJURY $ |_| HIRED AUTOS (Per accident) -------------------------------------- |_| NON-OWNED AUTOS PROPERTY DAMAGE $ ==================================================================================================================================== GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $ -------------------------------------- |_| ANY AUTO OTHER THAN AUTO ONLY: -------------------------------------- |_| EACH ACCIDENT $ -------------------------------------- |_| AGGREGATE $ ==================================================================================================================================== EXCESS LIABILITY EACH OCCURRENCE $10,000,000 -------------------------------------- A |X| UMBRELLA FORM 3SB118108-00 07/01/97 07/0/98 AGGREGATE $10,000,000 -------------------------------------- |_| OTHER THAN UMBRELLA FORM $ ==================================================================================================================================== WORKERS COMPENSATION AND |X| WC STATU-|_| OTHER EMPLOYERS' LIABILITY TORY LIMITS -------------------------------------- A THE PROPRIETOR/ |_| INCL 3BR056375-00 07/01/97 07/0/98 EL EACH ACCIDENT $ 100,000 PARTNERS/EXECUTIVE |_| EXCL -------------------------------------- OFFICERS ARE: EL DISEASE - POLICY LIMIT $ 500,000 -------------------------------------- EL DISEASE - EA EMPLOYEE $ 100,000 ==================================================================================================================================== OTHER ==================================================================================================================================== DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS RE: 2212 US HIGHWAY 76 EAST, HIAWASSEE, GA. HUGH HOODENPLYE IS NAMED AS ADDITIONAL INSURED ON THIS LOCATION. WAIVER OF SUBROGATION PROVIDED. TENANT SHALL HOLD LANDLORD HARMLESS FROM DAMAGES ARISING OUT OF ANY DAMAGE TO ANY PERSON OR PROPERTY OCCURRING IN OR ABOUT PREMISES AND THE BUILDING. ==================================================================================================================================== CERTIFICATE HOLDER CANCELLATION - ------------------------------------------------------------------------------------------------------------------------------------ HOODENP SHOULD OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE HUGH HOODENPLYLE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE TO THE P.O. BOX 272 CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE HIAWASSEE, GA 30546 OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES. --------------------------------------------------------------------------------------- AUTHORIZED REPRESENTATIVE: Scott Russell - Director - ------------------------------------------------------------------------------------------------------------------------------------ ACORD 25-S (1/95) /s/ Scott Russell ACORD CORPORATION 19[ILLEGIBLE] ====================================================================================================================================
[LETTERHEAD OF LANEY CONSTRUCTION COMPANY, INC.] May 20, 1998 Contract/Proposal Hugh Hoodenpyle Project (American Weavers) Hiawassee Georgia Plant Laney Construction Company, Inc. proposes to furnish labor and material to construct a 150' x 250' x 23' eave height building at the American Weavers Plant in Hiawassee, Georgia. Laney Construction Company, Inc. has included in this quote to: Grade Work: Complete earth moving for a 150' x 250' building pad and a 100' wide x 80' long truck ramp for the approach ramp of 6 dock doors on west end wall of building. There will also be 2 - 24" x 24" drain inlets installed in the truck ramp area and drained with an 8" underground pipe away from dock area. Underground drainage will be installed between existing building and new building for gutter drains with 8" flexible pipe. Under-slab Plumbing: Under-slab plumbing will consist of 4 water closets, 2 - 4" pipes for sink drains and 2 vent pipes stubbed level at finish floor for future bathrooms. A new 6" PVC sewer line will be installed between existing building and new building to replace old tile sewer line. Concrete: Concrete Pad will be 150' wide by 250' long. Concrete will be 6" thick using fiber mesh reinforcing with a 18" wide x 12" deep monolithic footing around perimeter of building. Footing piers at column locations will be 3' wide long x 2' deep with 1 mat of #5 rebar 8" o.c. All concrete inside building will have a smooth steel trowel finish with 1 coat of cure and seal concrete sealer. Exterior concrete pad will be 100' wide x 75' long x 6" thick with fibermesh reinforcing in addition to 1 mat in 8' x 20' sheets of 6" x 6" x 6 gauge reinforcing wire. Exterior concrete will have a light broom finish with 1 coat of cure and seal concrete sealer. There will also be a 14' x 14' concrete pad at the 14' x 14' ground level door. Concrete walls at loading dock will be 8" thick with #4 rebar 12" o.c. both ways for reinforcing. Angle iron will be cast in concrete wall to weld dock plates to. Wing wall EX-10.19 14 LEASE AGREEMENT EXHIBIT 10.19 COMMERCIAL LEASE AND OPTION FOR PURCHASE AGREEMENT Between, Landlord, HUGH C. HOODENPYLE and AMERICAN WEAVERS, L.L.C., D/B/A AMERICAN WEAVERS in Hiawassee, Georgia, Tenant Lease This lease is made and entered into by and between HUGH C. HOODENPYLE, referred to in this contract as landlord, whose address is Post Office Box 272, in the City of Hiawassee, County of Towns, State of Georgia, and AMERICAN WEAVER, L.L.C. D/B/A AMERICAN WEAVERS in Hiawassee, Georgia, Tenant referred to in this contract as tenant, whose address is 965 North Wall Street, Calhoun, Georgia 30701, with local offices located at 2212 U.S. Hwy. 76 East, in the County of TOWNS, State of Georgia. Section One Definitions 1. Specific Definitions. As used throughout this lease, the following terms have the following meanings: a. Landlord: Hugh C. Hoodenpyle. b. Tenant: American Weavers, L.L.C. d/b/a American Weavers. c. Premises or Leased Premises: That Tract or parcel of real property more particularly described in Exhibit "A" attached hereto and incorporated herein by reference. d. Building: Refers to the building currently located on the Premises and as context requires, the new building to be constructed, collectively, "the Buildings". The new building to be constructed in accordance with the Contract/Proposal between Laney Construction Company, Inc. and Hugh Hoodenpyle, dated May 20, 1998, and attached hereto as Exhibit "B". e. Land: The real property on which the building is situated also known as the Premises. f. Purpose: This lease is for the purpose of authorizing and allowing the Tenant to rent the existing building to conduct a weaving business on the leased premises or land and to construct a new building on the premises as provided hereunder. Landlord shall cooperate in the obtaining of all applicable permits and licenses, zoning applications and variances. In general, the purpose of this lease shall be to authorize the business of rug weaving and similar pursuits on the leased premises. Page 1 of g. Tenant's Notice Address: 965 North Wall Street Calhoun, Georgia 30701: Attention: Chief Financial Officer. h. Term: Five (5) years, beginning with the completion of construction of the new building, [in the event of dispute as to the date the building is completed and appropriate for occupancy, both parties shall select one architect to whose certificate shall be conclusive evidence of the date the building is suitable for occupancy], and ending five years after the beginning date. In the event this lease is extended beyond this ending or later date, "term" means the end of any such extension period, unless the context indicates otherwise. i. Rental: The sum of Twelve Thousand Dollars ($12,000.00) payable monthly in advance. j. New Building: The building to be constructed. Said building shall consist of NO LESS THAN 38,000 square feet. K. Existing Building: The building located on the premises as of the date of the execution of this contract consisting of approximately 26,000 square feet. 2. General Definitions. As used throughout this lease, the following words have the meanings set out after such words, unless the context in which they appear clearly indicates otherwise. a. Alteration: Any addition or change to, or modification of, the premises made by tenant after any initial fixturing period, including, without limitation, the installation of fixtures, tenant's trade fixtures, and tenant's improvements as defined in this lease. b. Authorized representative: Any officer, agent, employee, or independent contractor retained or employed by either party, acting within the authority given him or her by that party. c. Damage: Death, injury, deterioration, or loss to a person or injury, deterioration, or loss to property caused by another person's acts or omissions. d. Damages: Monetary compensation or indemnity that can be recovered in the courts by any person who has suffered damage to the person, property, or rights of such person through another's act or omission. e. Destruction: Any damage, as defined in this lease, to or disfigurement of the premises. f. Encumbrance: Any deed of trust, mortgage, or other written security device or agreement affecting the Page 2 premises, and the note or other obligation secured by it. g. Expiration: The coming to an end of the time specified in the lease as its duration, including any extension of the term, if applicable. h. Good condition: The good physical condition of the premises and each portion of the premises, including, without limitation, signs, windows, appurtenances, and tenant's personal property as defined in this lease. "In good condition" means first class, neat, and broom clean, and is equivalent to similar phrases referring to physical adequacy in appearance and for use. i. Hold harmless: To defend and indemnify from all liability, losses, penalties, damages as defined in this lease, costs, expenses (including, without limitation, attorneys' fees), causes of action, claims, or judgments arising out of or related to any damage, as defined in this lease, to any person or property. j. Law: Any judicial decision, constitution, statute, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal, or other government agency or authority having jurisdiction over the parties or the premises, or both, in effect either at the time of execution of the lease or at any time during the term, including, without limitation, any regulation or order of a quasi-official entity or body (such as, board of fire examiners or public utilities). k. Lender: Beneficiary, mortgagee, secured party, or other holder of an encumbrance, as defined in this lease. l. Lien: Charge imposed on the premises by someone other than landlord, by which the premises are made security for the performance of an act. Most of the liens referred to in this lease are mechanics' liens. m. Maintenance: Repairs, replacement, repainting and cleaning. n. Person: One or more human beings or legal entities or other artificial persons, including, without limitation, partnerships, corporations, trusts, estates, associations, and any combination of human beings and legal entities. o. Provision: Any term, agreement, covenant, condition, clause, qualification, restriction, reservation, or other stipulation in the lease that defines or otherwise controls, establishes, or limits the performance required Page 3 or permitted by either party. p. Rent: Base rental, additional rental, prepaid rent, security deposit, and other similar charges payable by tenant to landlord. q. Restoration: Reconstruction, rebuilding, rehabilitation, and repairs that are necessary to return destroyed portions of the premises and other property to substantially the same physical condition as they were in immediately before the destruction. r. Successor: Any assignee, transferee, personal representative, heir, or other person or entity succeeding lawfully, and pursuant to the provisions of this lease, to the rights or obligations of either party. s. Tenant's improvements. Any addition to or modification of the premises made by tenant before, at, or after commencement of the term, including, without limitation, fixtures (but not including tenant's trade fixtures, as defined in this lease). t. Tenant's personal property: Tenant's equipment, furniture, merchandise, and movable property placed in the premises by tenant, including tenant's trade fixtures, as defined in this lease. u. Tenant's trade fixtures: Any property installed in or on the premises by tenant for purposes of trade, manufacture, ornament, or related use. v. Termination: The ending of the term for any reason before expiration, as defined in this lease. Section Two Delay in Delivery of Possession If landlord is unable to deliver possession of the premises as a result of causes beyond landlord's reasonable control, landlord shall not be liable for any damage caused for failing to deliver possession, and this lease shall not be void or voidable. Tenant shall not be liable for rent until landlord delivers possession of the premises to tenant. Notwithstanding the above, the lease shall be voidable by either party in the event that construction on the new building does not begin or ground broken within 9 weeks of the execution of this lease and option agreement. Page 4 Section Three Leasing and Payment of Rental Landlord leases to tenant and tenant rents from landlord the premises for the term and for the rent as defined in Section One. Tenant agrees to pay to landlord each installment of rental as provided above. The rent shall be paid by tenant to landlord without deduction or offset, delivered to the building office or to such other person or at such other place as landlord may from time to time designate in writing. No security or guaranty which may now or subsequently be furnished landlord for performance by tenant of the covenants or conditions of this lease shall in any way be a bar or defense to any action in unlawful detainer, or for the recovery of the premises, or to any action which landlord may at any time commence for a breach of any of the covenants or conditions of this lease. SECTION FOUR Lessee's Option To Purchase Demised Premise Lessor grants to lessee an option to buy the leased premises after the first two years of the lease have been completed. After this two year period, the lessee may elect to purchase the leased premises at a price of to be determined as follows: The purchase price shall be based on the average of two appraisals; one appraisal to be provided by an appraiser selected by the landlord, and one appraiser selected by the tenant. If the average of the two appraisal is unacceptable to either party or one appraisal deviates more than ten percent (10%) from the lower appraisal, then the parties shall mutually select a third appraiser who shall prepare an appraisal that shall be binding upon the parties. All appraiser shall be licensed in the State of Georgia and shall be qualified experts in Commercial Real Estate Valuation. The option shall be excised in writing, mailed by certified mail to the landlord. Closing on the property shall be set within 90 days of the exercise of the receipt of the option notice to the landlord. The option shall remain in effect throughout a valid lease period. At closing, the purchase price shall be payable in cash. Said option is conditional upon the tenant's full performance the lease. During the term of this lease, the landlord may not transfer or sell the leased premisses without the written permission of the Lessee. Notwithstanding the above, should the lessee breach the Page 5 lease in any manner or fashion, this option shall cease by operation of law and agreement of the parties and the landlord may sell or transfer the leased premises without the approval of the lessee; however, all other convents, conditions, and provisions of the lease shall remain in effect. Notwithstanding the above option, the option shall not operate to prevent the landlord from borrowing against the leased premises or executing any Deed of Trust, mortgage, or Deed to Secure Debt. Lessee acknowledges that Lessee's interests as lessee or under any option agreement is subordinate to the interests of any current or future lending or financial institution who has a security interest in the leased premises. NOTWITHSTANDING THE ABOVE, THE LANDLORD MAY TRANSFER THE PROPERTY TO ANY STATE, LOCAL OR FEDERAL GOVERNMENT, AUTHORITY OR SUBDIVISION THEREOF, FOR THE PURPOSE OF DEVELOPING AN INDUSTRIAL PARK. In the event of the exercise of this option, lessor agrees to convey the property to lessee by warranty deed free and clear of all encumbrances except the taxes and assessments which under this lease are to be paid by lessee. Prior to consummation of the option and during the term of the lease, lessee may not place deeds to secure debt or deeds of trust on the property. In the event and on the lessee's exercise of the option to purchase the premises in the manner provided, a contract for the sale and purchase of the property exists, and the relationship of lessor and lessee is automatically terminated, and the lessee shall be in possession of the premises as a vendee under an executory contract. Whenever lessee shall desire to exercise this option, it shall give lessor written notice. Lessor will within reasonable time after receipt of such notice deliver, or cause to be delivered, to lessee a preliminary title report by private attorney or title company licensed in Georgia. Defects in title, if any, shown by such report shall be remedied by lessor within thirty days of notice to Landlord of such defects and Landlord shall deliver to lessee at the time of closing an owner's policy of title insurance issued by the company in the amount of the purchase price subject only to encumbrance, exceptions, and reservations mentioned in this lease. OPTION TO RENEW FOR ADDITIONAL ONE YEAR PERIOD ---------------------------------------------- Notwithstanding any provision to the contrary, the Lessee shall have the option to renew the lease for an additional term of 12 months or one year during an rental period commencing at the expiration of the initial lease term. All of the terms and conditions of the lease shall apply during the renewal terms. This option shall be excised by written notice given to the Landlord not less than thirty (30) days prior to the expiration of the initial lease term. If notice is not given in the manner provided herein within the time specified, this option shall expire. Page 6 Section Five Use of Premises The premises are leased to the tenant for the purpose set forth in this lease and for no other. Section Six Alterations, Mechanics' Liens Tenant shall not make, directly or indirectly, any alterations without first obtaining the written consent of landlord. Any alteration shall become at once a part of the realty and belong to landlord subject, however, to landlord's right to require removal and restoration as provided in this lease. Tenant shall keep the premises and the building free from any liens arising out of any work performed, material furnished, or obligations incurred by tenant. Tenant agrees that if tenant shall make any alterations of the premises, tenant will not take such action until five days after receipt by tenant of the written consent of landlord required by this section, in order that landlord may post appropriate notices to avoid any possible liability with respect to mechanics' liens or other such claims. Tenant shall at all times permit such notices to be posted and to remain posted until the completion and acceptance of such work. Consent for such alterations shall not be unreasonably withheld by landlord. Section Seven Work To Be Performed by Landlord Landlord shall not be required to perform any work upon the premises of any type or nature unless specifically required by this lease or a special agreement to that effect is expressed in a rider attached to and forming a part of this lease and then only to the extent such work is set forth in the rider. This rider to be effective shall be signed by both landlord and tenant, and shall clearly identify its applicability to this lease. Notwithstanding the above, the landlord shall be responsible for keeping in good repair the roof, the foundation and the exterior walls, and the septic system serving both building. Notwithstanding, this provision, the lessee shall be responsible for all repairs resulting from the lessee's direct actions, whether negligent, unintentional or intentional by lessee or lessee's agents and/or employees. Page 7 Section Eight Restrictions on Use No use shall be made or permitted to be made of the premises, nor acts done, that will increase the existing rate of insurance upon the building, or cause a cancellation of any insurance policy covering the building, or any part of it, nor shall tenant sell, or permit to be kept, used, or sold, in or about the premises any article that may be prohibited by the standard form of fire insurance policies. Tenant shall, at tenant's sole cost and expense, comply with any and all requirements, pertaining to the premises, of any insurance organization or company necessary for the maintenance of reasonable fire and public liability insurance covering the building and appurtenances. Tenant shall not do or permit anything to be done in or about the premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the building or injure or annoy them, or use or allow the premises to be used for any immoral, unlawful, or objectionable purposes. No loudspeakers or other similar device, system, or apparatus which can be heard outside the premises shall, without the prior written approval of landlord, be used in or at the premises. Tenant shall not commit, or suffer to be committed, any waste upon the premises, or any nuisance (public or private) or other act or thing of any kind whatsoever that may disturb the quiet enjoyment or cause unreasonable annoyance of any other tenant in the building. Section Nine Compliance with Law Tenant shall, at its sole cost and expense, comply with all laws pertaining to tenant's use of the premises, and shall faithfully observe all laws in the use of the premises. The judgment of any court of competent jurisdiction, or the admission of tenant in any action or proceeding against tenant, whether landlord be a party to it or not, that tenant has violated any law in the use of the premises shall be conclusive of that fact as between landlord and tenant. Without limiting the generality of the foregoing, the duties of tenant under this provision shall include the making of all such alterations of the premises as may be required by law by reason of the particular manner or mode of use of the premises by tenant, or occasioned by reason of the failure of tenant to maintain or repair the premises as required under this lease. Page 8 Section Ten Indemnity and Exculpations; Insurance 1. Exculpation and Indemnity of Landlord. Landlord shall not be liable to tenant for any damage to tenant or tenant's property, and tenant waives all claims against landlord for damage to person or property from any cause. Tenant shall hold landlord harmless from all damages arising out of any damage to any person or property occurring in, on, or about the premises and the building. A party's obligation under this section to indemnify and hold the other party harmless shall be limited to the sum that exceeds the amount of insurance proceeds, if any, received by the party being indemnified. 2. Public Liability and Property Damage Insurance. Tenant at its cost shall maintain public liability and property damage insurance with liability limits of not less than One Million Dollars and One Million Dollars per occurrence, and property limits of not less than One Million Dollars per occurrence insuring against all liability of tenant and its authorized representatives arising out of and in connection with tenant's use or occupancy of the premises. All public liability insurance and property damage insurance shall insure performance by tenant of the indemnity provisions of this lease. Both parties shall be named as additional insureds, the policy shall contain cross-liability endorsements, and shall be primary insurance as far as landlord is concerned. 3. Increase in Amount of Public Liability and Property Damage Insurance. Not more frequently than every three years, if, in the opinion of landlord's lender or of the insurance broker retained by landlord, the amount of public liability and property damage insurance coverage at that time is not adequate, tenant shall increase the insurance coverage as reasonably required by either landlord's lender or landlord's insurance broker. 4. Waiver of Subrogation. The parties release each other, and their respective authorized representatives, from any claims for damage to any person, on the property or on or within the premises and other improvements including the building to be constructed hereunder, and to or from the fixtures, personal property, tenant's improvements, and alterations of either landlord or tenant in or on the premises and the buildings and other improvements in which the premises are located that are caused by or result from risks insured against under any fire and extended coverage insurance policies carried by the parties and in force at the time of any such damage. Tenant shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against landlord in connection with any damage covered by any policy. Page 9 5. Other Insurance Matters. All the insurance required under this lease shall: a. Be issued by insurance companies authorized to do business in the State of Georgia, with a financial rating of at least an A + 3A status as rated in the most recent edition of Best's Insurance Reports. b. Be issued as a primary policy. c. Contain an endorsement requiring 30 days' written notice from the insurance company to both parties and landlord's lender before cancellation or change in the coverage, scope, or amount of any policy. d. Be renewed not less than 20 days before expiration of the term of the policy. A Certificate of Insurance shall be provided to the landlord at the commencement of the term and on each renewal of the policy. Section Eleven Rules and Regulations Tenant shall faithfully observe and comply with the rules and regulations of the industrial complex as they now exist or as they be later developed and all reasonable modifications of and additions to it from time to time put into effect by landlord. Landlord shall not be responsible to tenant for the nonperformance by any other tenant or occupant of the building of any of such rules and regulations. Section Twelve Utilities Landlord shall furnish no utilities to the premises. Tenant shall pay for all services and utilities. Section Thirteen Personal Property Taxes All property taxes assessed by any governmental body upon tenant's personal property and tenant's improvements shall be paid by tenant and, should these taxes be applied in any manner to the real property taxes, tenant, upon demand, will pay such personal property taxes to landlord, who in turn will pay them to the proper tax collector. Page 10 Section Fourteen Repair By taking possession of the buildings leased under this lease, tenant accepts the total premises as being in good sanitary order, condition, and repair. Tenant, at tenant's sole cost and expense, shall keep the premises and every part of it in good condition and repair, damage to it by fire, earthquake, act of God or the elements excepted. Tenant waives all rights to make repairs at the expense of landlord as provided in any law, statute, or ordinance now or subsequently in effect. Upon the expiration or earlier termination of the term, tenant shall surrender the premises to landlord in the same condition as when received, ordinary wear and tear and damage by fire, earthquake, act of God or the elements excepted. No representations respecting the conditions of the premises or the building have been made by landlord to tenant except as specifically stated in this lease. Tenant waives all rights under, and the benefits of, any homestead exemption, and under any similar law, statute, or ordinance now or hereafter in effect. Section Fifteen Restoration of Premises Tenant agrees that prior to the expiration of the term of the lease, or upon the earlier termination of the lease, or upon tenant's unlawful abandonment of the premises, whichever occurs first, tenant will leave the premises in the same condition as when received, reasonable wear and tear, loss by fire or other casualty, and acts of God excepted, and if tenant made any alteration or improvement of the premises, with or without landlord's consent as required by the terms of this lease, tenant will in all cases restore the premises substantially to their original condition as of the inception of the term of the lease (wear and tear, loss by fire or other casualty, and acts of God excepted) unless landlord has expressly set forth in writing that a particular alteration or improvement shall not be removed. Section Sixteen Entry by Owner Tenant shall permit landlord and its authorized representatives to enter the premises at all reasonable times for purposes of inspection, maintenance, or making repairs or additions to, or alterations of, any other portion of the building, including the erection and maintenance of such scaffolding, canopies, fences, and props as may be required, or for the purpose of posting notices of nonliability for alterations or repairs, or for the purpose of placing upon the premises any usual or ordinary "for sale" or "for rent" signs, without any liability to tenant for any loss of occupation or quiet enjoyment of the premises occasioned by such Page 11 acts, and tenant shall permit landlord, at any time within 90 days prior to the expiration of this lease, to place upon such premises any usual or ordinary "for rent" or "to lease" signs. Section Seventeen Estoppel Certificates Tenant shall at any time and from time to time, upon not less than 20 days prior written, request by landlord, execute, acknowledge, and deliver to such party a statement in writing certifying that this lease is unmodified and in full force and effect (or if there has been any modification of this lease that it is in full force and effect as modified and stating the modification or modifications) and that there are no defaults existing (or if there is any claimed default, stating its nature and extent) and stating the dates to which the rent and other charges have been paid in advance. It is expressly understood and agreed that any such statement delivered pursuant to this section may be relied upon by any prospective purchaser of the estate of landlord, or any lender or prospective assignee of any lender on the security of the premises or the property of which it is a part, or any part of it, and by any third person. Section Eighteen Abandonment of Premises Tenant shall not vacate or abandon the premises at any time during the term. If tenant abandons, vacates, or no work is done at or upon the premises for a period in excess of one month, or if tenant surrenders the premises, or is dispossessed by process of law, or otherwise, any personal property belonging to tenant and left on the premises shall be deemed to be abandoned, and, at the option of landlord, such property may either be removed, and stored in any public warehouse or elsewhere at the cost of and for the account of tenant. Section Nineteen Removal of Trade Fixtures of Tenant at End of Term If tenant shall fully and faithfully perform all of tenant's obligations under this lease, then tenant may, and upon the request of landlord shall, remove all trade fixtures installed in the premises by tenant at the expiration or termination of the term of this lease, or any renewal of this lease, provided that such removal may be effected without damage to the premises. Page 12 Section Twenty Surrender of Lease The voluntary or other surrender of this lease by tenant, accepted by landlord, or the mutual cancellation of this lease, shall not work a merger and shall, at the option of landlord, terminate all or any existing subleases or subtenancies or operate as an assignment to landlord of any or all of such subleases or subtenancies. Section Twenty-One Holding Over Any holding over after the expiration of the term of this lease without the consent of landlord shall be construed to be a tenancy from month to month at a rent equal to one and one-half the rent payable if this lease were still in force and effect. Section Twenty-Two Grace Period 1. No default or breach of any of the covenants and conditions shall exist on the part of landlord or tenant until the party claiming default or breach shall serve upon the other a written notice, as provided in this lease, specifying with particularity where such default or breach is alleged to exist, and the other party shall fail to perform or observe such covenant or condition, as the case may be, within 30 days after the serving of such notice on it. 2. In the event, however, that any penalty be incurred or created, or interest be charged by reason of lapse of time due to the failure or omission of such party to have performed or observed such covenant or condition, then such party shall bear and pay such penalty or discharge such interest as additional rental under this lease. 3. The foregoing period of grace shall not apply to rent payments or other payments required of tenant under this lease, the time of such payments being of the essence of this lease. 4. If either party shall be delayed or prevented from the performance of any act required by this lease by reason of acts of God, strikes, lockouts, labor troubles, inability to procure materials, restrictive laws, or other cause, without fault and beyond the reasonable control of the party obligated (financial inability excepted), performance of such act shall be extended for a period equivalent to the period of such delay, provided, however, that nothing in this section shall excuse tenant from the prompt payment of any rent or other charge required of tenant except as may be expressly provided elsewhere in this lease. Page 13 Section Twenty-Three Landlord's Remedies Upon Default Landlord shall have the following remedies if tenant commits a default. These remedies are not exclusive but are in addition to any remedies now or later allowed by law. 1. Landlord shall have the right to terminate this lease or to have this lease continue in full force and effect with tenant at all times having the right to possession of the premises. Upon such termination, landlord, in addition to any other rights and remedies, including rights and remedies under the Official Code of Georgia or any amendment to it, shall be entitled to recover from tenant the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the tenant professes could be reasonably avoided. The worth at the time of award of the amount referred to in this section shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank, Atlanta Georgia, at the time of the award plus one percent. Prior to such award, landlord may relet the premises, if vacated, for the purpose of mitigating damages suffered by landlord because of tenant's failure to perform tenant's obligations under this lease. 2. Any proof of tenant of the amount of rent loss that could be reasonably avoided shall be made in the following manner: Landlord and tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the premises, and in the same geographic vicinity; such two real estate brokers shall select a third licensed real estate broker; and the three licensed real estate brokers so selected shall determine the amount of rent loss that could be reasonably avoided for the balance of the term of this lease after the time of award. The decision of the majority of such licensed real estate brokers shall be final and binding upon the parties to this agreement. 3. As used in this lease, the term "time of award" shall mean either the date upon which tenant pays to landlord the amount recoverable by landlord as set forth in this lease or the date of entry of any determination, order, or judgment of any court or other legally constituted body, or of any arbitrators, determining the amount recoverable, whichever occurs first. 4. Should landlord, following any breach or default of this lease by tenant, elect to keep this lease in full force and effect, for so long as landlord does not terminate tenant's right to possession of the premises (notwithstanding the fact that tenant may have abandoned the premises), then landlord, in addition to all other rights and remedies which landlord may have at law or in equity, shall have the right to enforce all of landlord's rights and remedies under this lease. Notwithstanding any such election to have this lease remain in full force and effect, landlord may at any time thereafter elect to terminate this lease for any previous Page 14 breach or default which remains uncured, or for any subsequent breach or default. For the purposes of landlord's right to continue this lease in effect upon tenant's breach or default, act of maintenance or preservation, or efforts of landlord to relet the property, or the appointment of a receiver on initiative of landlord to protect its interest under this lease, do not constitute a termination of tenant's right to possession. 5. In the event landlord elects, upon breach or default of this lease by tenant, to keep this lease in full force and effect, landlord may, as attorney-in-fact of tenant, from time to time sublet the premises or any part of it for any term and at any rent and upon any other terms as landlord in landlord's sole discretion may deem advisable, with the right to make alterations, restoration, and maintenance to the premises. Upon each such subletting: (a) The tenant shall be immediately liable to pay to landlord, in addition to indebtedness other than rent due under this lease, the cost of such subletting and of such alterations and repairs incurred by landlord, and the amount by which the rent under this lease for the period of such subletting (to the extent such period does not exceed the term of this lease) exceeds the amount agreed to be paid as rent for the premises for such period of such subletting; or (b) At the option of landlord, rents received from such subletting shall be applied: first, to payment of indebtedness other than rent due under this lease from tenant to landlord; second, to the payment of costs of such subletting and of such alterations and repairs; third, to payment of rent due and unpaid under this lease; and the residue, if any, shall be held by landlord and applied in payment of future rents as they become due under this lease. If tenant has been credited with any rent to be received by such subletting under option (1) and such rent shall not be promptly paid to landlord by the subtenant, or if such rent received from such subletting under option (2) during any month be less than that to be paid during that month by tenant under this lease, tenant shall pay any such deficiency to landlord. The deficiency shall be calculated and paid monthly. No taking possession of the premises by landlord, as attorney-in-fact for tenant, shall be construed as an election on its part to terminate this lease unless a written notice of such an intention be given to tenant. Notwithstanding any such subletting without termination, landlord may at any time thereafter elect to terminate this lease for such a previous breach. At landlord's option and application, a receiver for tenant shall be appointed to take possession of the premises and to exercise landlord's right to sublet the premises as attorney-in-fact for tenant and to apply any rent collected from the premises as provided in this lease. 6. Nothing in this section affects the right of the landlord to indemnification for liability arising prior to the termination of the lease for personal injuries or property damage where the Page 15 lease provides for such indemnification. 7. If tenant shall be in default in the performance of any covenant to be performed by it under this lease, then, after notice and without waiving or releasing tenant from the performance of such covenant, landlord may, but shall not be obligated to, perform any such covenant, and in exercising any such right pay necessary and incidental costs and expenses in connection with it. All sums so paid by landlord, together with interest on it at the maximum rate of interest per year allowed by law, shall be deemed additional rental and shall be payable to landlord on the next rent-paying day. 8. Rent not paid when due shall bear interest at the rate of one and one-half percent interest per month or such other rate as allowed by law from the date due until paid. Section Twenty-Four Attorney's Fees on Default If either landlord or tenant shall obtain legal counsel or bring an action against the other by reason of the breach of any covenant, warranty, or condition of this lease, or otherwise arising out of this lease, the unsuccessful party shall pay to the prevailing party reasonable attorneys' fees, which shall be payable whether or not such an action is prosecuted to judgment. The term "prevailing party" shall include, without limitations, a party who obtains legal counsel or brings an action against the other by reason of the other's breach or default and obtains substantially the relief sought whether by compromise, settlement or judgment. Section Twenty-Five Insolvency The occurrence of any of the following events shall constitute a breach of this lease by tenant and a default under this agreement: 1. The appointment of a receiver to take possession of all or substantially all of the assets of tenant; 2. A general assignment by tenant for the benefit of creditors; or 3. Any action taken or suffered by tenant under any insolvency or bankruptcy act. Page 16 Section Twenty-Six Assignment or Subletting 1. Tenant shall not assign this lease or any interest in it, and shall not sublet the premises or any part of it or any right or privilege appurtenant to this agreement or permit any other person (the agents and servants of tenant excepted) to occupy or use the premises or any portion of it without first receiving the written consent of landlord. Landlord agrees not to unreasonably withhold such consent but may, in lieu of granting such consent, terminate this lease. A consent to one assignment, subletting, or occupation and use by another person shall not be deemed to be a consent to any other or further assignment, subletting, or occupation, nor a waiver of the provisions of this section, except as to the specific instance covered by it. Any such assignment, subletting, or occupation without consent shall be void and shall at the option of landlord terminate this lease. This lease and any interest in it shall not be assignable as to the interest of tenant by operation of law without the written consent of landlord. 2. In the event tenant contemplates an action under Section Twenty-Seven, tenant shall give landlord 90 days' written notice of tenant's intention to sublease or assign this lease, and such notice shall constitute an offer by tenant to landlord to terminate this lease and the future rights and obligations of the parties under this lease. Landlord may accept such an offer by giving written notice of acceptance to tenant within 30 days of landlord's receipt of tenant's notice of intention to sublet or assign. Upon acceptance, this lease shall terminate as of the end of the calendar month in which notice of acceptance is given to tenant. Tenant shall then surrender the premises to landlord and the provisions of this lease applicable to termination upon expiration of the term shall apply. Such termination shall not relieve either party from liability from any breach or default occurring prior to termination. 3. Tenant shall have the right, in the event of a merger, consolidation, reorganization, or recapitalization, whether or not tenant survives as the surviving corporation, to assign or transfer this lease to the surviving corporation. Such right of assignment or transfer shall, however, be limited to an assignee whose book value is equal to or greater than the book value of tenant at the time of such assignment or transfer. In the event tenant contemplates making an assignment or transfer as provided in this section, Paragraph 3 tenant shall give 30 days' notice to landlord of its intent to make such assignment or transfer, and shall furnish to landlord all pertinent information as to the book value of the proposed assignee. Upon assignment or transfer, as provided in this section, the liability of tenant shall terminate and landlord shall look to the assignee for performance under this lease, provided such assignee agrees in writing to be bound by the terms and conditions of this lease as though an original signatory to this agreement. Page 17 4. Any transfer of shares by tenant by reason of which the present shareholders own less than 51 percent of the outstanding stock of tenant or a surviving corporation shall constitute an assignment of this lease subject to the provisions limiting assignment. 5. Except as otherwise expressly provided in this lease, tenant shall remain fully liable on this lease and shall not be released from performing any of the terms, covenants, and conditions of this lease unless landlord consents. 6. Tenant immediately and irrevocably assigns to landlord, as security for tenant's obligations under this lease, all rent from any subletting of all or a part of the premises as permitted by this lease, and landlord, as assignee and as attorney-in-fact for tenant, or a receiver for tenant appointed on landlord's application, may collect such rent and apply it toward tenant's obligations under this lease, except that, until the occurrence of an act of default by tenant, tenant shall have the right to collect such rent. 7. In no event shall tenant assign this lease or sublet the premises, or any portion of it, to any then-existing or prospective tenant of the building. 8. Tenant agrees to pay to landlord the sum of One thousand Dollars ($1,000.00) to reimburse landlord for all expenses, including attorneys' fees, incurred by landlord in connection with any requested and permitted assignment or subleasing. Such a sum shall be in addition to the attorneys' fees and costs allowed under this lease. Section Twenty-Seven Transfer by Landlord; Release From Liability In the event landlord shall sell or transfer the building or any part of it, and as a part of such transaction shall assign its interest as landlord in and to this lease, then from the effective date of such sale, assignment, or transfer landlord shall have no further liability under this lease to tenant except as to any matters of liability that have accrued and are unsatisfied as of such date, it being intended that the covenants and obligations contained in this lease on the part of landlord shall be binding upon landlord and its successors and assigns only during their respective periods of ownership of the fee or leasehold estate, as the case may be. Section Twenty-Eight Damage to or Destruction of Premises In the event of a partial destruction of the premises from any cause covered by landlord's standard fire and extended coverage Page 18 insurance, landlord shall immediately repair such destruction, provided the cost of repair does not exceed the insurance proceeds and such repairs can be made within 60 days, but partial destruction shall in no way annul or void this lease, and tenant shall not be entitled to a proportionate reduction of rent while such repairs are being made. If partial destruction was caused by any risk not covered by landlord's insurance, or if the cost of repair exceeds the insurance proceeds payable, landlord may, at its option, make such repairs, provided the repairs can be made within 60 days, and the lease shall remain in full force and effect. If the landlord does not elect to make repairs it is not obligated to make, or if such repairs cannot be made within 60 days, or if such repairs cannot be made under law, this lease may be terminated at the option of either party. In the event the building is destroyed to the extent of not less than thirty-three and one-third percent of the replacement cost of it, landlord may elect to terminate this lease, whether the premises are injured or not and without liability to tenant. A total destruction of the premises, or of the building, shall terminate this lease. In the event of any dispute between landlord and tenant relative to the provisions of this section, they shall submit their dispute to arbitration in accordance with the rules of the American Arbitration Association, and the arbitration shall be final and binding upon both landlord and tenant, and the cost of such arbitration shall be borne equally between them. Section Twenty-Nine Eminent Domain If all or any part of the premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, either party to this agreement shall have the right, at its option, to terminate this lease upon notice given within 90 days after the date of such taking or appropriation. If all or any part of the building shall be taken or appropriated by any public or quasi-public authority under any power of eminent domain, landlord may terminate this lease upon notice given within 90 days after the date of such taking or appropriation. In either of such events, landlord shall be entitled to, and tenant upon demand of landlord shall assign to landlord, any rights of tenant to any and all income, rent, award, or any interest whatsoever which may be paid or made in connection with such public or quasi-public use or purpose, and tenant shall have no claim against landlord for the value of any unexpired term of this lease. If a part of the premises shall be so taken or appropriated and neither party to this agreement shall elect to terminate the lease, the rent subsequently to be paid shall be equitably reduced. Page 19 Section Thirty Subordination to Security Deeds This lease shall be subject and subordinate at all times to all ground and underlying leases which may now, exist or subsequently be executed affecting the building and/or the land, and to the lien of any encumbrance in any amount or amounts whatsoever now or subsequently placed on or against the building and/or land or on or against any ground or underlying lease without the necessity of having further instruments on the part of tenant to effectuate such subordination. Notwithstanding the foregoing, tenant covenants and agrees to execute and deliver upon demand such further instruments evidencing such subordination of this lease to such ground or underlying leases and to the lien of any such encumbrance as may be required by landlord. Tenant irrevocably appoints landlord the attorney-in-fact of tenant to execute and deliver any such instrument or instruments for or in the name of tenant. In the event of termination of any ground or underlying lease, or in the event of foreclosure or exercise of any power of sale under any encumbrance superior to this lease or to which this lease is subject or subordinate, tenant shall upon demand attorn to the lessor under such ground or underlying lease or to the purchaser at any foreclosure sale or sale pursuant to the exercise of any power of sale under any encumbrance, in which event this lease shall not terminate and tenant shall automatically be and become the tenant of such Lessor under such ground or underlying lease or such purchaser, whichever shall make demand for it. Section Thirty-One Effect of Exercise of or Failure To Exercise Rights by Landlord Neither the exercise of nor failure to exercise any right, option, or privilege under this lease by landlord shall exclude landlord from exercising any and all other rights, options, or privileges under this lease, nor shall such exercise or nonexercise relieve tenant from tenant's obligation to perform each and every covenant and condition to be performed by tenant under this lease, or from damages or other remedy for failure to perform or meet the obligations of this lease. Section Thirty-Two Waiver The waiver by landlord of any breach of any term, covenant, or condition contained in this lease shall not be deemed to be a waiver of such term, covenant, or condition, or of any subsequent breach of such term, covenant, or condition, or of any other term, covenant, or condition in this lease. The acceptance of rent under this lease by landlord shall not be deemed to be a waiver of any preceding breach by tenant of any term, covenant, or condition of Page 20 this lease other than tenant's breach in failing to pay the particular rent so accepted regardless of landlord's knowledge of such additional preceding breach at the time of the acceptance of such rent. Section Thirty-Three Notices All notices to be given to tenant may be given in writing personally or by depositing the notices in the United States mail, postage prepaid, and addressed: if to tenant, at tenant's notice address as set forth in Section One, Paragraph 1, subparagraph 9, or at such other place or places as tenant may from time to time designate in writing; if to landlord, at the building office, or at such other place or places as landlord may from time to time designate in writing. Section Thirty-Four Representations This lease represents the entire agreement of the parties with respect to the parties' rights and duties under this lease. Tenant acknowledges that neither landlord nor any agent, servant, or representative of landlord, or any person purporting to act on landlord's behalf, has made any representation, warranty, or statement with respect to the amount of taxes that may or will be assessed against the premises or about the cost of any insurance required to be secured by tenant under this lease or any other matter relating to this lease that is not expressly covered in this lease. With respect to such matters, tenant is relying upon tenant's own independent investigation and sources of information, and tenant expressly waives any right tenant might otherwise have under the law to rescind this lease or to claim damages by reason of the fact that such taxes or assessments or costs of insurance may be in excess of any sum deemed reasonable by tenant, or in excess of any amount tenant anticipated paying under this lease. Section Thirty-Five Notice of Surrender or Termination At least 90 days before the last day of the term, tenant shall give to landlord a written notice of intention to surrender the premises on that date, but nothing contained in this lease shall be construed as an extension of the term or as consent of landlord to any holding over by tenant. Page 21 Section Thirty-Six Light and Air Tenant covenants and agrees that no diminution of light, air, or view by any structure which may subsequently be erected (whether or not by landlord) shall entitle tenant to any reduction of rent under this lease, result in any liability of landlord to tenant, or in any other way affect this lease. Section Thirty-Seven Execution Submission of this instrument for examination or signature by tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both landlord and tenant. Section Thirty-Eight Time Is of the Essence Time is of the essence of this lease and each and all of its provisions. Section Thirty-Nine Name Tenant shall not use the name of the building for any purpose other than as the address of the business conducted by tenant in the premises without the written consent of landlord. Section Forty Entire Agreement; Amendment This lease contains all the agreements of the parties with respect to the subject matter and cannot be amended or modified except by a written agreement. Section Forty-One Negation of Partnership Landlord shall not become or be deemed a partner or a joint venturer with tenant by reason of the provisions of this lease. Page 22 Section Forty-Two Provisions Are Covenants and Conditions All provisions, whether stated as covenants or conditions, on the part of tenant shall be deemed to be both covenants and conditions. Section Forty-Three Use of Definitions The definitions contained at the beginning of and in the text of this lease shall be used to interpret this lease. Section Forty-Four Severability The invalidity, illegality, or unenforceability of any provision of this lease shall not render the other provisions invalid, illegal, or unenforceable. Section Forty-Five Captions The table of contents and headings of the sections of this lease are descriptive and for convenience only, are not a part of this lease, and shall have no effect on the construction or interpretation of this lease. Section Forty-Six Binding Effect on Successors The provisions of this lease shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, administrators, and executors, of the parties. Section Forty-Seven Applicable Law This lease shall be construed and interpreted in accordance with the laws of the State of Georgia. Section Forty-Eight Singular and Plural The plural shall be substituted for the singular or vice-versa, and the female for male or neuter in any place where the context may require such substitution. Page 23 Section Forty-Nine Additional Provisions The attached four (4) pages, Exhibit "A" and Exhibit "B" are incorporated in this lease and made a part of it. In witness of this agreement, the parties have executed this agreement at the place and on the date first above written. Tenant: AMERICAN WEAVERS, L.L.C. d/b/a AMERICAN WEAVERS BY: SEAL /s/ Robert J. Livingston ------------------------------- ROBERT J. LIVINGSTON CHIEF FINANCIAL OFFICER LANDLORD: /s/ Hugh Hoodenpyle ------------------------------- UGH HOODENPYLE Certification by Tenant Tenant certifies that tenant has carefully read and understood every word in this lease and by signing this lease agrees to faithfully comply with its provisions. Tenant: AMERICAN WEAVERS, L.L.C. d/b/a AMERICAN WEAVERS BY: SEAL /s/ Robert J. Livingston ------------------------------- ROBERT J. LIVINGSTON CHIEF FINANCIAL OFFICER Page 24 EX-10.20 15 LEASE AGREEMENT EXHIBIT 10.20 LEASE AGREEMENT GEORGIA, WHITFIELD COUNTY. THIS LEASE AGREEMENT (this "Lease") made and entered into this the 14th day of September 1993 by and between WBP PROPERTIES, a Georgia General Partnership, hereinafter referred to as "Lessor", and NEWMARK JAMES, INC., a Georgia Corporation, hereinafter referred to as "Lessee". W I T N E S S E T H: WHEREAS, Lessor is the owner of a certain tract or parcel of land as more particularly described in Exhibit "A" hereto, (hereinafter referred to as the "Property"); and WHEREAS, Lessor intends to construct on the Property a building containing 74,800 square feet of warehouse and office space; and WHEREAS, Lessee desires to lease from Lessor the 74,800 square feet of said warehouse and office space (the "Leased Premises") pursuant to the terms and conditions hereof; and WHEREAS, Lessor has heretofore constructed a building containing 56,100 square feet of warehouse and office space on the Property; and WHEREAS, Lessee desires to lease from Lessor the 56,100 square feet of said warehouse and office space (the "Temporary Premises") until construction of the Leased Premises has been completed by Lessor, pursuant to the terms and conditions hereof; NOW, THEREFORE, for and in consideration of the premises and the acts to be performed by the parties hereto, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the parties do hereby agree each with the other as follows: 1. AGREEMENT TO MAKE IMPROVEMENTS. Lessor shall, at its sole expense, construct a building containing 74,800 square feet of warehouse and attendant office space on the Property in accordance with such plans and specifications as Lessor, in its sole discretion, shall deem appropriate. The Lessor shall undertake such construction as soon as is practical after the execution of this Lease, and shall pursue such construction diligently until completion thereof. 2. LEASED PREMISES. (a) Lessor does hereby agree to lease to Lessee, and Lessee does hereby agree to hire from Lessor, at the rent and upon the terms and conditions hereinafter set forth, the Leased Premises during the term hereof and any extended term. (b) Lessor does further grant to Lessee a non-exclusive easement over and along all other portions of the Property for purposes of ingress and egress to and from the Leased Premises. 3. TEMPORARY PREMISES. (a) Lessor does hereby agree to lease to Lessee, and Lessee does hereby agree to hire from Lessor, at the rent and upon the terms and conditions hereinafter set forth, the Temporary Premises during the term set forth in Section 5(a). (b) Lessor does further grant to Lessee a non-exclusive easement over and along all other portions of the Property for purposes of ingress and egress to and from the Temporary Premises. 1 4. PURPOSE. The Leased Premises and the Temporary Premises shall be used and occupied by Lessee solely in connection with its business of the manufacture and sale of rugs, and for no other purposes without Lessor's consent. 5. TERM. (a) The term of this Lease as to the Temporary Premises shall begin on the ____ day of ________________, 1993, and shall terminate on the first day of the first month after completion of the construction of the Leased Premises when the initial term of this Lease as to the Leased Premises begins. (b) The initial term of this Lease as to the Leased Premises shall be for five (5) years to commence on the first day of the first month after the completion of the construction of the improvements as more particularly set forth in Section 1 hereof and to terminate on the last day of the 60th month thereafter, unless extended as hereinafter provided, or unless sooner terminated by a breach of the terms and conditions of this Lease by Lessee, or by abandonment of the Leased Premises by Lessee. Lessee shall surrender the Leased Premises to Lessor immediately upon the termination of the lease term. Completion of construction shall be deemed to be the date of the certificate of occupancy. (c) Lessee is hereby given an option to extend its leasehold interest in the Leased Premises for an additional term of five (5) years at the expiration of the initial term of this Lease, provided that Lessee shall not then be in default under any of the terms of this Lease, and provided further that Lessee shall give Lessor, prior to the expiration of the initial term of this Lease, at least ninety (90) days notice, in writing, of Lessee's desire to extend the term of this Lease as herein provided. A new lease agreement for the term of such extension shall be unnecessary on such extension, this Lease constituting a present demise for both the original and any extended term. 6. RENT. (a) Lessee agrees to pay Lessor as rental for the use of the Leased Premises the following: (i) A sum equal to sixteen cents ($.16) per square foot of floor space multiplied by the aggregate square feet of floor space rented pursuant to the terms of this Lease for the initial term of the Lease; and (ii) A sum equal to seventeen cents ($.17) per square foot of floor space multiplied by the aggregate square feet of floor space pursuant to this Lease for the extended term. (b) Lessee agrees to pay Lessor as rental for the use of the Temporary Premises a sum equal to sixteen cents ($.16) per square foot of floor space multiplied by the aggregate square feet of floor space rented pursuant to the terms of this Lease for the Temporary Period set forth in Section 5(a) hereof. (c) The rental payment shall be in advance on the first day of each month during the term hereof, and any extended term. Rental for any partial month as to either the Leased Premises or the Temporary Premises shall be prorated as of the date of occupancy by Lessee. (d) Lessee shall also pay to Lessor a late charge of Four cents ($0.04) for each One Dollar ($1.00) of any payment due under this Lease which is not paid within five (5) days of its due date. In addition, any payment not made within thirty (30) days following its due date shall bear interest at the rate of Eighteen percent (18%) per annum, or the maximum allowed by law, whichever is less, and such interest shall be paid by Lessee to Lessor. It is provided, however, that nothing contained in this Paragraph (d) shall impair the rights of Lessor to pursue any and all rights and remedies available to it upon the occurrence of an Event of Default as herein defined. 2 7. ADDITIONAL RENT. Lessee agrees to pay as rent, in addition to the minimum rental reserved in Paragraph 6 hereinabove, the following: (a) Any and all reasonable sums which may become due by reason of the failure of Lessee to comply with any or all covenants of this Lease, Lessee agreeing to pay any and all damages, costs or expenses which Lessor may suffer or incur by reason of (i) any default of Lessee or failure on its part to comply with the covenants of this Lease; and (ii) any and all damages to the Leased Premises or the Temporary Premises caused by any intentional or negligent act of neglect of Lessee or Lessee's agents or invitees; and (b) All charges for water, electricity, gas and any other utility services consumed upon the Leased Premises and the Temporary Premises, and all charges for repairs to the meter or meters on premises, whether such repairs are made necessary by ordinary wear and tear, freezing, hot water, accident or other causes, immediately when the same become due; Lessee shall indemnify and hold Lessor harmless from any liability for payment of such services. Any utilities furnished to the Lessee by Lessor shall be paid by the Lessee on either a flat charge or metered basis, as Lessor may determine; and (c) All ad valorem property taxes and other assessments levied against the Leased Premises for any year during the term of this Lease, or any extended term; provided, however, that in the event the term of this Lease begins in the middle of any year during which taxes or other assessments are made, taxes for such year will be prorated as of the date of the beginning of the term of this Lease. In the event such taxes are levied in combination with other improvements in the Property, such taxes and assessments shall be provided based on the number of square feet of the Leased Premises. 8. LIMITATION ON LESSEE'S RIGHT TO ALTER AND IMPROVE. Lessee shall not have the right to improve or alter the Leased Premises or the Temporary Premises, or any portion thereof without the prior written consent of Lessor, which shall not be unreasonably withheld. Any improvements to which Lessor consents shall be made in a good and workmanlike manner, and upon termination of this Lease, such improvements shall be the property of Lessor. Lessee shall indemnify and hold Lessor harmless from any liability for the costs of said improvements and shall immediately discharge any and all liens placed against the Leased Premises or the Temporary Premises as a consequence of such improvements. 9. GOOD TITLE. Lessor warrants that it has fee simple title to the Leased Premises and that the Leased Premises shall be delivered to the Lessee free and clear of all claims, obligations, tax assessments, liens and encumbrances whatsoever, except any and all mortgages, deeds to secure debt, deeds of trust or other instruments in the nature thereof which may now or hereafter affect or encumber Lessor's title to the Leased Premises and all modifications, renewals, consolidations, extensions or replacements thereof, herein referred to as "Lessor's Mortgage". Lessor also warrants that, as long as Lessee is in compliance with the terms of this Agreement, Lessee shall be entitled to the quiet enjoyment of the Leased Premises, undisturbed by Lessor, its agents or invitees. 10. INSURANCE. (a) Lessee shall procure and maintain during the term hereof, and any renewal term, insurance against liability for bodily injury and property damage in an amount not less than $1,000,000 in the aggregate as to any one accident or disaster, and not less than $500,000 in respect to injuries to any one person. (b) All insurance provided by Lessee as required by this section shall be carried in favor of Lessor and Lessee as their respective interests may appear. All insurance shall be written with responsible companies acceptable to Lessor, and Lessee shall provide appropriate certificates of insurance to Lessor. All 3 policies shall require ten (10) days notice by registered mail to Lessor of any cancellation change affecting any interest of Lessor. 11. AFFIRMATIVE COVENANTS AND RESPONSIBILITIES OF LESSEE. Lessee covenants and agrees that Lessee will, without demand: (a) Keep the Leased Premises and the Temporary Premises reasonably clean and free from all rubbish, ashes, dirt and other matter; (b) Except as provided to the contrary hereinbelow, at Lessee's own expense maintain the Leased Premises and the Temporary Premises in good repair, and in at least as good condition as that in which they were delivered, allowing for ordinary wear and tear; (c) Make all necessary repairs, interior and exterior, including repairs to the air conditioning and plumbing system in and about the Leased Premises and the Temporary Premises at its own expense, provided, however, that Lessee shall not be required to make any repairs to the walls or roof of the Leased Premises and the Temporary Premises, except for such repairs as are necessitated by the actions of Lessee and/or its agents, employees, licensees or invitees; (d) Comply with any requirements of any of the constituted public authorities, and with the terms of any State or Federal Statutes or Local Ordinances or Regulations applicable to Lessee to or for Lessee's use of the Leased Premises and the Temporary Premises and save Lessor harmless from penalties, fines, costs or damages resulting from the failure to do so; (e) Give to Lessor prompt written notice of any accident involving persons other than agents or employees of Lessee, fire or damage occurring on or to the Leased Premises or the Temporary Premises; (f) At the termination of this Lease as to either the Leased Premises or the Temporary Premises, remove any signs, improvements of a non-permanent nature, projections or devices placed upon the premises at or prior to the expiration of this Lease. In case of breach of this covenant, in addition to all other remedies given to Lessor in case of breach of any condition or covenant of this Lease, Lessor shall have the privilege of removing said improvements, signs, projections, or devices and Lessee, at Lessor's option, shall be liable to Lessor for any and all reasonable expenses so incurred by Lessor; (g) Indemnify Lessor against all expenses, liabilities and claims of any kind, including reasonable attorney's fees, by or on behalf of any person or entity arising out of either (i) a failure by Lessee to perform any of the terms or conditions of this Lease, (ii) any injury or damage happening on or about the Leased Premises or the Temporary Premises, except to the extent caused or contributed to by the willful misconduct or gross negligence of Lessor, its agents, employees or representatives; (iii) failure to comply with any law of any governmental authority, arising out of or attributable solely to Lessee's use and/or occupancy of the Leased Premises or the Temporary Premises; (iv) any mechanic's lien or security interest filed against the Leased Premises or the Temporary Premises; and (v) all claims, damages, expenses, liabilities, actions, or causes of action of any kind or nature arising from breaches of Lessee's representations, warranties or covenants hereunder or from acts or failures to act occurring, or conditions existing, during Lessee's occupancy of the Leased Premises, except to the extent caused or contributed to by the willful misconduct or gross negligence of Lessor, its agents, employees or representatives; (h) Secure any and all permits for such use as Lessee intends to make of the Leased Premises and the Temporary Premises prior to the effective date of this Lease, and upon such obtaining such 4 permit Lessee shall not use the Leased Premises or the Temporary Premises in any manner not inconsistent with or in violation of such permit; and (i) Cause any automobiles or other vehicles parked on the Property by it agents, employees, licensees or invitees to be parked in such a manner as to not block or otherwise interfere with the access to the Leased Premises or the Temporary Premises by Lessor or any other Lessee of any portion of the Property. 11. NEGATIVE COVENANTS OF LESSEE. Lessee covenants and agrees that it will do none of the following things without the consent in writing of Lessor first had and obtained, which consent shall not be unreasonably withheld: (a) Occupy the Leased Premises or the Temporary Premises in any other manner or for any other purpose than as set forth herein; or (b) Assign, mortgage or pledge, or sublease this Lease; nor shall any assignee assign, mortgage, pledge or subLease this Lease without the written consent by the Lessor and without such consent no such assignment, mortgage, pledge or sublease shall be valid, provided Lessor will not unreasonably withhold such consent; or (c) Use the Leased Premises or the Temporary Premises for the "treatment", "storage", or "disposal" of any "hazardous waste", as such terms are defined in the Resource Conservation and Recovery Act, as amended 42 U.S.C. 6901 et seq.; or (d) Release on the Leased Premises a "hazardous substance", as such terms are defined in the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.; or (e) Install or maintain on the Leased Premises or the Temporary Premises an underground storage tank, as such term is defined in RCRA; or (f) Do or permit any of its permitted sublessees or other persons to do anything on the Leased Premises or the Temporary Premises, or any part thereof, or bring or permit anything to be brought on or kept in the Leased Premises or the Temporary Premises, or permit the use of the Leased Premises or the Temporary Premises for any business or purpose that would: (i) cause an increase in the rate of any insurance on the Leased Premises or the Temporary Premises; or (ii) cause a violation of any requirements of any of the constituted public authorities, and with the terms of any State or Federal Statutes or Local Ordinances or Regulations applicable to Lessee to or for Lessee's use of the Leased Premises or the Temporary Premises. 13. NO REPRESENTATIONS BY LESSOR. Neither Lessor or Lessor's agents have made any representations or promises with respect to the Leased Premises or the Temporary Premises, except as expressly set forth herein. The taking of possession of the Leased Premises or the Temporary Premises by Lessee shall be conclusive evidence against Lessee, and Lessee accepts the Leased Premises and the Temporary Premises as is, and that the Leased Premises and the Temporary Premises, and any portion thereof occupied by Lessee, were in good and satisfactory condition at the time possession of the same was so taken. 14. ADDITIONAL COVENANTS. (a) If the Leased Premises are totally destroyed by storm, fire, lightening, earthquake or other casualty, this Lease, and all rights and obligations arising hereunder, shall terminate as of the date of such destruction, and rental shall be accounted for as between Lessor and Lessee as of that date. If the Leased Premises are damaged but not totally destroyed by any of such casualty, rent 5 shall abate in such proportion as use of the Leased Premises has been destroyed, and Lessor shall restore the Leased Premises to substantially the same condition as before such damage, whereupon full rental shall resume. For purposes of this section, damage to the Leased Premises to the extent that the Leased Premises are wholly untenantable, or damage to the extent that full repairs cannot be made solely from the proceeds of insurance maintained on the Leased Premises as provided in this Lease, shall be deemed to be a total destruction of the Leased Premises. (b) Lessor shall not be liable for any damage, compensation or claim by reason of inconvenience or annoyance arising from the necessity of repairing any portion of the building, the interruption of the use of the premises, or the termination of this Lease by reason of the destruction of the Leased Premises. (c) It is understood and agreed that the Lessor hereof does not warrant or undertake that the Lessee shall be able to obtain a permit under any zoning ordinance or regulation for such use as Lessee intends to make of the Leased Premises or the Temporary Premises, and nothing in this Lease contained shall obligate Lessor to assist Lessee in obtaining said permit. (d) It is hereby covenanted and agreed by and between the parties that any law, usage or custom to the contrary notwithstanding, Lessor shall have the right at all times to enforce the covenants and provisions of this Lease in strict accordance with the terms hereof, notwithstanding any conduct or custom on the part of Lessor in refraining from so doing at any time or times, and further, that the failure of Lessor at any time or times to enforce her right under said covenants and provisions strictly in accordance with the same shall not be construed as having created a custom in any way or manner contrary to the specific terms, provisions or covenants of this Lease, or as having in any way or manner modified the same. (e) Lessor will maintain the roof, the outside walls and the structural soundness of the Leased Premises and the Temporary Premises. Water leaks through the roof will be repaired by Lessor without undue delay after Lessor receives notice thereof. (f) Lessee agrees to grant to the Lessor full and free access to the Leased Premises and the Temporary Premises during reasonable business hours to examine or exhibit the same or to make any necessary repairs or alterations to the Leased Premises. 15. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an "Event of Default" hereunder: (a) Any part, portion or component of the rent, or any other sums payable under this Lease are not paid within five (5) days after receipt of Lessor's notice that same is past due; (b) Any petition is filed by or against Lessee under any section or chapter of the Federal Bankruptcy Code, and, in the case of a petition filed against Lessee, such petition is not dismissed within thirty (30) days after the date of such filing; (c) Lessee becomes insolvent or transfers property in fraud of creditors; (d) Lessee makes an assignment for the benefit of creditors; (e) A receiver is appointed for any of the Lessee's assets; or (f) Lessee breaches or fails to comply with any term, provision, condition or covenant of this Lease, other than the payment of rent, which breach is not cured within thirty (30) days after written notice by Lessor of such default is received by Lessee. 6 16. REMEDIES. Upon the occurrence of an Event of Default, Lessor may do or perform any one or more of the following in addition to, and not in limitation of, any other remedy or right permitted it by law or by this Lease: (a) Lessor may terminate this Lease, in which event Lessee shall immediately surrender the Leased Premises to Lessor. If Lessee fails to do so, Lessor may, without prejudice to any other remedy Lessor may have either by law or by this Lease, enter upon the Leased Premises and expel or remove Lessee and Lessor's personal property with or without force and without being liable to Lessee in any manner whatsoever for damages therefor. Lessee shall be liable to Lessor for and shall indemnify and hold Lessor harmless from and against all cost, loss, or damage which Lessor may suffer by reason of such termination of this Lease, whether through inability to relet the Leased Premises, through a decrease in rent received, by damage to the Leased Premises or otherwise; or (b) Lessor may enter the Leased Premises or the Temporary Premises and remove the Lessee and its personal property and may relet the Leased Premises or the Temporary Premises as the agent and receive such rent therefor. In such event Lessee shall be liable to Lessor for any deficiency which may arise by reason of such reletting during the remainder of the Lease Term. Lessor may include, without limitation, brokerage commissions and attorney's fees incurred in reletting the premises and any and all costs and expenses incurred in renovating or altering space to make it suitable for reletting in computing Lessor's costs, losses or damages for which Lessee is liable as set forth above, and the proceeds of such reletting shall be first applied to such costs and expense, then to the payment of Rent and all other indebtedness of Lessee to Lessor hereunder, with the balance, if any, to be held by Lessor to be applied in payment of future Rent and all other such indebtedness as same becomes due and payable throughout the Lease Term. 17. REMEDIES-CUMULATIVE. All of the remedies hereinbefore given to Lessor and all rights and remedies given by law or in equity to Lessor shall be cumulative and concurrent. No termination of this Lease or the taking or recovering of the premises shall deprive Lessor of any of its remedies or actions against the Lessee for rent due at the time of which under the terms hereof would in the future become due as if there had been no termination, or for any and all sums due at the time, or which under the terms hereof would in the future become due as if there had been no termination, nor shall bringing of any action for rent or breach of covenant, or the resort to any other remedy herein provided for the recovery of rent be construed as a waiver of Lessor's right to obtain possession of the premises. 18. LEASE CONTAINS ALL AGREEMENTS. It is expressly understood and agreed by and between any parties hereto that this Lease and the Exhibits attached hereto and forming a part hereof, set forth all of the promises, agreements, conditions and understandings between Lessor, or Lessor's agents, and Lessee relative to the demised premises, and that there are no promises, agreements, conditions or understandings, either oral or written, between them other than as set forth herein. It is further understood and agreed that, except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Lessor or Lessee unless reduced to writing and signed by them. 19. PARTIES BOUND. All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several and respective heirs, executors, administrators, successors and assigns of said parties, and if there shall be more than one Lessee, they shall all be bound jointly and severally by the terms, covenants and agreements herein, and the word "Lessee" shall be deemed to and taken to mean each and every person or party mentioned as a Lessee herein, be the same one or more; and if there shall be more than one Lessee, any notice required or permitted by the terms of this Lease shall be given by or to anyone thereof, and shall ever have the same force 7 and effect as if given by or all thereof. The word "his" and "him" and "her", wherever stated herein shall be deemed to refer to the "Lessor" and "Lessee" whether such Lessor and Lessee be singular or plural and irrespective of gender. No rights, however, shall inure to the benefit of any assignee of Lessee unless the assignment to such assignee has been approved by Lessor in writing as herein provided. 20.SUBORDINATION. This Lease and all rights of Lessee hereunder shall be subject and subordinate the lien of any mortgage of Lessor, provided that such subordination shall be upon the express condition that this Lease shall be recognized by the mortgagee and that the rights of Tenant shall remain in full force and effect during the term of this Lease so long as Tenant shall continue to perform all of the covenants of this Lease. While this Paragraph is self-operative, and no further instrument of subordination shall be necessary, Lessee shall, in confirmation of such subordination, upon demand at any time or times, execute, acknowledge and deliver to Lessor or any Mortgage of Lessor any and all instruments requested by either of them to evidence such subordination. Lessee shall execute, acknowledge and deliver to Lessor or any mortgage of Lessor, without expense, any and all instruments that may be necessary to make this Lease superior to the lien of any mortgage of Lessor. If a holder of any mortgage of Lessor shall hereafter succeed to the rights of Lessor under this Lease, Lessee shall, at the option of such holder, attorn to and recognize such successor as Lessee's landlord under this Lease and shall promptly execute and deliver any instrument that may be necessary to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct Lease between each successor Lessor and Lessee, subject to all of the terms, covenants and conditions of this Lease. If Lessee fails at any time to execute, acknowledge and deliver any of the instruments provided for by this Paragraph within fifteen (15) days after receipt of Lessor's notice so to do, Lessor, in addition to the remedies allowed by this Lease may execute, acknowledge and deliver any and all of such instruments as the attorney-in-fact of Lessee and in its name, place and stead, and Lessee hereby irrevocably appoints Lessor, its successors and assigns as such attorney-in-fact. 21. CONDEMNATION. If the whole of the Leased Premises or the Temporary Premises, or such portion thereof as will make premises unusable for the purposes herein Leased, be condemned by any legally constituted authority for any public use or purpose, then in either of said events the term hereby granted shall cease from the time when possession thereof is taken by public authorities, and rental shall be accounted for as between Lessor and Lessee as of that date. Such termination, however, shall be without prejudice to the rights of either Lessor or Lessee to recover compensation and damage caused by condemnation from the condemner. It is further understood and agreed that neither the Lessee nor Lessor shall have any rights in any award made to the other by any condemnation authority. 22. NOTICES. Except for legal process which may also be served as by law provided, all notices required or desired to be given with respect to this Lease shall be in writing and shall be deemed to have been given when hand delivered or three (3) days after deposited, postage prepaid, with the United States Postal Service (or its official successor), certified, return receipt requested, properly addressed as follows: To Lessor: WBP PROPERTIES P.0. Box 188 Dalton, GA 30722-0188 8 To Lessee: Newmark James, Inc. ______________________________________ ______________________________________ Such addresses may be changed from time to time by either party by notice to the other. 23. HOLDING OVER. In no event shall there be any renewal of this Lease by operation of law, and if Lessee remains in possession of the Leased Premises after the termination of this Lease and without the execution of a new Lease, Lessee shall be deemed to be occupying the Leased premises as a tenant at will at an amount equal to one hundred fifty percent (150%) of the Rent and otherwise subject to all the covenants and provisions of this Lease insofar as the same are applicable to a month-to-month tenancy. 24. BROKERS. Lessor and Lessee each represents and warrants to the other that no broker, agent, commission salesman or other person has represented the warranting party in the negotiations for and procurement of this Lease and of the Leased Premises and the Temporary premises, that no commissions, fees or compensation of any kind are due and payable in connection herewith to any such person or entity. Each party further warrants that any compensation arrangement with the parties excepted from the foregoing warranty has been reduced to writing in its entirety in a separate agreement signed simultaneously with or before this Lease by the party against whom the commission or compensation is charged. 25. ATTORNEYS' FEES AND EXEMPTION. Lessee hereby waives and renounces all homestead or exemption rights which Lessee may have under or by virtue of the Constitution and Laws of the United States, Georgia, or any other State as against any debt Lessee may owe Lessor under this Lease, and hereby transfers, conveys, and assigns to Lessor all homestead or exemption rights which may be allowed or set apart to Lessee, including such as may be set apart in any bankruptcy proceeding, to pay any debt owing by Lessee to lessor hereunder. If any rent or other debt owing by Lessee to Lessor hereunder is collected by or through an attorney at law, Lessee agrees to pay an additional amount equal to fifteen percent (15%) of such sum as attorneys' fees. 26. NO ESTATE IN LAND. This Lease creates the relationship of landlord and tenant between Lessor and Lessee. No estate shall pass out of Lessor, and Lessee has only a usufruct which is not subject to levy and sale. 27. ESTOPPEL CERTIFICATE. At any time and from time to time, Lessee, on or before the date specified in a request therefor made by Lessor, which date shall not be earlier than fifteen (15) days from the receipt of such request, shall execute, acknowledge and deliver to Lessor a certificate evidencing (a) whether or not this Lease is in full force and effect, (b) whether or not this Lease has been amended in any way, (c) whether or nor there are any existing defaults on the part of Lessor hereunder to the knowledge of Lessee and specifying the nature of such defaults, if any, and (d) the date to which rent, and other amounts due hereunder, if any, have been paid. Each certificate delivered pursuant to this Paragraph may be relied on by any prospective purchaser or transferee of Lessor's interest hereunder or of any part of Lessor's property or by any holder or prospective holder of any mortgage of Lessor, or a mortgage or prospective mortgage of any part of Lessor's other property. 28. SEVERABILITY. If any clause or provision of this Lease is or becomes illegal, invalid, or unenforceable because of present or future laws or any rule or regulation of any governmental body or entity, effective during its term, the intention of the parties hereto is that the remaining parts of this Lease shall not be affected thereby, unless the amount of Rent payable hereunder is thereby decreased, in which event Lessor may terminate this Lease. 9 29. CAPTIONS. The captions used in this Lease are for convenience only and do not in any way limit or amplify the terms and provisions hereof. 30. SUCCESSORS AND ASSIGNS. The provisions of this Lease shall inure to the benefit of and be binding upon Lessor and Lessee, and their respective permitted successors, heirs, legal representatives and assigns. 31. STATE LAW. The laws of the State of Georgia shall govern the interpretation, validity, performance and enforcement of this Lease. 32. TIME IS OF THE ESSENCE. Except as otherwise specifically provided herein, time is of the essence of this Lease. 33. EXECUTION. This Lease may be executed in any number of counterparts, each of which shall be deemed an original and any of which shall be deemed to be complete in itself and be admissible into evidence or used for any purpose without the production of the other counterparts. 34. FORCE MAJEURE. Either party hereto shall be excused from the performance of any of its obligations for the period of any delay resulting from any cause beyond its control, including, without limitation, all labor disputes, governmental regulations or controls, fires or other casualties, inability to obtain any material or services, or acts of God. 35. PEACEFUL POSSESSION. So long as Lessee observes and performs the covenants and agreements contained herein, it shall at all times during the Lease Term peacefully and quietly have and enjoy possession of the Leased Premises, but always subject to the terms hereof. IN WITNESS WHEREOF, the parties hereto have executed these presents the day and year first above written. LESSOR: WBP PROPERTIES BY: /s/ [ILLEGIBLE] ------------------------------------- PARTNER LESSEE: NEWMARK JAMES, INC. BY: /s/ James Keith ------------------------------------- JAMES KEITH, PRESIDENT (CORPORATE SEAL) 10 LEASE EXTENSION AND MODIFICATION AGREEMENT THIS LEASE EXTENSION AND MODIFICATION AGREEMENT is made and entered into this 27 day of August, 1997 by and between WBP Properties, a Georgia general partnership (hereinafter referred to as "Lessor"), and Newmark James, Inc., a Georgia corporation (hereinafter referred to as "Lessee"). WHEREAS Lessor and Lessee entered into a lease dated September 14, 1993 (the "Lease") for premises located in Dalton, Georgia as more particularly described in the Lease; and WHEREAS Lessor and Lessee mutually desire to provide for certain additions and modifications to the terms and provisions of the Lease. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree that the Lease is modified as follows: -1- The Term of the Lease is hereby extended to and through August 31, 2002. -2- Paragraphs 6(a) and 6(b) arc stricken in their entirety and the following is substituted in lieu thereof: "6(a) Commencing September 1, 1997 Lessee shall pay Lessor as rental for the use of the leased premises the sum of $14,112.00 per month." -3- Except as herein amended and modified, all other terms, conditions, covenants, and agreements of the Lease are hereby incorporated by reference and shall control and govern. -4- In the event there is a conflict between the terms and provisions of this Lease Extension and Modification Agreement and the original Lease or any subsequent extension and/or modification prior to the date of this Lease Extension and Modification Agreement, the terms and provisions of this Lease Extension and Modification Agreement shall control. -5- This Lease Extension and Modification Agreement shall bind and inure to the benefit of the successors and assigns of Lessor and the successors and assigns of Lessee. IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Extension and Modification Agreement to be executed as of the date first written. LESSOR: WBP PROPERTIES, a Georgia partnership BY: /s/ [ILLEGIBLE] --------------------------------- Partner LESSEE: NEWMARK JAMES, INC. BY: /s/ James M. Keith --------------------------------- President The above and foregoing Lease Extension and Modification Agreement is acknowledged and approved by James Keith, Guarantor of the original Lease Agreement. The undersigned herein restates and reaffirms his guaranty to Lessee given September 14, 1993. GUARANTOR: /s/ James Keith - ------------------------------------ James Keith EX-10.21 16 LEASE AGREEMENT EXHIBIT 10.21 - -------------------------------------------------------------------------------- GEORGIA, FLOYD COUNTY: THIS AGREEMENT, made this the 17 day of July, 1988 between Milford Morgan Trust Properties, herein referred to as Landlord, and Image Industries, Inc. having an address of P.O. Box 5555, Armuchee, GA 30105, herein referred to as Tenant. WITNESSETH: That Tenant has this day rented and leased from Landlord the following described premises to wit: PREMISES: That certain warehouse located on Highway 114, Lyerly, Chattooga County, Georgia. TERM: For the term of five (5) years commencing on the date the new addition is approved for occupancy. The existing building will be leased on an interim basis until the new building is approved for occupancy and at that time the existing building will be leased along with the new building according to the conditions listed under the SPECIAL STIPULATIONS SECTION. The dates will be filled in with a mutually agreed time when the new building is approved for occupancy. Commencing date _____________ and ending on ________________ Initialed ____________________ ____________________________ RENTAL: in advance to Landlord a monthly rental of (see Special Stipulation A) DEFAULT: (1) It is mutually agreed that in the event the Tenant shall default in the payment of rent herein reserved, when due, and fails to cure said default within ten (10) days after written notice thereof from Landlord; or if Tenant shall be in default in performing any of the terms or provisions of the lease other than the provision requiring the payment of rent, and fails to cure such default within thirty (30) days after the written notice of default from Landlord; or if Tenant is adjudicated bankrupt or if a permanent receiver is appointed for Tenant's property and such receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain such removal: or if, whether voluntarily or involuntarily, Tenant takes advantage of debtor relief proceedings under any present of future law, whereby the rent or any part thereof is, or is proposed to be, reduced or payment thereof deferred; or if Tenant makes an assignment for benefit of creditors; or if Tenant's property or any part thereof should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof; then, and in any said events, Landlord, at his option, may at once, or within six (6) months thereafter (but only during continuance of such default or condition), terminate this lease by written notice to Tenant: whereupon this lease shall end. After an authorized assignment or subletting of the entire premises covered by this lease, the occurring of any of the foregoing defaults or events shall affect this lease only if caused by , or happening to the assignee or subtenant. Any notice provided in this paragraph may be given by Landlord, or Agent herein named. Upon such termination by Landlord, Tenant will at once surrender possession of the premises to Landlord and remove all of Tenant's property therefrom; and Landlord may forthwith re-enter the premises and repossess himself hereof, and remove all persons and property therefrom, using such force as may be necessary without being guilty of trespass, forcible entry to detainer or other tort, or the violation of any of the terms of this lease. 1 RELETTING BY LANDLORD: (2) Landlord as Tenant's agent, without termination of this lease, upon Tenant's breaching any of the terms of this contract, may at Landlord's option, enter upon and rent said premises at the best price obtainable by reasonable effort without advertisement and by private negotiations and for any term Landlord deems proper. Tenant shall be liable to Landlord for the deficiency, if any, between Tenant's rent hereunder and the price obtained by Landlord in re-letting. COLLECTION BY ATTORNEY: (3) If any rent owing under this lease is collected by or through an attorney at law, Tenant agrees to pay ten (10%) percent thereof as attorney's fees. Tenant waives all right to homestead and exemptions which he or any member of his family or other person may have under any law as against any obligating arising under this lease, and Tenant hereby assigns to Landlord his homestead and exemption. SUBLETTING BY TENANT: (4) Tenant may sublease portions of the leased premises to others provided such operation is a part of the general operation of Tenant and under the supervision and control of Tenant, and provided such operation is within the purposes for which said premises shall be used. Except as provided in preceding sentence, Tenant shall not without the prior written consent of Landlord, assign this lease or any interest hereunder, or sublet premises or any part thereof, or permit the use of premises by any party other than Tenant, any assignee of Tenant, at option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. SIGNS: (5) Tenant shall paint no signs upon the outside walls or place any signs on the roof of the leased premises except with the written consent of the Landlord. Any and all signs placed on the within leased premises by Tenant shall be maintained in compliance with the rules and regulations governing such signs and the Tenant shall be responsible to Landlord for any damage caused by installation, use or maintenance of said signs, and Tenant agrees, upon removal of said signs, to repair all damage incident to such removal. CONTROL & RESPONSIBILITY: (6) Landlord gives to Tenant exclusive control of the premises, and shall be under no obligation to inspect said premises, Tenant shall at once report in writing to Landlord any defective condition known to him which Landlord is required to repair, and failure to so report such defect shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such defect. If such defect shall result in a leak or other condition needing attention in the roof, Landlord upon receipt of written notice from Tenant shall with reasonable promptness have made the necessary repairs. Should Landlord fail to make such repairs with reasonable promptness, Tenant is authorized to have the necessary repairs made and deduct the cost from the next rental payment due hereunder. Landlord shall nor be liable, under any circumstances, for damage by water, or otherwise, by reason of the failure of the building to protect persons or property, nor shall Landlord be liable for damages by reason of flood water in the basement, or otherwise. 2 DELIVERY AT EXPIRATION: (7) Tenant shall deliver said premises at the expiration of this lease in as good order and repair as when first received, natural wear and tear and fire and other casualty loss excepted. Tenant shall have the right, within the term of this lease, if not in default thereunder, to remove all furniture or trade fixtures that have been installed by Tenant, but Tenant will repair, at or before the end of the term, all injury done by the installation or removal of furniture and property. CHANGES IN PREMISES: (8) Tenant is to make no change of any substantial or permanent nature in the above named premises, including painting of outside walls without first obtaining written consent from said Landlord. IMPROVEMENTS BY TENANT: (9) Any improvements, repairs, betterments, or additions placed on the premises by Tenant shall be paid for by Tenant, and shall not be a charge against Landlord or the property. VACANCY & UTILITIES: (10) Tenant agrees not to leave the premised herein leased unoccupied, nor to do or permit any act which would vitiate the insurance upon this property, or increase the insurance rates. Tenant agrees to pay all electric light, water, heat, gas, and power bills accruing against said property during the term of this contract. If by reason of any act or failure on the part of Tenant there shall be an increase in the insurance rates on the leased premises, or the building of which same is a part, the Tenant agrees to pay such increase to the Landlord upon demand, and on failure of Tenant to pay such increased insurance cost, or bills for electric lights, water, heat, gas or power, the Landlord may pay the same, but is not required to do so, and the amount so paid shall become a part of the rental of said premises and may be collected as such. ORDINANCES: (11) Tenant agrees to comply with all rules, orders, ordinances and regulations of the City, County and State in which the property is located, in any and all of their departments. CARDING: (12) Landlord has the privilege of carding the premised for rent or for sale at any time within ninety (90) days previous to the expiration of this lease, and may at any time exhibit said premises during reasonable hours. USE OF PREMISES: (13) The within premises shall not be used for any purpose except the purpose herein designated, without the written consent of Landlord. No wines, beer, whiskeys, liquors or intoxicating beverages of any kind shall be kept on, sold or delivered from said premises. HOLD OVER: (14) This lease, under no circumstances, shall extend beyond the time herein provided; and in the event Tenant remains in the property after the expiration date of the term herein, with or without payment of rent, this shall not automatically extend the lease but he shall be as a tenant at will, and subject to the terms of the original lease. 3 LIGHT & AIR EASEMENT: (15) Nothing herein contained shall be construed to confer upon Tenant any easement to light or air. RIGHT OF USE ONLY: (16) This contract shall create the relationship of Landlord and Tenant between the parties hereto. No estate shall pass out of Landlord. Tenant has only a usufruct, not subject to levy and sale, and not assignable by Tenant except by Landlord's consent. (17) All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative but not restrictive to those given by law. NON-WAIVER OF RIGHTS: (18) No failure of Landlord to exercise any power given Landlord hereunder, or to insist upon strict compliance by Tenant with his obligations hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. (19) Time is of the essence of this agreement. DEFINITION OF PARTIES: (20) "Landlord," as used in this lease, shall include also his heirs, representatives, assigns and successors in title to premises. "Tenant" includes also his heirs and representatives, and if this lease shall be validly assigned or said premises sub-let shall include also Tenant's assignees or sub-tenants as to premises covered by such assignment or sub-lease. "Agent" shall include its successors, assigns, and representatives. "Landlord" and "Tenant" include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties. NOTICES: (21) The depositing in the United States Post Office, directed to Tenant at Tenant's address shown above of any notice required or permitted under this lease to be given by the Landlord to the Tenant, shall be conclusive of delivery thereof to the Tenant. 4 SPECIAL STIPULATIONS: Insofar as the following stipulations conflict with any of the foregoing provisions, the following shall control. A. The Tenant agrees to pay Landlord a rental fee for a newly constructed building attached to the existing building according to the following rates and terms: o The lease on the current facility, known as the Lyerly building, will remain in place until the Tenant has been granted occupancy of the building. The existing lease will be terminated upon occupancy of the new building. o The acceptance date of occupancy in the new building will be the effective date of this lease. The term as specified on page one of the lease is 5 years. o The rental rate schedule shall be as follows: Monthly Monthly Monthly Year New Bldg. Old Buld. Total Annual ---- --------- --------- ----- ------ 1 $ 8,910.00 $ 5,039.00 $ 13,949.00 $167,388.00 2 $ 9,281.00 $ 5,165.00 $ 14,446.00 $173,352.00 3 $ 9,653.00 $ 5,294.00 $ 14,947.00 $179,364.00 4 $ 10,024.00 $ 5,294.00 $ 15,318.00 $183,816.00 5 $ 10,395.00 $ 5,294.00 $ 15,689.00 $188,268.00 The rate for the new building is based upon 74,250 square feet The rate schedule above will be amended to reflect the actual size of the facility. The per square foot rates are: Year 1 -- $0.12/sq. ft., Year 2 -- $0.125/sq. ft., Year 3 -- $0.13/sq. ft., Year 4 -- $0.135/sq. ft., Year 5 -- $0.14/sq. ft. 5. Payment will be paid in advance by the 10th, day of each month, c/o Charles Milford Morgan, JR. d/b/a Morgan Trust Properties, 107 N Commerce St [ILLEGIBLE], Summerville, Georgia 30747. B. As a condition to the effectiveness of this lease Landlord herein shall perform the following work on the demised premises: 1. Replace or cover the roof with a membrane type roof. C. At the end of the primary lease term, Tenant shall have 1 one-year option to renew this lease under the same terms and conditions of the original lease provided Tenant gives Landlord notice of his intent to exercise said option ninety (90) days prior to the end of the then present lease term. SPECIAL STIPULATIONS continue on pages 6 through 10 and are incorporated herein by this reference. 5 This lease contains the entire agreement of the parties hereto, and no representations, inducements or promises by, or agreements, oral or otherwise, between the parties, not embodied herein, shall be of any force or effect. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals and executed this instrument in triplicate the day and year above written. Signed, sealed and delivered as to Landlord, in the presence of: /s/ Lisa L. Keen - ------------------------------- [ILLEGIBLE] Morgan Trust Properties Witness /s/ Kay Bishop By: /s/ [ILLEGIBLE] (SEAL) - ------------------------------- ------------------------------------- Notary Public Signed, sealed and delivered as to Tenant, in the presence of: /s/ Lisa L. Keen - ------------------------------- Image Industries. Inc. Witness /s/ Kay Bishop By: /s/ [ILLEGIBLE] (SEAL) - ------------------------------- --------------------------------------- Notary Public SPECIAL STIPULATIONS (Continued) D. Maintenance and Repairs: 1. Landlord's Repairs: Landlord shall maintain in good repair all items for which Tenant is not responsible pursuant to the following paragraph, including the walls, foundations, roof, gutters, downspouts, exterior and all structural portions of the premises. In addition, Landlord shall be obligated to make those repairs which are occasioned by its negligence or the negligence of its employees, agents, servants or contractors. 2. Tenant shall be responsible for all interior, non-structural repairs to the building, including sash and frames, window glass and plate glass, doors, closures and frames which are not structural parts of the wall, and shall maintain in good repair all plumbing, electrical, sewage and heating, ventilation and air conditioning systems. In addition, unless required to be insured by Landlord hereunder, Tenant shall be responsible for any damage to the demised premises resulting 6 from its negligence or the negligence of its employees, agents, servants, or contractors. E. Insurance: Landlord shall, at its cost and expense, provide and keep in force the following insurance coverage without lapse at any time and for any reason during the term of this Lease: (i) Insurance covering the premises against loss or damage by fire and lightning and such risks as are included in "Special Form" or All Risk coverage endorsements to policies covering property similar to the premises in an amount equal to 100% of the full replacement value thereof (excluding foundations and excavation costs), which names Tenant as an additional insured and which includes an endorsement waiving the right of subrogation. Notwithstanding anything contained in this lease to the contrary, regardless of whether or not Landlord provides and keeps in force the required insurance covering losses of such causes and regardless of whether or not Tenant, its agents, employees, contractors or others under the control of Tenant cause such damages, Landlord shall be responsible for repairing all damages to the premises caused by fire and lightning and such risks as are customarily included in "Special Form" or All Risk coverage endorsements to policies covering property similar to the premises. (ii) Commercial General Liability coverage on an "Occurrence Form" basis with limits of at least $1,000,000 Each Occurrence. and $2,000,000 General Aggregate for all claims arising out of Bodily Injury, Personal Injury, and Property Damage Liability, including Contractual Liability. (iii) Business Auto Liability coverage for all vehicles owned by Landlord including Non-Owned and Hired Autos, with limits of at least $1,000,000 Each Occurrence for Bodily Injury and Property Damage Liability. (iv) Workers Compensation coverage covering all employees, contractors and subcontractors of Landlord, as applicable, working in the State of Georgia under the statutory provisions of the Georgia Workers Compensation Act. Landlord and Tenant expressly agree that either Landlord's failure to provide Tenant a certificate of insurance as temporary evidence of the insurance coverage required by this lease within ten (10) days from the effective date of this lease, or Landlord's failure to provide Tenant a final policy or policies of insurance evidencing the insurance coverage required by this lease within sixty (60) days from the effective date of this lease, shall render Landlord in default under the lease and shall entitle Tenant to exercise any applicable remedies upon default provided in the Lease or allowed by law. The policies required under this section shall not be cancelled without thirty (30) days prior written notice 7 to Tenant. F. Waiver of Subrogation. Landlord and Tenant hereby waive any right each may have against the other on account of any loss or damage occasioned to Landlord or to Tenant, as the case may be, their respective property the premises or its contents, arising from any risk generally covered by "Special Form" or All Risk insurance coverage, and Landlord and Tenant, each on behalf of their respective insurance companies insuring the foregoing against any such loss or damage, waive any right of subrogation that it may have against the other. G. Damage or Destruction: In the event that the demised premises are totally destroyed by fire, casualty or other disaster, Landlord shall have no obligation to repair or rebuild the demised premises and shall retain all funds paid by any insurer as a result of such casualty and this lease shall be null and void as of the date of such destruction. In the event that the building on the demised premises is partially damaged by fire, casualty or other disaster, and such damage cannot reasonably be repaired within thirty (30) days of the date of such damage so as to cause the same to be restored to its prior existing condition, this lease shall terminate and Landlord shall retain all funds paid by any insurer as a result of such casualty. In the event that the building on the demised premises is partially damaged by fire, casualty or other disaster, and such damage can reasonably be repaired within thirty (30) days of the date of such damage so as to cause the same to be restored to its prior existing condition, the Landlord shall proceed to restore said demised premises and during the period of time of restoration, the rent shall be reduced proportionately according to the percentage of square feet of usable area remaining in the portion of the building leased to Tenant. In the event the demised premises are untenable as a result of such damage, rent shall abate during the period of time of restoration. Tenant agrees, upon notice from the Landlord, to remove such fixtures and other property from the demised premises as shall be required by Landlord for such restoration work and agrees to permit Landlord, its agents, servants, employees and contractors to enter upon the demised premises and remain thereon without molestation for the purpose of restoring the demised premises. Should Tenant have paid any rent upon the demised premises beyond the date of termination, as in this item 8 provided. Tenant shall be entitled to a proportionate refund. H. Environmental Compliance. To the best of Landlord's knowledge and belief, there are not existing violations of any federal, state and local environmental laws and regulations and any amendments thereto including, but not limited to, the Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, and the Resource Conservation Recovery Act of 1976. Landlord shall indemnify and hold Tenant harmless from and against any and all damages, penalties, fines, claims, liens, suits, liabilities, cost (including cleaning-up costs), judgments and expenses (including, but not limited to, attorneys', consultants' and experts' fees and expenses) of any kind and nature suffered by or asserted against Tenant as a direct or indirect result of any preexisting condition prior to the occupancy of said premises by Tenant or as a direct or indirect result of any condition or violation taking place after the termination of the lease term or Tenant's occupancy of the property. The foregoing indemnification shall survive the expiration or termination of the lease term. I. Increased Insurance Rates. Notwithstanding anything contained herein to the contrary, Tenant shall not be liable for any increase in insurance rates on the leased premises due to Tenant's initial occupancy thereof for the uses specified herein. Additionally, Landlord acknowledges and agrees that the proposed use does not require the physical presence of employees of Tenant at the leased premises during normal working hours, since Tenant's use as a warehouse facility will require the physical presence of Tenant's employees only during times of deliveries to or from the facility. Landlord represents and warrants that the demised premises are designed for and adequate for the use by Tenant as a warehouse for materials used in the production of carpet. J. Taxes. Landlord agrees to pay ad valorem property taxes assessed. K. Consents. Each party agrees that to the extent any acquiescence, consent or agreement herein is permitted or required, such acquiescence, consent or agreement should not be unreasonably withheld, delayed or denied. 9 EX-10.22 17 LEASE AGREEMENT EXHIBIT 10.22 Page 1 Lease for Image Industries J2/J8 60,000 sq.ft. Summary Lessor: James S. Owens Residual Trust, Diana O. Layson, Trustee Lessee: Image Industries, Inc. Term: Two Year Rent: $ 9,600.00 month - ($.16 sq. Ft.) Begin: November 1, 1997 End: October 31, 1999 Option: Yes, two year Index Term Section # 2 Page 2 Rent Section # 3 Page 2 Utilities Section # 6 Page 3 Taxes Section # 7 Page 3 Repairs Section # 8 Page 3 Destruction of Premises Section # 9 Page 3 Right of Recovery Section # 11 Page 4 Default Section # 13 Page 5 Address of Notice Section # 17 Page 7 Date of Notice Section # 21 Page 8 Renewal Option Section # 21 Page 8 Insurance Section # 23 Page 9 Environmental Section # 24 Page 10 Signatures Page 11 Notes: November rent shall be pro-rated to move in date and shall be due immediately. Actual move-in date is November 19, 1997, Butch Layson met with Johnny Human at the building this day and agreed for Image to rent the building. Inventory had already started moving in to building. Rent Checks to be Payable to JSO, Inc. Page 2 Lease for Image Industries GEORGIA, GORDON COUNTY: This LEASE, made this 19 day of Nov., 1997, by and between James S. Owens Residual Trust, Diana O. Layson, Trustee ("lessor"), and Image Industries, Inc.. ("lessee"). W I T N E S S E T H: The Lessor, for and in consideration of the rents, covenants, agreements and stipulations hereinafter mentioned, reserved and contained, to be kept and performed by the Lessee, have leased and rented and by these present do lease and rent unto the said Lessee and the said Lessee hereby agrees to lease and take upon terms and conditions which hereinafter appear, the following described property, along with all improvements thereon ("Premises"): That certain Warehouse containing approximately 60,000 square feet, and being part of the "Harbinger" complex known as J-2 & J-8, located at 713 South River Street, Calhoun Georgia. In addition to the foregoing (which constitutes the Premises), Lessee shall have access with all other tenants of Lessor to those areas and parts of the property upon which the Harbinger Complex is located which are intended for the common use and/or benefit of all occupants of said Complex. (1) Lessors represent and covenant that they have good and marketable title to the Premises and that they have full right, title and authority to enter into this lease. (2) TO HAVE AND TO HOLD the Premises, commencing the later of (i) the date Tenant takes occupancy of the Premises or (ii) November 1, 1997 and continuing thereafter for a period of two (2), years. (3) Lessee agrees to pay Lessor rental of Nine Thousand, Six Hundred Dollars ($9,600.00) in advance on the first day of each month for the two (2) year term. (4) It is intended that the Premises shall be used for manufacturing or storage, but no strict limitation us hereby imposed. The Premises shall not be used for any illegal purposes nor in any manner so as to increase the rate of insurance thereon. The Lessee agrees to pay any increase caused in the Lessor's insurance rates by virtue of a change in the type of business that Lessee is conducting. Page 3 Lease for Image Industries (5) Lessee agrees not to abandon or vacate the Premises during the term hereof. (6) Lessee shall pay water, gas, electricity, fuel, light, heat and power bills for the Premises, or used by the Lessee in connection therewith. If Lessee does not pay the same, Lessor may at their option pay the same and such payments shall be added to the rental. (7) Lessor shall pay state, county and municipal ad valorem taxes assessed against the Premises during the term of this lease. However, it is further provided between the parties hereto that the Lessee will pay to the Lessor as additional rental any increase in ad valorem taxes, city and county, charged against the lease premises over and above the amount of ad valorem taxes for the year of 1997 with said payment to be made by the Lessee to Lessor within 30 days upon written notice by the Lessor to the Lessee of said increase in taxes, if any. All tax bills delivered to Lessor by the taxing authority shall be sufficient evidence of the tax established for each year during the term. Lessee reserves the right to reasonably contest any proposed increase in assessments or taxes and for this purpose Lessor agrees to give Lessee prompt notice of any proposed increase in assessments by the taxing authority and to cooperate with Lessee in formally protesting unreasonable increases in assessments. (8) Lessor shall make all structural element and exterior wall repairs, and shall maintain the roof exterior and repair roof leaks. Lessee shall keep and maintain the Premises and appurtenances and every part thereof in good order and repair, except for the structural elements exterior roof and exterior wall of the building. Lessee agrees to keep all systems and fixtures pertaining to heating, air conditioning, water, sewer, electrical and sprinkler systems, if any, in good order and repair. Notwithstanding the foregoing or any other provision contained in this Lease to the contrary, Lessor acknowledges and agrees that (i) Lessee's obligation to maintain the utility systems and fixtures (including, but not limited to the heating and air conditioning system) shall be limited to such repairs and/or replacements as are necessitated due to Lessee's negligence or misuse of such systems and (ii) Lessor shall be liable for the repair and replacement of such systems if not due to such Lessee negligence or misuse. Lessee agrees to be liable for any damage to the Premises and its fixtures, appurtenances and systems, if such damage is due to the negligence of Lessee, but only in the event such damage is a casualty not covered by a policy of hazard insurance required to be carried by Lessor under this Lease Agreement. (9) If the Premises are totally destroyed by storm, fire, lightning, earthquake or other casualty, this lease shall terminate as of the date of such destruction, and Lessee shall Page 4 Lease for Image Industries not be liable for any rent beyond that date and rental shall be accounted for as between Lessor and Lessee as of that date. If the Premises are damaged but not wholly destroyed by and of such casualties, rental shall abate in such proportion as use of Premises has been destroyed and Lessor shall restore Premises to substantially the same condition as before the damage as speedily as practicable, whereupon full rental shall commence. If the Premises cannot be restored to substantially the same condition they were in prior to the casualty within a period of One Hundred Twenty (120) days from the occurrence of the damage, then Lessee shall have an option to terminate this lease upon the giving of notice of termination to Lessor within seven (7) days after Lessor notifies Lessee of their inability to repair the Premises within the required time (which notice Lessor agrees to provide to Lessee within ten (10) days of the subject casualty event), or within seven (7) days after Lessor's inability to do so has been apparent, and this Lease shall terminate upon the giving of such notices. (10) Lessee agrees to indemnify and save harmless the Lessor against all claim for damage to persons or property by reason of Lessee's use or occupancy of the Premises and all expenses reasonably incurred by Lessor as a result thereof, including attorney's fees and court costs. Lessee agrees to maintain throughout the term, at its sole expense, liability insurance adequate to protect Lessor and Lessee against any claims arising by the use and occupancy of the Premises by Lessee. Lessor agrees to maintain fire and extended coverage insurance policies upon the building located upon the Premises during the term in amounts adequate to afford the restoration of said building in the event of damage by fire and other similar insurance casualty. Lessee agrees to maintain adequate fire and extended coverage policies upon its contents located upon said Premises during the term thereof. Parties agree to afford the other evidence that proper insurance is maintained at all times. (11) Lessor and Lessee each hereby waive any and all rights of recovery against the other, or against the officer, employees, agents and representatives of the other, for loss of or damage to such waiving party or its or their property of the property of others under its or their control to the extent that such loss or damage is insured against under any insurance policy in force at the time of such loss or damage, and each shall upon obtaining the policy of insurance required by the term of this lease, give notice to the respective insurance carriers that the foregoing mutual waiver of subrogation is contained in this lease. Page 5 Lease for Image Industries (12) Lessee shall not, without the consent of Lessor, endorsed hereon, assign this lease or any interest herein, or sublet the Premises by any party other than Lessee. However, upon express written consent of Lessor, which consent shall not be unreasonably withheld, Lessee shall have the right to sublet or assign the premises, the Parties determining at that time whether Lessee shall be released from the terms hereof entirely, and assignee or sublessee to become fully liable. The use or occupancy of the Premises by an affiliate or a wholly owned subsidiary of Lessee shall not constitute assignment and subletting, which shall require the consent of Lessor. (13) Part 1. The occurrence of any one or more of the following events shall constitute a default of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, when such condition continues for ten (10) days after receipt of written notice from Lessor to make such payment. (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of the Lease to be observed or performed by Lessee, other than described in Part 1.(b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee, unless the failure cannot be reasonably corrected within such thirty (30) day period, if Lessee commences in good faith to cure such failure diligently. (d) (i) The making by Lessee of any general assignment, or general arrangement for the benefit of creditors: (ii) The filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless in the case of a petition filed against Lessee the same is dismissed within sixty (60) days); (iii) The appointment of a trustee or received to take possession of substantially all of the Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or, Page 6 Lease for Image Industries (iv) The attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this lease, where such seizure is not discharged within thirty (30) days. Part 2. In the event of any such default of Lessee, Lessor may at any time thereafter, with or without further notice of further demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event, Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to: any deficiency between Lessee's rent hereunder and the price obtained by Lessor of reletting, the cost of recovering possession of the Premises, expense of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth, at the time of award by the court having jurisdiction thereof, of the amount by which the unpaid rent for the balance of the term exceeds the amount of such rental loss for the same period that Lessee proves could be reasonable avoided; and any leasing commission paid by Lessor applicable to the unexpired term of this lease. Unpaid installments of rent and other sums shall bear interest from ten (10) days after the due date at the rate of twelve percent (12%) per annum, but in no case shall said interest exceed the lawful maximum. In the event Lessee shall have abandoned the Premises, Lessor shall have the option of (1) retaking possession of the premises and recovering from Lessee the amount specified in this Part 2.(a), or (ii) proceeding under Part 2.(b). (b) maintain Lessee's right to possession in which case this lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) pursue any other remedy now or hereinafter available to Lessor under the laws or judicial decisions of the State of Georgia. (14) Lessee shall give prompt notice to Lessor of any condition or requirement to be met or fulfilled by Lessor under the terms of this Lease, and Lessor shall within thirty Page 7 Lease for Image Industries (30) days after written notice cure such default, provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance, then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter diligently prosecute same to completion. In relation to the above, Lessor acknowledges and agrees that in the event Lessor fails to commence and thereafter diligently pursue the repair and/or replacement of any items for which it is responsible hereunder within said thirty (30) day period, Lessee shall thereafter have the right to make such repairs and/or replacements and charge Lessor the cost therefor. In addition, Tenant shall have the right to make emergency repairs to elements for which Lessor is responsible under circumstances where Lessor has failed to timely repair such elements following notice from Lessee and the continuance of such disrepair would likely result in damage to materials stored by Lessee at the Premises. (15) Time is of the essence in the performance of any obligation under this Lease agreement. (16) This Lease contains all agreements of the parties with respect to the subject matter of this Lease. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. (17) Any notice provided for in this Lease shall be in writing and shall be sent by Certified Mail, addressed as follows: To Lessor: Diana O. Layson, Trustee 320 Trammell Street Calhoun, GA 30701 To Lessee: Image Industries, Inc. Attn.: Mr. Steve Coburn P.O. Box 5555 Armuchee, Georgia 30105 (18) If Lessee remains in possession of the Premises or any part thereof after the expiration of the term hereof without the express written consent of Lessor, such occupancy shall be a tenancy from month to month at a rental in the amount of the last monthly rental plus all other charges payable hereunder and upon all terms hereof applicable to a month to month tenancy. Nothing contained herein shall be construed to constitute permission by the Lessor to the Lessee to remain in possession after the expiration of the term hereof. Page 8 Lease for Image Industries (19) If either party bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in such action, on trial or appeal, shall be entitled to his attorney's fees to be paid by the losing party as fixed by the court. (20) Lessor shall have the right to enter the Premises at reasonable times for the purpose of inspecting same and showing same to prospective purchasers or lenders, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessors may deem necessary or desirable. During the last sixty (60) days of the term hereof Lessor may place on or about the Premises any ordinary "for lease" or "for sale" sign. (21) Lessor hereby grants unto Lessee the option to extend the term of this Lease for an additional two (2) year period commencing November 1, 1999, and terminating October 31, 2001, at midnight. Said option shall be exercised by Lessee giving Lessor written notice of exercise, which notice must be sent by Lessee not less than ninety (90) days before the end of the initial term, which notice date shall be as follows: Last day for lessee's notice of renewal of lease: July 31,1999. All terms of this lease shall remain the same for the renewal term, save the rental amount, which shall be established by agreement of Lessor and Lessee, they renegotiating the rental amount in good faith, taking into consideration general business conditions. If parties hereto shall be unable to agree between themselves as to what a proper rental shall be for the option period, then the amount of such rental shall be determined by arbitrators, Lessor and Lessee each selecting one person, said arbitrators to be qualified real estate agents or persons known to have knowledge of local real estate values, the two arbitrators to establish a proper rental thereafter and if the two arbitrators are unable to agree upon a rental, they shall choose a third arbitrator, likewise qualified as to real estate values, and the third person so chosen, or any two of them, shall forthwith proceed to appraise and establish the fair rental value of the Lease on the Premises for the aforesaid renewal term, which shall be final and binding. Notwithstanding the above, Lessor agrees that the monthly rental sum for the renewal term shall not exceed fifteen percent (15%) increase per month. Page 9 Lease for Image Industries (22) This contract shall create the relationship of landlord and tenant between Lessor and Lessee; no estate shall pass out of Lessor, Lessee has only a usufruct, not subject to levy and sale, and not assignable by Lessee except as provided in paragraph (12) above. (23) Insurance. Lessor shall, at its cost and expense, provide and keep in force the following insurance coverage without lapse at any time and for any reason during the term of this Lease: (i) Insurance covering the premises against loss or damage by fire and lighting and such risks as are included in "Special Form" or All Risk coverage endorsements to policies covering property similar to the premises in an amount equal to 100% of the full replacement value thereof (excluding foundations and excavation costs), which names Lessee as an additional insured and which includes an endorsement waiving the right of subrogation. Notwithstanding anything contained in this lease to the contrary, regardless of whether or not Lessor provides and keeps in force the required insurance covering losses for such causes and regardless of whether or not its agents, employees, contractors or others under the control of Lessee cause such damages, Lessor shall be responsible for repairing all damages to the premises caused by fire and lightning and such risks as are customarily included in "Special Form" or All Risk coverage endorsements to policies covering property similar to the premises. (ii) Commercial General Liability coverage on an "Occurrence Form" basis with limits of at least $1,000,000, Each Occurrence, and $2,000,000 General Aggregate for all claims. In the event the demised Page 10 Lease for Image Industries (24) Environmental Compliance; To the best of the lessor's knowledge and belief, there are no existing violations of any federal, state or local environmental laws and regulations and any amendments thereto including, but not limited to, the Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, and the Resource Conservation Recovery Act of 1976. Lessor shall indemnify and hold tenant harmless from and against any and all damages, penalties, fines, claims liens, suits liabilities, cost (including clean-up cost), judgments and expenses (including, but not limited to, attorneys', consultants' and experts' fees and expenses) of any kind and nature suffered or asserted against Lessee as a direct or indirect result of any preexisting condition prior to the occupancy of said premises by lessee or as a direct or indirect result of any condition or violation taking place after the termination of the lease term or lessee's occupancy of the property. The foregoing indemnification shall survive the expiration or termination of the lease term. The Lessee in the same manner as described above agrees to hold lessor harmless should any violation as described above be caused or allowed to be caused by the lessee or it's agents, servants, employees, contractors or vendors. This Lease contains the entire agreement of the parties hereto and no representation, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect. In the event of a condemnation or taking by eminent domain which renders the Premises unusable for their intended use, this Lease shall terminate as of the date of such taking. Lessor warrants that Lessee, upon payment of the required rents and performing the terms, conditions, covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises during the full term of this Lease as well as any extension thereof. Page 11 Lease for Image Industries IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and affixed their seals in duplicate, each copy being considered an original, and day and year first above written. Signed, sealed and delivered as to: "LESSEE" - ----------------------------------- Image Industries, Inc. /s/ Linda Rodin BY: /s/ Stephen P. Coburn - ----------------------------------- ------------------------------------ Notary Public, My commission Expires By: Treasurer 01-26-99 ------------------------------------ Signed, sealed and delivered as to: "LESSOR" - ----------------------------------- /s/ Diana O. Layson - ----------------------------------- ---------------------------------------- Notary Public My commission Expires James S. Owens Residual Trust __________ Diana O. Layson, Trustee Inserts to James S. Owens Residual Trust/Image Industries, Inc. Lease: 1. In addition to the foregoing (which constitutes the Premises), Lessee shall have access with all other tenants of Lessor to those areas and parts of the property upon which the Harbinger Complex is located which are intended for the common use and/or benefit of all occupants of said Complex. 2. the later of (i) the date Tenant takes occupancy of the Premises or (ii) 3. element 4. structural elements 5. Notwithstanding the foregoing or any other provision contained in this Lease to the contrary, Lessor acknowledges and agrees that (i) Lessee's obligation to maintain the utility systems and fixtures (including, but not limited to the heating and air conditioning system) shall be limited to such repairs and/or replacements as are necessitated due to Lessee's negligence or misuse of such systems and (ii) Lessor shall be liable for the repair and replacement of such systems if not due to such Lessee negligence or misuse. 6. (which notice Lessor agrees to provide to Lessee within ten (10) days of the subject casualty event). 7. In relation to the above, Lessor acknowledges and agrees that in the event Lessor fails to commence and thereafter diligently pursue the repair and/or replacement of any items for which it is responsible hereunder within said thirty (30) day period, Lessee shall thereafter have the right to make such repairs and/or replacements and charge Lessor the cost therefor. In addition, Tenant shall have the right to make emergency repairs to elements for which Lessor is responsible under circumstances where Lessor has failed to timely repair such elements following notice from Lessee and the continuance of such disrepair would likely result in damage to materials stored by Lessee at the Premises. 9. Lessor 10. Lessee 11. Lessor 12. In the event of a condemnation or taking by eminent domain which renders the Premises unusable for their intended use, this Lease shall terminate as of the date of such taking. Lessor warrants that Lessee, upon payment of the required rents and performing the terms, conditions, covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises during the full term of this Lease as well as any extension thereof. EX-10.23 18 LEASE AGREEMENT EXHIBIT 10.23 Page 1 Lease for Image Industries J-6 Summary Lessor: Kay D. Owens Estate, Diana O. Layson, Executrix Lessee: Image Industries, Inc. Term: One year Rent: $10,994.00 month - ( $.16 sq. ft.) Begin: September 1,1997 End: August 31, 1998 Option: Yes, One year Index Term Section # 2 Page 2 Rent Section # 3 Page 2 Utilities Section # 6 Page 3 Taxes Section # 7 Page 3 Repairs Section # 8 Page 3 Destruction of Premises Section # 9 Page 3 Right of Recovery Section # 11 Page 4 Default Section # 13 Page 5 Address of Notice Section # 17 Page 7 Date of Notice Section # 21 Page 8 Renewal Option Section # 21 Page 8 Insurance Section # 23 Page 9 Environmental Section # 24 Page 10 Signatures Page 11 Notes: September Rent to be pro-rated from move in date and shall be due immediately. Rent Checks to be Payable to JSO, Inc. Page 2 Lease for Image Industries GEORGIA, GORDON COUNTY: This LEASE, made this 12th day of Dec, 1997, by and between Kay D. Owens Estate, Diana O. Layson, Executrix ("Lessor"), and Image Industries, Inc. ("Lessee"). W I T N E S S E T H: The Lessor, for and in consideration of the rents, covenants, agreements and stipulations hereinafter mentioned, reserved and contained, to be kept and performed by the Lessee, have leased and rented and by these present do lease and rent unto the said Lessee and the said Lessee hereby agrees to lease and take upon terms and conditions which hereinafter appear, the following described property, along with all improvements thereon ("Premises"): That certain Warehouse containing approximately 68,715 square feet, and being part of the "Harbinger" complex known as J-6, located at 713 South River Street, Calhoun Georgia. In addition to the foregoing (which constitutes the Premises), Lessee shall have access with all other tenants of Lessor to those areas and parts of the property upon which the Harbinger Complex is located which are intended for the common use and/or benefit of all occupants of said Complex, including all parking areas, sidewalks, driveways, service areas and loading docks. (1) Lessors represent and covenant that they have good and marketable title to the Premises and that they have full right, title and authority to enter into this lease. (2) TO HAVE AND TO HOLD the Premises, commencing the later of (i) the date Tenant takes occupancy of the Premises or (ii) September 1, 1997 and continuing thereafter for a period of one (1), year, ending August 31, 1998. (3) Lessee agrees to pay Lessor rental of Ten Thousand, Nine Hundred Ninety-four Dollars ($10,994.00) in advance on the first day of each month for the one (1) year term. (4) It is intended that the Premises shall be used for manufacturing or storage, but no strict limitation is hereby imposed. The Premises shall not be used for any illegal purposes nor in any manner so as to increase the rate of insurance thereon. The Lessee agrees to pay any increase caused in the Lessors insurance rates by virtue of a change in the type of business that Lessee is conducting. Page 3 Lease for Image Industries (5) Lessee agrees not to abandon or vacate the Premises during the term hereof. (6) Lessee shall pay water, gas, electricity, fuel, light, heat and power bills for the Premises, or used by the Lessee in connection therewith. If Lessee does not pay the same, Lessor may at their option pay the same and such payments shall be added to the rental. (7) Lessor shall pay state, county and municipal ad valorem taxes assessed against the Premises during the term of this lease. However, it is further provided between the parties hereto that the Lessee will pay to the Lessor as additional rental any increase in ad valorem taxes, city and county, charged against the lease premises over and above the amount of ad valorem taxes for the year of 1997 with said payment to be made by the Lessee to Lessor within 30 days upon written notice by the Lessor to the Lessee of said increase in taxes, if any. All tax bills delivered to Lessor by the taxing authority shall be sufficient evidence of the tax established for each year during the term. Lessee reserves the right to reasonably contest any proposed increase in assessments or taxes and for this purpose Lessor agrees to give Lessee prompt notice of any proposed increase in assessments by the taxing authority and to cooperate with Lessee in formally protesting unreasonable increases in assessments. (8) Lessor shall make all structural element and exterior wall repairs, and shall maintain the roof exterior and repair roof leaks. Lessee shall keep and maintain the Premises and appurtenances and every part thereof in good order and repair, except for the structural elements, exterior roof and exterior wall of the building. Lessee agrees to keep all systems and fixtures pertaining to heating, air conditioning, water, sewer, electrical and sprinkler systems, if any, in good order and repair. Notwithstanding the foregoing or any other provision contained in this Lease to the contrary, Lessor acknowledges and agrees that (i) Lessee's obligation to maintain the utility systems and fixtures (including, but not limited to the heating and air conditioning system) shall be limited to such repairs and/or replacements as are necessitated due to Lessee's negligence or misuse of such systems and (ii) Lessor shall be liable for the repair and replacement of such systems if not due to such Lessee negligence or misuse. Lessee agrees to be liable for any damage to the Premises and its fixtures, appurtenances and systems, if such damage is due to the negligence of Lessee, but only in the event such damage is a casualty not covered by a policy of hazard insurance required to be carried by Lessor under this Lease Agreement. (9) If the Premises are totally destroyed by storm, fire, lightning, earthquake or other casualty, this lease shall terminate as of the date of such destruction, and Lessee shall Page 4 Lease for Image Industries not be liable for any rent beyond that date and rental shall be accounted for as between Lessor and Lessee as of that date. If the Premises are damaged but not wholly destroyed by and of such casualties, rental shall abate in such proportion as use of Premises has been destroyed and Lessor shall restore Premises to substantially the same condition as before the damage as speedily as practicable, whereupon full rental shall commence. If the Premises cannot be restored to substantially the same condition they were in prior to the casualty within a period of One Hundred Twenty (120) days from the occurrence of the damage, then Lessee shall have an option to terminate this lease upon the giving of notice of termination to Lessor within seven (7) days after Lessor notifies Lessee of their inability to repair the Premises within the required time (which notice Lessor agrees to provide to Lessee within ten (10) days of the subject casualty event), or within seven (7) days after Lessors inability to do so has been apparent, and this Lease shall terminate upon the giving of such notices. (10) Lessee agrees to indemnify and save harmless the Lessor against all claim for damage to persons or property by reason of Lessee's use or occupancy of the Premises and all expenses reasonably incurred by Lessor as a result thereof, including attorney's fees and court costs. Lessee agrees to maintain throughout the term, at its sole expense, liability insurance adequate to protect Lessor and Lessee against any claims arising by the use and occupancy of the Premises by Lessee. Lessor agrees to maintain fire and extended coverage insurance policies upon the building located upon the Premises during the term in amounts adequate to afford the restoration of said building in the event of damage by fire and other similar insurance casualty. Lessee agrees to maintain adequate fire and extended coverage policies upon its contents located upon said Premises during the term thereof. Parties agree to afford the other evidence that proper insurance is maintained at all times. (11) Lessor and Lessee each hereby waive any and all rights of recovery against the other, or against the officer, employees, agents and representatives of the other, for loss of or damage to such waiving party or its or their property of the property of others under its or their control to the extent that such loss or damage is insured against under any insurance policy in force at the time of such loss or damage, and each shall upon obtaining the policy of insurance required by the term of this lease, give notice to the respective insurance carriers that the foregoing mutual waiver of subrogation is contained in this lease. Page 5 Lease for Image Industries (12) Lessee shall not, without the consent of Lessor, endorsed hereon, assign this lease or any interest herein, or sublet the Premises by any party other than Lessee. However, upon express written consent of Lessor, which consent shall not be unreasonably withheld, Lessee shall have the right to sublet or assign the premises, the Parties determining at that time whether Lessee shall be released from the terms hereof entirely, and assignee or sublessee to become fully liable. The use or occupancy of the Premises by an affiliate or a wholly owned subsidiary of Lessee shall not constitute assignment and subletting, which shall require the consent of Lessor. (13) Part 1. The occurrence of any one or more of the following events shall constitute a default of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, when such condition continues for ten (10) days after receipt of written notice from Lessor to make such payment. (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of the Lease to be observed or performed by Lessee, other than described in Part 1.(b) above, where such failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee, unless the failure cannot be reasonably corrected within such thirty (30) day period, if Lessee commences in good faith to cure such failure diligently. (d) (i) The making by Lessee of any general assignment, or general arrangement for the benefit of creditors; (ii) The filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless in the case of a petition filed against Lessee the same is dismissed within sixty (60) days); (iii) The appointment of a trustee or received to take possession of substantially all of the Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or, Page 6 Lease for Image Industries (iv) The attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this lease, where such seizure is not discharged within thirty (30) days. Part 2. In the event of any such default of Lessee, Lessor may at any time thereafter, with or without further notice of further demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event, Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to: any deficiency between Lessee's rent hereunder and the price obtained by Lessor of reletting, the cost of recovering possession of the Premises, expense of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth, at the time of award by the court having jurisdiction thereof, of the amount by which the unpaid rent for the balance of the term exceeds the amount of such rental loss for the same period that Lessee proves could be reasonable avoided; and any leasing commission paid by Lessor applicable to the unexpired term of this lease. Unpaid installments of rent and other sums shall bear interest from ten (10) days after the due date at the rate of twelve percent (12%) per annum, but in no case shall said interest exceed the lawful maximum. In the event Lessee shall have abandoned the Premises, Lessor shall have the option of (1) retaking possession of the premises and recovering from Lessee the amount specified in this Part 2.(a), or (ii) proceeding under Part 2.(b). (b) maintain Lessee's right to possession in which case this lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) pursue any other remedy now or hereinafter available to Lessor under the laws or judicial decisions of the State of Georgia. (14) Lessee shall give prompt notice to Lessor of any condition or requirement to be met or fulfilled by Lessor under the terms of this Lease, and Lessor shall within thirty Page 7 Lease for Image Industries (30) days after written notice cure such default, provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance, then Lessor shall not be in default if Lessor commences performance within such thirty (30) day period and thereafter diligently prosecute same to completion. In relation to the above, Lessor acknowledges and agrees that in the event Lessor fails to commence and thereafter diligently pursue the repair and/or replacement of any items for which it is responsible hereunder within said thirty (30) day period, Lessee shall thereafter have the right to make such repairs and/or replacements and charge Lessor the cost therefor. In addition, Tenant shall have the right to make emergency repairs to elements for which Lessor is responsible under circumstances where Lessor has failed to timely repair such elements following notice from Lessee and the continuance of such disrepair would likely result in damage to materials stored by Lessee at the Premises. (15) Time is of the essence in the performance of any obligation under this Lease agreement. (16) This Lease contains all agreements of the parties with respect to the subject matter of this Lease. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. (17) Any notice provided for in this Lease shall be in writing and shall be sent by Certified Mail, addressed as follows: To Lessor: Diana O. Layson, Executrix 320 Trammell Street Calhoun, GA 30701 To Lessee: Image Industries, Inc. Attn.: Mr. Steve Coburn P.O. Box 5555 Armuchee, Georgia 30105 (18) If Lessee remains in possession of the Premises or any part thereof after the expiration of the term hereof without the express written consent of Lessor, such occupancy shall be a tenancy from month to month at a rental in the amount of the last monthly rental plus all other charges payable hereunder and upon all terms hereof applicable to a month to month tenancy. Nothing contained herein shall be construed to constitute permission by the Lessor to the Lessee to remain in possession after the expiration of the term hereof. Page 8 Lease for Image Industries (19) If either party bring an action to enforce the terms hereof or declare rights hereunder, the prevailing party in such action, on trial or appeal, shall be entitled to his attorney's fees to be paid by the losing party as fixed by the court. (20) Lessor shall have the right to enter the Premises at reasonable times for the purpose of inspecting same and showing same to prospective purchasers or lenders, and making such alterations, repairs, Improvements or additions to the Premises or to the building of which they are part as Lessors may deem necessary or desirable. During the last sixty (60) days of the term hereof Lessor may place on or about the Premises any ordinary "for lease" or "for sale" sign. Lessor shall provide Lessee at least 24 hours written notice of its intention to enter the Premises; provided, however, no such notice shall be necessary in the event of an emergency. (21) Lessor hereby grants unto Lessee the option to extend the term of this Lease for an additional one (1) year period commencing September 1, 1998, and terminating August 31, 1999, at midnight. Said option shall be exercised by Lessee giving Lessor written notice of exercise, which notice must be sent by Lessee not less than ninety (90) days before the end of the initial term, which notice date shall be as follows: Last day for lessee's notice of renewal of lease: May 31, 1998. All terms of this lease shall remain the same for the renewal term, save the rental amount, which shall be established by agreement of Lessor and Lessee, they renegotiating the rental amount in good faith, taking into consideration general business conditions. If parties hereto shall be unable to agree between themselves as to what a proper rental shall be for the option period, then the amount of such rental shall be determined by arbitrators, Lessor and Lessee each selecting one person, said arbitrators to be qualified real estate agents or persons known to have knowledge of local real estate values, the two arbitrators to establish a proper rental thereafter and if the two arbitrators are unable to agree upon a rental, they shall choose a third arbitrator, likewise qualified as to real estate values, and the third person so chosen, or any two of them, shall forthwith proceed to appraise and establish the fair rental value of the Lease on the Premises for the aforesaid renewal term, which shall be final and binding. Notwithstanding the above, Lessor agrees that the monthly rental sum for the renewal term shall not exceed fifteen percent (15%) increase per month. Page 9 Lease for Image Industries (22) This contract shall create the relationship of landlord and tenant between Lessor and Lessee; no estate shall pass out of Lessor, Lessee has only a usufruct, not subject to levy and sale, and not assignable by Lessee except as provided in paragraph (12) above. (23) Insurance, Lessor shall, at its cost and expense, provide and keep in force the following insurance coverage without lapse at any time and for any reason during the term of this Lease: (i) Insurance covering the premises against loss or damage by fire and lighting and such risks as are included in "Special Form" or All Risk coverage endorsements to policies covering property similar to the premises in an amount equal to 100% of the full replacement value thereof (excluding foundations and excavation costs), which names Lessee as an additional insured and which includes an endorsement waiving the right of subrogation. Notwithstanding anything contained in this lease to the contrary, regardless of whether or not Lessor provides and keeps in force the required insurance covering losses for such causes and regardless of whether or not Lessee its agents, employees, contractors or others under the control of Lessee cause such damages Lessor shall be responsible for repairing all damages to the premises caused by fire and lightning and such risks as are customarily included in "Special Form" or All Risk coverage endorsements to policies covering property similar to the premises. (ii) Commercial General Liability coverage on an "Occurrence Form" basis with limits of at least $1,000,000. Each Occurrence, and $2,000,000 General Aggregate for all claims Page 10 Lease for Image Industries (24) Environmental Compliance; To the best of the lessors knowledge and belief, there are no existing violations of any federal, state or local environmental laws and regulations and any amendments thereto including, but not limited to, the Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, and the Resource Conservation Recovery Act of 1976. Lessor shall indemnify and hold tenant harmless from and against any and all damages, penalties, fines, claims liens, suits liabilities, cost (including clean-up cost), judgments and expenses (including, but not limited to, attorneys', consultants' and experts' fees and expenses) of any kind and nature suffered or asserted against Lessee as a direct or indirect result of any preexisting condition prior to the occupancy of said premises by lessee or as a direct or indirect result of any condition or violation taking place after the termination of the lease term or lessee's occupancy of the property. The foregoing indemnification shall survive the expiration or termination of the lease term. The Lessee in the same manner as described above agrees to hold lessor harmless should any violation as described above be caused or allowed to be caused by the lessee or it's agents, servants, employees, contractors or vendors. This Lease contains the entire agreement of the parties hereto and no representation, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect. In the event of a condemnation or taking by eminent domain which renders the Premises unusable for their intended use, this Lease shall terminate as of the date of such taking. Lessor warrants that Lessee, upon payment of the required rents and performing the terms, conditions, covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises during the full term of this Lease as well as any extension thereof. Page 11 Lease for Image Industries IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and affixed their seals in duplicate, each copy being considered an original, and day and year first above written. Signed, sealed and delivered as to: "LESSEE" Image Industries, Inc. - ----------------------------------- /s/ Linda Rodin BY: /s/ [ILLEGIBLE] - ----------------------------------- ------------------------------------ Notary Public, My commission Expires By: Treasurer 01-26-99 ------------------------------------ Signed, sealed and delivered as to: "LESSOR" - ----------------------------------- /s/ Janet [Illegible] /s/ Diana O. Layson - ----------------------------------- ---------------------------------------- Notary Public, My commission Expires Kay D. Owens Estate 2-12-00 Diana O. Layson, Executrix 9-5-97 Inserts to Kay D. Owens Estate/Image Industries, Inc. Lease: 1. In addition to the foregoing (which constitutes the Premises), Lessee shall have access with all other tenants of Lessor to those areas and parts of the property upon which the Harbinger Complex is located which are intended for the common use and/or benefit of all occupants of said Complex, including all parking areas, sidewalks, driveways, service areas and loading docks. 2. the later of (i) the date Tenant takes occupancy of the Premises or (ii) 3. element 4. structural elements 5. Notwithstanding the foregoing or any other provision contained in this Lease to the contrary, Lessor acknowledges and agrees that (i) Lessee's obligation to maintain the utility systems and fixtures (including, but not limited to the heating and air conditioning system) shall be limited to such repairs and/or replacements as are necessitated due to Lessee's negligence or misuse of such systems and (ii) Lessor shall be liable for the repair and replacement of such systems if not due to such Lessee negligence or misuse. 6. (which notice Lessor agrees to provide to Lessee within ten (10) days of the subject casualty event). 7. In relation to the above, Lessor acknowledges and agrees that in the event Lessor fails to commence and thereafter diligently pursue the repair and/or replacement of any items for which it is responsible hereunder within said thirty (30) day period, Lessee shall thereafter have the right to make such repairs and/or replacements and charge Lessor the cost therefor. In addition, Tenant shall have the right to make emergency repairs to elements for which Lessor is responsible under circumstances where Lessor has failed to timely repair such elements following notice from Lessee and the continuance of such disrepair would likely result in damage to materials stored by Lessee at the Premises. 8. Lessor shall provide Lessee at least 24 hours written notice of its intention to enter the Premises; provided, however, no such notice shall be necessary in the event of an emergency. 9. Lessor 10. Lessee 11. Lessor shall be responsible for repairing all damages 12. Lessor 13. In the event of a condemnation or taking by eminent domain which renders the Premises unusable for their intended use, this Lease shall terminate as of the date of such taking. Lessor warrants that Lessee, upon payment of the required rents and performing the terms, conditions, covenants and agreements contained in this Lease, shall peaceably and quietly have, hold and enjoy the Premises during the frill term of this Lease as well as any extension thereof. EX-10.24 19 LEASE AGREEMENT EXHIBIT 10.24 LEASE MODIFICATION AND ---------------------- EXTENSION AGREEMENT ------------------- STATE OF GEORGIA COUNTY OF FLOYD WHEREAS, on December 14, 1992, First Union National Bank of Georgia, as Trustee under item 8 u/w of James E. Minge; First Union National Bank of Georgia, as Trustee u/a W/B. Minge dated September 15, 1987; First Union National Bank of Georgia and Jerry L. Minge co-executors u/w/o C.A. Minge, as Landlord and Image Carpets, Inc. as Tenant, did enter into a lease agreement covering certain premises described as 15 Old Airport Road, Rome, Georgia, for a period of two years beginning February 1, 1993 and ending on January 31, 1995; and WHEREAS, said lease has been extended through January 31, 1996; and WHEREAS, the J.E. Minge Estate Charitable Trust, is now the owner/landlord of the promises described in the original lease of December 14, 1992; and WHEREAS, Image Carpets, Inc. (Tenant) is now Image Industries, Inc. (Tenant); and WHEREAS, it is the wish of Landlord and Tenant to extend and to modify said lease; NOW THEREFORE, in consideration of the premises and the mutual covenants and premises herein contained, the parties agree as follows: (1) The said lease is hereby extended for the period of one year beginning February 1, 1996 and ending January 31, 1997 with a monthly rent of $13,533.33. (2) Landlord grants Tenant three (3) one (1) year options to extend this lease. Monthly rent for these option periods shall be: February 1, 1997 through January 31, 1999 - $13,533.33 February 1, 1999 through January 31, 2000 - $14,000.00 These options may be exercised by Tenant by providing written notice to the Landlord one hundred twenty (120) days prior to the end of each term. (3) Landlord has the right to cancel this lease at any time after August 1, 1996 by providing Tenant with notice six (6) months prior to the date of cancellation. All other terms and conditions of the original lease shall remain in full force and effect. IN WITNESS WHEREOF, the Landlord and Tenant have hereunto set their hands and affixed their seals and executed this agreement of July 29, 1995 Signed, sealed, and delivered First Union National Bank of Georgia, In the presence of: as Trustee of the J.E. Minge Estate Charitable Trust /s/ Susan Harrell By: /s/ [SIGNATURE ILLEGIBLE] - --------------------------- ---------------------------- [NOTARY PUBLIC] Landlord [ILLEGIBLE] Signed, sealed, and delivered Image Industries, Inc. In the presence of: /s/ Linda Roder By: /s/ [SIGNATURE ILLEGIBLE] - --------------------------- ---------------------------- Notary Public 01/26/99 Tenant (signed 6/22/95) ALSO EXCEPTED: All that tract or parcel of land situated, lying and being in Land Lot 129 and/or 160 in the 4th District and 4th Section of Floyd County, Georgia, and being in the 3rd Ward of the City of Rome and being more particularly described as follows: Beginning at an iron pin which marks the intersection of the north line of Shorter Avenue with the west line of Old Airport Road and running thence north 85 degrees 29 minutes west, 201.16 feet to an iron pin; running thence north 01 degree 05 minutes west, 208.52 feet to an iron pin; running thence south 85 degrees 32 minutes east 201.82 feet to an iron pin on the west line of Old Airport Road; running thence southerly along the westerly line of Old Airport Road, 205 feet, more or less, to an iron pin and the point of beginning. This property is bounded on the south by Shorter Avenue, on the east by Old Airport Road, on the west by West Rome Animal Clinic, and the north by property leased by Integrated Products. TRACT XII (Tax Map 566-3): --------- To find the true point of beginning start at an iron pin on the west right of way line of Black Bluff Road 200 feet southwest of the point where the north line of Land Lot 359 intersects the west right of way of the Black Bluff Road as measured along said Black Bluff Road, and running thence south 40 degrees 11 minutes west 139.72 feet to a point; thence south 41 degrees 59 minutes west 187.33 feet to an iron pin; thence north 49 degrees 55 minutes west 192.6 feet to an iron pin; thence north 34 degrees 3 minutes east 132.23 feet to an iron pin; thence north 79 degrees 02 minutes west 311.72 feet TO THE POINT OF BEGINNING; thence north 79 degrees 02 minutes west 114.28 feet to an iron pin; thence south 36 degrees 57 minutes west 113.22 feet to a point; thence north 86 degrees 30 minutes east 146.95 feet to a point; thence north 29 degrees 12 minutes east 68.79 feet to the point of beginning. TO HAVE AND TO HOLD, the said land, together with all and singular the rights, members, and appurtenances thereto belonging, or in any wise appertaining, to the only proper use, benefit and behoof of the said party of the second part, its successors and assigns, in as ample a manner as said James E. Minge held the same. The will of the said James E. Minge is on file in the office of the Probate Judge of Floyd County, Georgia having been probated in solemn form with Letters Testamentary granted to parties of the first part on July 20, 1988. IN WITNESS WHEREOF, First Union National Bank and Jerry L. Minge, Co-Executors have hereunto set their hands and affixed their seals the day and year first above written. Sworn to and subscribed before me this ____ day FIRST UNION NATIONAL BANK of February, 1990. _______________________ BY: /s/ [SIGNATURE ILLEGIBLE] WITNESS ------------------------- TITLE: Vice President and Trust Officer ________________________ ATTEST:_______________________ NOTARY PUBLIC TITLE: My Commission Expires: [SEAL] ________________________ Sworn to and subscribed before me this ____ day of February, 1990. ________________________ _________________________(L.S.) WITNESS JERRY L. MINGE ________________________ NOTARY PUBLIC My Commission Expires: ________________________ LESS AND EXCEPT THE FOLLOWING TRACTS OF LAND: All that tract of land situated and lying in Land Lot No. 160 in the 4th District and 4th Section of Floyd County, Georgia, and more particularly described as commencing at a point on the Alabama Road at the southwest corner of the above tract and running thence northerly along the westerly line of said tract a distance of 230.84 feet; thence easterly parallel with the present Alabama Public Road, 190 feet; thence southerly parallel with said first described line, 230.84 feet to the Alabama Public Road; thence westerly along said Alabama Public Road 190 feet to the beginning point on the northerly side of said road. Said described tract contains one (1) acre and is further described in a deed from Fred Addington to H. A. Burns, recorded in Deed Book 163, Page 475, Floyd County Deed Records. ALSO EXCEPTED: All that tract of land located in Land Lot No. 160 in said District and Section of Floyd County, more particularly described as commencing at a point on the northerly side of the present Alabama Road 305 feet easterly from the southwest corner of the first tract above mentioned, said beginning point also being 20 feet easterly from the southeast corner of the tract of land conveyed by said first party to H. A. Burns; and running thence northerly, parallel with the line of said tract conveyed to H. A. Burns, 226 feet, thence easterly, parallel with the said Alabama Road 95 feet; thence southerly, parallel with said line on the east side of said H. A. Burns tract, 226 feet to the Alabama Road; thence westerly along the northerly side of said Alabama Road 95 feet to the beginning point. Said tract was conveyed by Fred Addington to Mrs. Tom J. Denman, recorded in Deed Book 378, Page 54. ALSO EXCEPTED: All that tract of parcel of land situated in original Land Lot No. 160 in the 4th District and 4th Section of Floyd County, Georgia, beginning at a point on the northerly line of the right of way of the New Alabama Road 305 feet easterly from the southwest corner of a tract sold to H. A. Burns by Fred Addington, said beginning point also being the southeast corner of a tract sold by Fred Addington to Mrs. Tom J. Denman, and running thence easterly along the line of said right of way 137.63 feet; thence north 1 degree and 5 minutes west 213.56 feet; thence north 81 degrees and 33 minutes west 135 feet to the northeast corner of the said Mrs. Tom J. Denman tract; thence southerly along the line of the said Mrs. Tom J. Denman lot 226 feet to the beginning point. Said tract contains .69 acres, more or less. Said tract was conveyed by Fred Addington to Alvin S. Ayers, et. al., and recorded in Deed Book 249, Page 590, Floyd County Deed Records. in Plat Book 3, page 99 in the Office of the Clerk of the Superior Court of Floyd County, Georgia. Reference to said plat is hereby made for a more particular description of said property. TRACT X (Tax Map 122-004B): - ------- A one-half undivided interest in and to: All that tract or parcel of land situated, lying and being in Land Lots 148 and 149 in the 23rd District and 3rd Section of Floyd County, Georgia, being part of Tract 27 of the property of Dellinger, Inc. as shown on a plat recorded in the Office of the Clerk of the Superior Court of Floyd County, Georgia in Plat Book 6, page 227 and being more particularly described as follows: BEGINNING 1976 feet North of the southwest corner of Tract No. 27, thence 290 feet East, thence North 550 feet, thence West 292 feet to the West line of Tract No. 27, thence back along the West line of Tract No. 27, 550 feet to the point of beginning; this property formerly owned by Dellinger, Inc., according to plat prepared by Kieffer Lindsey, dated August 1, 1961, and recorded in Book 6, Page 227, of the Deed Records of Floyd County, Georgia. All mineral rights are reserved by previous owners. Building restrictions are as recorded in Book 8, Page 9, in the office of the Clerk of Floyd Superior Court. TRACT XI (Tax Map 452-13-10A): - -------- A one-third undivided interest in and to: All that tract or parcel of land situated, lying and being in the County of Floyd and described as follows: Being in the 4th District and 4th Section of Floyd County and being a part of Land Lots Nos. 160 and 129, more particularly described as beginning at the northwest corner of the intersection of the Alabama Road and the Old Airport Road and running thence northerly along the west side of the said Old Airport Road a distance of 520 feet, more or less, to the right of way of the Southern Railway Company; thence westerly along the said right of way of said Railway a distance of 710 feet, more or less, to the northwest corner of this tract; thence in a generally southerly direction to the Old Alabama Road; thence in a generally southeast by east direction along said Old Alabama Road to the present Alabama Road, and thence east to the point of beginning. Said tract is recorded in Deed Book 163, Page 459, in the Floyd County Deed Records. BEGINNING at the point on the southwesterly line of East Seventh Street (formerly Division Street) where the same intersects the southeasterly line of Southern Railway Company right of way; and from said beginning point running southeasterly, along the southwesterly line of East Seventh Street 180 feet, more or less, to the northwest corner of tract formerly owned by Hugh B. Parks; thence southwesterly, along the northwest line of said tract formerly owned by Hugh B. Parks, 270 feet, more or less, to corner of lot formerly known as the Weller lot (part later owned by Miss Geraldine Barton and Mrs. Nell B. Perryman and part later owned by W. E. Wiggins, Sr.); thence northwesterly, along the northerly line of said tract formerly known as the Weller Lot, 125 feet, more or less, to the southeasterly line of Southern Railway Company right of way; and thence northeasterly, along the southeasterly line of Southern Railway Company right of way, 180 feet, more or less, to the beginning point. TRACT VII (Tax Map 432-28-9): - --------- All that tract or parcel of land situated, lying and being in the City of Rome, Floyd County, Georgia, and being all of Lots Numbers Thirteen (13), Fourteen (14) and Fifteen (15) of the City Land Company's Alto View Addition to West Rome, as shown on a plat of said addition recorded in Plat Book 1, page 29 in the Office of the Clerk of the Superior Court of Floyd County, Georgia. TRACK VIII (Tax Map 432-3-2): - ---------- All that tract of parcel of land situated, lying and being in Land Lot 202 in the 23rd District and 3rd Section of Floyd County, Georgia, and being the easterly 1/2 of Lot 31 and all of Lot 32 in the City Land Company's Fourth Addition to Summerville Park, a plat of which is recorded in Plat Book 3, page 99 in the Office which is recorded in Plat Book 3, page 99 in the Office of the Clerk of the Superior Court of Floyd County, Georgia. Said property has situated thereon a house known as NO. 40 Battey Drive, Rome, Georgia, and is the same property as that described in a warranty deed recorded in Book 475, page 321 of the Floyd County Deed Records. Reference to said deed being made for a more particular description of said property. TRACT IX (Tax Map 432-3-1): - -------- All that tract or parcel of land situated, lying and being in Land Lot 202 in the 23rd District and 3rd Section of Floyd County, Georgia, in the City of Rome, and being Lot 33 in the City Land Company's Fourth Addition to Summerville Park, a plat of which is recorded No. 2 in Block "F" of said Subdivision; thence southerly along the easterly line of said Lot No. 2 a distance of 100 feet to the southeasterly corner of said Lot No. 2; thence easterly along the northerly line of Lot No. 26 in Block "F" of said Subdivision a distance of 140 feet, more or less, to a point on the westerly side of Callier Springs Road; thence northerly along the westerly side of Callier Springs Road a distance of 100 feet to the point of beginning. TRACT IV (Tax Map 432-1-64): - -------- All that tract or parcel of land situated, lying and being in Land Lot 202 in the 23rd District and 3rd Section of Floyd County, Georgia, in the City of Rome, and being more particularly described as follows: BEGINNING at an iron pin which marks the northerwesterly corner of the intersection of Clark Avenue and the northeasterly side of the right of way of the Central of Georgia Railroad; running thence northerly 720 feet, more or less, along the westerly side of Clark Avenue to a point marked by an iron pin; running thence east a distance of 125 feet, more or less, to the westerly right of way now or formerly owned by the Rome and Northern Railroad Company; going thence northwesterly along the westerly right of way line of said railroad 390 feet, more or less, to a stake; going thence south 42 3/4 degrees west, 314 feet, more or less, to a stake; thence southerly and approximately parallel with Clark Avenue 646 feet, more or less, to the northeasterly side of the right of way of Central of Georgia Railroad; thence southeasterly and along the Central of Georgia right of way, 356.6 feet, more or less, to the point of beginning. TRACT V (Tax Map 323-8-1 and 323-8-2): - ------- All that tract or parcel of land situated, lying and being in the First Ward of the City of Rome, Floyd County, Georgia, and being further described as Parcel 1, Block 13, according to a plat of Block Nos. 12, 13, and Lot 5, Block 7, of East First Street Urban Renewal Project Ga. R-89, recorded in Plat Book 10, Page 141, in the office of the Clerk of the Superior Court of Floyd County, Georgia, reference to which plat is hereby made for a more particular description. TRACT VI (Tax Map 334-28-22): - -------- All that tract or parcel of land situated, lying and being in Block C of East Rome in the City of Rome in Land Lots 276 and 285 in the 23rd District and 3rd Section of Floyd County, Georgia, described as follows: point of beginning. This conveyance is expressly made subject to the "Property Restrictions Requirements" relating to Callier Springs Heights Subdivision recorded in Deed Book 487, Page 410, and Deed Book 508, Page 489, Floyd County Deed Records. Tract II (Tax Map 328-14-26): - -------- All that tract or parcel of land situated, lying and being in Land Lot No. 328 in the 23rd District and 3rd Section of Floyd County, Georgia, and being Lot No. 26 in Block "F" of Callier Springs Heights, according to a revised plat thereof recorded in Plat Book 9, Page 132, in the office of the Clerk of the Superior Court of FLoyd County, Georgia, said Lot No. 26 being more particularly described as follows: BEGINNING at a point on the westerly side of Callier Springs Road, which point is southerly 196 feet from the interception of the southerly side of Cross View Boulevard with the westerly side of Callier Springs Road; running thence southerly along the westerly side of Callier Springs Road a distance of 100 feet to a point marking the northeast corner of Lot No. 25; thence westerly along the northerly side of Lot No. 25 a distance of 135 feet, more or less, to the southeast corner of Lot No. 3; thence northerly along the easterly side of said Lot No. 3 a distance of 100 feet to the southwest corner of Lot No. 27; thence easterly along the southerly side of said Lot No. 27 a distance of 140 feet, more or less, to the point of beginning. This conveyance is expressly made subject to the "Property Restrictions and Requirements" relating to Callier Springs Heights Subdivision recorded in Deed Book 487, Page 410, and Deed Book 508, Page 489, Floyd County Deed Records. TRACT III (Tax Map 328-14-27): - --------- All that tract or parcel of land situated, lying and being Lot No. 328 in the 23rd District and 3rd Section of Floyd County, Georgia, and being Lot No. 27, Block "F" of Callier Spring Heights, according to a revised plat thereof recorded in Plat Book 9, Page 132, in the office of the Clerk of Superior Court of Floyd County, Georgia. The lot hereby conveyed begin more particularly described as follows: BEGINNING at a point on the westerly side of Callier Springs Road, which point is southerly 96 feet from the intersection of the southerly side of Cross View Boulevard with the westerly side of Callier Springs Road; thence running westerly along the southerly line of Lot No. 28 in Block "F" of said Subdivision a distance of 140 feet, more or less, to the northeasterly corner of Lot DEED OF ASSENT -------------- STATE OF GEORGIA, FLOYD COUNTY: THIS INDENTURE, made this the ____ day of February, in the year of our Lord One Thousand Nine Hundred and Ninety between First Union National Bank and Jerry L. Minge, Co-Executors of the Estate of James E. Minge of the County of Floyd and State of Georgia of the first part and First Union National Bank, Trustee under Trust created by will of James E. Minge, Deceased of the County of Floyd and State of Georgia of the Second part: W I T N E S S E T H: ------------------- That the said parties of the first part for the purpose of carrying out the provisions of the will of James E. Minge, and evidencing the assent of said parties of the first part to the devise thereby made, there being ample property and assets in the estate of said deceased to satisfy all of the debts of that estate, have delivered and conveyed, and by these presents deliver and convey unto the said party of the second part, its heirs, successors and assigns the following described property: TRACT I (Tax Map 328-14-25): ------- All that tract or parcel of land situated, lying and being in the 23rd District and 3rd Section of Floyd County, Georgia, and being Lot No. 25 in Block "F" of Callier Springs Heights, according to a revised plat thereof recorded in Plat Book 9, Page 132, in the office of the Clerk of the Superior Court of Floyd County, Georgia. Said Lot No. 25 being more particularly described as follows: BEGINNING at a point on the westerly side of Callier Springs Road, which point is southerly 296 feet from the intersection of the southerly side of Cross View Boulevard with the westerly side of Callier Springs Road thence running South along the westerly side of Callier Springs Road a distance of 100 feet to a point marking the northeast corner of Lot No. 24; thence westerly along the northerly side of said Lot No. 24 a distance of 125 feet, more or less to the southeast corner of Lot No. 4; thence northerly along the easterly side of said Lot No. 4 a distance of 100 feet to the southwest corner of Lot No. 26; thence easterly along the southerly side of said Lot No. 26 a distance of 135 feet, more or less, to the of the County of Floyd and State of Georgia Deputy Clerk of Superior Court of the first part, and FIRST UNION NATIONAL BANK OF GEORGIA, as Trustee under the Minge Family Trust Agreement dated of the County of Floyd and State of Georgia of the second part. WITNESSETH: That the said party of the first part, for and in consideration of the sum of TEN and NO/100 ($10.00) and other good and valuable consideration __________________ Dollars in hand paid, the receipt whereof is hereby acknowledged, has sold and conveyed, and by these presents does sell and convey unto the said party of the second part, its heirs, administrators, executors, representatives, successors and assigns, all that land and real estate described as follows: All that tract or parcel of land situated, lying and being in Land Lot 129 and/or Land Lots 128, 160 and 161 in the 4th District and 4th Section of Floyd County, Georgia, and being in the Third Ward of the City of Rome, Georgia, and being more particularly described as follows: BEGINNING at a concrete monument on the northerly right of way of Shorter Avenue, south 52 degree 01 minutes 13 seconds west a distance of 41.34 feet from the westerly right of way of the Old Airport Road, and from said concrete monument running thence north 52 degrees 01 minutes 13 second east a distance of 41.34 feet to a concrete monument on the west side of the Old Airport Road, thence north 00 degrees 52 minutes 07 seconds west along the westerly right of way of the Old Airport Road a distance of 182.54 feet to a point, which is the POINT OF BEGINNING; from said point of beginning, running thence north 84 degrees 04 minutes 42 seconds west a distance of 202.99 feet to a point, thence north 81 degrees 52 minutes 00 seconds west a distance of 135.00 feet to a point, thence north 82 degrees 17 minutes 00 seconds west a distance of 95.06 feet to a concrete monument; thence south 00 degrees 01 minutes 00 seconds west a distance of 226.17 feet to a point located on the northerly right of way of Shorter Avenue; thence north 76 degrees 24 minutes 00 seconds west a distance of 20.03 feet to a concrete monument; thence north 00 degree 01 minutes 00 seconds east a distance of 230.84 feet to a point; thence north 76 degrees 20 minutes 52 seconds west a distance 192.35 feet to a point; thence running north 00 degrees 04 minutes 02 seconds east a distance of 453.85 feet to a point located on the southerly right of way of the Southern Railroad; thence running south 68 degrees 02 minutes 50 seconds east a distance of 696.67 feet to a point located on the westerly right of way of the Old Airport Road; thence running south 02 degrees 27 minutes 12 seconds west a distance of 140.80 feet to a point; thence south 01 degrees 37 minutes 21 seconds west a distance of 160.38 feet to a point, which is the POINT OF BEGINNING. The above described property is in accordance with a survey of said property prepared by Horne Associates dates March 6, 1992, reference to which is hereby made for a more particular description. The interest herein conveyed by the Grantor in this deed is as follows: 16.25% of an undivided 1/3 interest in the above described property. TO HAVE AND TO HOLD, The said bargained premises, together with all and singular the rights, members and appurtenances thereunto belonging, or in any wise appertaining, to the only proper use, benefit and behoof of the said party of the second part, its heirs, administrators, executors, representatives, successors and assigns, forever, in FEE SIMPLE. And the said party of the first part, binding his heirs, administrators, executors, representatives, successors and assigns, hereby warrants the title to said bargained premises and members and appurtenances thereunto belonging, unto said party of the second part, its heirs, administrators, executors, representatives, successors and assigns, against the lawful claims of any and all persons whomsoever. IN WITNESS WHEREOF, The said party of the first part has hereunto set his hand _____ and affixed his seal ____ the day and year first above written. Signed, sealed and delivered in the presence of: /s/ [SIGNATURE ILLEGIBLE] /s/ Jerry L. Minge (SEAL) - ------------------------------- ----------------------------- /s/ [SIGNATURE ILLEGIBLE] JERRY L. MINGE (SEAL) - ------------------------------- ----------------------------- NOTARY PUBLIC FLOYD (SEAL) ----------------- _____________________________ COUNTY GEORGIA (SEAL) ----------------------- _____________________________ STATE OF GEORGIA, FLOYD COUNTY Office of The Probate Judge I Myra B. Hunt, Clerk of the Probate Court of said County, do hereby certify that I have compared the foregoing copy of Letters Testamentary issued to James Bruce Minge, Janie May Watson and First Union National Bank, Executors of the Last Will and Testament of Walter B. Minge, deceased with the original record thereof, now remaining in this office, and the same is a correct transcript therefrom and of the whole of such original record. In testimony whereof I have hereunto set my hand and affixed the seal of the Probate Court. This the 2nd day of August 1994 /s/ Myra B. Hunt --------------------------------- Clerk of the Probate Court COUNTY OF Floyd LETTERS TESTAMENTARY (Relieved of Filing Returns) By Jean P. Duncan, Judge of the Probate Court of said County. KNOW ALL WHOM IT MAY CONCERN: That on the 28th day of July, 1994 at a regular term of the Probate Court, the last Will and Testament dated January 27, 1989, of Walter R. Minge deceased, at the time of his death a resident of said County, was legally proven in solemn form and was admitted to record by order, and it was further ordered that James Bruce Minge, Janie May Watson and First Union National Bank name as Executor(s) in said Will, be allowed to qualify, and that upon so doing, Letters Testamentary be issued to such Executor(s). NOW, THEREFORE, the said James Bruce Minge, Janie May Watson and First Union National Bank, having taken the oath of office and complied with all the necessary prerequisites of the law are legally authorized to discharge all the duties and exercise all the powers of Executor(s) under the Will of said deceased, according to the Will and the law. Given under my hand and official seal, the 28th day of July, 1994. /s/ Jean P. Duncan ---------------------------------- Judge of the Probate Court NOTE: The following must be signed if the judge does not sign the original of this document: Issued by: (Seal) ___________________________________ Clerk, Probate Court pin; running thence south 85 degrees 32 minutes east 201.82 feet to an iron pin on the west line of Old Airport Road; running thence southerly along the westerly line of Old Airport Road, 205 feet, more or less, to an iron pin and the point of beginning. This property is bounded on the south by Shorter Avenue, on the east by Old Airport Road, on the west by West Rome Animal Clinic, and the north by property leased by Integrated Products. TRACT X (Tax Map 566-3): - ------- To find the true point of beginning start at an iron pin on the west right of way line of Black Bluff Road 200 feet southwest of the point where the north line of Land Lot 359 intersects the west right of way of the Black Bluff Road as measured along said Black Bluff Road, and running thence south 40 degrees 11 minutes west 139.72 feet to a point; thence south 41 degrees 59 minutes west 187.33 feet to an iron pin; thence north 49 degrees 55 minutes west 192.6 feet to an iron pin; thence north 34 degrees 3 minutes east 132.23 feet to an iron pin; thence north 79 degrees 02 minutes west 311.72 feet TO THE POINT OF BEGINNING; thence north 79 degrees 02 minutes west 114.28 feet to an iron pin; thence south 36 degrees 57 minutes west 113.22 feet to a point; thence north 86 degrees 30 minutes east 146.95 feet to a point; thence north 29 degrees 12 minutes east 68.79 feet to the point of beginning. to the beginning point on the northerly side of said road. Said described tract contains one (1) acre and is further described in a deed from Fred Addington to H. A. Burns, recorded in Deed Book 163, Page 475, Floyd County Deed Records. ALSO EXCEPTED: All that tract of land located in Land Lot No. 160 in said District and Section of Floyd County, more particularly described as commencing at a point on the northerly side of the present Alabama Road 305 feet easterly from the southwest corner of the first tract above mentioned, said beginning point also being 20 feet easterly from the southeast corner of the tract of land conveyed by said first party to H. A. Burns; and running thence northerly, parallel with the line of said tract conveyed to H. A. Burns, 226 feet, thence easterly, parallel with the said Alabama Road 95 feet; thence southerly, parallel with said line on the east side of said H. A. Burns ?????, 226 feet to the Alabama Road; thence westerly along the northerly side of said Alabama Road 95 feet to the beginning point. Said tract was conveyed by Fred Addington to Mrs. Tom J. Denman, recorded in Deed Book 378, Page 54. ALSO EXCEPTED: All that tract or parcel of land situated in original Land Lot No. 160 in the 4th District and 4th Section of Floyd County, Georgia, beginning at a point on the northerly line of the right of way of the New Alabama Road 305 feet easterly from the southwest corner of a tract sold to H. A. Burns by Fred Addington, said beginning point also being the southeast corner of a tract sold Addington to Mrs. Tom J. Denman, and running thence easterly along the line of said right of way 137.63 feet; thence north 1 degree and 5 minutes west 213.56 feet; thence north 81 degrees and 33 minutes west 135 feet to the northeast corner of the said Mrs. Tom J. Denman tract; thence southerly along the line of the said Mrs. Tom J. Denman lot 226 feet to the beginning point. Said tract contains .69 acres, more or less. Said tract was conveyed by Fred Addington to Alvin S. Ayers, et. al., and recorded in Deed Book 249, Page 590, Floyd County Deed Records. ALSO EXCEPTED: All that tract or parcel of land situated, lying and being in Land Lot 129 and/or 160 in the 4th District and 4th Section of FLoyd County, Georgia, and being in the 3rd Ward of the City of Rome and being more particularly described as follows: Beginning at an iron pin which marks the intersection of the north line of Shorter Avenue with the west line of Old Airport Road and running thence north 85 degrees 29 minutes west, 201.16 feet to an iron pin; running thence north 01 degree 05 minutes west, 208.52 feet to an iron Georgia. Said property has situated thereon, a house known as No. 40 Battey Drive, Rome, Georgia, and is the same property as that described in a warranty deed recorded in Book 475, page 321 of the Floyd County Deed Records. Reference to said deed being made for a more particular description of said property. TRACT VIII (Tax Map 432-3-1) - ---------- All that tract or parcel of land situated, lying and being in Land Lot 202 in the 23rd District and 3rd Section of Floyd County, Georgia, in the City of Rome, and being Lot 33 in the City Land Company's Fourth Addition to Summerville Park, a plat of which is recorded in Plat Book 3, page 99 in the Office of the Clerk of the Superior Court of Floyd County, Georgia. Reference to said plat is hereby made for a more particular description of said property. TRACT IX (Tax Map 452-13-10A) - -------- A one-third undivided interest in and to: All that tract or parcel of land situated, lying and being in the County of Floyd and described as follows: Being in the 4th District and 4th Section of FLoyd County and being a part of Land Lots Nos. 160 and 129, more particularly described as beginning at the northwest corner of the intersection of the Alabama Road and the Old Airport Road and running thence northerly along the west side of the said Old Airport Road a distance of 520 feet, more or less, to the right of way of the Southern Railway Company; thence westerly along the said right of way of said Railway a distance of 710 feet, more or less, to the northwest corner of this tract; thence in a generally southerly direction to the Old Alabama Road; thence in a generally southeast by east direction along said Old Alabama Road to the present Alabama Road, and thence east to the point of beginning. Said tract is recorded in Deed Book 163, Page 459, in the Floyd County Deed Records. LESS AND EXCEPT THE FOLLOWING TRACTS OF LAND: All that tract of land situated and lying in Land Lot No. 160 in the 4th District and 4th Section of FLoyd County, Georgia, and more particularly described as commencing at a point on the Alabama Road at the southwest corner of the above tract and running thence northerly along the westerly line of said tract a distance of 230.84 feet; thence easterly parallel with the present Alabama Public Road, 190 feet; thence southerly parallel with said first described line, 230.84 feet to the Alabama Public Road; thence westerly along said Alabama Public Road 190 feet more or less, to a stake; going thence south 42 3/4 degrees west, 314 feet, more or less, to a stake; thence southerly and approximately parallel with Clark Avenue 646 feet, more or less, to the northeasterly side of the right of way of Central of Georgia Railroad; thence southeasterly and along the Cental of Georgia right of way, 356.6 feet, more or less, to the point of beginning. TRACT V (Tax Map 334-28-22): - ------- All that tract or parcel of land situated, lying and being in Block C of East Rome in the City of Rome in Land Lots 276 and 285 in the 23rd District and 3rd Section of Floyd County, Georgia, described as follows: BEGINNING at the point on the southwesterly line of East Seventh Street (formerly Division Street) where the same intersects the southeasterly line of Southern Railway Company right of way; and from said beginning point running southeasterly, along the southwesterly line of East Seventh Street 180 feet, more or less, to the northwest corner of tract formerly owned by Hugh B. Parks; thence southwesterly, along the northwest line of said tract formerly owned by Hugh B. Parks, 270 feet, more or less, to corner of lot formerly known as the Weller lot (part later owned by Miss Geraldine Barton and Mrs. Nell B. Perryman and part later owned by W. E. Wiggins, Sr.); thence northwesterly, along the northerly line of said tract formerly known as the Weller Lot, 125 feet, more or less, to the southeasterly line of Southern Railway Company right of way; and thence northeasterly, along the southeasterly line of Southern Railway Company right of way, 180 feet, more or less, to the beginning point. TRACT VI (Tax Map 432-28-9): - -------- All that tract or parcel of land situated, lying and being in the City of Rome, Floyd County, Georgia, and being all of Lots Numbers Thirteen (13), Fourteen (14) and Fifteen (15) of the City Land Company's Alto View Addition to West Rome, as shown on a plat of said addition recorded in Plat Book 1, page 29 in the Office of the Clerk of the Superior Court of Floyd County, Georgia. TRACT VII (Tax Map 432-3-2): - --------- All that tract or parcel of land situated, lying and being in Land Lot 202 in the 23rd District and 3rd Section of Floyd County, Georgia, and being the easterly 1/2 of Lot 31 and all of Lot 32 in the City Land, Company's Fourth Addition to Summerville Park, a plat of which is recorded in Plat Book 3, Page 99 in the Office of the Clerk of the Superior Court of Floyd County, corner of Lot No. 3; thence northerly along the easterly side of said Lot No. 3 a distance of 100 feet to the southwest corner of Lot No. 27; thence easterly along the southerly side of said Lot No. 27 a distance of 140 feet, more or less, to the point of beginning. This conveyance is expressly made subject to the "Property Restrictions and Requirements" relating to Callier Springs Heights Subdivision recorded in Deed Book 487, Page 410, and Deed Book 508, Page 489, Floyd County Deed Records. TRACT III (Tax Map 328-14-27) - --------- All that tract or parcel of land situated, lying and being Lot No. 328 in the 23rd District and 3rd Section of Floyd County, Georgia, and being Lot No. 27, Block "F" of Callier Springs Heights, according to a revised plat thereof recorded in Plat Book 9, Page 132, in the office of the Clerk of Superior Court of Floyd County, Georgia. The lot hereby conveyed being more particularly described as follows: BEGINNING at a point on the westerly side of Callier Springs Road, which point is southerly 96 feet from the intersection of the southerly side of Cross View Boulevard with the westerly side of Callier Springs Road; thence running westerly along the southerly line of Lot No. 28 in Block "F" of said Subdivision a distance of 140 feet, more or less, to the northeasterly corner of Lot No. 2 in Block "F" of said Subdivision; thence southerly along the easterly line of said Lot No. 2 a distance of 100 feet to the southeasterly corner of said Lot No. 2; thence easterly along the northerly line of Lot No. 26 in Block "F" of said Subdivision a distance of 140 feet, more or less, to a point on the westerly side of Callier Springs Road; thence northerly along the westerly side of Callier Springs Road a distance of 100 feet to the point of beginning. TRACT IV (Tax Map 432-1-64) - -------- All that tract or parcel of land situated, lying and being in Land Lot 202 in the 23rd District and 3rd Section of Floyd County, Georgia, in the City of Rome, and being more particularly described as follows: BEGINNING at an iron pin which marks the northwesterly corner of the intersection of Clark Avenue and the northeasterly side of the right of way of the Central of Georgia Railroad; running thence northerly 720 feet, more or less, along the westerly side of Clark Avenue to a point marked by an iron pin; running thence east a distance of 125 feet, more or less, to the westerly right of way now or formerly owned by the Rome and Northern Railroad Company; going thence northwesterly along the westerly right of way line of said railroad 390 feet, EXHIBIT "A" TRACT I (Tax Map 328-14-25): - ------- All that tract or parcel of land situated, lying and being in the 23rd District and 3rd Section of Floyd County, Georgia, and being Lot No. 25 in Block "F" of Callier Springs Heights, according to a revised plat thereof recorded in Plat Book 9, Page 132, in the office of the Clerk of the Superior Court of Floyd County, Georgia. Said Lot No. 25 being more particularly described as follows: BEGINNING at a point on the westerly side of Callier Springs Road, which point is southerly 296 feet from the intersection of the southerly side of Cross View Boulevard with the westerly side of Callier Springs Road thence running South along the westerly side of Callier Springs Road a distance of 100 feet to a point marking the northeast corner of Lot No. 24; thence westerly along the northerly side of said Lot No. 24 a distance of 125 feet, more or less to the southeast corner of Lot No. 4; thence northerly along the easterly side of said Lot No. 4 a distance of 100 feet to the southwest corner of Lot No. 26; thence easterly along the southerly side of said Lot No. 26 a distance of 135 feet, more or less, to the point of beginning. This conveyance is expressly made subject to the "Property Restrictions Requirements" relating to Callier Springs Heights Subdivision recorded in Deed Book 487, Page 410, and Deed Book 508, Page 489, Floyd County Deed Records. TRACT II (Tax Map 328-14-26): - -------- All that tract or parcel of land situated, lying and being in Land Lot No. 328 in the 23rd District and 3rd Section of Floyd County, Georgia, and being Lot No. 26 in Block "F" of Callier Springs Heights, according to a revised plat thereof recorded in Plat Book 9, Page 132, in the office of the Clerk of the Superior Court of Floyd County, Georgia, said Lot No. 26 being more particularly described as follows: BEGINNING at a point on the westerly side of Callier Springs Road, which point is southerly 196 feet from the intersection of the southerly side of Cross View Boulevard with the westerly side of Callier Springs Road; running thence southerly along the westerly side of Callier Springs Road a distance of 100 feet to a point marking the northeast corner of Lot No. 25; thence westerly along the northerly side of Lot No. 25 a distance of 135 feet, more or less, to the southeast The will of the said James E. Minge is on file in the Office of the Probate Court of Floyd County, Georgia, having been probated in solemn from with Letters Testamentary granted to parties of the first part on July 20, 1988. In Witness whereof, First Union National Bank and Jerry L. Minge, Co-Executors, have hereunto set their hands and affixed their seals the day and year first above written. Sworn to and subscribed before FIRST UNION NATIONAL BANK me this 8/th/ day of July, 1992. /s/ Louise D. Adams BY: /s/ [SIGNATURE ILLEGIBLE] - ---------------------------------- ------------------------------- WITNESS TITLE: Vice President ------------------------- /s/ [SIGNATURE ILLEGIBLE] ATTEST: /s/ [SIGNATURE ILLEGIBLE] - ---------------------------------- --------------------------- NOTARY PUBLIC TITLE: VICE PRESIDENT ------------------------ My Commission expires: 3/5/94 [SEAL] - ------------------------------ Sworn to and subscribed before me this 8th day of July, 1992. /s/ Louise D. Adams /s/ Jerry L. Minge (SEAL) - ---------------------------------- ---------------------------- WITNESS JERRY L. MINGE /S/ [SIGNATURE ILLEGIBLE] - ---------------------------------- NOTARY PUBLIC My Commission expires: 3/5/94 - ------------------------------ [STAMP APPEARS HERE] DEED OF ASSENT STATE OF GEORGIA COUNTY OF FLOYD. THIS INDENTURE made this 10th day of July, 1992 between First Union National Bank and Jerry L. Minge, Co-Executors of the Estate of James E. Minge of the County of Floyd and State of Georgia of the first part and First Union National Bank, Trustee under Trust created under Item Eight of the will of James E. Minge, Deceased, of the County of Floyd and State of Georgia of the second part: W I T N E S S E T H: - - - - - - - - - - That the said parties of the first part for the purpose of carrying out the provisions of the will of James E. Minge, and evidencing the assent of said parties of the first part to the devise thereby made, there being ample property and assets in the estate of said deceased to satisfy all of the debts of that estate, have delivered and conveyed and by these presents delivers and conveys unto the said party of the second part, its heirs, successors and assigns the following described property: See Exhibit "A" attached hereto and made a part hereof by reference. TO HAVE AND TO HOLD, the said land, together with all and singular the rights, members and appurtenances thereto belonging, or in any wise appertaining, to the only proper use, benefit and behoof of the said party of the second part, its successors and assigns, in as ample a manner as said James E. Minge held the same. Floyd County, Georgia Real Estate Transfer Tax Paid $ None ---------------------------- 7-16-92 Date ---------------------------- /s/ Vicki Powers ---------------------------- Deputy Clerk of Superior Court EX-10.25 20 LEASE AGREEMENT EXHIBIT 10.25 STATE OF GEORGIA COUNTY OF WALKER THIS AGREEMENT made as of the 1st day of June, 1998, by and between INTERMARK USA, INC., as Landlord (hereinafter referred to as "Landlord"), and IMAGE INDUSTRIES, INC., having an address of P.O. Box 5555, Armuchee, Georgia 30105, as Tenant (hereinafter referred to as "Tenant"). W I T N E S S E T H: WHEREAS, Landlord and Tenant heretofore entered into a Commercial Lease Contract (the "Lease") respecting certain premises together with the building thereon located in Kensington, Walker County, Georgia, and being more particularly described in the Lease; and Paragraph 1 Leased property 1. The Landlord, for and in consideration of the rents, covenants, agreements and stipulations hereinafter mentioned, provided for and contained, to be paid, kept and performed by the Tenant, has leased and rented, and by these presents leases and rents, unto the said Tenant, and said Tenant hereby leases and takes upon the terms and conditions which hereinafter appear, the following described property (hereinafter called "Premises"), to wit: (a) From the period of June 1, 1998 through May 31, 1999, 136,020 square feet located in the old Archer plant, (known as Sections A-4, A-5 and A-6)); and (b) On a month to month basis after June 1, 1998, 141,464 square feet located in the old Archer plant (known as Sections B-4) and being known as Highway 341, Kensington, Georgia. No easement for light or air is included in the Premises. Paragraph 2 Rental and Period of Lease Tenant agrees to pay Landlord an annual rental in the amount of $225,000, which shall be paid, commencing promptly on June 1, 1998, and on the first day of each month thereafter in advance during the term of this Lease, in equal monthly installments of $18,750. Rent shall be on a pro rata basis for square footage described in paragraph 1. Paragraph 3 Default It is mutually agreed that in the event the Tenant shall default in the payment of rent herein reserved, when due, and fails to cure said default within ten (10) days after written notice hereof from the Landlord; or if the Tenant shall be in default in performing any of the terms or provisions of the lease other than the provision requiring the payment of rent, and fails to cure such default within thirty (30) days after the written notice of default from the landlord; or if the Tenant is adjudicated bankrupt or if a permanent receiver is appointed for the Tenant's property and such receiver is not removed within sixty (60) days after written notice from the Landlord to Tenant to obtain such removal; or if, whether voluntary or involuntary, Tenant takes advantage of any debtor relief proceedings under any present or future law, whereby the rent or any part thereof is, is proposed to be, reduced or payment thereof deferred; or if the Tenant makes an assignment for benefit of creditors; or if the Tenant's property or any part thereof should be levied upon or attached under process against Tenant and not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof; then, in any said events, Landlord at his option, may at once, or within six (6) months thereafter (but only during continuance of such default or condition), terminate this lease by written notification to the Tenant; where upon this lease shall end. After an authorized assignment or subletting of the entire premises covered by this lease, the occurring of any of the foregoing defaults or events shall affect this lease only if caused by, or happening to the assignee or sub-tenant. Any notice provide ion this paragraph may be given by Landlord, or Agent herein named. Upon such termination by Landlord, Tenant will at once surrender possession of the premises to Landlord and remove all Tenant's property therefrom; and Landlord may forewith re-enter the premises and repossess himself hereof, and remove all property therefrom, using such force as may be necessary without being guilty of trespass, forcible entry to detainer or other tort, or the violation or any of the terms of this lease. Paragraph 4 Reletting by Landlord Landlord as Tenant's agent, without termination of this lease, upon Tenant's breaching any of the terms of this contract, may at the Landlord's option, enter upon and rent said premises at the best price obtainable by reasonable effort without advertisement or private negotiations and for any term Landlord deems proper. Tenant shall be liable to Landlord for the deficiency, if any, between Tenant's rent hereunder and the price obtained by Landlord on re-letting. Paragraph 5 Collection by an attorney If any rent owing under this lease is collected by or through an attorney at law, Tenant agrees to pay ten (10%) percent thereof as attorney's fees. Tenant waives all right to homestead and exemptions which he or any member of his family or other person may have under any law as against any obligations arising under this lease, and Tenant hereby assigns to Landlord his homestead and exemption. Paragraph 6 Subletting by Tenant Tenant may sublease portions of the leased premises to others provided that such operation is in part of the general operation of the Tenant and under the supervision and control of the Tenant, and provided that such operation is within the purposes for which said premises shall be used. Except as provided in the preceding sentence, Tenant shall not, without the written consent of the Landlord, assign the lease or any interest hereunder, or sublet premises or any part thereof, or permit the use of premises by any party other than the Tenant, any assignee of the Tenant, at option of Landlord, shall become directly liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. Paragraph 6 Signs Tenant shall paint no signs on the outside walls or place any signs on the roof of the leased premises except with the written consent of Landlord. Any and all signs placed on or within the leased premises by the Tenant shall be maintained in compliance with the rules and regulations governing such signs and the Tenant shall be responsible to Landlord for any damage caused by installation, use or maintenance of said signs, and Tenant agrees, upon removal of said signs, to repair damage incident to such removal. Paragraph 7 Control & responsibility Landlord gives Tenant exclusive control of the premises, and shall be under no obligation to inspect said premises. Tenant shall at once report in writing to landlord any defective condition known to him which Landlord is required to repair, and failure to so report such defect shall make the Tenant responsibility to the Landlord for any liability incurred by Landlord by reason of such defect. If such defect shall result in a leak or other condition needing attention in the roof, Landlord upon receipt of written notice from Tenant shall with reasonable promptness have made the necessary repairs. Should Landlord fail to make such repairs with reasonable promptness, Tenant is authorized to have the necessary repairs made and deduct the costs from the next rental payment due hereunder. Landlord shall not be liable, under any circumstances, for damage by water, or otherwise, by reason of the failure of the building to protect persons property, nor shall Landlord be liable for damages by reason of flood water I the basement, or otherwise. Paragraph 8 Delivery at expiration Tenant will deliver said premises at the expiration of this lease in as good order and repair as when first received, natural wear and tear and fire and other casualty loss excepted. Tenant shall have the right, within the term of the lease, if not in default thereunder, to remove all furniture or trade fixtures that have been installed by Tenant, but Tenant will repair, at or before the end of the term, all injury done by the installation or removal of furniture and property. Paragraph 9 Changes in premises Tenant is to make no change of any substantial or permanent nature in the above named premises, including painting of outside walls without first obtaining written consent from said Landlord. Paragraph 10 Improvements by Tenant Any improvements, repairs, betterment's or additions placed on the premises by the Tenant, shall not be a charge against the Landlord or the property. Paragraph 11 Ordinances Tenant agrees to comply with all rules, orders, ordinances and regulations of the City, County and State in which the property is located, in any and all of their departments. Paragraph 12 Carding Landlord has the privilege of carding the premises for rent or for sale at any time within ninety (90) days previous to the expiration of this lease, and may at any time exhibit said premises during reasonable hours with notification in writing to Tenant. Paragraph 13 Use of Premises Premises shall be used as general warehouse. No wines, beer, whiskeys, liquors or intoxicating beverages of any kind shall be kept on, sold or delivered on said premises. Paragraph 14 Hold over This lease, under no circumstances, shall extend beyond the timer herein provided; and in the event that Tenant remains in the property after the expiration date of the term herein, with or without payment of rent, this shall not automatically extend the lease but he shall be as a tenant at will, and subject to the terms and conditions of the original lease. Paragraph 15 Light & easement Nothing herein contained shall be construed to confer upon Tenant easement to light or air. Paragraph 16 Right of use only This contract shall create the relationship of Landlord and Tenant between the parties hereto. No estate shall pass out of Landlord. Tenant has only a usufruct, not subject to levy and sale, and not assignable by Tenant except by Landlord's consent. Paragraph 17 All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative but not restrictive to those given by law. Paragraph 18 Non waiver of rights No failure of Landlord to exercise any power given landlord hereunder, or to insist upon strict compliance by Tenant with his obligations hereunder, and no custom or practice of the parties at variance with the terms hereof shall construe a waiver of Landlord's right to demand exact compliance with terms hereof. Paragraph 19 Time is of the essence of this agreement. Paragraph 20 Definition of Parties "Landlord" as used in this lease, shall also include his heirs, representatives, assigns and successors in title to premises. "Tenant" includes also representatives, and if this lease shall be validly assigned or said premises sub-let, shall include also Tenant's assignees or sub-tenants as to premises covered by such assignment or sub-lease. "Agent" shall include its successors, assigns and representatives. "Landlord" and "Tenant" include male and female, singular and plural, corporation, partnership or individual, as may fit particular parties. Paragraph 21 Notices The depositing in the United States Post Office, directed to Tenant at Tenant's address shown above of any notice required or permitted under this lease to be given by Landlord to Tenant, shall be conclusive of delivery thereof to Tenant. SPECIAL STIPULATIONS Insofar as the following stipulations conflict with any of the foregoing provisions, the following shall control. A. Insurance. Landlord shall, at its cost and expense, cause the following insurance coverage to be provided and kept in force without lapse at any time and for any reason during the term of this Lease: (i) Insurance covering the premises against loss or damage by fire and lightning and such risks as are included in "Special Form" or All Risk coverage endorsements to policies covering property similar to the premises in an amount equal to 100% of the full replacement value thereof (excluding foundations and excavation costs), which names Tenant as an additional insured and which includes an endorsement waiving the right of subrogation. Notwithstanding anything contained in this lease to the contrary, regardless of whether or not Landlord causes the required insurance covering losses for such causes to be provided and kept in force and regardless of whether or not Tenant, its agents, employees, contractors or others under the control of Tenant cause such damages, Landlord shall be responsible for repairing all damages to the premises caused by fire and lightning and such risks as are customarily included in "Special Form" or All Risk coverage endorsements to policies covering property similar to the premises. (ii) Commercial General Liability coverage on an "Occurrence Form" basis with limits of at least $1,000,000 Each Occurrence, and $2,000,000 General Aggregate for all claims arising out of Bodily Injury, Personal Injury, and Property Damage Liability, including Contractual Liability. (iii) Business Auto Liability coverage for all vehicles owned by Landlord, including Non-Owned and Hired Autos, with limits of at least $1,000,000 Each Occurrence for Bodily Injury and Property Damage Liability. (iv) Workers Compensation coverage covering all employees, contractors and subcontractors of Landlord, as applicable, working in the State of Georgia under the statutory provisions of the Georgia Workers Compensation Act. Landlord and Tenant expressly agree that either Landlord's failure to provide Tenant a certificate of insurance as temporary evidence of the insurance coverage required by this lease within ten (10) days from the effective date of this lease, or Landlord's failure to provide Tenant a final policy or policies of insurance evidencing the insurance coverage required by this lease within sixty (60) days from the effective date of this lease, shall render Landlord in default under the lease and shall entitle Tenant to exercise any applicable remedies upon default provided in the lease or allowed by law. The policies required under this section shall not be canceled without thirty (30) days' prior written notice to Tenant. B. Damage or Destruction. Should said premises, or the building of which same are a part, be damaged by fire or any act of Providence, the Landlord shall cause the damaged part to be restored as soon as reasonably practicable and hold the lease in full force and effect. From the date of such damage until the damage is restored, the rental shall abate to the proportionate extent that the damaged part bears to the whole premises. Should the damage be so great as to amount substantially to total destruction, then either Landlord or Tenant shall have the right to terminate the lease, provided that either party shall within twenty (20) days after such damage notify the other party in writing of the election to terminate this lease. C. Environmental Compliance. To the best of Landlord's knowledge and belief, there are no existing violations of any federal, state and local environmental laws and regulations and any amendments thereto including, but not limited to, the Comprehensive Environmental Response Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, and the Resource Conservation Recovery Act of 1976. Landlord shall indemnify and hold Tenant harmless from and against any and all damages, penalties, fines, claims, liens, suits, liabilities, costs (including cleaning-up costs), judgments and expenses (including, but not limited to, attorneys', consultants' and experts' fees and expenses) of any kind and nature suffered by or asserted against Tenant as a direct or indirect result of any preexisting condition prior to the occupancy of said premises by Tenant or as a direct or indirect result of any condition or violation taking place after the termination of the lease term or Tenant's occupancy of the property. The foregoing indemnification shall survive the expiration or termination of the lease term. D. Increased Insurance Rates. Notwithstanding anything contained herein to the contrary, Tenant shall not be liable for any increase in insurance rates on the leased premises due to Tenant's initial occupancy thereof for the uses specified herein. Additionally, Landlord acknowledges and agrees that the proposed use does not require the physical presence of employees of Tenant at the leased premises during normal working hours, since Tenant's use as a warehouse facility will require the physical presence of Tenant's employees only during times of deliveries to or from the facility. Landlord represents and warrants that the demised premises are designed for and adequate for the use by Tenant as a warehouse for materials used in the production of carpet. E. Taxes. Tenant shall not be responsible for the payment of ad valorem property taxes assessed against the premises. F. Consents. Each party agrees that to the extent any acquiescence, consent or agreement herein is permitted or required, such acquiescence, consent or agreement should not be unreasonably withheld, delayed or denied. G. Quiet Enjoyment/Authority. Landlord covenants and warrants to Tenant that Landlord has full right and lawful authority to enter into and perform Landlord's obligations under this lease, that Landlord has a leasehold interest in the property pursuant to the Prior Lease, free and clear of all other contracts, leases, tenancy agreements, restrictions, violations, encumbrances or defects in title of any nature whatsoever that would restrict the use or enjoyment of Tenant of the premises. H. Brokerage Commission. Tenant shall have no responsibility for any commission payable to any broker in connection with the execution of this lease. I. Mutual Indemnification. Tenant hereby indemnifies Landlord for any bodily injury or property damage of any third parties by reason of Tenant's negligence, and the negligence of its employees, agents, servants or contractors, in its use or occupancy of the leased premises. Landlord hereby indemnifies Tenant for any bodily injury or property damage of any third parties by reason of Landlord's negligence and the negligence of its employees, agents, servants or contractors, in its maintenance, use or occupancy of the leased premises. J. Sprinkler system. As a precondition to the effectiveness of this lease Landlord agrees to keep the sprinkler system in working order as required by Tenants insurance carrier, and to not turn of the water supply to the sprinkler system other than for routine maintenance. IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment to Lease as of the day and year first above written. LANDLORD: INTERMARK USA, INC. Signed, sealed and delivered in the presence of: BY: /s/ [ILLEGIBLE] - ----------------------------------- --------------------------------- Witness /s/ Mary Beth Smith ATTEST: /s/ [ILLEGIBLE] - ----------------------------------- ----------------------------- Notary NOTARY PUBLIC [SEAL] MARY BETH SMITH WHITFIELD COUNTY, GEORGIA MY COMMISSION EXPIRES FEB. 18, 2000 TENANT: IMAGE INDUSTRIES, INC. Signed, sealed and delivered in the presence of: BY: /s/ Stephen P. Coburn - Treasurer - ----------------------------------- --------------------------------- Witness /s/ Linda Rodin ATTEST: /s/ [ILLEGIBLE] - ----------------------------------- ----------------------------- Notary Public My commission expires 01-26-99 EX-10.26 21 LEASE AGREEMENT EXHIBIT 10.26 LEASE AGREEMENT BY AND BETWEEN HAYWARD INDUSTRIAL PARK ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP AS LANDLORD AND MOHAWK INDUSTRIES, INC. A GEORGIA CORPORATION AS TENANT DATED NOVEMBER 10, 1997 TABLE OF CONTENTS Page Basic Lease Information .....................................................iii 1. Demise ................................................................... 1 2. Premises ................................................................. 1 3. Term ..................................................................... 2 4. Rent ..................................................................... 2 5. Utility Expenses ......................................................... 6 6. Late Charge .............................................................. 6 7. Security Deposit ......................................................... 7 8. Possession ............................................................... 7 9. Use of Premises .......................................................... 7 10. Acceptance of Premises .................................................. 8 11. Surrender ............................................................... 9 12. Alterations And Additions ............................................... 9 13. Maintenance and Repairs Of Premises ..................................... 11 14. Landlord's Insurance .................................................... 11 15. Tenant's Insurance ...................................................... 12 16. Indemnification ......................................................... 13 17. Subrogation ............................................................. 13 18. Signs ................................................................... 13 19. Free From Liens ......................................................... 14 20. Entry By Landlord ....................................................... 14 21. Destruction and Damage .................................................. 14 22. Condemnation ............................................................ 16 23. Assignment And Subleasing ............................................... 17 24. Tenant's Default ........................................................ 19 25. Landlord's Remedies ..................................................... 21 26. Landlord's Right to Perform Tenant's Obligations ........................ 23 27. Attorney's Fees ......................................................... 23 28. Taxes ................................................................... 24 29. Effect Of Conveyance .................................................... 24 30. Tenant's Estoppel Certificate ........................................... 24 31. Subordination ........................................................... 25 32. Environmental Covenants ................................................ 25 i 33. Notices ................................................................. 28 34. Waiver .................................................................. 28 35. Holding Over ............................................................ 28 36. Successors And Assigns .................................................. 28 37. Time .................................................................... 29 38. Brokers ................................................................. 29 39. Limitation Of Liability ................................................. 29 40. Financial Statements .................................................... 29 41. Rules and Regulations ................................................... 29 42. Mortgagee Protection .................................................... 30 43. Entire Agreement ........................................................ 30 44. Interest ................................................................ 30 45. Construction ............................................................ 30 46. Representations And Warranties Of Tenant ................................ 30 47. Relocation .............................................................. 31 48. Security ................................................................ 31 49. Jury Trial Waiver ....................................................... 31 Exhibit A Diagram of the Premises B Tenant Improvements B-1 Initial Floor Plan C Commencement and Expiration Date Memorandum D Rules and Regulations E Sign Criteria F Hazardous Materials Disclosure Certificate G N/A Addendum 1 Option to Extend Lease Addendum 2 Early Occupancy Agreement ii LEASE AGREEMENT BASIC LEASE INFORMATION Lease Date: November 10, 1997 Landlord: HAYWARD INDUSTRIAL PARK ASSOCIATES, A California General Partnership Landlord's Address: c/o Allegis Realty Investors LLC 455 Market Street, Suite 1540 San Francisco, California 94105 All notices sent to Landlord under this Lease shall be sent to the above address, with copies to: Lincoln Property Company Management Services, Inc. 101 Lincoln Centre Drive, Fourth Floor Foster City, California 94404 Tenant: Mohawk Industries, Inc. a Georgia corporation Tenant's Contact Person: __________________________________________________ Tenant's Address and 2001 Antiock Road Telephone Number: P.O. Box 2208, Dalton, GA 30721 Premises Square Footage: Approximately thirty thousand two hundred forty (30,240) rentable square feet Premises Address: 3624 Munster Avenue, Unit A, B and C Hayward, California Project: Hayward Industrial Park, consisting of four (4) phases ("Phases") containing an aggregate of approximately 1,108,424 rentable square feet, together with the land on which the Project is situated and all Common Areas Phase: Phase V, consisting of an aggregate of approximately 310,688 rentable square feet Building: Four (4), Hayward, California Tenant's Proportionate Share of Phase: 9.73% of Phase V Length of Term: Sixty (60) months Estimated Commencement Date: December 15, 1997 Estimated Expiration Date: December 14, 2002 Monthly Base Rent: Monthly Monthly Months Sq. Ft. Base Rent Base Rent 1-30 30,240 x $0.36 = $10,886.40 31-60 30,240 x $0.37 = $11,188.80 iii Escalations: N/A Prepaid Rent: Ten thousand eight hundred eighty six and 40/100 ($10,886.40) Prepaid Additional Rent: Two thousand two hundred twenty eight and 69/100 ($2,228.69) Month to which Prepaid Base Rent and Additional Rent will be Applied: (1st) month of the Term Security Deposit: Not required Permitted Use: Warehouse and distribution of carpet products and related office use, but only to the extent permitted by the City of Hayward and any and all entities having jurisdiction. Unreserved Parking Thirty (30) nonexclusive and undesignated parking Spaces: spaces Broker(s): Chris Coyte and Brett Holden - Lee & Associates (for Tenant) Joe Fabian and Jay Hagglund - BT Commercial (for Landlord) Tenant Improvements N/A Allowance: Tenant Improvements N/A Loan: Architect: N/A iv LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into by and between Landlord and Tenant on the Lease Date. The defined terms used in this Lease which are defined in the Basic Lease Information attached to this Lease Agreement ("Basic Lease Information") shall have the meaning and definition given them in the Basic Lease Information. The Basic Lease Information, the exhibits, the addendum or addenda described in the Basic Lease Information, and this Lease Agreement are and shall be construed as a single instrument and are referred to herein as the "Lease". 1. DEMISE In consideration for the rents and all other charges and payments payable by Tenant, and for the agreements, terms and conditions to be performed by Tenant in this Lease, LANDLORD DOES HEREBY LEASE TO TENANT, AND TENANT DOES HEREBY HIRE AND TAKE FROM LANDLORD, the Premises described below (the "Premises"), upon the agreements, terms and conditions of this Lease for the Term hereinafter stated. 2. PREMISES The Premises demised by this Lease is located in that certain building (the "Building") specified in the Basic Lease Information, which Building is located in that certain real estate development (the "Project") specified in the Basic Lease Information. The Premises has the address and contains the square footage specified in the Basic Lease Information. The location and dimensions of the Premises are depicted on Exhibit A, which is attached hereto and incorporated herein by this reference. Tenant shall have the non-exclusive right (in common with the other tenants, Landlord and any other person granted use by Landlord) to use the Common Areas (as hereinafter defined), except that, with respect to parking, Tenant shall have only a license to use the number of non-exclusive and undesignated parking spaces set forth in the Basic Lease Information in the Project's parking areas (the "Parking Areas"); provided, however, that Landlord shall not be required to enforce Tenant's right to use such parking spaces; and, provided further, that the number of parking spaces allocated to Tenant hereunder shall be reduced on a proportionate basis in the event any of the parking spaces in the Parking Areas are taken or otherwise eliminated as a result of any Condemnation (as hereinafter defined) or casualty event affecting such Parking Areas. Tenant acknowledges that the overuse by Tenant or Tenant's Agents of the number of parking spaces allocated to Tenant hereunder shall constitute a breach of this Lease by Tenant and, without limiting Landlord's rights and remedies hereunder as a result of such breach, Landlord shall have the right to assess a parking surcharge of one hundred dollars ($100.00) per day per vehicle for each vehicle parked in the Parking Areas by Tenant or Tenant's Agents in excess of the number of parking spaces allocated to Tenant hereunder as specified in the Basic Lease Information. No easement for light or air is incorporated in the Premises. For purposes of this Lease, the term "Common Areas" shall mean all areas and facilities outside the Premises and within the exterior boundary line of the Project that are provided and designated by Landlord for the non-exclusive use of Landlord, Tenant and other tenants of the Project and their respective employees, guests and invitees. Tenant understands and agrees that the Premises shall be leased by Tenant in its as-is condition without any improvements or alterations by Landlord unless Landlord has expressly agreed to make such improvements or alterations in a tenant improvement work agreement attached hereto, if at all, as Exhibit B. If Landlord has agreed to make any such improvements or alterations, then the Premises demised by this Lease shall include any Tenant Improvements (as that term is defined in the aforesaid tenant improvement work agreement) to be constructed by Landlord within the interior of the Premises. Landlord shall construct any Tenant Improvements on the terms and conditions set forth in Exhibit B, if attached hereto. Landlord and Tenant agree to and shall be bound by the terms and conditions of Exhibit B, if any. 1 Landlord has the right, in its sole discretion, from time to time, to: (a) make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, ingress, egress, direction of driveways, entrances, corridors and walkways; (b) close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (c) add additional buildings and improvements to the Common Areas or remove existing buildings or improvements therefrom; (d) use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project or any portion thereof; and (e) do and perform any other acts or make any other changes in, to or with respect to the Common Areas and the Project as Landlord may, in its sole discretion, deem to be appropriate. 3. TERM The term of this Lease (the "Term") shall be for the period of months specified in the Basic Lease Information, commencing on December 1, 1997 (the "Commencement Date"). Tenant further acknowledges and agrees that the Tenant Improvements described in Exhibit B attached hereto may be installed and constructed by Landlord in the Premises during the period of Tenant's occupancy of the Premises, however the completion of such Tenant Improvements therein shall not affect Tenant's obligation to pay Rent and to perform all of Tenant's covenants and obligations under the Lease. Tenant hereby expressly (i) agrees that Tenant shall have no right or claim to any abatement, offset or other deduction of the amount of Rent payable by Tenant for the Premises due to the installation and construction of any of the Tenant Improvements, (ii) grants Landlord access to any and all of the Premises to perform the Tenant Improvements, (iii) waives any rights or claims Tenant may have at law or in equity with respect to any interference with Tenant's conduct of its operations in and about the Premises during the pendency of the work associated with the Tenant Improvements, (iv) agrees to use commercially reasonable efforts not to interfere, and not to allow any of Tenant's Representative to interfere, with Landlord and its contractors, representatives and consultants in the performance of the work associated with the completion of the Tenant Improvements, and (v) agrees that Tenant's employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall fully cooperate, work in harmony and not, in any manner, unreasonably interfere with Landlord or Landlord's agents or representatives in performing any of the aforementioned work and any additional work related thereto, Landlord's work in other areas of the Building or the Park, or the general operation of the Building. In the event the actual Commencement Date, as determined pursuant to the foregoing, is a date other than the Estimated Commencement Date, then Landlord and Tenant shall promptly execute a Commencement and Expiration Date Memorandum in the form attached hereto as Exhibit C, wherein the parties shall specify the Commencement Date, the date on which the Term expires (the "Expiration Date") and the date on which Tenant is to commence paying Rent. 4. RENT (a) Base Rent. Tenant shall pay to Landlord, in advance on the first day of each month, without further notice or demand and without offset or deduction, the monthly installments of rent specified in the Basic Lease Information (the "Base Rent"). Upon execution of this Lease, Tenant shall pay to Landlord the Prepaid Rent and first monthly installment of estimated Additional Rent (as hereinafter defined) specified in the Basic Lease Information to be applied toward Base Rent and Additional Rent for the month of the Term specified in the Basic Lease Information. (b) Additional Rent. This Lease is intended to be a triple-net Lease with respect to Landlord; and subject to Paragraph 13(b) below, the Base Rent owing hereunder is (1) to be paid by Tenant absolutely net of all costs and expenses relating to Landlord's 2 ownership and operation of the Project and the Building, and (2) not to be reduced, offset to diminished, directly or indirectly, by any cost, charge or expense payable hereunder by Tenant or by others in connection with the Premises, the Building and/or the Project or any part thereof. The provisions of this Paragraph 4(b) for the payment of Tenant's Proportionate Share(s) of Expenses (as hereinafter defined) are intended to pass on to Tenant its share of all such costs and expenses. In addition to the Base Rent, Tenant shall pay to Landlord, in accordance with this Paragraph 4, Tenant's Proportionate Share(s) of all costs and expenses paid or incurred by Landlord in connection with the ownership, operation, maintenance, management and repair of the Premises, the Building and/or the Project or any part thereof (collectively, the "Expenses"), including, without limitation, all the following items (the "Additional Rent"): (1) Taxes and Assessments. All real estate taxes and assessments, which shall include any form of tax, assessment, fee, license fee, business license fee, levy, penalty (if a result of Tenant's delinquency), or tax (other than net income, estate, succession, inheritance, transfer or franchise taxes), imposed by any authority having the direct or indirect power to tax, or by any city, county, state or federal government or any improvement or other district or division thereof, whether such tax is (i) determined by the area of the Premises, the Building and/or the Project or any part thereof, or the Rent and other sums payable hereunder by Tenant or by other tenants, including, but not limited to, any gross income or excise tax levied by any of the foregoing authorities with respect to receipt of Rent and/or other sums due under this Lease; (ii) upon any legal or equitable interest of Landlord in the Premises, the Building and/or the Project or any part thereof; (iii) upon this transaction or any document to which Tenant is a party creating or transferring any interest in the Premises, the Building and/or the Project; (iv) levied or assessed in lieu of, in substitution for, or in addition to, existing or additional taxes against the Premises, the Building and/or the Project, whether or not now customary or within the contemplation of the parties; or (v) surcharged against the parking area. Tenant and Landlord acknowledge that Proposition 13 was adopted by the voters of the State of California in the June, 1978 election and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such purposes as fire protection, street, sidewalk, road, utility construction and maintenance, refuse removal and for other governmental services which may formerly have been provided without charge to property owners or occupants. It is the intention of the parties that all new and increased assessments, taxes, fees, levies and charges due to any cause whatsoever are to be included within the definition of real property taxes for purposes of this Lease. "Taxes and assessments" shall also include legal and consultants' fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce taxes, Landlord specifically reserving the right, but not the obligation, to contest by appropriate legal proceedings the amount or validity of any taxes. (2) Insurance. All insurance for the Building and/or the Project or any part thereof, including premiums for "all risk" fire and extended coverage insurance, commercial general liability insurance, rent loss or abatement insurance, earthquake insurance, flood or surface water coverage, and other insurance as Landlord deems necessary in its sole discretion, and any deductibles paid under policies of any such insurance. (3) Utilities. The cost of all Utilities (as hereinafter defined) serving the Premises, the Building and the Project or any part thereof that are not separately metered to Tenant, any assessments or charges for Utilities or similar purposes included within any tax bill for the Building or the Project or any part thereof, including without limitation, entitlement fees, allocation unit fees, and/or any similar fees or charges and any penalties (if a result of Tenant's delinquency) related thereto, and any amounts, taxes, charges, surcharges, assessments or impositions levied, assessed or imposed upon the Premises, the Building or the Project or any part thereof, or upon the Tenant's use and occupancy thereof, as a result of any rationing of Utility services or restriction on Utility 3 use affecting the Premises, the Building and/or the Project, as contemplated in Paragraph 5 below (collectively, "Utility Expenses"). (4) Common Area Expenses. All costs to operate, maintain, repair, replace, supervise, insure and administer the Common Areas, including supplies, materials, labor and equipment used in or related to the operation and maintenance of the Common Areas, including parking areas (including, without limitation, all costs of resurfacing and restriping parking areas), signs and directories on the Building and/or the Project, landscaping (including maintenance contracts and fees payable to landscaping consultants), amenities, sprinkler systems, sidewalks, walkways, driveways, curbs, lighting systems and security services, if any, provided by Landlord for the Common Areas, and any charges, assessments, costs or fees levied by any association or entity of which the Project or any part thereof is a member or to which the Project or any part thereof is subject. (5) Parking Charges. Any parking charges or other costs levied, assessed or imposed by, or at the direction of, or resulting from statutes or regulations, or interpretations thereof, promulgated by any governmental authority or insurer in connection with the use or occupancy of the Building or the Project. (6) Maintenance and Repair Costs. Except for costs which are the responsibility of Landlord pursuant to Paragraph 13(b) below, all costs to maintain, repair, and replace the Premises, the Building and/or the Project or any part thereof, including without limitation, (i) all costs paid under maintenance, management and service agreements such as contracts for Common Area janitorial and refuse removal and security (if provided by Landlord), (ii) all costs to maintain, repair and replace the roof coverings of the Building or the Project or any part thereof, (iii) subject to Paragraph 13(a) below, all costs to maintain, repair and replace the heating, ventilating, air conditioning, plumbing, sewer, drainage, electrical, fire protection, life safety and security systems and other mechanical and electrical systems and equipment serving the Premises, the Building and/or the Project or any part thereof (collectively, the "Systems"). (7) Life Safety Costs. All costs to install, maintain, repair and replace all life safety systems, including, without limitation, all fire alarm systems, serving the Premises, the Building and/or the Project or any part thereof (including all maintenance contracts and fees payable to life safety consultants) whether such systems are or shall be required by Landlord's insurance carriers, Laws (as hereinafter defined) or otherwise. (8) Management and Administration. All costs for management and administration of the Premises, the Building and/or the Project or any part thereof, including, without limitation, a property management fee, accounting, auditing, billing, postage, salaries and benefits for clerical and supervisory employees, whether located on the Project or off-site, payroll taxes and legal and accounting costs and fees for licenses and permits related to the ownership and operation of the Project. Notwithstanding anything in this Section 4(b) to the contrary, with respect to all sums payable by Tenant as Additional Rent under this Section 4(b) for the repair or replacement of any item or the construction of any new item in connection with the physical operation of the Premises, the Building or the Project or any part thereof (i.e., HVAC, roof membrane or coverings and parking area) which is a capital item the repair or replacement of which property would be capitalized under generally accepted accounting principles. Tenant shall be required to pay only the pro rata share of the cost of the item falling due within the Term (including any Renewal Term) based upon the amortization of the same over the useful life of such item as reasonably determined by Landlord. 4 (c) Payment of Additional Rent. (1) Upon commencement of this Lease, Landlord shall submit to Tenant an estimate of monthly Additional Rent for the period between the Commencement Date and the following December 31 and Tenant shall pay such estimated Additional Rent on a monthly basis, in advance, on the first day of each month. Tenant shall continue to make said monthly payments until notified by Landlord of a change therein. By April 1 of each calendar year, Landlord shall endeavor to provide to Tenant a statement showing the actual Additional Rent due to Landlord for the prior calendar year, to be prorated during the first year from the Commencement Date. If the total of the monthly payments of Additional Rent that Tenant has made for the prior calendar year is less than the actual Additional Rent chargeable to Tenant for such prior calendar year, then Tenant shall pay the difference in a lump sum within ten (10) days after receipt of such statement from Landlord. Any overpayment by Tenant of Additional Rent for the prior calendar year shall be credited towards the Additional Rent next due. (2) Landlord's then-current annual operating and capital budgets for the Building and Project or the pertinent part thereof shall be used for purposes of calculating Tenant's monthly payment of estimated Additional Rent for the current year, subject to adjustment as provided above. Landlord shall make the final determination of Additional Rent for the year in which this Lease terminates as soon as possible after termination of such year. Even though the Term has expired and Tenant has vacated the Premises, Tenant shall remain liable for payment of any amount due to Landlord in excess of the estimated Additional Rent previously paid by Tenant, and, conversely, Landlord shall promptly return to Tenant any overpayment. Failure of Landlord to submit statements as called for herein shall not be deemed a waiver of Tenant's obligation to pay Additional Rent as herein provided. (3) Tenant understands that, in allocating Expenses of the Project to tenants for purposes of Paragraph 4(b), Landlord generally allocates such Expenses to the Phases within the Project, and then to the tenants within each such Phase based upon the tenants' respective proportionate shares of the aggregate rentable square footage within such Phase. Tenant's "Proportionate Share" of the Phase in which the Premises are located shall be the percentage set forth in the Basic Lease Information as Tenant's Proportionate Share of the Phase, as adjusted by Landlord from time to time for a remeasurement of or changes in the physical size of the Premises or the improvements within the Phase, whether such changes in size are due to an addition to or a sale or conveyance of a portion of the Phase or otherwise. Notwithstanding the foregoing, Landlord may revise its method of allocating Expenses among tenants at any time and from time to time, and, in the event of such a revision, Tenant's "Proportionate Share" shall be a percentage calculated by Landlord from time to time in its sole discretion and furnished to Tenant in writing. Notwithstanding anything in this Agreement to the contrary, Landlord may equitably adjust Tenant's Proportionate Share(s) for all or part of any item of expense or cost reimbursable by Tenant that relates to a repair, replacement, or service that benefits only the Premises or only a portion of the Building and/or the Project or that varies with the occupancy of the Building and/or the Project. Without limiting the generality of the foregoing, Tenant understands and agrees that Landlord shall have the right to adjust Tenant's Proportionate Share(s) of any Utility Expenses based upon Tenant's use of the Utilities or similar services as reasonably estimated and determined by Landlord based upon factors such as size of the Premises and intensity of use of such Utilities by Tenant such that Tenant shall pay the portion of such charges reasonably consistent with Tenant's use of such Utilities and similar services. If Tenant disputes any such estimate or determination of Utility Expenses, then Tenant shall either pay the estimated amount or cause the Premises to be separately metered at Tenant's sole expense. (d) General Payment Terms. The Base Rent, Additional Rent and all other sums payable by Tenant to Landlord hereunder, including, without limitation, payments of principal and interest on the Tenant Improvements Loan (as defined in Exhibit B hereto), if any, late charges assessed pursuant to Paragraph 6 below and any interest assessed 5 pursuant to Paragraph 45 below, are referred to as the "Rent". All Rent shall be paid without deduction, offset or abatement in lawful money of the United States of America. Checks are to be made payable to Hayward Industrial Park Associates and shall be mailed to: Lincoln Property Company Management Services, Inc., 101 Lincoln Centre Drive, Fourth Floor, Foster City, California 94404, or to such other person or place as Landlord may, from time to time, designate to Tenant in writing. The Rent for any fractional part of a calendar month at the commencement or termination of the Lease term shall be a prorated amount of the Rent for a full calendar month based upon a thirty (30) day month. 5. UTILITY EXPENSES (a) Tenant shall pay the cost of all water, sewer use, sewer discharge fees and permit costs and sewer connection fees, gas, heat, electricity, refuse pick-up, janitorial service, telephone and all materials and services or other utilities (collectively, "Utilities") billed or metered separately to the Premises and/or Tenant, together with all taxes, assessments, charges and penalties added to or included within such cost. Tenant acknowledges that the Premises, the Building and/or the Project may become subject to the rationing of Utility services or restrictions on Utility use as required by a public utility company, governmental agency or other similar entity having jurisdiction thereof. Tenant acknowledges and agrees that its tenancy and occupancy hereunder shall be subject to such rationing or restrictions as may be imposed upon Landlord, Tenant, the Premises, the Building and/or the Project, and Tenant shall in no event be excused or relieved from any covenant or obligation to be kept or performed by Tenant by reason of any such rationing or restrictions. Tenant agrees to comply with energy conservation programs implemented by Landlord by reason of rationing restrictions or Laws. (b) Landlord shall not be liable for any loss, injury or damage to property caused by or resulting from any variation, interruption, or failure of Utilities due to any cause whatsoever, or from failure to make any repairs or perform any maintenance. No temporary interruption or failure of such services incident to the making of repairs, alterations, improvements, or due to accident, strike, or conditions or other events shall be deemed an eviction of Tenant or relieve Tenant from any of its obligations hereunder. In no event shall Landlord be liable to Tenant for any damage to the Premises or for any loss, damage or injury to any property therein or thereon occasioned by bursting, rupture, leakage or overflow of any plumbing or other pipes (including, without limitation, water, steam, and/or refrigerant lines), sprinklers, tanks, drains, drinking fountains or washstands, or other similar cause in, above, upon or about the Premises, the Building, or the Project. 6. LATE CHARGE Notwithstanding any other provision of this Lease, Tenant hereby acknowledges that late payment to Landlord of Rent, or other amounts due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. If any Rent or other sums due from Tenant are not received by Landlord or by Landlord's designated agent within five (5) days after their due date, then Tenant shall pay to Landlord a late charge equal to ten percent (10%) of such overdue amount, plus any costs and attorneys' fees incurred by Landlord by reason of Tenant's failure to pay Rent and/or other charges when due hereunder. Landlord and Tenant hereby agree that such late charges represent a fair and reasonable estimate of the cost that Landlord will incur by reason of Tenant's late payment and shall not be construed as a penalty. Landlord's acceptance of such late charges shall not constitute a waiver of Tenant's default with respect to such overdue amount or estop Landlord from exercising any of the other rights and remedies granted under this Lease. Initials: Landlord _____ Tenant _____ 6 7. SECURITY DEPOSIT Intentionally omitted. 8. POSSESSION (a) Tenant's Right of Possession. Subject to Paragraph 8(b). Tenant shall be entitled to possession of the Premises upon commencement of the Term. (b) Delay in Delivering Possession. If for any reason whatsoever, Landlord cannot deliver possession of the Premises to Tenant on or before the Estimated Commencement Date, this Lease shall not be void or avoidable, nor shall Landlord, or Landlord's agents, advisors, employees, partners, shareholders, directors, invitees, or independent contractors (collectively, "Landlord's Agents"), be liable to Tenant for any loss or damage resulting therefrom. Tenant shall not be liable for Rent until Landlord delivers possession of the Premises to Tenant. The Expiration Date shall be extended by the same number of days that Tenant's possession of the Premises was delayed beyond the Estimated Commencement Date. 9. USE OF PREMISES (a) Permitted Use. The use of the Premises by Tenant and Tenant's agents, advisors, employees, partners, shareholders, directors, invitees, or independent contractors (collectively, "Tenant's Agents"), shall be solely for the Permitted Use specified in the Basic Lease Information and for no other use. Tenant shall not permit any objectionable or unpleasant odor, smoke, dust, gas, noise or vibration to emanate from or near the Premises. The Premises shall not be used to create any nuisance or trespass, for any illegal purpose, for any purpose not permitted by Laws, for any purpose that would invalidate the insurance or increase the premiums for insurance on the Premises, the Building or the Project or for any purpose or in any manner that would interfere with other tenants' use or occupancy of the Project. Tenant agrees to pay to Landlord, as Additional Rent, any increases in premiums on policies resulting from Tenant's Permitted Use or any other use or action by Tenant or Tenant's Agents which increases Landlord's premiums or requires additional coverages by Landlord to insure the Premises. Tenant agrees not to overload the floor(s) of the Building. (b) Compliance with Governmental Regulations and Private Restrictions. Tenant and Tenant's Agents shall, at Tenant's expense, faithfully observe and comply with (1) all municipal, state and federal laws, statutes, codes, rules, regulations, ordinances, requirements, and orders (collectively, "Laws"), now in force or which may hereafter be in force pertaining to the Premises or Tenant's use of the Premises, the Building or the Project, including without limitation, any Laws requiring installation of fire sprinkler systems, seismic reinforcement and related alterations, and removal of asbestos, whether substantial in cost or otherwise, provided, however, that except as provided in Paragraph 9(c) below, Tenant shall not be required to make or, except as provided in Paragraph 4 above, pay for, structural changes to the Premises or the Building not related to Tenant's specific use of the Premises unless the requirement for such changes is imposed as a result of any improvements or additions made or proposed to be made at Tenant's request; (2) all recorded covenants, conditions, and restrictions affecting the Project ("Private Restrictions") now in force or which may hereafter be in force, including, without limitation the Declaration of Covenants, Conditions and Restrictions described as Lots 1 to 15 inclusive, Tract 4454, filed August 25, 1980, in Book 120 of Maps Page 69, in the Official Records of Alameda County; and (3) any and all rules and regulations set forth in Exhibit D and any other rules and regulations now or hereafter promulgated by Landlord related to parking or the operation of the Premises, the Building and/or the Project (collectively, the "Rules and Regulations"). The judgement of any court of competent jurisdiction, or the admission of Tenant in any action or proceeding against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such 7 Laws or Private Restrictions, shall be conclusive of that fact as between Landlord and Tenant. (c) Compliance with Americans with Disabilities Act. Landlord and Tenant hereby agree and acknowledge that the Premises, the Building and/or the Project may be subject to, among other Laws, the requirements of the Americans with Disabilities Act, a federal law codified at 42 U.S.C 12101 et seq. including, but not limited to Title III thereof, and all regulations and guidelines related thereto, together with all laws, rules, regulations, ordinances, codes and statutes now or hereafter enacted by local or state agencies having jurisdiction thereof, including all requirements of Title 24 of the State of California, as the same may be in effect on the date of this Lease and may be hereafter modified, amended or supplemented (collectively, the "ADA"). Any Tenant Improvements to be constructed hereunder shall be in compliance with the requirements of the ADA, and all costs incurred for purposes of compliance therewith shall be a part of and included in the costs of the Tenant Improvements. Tenant shall be solely responsible for conducting its own independent investigation of this matter and for ensuring that the design of all Tenant Improvements strictly complies with all requirements of the ADA. Subject to reimbursement pursuant to Paragraph 4 above, if any barrier removal work or other work is required to the Building, the Common Areas or the Project under the ADA, then such work shall be the responsibility of Landlord; provided, if such work is required under the ADA as a result of Tenant's use of the Premises or any work or Alteration (as hereinafter defined) made to the Premises by or on behalf of Tenant, then such work shall be performed by Landlord at the sole cost and expense of Tenant. Except as otherwise expressly provided in this provision, Tenant shall be responsible at its sole cost and expense for fully and faithfully complying with all applicable requirements of the ADA, including, without limitation, not discriminating against any disabled persons in the operation of Tenant's business in our about the Premises, and offering or otherwise providing auxiliary aids and services as, and when, required by the ADA. Within ten (10) days after receipt, Tenant shall advise Landlord in writing, and provide Landlord with copies of (as applicable), any notices alleging violation of the ADA relating to any portion of the Premises, the Building or the Project; any claims made or threatened orally or in writing regarding noncompliance with ADA and relating to any portion of the Premises, the Building, or the Project; or any governmental or regulatory actions or investigations instituted or threatened regarding noncompliance with the ADA and relating to any portion of the Premises, the Building or the Project. Tenant shall and hereby agrees to protect, defend (with counsel acceptable to Landlord) and hold Landlord and Landlord's Agents harmless and indemnify Landlord and Landlord's Agents from and against all liabilities, damages, claims, losses, penalties, judgments, charges and expenses (including attorney's fees, costs of court and expenses necessary in the prosecution or defense of any litigation including the enforcement of this provision) arising from or in any way related to, directly or indirectly, Tenant's or Tenant's Agents' violation or alleged violation of the ADA. Tenant agrees that the obligation of Tenant herein shall survive the expiration or earlier termination of this Lease. 10. ACCEPTANCE OF PREMISES By entry hereunder, Tenant accepts the Premises as suitable for Tenant's intended use and as being in good and sanitary operating order, condition and repair, AS IS, and without representation or warranty by Landlord as to the condition, use or occupancy which may be made thereof. Any exceptions to the foregoing must be by written agreement executed by Landlord and Tenant. Notwithstanding the foregoing, Landlord shall deliver the Premises to Tenant with all mechanical systems in good working condition. Tenant shall not be responsible for any repairs of such systems during the first sixty (60) days of the initial Lease Term. After such sixty (60) day period Tenant shall maintain such systems as stated in Paragraph 13 of this Lease. 8 11. SURRENDER Tenant agrees that on the last day of the Term, or on the sooner termination of this Lease, Tenant shall surrender the Premises to Landlord (a) in good condition and repair (damage by acts of God, fire, and normal wear and tear excepted), but with all interior walls painted or cleaned so they appear painted, any carpets cleaned, all floors cleaned and waxed, all non-working light bulbs and ballasts replaced and all roll-up doors and plumbing fixtures in good condition and working order, and (b) otherwise in accordance with Paragraph 32(h). Normal wear and tear shall not include any damage or deterioration to the floors of the Premises arising from the use of forklifts in, on or about the Premises (including, without limitation, any marks or stains on any portion of the floors), and any damage or deterioration that would have been prevented by proper maintenance by Tenant, or Tenant otherwise performing all of its obligations under this Lease. On or before the expiration or sooner termination of this Lease, (i) Tenant shall remove all of Tenant's Property (as hereinafter defined) and Tenant's signage from the Premises, the Building and the Project and repair any damage caused by such removal, and (ii) Landlord may, by notice to Tenant given not later than ninety (90) days prior to the Expiration Date (except in the event of a termination of this Lease prior to the scheduled Expiration Date, in which event no advance notice shall be required), require Tenant at Tenant's expense to remove any or all Alterations and/or the initial Tenant Improvements constructed and installed pursuant to Exhibit B hereto, and to repair any damage caused by such removal. Any of Tenant's property not so removed by Tenant as required herein shall be deemed abandoned and may be stored, removed, and disposed of by Landlord at Tenant's expense, and Tenant waives all claims against Landlord for any damages resulting from Landlord's retention and disposition of such property; provided, however, that Tenant shall remain liable to Landlord for all costs incurred in storing and disposing of such abandoned property of Tenant. All Tenant Improvements and Alterations except those which Landlord requires Tenant to remove shall remain in the Premises as the property of Landlord. If the Premises are not surrendered at the end of the Term or sooner termination of this Lease, and in accordance with the provisions of this Paragraph 11 and Paragraph 32(b) below, Tenant shall continue to be responsible for the payment of Rent (as the same may be increased pursuant to Paragraph 35 below) until the Premises are so surrendered in accordance with said Paragraphs, and Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all loss or liability resulting from delay by Tenant in so surrendering the Premises including, without limitation, any loss or liability resulting from any claim against Landlord made by any succeeding tenant or prospective tenant founded on or resulting from such delay and losses to Landlord due to lost opportunities to lease any portion of the Premises to any such succeeding tenant or prospective tenant, together with, in each case, actual attorneys' fees and costs. 12. ALTERATIONS AND ADDITIONS (a) Tenant shall not make, or permit to be made, any alteration, addition or improvement (hereinafter referred to individually as an "Alteration" and collectively as the "Alterations") to the Premises or any part thereof without the prior written consent of Landlord, which consent shall not be unreasonably withheld; provided, however, that Landlord shall have the right in its sole and absolute discretion to consent or to withhold its consent to any Alteration which affects the structural portions of the Premises, the Building or the Project or the Systems serving the Premises, the Building and/or the Project or any portion thereof. (b) Any Alteration to the Premises shall be at Tenant's sole cost and expense, in compliance with all applicable Laws and all requirements requested by Landlord, including, without limitation, the requirements of any insurer providing coverage for the Premises or the Project or any part thereof, and in accordance with plans and specifications approved in writing by Landlord, and shall be constructed and installed by a contractor approved in writing by Landlord. As further condition to giving consent, 9 Landlord may require Tenant to provide Landlord, at Tenant's sole cost and expense, a payment and performance bond in form acceptable to Landlord, in a principal amount not less than one and one half times the estimated costs of such Alterations, to ensure Landlord against any liability for mechanic's and materialmen's liens and to ensure completion of work. Before Alterations may begin, valid building permits or other permits or licenses required must be furnished to Landlord, and, once the Alterations begin, Tenant will diligently and continuously pursue their completion. Landlord may monitor construction of the Alterations and Tenant shall reimburse Landlord from its costs (including, without limitation, the costs of any construction manager retained by Landlord) in reviewing plans and documents and in monitoring construction. Tenant shall maintain during the course of construction, at its sole cost and expense, builders' risk insurance for the amount of the completed value of the Alterations on an all-risk non-reporting form covering all improvements under construction, including building materials, and other insurance in amounts and against such risks as Landlord shall reasonably require in connection with the Alterations. In addition to and without limitation on the generality of the foregoing, Tenant shall ensure that its contractor(s) procure and maintain in full force and effect during the course of construction a "broad form" commercial general liability and property damage policy of insurance naming Landlord, Tenant and Landlord's lenders as additional insureds. The minimum limit of coverage of the aforesaid policy shall be in the amount of not less than Three Million Dollars ($3,000,000.00) for injury or death of one person in any one accident or occurrence and in the amount of not less than Three Million dollars ($3,000,000.00) for injury or death of one more than one person in any one accident or occurrence, and shall contain a severability of interest clause or a cross liability endorsement. Such insurance shall further insure Landlord and Tenant against liability for property damage of at least One Million Dollars ($1,000,000.00). (c) All Alterations, including, but not limited to, heating, lighting, electrical, air conditioning, fixed partitioning, drapery, wall covering and panelling, built-in cabinet work and carpeting installations made by Tenant, together with all property that has become an integral part of the Premises or the Building, shall at once be and become the property of Landlord, and shall not be deemed trade fixtures or Tenant's Property. If requested by Landlord, Tenant will pay, prior to the commencement of construction, an amount determined by Landlord necessary to cover the costs of demolishing such Alterations and/or the cost of returning the Premises and the Building to its condition prior to such Alterations. (d) No private telephone systems and/or other related computer or telecommunications equipment or lines may be installed without Landlord's prior written consent. If Landlord gives such consent, all equipment must be installed within the Premises and, at the request of Landlord made at any time prior to the expiration of the Term, removed upon the expiration or sooner termination of this Lease and the Premises restored to the same condition as before such installation. (e) Notwithstanding anything herein to the contrary, before installing any equipment or lights which generate an undue amount of heat in the Premises, or if Tenant plans to use any high power usage equipment in the Premises, Tenant shall obtain the written permission of Landlord. Landlord may refuse to grant such permission unless Tenant agrees to pay the costs to Landlord for installation of supplementary air conditioning capacity or electrical systems necessitated by such equipment. (f) Tenant agrees not to proceed to make any Alterations, notwithstanding consent from Landlord to do so, until Tenant notifies Landlord in writing of the date Tenant desires to commence construction or installation of such Alterations and Landlord has approved such date in writing, in order that Landlord may post appropriate notices to avoid any liability to contractors or material suppliers for payment for Tenant's improvements. Tenant will at all times permit such notices to be posted and to remain posted until the completion of work. 10 13. MAINTENANCE AND REPAIRS OF PREMISES (a) Maintenance by Tenant. Throughout the Term, Tenant shall, at its sole expense, (1) keep and maintain in good order and condition the Premises, and repair and replace every part thereof, including glass, windows, window frames, window casements, skylights, interior and exterior doors, door frames and door closers, interior lighting (including, without limitation, light bulbs and ballasts), the plumbing and electrical systems exclusively serving the Premises, all communications systems serving the Premises, Tenant's signage, interior demising walls and partitions, equipment, interior painting and interior walls and floors, and the roll-up doors, ramps and dock equipment, including, without limitation, dock bumpers, dock plates, dock seals, dock levelers and dock lights located in or on the Premises (excepting only those portions of the Building or the Project to be maintained by Landlord, as provided in Paragraph 13(b) below), (2) furnish all expendables, including light bulbs, paper goods and soaps, used in the Premises, and (3) keep and maintain in good order and condition, repair and replace all of Tenant's security systems in or about or serving the Premises. Tenant shall not do nor shall Tenant allow Tenant's Agents to do anything to cause damage, deterioration or unsightliness to the Premises, the Building or the Project. (b) Maintenance by Landlord. Subject to the provisions of Paragraphs 13(a), 22 and 23, and further subject to Tenant's obligation under Paragraph 4 to reimburse Landlord, in the form of Additional Rent, for Tenant's Proportionate Share(s) of the cost and expense of the following items, Landlord agrees to repair and maintain the following items: the roof coverings (provided that Tenant installs no additional air conditioning or other equipment on the roof that damages the roof covering, in which event Tenant shall pay all costs resulting from the presence of such additional equipment); the Systems serving the Premises and the Building, excluding the plumbing and electrical systems exclusively serving the Premises; and the Parking Areas, pavement, landscaping, sprinkler systems, sidewalks, driveways, curbs, and lighting systems in the Common Areas. Subject to the provisions of Paragraphs 13(a), 22 and 23, Landlord, at its own cost and expense, agrees to repair and maintain the following items: the structural portions of the roof (specifically excluding the roof coverings), the foundation, the footings, the floor slab, and the load bearing walls and exterior walls of the Building (excluding any glass and any routine maintenance, including, without limitation, any painting, sealing, patching and waterproofing of such walls). Notwithstanding anything in this Paragraph 13 to the contrary, Landlord shall have the right to either repair or to require Tenant to repair any damage to any portion of the Premises, the Building and/or the Project caused by or created due to any act, omission, negligence or willful misconduct of Tenant or Tenant's Agents and to restore the Premises, the Building and/or the Project, as applicable, to the condition existing prior to the occurrence of such damage; provided, however, that in the event Landlord elects to perform such repair and restoration work, Tenant shall reimburse Landlord upon demand for all costs and expenses incurred by Landlord in connection therewith. Landlord's obligation hereunder to repair and maintain is subject to the condition precedent that Landlord shall have received written notice of the need for such repairs and maintenance and a reasonable time to perform such repair and maintenance. Tenant shall promptly report in writing to Landlord any defective condition known to it which Landlord is required to repair, and failure to so report such defects shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such condition. (c) Tenant's Waiver of Rights. Tenant hereby expressly waives all rights to make repairs at the expense of Landlord or to terminate this Lease, as provided for in California Civil Code Sections 1941 and 1942, and 1932(1), respectively, and any similar or successor statute or law in effect or any amendment thereof during the Term. 14. LANDLORD'S INSURANCE Landlord shall purchase and keep in force fire, extended coverage and "all risk" insurance covering the Building and the Project. Tenant shall, at its sole cost and 11 expense, comply with any and all reasonable requirements pertaining to the Premises, the Building and the Project of any insurer necessary for the maintenance of reasonable fire and commercial general liability insurance, covering the Building and the Project. Landlord, at Tenant's cost, may maintain "Loss of Rents" insurance, insuring that the Rent will be paid in a timely manner to Landlord for a period of a least twelve (12) months if the Premises, the Building or the Project or any portion there of are destroyed or rendered unusable or inaccessible by any cause insured against under this Lease. 15. TENANT'S INSURANCE (a) Commercial General Liability Insurance. Tenant shall, at Tenant's expense, secure and keep in force a "broad form" commercial general liability insurance and property damage policy covering the Premises, insuring Tenant, and naming Landlord and its lenders as additional insureds, against any liability arising out of the ownership, use, occupancy or maintenance of the Premises. The minimum limit of coverage of such policy shall be in the amount of not less than Three Million Dollars ($3,000,000.00) for injury or death of one person in any one accident or occurrence and in the amount of not less than Three Million dollars ($3,000,000.00) for injury or death of more than one person in any one accident or occurrence, shall include an extended liability endorsement providing contractual liability coverage (which shall include coverage for Tenant's indemnification obligations in this Lease), and shall contain a severability of interest clause or a cross liability endorsement. Such insurance shall further insure Landlord and Tenant against liability for property damage of at least Three Million Dollars ($3,000,000.00). Landlord may from time to time require reasonable increases in any such limits if Landlord believes that additional coverage is necessary or desirable. The limit of any insurance shall not limit the liability of Tenant hereunder. No policy maintained by Tenant under this Paragraph 15(a) shall contain a deductible greater than two thousand five hundred dollars ($2,500.00). No policy shall be cancelable or subject to reduction of coverage without thirty (30) days prior written notice to Landlord, and loss payable clauses shall be subject to Landlord's approval. Such policies of insurance shall be issued as primary policies and not contributing with or in excess of coverage that Landlord may carry, by an insurance company authorized to do business in the State of California for the issuance of such type of insurance coverage and rated A:XIII or better in Best's Key Rating Guide. (b) Personal Property Insurance. Tenant shall maintain in full force and effect on all of its personal property, furniture, furnishings, trade or business fixtures and equipment (collectively, "Tenant's Property") on the Premises, a policy or policies of fire and extended coverage insurance with standard coverage endorsement to the extent of the full replacement cost thereof. No such policy shall contain a deductible greater than two thousand five hundred dollars ($2,500.00). During the term of the Lease the proceeds from any such policy or policies of insurance shall be used for the repair or replacement of the fixtures and equipment so insured. Landlord shall have no interest in the insurance upon Tenant's equipment and fixtures and will sign all documents reasonably necessary in connection with the settlement of any claim or loss by Tenant. Landlord will not carry insurance on Tenant's possessions. (c) Worker's Compensation Insurance; Employer's Liability Insurance. Tenant shall, at Tenant's expense, maintain in full force and effect worker's compensation insurance with not less than the minimum limits required by law, and employer's liability insurance with a minimum limit of coverage of One Million Dollars ($1,000,000). (d) Evidence of Coverage. Tenant shall deliver to Landlord certificates of insurance and true and complete copies of any and all endorsements required herein for all insurance required to be maintained by Tenant hereunder at the time of execution of this Lease by Tenant. Tenant shall, at least thirty (30) days prior to expiration of each policy, furnish Landlord with certificates of renewal or "binders" thereof. Each certificate shall expressly provide that such policies shall not be cancelable or otherwise subject to modification except after thirty (30) days prior written notice to Landlord and 12 the other parties named as additional insureds as required in this Lease (except for cancellation for nonpayment of premium, in which event cancellation shall not take effect until at least ten (10) days notice has been given to Landlord). 16. INDEMNIFICATION (a) Of Landlord. Tenant shall indemnify and hold harmless Landlord, Landlord's investment advisor and agent, Allegis Realty Investors LLC, and Landlord's Agents against and from any and all claims, liabilities, judgments, costs, demands, causes of action and expenses (including, without limitation, reasonable attorney's fees) arising from (1) the use of the Premises, the Building or the Project by Tenant or Tenant's Agents, or from any activity done, permitted or suffered by Tenant or Tenant's Agents in or about the Premises, the Building or the Project, and (2) any act, neglect, fault, willful misconduct or omission of Tenant or Tenant's Agents, or from any breach or default in the terms of this Lease by Tenant or Tenant's Agents, and (3) any action or proceeding brought on account of any matter items (1) or (2). If any action or proceeding is brought against Landlord by reason of any such claim, upon notice from Landlord, Tenant shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord. As a material part of the consideration to Landlord, Tenant hereby releases Landlord and Landlord's Agents from responsibility for, waives it entire claim of recovery for and assumes all risk of (i) damage to property or injury to persons in or about the Premises, the Building or the Project from any cause whatsoever (except that which is caused by the sole active gross negligence or willful misconduct of Landlord or Landlord's Agents or by the failure of Landlord to observe any of the terms and conditions of this Lease, if such failure has persisted for an unreasonable period of time after written notice of such failure), or (ii) loss resulting from business interruption or loss of income at the Premises. The obligations of Tenant under this Paragraph 16 shall survive any termination of this Lease. (b) No Impairment of Insurance. The foregoing indemnity shall not relieve any insurance carrier of its obligations under any policies required to be carried by either party pursuant to this Lease, to the extent that such policies cover the peril or occurrence that results in the claim that is subject to the foregoing indemnity. 17. SUBROGATION Landlord and Tenant hereby mutually waive any claim against the other and its Agents for any loss or damage to any of their property located on or about the Premises, the Building or the Project that is caused by or results from perils covered by property insurance carried by the respective parties, to the extent of the proceeds of such insurance actually received with respect to such loss or damage, whether or not due to the negligence of the other party or its Agents. Because the foregoing waivers will preclude the assignment of any claim by way of subrogation to an insurance company or any other person, each party now agrees to immediately give to its insurer written notice of the terms of these mutual waivers and shall have their insurance policies endorsed to prevent the invalidation of the insurance coverage because of these waivers. Nothing in this Paragraph 17 shall relieve a party of liability to the other for failure to carry insurance required by this Lease. 18. SIGNS Tenant shall not place or permit to be placed in, upon, or about the Premises, the Building or the Project any exterior lights, decorations, balloons, flags, pennants, banners, advertisements or notices, or erect or install any signs, windows or door lettering, placards, decorations, or advertising media of any type which can be viewed from the exterior the Premises without obtaining Landlord's prior written consent or without complying with Landlord's signage criteria specified on Exhibit E hereto, as the same may be modified by Landlord from time to time, and with all applicable Laws and will not conduct, or permit to be conducted, any sale by auction on the Premises or otherwise 13 on the Project. Tenant shall remove any sign, advertisement or notice placed on the Premises, the Building or the project by Tenant upon the expiration of the term or sooner termination of this Lease, and Tenant shall repair any damage or injury to the Premises, the Building or the Project caused thereby, all at Tenant's expense. If any signs are not removed, or necessary repairs not made, Landlord shall have the right to remove the signs and repair any damage or injury to the Premises, the Building or the Project at Tenant's sole cost and expense. 19. FREE FROM LIENS Tenant shall keep the Premises, the Building and the Project free from any liens arising out of any work performed, material furnished or obligations incurred by or for Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of any such lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have in addition to all other remedies provided herein and by law the right but not the obligation to cause same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith (including, without limitation, attorneys' fees) shall be payable to Landlord by tenant upon demand. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law or that Landlord shall deem proper for the protection of Landlord, the Premises, the Building and the Project, from mechanics' and materialmens' liens. Tenant shall give to Landlord at least five (5) business days' prior written notice of commencement of any repair or construction on the Premises. 20. ENTRY BY LANDLORD Tenant shall permit Landlord and Landlord's agents to enter into and upon the Premises at all reasonable times, upon reasonable notice (except in the case of an emergency, for which no notice shall be required), and subject to Tenant's reasonable security arrangements, for the purpose of inspecting the same or showing the Premises to prospective purchasers, lenders or tenants to alter, improve, maintain and repair the Premises or the Building as required or permitted of Landlord under the terms hereof, or for any other business purpose, without any rebate of rent and without any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises thereby occasioned (except for actual damages resulting from the sole active gross negligence or willful misconduct of Landlord); and Tenant shall permit Landlord to post notices of non-responsibility and ordinary "for sale" or "for lease" signs. No such entry shall be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction of Tenant from the Premises. Landlord may temporarily close entrances, doors, corridors, elevators or other facilities without liability to Tenant by reason of such closure in the case of an emergency and when Landlord otherwise deems such closure necessary. 21. DESTRUCTION AND DAMAGE (a) If the Premises are damaged by fire or other perils covered by extended coverage insurance, Landlord shall, at Landlord's option: (1) In the event of total destruction (which shall mean destruction or damage in excess of twenty-five (25%) percent of the full insurable value thereof) of the Premises, elect either to commence promptly to repair and restore the Premises and prosecute the same diligently to completion, in which event this Lease shall remain in full force and effect; or not to repair or restore the Premises, in which event this Lease shall terminate. Landlord shall give Tenant written notice of its intention within sixty (60) days after the date (the "Casualty Discovery Date") Landlord obtains actual knowledge of such destruction. If Landlord elects not to restore the Premises, this Lease shall be deemed to have terminated as of the date of such total destruction. 14 (2) In the event of a partial destruction (which shall mean destruction or damage to an extent not exceeding twenty-five percent (25%) of the full insurable value thereof) of the Premises for which Landlord will receive insurance proceeds sufficient to cover the cost to repair and restore such partial destruction and, if the damage thereto is such that the Premises may be substantially repaired or restored to its condition existing immediately prior to such damage or destruction within one hundred eighty (180) days from the Casualty Discovery Date, Landlord shall commence and proceed diligently with the work of repair and restoration, in which event the Lease shall continue in full force and effect. If such repair and restoration requires longer than one hundred eighty (180) days or if the insurance proceeds therefor (plus any amounts Tenant may elect or is obligated to contribute) are not sufficient to cover the cost of such repair and restoration, Landlord may elect either to so repair and restore, in which event the Lease shall continue in full force and effect, or not to repair and restore, in which event the Lease shall terminate. In either case, Landlord shall give written notice to Tenant of its intention within sixty (60) days after the Casualty Discovery Date. If Landlord elects not to restore the Premises, this Lease shall be deemed to have terminated as of the date of such partial destruction. (3) Notwithstanding anything to the contrary contained in this Paragraph, in the event of damage to the Premises occurring during the last twelve (12) months of the Term, Landlord may elect to terminate this Lease by written notice of such election given to Tenant within thirty (30) days after the Casualty Discovery Date. (b) If the Premises are damaged by any peril not covered by extended coverage insurance, and the cost to repair such damage exceeds any amount Tenant may agree to contribute, Landlord may elect either to commence promptly to repair and restore the Premises and prosecute the same diligently to completion, in which event this Lease shall remain in full force and effect, or not to repair or restore the Premises, in which event this Lease shall terminate. Landlord shall give Tenant written notice of its intention within sixty (60) days after the Casualty Discovery Date. If Landlord elects not to restore the Premises, this Lease shall be deemed to have terminated as of the date on which Tenant surrenders possession of the Premises to Landlord, except that if the damage to the Premises materially impairs Tenant's ability to continue its business operation in the Premises, then this Lease shall be deemed to have terminated as of the date such damage occurred. (c) Notwithstanding anything to the contrary in this Paragraph 22, Landlord shall have the option to terminate this Lease, exercisable by notice to Tenant within sixty (60) days after the Casualty Discovery Date, in each of the following instances: (1) If more than twenty five percent (25%) of the full insurable value of the Building or the Project is destroyed, regardless of whether or not the Premises are destroyed. (2) If the Building or the Project or any portion thereof is damaged or destroyed and the repair and restoration of such damage requires longer than one hundred eighty (180) days from the Casualty Discovery Date. (3) If the Building or the Project or any portion thereof is damaged or destroyed and the insurance proceeds therefor are not sufficient to cover the costs of repair and restoration. (4) If the Building or the Project or any portion thereof is damaged or destroyed during the last twelve (12) months of the Term. (d) In the event of repair and restoration as herein provided, the monthly installments of Base Rent shall be abated proportionately in the ratio which Tenant's use of the Premises is impaired during the period of such repair or restoration, but only to the extent of rental abatement insurance proceeds received by Landlord; provided, however, 15 that Tenant shall not be entitled to such abatement to the extent that such damage or destruction resulted from the acts or inaction of Tenant or Tenant's Agents. Except as expressly provided in the immediately preceding sentence with respect to abatement of Base Rent, Tenant shall have no claim against Landlord for, and hereby releases Landlord and Landlord's Agents from responsibility for and waives its entire claim of recovery for any cost, loss or expense suffered or incurred by Tenant as a result of any damage to or destruction of the Premises, the Building or the Project or the repair or restoration thereof, including, without limitation, any cost, loss or expense resulting from any loss of use of the whole or any part of the Premises, the Building or the Project and/or any inconvenience or annoyance occasioned by such damage, repair or restoration. (e) If Landlord is obligated to or elects to repair or restore as herein provided, Landlord shall repair or restore only the initial tenant improvements, if any, constructed by landlord in the Premises pursuant to the terms of this Lease, substantially to their condition existing immediately prior to the occurrence of the damage or destruction; and Tenant shall promptly repair and restore, at Tenant's expense, Tenant's Alterations which were not constructed by Landlord. (f) Tenant hereby waives the provisions of California Civil Code Section 1932(2) and Section 1933(4) which permit termination of a lease upon destruction of the leased premises, and the provisions of any similar law now or hereinafter in effect, and the provisions of Paragraph 22 shall govern exclusively in case of such destruction. 22. CONDEMNATION (a) If twenty-five percent (25%) or more of either the Premises, the Building or the Project or the parking areas for the Building or the Project is taken for any public or quasi-public purpose by any lawful governmental power or authority, by exercise of the right of appropriation, inverse condemnation, condemnation or eminent domain, or sold to prevent such taking (each such event being referred to as a "Condemnation"), Landlord may, at its option, terminate this Lease as of the date title vests in the condemning party. If twenty-five percent (25%) or more of the Premises is taken and if the Premises remaining after such Condemnation and any repairs by Landlord would be untenantable for the conduct of Tenant's business operations, Tenant shall have the right to terminate this Lease as of the date title vests in the condemning party. If either party elects to terminate this Lease as provided herein, such election shall be made by written notice to the other party given within thirty (30) days after the nature and extent of such Condemnation have been finally determined. If neither Landlord nor Tenant elects to terminate this Lease to the extent permitted above, Landlord shall promptly proceed to restore the premises, to the extent of any Condemnation award received by Landlord, to substantially the same condition as existed prior to such Condemnation, allowing for the reasonable effects of such Condemnation, and a proportionate abatement shall be made to the Base Rent corresponding to the time during which, and to the portion of the floor area of the Premises (adjusted for any increase thereto resulting from any reconstruction) of which Tenant is deprived on account of such Condemnation and restoration, as reasonably determined by Landlord. Except as expressly provided in the immediately preceding sentence with respect to abatement of Base Rent, Tenant shall have no claim against Landlord for, and hereby releases Landlord and Landlord's Agents from responsibility for and waives its entire claim of recovery for any cost, loss or expense suffered or incurred by Tenant as a result of any Condemnation or the repair or restoration of the Premises, the Building or the Project or the parking areas for the Building or the Project following such Condemnation, including, without limitation, any cost, loss or expense resulting from any loss of use of the whole or any part of the Premises, the Building, the Project or the parking areas and/or any inconvenience or annoyance occasioned by such Condemnation, repair or restoration. The provisions of California Code of Civil Procedure Section 1265.130, which allows either party to petition the Superior Court to terminate the lease in the event of a partial taking of the 16 Premises, the Building or the Project or the parking areas for the Building or the Project, and any other applicable law now or hereafter enacted, are hereby waived by Tenant. (b) Landlord shall be entitled to any and all compensation, damages, income, rent, awards, or any interest therein whatsoever which may be paid or made in connection with any Condemnation, and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease or otherwise; provided, however, that Tenant shall be entitled to receive any award separately allocated by the condemning authority to Tenant for Tenant's relocation expenses or the value of Tenant's Property (specifically excluding fixtures, Alterations and other components of the Premises which under this Lease or by law are or at the expiration of the Term will become the property of Landlord), provided that such award does not reduce any award otherwise allocable or payable to Landlord. 23. ASSIGNMENT AND SUBLETTING (a) Tenant shall not voluntarily or by operation of law, (1) mortgage, pledge, hypothecate or encumber this Lease or any interest herein, (2) assign or transfer this Lease or any interest herein, sublease the Premises or any part thereof, or any right or privilege appurtenant thereto, or allow any other person (the employees and invitees of Tenant excepted) to occupy or use the Premises, or any portion thereof, without first obtaining the written consent of Landlord, which consent shall not be withheld unreasonably provided that (i) Tenant is not then in Default under this Lease nor is any event then occurring which with the giving of notice or the passage of time, or both, would constitute a Default hereunder, and (ii) Tenant has not previously assigned or transferred this Lease or any interest herein or subleased the Premises or any part thereof. When Tenant requests Landlord's consent to such assignment or subletting, it shall notify Landlord in writing of the name and address of the proposed assignee or subtenant and the nature and character of the business of the proposed assignee or subtenant and shall provide current and prior financial statements for the proposed assignee or subtenant prepared in accordance with generally accepted accounting principles. Tenant shall also provide landlord with a copy of the proposed sublease or assignment agreement, including all material terms and conditions thereof. Landlord shall have the option, to be exercised within thirty (30) days of receipt of the foregoing, to (1) terminate this Lease as of the commencement date stated in the proposed sublease or assignment, (2) sublease or take and assignment, as the case may be, from Tenant of the interest, or any portion thereof, in this Lease and/or the Premises that Tenant proposes to assign or sublease, on the same terms and conditions as stated in the proposed sublet or assignment agreement, (3) consent to the proposed assignment or sublease, or (4) refuse to consent to the proposed assignment or sublease, providing that such consent shall not be unreasonably withheld so long as Tenant is not then in Default under this Lease nor is any event then occurring which with the giving of notice or the passage of time, or both, would constitute a default hereunder. In the event Landlord elects to terminate this Lease or sublease or take an assignment from Tenant of the interest, or portion thereof, in the Lease and/or the Premises that Tenant proposes to assign or sublease as provided in the foregoing clauses (1) and (2), respectively, then Landlord shall have the additional right to negotiate directly with Tenant's proposed assignee or subtenant and to enter into a direct lease or occupancy agreement with such party on such terms as shall be acceptable to Landlord in its sole and absolute discretion, and Tenant hereby waives any claims against Landlord related thereto, including, without limitation, any claims for any compensation or profit related to such lease or occupancy agreement. (b) Without otherwise limiting the criteria upon which Landlord may withhold its consent, Landlord shall be entitled to consider all reasonable criteria including, but not limited to, the following: (1) whether or not the proposed subtenant or assignee is engaged in a business which, and the use of the Premises will be in a manner which, is in keeping with the then character and nature of all other tenancies in the Project, (2) whether the use to be made of the Premises by the proposed subtenant or assignee will conflict with any so-called "exclusive" use then in favor of any other tenant of the 17 Building or the Project, and whether such use would be prohibited by any other portion of this Lease, including, but not limited to, any rules and regulations then in effect, or under applicable Laws, and whether such use imposes a greater load upon the Premises and the Building and Project services then imposed by Tenant, (3) the business reputation of the proposed individuals who will be managing and operating the business operations of the assignee or subtenant, and the long-term financial and competitive business prospects of the proposed assignee or subtenant, and (4) the creditworthiness and financial stability of the proposed assignee or subtenant in light of the responsibilities involved. In any event, Landlord may withhold its consent to any assignment or sublease, if (i) the actual use proposed to be conducted in the Premises or portion thereof conflicts with the provisions of Paragraph 8(a) or (b) above or with any other lease which restricts the use to which any space in the Building or the Project may be put, or (ii) the proposed assignment or sublease requires alterations, improvements or additions to the Premises or portions thereof. (c) If Landlord approves an assignment or subletting as herein provided, Tenant shall pay to Landlord, as additional rent 75% of the difference, if any between (1) the Base Rent plus Additional Rent allocable to that part of the Premises affected by such assignment or sublease pursuant to the provisions of this Lease, and (2) the rent and any additional rent payable by the assignee or sublessee to Tenant, less reasonable and customary market-based leasing commissions, if any, incurred by Tenant in connection with such assignment or sublease. The assignment or sublease agreement, as the case may be, after approval by Landlord, shall not be amended without Landlord's prior written consent, and shall contain a provision directing the assignee or subtenant to pay the rent and other sums due thereunder directly to Landlord upon receiving written notice from Landlord that Tenant is in default under this Lease with respect to the payment of Rent. In the event that, notwithstanding the giving of such notice, Tenant collects any rent or other sums from assignee or subtenant, then Tenant shall hold such sums in trust for the benefit of Landlord and shall immediately forward the same to Landlord. Landlord's collection of such rent and other sums shall not constitute an acceptance by Landlord of attornment by such assignee or subtenant. A consent to one assignment, subletting, occupation or use shall not be deemed to be a consent to any other or subsequent assignment, subletting, occupation or use, and consent to any assignment or subletting shall in no way relieve Tenant of any liability under this Lease. Any assignment or subletting without Landlord's consent shall be void, and shall, at the option of Landlord, constitute a Default under this Lease. (d) Notwithstanding any assignment or subletting, Tenant and any guarantor or surety of Tenant's obligations under this Lease shall at all times remain fully responsible and liable for the payment of the Rent and for compliance with all of Tenant's other obligations under this Lease (regardless of whether Landlord's approval has been obtained for any such assignment or subletting). (e) Tenant shall pay Landlord's reasonable fees (including, without limitation, the fees of Landlord's counsel), incurred in connection with Landlord's review and processing of documents regarding any proposed assignment or sublease. (f) Notwithstanding anything in this Lease to the contrary, in the event Landlord consents to an assignment or subletting by Tenant in accordance with the terms of this Paragraph 24, Tenant's assignee or subtenant shall have no right to further assign this Lease or any interest therein or thereunder or to further sublease all or any portion of the Premises. In furtherance of the foregoing, Tenant acknowledges and agrees on behalf of itself and any assignee or subtenant claiming under it (and any such assignee or subtenant by accepting such assignment or sublease shall be deemed to acknowledge and agree) that no sub-subleases or further assignments of this Lease shall be permitted at any time. (g) Tenant acknowledges and agrees that the restrictions, conditions and limitations imposed by this Paragraph 24 on Tenant's ability to assign or transfer this Lease or any interest herein, to sublet the Premises or any part thereof, to transfer or assign any right or 18 privilege appurtenant to the Premises, or to allow any other person to occupy or use the Premises or any portion thereof, are, for the purposes of California Civil Code Section 1951.4, as amended from time to time, and for all other purposes, reasonable at the time that the Lease was entered into, and shall be deemed to be reasonable at the time that Tenant seeks to assign or transfer this Lease or any interest herein, to sublet the Premises or any part thereof, to transfer or assign any right or privilege appurtenant to the Premises, or to allow any other person to occupy or use the Premises or any portion thereof. So long as Tenant delivers to Landlord (1) at least thirty (30) days prior written notice of its intention to assign or sublease the Premises to any Related Entity, which notice shall set forth the name of the Related Entity, (2) a copy of the proposed agreement pursuant to which such assignment or sublease shall be effectuated, and (3) such other information concerning the Related Entity as Landlord may reasonably require, including without limitation, information regarding any change in the proposed use of any portion of the Premises and any financial information with respect to such Related Entity, and so long as (i) Landlord approves, in writing of any change in the proposed use of the subject portion of the Premises and such financial information and (ii) such Related Entity expressly assumes all of the obligations, duties and provisions under the Lease and no such assignment shall act as a release of the originally named Tenant from such obligations, duties and provisions, then tenant may assign this Lease or sublease any portion of the premises (X) to any Related Entity, or (Y) in connection with any merger, consolidation or sale of substantially all of the assets of Tenant, without having to obtain the prior written consent of Landlord thereto. For purposes of this Lease the term "Related Entity" shall mean and refer to any corporation or entity which controls, is controlled by or is under common control with Tenant, as all of such terms are customarily used in the industry, and with an equal or greater net worth as Tenant has as of the proposed transfer date. 24. TENANT'S DEFAULT The occurrence of any one of the following events shall constitute an event of default on the part of Tenant ("Default"): (a) The vacation or abandonment of the Premises by Tenant for a period of ten (10) consecutive days or any vacation or abandonment of the Premises by Tenant which would cause any insurance policy to be invalidated or otherwise lapse, or the failure of Tenant to continuously operate Tenant's business in the Premises, in each of the foregoing cases irrespective of whether or not Tenant is then in monetary default under this Lease. Tenant agrees to notice and service of notice as provided for in this Lease and waives any right to any other or further notice or service of notice which Tenant may have under any statute or law now or hereafter in effect; (b) Failure to pay any installment of Rent or any other monies due and payable hereunder, said failure continuing for a period of three (3) days after the same is due; (c) A general assignment by Tenant or any guarantor or surety of Tenant's obligations hereunder (collectively, "Guarantor") for the benefit of creditors; (d) The filing of a voluntary petition in bankruptcy by Tenant or any Guarantor, the filing by Tenant or any Guarantor of a voluntary petition for an arrangement, the filing by or against Tenant or any Guarantor of a petition, voluntary or involuntary, for reorganization, or the filing of an involuntary petition by the creditors of Tenant or any Guarantor, said involuntary petition remaining undischarged for a period of sixty (60) days; 19 (e) Receivership, attachment, or other judicial seizure of substantially all of Tenant's assets on the Premises, such attachment or other seizure remaining undismissed or undischarged for a period of sixty (60) days after the levy thereof; (f) Death or disability of Tenant or any Guarantor, if Tenant or such Guarantor is a natural person or the failure by Tenant or any Guarantor to maintain its legal existence, if Tenant or such Guarantor is a corporation, partnership, limited liability company, trust or other legal entity; (g) Failure of Tenant to execute and deliver to Landlord any estoppel certificate, subordination agreement, or lease amendment within the time periods and in the manner required Paragraphs 30 or 31 or 42; (h) An assignment or sublease, or attempted assignment or sublease, of this Lease or the Premises by Tenant contrary to the provision of Paragraph 24, unless such assignment or sublease is expressly conditioned upon Tenant having received Landlord's consent thereto; (i) Failure of Tenant to restore the Security Deposit to the amount and within the time period provided in Paragraph 7 above; (j) Failure in the performance of any of Tenant's covenants, agreements or obligations hereunder (except those failures specified as events of Default in subparagraphs (b), (l) or (m) above or any other subparagraphs of this Paragraph 25, which shall be governed by such other Paragraphs), which failure continues for ten (10) days after written notice thereof from Landlord to Tenant, provided that, if Tenant has exercised reasonable diligence to cure such failure and such failure cannot be cured within such ten (10) day period despite reasonable diligence, Tenant shall not be in default under this subparagraph so long as Tenant thereafter diligently and continuously prosecutes the cure to completion and actually completes such cure within thirty (30) days after the giving of the aforesaid written notice; (k) Chronic delinquency by Tenant in the payment of Rent, or any other periodic payments required to be paid by Tenant under this Lease. "Chronic delinquency" shall mean failure by Tenant to pay Rent, or any other payments required to be paid by Tenant under this Lease within three (3) days after written notice thereof for any three (3) months (consecutive or nonconsecutive) during any period of twelve (12) months. In the event of a Chronic Delinquency, in addition to Landlord's other remedies for Default provided in this Lease, at Landlord's option, Landlord shall have the right to require that Rent be paid by Tenant quarterly, in advance; (l) Chronic overuse by Tenant or Tenant's Agents of the number of undesignated parking spaces set forth in the Basic Lease Information. "Chronic Overuse" shall mean use by Tenant or Tenant's Agents of a number of parking spaces greater than the number of parking spaces set forth in the Basic Lease Information more than three (3) times during the Term after written notice by Landlord; (m) Any insurance required to be maintained by Tenant pursuant to this Lease shall be canceled or terminated or shall expire or be reduced or materially changed, except as permitted in this Lease; and (n) Any failure by Tenant to discharge any lien or encumbrance placed on the Project or any part thereof in violation of this Lease within ten (10) days after the date such lien or encumbrance is filed or recorded against the Project or any part thereof. Tenant agrees that any notice given by Landlord pursuant to Paragraph 25(j), (k) or (l) above shall satisfy the requirements for notice under California Code of Civil Procedure Section 1161, and Landlord shall not be required to give any additional notice in order to be entitled to commence an unlawful detainer proceeding. 20 (o) Any default by any Guarantor under any guaranty of this Lease ("Guaranty"), or any Guaranty, shall, at any time after its respective execution and delivery and for any reason, cease to be in full force and effect or be declared null and void, or the validity or enforceability thereof shall be contested by any Guarantor or any stockholder, partner or member of any Guarantor, or any Guarantor shall deny that it has any or further liability or obligation under any Guaranty to which it is a party. 25. LANDLORD'S REMEDIES (a) Termination. In the event of any Default by Tenant, then in addition to any other remedies available to Landlord at law or in equity and under this Lease, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder by giving written notice of such intention to terminate. In the event that Landlord shall elect to so terminate this Lease then Landlord may recover from Tenant: (1) the worth at the time of award of any unpaid Rent and any other sums due and payable which have been earned at the time of such termination; plus (2) the worth at the time of award of the amount by which the unpaid Rent and any other sums due and payable which would have been earned after termination until the time of award exceeds the amount of such rental loss Tenant proves could have been reasonably avoided; plus (3) the worth at the time of award of the amount by which the unpaid Rent and any other sums due and payable for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus (4) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligation under this Lease or which in the ordinary course would be likely to result therefrom, including, without limitation, (A) any costs or expenses incurred by Landlord (1) in retaking possession of the Premises; (2) in maintaining, repairing, preserving, restoring, replacing, cleaning, altering, remodeling or rehabilitating the Premises or any affected portions of the Building or the Project, including such actions undertaken in connection with the reletting or attempted reletting of the Premises to a new tenant or tenants; (3) for leasing commissions, advertising costs and other expenses of reletting the Premises; or (4) in carrying the Premises, including taxes, insurance premiums, utilities and security precautions; (B) any unearned brokerage commissions paid in connection with this Lease; (C) reimbursement of any previously waived or abated Base Rent or Additional Rent or any free rent or reduced rental rate granted hereunder; and (D) any concession made or paid by Landlord to the benefit of Tenant in consideration of this Lease including, but not limited to, any moving allowances, contributions, payments or loans by Landlord for tenant improvements or build-out allowances (including without limitation, any unamortized portion of the Tenant Improvement Allowance (such Tenant Improvement Allowance to be amortized over the Term in the manner reasonably determined by Landlord), if any, and any outstanding balance (principal and accrued interest) of the Tenant Improvement Loan, if any), or assumptions by Landlord of any of Tenant's previous lease obligations; plus (5) such reasonable attorneys' fees incurred by Landlord as a result of a Default, and costs in the event suit is filed by Landlord to enforce such remedy; and plus (6) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. As used in subparagraphs (1) and (2) above, the "worth at the time of award" is computed by allowing interest at an annual rate equal to twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less. As used in subparagraph (3) above, 21 the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). Tenant waives redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other pertinent present or future Law, in the event Tenant is evicted or Landlord takes possession of the Premises by reason of any Default of Tenant hereunder. (b) Continuation of Lease. In the event of any Default by Tenant, then in addition to any other remedies available to Landlord at law or in equity and under this Lease, Landlord shall have the remedy described in California Civil Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant's Default and abandonment and recover Rent as it becomes due, provided Tenant has the right to sublet or assign, subject only to reasonable limitations). In addition, Landlord shall not be liable in any way whatsoever for its failure or refusal to relet the Premises. For purposes of this Paragraph 26(b), the following acts by Landlord will not constitute the termination of Tenant's right to possession of the Premises: (1) Acts of maintenance or preservation or efforts to relet the Premises, including but not limited to, alterations, remodeling, redecorating, repairs, replacements and/or painting as Landlord shall consider advisable for the purpose of reletting the Premises or any part thereof; or (2) The appointment of a receiver upon the initiative of Landlord to protect Landlord's interest under this Lease or in the Premises. (c) Re-entry. the event of any Default by Tenant, Landlord shall also have the right, with or without terminating this Lease, in compliance with applicable law, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the coat of and for the account of Tenant. (d) Reletting. In the event of the abandonment of the Premises by Tenant or in the event that Landlord shall elect to re-enter as provided in Paragraph 26(c) or shall take possession of the Premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Landlord does not elect to terminate this Lease as provided in Paragraph 26(a), Landlord may from time to time, without terminating this Lease, relet the Premises or any part thereof for such term or terms and at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable with the right to make alterations and repairs to the Premises in Landlord's sole discretion. In the event that Landlord shall elect to so relet, then rentals received by Landlord from such reletting shall be applied in the following order: (1) to reasonable attorneys' fees incurred by Landlord as a result of a Default and costs in the event suit is filed by Landlord to enforce such remedies; (2) to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; (3) to the payment of any costs of such reletting; (4) to the payment of the costs of any alterations and repairs to the Premises; (5) to the payment of Rent due and unpaid hereunder; and (6) the residue, if any, shall be held by Landlord and applied in payment of future Rent and other sums payable by Tenant hereunder as the same may become due and payable hereunder. Should that portion of such rentals received from such reletting during any month, which is applied to the payment of Rent hereunder, be less than the Rent payable during the month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. (e) Termination. No re-entry or taking of possession of the Premises by Landlord pursuant this Paragraph 26 shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless to termination thereof is decreed by a court of competent jurisdiction. Notwithstanding any reletting 22 without termination by Landlord because of any Default by Tenant, Landlord may at any time after such reletting elect to terminate this Lease for any such Default. (f) Cumulative Remedies. The remedies herein provided are not exclusive and Landlord shall have any and all other remedies provided herein or by law or in equity. (g) No Surrender. No act or conduct of Landlord, whether consisting of the acceptance of the keys to the Premises, or otherwise, shall be deemed to be or constitute an acceptance of the surrender of the Premises by Tenant prior to the expiration of the Term, and such acceptance by Landlord of surrender by Tenant shall only flow from and must be evidenced by a written acknowledgement of acceptance of surrender signed by Landlord. The surrender of this Lease by Tenant, voluntarily or otherwise, shall not work a merger unless Landlord elects in writing that such merger take place, but shall operate as an assignment to Landlord of any and all existing subleases, or Landlord may, at its option, elect in writing to treat such surrender as a merger terminating Tenant's estate under this Lease, and thereupon Landlord may terminate any or all such subleases by notifying the sublessee of its election so to do within five (5) days after such surrender. 26. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS (a) Without limiting the rights and remedies of Landlord contained in Paragraph 26 above, if Tenant shall be in Default in the performance of any of the terms, provisions, covenants or conditions to be performed or complied with by Tenant pursuant to this Lease, Landlord may at Landlord's option, without any obligation to do so, and without notice to Tenant perform any such term, provision, covenant, or condition, or make any such payment and Landlord by reason of so doing shall not be liable or responsible for any loss or damage thereby sustained by Tenant or anyone holding under or through Tenant or any of Tenant's Agents. (b) Without limiting the rights of Landlord under Paragraph 26(a) above, Landlord shall have the right at Landlord's option, without any obligation to do so, to perform any of Tenant's covenants or obligations under this Lease without notice to Tenant in the case of an emergency, as determined by Landlord in its sole and absolute judgment, or if Landlord otherwise determines in its sole discretion that such performance is necessary or desirable for the proper management and operation of the Building or the Project or for the preservation of the rights and interests or safety of other tenants of the Building or the Project. (c) If Landlord performs any of Tenant's obligations hereunder in accordance with this Paragraph 26, the full amount of the cost and expense incurred or the payment so made or the amount of the loss so sustained shall immediately be owing by Tenant to Landlord, and Tenant shall promptly pay to Landlord upon demand, as Additional Rent, the full amount thereof with interest thereon from the date of payment by Landlord at the lower of (1) ten percent (10%) per annum, or (2) the highest rate permitted by applicable law. 27. ATTORNEY'S FEES (a) If either party hereto fails to perform any of its obligations under this Lease or if any dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Lease, then the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable attorneys' fees and disbursements. Any such attorneys' fees and other expenses incurred by either party in enforcing a judgment in its favor under this Lease shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys' fees 23 obligation is intended to be severable from the other provisions of this Lease and to survive and not be merged into any such judgment. (b) Without limiting the generality of Paragraph 27(a) above, if Landlord utilizes the services of an attorney for the purpose of collecting any Rent due and unpaid by Tenant of in connection with any other breach of this Lease by Tenant, Tenant agrees to pay Landlord actual attorneys' fees as determined by Landlord for such services, regardless of the fact that no legal action may be commenced or filed by Landlord. 28. TAXES Tenant shall be liable for and shall pay, prior to delinquency, all taxes levied against Tenant's Property. If any Alteration installed by Tenant pursuant to Paragraph 11 or any of Tenant's Property is assessed and taxed with the Project or Building, Tenant shall pay such taxes to Landlord within (10) days after delivery to Tenant of a statement therefor. 29. EFFECT OF CONVEYANCE The term "Landlord" as used in this Lease means, from time to time, the then current owner of the Building or the Project containing the Premises, so that, in the event of any sale of the Building or the Project, Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder, and it shall be deemed and construed, without further agreement between the parties and the purchaser at any such sale, that the purchaser of the Building or the Project has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. 30. TENANT'S ESTOPPEL CERTIFICATE From time to time, upon written request of Landlord, Tenant shall execute, acknowledge and deliver to Landlord or its designee, a written certificate stating (a) the date this Lease was executed, the Commencement Date of the Term and the date the Term expires; (b) the date Tenant entered into occupancy of the Premises; (c) the amount of Rent and the date to which such Rent has been paid; (d) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended in any way (or, if assigned, modified, supplemented or amended, specifying the date and terms of any agreement so affecting this Lease); (e) that this Lease represents the entire agreement between the parties with respect to Tenant's right to use and occupy the Premises (or such other agreements, if any); (f) that all obligations under this Lease to be performed by Landlord as of the date of such certificate have been satisfied (or specifying those as to which Tenant claims that Landlord has yet to perform); (g) that all required contributions by Landlord to Tenant on account of Tenant's improvements have been received (or stating exceptions thereto); (h) that on such date there exist no defenses or offsets that Tenant has against the enforcement of this Lease by Landlord (or stating exceptions thereto); (i) that no Rent or other sum payable by Tenant hereunder has been paid more than one (1) month in advance (or stating exception thereto); (j) that security has been deposited with Landlord, stating the original amount thereof and any increases thereto; and (k) any other matters evidencing the status of this Lease that may be required either by a lender making a loan to Landlord to be secured by a deed of trust covering the Building or the Project or by a purchaser of the Building or the Project. Any such certificate delivered pursuant to this Paragraph 30 may be relied upon by a prospective purchaser of Landlord's interest or a mortgagee of Landlord's interest or assignee of any mortgage upon Landlord's interest in the Premises. If Tenant shall fail to provide such certificate within ten (l0) days of receipt by Tenant of a written request by Landlord as herein provided, such failure shall, at Landlord's election, constitute a Default under this Lease, and Tenant shall be deemed to have given such certificates as above provided without modification and shall be deemed to have admitted the accuracy of any information supplied by Landlord to a prospective purchaser or mortgagee. 24 31. SUBORDINATION Landlord shall have the right to cause this Lease to be and remain subject and subordinate to any and all mortgages, deeds of trust and ground leases, if any ("Encumbrances") that are now or may hereafter be executed covering the Premises, or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof; provided only, that in the event of termination of any such ground lease or upon foreclosure of any such mortgage or deed of trust, so long as Tenant is not in default, the holder thereof ("Holder") shall agree to recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent and observe and perform all the provisions of this Lease to be observed and performed by Tenant. Within ten (10) days after Landlord's written request, Tenant shall execute, acknowledge and deliver any and all reasonable documents required by Landlord or the Holder to effectuate such subordination. If Tenant fails to do so, such failure shall constitute a Default by Tenant under this Lease. Notwithstanding anything to the contrary set forth in this Paragraph 31, Tenant hereby attorns and agrees to attorn to any person or entity purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such Encumbrance. 32. ENVIRONMENTAL COVENANTS (a) Prior to executing this Lease, Tenant has completed. executed and delivered to Landlord a Hazardous Materials Disclosure Certificate ("Initial Disclosure Certificate"), a fully completed copy of which is attached hereto as Exhibit F and incorporated herein by this reference. Tenant covenants, represents and warrants to Landlord that the information on the Initial Disclosure Certificate is true and correct and accurately describes the Hazardous Materials which will be manufactured, treated, used or stored on or about the Premises by Tenant or Tenant's Agents. Tenant shall, on each anniversary of the Commencement Date and at such other times as Tenant desires to manufacture, treat, use or store on or about the Premises new or additional Hazardous Materials which were not listed on the Initial Disclosure Certificate, complete, execute and deliver to Landlord an updated Disclosure Certificate (each, an "Updated Disclosure Certificate") describing Tenant's then current and proposed future uses of Hazardous Materials on or about the Premises, which Updated Disclosure Certificates shall be in the same format as that which is set forth in Exhibit F or in such updated format as Landlord may require from time to time. Tenant shall deliver an Updated Disclosure Certificate to Landlord not less than thirty (30) days prior to the date Tenant intends to commence the manufacture, treatment, use or storage of new or additional Hazardous Materials on or about the Premises, and Landlord shall have the right to approve or disapprove such new or additional Hazardous Materials in its sole and absolute discretion. Tenant shall make no use of Hazardous Materials on or about the Premises except as described in the Initial Disclosure Certificate or as otherwise approved by Landlord in writing in accordance with this Paragraph 32(a). (b) As used in this Lease, the term "Hazardous Materials" shall mean and include any substance that is or contains (1) any "hazardous substance" as now or hereafter defined in (S)(S) 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA")(42 U.S.C. (S)(S) 9601 et seq.) or any regulations promulgated under CERCLA; (2) any "hazardous waste" as now or hereafter defined in the Resource Conservation and Recovery Act, as amended ("RCRA") (42 U.S.C. (S)(S) 6901 et seq.) or any regulations promulgated under RCRA; (3) any substance now or hereafter regulated by the Toxic Substance Control Act, as amended ("TSCA") (15 U.S.C. (S)(S) 2601 et seq.) or any regulations promulgated under TSCA; (4) petroleum, petroleum by- products, gasoline, diesel fuel, or other petroleum hydrocarbons; (5) asbestos and asbestos-containing material, in any form, whether friable or non-friable; (6) polychlorinated biphenyls; (7) lead and lead-containing materials or 25 (8) any additional substance, material or waste (A) the presence of which on or about the Premises (i) requires reporting, investigation or remediation under any Environmental Laws (as hereinafter defined), (ii) causes or threatens to cause a nuisance on the Premises or any adjacent area or property or poses or threatens to pose a hazard to the health or safety of persons on the Premises or any adjacent area or property, or (iii) which, if it emanated or migrated from the Premises, could constitute a trespass, or (B) which is now or is hereafter classified or considered to be hazardous or toxic under any Environmental Laws. (c) As used in this Lease, the term "Environmental Laws" shall mean and include (1) CERCLA, RCRA and TSCA; and (2) any other federal, state or local laws, ordinances, statutes, codes, rules, regulations, orders or decrees now or hereinafter in effect relating to (A) pollution, (B) the protection or regulation of human health, natural resources or the environment, (C) the treatment, storage or disposal of Hazardous Materials, or (D) the emission, discharge, release or threatened release of Hazardous Materials into the environment. (d) Tenant agrees that during its use and occupancy of the Premises it will (1) not (A) permit Hazardous Materials to be present on or about the Premises except in a manner and quantity necessary for the ordinary performance of Tenant's business or (B) release, discharge or dispose of any Hazardous Materials on, in, at, under, or emanating from, the Premises, the Building or the Project; (2) comply with all Environmental Laws relating to the Premises and the use of Hazardous Materials on or about the Premises and not engage in or permit others to engage in any activity at the Premises in violation of any Environmental Laws; and (3) immediately notify Landlord of (A) an inquiry, test, investigation or enforcement proceeding by any governmental agency or authority against Tenant, Landlord or the Premises, Building or Project relating to any Hazardous Materials or under any Environmental Laws or (B) the occurrence of any event or existence of any condition that would cause a breach of any of the covenants set forth this Paragraph 32. (e) If Tenant's use of Hazardous Materials on or about the Premises results in a release, discharge or disposal of Hazardous Materials on, in, at, under, or emanating from, the Premises, the Building or the Project, Tenant agrees to investigate, clean up, remove or remediate such Hazardous Materials in full compliance with (1) the requirements of (A) all Environmental Laws and (B) any governmental agency or authority responsible for the enforcement of any Environmental Laws; and (2) any additional requirements of Landlord that are reasonably necessary to protect the value of the Premises, the Building or the Project. (f) Upon reasonable notice to Tenant Landlord may inspect the Premises and surrounding areas for the purpose of determining whether there exists on or about the Premises any Hazardous Material or other condition or activity that is in violation of the requirements of this Lease or of any Environmental Laws. Such inspections may include, but are not limited to, entering the Premises or adjacent property with drill rigs or other machinery for the purpose of obtaining laboratory samples. Landlord shall not be limited in the number of such inspections during the Term of this Lease. In the event (1) such inspections reveal the presence of any such Hazardous Material or other condition or activity in violation of the requirements of this Lease or of any Environmental Laws, or (2) Tenet or its Agents contribute or knowingly consent to the presence of any Hazardous Materials in, on, under, through or about the Premises, the Building or the Project or exacerbate the condition of or the conditions caused by any Hazardous Materials in, on, under, through or about the Premises, the Building or the Project, Tenant shall reimburse Landlord for the cost of such inspections within ten (10) days of receipt of a written statement therefor. Tenant will supply to Landlord such historical and operational information regarding the Premises and surrounding areas as may be reasonably requested to facilitate any such inspection and will make available for meetings appropriate personnel having knowledge of such matters. Tenant agrees to give Landlord at least sixty (60) days' prior notice of its intentions to vacate the Premises so 26 that Landlord will have an opportunity to perform such an inspection prior to such vacation. The right granted to Landlord herein to perform inspections shall not create a duty on Landlord's part to inspect the Premises, or liability on the part of Landlord for Tenant's use, storage, treatment or disposal of Hazardous Materials, it being understood that Tenant shall be solely responsible for all liability in connection therewith. (g) Landlord shall have the right, but not the obligation, prior or subsequent to a Default, without in any way limiting Landlord's other rights and remedies under this Lease, to enter upon the Premises, or to take such other actions as it deems necessary or advisable, to investigate, clean up, remove or remediate any Hazardous Materials or contamination by Hazardous Materials present on, in, at, under, or emanating from, the Premises, the Building or the Project in violation of Tenant's obligations under this Lease or under any Environmental Laws. Notwithstanding any other provision of this Lease, Landlord shall also have the right, at its election, in it own name or as Tenant's agent, to negotiate, defend, approve and appeal, at Tenant's expense, any action taken or order issued by any governmental agency or authority with regard to any such Hazardous Materials or contamination by Hazardous Materials. All costs and expenses paid or incurred by Landlord in the exercise of the rights set forth in this Paragraph 32 shall be payable by Tenant upon demand. (h) Tenant shall surrender the Premises to Landlord upon the expiration or earlier termination of this Lease free of debris, waste or Hazardous Materials placed on, about or near the Premises by Tenant or Tenant's Agents, and in a condition which complies with all Environmental Laws and any additional requirements of Landlord that are reasonably necessary to protect the value of the Premises, the Building or the Project, including, without limitation, the obtaining of any closure permits or other governmental permits or approvals related to Tenant's use of Hazardous Materials in or about the Premises. Tenant's obligations and liabilities pursuant to the provisions of this Paragraph 32 shall survive the expiration or earlier termination of this Lease. If it is determined by Landlord that the condition of all or any portion of the Premises, the Building, and/or the Project is not in compliance with the provisions of this Lease with respect to Hazardous Materials, including, without limitation, all Environmental Laws, at the expiration or earlier termination of this Lease, then at the Landlord's sole option, Landlord may require Tenant to hold over possession of the Premises until Tenant can surrender the Premises to Landlord in the condition in which the Premises existed as of the Commencement Date and prior to the appearance of such Hazardous Materials except for normal wear and tear, including, without limitation, the conduct or performance of any closure as required by any Environmental Laws. The burden of proof hereunder shall be upon Tenant. For purposes hereof, the term "normal wear and tear" shall not include any deterioration in the condition or diminution of the value of any portion of the Premises, the Building, and/or the Project in any manner whatsoever related to directly, or indirectly, Hazardous Materials. Any such holdover by Tenant will be with Landlord's consent, will not be terminable by Tenant in any event or circumstance and will otherwise be subject to the provisions of Paragraph 35 of this Lease. (i) As between Landlord and Tenant, Tenant shall not be required to pay for the clean up of any contamination caused by the acts or omissions of a prior tenant of the Premises, if Tenant can demonstrate to Landlord's reasonable satisfaction that Tenant: (1) did not introduce, spill, release or deposit any Hazardous materials, in or about the Premises, the Building or the Outside areas; and (2) has not contributed to, exacerbated or permitted, directly or indirectly, the presence, migration or release of any Hazardous Materials or contamination in, on or about the Premises, the Building or the Outside Areas. (j) Tenant agrees to indemnify and hold harmless Landlord from and against any and all claims, losses (including, without limitation, loss in value of the Premises, the Building or the Project, liabilities and expenses (including attorney's fees)) sustained by Landlord attributable to (1) any Hazardous Materials placed on or about the Premises, the 27 Building or the Project by Tenant or Tenant's Agents, or (2) Tenant's breach of any provisions of this Paragraph 32. (k) The provision of this Paragraph 32 shall survive the expiration or earlier termination of this Lease. 33. NOTICES All notices and demands which are required or may be permitted to be given to either party by the other hereunder shall be in writing and shall be sent by United States mail, postage prepaid, certified, or by personal delivery or overnight courier, addressed to the addressee at Tenant's Address or Landlord's Address as specified in the Basic Lease Information, or to such other place as either party may form time to time designate in a notice to the other party given as provided herein. Copies of all notices and demands given to Landlord shall additionally be sent to Landlord's property manager at the address specified in the Basic Lease Information or at such other address as Landlord may specify in writing from time to time. Notice shall be deemed gives upon actual receipt (or attempted delivery if delivery is refused), if personally delivered, or one (1) business day following deposit with a reputable overnight courier that provides a receipt, or on the third (3rd) day following deposit in the United States mail in the manner described above. 34. WAIVER The waiver of any breach of any term, covenant or condition of this Lease shall not be deemed to be a waiver of such term, covenant or condition or of any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of Rent by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such Rent. No delay or omission in the exercise of any right or remedy of Landlord in regard to any Default by Tenant shall impair such a right or remedy or be construed as a waiver. Any waiver by Landlord of any Default must be in writing and shall not be a waiver of any other Default concerning the same or any other provision of this Lease. 35. HOLDING OVER Any holding over after the expiration of the Term, without the express written consent of Landlord, shall constitute a Default and, without limiting Landlord's remedies provided in this lease, such holding over shall be construed to be a tenancy at sufferance, at a rental rate of one hundred fifty percent (150%) of the Base Rent last due in this Lease, plus Additional Rent, and shall otherwise be on the terms and conditions herein specified, so far as applicable; provided however, in no event shall any renewal or expansion option or other similar right or option contained in this Lease be deemed applicable to any such tenancy at sufferance. If the Premises are not surrendered at the end of the Term or sooner termination of this Lease, and in accordance with the provisions of Paragraphs 11 and 32(h). Tenant shall indemnify, defend and hold Landlord harmless from and against any and all loss or liability resulting from delay by Tenant in so surrendering the Premises including, without limitation, any loss or liability resulting from any claim against Landlord made by any succeeding tenant or prospective tenant founded on or resulting from such delay and losses to Landlord due to lost opportunities to lease any portion of the Premises to any such succeeding tenant or prospective tenant, together with, in each case, actual attorney's fees and costs. 36. SUCCESSORS AND ASSIGNS The terms, covenants and conditions of this Lease shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and 28 assigns of all of the parties hereto. If Tenant shall consist of more than one entity or person, the obligations of Tenant under this Lease shall be joint and several. 37. TIME Time is of the essence of this Lease and each and every term, conditions and provision herein. 38. Brokers Landlord and Tenant each represents and warrant so the other that neither it nor its officers or agents nor anyone acting on its behalf has dealt with any real estate broker except the Broker(s) specified in the Basic Lease Information in the negotiating or making of this Lease, and each party agrees to indemnify and hold harmless the other from any claim or claims, and costs and expenses, including attorney's fees, incurred by the indemnified party in conjunction with any such claim or claims of any other broker or brokers to a commission in connection with this Lease as a result of the actions of the indemnifying party. 39. LIMITATION OF LIABILITY Tenant agrees that, in the event of any default or breach by Landlord with respect to any of the terms of the Lease to be observed and performed by Landlord (1) Tenant shall look solely to the then-current landlord's interest in the Building for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord; (2) no other property or assets of Landlord, its partner, shareholder, officers, directors or any successor in interest shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies; (3) no personal liability shall at any time be asserted or enforceable against Landlord's partners or successors in interest (except to the extent permitted in (1) above), or against Landlord's shareholders, officers or directors, or their respective partners, shareholders, officers, directors, or successors in interest; and (4) no judgment will be taken against any partner, shareholder, officer or director of Landlord. The provisions of this section shall apply only to the Landlord and the parties herein described, and shall not be for the benefit of any insurer nor any other third party. 40. FINANCIAL STATEMENTS Within ten (10) days after Landlord's request, Tenant shall deliver to Landlord the then current financial statements of Tenant (including interim periods following the end of the last fiscal year for which annual statements are available), prepared or compiled by a certified public accountant, including a balance sheet and profit and loss statement for the most recent prior year, all prepared in accordance with generally accepted accounting principles consistently applied. 41. RULES AND REGULATIONS Tenant agrees to comply with such reasonable rules and regulations as Landlord may adopt from time to time for the orderly and proper operation of the Building and the Project. Such rules may included but shall not be limited to the following: (a) restriction of employee parking to a limited, designated area or areas; and (b) regulation of the removal, storage and disposal of Tenant's refuse and other rubbish at the sole cost and expense of Tenant. The then current rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant. Landlord shall not be responsible to Tenant for the failure of any other person to observe and abide by any of said rules and regulations. Landlord's current rules and regulations are attached to this Lease as Exhibit D. 29 42. MORTGAGE PROTECTION (a) Modifications for Lender. If, in connection with obtaining financing for the Project or any portion thereof, Landlord's lender shall request reasonable modifications to this Lease as a condition to such financing, Tenant shall not unreasonably withhold, delay or defer its contents to such modifications, provided such modifications do not materially adversely affect Tenant's right or increase Tenant's obligation under this Lease. (b) Rights to Cure. Tenant agrees to give to any trust deed or mortgage holder ("Holder"), by registered mail, at the same time as it is given to Landlord, a copy of any notice of default given to Landlord, provided that prior to such notice Tenant has been notified, in writing, (by way of notice of assignment of rents and leases, or otherwise) of the address of such Holder. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Holder shall have an additional twenty (20) days after expiration of such period, or after receipt of such notice from Tenant (if such notice to the Holder is required by this Paragraph 42(b)), whichever shall last occur within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such twenty (20) days, any Holder has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated. 43. ENTIRE AGREEMENT This Lease, including the Exhibits and any Addenda attached hereto, which are hereby incorporated herein by this reference, contains the entire agreement of the parties hereto, and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein or therein, shall be of any force and effect. 44. INTEREST Any installment of Rent and any other sum due from Tenant under this Lease which is not received by Landlord within ten (10) days from under when the same is due shall bear interest from the date such payment was originally due under this Lease until paid at an annual rate equal to the maximum rate of interest permitted by Law. Payment of such interest shall not excuse or cure any Default by Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred by Landlord in collection of such amounts. 45. CONSTRUCTION This Lease shall be construed and interpreted in accordance with the laws of the State of California. The parties acknowledge and agree that no rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall be employed in the interpretation of this Lease, including the Exhibits and any Addenda attached hereto. All captions in this Lease are for reference only and shall not be used in the interpretation of this Lease. Whenever required by the context of this Lease, the singular shall include the plural, the masculine shall include the feminine, and vice versa. If any provision of this Lease shall be determined to be illegal or unenforceable, such determination shall not affect any other provision of this Lease and all such other provisions shall remain in full force and effect. 46. REPRESENTATIONS AND WARRANTIES OF TENANT Tenant hereby makes the following representations and warranties, each of which is material and being relied upon by Landlord, is true in all respects as of the date of this Lease, and shall survive the expiration or termination of the Lease. (a) If Tenant is an entity, Tenant is duly organized, validly existing and in good standing under the laws of the state of its organization and the persons executing this 30 Lease on behalf of Tenant have the full right and authority to execute this Lease on behalf of Tenant and to bind Tenant without the consent or approval of any other persons or entity. Tenant has full power, capacity, authority and legal right to execute and deliver this Lease and to perform all of its obligations hereunder. This lease is a legal, valid and binding obligation of Tenant, enforceable in accordance with its terms. (b) Tenant has not (1) made a general assignment for the benefit of creditors, (2) filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by any creditors, (3) suffered the appointment of a receiver to take possession of all or substantially all of its assets, (4) suffered the attachment or other judicial seizure of all or substantially all of its assets, (5) admitted in writing its inability to pay its debts as they come due, or (6) made an offer of settlement, extension or composition to its creditors generally. 47. RELOCATION Intentionally omitted. 48. SECURITY (a) Tenant acknowledges and agrees that, while Landlord may engage security personnel to patrol the Building or the Project, Landlord is not providing any security services with respect to the Premises, the Building or the Project and that Landlord shall not be liable to Tenant for, and Tenant waives any claim against Landlord with respect to, any loss by theft or any other damage suffered or incurred by Tenant in connection with any unauthorized entry into the Premises or any other breach of security with respect to the Premises, the Building or the Project. (b) Tenant hereby agrees to the exercise by Landlord and Landlord's Agents, within their sole discretion, of such security measure as, but not limited to, the evacuation of the Premises, the Building or the Project for cause, suspected cause or for drill purposes, the denial of any access to the Premises, the Building or the Project and other similarly related actions that it deems necessary to prevent any threat of property damage or bodily injury. The exercise of such security measures by Landlord and Landlord's Agents, and the resulting interruption of service and cessation of Tenant's business, if any, shall not be deemed an eviction or disturbance of Tenant's use and possession of the Premises, or any part thereof, or render Landlord or Landlord's Agents liable to Tenant for any resulting damages or relieve Tenant from Tenant's obligations under this Lease. 49. JURY TRIAL WAIVER Intentionally omitted. Landlord and Tenant have executed and delivered this Lease as of the Lease Date specified in the Basic Lease Information Landlord Tenant HAYWARD INDUSTRIAL PARK ASSOCIATES, Mohawk Industries, Inc. A California General Partnership A Georgia Corporation By: Lincoln Property Company By: /s/ S. H. Sharpe Management Services, Inc --------------------------------- As Manager and Agent for Landlord Print Name: S. H. Sharpe ------------------------- By: /s/ [ILLEGIBLE] Its: Executive Vice President ----------------------------- -------------------------------- Senior Vice President 31 EXHIBIT A DIAGRAM OF THE PREMISES [GRAPHIC OMITTED] HAYWARD INDUSTRIAL PARK Hayward, California [GRAPHIC OMITTED] Leased Premises: 3624 Munster Avenue Units A, B, and C Hayward, CA 94545 Approximately 30,240 rentable square feet. EXHIBIT B - TENANT IMPROVEMENTS Lease dated November 11, 1997 This exhibit, entitled "Tenant Improvements", is and shall constitute Exhibit B to the Lease Agreement, dated November 10, 1997, by and between Landlord and Tenant for the leasing of the Premises ( the "Lease"). The terms and conditions of this Exhibit B are hereby incorporated into and are made a part of the Lease. Any capitalized terms used herein, but not otherwise defined herein, shall have the meanings ascribed to such terms in the Lease. 1. Tenant agrees to, and shall, accept the Premises on an "as-is" basis, except that Landlord will install and complete those certain tenant improvement described in Paragraph 2 below ("Tenant Improvements"). 2. Landlord, at Landlord's sole cost and expense, will install and construct, or cause the installation and construction of, the following described Tenant Improvements to the Premises: (a) Demolish and remove office areas and convert two windows to dock-high roll-up doors as shown in Exhibit B-1, attached hereto and made part thereof; (b) Refurbish existing restrooms: (c) Paint existing office area: and (d) Remove debris from warehouse. 3. Landlord will not be obligated to pay for the cost of, nor shall Landlord be required to undertake nor perform, any improvements to the Premises not specifically set forth in Paragraph 2 above. 4. Tenant and Landlord acknowledge and agree that the Tenant Improvements will not be completed prior to the Commencement Date. Tenant agrees to work in harmony with Landlord's contractors and to not interfere in any manner with the Tenant Improvements work. Initials: Tenant: /s/ [ILLEGIBLE] ----------------------- Landlord: /s/ [ILLEGIBLE] ---------------------- EXHIBIT B-1 INITIAL FLOOR PLAN [GRAPHIC OMITTED] EXHIBIT C COMMENCEMENT AND EXPIRATION DATE MEMORANDUM LANDLORD: HAYWARD INDUSTRIAL PARK ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP TENANT: Mohawk Industries, Inc. LEASE DATE: November 10, 1997 PREMISES: Located at 3624 Munster Avenue, Hayward, California Tenant hereby accepts the Premises as being in the condition required under the Lease, with all Tenant Improvements completed (except for the minor punchlist items which Landlord agrees to complete). The Commencement Date of the Lease is hereby established as _____________, 1997 and the Expiration Date is _____________, _____. TENANT: Mohawk Industries, Inc. a Georgia corporation By: __________________________________ Print Name: __________________________ Its: _________________________________ Approved and Agreed: LANDLORD: HAYWARD INDUSTRIAL PARK ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP By: Lincoln Property Company Management Services, Inc., As Manager and Agent for Landlord By: __________________________________ Senior Vice President C-1 EXHIBIT D RULES AND REGULATIONS This exhibit, entitled "Rules and Regulations," is and shall constitute Exhibit D to the Lease Agreement, dated as of the Lease Date, by and between landlord and Tenant for the Premises. The terms and conditions of this Exhibit D are hereby incorporated into and are made a part of the Lease. Capitalized terms used, but not otherwise defined, in this Exhibit D have the meanings ascribed to such terms in the Lease. 1. Tenant shall not use any method of heating or air conditioning other than that supplied by Landlord without the consent of Landlord. 2. All window coverings installed by Tenant and visible form the outside of the building require the prior written approval of Landlord. 3. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance or any flammable or combustible materials on or around the Premises, except to the extent that Tenant is permitted to use the same under the terms of Paragraph 32 of the Lease. 4. Tenant shall not alter any lock or install any new locks or belts on any door at the Premises without the prior consent of Landlord. 5. Tenant shall not make any duplicate keys without prior consent of Landlord. 6. Tenant shall park motor vehicles designated by Landlord except for loading and unloading. During those periods of loading and unloading, Tenant shall not unreasonably interfere with traffic flow around the Building or the Project and loading and unloading areas of other tenants. Tenant shall not park motor vehicles in designated parking area after the conclusion of normal business activity. 7. Tenant shall not disturb, solicit or canvas any tenant or other occupant of the Building or Project and shall cooperate to prevent the same. 8. No person shall go on the roof without Landlord's permission. 9. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted so the structure of the Building, to such a degree as to be objectionable to Landlord or other tenants, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or in noise dampening housing or other devices sufficient to eliminate noise or vibration. 10. All goods, including material used to store goods, delivered to the Premises of Tenant shall be immediately moved into the Premises and shall not be left in parking or receiving areas overnight. 11. Tractor trailers which must be unhooked or parked with dolly wheels beyond the concrete loading areas must use steel plates or wood blocks under the dolly wheels to prevent damage to the asphalt paving surfaces. No parking or storing of such trailers will be permitted in the auto parking areas of the Project or on streets adjacent thereto. 12. Forklifts which operate on asphalt paving areas shall not have solid rubber tires and shall only use tires that do not damage the asphalt. 13. Tenant is responsible for the storage and removal of all trash and refuse. All such trash and refuse shall be contained in suitable receptacles stored behind screened enclosures at locations approved by Landlord. D-1 14. Tenant shall not store or permit the storage or placement of goods or merchandise in or around the common areas surrounding the Premises. No displays or sales or merchandise shall be allowed in the parking lots or other common areas. 15. Tenant shall not permit any animals, including but not limited to, any household pets, to be brought or kept in or about the Premises, the Building, the Project or any other common areas. Initials: Tenant: /s/ [ILLEGIBLE] ----------------------- Landlord: /s/ [ILLEGIBLE] ---------------------- D-2 EXHIBIT E SIGN CRITERIA In an effort to maintain a professional and uniform appearance throughout Hayward Industrial Park, the following sign criteria have been established: [BODY ILLEGIBLE] EXHIBIT F HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE Your cooperation in this matter is appreciated. Initially, the information provided by you in this Hazardous Materials Disclosure Certificate is necessary for the Landlord to evaluate your proposed uses of the premises ( the "Premises") and to determine whether to enter into a lease agreement with you as a tenant. If a lease agreement is signed by you and the Landlord (the "Lease Agreement"), on an annual basis in accordance with the provisions of Paragraph 32 of the Lease Agreement, you are to provide an update to the information initially provided by you in this certificate. Any questions regarding this certificate should be directed to, and when completed, the certificate should be delivered to: Landlord: c/o Lincoln Property Company Management Services, Inc. 101 Lincoln Centre Drive, Fourth Floor Foster City, California 94404 Name of (Prospective) Tenant: _____________________________________________ Mailing Address: __________________________________________________________ __________________________________________________________________________ Contact Person, Title and Telephone Number(s): ____________________________ Contact Person for Hazardous Waste Materials Management and Manifests and Telephone Number(s): ______________________________________________________ __________________________________________________________________________ Address of (Prospective) Premises: ________________________________________ Length of (Prospective) initial Term: _____________________________________ __________________________________________________________________________ 1. GENERAL INFORMATION Describe the proposed operations to take place in, on, or about the Premises, including, without limitation, principal products processed, manufactured or assembled, and services and activities to be provided or otherwise conducted. Existing tenants should describe any proposed changes to on-going operations. __________________________________________________________________________ __________________________________________________________________________ 2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS 2.1 Will any Hazardous Materials (as hereinafter defined) be used, generated, treated, stored, or disposed of in, on or about the Premises? Existing tenants should describe any Hazardous Materials which continue to be used, generated, treated, stored or disposed of in, on or about the Premises. Wastes Yes |_| No |_| Chemical Products Yes |_| No |_| Other Yes |_| No |_| If Yes is marked, please explain: __________________________________ ____________________________________________________________________ ____________________________________________________________________ F-1 2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous Materials to be used, generated, treated, stored or disposed of in, on or about the Premises, including the applicable hazard class and an estimate of the quantities of such Hazardous Materials to be present on or about the Premises at any given time; estimated annual throughput; the proposed location(s) and method of storage (excluding nominal amounts of ordinary household cleaners and janitorial applies which are not regulated by any Environmental Laws, as hereinafter defined); and the proposed location(s) and method(s) of treatment or disposal for each Hazardous Material, including, the estimated frequency, and the proposed contractors or subcontractors. Existing tenants should attach a list setting forth the information requested above and such list should include actual data from on-going operations and the identification of any variations in such information from the prior year's certificate. 3. STORAGE TANKS AND SUMPS 3.1 Is any above or below ground storage or treatment of gasoline, diesel, petroleum, or other Hazardous Materials in tanks or sumps proposed in, on or about the Premises? Existing tenants should describe any such actual or proposes activities. Yes No If yes, please explain:_____________________________________________ ____________________________________________________________________ ____________________________________________________________________ 4. WASTE MANAGEMENT 4.1 Has your company been issued an EPA Hazardous Waste Generator I.D. Number? Existing tenants should describe any additional identification numbers issued since the previous certificate. Yes No 4.2 Has your company filed a biennial or quarterly reports as a hazardous waste generator? Existing tenants should describe any new reports filed. Yes No If yes, attach a copy of the most recent report filed. 5. WASTEWATER TREATMENT AND DISCHARGE 5.1 Will your company discharge wastewater or other wastes to: ____ storm drain? ____ sewer? ____ surface water? ____ no wastewater or other wastes discharged. Existing tenants should indicate any actual discharges. If so, describe the nature of any proposed or actual discharge(s). ____________________________________________________________________ ____________________________________________________________________ F-2 5.2 Will any such wastewater or waste be treated before discharge? Yes No If yes, describe the type of treatment proposed to be conducted. Existing tenants should describe the actual treatment conducted. ____________________________________________________________________ ____________________________________________________________________ 6. AIR DISCHARGES 6.1 Do you plan for any air filtration systems or stacks to be used in your company's operations in, on or about the Premises that will discharge into the air, and will such air emissions be monitored? Existing tenants should indicate whether or not there are any such air filtration systems or stacks in use in, on or about the Premises which discharge into the air and whether such air emissions are being monitored. Yes No If yes, please describe:____________________________________________ ____________________________________________________________________ ____________________________________________________________________ 6.2 Do you propose to operate any of the following types of equipment, or any other equipment requiring an air emissions permit? Existing tenants should specify any such equipment being operated in, on or about the Premises. ____ Spray booth(s) ____ Incinerator(s) ____ Dip tank(s) ____ Other (Please describe) ____ Drying oven (s) ____ No Equipment Requiring Air Permits If yes, please describe:____________________________________________ ____________________________________________________________________ ____________________________________________________________________ 6.3 Please describe (and submit copies of with this Hazardous Materials Disclosure Certificate) any reports you have filed in the past [thirty-six] months any governmental or quasi-governmental agencies or authorities related to air discharges or clean air requirements and any such reports which have been issued during such period by any such agencies or authorities with respect to you or your business operations. 7. HAZARDOUS MATERIALS DISCLOSURES 7.1 Has your company proposed or will it be required to prepare a Hazardous Materials management plan ("Management Plan") or Hazardous Materials Business Plan and Inventory ("Business Plan") pursuant to Fire Department or other governmental or regulatory agencies' requirements? Existing tenants should indicate whether or not a Management Plan is required and has been prepared. Yes No If yes, attach a copy of the Management Plan or Business Plan. Existing tenants should attach a copy of any required updates to the Management Plan or Business Plan. F-3 7.2 Are any of the Hazardous Materials, and in particular chemicals, proposed to be used in your operations in, on or about the Premises listed or regulated under Proposition 65? Existing tenants should indicate whether or not there are any new Hazardous Materials being so used which are listed or regulated under Proposition 65. Yes No If yes, please explain: ____________________________________________ ____________________________________________________________________ ____________________________________________________________________ 8. ENFORCEMENT ACTIONS AND COMPLAINTS 8.1 With respect to Hazardous Materials or Environmental Laws, has your company ever been subject to any agency enforcement actions, administrative orders, or consent decrees or has your company received requests for information, notice or demand letters, or any other inquiries regarding its operations? Existing tenants should indicate whether or not any such actions, orders or decrees have been, or are in the process of being, undertaken or if any such requests have been received. Yes No If yes, describe the actions, orders or decrees and any continuing compliance obligations imposed as a result of these actions, orders or decrees and also describe any requests, notices or demands, and attach a copy of all such documents. Existing tenants should describe and attach a copy of any new actions, orders, decrees, requests, notices or demands not already delivered to Landlord pursuant to the provisions of Paragraph 32 of the Lease Agreement. ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ 8.2 Have there ever been, or are there now pending, any lawsuits against your company regarding any environmental or health and safety concerns? Yes No If yes, describe any such lawsuits and attach copies of the complaint(s), cross-complaint(s), pleadings and other documents related thereto as requested by Landlord. Existing tenants should describe and attach a copy of any new complaint(s), cross-complaints, pleadings and other related documents not already delivered to Landlord pursuant to the provisions of Paragraph 32 of the Lease Agreement. ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ F-4 8.3 Have there been any problems of complaints from adjacent tenants, owners or other neighbors at your company's current facility with regard to environmental or health and safety concerns? Existing tenants should indicate whether or not there have been any such problems or complaints from adjacent tenants, owners or other neighbors at, about or near the Premises and the current status of any such problems or complaints. Yes No If yes, please describe. Existing tenants should describe any such problems or complaints not already disclosed to Landlord under the provisions of the signed Lease Agreement and the current status of any such problems or complaints. ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ 9. PERMITS AND LICENSES 9.1 Attach copies of all permits and licenses issued to your company with respect to its proposed operations in, on or about the Premises, including, without limitation, any Hazardous Materials permits, wastewater discharge permits, air emissions permits, and use permits or approvals. Existing tenants should attach copies of any new permits and licenses as well as any renewals of permits or licenses previously issued. As used herein, "Hazardous Materials" shall mean and include any substance that is or contains (a) any "hazardous substance" as now or hereafter defined in (S)(S) 101(14) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA") (42 U.S.C. (S)(S) 9601 et seq.) or any regulations promulgated under CERCLA; (b) any "hazardous waste" as now or hereafter defined in the Resource Conservation and Recovery Act, as amended ("RCRA") (S)(S) (43 U.S.C. (S)(S) 6901 et seq.) or any regulations promulgated under RCRA; (c) any substance now or hereafter regulated by the Toxic Substances Control Act, as amended ("TSCA") (15 U.S.C. (S)(S) 2601 et seq.) or any regulations promulgated under TSCA; (d) petroleum, petroleum by-products, gasoline, diesel fuel, or other petroleum hydrocarbons; (e) asbestos and asbestos-containing material, in any form, whether friable or non-friable; (f) polychlorinated biphenyls; (g) lead and lead-containing materials; or (h) any additional substance, material or waste (A) the presence of which on or about the Premises (i) requires reporting, investigation or remediation under any Environmental Laws (as hereinafter defined), (ii) causes or threatens to cause a nuisance on the Premises or any adjacent property or poses or threatens to pose a hazard to the health or safety of persons on the Premises or any adjacent property, or (iii) which, if it emanated or migrated from the Premises, could constitute a trespass, or (B) which is now or is hereafter classified or considered to be hazardous or toxic under any Environmental Laws; and "Environmental Laws" shall mean and include (a) CERCLA, RCRA and TSCA; and (b) any other federal, state or local laws, ordinances, statutes, codes, rules, regulations, orders or decrees now or hereinafter in effect relating to (i) pollution, (ii) the protection or regulation of human health, natural resources or the environment, (iii) the treatment, storage or disposal of Hazardous Materials, or (iv) the emission, discharge, release or threatened release of Hazardous Materials into the environment. The undersigned hereby acknowledges and agrees that this Hazardous Materials Disclosure Certificate is being delivered to Landlord in connection with the evaluation of a Lease Agreement and, if such Lease Agreement is executed, will be attached thereto as an exhibit. The undersigned further acknowledges and agrees that if such Lease Agreement is executed, this Hazardous Materials Disclosure Certificate will be updated from time to time in accordance with Paragraph 32 of the Lease Agreement. The undersigned further acknowledges and agrees that the Landlord and its partners, lenders F-5 and representatives may, and will, rely upon the statements, representations, warranties, and certifications made herein and the truthfulness thereof in entering into the Lease Agreement and the continuance thereof throughout the term, and any renewals thereof, of the Lease Agreement. I [print name] _________________, acting with full authority to bind the (proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent and warrant that the information contained in this certificate is true and correct. (PROSPECTIVE) TENANT: By: [ILLEGIBLE] ---------------------- Title: Exec. V.P. ---------------------- Date: 12-10-97 ---------------------- INITIALS: TENANT: [ILLEGIBLE] --------------------- LANDLORD: [ILLEGIBLE] --------------------- F-6 ADDENDUM 1 OPTION TO EXTEND THE LEASE This Addendum 1 is incorporated as a part of that certain Lease Agreement dated November 10, 1997 (the "Lease"), by and between Mohawk Industries, Inc., a Georgia corporation ("Tenant"), and Hayward Industrial Park Associates, a California general partnership ("Landlord"), for the leasing of those certain premises located at 3624 Munster Avenue, Hayward, California, as more particularly described in Exhibit A to the Lease (the "Premises"). Any capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms as set forth in the Lease. 1. Grant of Extension Option. Subject to the provisions, limitations and conditions set forth in Paragraph 5 below, Tenant shall have an Option ("Option") to extend the term of the Lease for five (5) years (the "Extended Term"). 2. Tenant's Option Notice. If Landlord does not receive written notice from Tenant of its exercise of this Option on a date which is not more than two hundred forty (240) days nor less than one hundred eighty (180) days prior to the end of the initial term of the Lease (the "Option Notice"), all rights under this Option shall automatically terminate and shall be of no further force or effect. 3. Establishing the Initial Monthly Base Rent for the Extended Term. The initial monthly Base Rent for the Extended Term shall be the then current market rent for the highest and best use for similar space within the competitive market area of the Premises (the "Fair Rental Value"). "Fair Rental Value" of the Premises means the fair market rental value of the Premises as of the commencement of the Extended Term, taking into consideration all relevant factors, including length of term, the uses permitted under the Lease, the quality, size, design and location of the Premises, including the condition and value of existing tenant improvements, and the monthly base rent paid by tenants for premises comparable to the Premises, and located within the competitive market area of the Premises as reasonably determined by Landlord. Neither Landlord nor Tenant shall have the right to have a court or any other third party entity establish the Fair Rental Value. If Landlord and Tenant are unable to agree on the Fair Rental Value for the Extended Term within ten (10) days of receipt by Landlord of the Option Notice, Landlord and Tenant being obligated only to act in good faith, this Option shall automatically terminate and the Lease shall terminate at the end of its initial term. In no event shall the monthly Base Rent for any period of the Extended Term be less than the highest monthly Base Rent charged during the initial term of the Lease. Upon determination of the initial monthly Base Rent for the Extended Term in accordance with the terms outlined above, Landlord and Tenant shall immediately execute, at Landlord's sole option, either the standard lease agreement then in use by Landlord, or an Amendment to this Lease. Such new lease agreement or amendment, as the case may be, shall set forth among other things, the initial monthly Base Rent for the Extended Term and the actual commencement date and expiration date of the Extended Term. Tenant shall have no other right to extend the term of the Lease under this Addendum 1 unless Landlord and Tenant otherwise agree in writing. 4. Condition of Premises and Brokerage Commissions for the Extended Term. If Tenant timely and properly exercises this Option, in strict accordance with the terms contained herein: (1) Tenant shall accept the Premises in its then "As-Is" condition and, accordingly, Landlord shall not be required to perform any additional improvements to the Premises; and (2) Tenant hereby agrees that it will be solely responsible for any and all brokerage commissions and finder's fees payable to any broker now or hereafter procured or hired by Tenant or who otherwise claims a commission based on any act or statement of Tenant ("Tenant's Broker") in connection with the Option; and Tenant hereby further agrees that Landlord shall in no event or circumstance be responsible for the payment of any such commissions and fees to Tenant's Broker. 5. Limitations On, and Conditions To, Extension Option. This Option is personal to Tenant and may not be assigned, voluntarily or involuntarily, separate from or as part of the Lease. At Landlord's option, all rights of Tenant under this Option shall terminate and be of no force or effect if any of the following individual events occur or any combination thereof occur: (1) Tenant has been in default at any time during the initial term of the Lease, or is currently in default of any provision of the Lease; and/or (2) Tenant has assigned its rights and obligations under all or part of the Lease or Tenant has subleased all or part of the Premises; and/or (3) Tenant's financial condition is unacceptable to Landlord at the time the Option Notice is delivered to Landlord; and/or (4) Tenant has failed to properly exercise this Option in a timely manner in strict accordance with the provisions of this Addendum 1; and/or (5) Tenant no longer has possession of all or any part of the Premises under the Lease, or if the Lease has been terminated earlier, pursuant to the terms of the Lease. 6. Time is of the Essence. Time is of the essence with respect to each and every time period described in this Addendum. INITIALS: TENANT: [ILLEGIBLE] --------------------- LANDLORD: [ILLEGIBLE] --------------------- ADDENDUM 2 EARLY OCCUPANCY AGREEMENT Page 1 of 1 This Addendum No. 2 is incorporated as a part of that certain Lease Agreement dated November 10, 1997 (the "Lease"), by and between Mohawk Industries, Inc., a Georgia Corporation ("Tenant"), and HAYWARD INDUSTRIAL PARK ASSOCIATES, A CALIFORNIA GENERAL PARTNERSHIP ("Landlord"), of the premises located at 3624 Munster Avenue, Unit A, B, and C, Hayward, California, (the "Premises"). Notwithstanding anything in the Lease to the contrary, Tenant shall have the right to enter the Premises after the Lease has been fully executed and prior to the Commencement Date, of December 15, 1997 ("Occupancy Date"). In this event, Tenant shall have the right to occupy the Premises free of Base Rent from the Occupancy Date until the Commencement Date ("Early Occupancy Period"). During the Early Occupancy Period Tenant shall be obligated to pay the utilities and the Additional Rent, defined in Section 6 of the Lease, which is attributable to the Early Occupancy Period. Tenant's early occupancy shall be subject to the conditions detailed hereinbelow: 1. Landlord shall receive from Tenant a certificate of general liability insurance as specified in the Lease, naming Landlord as additional insured. 2. All the terms and conditions of the Lease, except the payment of Base Rent, shall be in full force and effect as of the Occupancy Date and possession of the Premises. 3. By entry, Tenant accepts the Premises as being in good order, condition and repair as of the Occupancy Date. Unless otherwise defined in this Addendum, all terms not defined in this Addendum shall have the meaning set forth in the Lease. INITIALS: TENANT: [ILLEGIBLE] --------------------- LANDLORD: [ILLEGIBLE] --------------------- EX-10.70 22 SAVINGS AND RETIREMENT PLAN EXHIBIT 10.70 WORLD CARPETS, INC. ------------------ SAVINGS AND RETIREMENT PLAN --------------------------- (AS AMENDED AND RESTATED JANUARY 1, 1989) --------------------------------------- WORLD CARPETS, INC. ------------------ SAVINGS AND RETIREMENT PLAN --------------------------- (AS AMENDED AND RESTATED JANUARY 1, 1989) --------------------------------------- CONTENTS -------- ARTICLE 1 BASIC PROVISIONS 1.1 Names of the Plan and Trust 1 1.2 Dates 1 1.3 Appointment of Administrator 2 1.4 Designated Agent for Service of Process 2 1.5 Eligibility Requirements to Participate in the Plan 2 1.6 Employer Contributions 3 1.7 Definition of Compensation 4 1.8 Amount of Compensation Considered in Allocating Employer Contributions for Year Participant Enters or Reenters the Plan 4 1.09 Salary Reduction Contributions 4 1.10 Formula for Allocation of Employer Contributions 5 1.11 Participants to Whom Matching Employer Contributions and Forfeitures will be Allocated 5 1.12 Normal Retirement Date 5 1.13 Requirements for Delayed Retirement 5 1.14 Requirements for Early Retirement 5 1.15 Vesting of Benefits 5 1.16 Date Used for Valuing the Accounts of a Retired, Deceased, or Terminated Participant 6 1.17 Purchase of Life Insurance 6 1.18 Pre-Termination Distributions 6 1.19 Loans to Participants 6 1.20 Direction of Investments by Participants 6 1.21 Direction of Investments by Employer 6 1.22 Effect of Membership in Another Plan Requiring Contributions from Employer 6 1.23 Related Organization 6 1.24 Method of Determining Hours of Service 6 1.25 Top-Heavy - Vesting Schedule 6 1.26 Top-Heavy - Minimum Benefit 7 1.27 Top-Heavy - Additional Minimum Benefit 7 1.28 Top-Heavy - Coordination of Minimum Benefits If Employer Maintains Other Top-Heavy Plans 7
ARTICLE 2 DEFINITIONS 2.1 Administrator 8 2.2 Beneficiary 8 2.3 Code 8 2.4 Compensation 8 2.5 Contract 9 2.6 Deferred Compensation 9 2.7 Delayed Retirement Date 9 2.8 Disabled 9 2.9 Disability Retirement Date 9 2.10 Employer's Elective Contribution 9 2.11 Employer's Non-Elective Contribution 9 2.12 ERISA 9 2.13 Early Retirement Date 9 2.14 Employee 9 2.15 Excess Deferred Compensation 10 2.16 Employer 10 2.17 50% Joint and Survivor Annuity 10 2.18 Fiscal Year 10 2.19 Fund 10 2.20 Highly Compensated Employee 10 2.21 Insurer 12 2.22 Investment Manager 12 2.23 Key Employee 13 2.24 Normal Retirement Date 14 2.25 Owner-Employee 14 2.26 Participant 14 2.27 Party In Interest 14 2.28 Plan 14 2.29 Plan Year 14 2.30 Self-Employed Individual 14 2.31 Shareholder-Employee 14 2.32 Spouse's Annuity 15 2.33 Top Paid Group 15 2.34 Transfer Account 16 2.35 Trust 16 2.36 Trustee 16
CONTENTS CONTINUED ------------------ ARTICLE 3 PARTICIPATION, SERVICE, ETC. 3.1 Participation 17 3.2 Service 18 3.3 Leave of Absence 23 3.4 Transfers Between Employer and Related Organizations 24 3.5 Membership in Another Plan Requiring Contributions from Employer 25 3.6 Leased Employees 26 3.7 Omissions of Eligible Employee 26 ARTICLE 4 CONTRIBUTIONS 4.1 Contributions by Employer 27 4.2 Determination of Contributions by Employer 27 4.3 Non-Reversion of Employer Contributions 27 4.4 Salary Reduction Contributions 27 4.5 Special Adjustments to Satisfy Certain Coverage Tests 36 4.6 Actual Contribution Percentage Tests 36 4.7 Adjustment to Actual Contribution Percentage Tests 40 4.8 Transfer of Assets from Another Qualified Plan (Other than HR-10 Plan) 43 4.9 Limitations on Distribution 43 ARTICLE 5 ALLOCATION OF CONTRIBUTIONS 5.1 Accounts 45 5.2 Allocation Dates 45 5.3 Allocation Procedure 45 5.4 Charging of Payments and Distributions 46 5.5 Allocation and Crediting of Forfeitures 46 5.6 Allocation and Crediting of Employer Contributions 47 5.7 Participants to Whom Employer Contributions and Forfeitures will be Allocated 48 5.8 Crediting of Participant Contributions 48 5.9 Section 415 Limitations 48 ARTICLE 6 FUNDING MEDIUM AND INVESTMENTS 6.1 Funding Medium 57 6.2 Direction of Investments by Investment Manager 57 6.3 Direction of Investments by Participants 57 6.4 Direction of Investments by Employer 57
CONTENTS CONTINUED ------------------ 6.5 Purchase of Contracts 57 6.6 Limitations on the Payment of Premiums for Contracts 58 6.7 Cancellation of Contracts 59 6.8 Status of Insurer 59 ARTICLE 7 RETIREMENT DATES 7.1 Normal Retirement Date 60 7.2 Delayed Retirement Date 60 7.3 Early Retirement Date 60 7.4 Disability Retirement Date 60 ARTICLE 8 DISTRIBUTIONS AND LOANS 8.1 Distributions - Normal Retirement 62 8.2 Distributions - Delayed Retirement 62 8.3 Distributions - Early Retirement 62 8.4 Distributions - Disability Retirement 63 8.5 Distributions - Death 63 8.6 Distributions - Termination of Employment 65 8.7 Valuation of Accounts 68 8.8 Distribution of Contracts 69 8.9 Pre-Termination Distributions 69 8.10 Loans to Participants 71 ARTICLE 9 METHODS AND MEDIUMS OF DISTRIBUTION, LIMITATIONS, ETC. 9.1 Claim Forms 74 9.2 Restrictions on Distributions 74 9.3 Method of Distribution to Participants 74 9.4 Date Distribution of Accounts Must Begin and Must be Completed 75 9.5 Distributions upon Death of Participant 76 9.6 Distributions to Incompetents 76 9.7 Duty of Administrator to Inform Participants of Right to Distribution 76 9.8 Duty of Participants to Inform Administrator of Address 77 9.9 Right to Make Partial Distributions 77 9.10 Transfer to Plan of New Employer 78
CONTENTS CONTINUED ------------------ 9.11 Date Employer Contribution Account Must Be 100% Vested 78 9.12 Right to Repay Distribution Received on Termination of Participation in the Plan 78 ARTICLE 10 AMENDMENT AND TERMINATION OF THE PLAN 10.1 Right of Employer to Amend the Plan 81 10.2 Limitations on Right of Employer to Amend the Plan 81 10.3 Partial Termination of the Plan by Employer 81 10.4 Termination of the Plan by Employer 81 10.5 Procedure for Termination of the Plan 82 10.6 Merger and Consolidation of the Plan - Transfer of Plan Assets 82 10.7 Amendment of Vesting Schedule - Right to Elect Former Vesting Schedule 82 10.8 Exclusive Benefit of Fund 83 10.9 Return of Employer Contributions Because of Failure of the Plan to Qualify, Mistake of Fact, or Disallowance of Deduction 84 ARTICLE 11 ADMINISTRATION OF THE PLAN 11.1 Employer to be Administrator of the Plan 85 11.2 Delegation of Powers and Duties and Allocation of Fiduciary Responsibilities 85 11.3 Powers of Administrator 85 11.4 Rules for Operation of Committee 87 11.5 Records 88 11.6 Roster of Parties in Interest 88 11.7 Good Faith Reliance on Records and Reports 88 11.8 Standard of Conduct 88 11.9 Indemnification by Employer 88 11.10 Fiduciary Liability Insurance 88 11.11 Bonding 89 11.12 Claims Procedure 89 11.13 Procedure for Establishing Funding Policy 90
CONTENTS CONTINUED ------------------ ARTICLE 12 GENERAL PROVISIONS 12.1 Construction 91 12.2 Prohibition Against Assignment, Etc. 91 12.3 Discrimination 92 12.4 Benefits Supported Only by Plan Assets 92 12.5 Notification of Employees and Participants Regarding Applications for Determination and Declaratory Judgments 92 12.6 Legal Actions 92 12.7 Payment of Claims 93 ARTICLE 13 TOP-HEAVY PLAN REQUIREMENTS 13.1 General Limitation 94 13.2 Limitation on Annual Compensation 94 13.3 Vesting 94 13.4 Minimum Benefit 95 13.5 Additional Minimum Benefit 96 13.6 Modification of Section 415 Limitations 96 13.7 Coordination of Minimum Benefits If Employer Maintains Other Top-Heavy Plans 97 13.8 Determination of Top-Heaviness 97 13.9 Determination of Super Top-Heaviness 98 13.10 Determination of Accrued Benefit and Account Balance 99 13.11 Aggregation of Plans 100 13.12 Affiliated Employers 100 13.13 Definitions That Relate to Top-Heavy Plans 101 ARTICLE 14 ADOPTION OF PLAN BY PARTICIPATING EMPLOYERS 14.1 Adoption of the Plan by Participating Employers 104 14.2 Construction of the Plan with Respect to Participating Employers 104 14.3 Employer Appointed Agent of Participating Employers 104 14.4 Decisions and Directions of Employer and Administrator Binding Upon Participating Employers 104 14.5 Participating Employer's Contribution 104 14.6 Trust for Participating-Employer 105 14.7 Termination of Participation by Participating Employers 105 ARTICLE 15 ELIGIBLE ROLLOVERS 106
WORLD CARPETS, INC. ------------------- SAVINGS AND RETIREMENT PLAN --------------------------- (AS AMENDED AND RESTATED JANUARY 1, 1989) ----------------------------------------- WHEREAS, the Employer established a Savings and Retirement Plan, effective as of January 1, 1989, for the sole and exclusive benefit of its Employees; and WHEREAS, the Employer desires to amend and restate the Plan to incorporate changes required by regulations issued by the Internal Revenue Service; and WHEREAS, the Employer has approved and authorized the amendment and restatement of the Plan as set forth in this instrument; NOW, THEREFORE, the Employer amends and restates the Plan as follows: ARTICLE I BASIC PROVISIONS This Article 1 contains the basic provisions of the Employer's Plan. --------- These basic provisions are amplified by and are subject to the limitations and conditions contained in the remaining provisions of the Plan. The numbers in brackets following the name of certain paragraphs of this Article I refer to the other paragraphs of the Plan dealing with the subject matter of the paragraph. 1.1 Names of the Plan and Trust. The name of the Plan is the "World --------------------------- Carpets, Inc. Savings and Retirement Plan" and the name of the Trust is the "World Carpets, Inc. Savings and Retirement Trust." 1.2 Dates. ----- (a) Effective Date. The Plan was originally effective as of -------------- January 1, 1989, and this amended and restated Plan shall be effective as of January 1, 1989. (b) Plan Year [2.29]. The first Plan Year was a short Plan Year ---------------- beginning on January 1, 1989 and ending on the payroll date nearest December 31, 1989. Each subsequent Plan Year shall be the 52-53 week period ending on the payroll date nearest each December 31. (c) Allocation Dates [5.2]. The Allocation Dates shall be the ---------------------- last day of the sixth month of the Plan Year and the last day of the Plan Year. 1.3 Appointment of Administrator [ 11.1]. World Carpets, Inc. shall ------------------------------------ be the Administrator of the Plan. 1.4 Designated Agent for Service of Process of [12.6]. The ------------------------------------------------- Administrator shall be the designated agent for service of process. 1.5 Eligibility Requirements to Participate in the Plan. --------------------------------------------------- (a) Age and Service Requirements [3.1(a)]. ------------------------------------- (i) An Employee shall become a Participant in the Plan on January 1, 1989, if, on such date (A) he is employed by the Employer and is in the class of Employees eligible to participate in the Plan, (B) he has completed one (1) Year of Service, and (C) he has agreed in writing to make a salary reduction contribution to the Plan. (ii) An Employee who is not eligible to become a Participant in the Plan on January 1, 1989, or an Employee who is hired after January 1, 1989, shall become a Participant in the Plan on the Entry Date coinciding with or next following the date he satisfies each of the following requirements: (A) he is employed by the Employer and is in the class of Employees eligible to participate in the Plan, (B) he has completed one (1) Year of Service, and (C) he has agreed in writing to make a salary reduction contribution to the Plan. (b) Entry Date. The term "Entry Date" shall mean each January 1 ---------- and each July 1. (c) Class of Eligible Employees. The class of Employees eligible --------------------------- to participate in the Plan is all Employees except leased employees and except those Employees who are included in a collective bargaining unit that has bargained in good faith with the Employer regarding retirement benefits. (d) Application Forms. A written application form on which the ----------------- Employee specifies the amount of his initial 2 salary reduction contribution shall be required of Employees in order to participate in the Plan. 1.6 Employer Contributions [4.1]. ---------------------------- (a) Salary Reduction Contributions. Subject to the limitations ------------------------------ of Subparagraph (b) of Paragraph 4.4 (Salary Reduction Contributions), the ----------------- ------------- Employer shall contribute to the Plan for each Plan Year an amount that is equal to the sum of the contributions required by the salary reduction agreements entered into between the Employer and the Participants for the Plan Year. (b) Matching Employer Contributions. The Employer shall ------------------------------- determine each year the amount which it shall contribute to the Plan as a matching contribution. Any matching contributions shall be allocated to those Participants who contribute to the Plan under Paragraph 1.6 during the six ------------- months period for which such matching contribution is made to the Plan for each Participant. Each Participant's share of any matching contribution will be determined from the appropriate table below as a percentage of the Participant's salary reduction contribution for the Plan Year. For Participants who enter the Plan on January 1, 1989, or, if the Employee was on an approved leave of absence on January 1, 1989, the first Entry Date on which the Employee was eligible to join the Plan Matching Years of Service Percentage ---------------- ---------- one 25% two 50% three 75% four or more 100% For all other Participants -- Matching Years of Participation in the Plan Percentage ---------- one 25% two 50% three 75% four or more 100% For purposes of this Paragraph, a Year of Participation is any Plan Year during which the Participant had an account in the Plan, regardless of whether a Participant made a salary reduction contribution during that Year. In no event, however, shall the Employer's matching contribution pursuant to this Subparagraph (b) for the benefit of a ---------------- 3 Participant exceed Four percent (4%) of the Participant's Salary as defined in Paragraph 4.4 (Salary Reduction Contributions) for the Plan Year. - ------------- (c) Limitation. Notwithstanding the foregoing provisions of this ---------- Paragraph 1.6, the total amount the Employer may contribute to the Plan for each - ------------- Plan Year for the benefit of all Participants shall not exceed the maximum amount deductible under Section 404 of the Code from the Employer's income for the Fiscal Year coinciding with or ending with the Plan Year. 1.7 Definition of Compensation [2.4]. The term "Compensation" shall -------------------------------- mean the total amount paid to a Participant by the Employer during a Plan Year including any amount the Employer contributed to the Plan for the Plan Year pursuant to Subparagraph (a) (Salary Reduction Contributions) of Paragraph 1.6 ------------ --- ------------- (Employer Contributions) for the benefit: of the Participant.) 1.8 Amount of Compensation Considered in Allocating Employer -------------------------------------------------------- Contributions for Year Participant Enters or Reenters the Plan [5.6(b)]. For the - ----------------------------------------------------------------------- Plan Year that a Participant enters or reenters the Plan, the amount of his Compensation that shall be considered in determining his share of Employer contributions for the Plan Year shall be his Compensation for the portion of the Plan Year during which he was a Participant in the Plan. 1.9 Salary Reduction Contributions [4.4]. ------------------------------------ (a) Salary reduction contributions shall be permitted. During the election period for each Plan Year, a Participant may elect to enter into a written salary reduction agreement with the Employer for the Plan Year. Under the agreement, the Participant shall accept a reduction in Salary, and the Employer shall contribute to the Plan for the benefit of the Participant the amount by which the Participant's Salary is reduced. (b) The percentage of his Salary, as defined in Paragraph 4.4 ------------- (Salary Reduction Contributions), that a Participant may elect to have the Employer contribute to the Plan for a Plan Year shall not be less than one percent (1%) or more than fifteen percent (15%), in multiples of one percent (1%). In no event may a Participant's salary reduction contribution for a Plan Year exceed $7,000 or such larger amount as may be designated by the Secretary of the Treasury. (c) A Participant may enter into a salary reduction agreement with the Employer at any time during the thirty-day period immediately preceding the Participant's Entry Date, and thereafter, on January 1 and July 1. 4 1.10 Formula for Allocation of Employer Contributions [5.6(a)]. --------------------------------------------------------- (a) Salary Reduction Contributions. The Employer contributions ------------------------------ for a Plan Year that are made for the benefit of a Participant pursuant to Subparagraph (a) (Salary Reduction Contributions) of Paragraph 1.6 (Employer - ---------------- ------------- Contributions) shall be allocated and credited to the Participant's Salary Reduction Contribution Account. (b) Matching Employer Contributions. The Employer contributions ------------------------------- for a Plan Year that are made for the benefit of a Participant pursuant to Subparagraph (b) (Matching Employer Contributions) of Paragraph 1.6 (Employer - ---------------- ------------- Contributions) shall be allocated and credited to the Participant's Employer Contribution Account. 1.11 Participants to Whom Matching Employer Contributions Will Be ------------------------------------------------------------ Allocated [5.6(a)]. The Employer contributions for a Plan Year that are made - ------------------ pursuant to Subparagraph (b) (Matching Employer Contributions) of Paragraph 1.6 ---------------- ------------- (Employer Contributions) shall be allocated on each Allocation Date to the Employer Contribution Account. (a) of each Participant who has retired or has died during the Plan Year, and (b) of each Participant who satisfies either of the following requirements: (i) he is employed by the Employer on the Allocation Date, or (ii) his active employment was terminated since the last Allocation Date as a result of the elimination or closing of his division or plant or his layoff. 1.12 Normal Retirement Date [7.1]. A Participant's Normal Retirement ---------------------------- Date shall be the first day of the month following his sixty-fifth (65th) birthday . 1.13 Requirements for Delayed Retirement [7.2]. Delayed retirement ----------------------------------------- beyond Normal Retirement Date shall be permitted. 1.14 Requirements for Early Retirement [7.3]. Early retirement shall --------------------------------------- be permitted. A Participant who has completed five (5) Years of Service and who has attained his fifty-fifth (55th) birthday may retire before his Normal Retirement Date. 1.15 Vesting of Benefits [8.6(b)]. A Participant will be 100% vested ---------------------------- in all his Salary Reduction Contribution Account, 5 his Employer Contribution Account and any other Accounts in the Plan at all times. 1.16 Date Used for Valuing the Accounts of a Retired, Deceased, or ------------------------------------------------------------- Terminated Participant [8.7]. The date used for valuing the accounts of a - ---------------------------- retired, deceased, or terminated Participant, except accounts whose investment the Participant is directing, shall be the Allocation Date that coincides with, or next follows the date of his retirement (regardless of whether normal, early, or delayed), death, or other termination of employment. 1.17 Purchase of Life Insurance [6.5(a)]. The purchase of life ----------------------------------- insurance on the lives of the Participants with the funds in their Employer Contribution Accounts shall not be permitted. 1.18 Pre-Termination Distributions [8.9]. Pre-termination ----------------------------------- distributions to Participants from their Salary Reduction Contribution Accounts shall be permitted in the case of hardship, as provided in Paragraph 8.9. -------------- 1.19 Loans to Participants [8.10]. Loans to Participants shall not be ---------------------------- permitted. 1.20 Direction of Investments by Participants [6.3]. Participants ---------------------------------------------- shall be permitted to direct the investment of their accounts among funds approved by the Administrator. 1.21 Direction of Investments by Employer [6.4]. The Employer shall ------------------------------------------ not be permitted to manage the investment of all or any portion of the Fund. 1.22 Effect of Membership in Another Plan Requiring Contributions from ----------------------------------------------------------------- Employer [3.5]. If a Participant becomes a participant in another retirement or - -------------- profit-sharing plan that requires contributions from the Employer but that is not sponsored by the Employer, the Participant shall cease to participate in Employer contributions as provided in Paragraph 3.5 (Membership in Another Plan ------------- Requiring Contributions from Employer). 1.23 Related Organizations [3.4]. There are no organizations --------------------------- designated by the Employer as "related organizations" for purposes of determining a Participant's eligibility, Years of Service, and certain other matters. 1.24 Method of Determining Hours of Service [3.2(e)]. The Hours of ----------------------------------------------- Service of an Employee or Participant shall be determined in the manner specified in Subparagraph (e) of Paragraph 3.2 (Service). ---------------- ------------- 1.25 Top-Heavy - Vesting Schedule [13.3(a)]. A --------------------------------------- 6 Participating Employee shall have a 100% vested interest in his Employer Contribution Account at all times. 1.26 Top-Heavy - Minimum Benefit [13.4]. For each Plan Year in which ---------------------------------- this Plan is a Top-Heavy Plan, the Employer shall contribute to the Plan from its current or accumulated earnings or profits, for each Participating Employee, an amount that, when added to any other Employer contributions for the Plan Year and to any forfeitures to be reallocated for the Plan Year, will equal the smaller of the following percentages of the Participating Employee's Annual Compensation for the Plan Year: (i) three percent (3%), or (ii) the largest percentage of Annual Compensation received by any Key Employee for the Plan Year. 1.27 Top-Heavy - Additional Minimum Benefit [13.5]. No Employee who --------------------------------------------- is a Participating Employee under this plan is participating under a defined benefit Top-Heavy Plan maintained by the Employer, therefore Paragraph 13.5 -------------- (Additional Minimum Benefit) does not apply to this Plan. 1.28 Top-Heavy - Coordination of Minimum Benefits If Employer -------------------------------------------------------- Maintains Other Top-Heavy Plans [13.7]. In addition to this Plan, the Employer - -------------------------------------- maintained until June 30, 1991, the following qualified plan: World Carpets, Inc. Profit-Sharing Retirement Plan. The minimum benefit requirement that applies to Top-Heavy Plans shall be satisfied in the following manner: (i) A Participating Employee who is not a Key Employee for the Plan Year and who is participating under this Plan, but not under the qualified plan named above, shall receive any required minimum benefit under this Plan, as provided in Paragraph 1.26 (Top-Heavy - Minimum Benefit). -------------- (ii) A Participating Employee who is not a Key Employee for the Plan Year and who is participating under this Plan and under the qualified plan named above shall receive any required minimum benefit under this Plan, as provided in Paragraph 1.26 (Top-Heavy - Minimum Benefit) and in Paragraph 1.27 -------------- -------------- (Top-Heavy - Additional Minimum Benefit) but no minimum benefit under the qualified plan named above. (iii) An Employee who is not a Key Employee for the Plan Year and who is participating under the qualified plan named above but is not a Participating Employee under this Plan shall receive any required minimum benefit under the qualified plan named above. 7 ARTICLE 2 --------- DEFINITIONS ----------- When used in this Plan, each term defined in this Article 2 shall have --------- the following meaning unless a different meaning is clearly required by the context. Additional definitions are contained in Paragraph 3.2 (Service), ------------- Paragraph 4.4 (Salary Reduction Contributions), Paragraph 5.9 (Section 415 - ------------- ------------- Limitations), and Paragraph 13.13 (Definitions That Relate to Top-Heavy Plans). --------------- 2.1 Administrator - shall mean either the Employer or the person, or ------------- persons, or organization named in Article 1 to whom the Employer has delegated --------- the responsibility of administering the Plan and complying with the reporting and disclosure requirements of ERISA. 2.2 Beneficiary - shall mean the recipient or recipients designated, ----------- as provided in Paragraph 8.5 (Distributions - Death), by the Plan, by a ------------- Participant, or by the Administrator to receive any benefits payable under the Plan in the event of a Participant's death. 2.3 Code - shall mean the Internal Revenue Code of 1986, as amended. ---- Reference to a section of the Code shall include (a) that section and any comparable section or sections of any future legislation that amends, supplements, or supersedes that section, and (b) regulations promulgated thereunder. 2.4 Compensation - shall have the meaning specified in Article 1, ------------ --------- except as hereinafter provided. "Compensation" shall not include amounts contributed by the Employer under this Plan. For purposes of this Plan, a Participant's "Compensation" in excess of $200,000 (as indexed by the Secretary of the Treasury) shall be disregarded. In the case of a Self-Employed Individual, "Compensation" shall mean his "earned income," as defined in Section 401(c) (2) of the Code, from personal services rendered to the Employer in the trade or business with respect to which this Plan is adopted. For any Plan Year in which this Plan is a Top-Heavy Plan, "Compensation" shall not exceed the amount specified in Paragraph 13.2 (Limitation on Annual Compensation). In -------------- determining the Compensation of a Participant for purposes of the Plan, the rules of Section 414(q) of the Code shall apply, except that in applying such rules, the family unit of a Participant shall be treated as a single employee (including the Participant) with one Compensation. The term "family unit" shall include (in addition to the Participant) only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the Plan Year. If, as a result of the application of these rules, the adjusted $200,000 limitation is exceeded, then the $200,000 limitation shall be 8 prorated among the affected individuals in the family unit in proportion to each such individual's Compensation as determined under this Paragraph prior to the application of this limitation. 2.5 Contract - shall mean any contract issued by an Insurer under the -------- Plan, whether with or without an insurance element and whether an individual or a group contract. 2.6 Deferred Compensation - shall mean the portion of a Participant's --------------------- Compensation that is contributed to the Plan for a Plan Year as a salary reduction contribution pursuant to a Participant's deferral election under Paragraph 1.9 (a). - ----------------- 2.7 Delayed Retirement Date - shall mean the date on which a ----------------------- Participant who retires after his Normal Retirement Date pursuant to the provisions of Paragraph 7.2 (Delayed Retirement Date) actually retires from the ------------- Employer's service. 2.8 Disabled - shall have the meaning, if any, specified in Article -------- ------- 1. - - 2.9 Disability Retirement Date - shall mean the date on which a -------------------------- Participant who retires before his Normal Retirement Date pursuant to the provisions of Paragraph 7.4 (Disability Retirement Date) actually retires from ------------- the Employer's service. 2.10 Employer's Elective Contribution - shall mean the amount of the -------------------------------- total salary reduction contributions made during a Plan Year pursuant to Paragraph 1.6(a). - ---------------- 2.11 Employer's Non-Elective Contribution - shall mean the sum of any ------------------------------------ matching contributions made by the Employer during a Plan Year pursuant to Paragraph 1.6 (b) of the Plan. - ----------------- 2.12 ERISA - shall mean the Employee Retirement Income Security Act of ----- 1974. Reference to a section of ERISA shall include (a) that section and any comparable section or sections of any future legislation that amends, supplements, or supersedes that section, and (b) regulations promulgated thereunder. 2.13 Early Retirement Date - shall mean the date on which a --------------------- Participant who retires before his Normal Retirement Date pursuant to the provisions of Paragraph 7.3 (Early Retirement Date) actually retires from the ------------- Employer's service. 2.14 Employee - shall mean an individual who is employed by Employer -------- during a Plan Year, other than an independent contractor. "Employee" shall also mean an individual who is a Self-Employed Individual, an Owner-Employee, or a leased employee as described in Paragraph 3.6 (Leased Employees). ------------- 9 2.15 Excess Deferred Compensation - shall mean, with respect to any ---------------------------- taxable year of a Participant, the excess of the aggregate amount of such Participant's Deferred Compensation and the elective deferrals pursuant to Paragraph 1.6(a) actually made on behalf of such Participant for such taxable - ---------------- year, over the dollar limitation provided for in Code Section 402(g), which is incorporated herein by reference. 2.16 Employer - shall mean an individual, a partnership, an employee -------- organization, or a corporation (including an S Corporation as defined in Section 1361(a) of the Code) that adopts this Plan and executes this instrument. "Employer" shall also mean a successor to the Employer that adopts the Employer's Plan. An individual who is sole proprietor shall be considered to be his own Employer, and a partnership shall be considered to be the Employer of each partner. 2.17 50% Joint and Survivor Annuity - shall mean an annuity that can ------------------------------ be purchased with the value of a Participant's accounts and that is payable for the life of the Participant with a survivor annuity for the life of his spouse equal to fifty percent (50%) of the amount of the annuity payable during the joint lives of the Participant and his spouse. 2.18 Fiscal Year - shall mean the taxable year of the Employer for ----------- Federal income tax purposes. 2.19 Fund - shall mean the trust fund maintained, invested, and ---- administered by the Trustee under the Trust and from which Plan benefits and any other distributions and expenses of the Plan are paid or provided. 2.20 Highly Compensated Employee - shall mean an Employee or former --------------------------- Employee who is considered a highly compensated employee under Section 414(g) of the Code and any regulations thereunder and generally means an Employee who performed services for the Employer during the "determination year" and is in one or more of the following groups: (a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Paragraph --------- 2.23. ---- (b) Employees who received "415 Compensation" during the "look- back year" from the Employer in excess of $75,000. (c) Employees who received "415 Compensation" during the "look- back year" from the Employer in excess of $50,000 and were in the Top Paid Group of Employees for the Plan Year. 10 (d) Employees who during the "look-back year" were officers of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) and received "415 Compensation" during the "look-back year" from the Employer greater than 50 percent of the limit in effect under Code Section 415(b)(1)(A) for any such Plan Year. The number of officers shall be limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10 percent of all employees. If the Employer does not have at least one officer whose annual "415 Compensation" is in excess of 50 percent of the Code Section 415(b)(l) (A) limit, then the highest paid officer of the Employer will be treated as a Highly Compensated Employee. (e) Employees who are in the group consisting of the 100 Employees paid the greatest "415 Compensation" during the "determination year" and are also described in (b), (c) or (d) above when these paragraphs are modified to substitute "determination year" for "look-back year". The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period. However, if the Plan Year is a calendar year, or if another Plan of the Employer so provides, then the "look-back year" shall be the calendar year ending with or within the Plan Year for which testing is being performed, and the "determination year" (if applicable) shall be the period of time, if any, which extends beyond the "look-back year" and ends on the last day of the Plan Year for which testing is being performed (the "lag period"). With respect to this election, it shall be applied on a uniform and consistent basis to all plans, entities, and arrangements of the Employer. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(a)(8), 402(h)(1) (B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, Code Section 403(b). Additionally, the dollar threshold amounts specified in (b) and (c) above shall be adjusted at such time and in such manner as is provided in Regulations. In the case of such an adjustment, the dollar limits which shall be applied are those for the calendar year in which the "determination year" or "look back year" begins. In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as 11 Employees and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o) (2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n) (5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. In addition, Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year". If an Employee is, during a determination year or look-back year, a family member of a Highly Compensated Employee who is either a five percent owner or one of the ten most highly compensated Employees ranked on the basis of Compensation paid by the Employer during such year, then the family member and the Highly Compensated Employee shall be aggregated in accordance with the requirements of Section 414(q) of the Code. In such case, the family member and the Highly Compensated Employee shall be treated as a single Employee receiving Compensation and Plan contributions or benefits equal to the sum of such Compensation and contributions or benefits of the family member and the Highly Compensated Employee. For purposes of this Paragraph, "family member" includes the spouse and the lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants. For purposes of this Paragraph, "415 Compensation" shall have the meaning prescribed in Paragraph 5.9(c)(ii). -------------------- 2.21 Insurer - shall mean the insurance company or companies ------- currently designated by the Employer for the purchase of Contracts by the Trustee or any insurance company from which Contracts have been purchased in the past, if provision for the purchase of Contracts is made in Article 1 or was --------- included in the Plan at some prior time. 2.22 Investment Manager - shall mean any person (individual, ------------------ corporation, or other entity) other than the Trustee, Employer, or Administrator who has been designated as an Investment Manager by the Employer pursuant to Article 1 and who - --------- (i) has the power to manage, acquire, or dispose of all or any portion of the Fund; (ii) is registered as an investment adviser under the Investment Advisers Act of 1940; is a bank as defined in that Act; or is an insurance company qualified to perform investment management services under the laws of more than one state; and 12 (iii) has acknowledged in writing that he or it is a fiduciary with respect to the Plan. 2.23 Key Employee - shall mean an employee as defined in Code Section ------------ 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 50 percent of the amount in effect under Code Section 415(b)(l)(A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(l) (A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer. (c) a "five percent owner" of the Employer. "Five percent owner means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be 13 aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Paragraph; the term, "415 Compensation" shall have the meaning prescribed for the term "Annual Compensation" in Paragraph --------- 5.9(c)(ii) and amounts that would otherwise be excluded from a Participant's - ---------- gross income by reason of the application of Code Sections 125, 402(a) (8), 402(h)(l) (B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, Code Section 403(b). 2.24 Normal Retirement Date - shall mean the date specified in Article ---------------------- ------- 1. - - 2.25 Owner-Employee - shall mean an individual who owns the entire -------------- interest in the Employer or a partner who owns more than ten percent (10%) of either the capital interest or the profits interest in the Employer and who has income from personal services rendered to the Employer. 2.26 Participant - shall mean an Employee of the Employer who becomes ----------- a Participant in accordance with the provisions of Paragraph 3.1 ------------- (Participation), and a former Employee who is receiving or is entitled to receive benefits under the Plan. 2.27 Party in Interest - shall mean any person described by Section ----------------- 3(14) of ERISA and any regulations issued thereunder. 2.28 Plan - shall mean the Profit-Sharing Plan of the Employer as ---- contained in this instrument, and all amendments to this instrument. 2.29 Plan Year - shall mean the period of time, normally twelve (12) --------- months, beginning and ending on the dates specified in Article 1. 2.30 Self-Employed Individual - shall mean an individual described in ------------------------ Section 401(c)(i) of the Code who has income from personal services rendered to the Employer. 2.31 Shareholder-Employee - shall mean an individual who is employed -------------------- by the Employer and who owns, directly or indirectly, more than five percent (5%) of the Employer's 14 outstanding capital stock during any Fiscal Year of the Employer in which the Employer elected to be taxed as an S Corporation, as defined in Section 1361(a) of the Code. 2.32 Spouse's Annuity - shall mean an annuity that is payable for the ---------------- life of the spouse of a deceased Participant and that is equal to the amount the spouse would have received as an annuity if, on the date of death, one half of the deceased Participant's vested interest in his Employer Contribution Account and in any other accounts established to hold assets transferred from other qualified plans had been used to purchase a life annuity for his spouse and the spouse had begun receiving benefits immediately. 2.33 Top Paid Group - shall mean the group of employees determined -------------- pursuant to Code Section 414(q) and the Regulations thereunder and generally means the top 20 percent of Employees who performed services for the Employer during the applicable year, ranked according to the amount of "415 Compensation" (as determined pursuant to Paragraph 5.9) received from the Employer during such -------------- year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees shall be treated as Employees pursuant to Code Section 414(n) or (c). Employees who are non-resident aliens who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, for the purpose of determining the number of active Employees in any year, the following additional Employees shall also be excluded, however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top Paid Group: (a) Employees with less than six (6) months of service; (b) Employees who normally work less than 17 1/2 hours per week; (c) Employees who normally work less than six (6) months during a year; and (d) Employees who have not yet attained age 21. In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group. 15 The foregoing exclusions set forth in this Paragraph shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 2.34 Transfer Account - shall mean the account maintained for a ---------------- Participant to reflect his benefits attributable to a transfer to the Trustee of such Participant's interest in the assets of another qualified plan transferred to this Plan Pursuant to Paragraph 4.8. A Participant shall always be one ------------- hundred percent (100%) vested in his Transfer Account. Distributions of Transfer Accounts shall be in the manner set forth in Articles 8 and 9. ---------- - 2.35 Trust - shall mean the trust created to serve as a funding medium ----- for the Plan by the trust agreement between the Employer and the Trustee. 2.36 Trustee - shall mean the person (individual, corporation, or ------- other entity) that executes the trust agreement as Trustee and any successor or successors thereto. 16 ARTICLE 3 --------- PARTICIPATION, SERVICE, ETC. --------------------------- 3.1 Participation. ------------- (a) Except as provided in Subparagraph (b) of this Paragraph ---------------- --------- 3.1, an Employee shall become a Participant in the Plan on the Entry Date - --- coinciding with or next following his satisfaction of the eligibility requirements specified in Article 1. --------- (b) Notwithstanding any other provision of this Plan, an Employee or Participant who satisfies any one of the following requirements shall become a Participant in the Plan on the date he satisfies such requirement: (i) A former Participant whose employment with the Employer was terminated when he had a vested interest in his Employer Contribution Account and who is reemployed by the Employer shall become a Participant in the Plan on the date of his reemployment. (ii) A former Participant whose employment with the Employer was terminated when he did not have a vested interest in his Employer Contribution Account and who is reemployed by the Employer before he incurs a period of five (5) consecutive One-Year Breaks in Service shall become a Participant in the Plan on the date of his reemployment. (iii) A former Participant whose employment with the Employer was terminated when he did not have a vested interest in his Employer Contribution Account and who is reemployed by the Employer after he incurs a period of five (5) consecutive One-Year Breaks in Service, but whose aggregate number of consecutive One-Year Breaks in Service is less than his aggregate number of Years of Service before such five-year period, shall become a Participant in the Plan on the date of his reemployment. (iv) A former Participant who became ineligible to participate in the Plan because he ceased to be a member of the class of eligible Employees and who has not incurred a period of five (5) consecutive One-Year Breaks in Service shall become a Participant in the Plan on the date he again becomes a member of the class of eligible Employees. (v) An Employee who becomes a member of the class of eligible Employees after he has satisfied the other eligibility requirements specified in Article 1 shall become a Participant in the Plan on the date he --------- becomes a member of the class of eligible Employees. 17 (c) If a former Participant is reemployed by the Employer -- (i) the Participant shall become a Participant in the Plan on the date specified in Subparagraph (b) of this Paragraph 3.1; ---------------- ------------- (ii) the Participant may repay any distribution received on termination of employment (see Paragraph 9.12 (Right to Repay Distribution -------------- Received on Termination of Participation in the Plan)), provided he has not incurred a period of five (5) consecutive One-Year Breaks in Service; (iii) the Administrator shall establish and maintain for the Participant a new Employer Contribution Account to which all future Employer contributions and forfeitures shall be allocated and credited, even if the Participant has an Employer Contribution Account established at an earlier time; and (d) If Article 1 requires an Employee to file a written --------- application with the Administrator in order to participate in the Plan, the Administrator shall furnish each eligible Employee an application form no later than thirty (30) days prior to the earliest Entry Date on which the Employee may become a Participant. An Employee who does not apply for participation when he first becomes eligible may apply for participation as of any succeeding Entry Date if, at that time, he meets the eligibility requirements specified in Article 1. In such event, his participation shall commence as of the Entry Date - --------- coinciding with or next following the filing of his application with the Administrator. Such Employee shall have the same Normal Retirement Date as would have been the case if he had applied for participation when first eligible. (e) Participation in the Plan shall not give any Employee the right to be retained in the employ of the Employer, or, upon termination of employment, any right or interest in the Fund other than as provided in this instrument. 3.2 Service. ------- (a) Basic Rule. Except as otherwise specifically provided in ---------- this Paragraph 3.2, all Years of Service with the Employer of an Employee or ------------- Participant shall be counted for all purposes of the Plan and shall include -- (i) Years of Service with each predecessor employer, as defined in regulations under Section 414(a) of the Code, of the Employer, if the predecessor employer maintained the Plan; 18 (ii) Years of Service with each member of a group that constitutes a controlled group of corporations, as defined in Section 414(b) of the Code, if the Employer is a member of the group; (iii) Years of Service with each member of a group that conducts a trade or business, whether or not incorporated, that is under common control, as defined in Section 414(c) of the Code, if the Employer is a member of the group; and (iv) Years of Service with each member of a group that constitutes an affiliated service group, as defined in Section 414(m) of the Code, if the Employer is a member of the group. (b) Exceptions to Basic Rule - Eligibi1ity. For purposes of --------------------------------------- determining the eligibility of an Employee or Participant to participate in the Plan, his Years of Service shall be subject to the following conditions and exceptions: (i) In the case of an Employee or Participant who incurs a One-Year Break in Service, Years of Service performed by him before such One- Year Break in Service shall be disregarded until he has completed one (1) Year of Service after such One-Year Break in Service. (ii) In the case of an Employee or Participant whose employment with the Employer was terminated when he did not have a vested interest in his Employer Contribution Account and when he had five (5) or fewer Years of Service, such Years of Service shall be disregarded if the Participant subsequently incurs a period of five (5) consecutive One-Year Breaks in Service. If, however, the Participant had more than five (5) Years of Service when his employment was terminated, such Years of Service shall be disregarded only if the Participant subsequently incurs a period of consecutive One-Year Breaks in Service that equals or exceeds the number of such Years of Service. (c) Exceptions to Basic Rule - Vesting. For purposes of ----------------------------------- determining the vested interest of an Employee or Participant in his Employer Contribution Account, his Years of Service shall be subject to the following conditions and exceptions: (i) If Article 1 so provides, Years of Service performed --------- by an Employee or Participant during any period for which he declined to make any part of the required contributions to the Plan shall be disregarded. (ii) In the case of an Employee or Participant who incurs a One-Year Break in Service, Years of Service performed by him before such One- Year Break in Service shall be 19 disregarded until he has completed one (1) Year of Service after such One-Year Break in Service. (iii) In the case of an Employee or Participant whose employment was terminated when he did not have a vested interest in his Employer Contribution Account and when he had five (5) or fewer Years of Service, such Years of Service shall be disregarded if the Participant subsequently incurs a period of five (5) consecutive One-Year Breaks in Service. If, however, the Participant had more than five (5) Years of Service when his employment was terminated, such Years of Service shall be disregarded only if the Participant subsequently incurs a period of consecutive One-Year Breaks in Service that equals or exceeds the number of such Years of Service. (iv) In the case of an Employee or Participant who incurs a period of five (5) consecutive One-Year Breaks in Service, Years of Service performed by him after such five-year period shall be disregarded for purposes of determining his vested interest in the portion of his Employer Contribution Account that accrued before such five-year period. (d) Twelve-Month Period Used to Determine Years of Service and ---------------------------------------------------------- One-Year Breaks in Service. The twelve-month period used to determine Years of - --------------------------- Service and One-Year Breaks in Service shall be computed as follows: (i) For purposes of determining the eligibility of an Employee or Participant to participate in the Plan -- (A) Except as provided in Subparagraph (B) of this ---------------- Subparagraph (d), the initial twelve-month period shall begin on the employment - ---------------- date of the Employee or Participant. The computation period beginning after a one-year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. For the succeeding computation periods after the initial eligibility computation period, the eligibility computation period shall shift to the current Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. An Employee who is credited with 1,000 Hours of Service in both the initial, eligibility computation period and the first Plan Year which commences prior to the first anniversary of the Employee's initial eligibility computation period will be credited with two Years of Service for purposes of eligibility to participate. (ii) For purposes of determining the vested interest of an Employee or Participant in his Employer Contribution Account, the initial twelve-month period shall be the Plan Year in which his employment date occurs. Each subsequent twelve-month period shall be the Plan Year. The term 20 "employment date" shall mean the date on which an Employee or Participant first performs an Hour of Service for the Employer. (iii) For purposes of determining the eligibility of an Employee or Participant to share in the Employer's contributions for a Plan Year, the twelve-month period shall be the Plan Year. (e) Method of Determining Hours of Service. The Hours of Service -------------------------------------- of an Employee or Participant shall be determined as follows: (i) In the case of an Employee or Participant who is paid on an hourly basis, his Hours of Service shall be determined on the basis of records of the number of hours for which he is paid or entitled to payment. (ii) In the case of an Employee or Participant who is paid on a daily basis, he shall be credited with ten (10) Hours of Service for each day that he would have been credited with one (1) or more Hours of Service if the determination were being made on the basis of records of the number of hours for which he is paid or entitled to payment. (iii) In the case of an Employee or Participant who is paid on a weekly basis, he shall be credited with forty-five (45) Hours of Service for each week that he would have been credited with one (1) or more Hours of Service if the determination were being made on the basis of records of the number of hours for which he is paid or entitled to payment. (iv) In the case of an Employee or Participant who is paid on a semi-monthly basis, he shall be credited with ninety-five (95) Hours of Service for each semi-monthly payroll period that he would have been credited with one (1) or more Hours of Service if the determination were being made on the basis of record of the number of hours for which he is paid or entitled to payment. (v) In the case of an Employee or Participant who is paid on a monthly basis, the Employee or Participant shall be credited with one hundred ninety (190) Hours of Service for each month that he would have been credited with one (1) or more Hours of Service if the determination were being made on the basis of records of the number of hours for which he is paid or entitled to payment. (f) Maternity or Paternity Leave. An Employee or Participant who ---------------------------- is absent from work for Maternity or Paternity Leave shall be credited with the number of Hours of Service that would have been credited to the Employee or Participant but for such absence. The Hours of Service to be credited under this 21 Subparagraph (f) shall be subject to the following conditions and exceptions: - ---------------- (i) In any case in which the Hours of Service that would have been credited cannot be determined, eight (8) Hours of Service shall be credited for each day of Maternity or Paternity Leave. (ii) No more than five hundred and one (501) Hours of Service shall be credited for Maternity or Paternity Leave. (iii) Hours of Service for Maternity or Paternity Leave shall be credited solely to determine if an Employee or Participant has incurred a One-Year Break in Service for eligibility or vesting purposes. (iv) Hours of Service credited for Maternity or Paternity Leave shall be credited -- (A) in the "twelve-month period" in which the absence begins if the crediting is necessary to prevent a One-Year Break in Service in that period, or (B) in all other cases, in the following "twelve- month period." For purposes of this Subparagraph (iv), "twelve-month period" shall mean the ----------------- period specified in Subparagraph (d) of this Paragraph 3.2 for determining Years ---------------- ------------- of Service and One-Year Breaks in Service for eligibility or vesting purposes, as the case may be. (g) Definitions That Relate to Service. When used in this ---------------------------------- Paragraph 3.2, each term defined in this Subparagraph (g) shall have the - ------------- ---------------- following meaning unless a different meaning is clearly required by the context. (i) Year of Service - shall mean a period of twelve (12) --------------- consecutive months during which an Employee or Participant is credited with one thousand (1,000) or more Hours of Service. (ii) One Year Break in Service - shall mean a period of ------------------------- twelve (12) consecutive months during which an Employee or Participant is credited with less than five hundred one (501) Hours of Service. (iii) Hours of Service - shall mean the sum of each hour ---------------- credited to an Employee or Participant, under Subparagraphs (A), (B), and (C) ----------------- --- --- below -- 22 (A) Each hour for which an Employee or Participant is directly or indirectly paid or entitled to payment by the Employer for the performance of duties. Each hour under this Subparagraph (A) shall be credited ---------------- to the twelve-month period in which the duties were performed. (B) Each hour for which back pay is either awarded or agreed to by the Employer, computed without regard to any mitigation of damages. Credit shall not be given under this Subparagraph (B) for any hour that is ---------------- credited under either Subparagraph (A) or Subparagraph (C). Each hour under this ---------------- ---------------- Subparagraph (B) shall be credited to the twelve-month period to which the back - ---------------- pay award or agreement pertains, rather than the twelve-month period in which the award, agreement, or payment is made. (C) Each hour for which an Employee or Participant is directly or indirectly paid or entitled to payment by the Employer for reasons other than the performance of duties, such as vacation, regular holidays, and temporary illness. No more than five hundred and one (501) hours shall be credited under this Subparagraph (C) for any single continuous period during ---------------- which no duties were performed. Payments made or due under a plan maintained by the Employer solely for the purpose of complying with applicable workers' compensation, unemployment compensation, or disability insurance laws, or to reimburse an Employee or Participant for medical or medically related expenses shall not be considered as payments by the Employer for purposes of this Subparagraph (C). Each hour under this Subparagraph (C) shall be calculated and - ---------------- ---------------- credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations, which is incorporated herein by reference. (iv) Maternity or Paternity Leave - shall mean an absence ---------------------------- from work -- (A) by reason of the pregnancy of an individual, (B) by reason of the birth of a child of an individual, (C) by reason of the placement of a child with an individual in connection with the adoption of such child by such individual, or (D) to permit an individual to care for any such child for a period beginning immediately following the birth or placement of such child. 3.3 Leave of Absence. A leave of absence shall be granted by the ---------------- Employer for jury duty. A leave of absence may be 23 granted by the Employer for sickness, accident, vacation, disability, service in the Armed Forces of the United States, or other similar reasons in accordance with a uniform nondiscriminatory policy established it. 3.4 Transfers Between Employer and Related Organizations. ---------------------------------------------------- (a) The organizations that the Employer has designated as related organizations for purposes of this Plan are specified in Article 1. The --------- Employer may designate additional organizations as related organizations and may revoke any such designation from time to time. (b) If an employee of a related organization is transferred to the Employer with no intervening break in employment, such employee shall be eligible to enter this Plan on the date of his transfer, provided he meets the eligibility requirements specified in Article 1 at such time. --------- (c) If a Participant under this Plan is transferred to a related organization with no intervening break in employment, he shall share in Employer contributions and in any forfeitures until the end of the Plan Year in which his transfer occurs but not thereafter. (d) The accounts of a transferred Participant shall be distributed or forfeited, as the case may be, as follows: (i) If the Participant continues in the employ of any one or more of such related organizations or of the Employer until his retirement or death, his accounts shall be distributed in accordance with the provisions of Article 8 (Distributions and Loans). - --------- (ii) If the Participant's employment with such related organizations or with the Employer is terminated prior to his retirement or death, his vested interest, if any, in his Employer Contribution Account shall be calculated as of the date his employment is terminated. The calculation shall be based on the Participant's Years of Service on the date his employment is terminated in accordance with the provisions of Paragraph 8.6 (Distributions - ------------- Termination of Employment). The Participant's vested interest, if any, shall be distributed in accordance with the provisions of Article 8 (Distributions and --------- Loans). (e) For purposes of computing the Years of Service of an Employee who is transferred to the Employer from a related organization with no intervening break in employment, 24 credit shall be given for his service with such related organization adopted this Plan. 3.5 Membership in Another Plan Requiring Contributions from Employer. ---------------------------------------------------------------- (a) If a Participant in this Plan becomes a participant in another retirement or profit-sharing plan that is not sponsored by the Employer but that requires contributions from the Employer, the Participant shall, depending on the provisions of Article 1, either continue as a Participant in --------- this Plan or shall cease to participate in Employer contributions and forfeitures. (b) If Article 1 provides that the Participant shall continue as ------------ a Participant in this Plan, the Participant shall continue to share in Employer contributions and in forfeitures just as any other Participant. (c) If Article 1 provides that the Participant shall cease to --------- participate in Employer contributions, and in forfeitures, the Participant shall share in Employer contributions and in forfeitures until the date he becomes a participant in such other plan, but not thereafter. (d) The Participant's accounts shall be distributed or forfeited, as the case may be, as follows: (i) If the Participant continues in the employ of the Employer until his retirement or death, his accounts shall be distributed in accordance with the provisions of Article 8 (Distributions and Loans). --------- (ii) If the Participant's employment with the Employer is terminated prior to his retirement or death, his vested interest, if any, in his Employer Contribution Account shall be calculated as of the date his employment is terminated. The calculation shall be based on the Participant's Years of Service on the date his employment is terminated in accordance with the provisions of Paragraph 8.6 (Distributions - Termination of Employment). The ------------- Participant's vested interest, if any, shall be distributed in accordance with the provisions of Article 8 (Distributions and Loans). --------- 3.6 Leased Employees. ---------------- (a) An individual who is performing services for the Employer but who is not an Employee shall be treated as an Employee if Section 414(n) of the Code so requires. Such individual shall be termed a "leased employee." 25 (b) If a leased employee is in the class of Employees eligible to participate in this Plan, any contributions or benefits that must be provided such leased employee under this Plan shall be reduced by any contributions or benefits provided such leased employee under a safe-harbor plan, as defined in Section 4l4(n)(5) of the Code, to the extent that the contributions or benefits provided under such safe--harbor plan are attributable to service performed for the Employer. 3.7 Omissions of Eligible Employee. If any Employee who should be ------------------------------ included as a Participant in the Plan is erroneously omitted in any Plan Year, and discovery of such omission is not made until after a contribution by the Employer has been made for the year, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 26 ARTICLE 4 --------- CONTRIBUTIONS ------------- 4.1 Contributions by Employer. ------------------------- (a) The Employer shall contribute to the Plan each Plan Year from its current or accumulated earnings or profits an amount determined in accordance with the contribution formula specified in Article 1. --------- (b) The Employer's contributions to the Plan are contingent upon receiving a favorable determination letter from the Internal Revenue Service stating that the Plan qualifies initially as meeting the requirements of the Internal Revenue Code of 1986 as amended and the regulations issued thereunder so as to permit the Employer to deduct for income tax purposes all money and property contributed under the Plan. 4.2 Determination of Contributions by Employer. The Employer's ------------------------------------------ determination of the amount of its contributions to the Plan for each Plan Year shall be binding upon all Participants. 4.3 Non-Reversion of Employer Contributions. Except as provided in --------------------------------------- Paragraph 5.9 (Section 415 Limitations) and Paragraph 10.9 (Return of Employer - ------------- -------------- Contributions Because of Failure of the Plan to qualify, Mistake of Fact, or Disallowance of Deduction), the Employer shall have no beneficial interest in any contribution made by it to the Plan and no such contribution shall revert to it or be diverted to any purpose other than the exclusive benefit of the Participants or their Beneficiaries. 4.4 Salary Reduction Contributions. ------------------------------ (a) If Article 1 so provides, a Participant may elect to enter --------- into a written salary reduction agreement with the Employer for each Plan Year. Under the agreement, the Participant shall accept a reduction in Salary, and the Employer shall contribute to the Trust for the benefit of the Participant the amount by which the Participant's Salary is reduced. Each such salary reduction agreement shall be subject to the limitations of Subparagraphs (h) and (j) of ----------------- --- this Paragraph 4.4. ------------- (b) In any Plan Year, the Actual Deferral Percentage for Highly Compensated Employees shall not exceed the greater of: (i) the Actual Deferral Percentage for all Other Employees multiplied by 1.25, or (ii) the smaller of (A) or (B) as follows: 27 (A) the Actual Deferral Percentage for all Other Employees multiplied by two (2.0), or (B) the Actual Deferral Percentage for all Other Employees plus two (2) percentage points. The limit specified in this Subparagraph (b)(ii) shall be adjusted in accordance -------------------- with regulations issued under Section 401(m) of the Code to avoid duplicate use of the limit for any Highly Compensated Employee in violation of Section 401(m)(9). (c) The Employer contributions for a Plan Year that are made pursuant to Subparagraph (a) (Salary Reduction Contributions) of Paragraph 1.6 ---------------- ------------- (Employer Contributions) shall be one hundred percent (100%) vested and shall not be subject to forfeiture for any reason. (d) The Employer contributions for a Plan Year that are made pursuant to Subparagraph (a) (Salary Reduction Contributions) of Paragraph 1.6 ---------------- ------------- (Employer Contributions) shall be paid to the Trustee by the Employer periodically, but no later than thirty (30) days after the end of the Plan Year. (e) Notwithstanding any other provision of this Plan except Article 10 (Amendment and Termination of the Plan) and Paragraph 8.9 (Pre- - ---------- ------------- Termination Distributions), no distribution shall be made from a Participant's Salary Reduction Contribution Account -- (i) to a Beneficiary of the Participant prior to the death of the Participant, or (ii) to the Participant prior to the termination of the Participant's employment with the Employer unless the Participant has attained age fifty-nine and one-half (59-1/2). The limitations of this Subparagraph (e) ---------------- shall not prevent pre-termination distributions made pursuant to Paragraph 8.9 ------------- (Pre-Termination Distributions). (f) A Participant's Salary Reduction Contribution Account is a part of his Employer Contribution Account and the term "Employer Contribution Account" shall be so construed. This construction is consistent with Paragraph --------- 5.1 (Accounts), and is required since all contributions allocated and credited - --- to a Participant's Salary Reduction Contribution Account are Employer contributions. (g) The election provided for under this Paragraph 4.4 shall be ------------- subject to the following conditions and restrictions: (i) An election or the revocation of an 28 election shall be made in writing on a form prescribed by the Administrator. (ii) An election may be made at any time during the election period specified in Article 1. --------- (iii) An election, if timely made, shall be effective as of the date the prescribed form is filed with the Administrator. (iv) An election may be revoked and a new election may be made at any time during the same election period if the new election otherwise complies with this Paragraph 4.4. The revocation of an election, if timely made, ------------- shall be effective as of the date the prescribed form is filed with the Administrator. (v) An election shall be irrevocable after the expiration of the election period. (h) If the Actual Deferral Percentage of the Highly Compensated Employees exceeds the limits in Subparagraph (b), the Administrator shall reduce ---------------- the contributions for the Highly Compensated Employees to come within the limits, as follows: On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the highest actual deferral ratio (as determined for such Participant in calculating the Actual Deferral Percentage of the Highly Compensated Employees) shall have his portion of Excess Contributions distributed to him until one of the tests set forth in Subparagraph (b) of this Paragraph 4.4 is satisfied, or until his actual - ---------------- ------------- deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the second highest actual deferral ratio. This process shall continue until one of the tests set forth in Subparagraph (b) of this Paragraph ---------------- --------- 4.4 is satisfied. For each Highly Compensated Participant, the amount of Excess - --- Contributions is equal to the Employer's Elective Contributions made on behalf of such Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph) by his "414(s) Compensation" as defined in Paragraph 4.4(b)(2). ------------------- However, in determining the amount of Excess Contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced by any Excess Deferred Compensation previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year. Any distribution of Excess Contributions shall be made in accordance with the following: 29 The distribution of Excess Contributions - (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be made first from unmatched Deferred Compensation and, thereafter, simultaneously from Deferred Compensation which is matched and matching contributions which relate to such Deferred Compensation. However, any such matching contributions which are not vested shall be forfeited in lieu of being distributed; (iii) shall be adjusted for Income; and (iv) shall be designated by the Employer as a distribution of Excess Contributions (and Income) Any distribution of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution of Excess Contributions and Income. The determination and correction of Excess Contributions of a Highly Compensated Participant whose actual deferral ratio is determined under the family aggregation rules shall be accomplished as follows: (i) If the actual deferral ratio for the Highly Compensated Participant is determined in accordance with Paragraph --------- 4.4(o)(l)(ii), then the actual deferral ratio shall be reduced as ------------- required herein and the Excess Contributions for the family unit shall be allocated among the Family Members in proportion to the Elective Contributions of each Family Member that were combined to determine the group actual deferral ratio. (ii) If the actual deferral ratio for the Highly Compensated Participant is determined under Paragraph 4.4(o)(l)(i), then the ---------------------- actual deferral ratio shall first be reduced as required herein, but not below the actual deferral ratio of the group of Family Members who are not Highly Compensated Participants without regard to family aggregation. The Excess Contributions resulting from this initial reduction shall be allocated (in proportion to Elective Contributions) among the Highly Compensated Participants whose Elective 30 Contributions were combined to determine the actual deferral ratio. If further reduction is still required, then Excess Contributions resulting from this further reduction shall be determined by taking into account the contributions of all Family Members and shall be allocated among them in proportion to their respective Elective Contributions. For purposes of this Article 4, the term Family Members means a Participant, his spouse, his lineal descendants and ascendants, and their spouses, as determined by Section 414(q)(6)(B) of the Code. (i) For purposes of this Paragraph, "Income" means the income or loss allocable to Excess Contributions which shall equal the sum of the allocable gain or loss for the Plan Year. The income or loss allocable to Excess Contributions for the Plan Year is calculated separately and is determined by multiplying the income or loss for the Plan Year by a fraction. The numerator of the fraction is the Excess Contributions for the Plan Year. The denominator of the fraction is attributable to Elective Contributions and the Participant's Qualified Non-Elective Account as of the end of the Plan Year, reduced by the gain allocable to such total amount for the Plan Year and increased by the loss allocable to such total amount for the Plan Year. (j) A Participants' Deferred Compensation shall not exceed in any Plan Year the limitation imposed by Section 402(g) of the Code, for the Plan Year as adjusted for any cost-of-living adjustments authorized by any applicable regulations. Any direction for such an excess deferral shall be invalid and the directed deferral shall not be made. If a Participant's Deferred Compensation under this Plan together with any elective deferrals (as defined in Regulation l.402(g)-1(b)) under another qualified cash or deferred arrangement (as defined in Code Section 401(k)), a simplified employee pension (as defined in Code Section 408(k)), a salary reduction arrangement (within the meaning of Code Section 3121(a)(5)(D)), a deferred compensation plan under Code Section 457, or a trust described in Code Section 501(c) (18) cumulatively exceed the limitation imposed by Code Section 402(g) (as adjusted annually in accordance with the method provided in Code Section 415(d) pursuant to Regulations) for such participant's taxable year, the Participant may, not later than March 1st following the close of his taxable year, notify the Administrator in writing of such excess and request that his Deferred Compensation under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator shall direct the Trustee to distribute such excess amount (and any Income allocable to such excess amount) to the Participant 31 not later than the first April 15th following the close of the participant's taxable year. Distributions in accordance with this paragraph may be made for any taxable year of the participant which begins after December 31, 1986. Any distribution of less than the entire amount of Excess Deferred Compensation and Income shall be treated as a pro rata distribution of Excess Deferred Compensation and Income. The amount distributed shall not exceed the participant's Deferred Compensation under the Plan for the taxable year. Any distribution on or before the last day of the participant's taxable year must satisfy each of the following conditions: (1) the participant shall designate the distribution as Excess Deferred Compensation; (2) the distribution must be made after the date on which the Plan received the Excess Deferred Compensation; and (3) the Plan must designate the distribution as a distribution of Excess Deferred Compensation. For the purpose of this Paragraph, "Income" means the amount of income or loss allocable to a Participant's Excess Deferred Compensation and shall be equal to the sum of the allocable gain or loss for the taxable year of the Participant. The income or loss allocable to each such period is calculated separately and is determined by multiplying the income or loss allocable to the Participant's Deferred Compensation for the respective period by a fraction. The numerator of the fraction is the Participant's Excess Deferred Compensation for the taxable year of the Participant. The denominator is the balance, as of the last day of the respective period, of the Participant's Elective Account that is attributable to the Participant's Deferred Compensation reduced by the gain allocable to such total amount for the respective period and increased by the loss allocable to such total amount for the respective period. Income or loss allocable to any distribution of Excess Deferred Compensation on or before the last day of the taxable year of the Participant shall be calculated from the first day of the taxable year of the Participant to the date on which the distribution is made pursuant to either the "fractional method" or the "safe harbor method". (k) When used in this Paragraph 4.4 or in Paragraph 4.6 below, each ------------- ------------- term defined in this Subparagraph (k) shall have the following meaning unless a ---------------- different meaning is clearly required by the context. 32 (i) Contribution Percentage ----------------------- (A) Contribution Percentage - shall mean for a Plan Year, with respect to both the group of Highly Compensated Employees and the group of Other Employees, the average (calculated to the nearest one hundredth of one percent) of the ratios of (A) to (B), calculated separately for each Employee in such group: (1) the sum of the Employer contributions for the Plan Year that are made for the benefit of each Employee in each group pursuant to Subparagraph (b) of Paragraph 1.6 and such other Employer contributions under - ---------------- ------------- the Plan or any other plan of the Employer as the Employer may elect, under regulations issued by the Secretary of the Treasury. Contributions shall be taken into account if allocated as of the end of the Plan Year and made within twelve (12) months thereafter. (2) the amount of Salary for the Plan Year of each Employee in each group. (ii) Actual Deferral Percentage - shall mean for a Plan Year, -------------------------- with respect to both the group of Highly Compensated Employees and the group of Other Employees, the average (calculated to the nearest one hundredth of one percent) of the ratios of (A) to (B), calculated separately (to the nearest one-hundredth of one percent) for each Employee in each group: (A) the sum of the following amounts: (1) the Employer contributions for the Plan Year that are made for the benefit of each Employee in each group pursuant to Subparagraph (a) (Salary Reduction Contributions) of ---------------- Paragraph 1.6 (Employer Contributions) and (2) any other Employer contributions - ------------- for the Plan Year specified in Article 1 that are made for the benefit of each --------- Employee in each group. (B) the amount of Salary for the Plan Year of each Employee in each group. (iii) Highly Compensated Participant - shall mean a Participant ------------------------------ who is a Highly Compensated Employee. (iv) Income - means the income or loss allocable to Excess ------ Contributions which shall equal the sum of the allocable gain or loss for the Plan Year. The income or loss allocable to Excess Contributions for the Plan Year and the "gap period" is calculated separately and is determined by multiplying the income or loss for the Plan Year by a fraction. The numerator of the fraction is the Excess Contributions for the Plan Year. The denominator of the fraction is the total of the Participant's Elective Account attributable to Elective 33 Contributions and the Participant's Qualified Non-Elective Account as of the end of the Plan Year, reduced by the gain allocable to such total amount for the Plan Year and increased by the loss allocable to such total amount for the Plan Year. (v) Other Employees - shall mean all Employees who are eligible --------------- to participate in the Plan for a Plan Year (regardless of whether or not the Employees are actually participating in the Plan) except Highly Compensated Employees. (vi) Salary - shall mean, for an Employee who is eligible to ------ participate in the Plan for a Plan Year (regardless of whether or not the Employee is actually participating in the Plan), the sum of the following: (A) the Employee's Compensation for the Plan Year as determined in accordance with Section 415 of the Code, and (B) the Employer contributions for the Plan Year that are made for the benefit of the Employee pursuant to Subparagraph (a) (Salary ---------------- Reduction Contributions) of Paragraph 1.6 (Employer Contributions). ------------- (m) The provisions of code Section 401(k)(3) and Regulation l.401(k)- l(b) are incorporated herein by reference. (n) For Plan Years beginning after December 31, 1988, to prevent the multiple use of the alternative method described in Paragraph 4.4(b), Paragraph ---------------- --------- 4.6(a) and Code Section 401(m)(9)(A), any Highly Compensated Participant - ----- eligible to make elective deferrals pursuant to Paragraph 1.9 and to make ------------- Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have his actual contribution ratio reduced in accordance with Regulation Section l.401(m)-2, the provisions of which are incorporated herein by reference. (o) For the purpose of determining the actual deferral ratio of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual deferral ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be the greater of: (i) the ratio determined by aggregating Employer Elective Contributions and "414(s) Compensation" of all eligible Family Members who are Highly Compensated Participants without regard to family aggregation; and (ii) the ratio determined by aggregating Employer Elective Contributions and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in 34 applying the $200,000 limit to "414(s) Compensation" for Plan Years beginning after December 31, 1988, Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. (2) The Employer Elective Contributions and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. (p) For the purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k), if two or more plans which include cash or deferred arrangements are considered one plan for the purposes of Code Section 401(a)(4) or 410(b) (other than Code Section 401(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988), the cash or deferred arrangements included in such plans shall be treated as one arrangement. In addition, two or more cash or deferred arrangements may be considered as a single arrangement for purposes of determining whether or not such arrangements satisfy Code Sections 401(a) (4), 410(b) and 401(k). In such a case, the cash or deferred arrangements included in such plans and the plans including such arrangements shall be treated as one arrangement and as one plan for purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k). For plan years beginning after December 31, 1989, plans may be aggregated under this paragraph (e) only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1988, an employee stock ownership plan described in Code Section 4975(e)(7) may not be combined with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(k). (q) For the purposes of this Section, if a Highly Compensated Participant is a Participant under two (2) or more cash or deferred arrangements (other than a cash or deferred-arrangement which is part of an employee stock ownership plan as defined in Code Section 4975(e) (7) for Plan Years beginning after December 31, 1988) of the Employer or an Affiliated Employer, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the actual deferral ratio with respect to such Highly 35 Compensated Participant. However, if the cash or deferred arrangements have different Plan Years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement. 4.5 Special Adjustments to Satisfy Certain Coverage Tests. ----------------------------------------------------- Notwithstanding any other provision of the Plan if for any Plan Year, the Plan fails to meet the requirements of Code Sections 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the Regulations thereunder because Employer Matching Contributions made pursuant to Paragraph 1.6(b) or Discretionary Employer ---------------- contributions have not been allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the respective contributions for the Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above. The specific participants who shall be come eligible under the terms of this paragraph shall be those who are actively employed on the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share for the Plan Year shall be further expanded to include the minimum number of Participants who are not actively employed on the last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants, when compared to similarly situated Participants, who have completed the greatest number of Hours of Service in the Plan Year before terminating employment. 4.6 Actual Contribution Percentage Tests. ------------------------------------ (a) The "Actual Contribution Percentage" for the Highly Compensated Participant group shall not exceed the greater of: (1) 125 percent of such percentage for the Non-Highly Compensated Participant group; or (2) the lesser of 200 percent of such percentage for the Non-Highly Compensated Participant group, or such percentage for the Non-Highly Compensated Participant group plus 2 percentage points. However, to prevent the multiple use of the alternative method described in this paragraph and Code Section 401(m)(9)(A), any Highly Compensated Participant eligible 36 to make elective deferrals pursuant to Paragraph 1.9 or any other cash or ------------- deferred arrangement maintained by the Employer or an affiliated employer and to make Employee contributions or to receive matching contributions under any plan maintained by the Employer or an affiliated employer shall have his actual contribution ratio reduced pursuant to Regulation l.401(m)-2. The provisions of Code Section 401(m) and Regulations l.401(m)-l(b) and 1.401(m)-2 are incorporated herein by reference. (b) For the purposes of this Paragraph and Paragraph 4.4, ------------- "Actual Contribution Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group, the average of the ratios (calculated separately for each Participant in each group) of: (1) the sum of Employer matching contributions made pursuant to Paragraph 1.6(b) (to the extent such matching contributions are not ---------------- used to satisfy the tests set forth in Paragraph 4.4 on behalf of each such ------------- Participant for such Plan Year) and any Employee contributions required under Article I; to (2) the Participant's "414(s) Compensation" for such Plan Year. For purposes of this Paragraph 4.6 and for Paragraph 4.4, a Participant's ------------- ------------- 414(s) Compensation shall be the total amount of compensation paid to the Participant by the Employer as determined under Section 414(s) of the Code. For purposes of computing the Actual Contribution Percentage for a Plan Year with respect to Highly Compensated Participants and Non-Highly Compensated Participants, the calculation shall include any Employee who is directly or indirectly eligible to receive an allocation of matching contributions or to make Employee contributions, including (i) an Employee would be a Participant but for the failure to make required contributions, (ii) an Employee whose right to make contributions or receive matching contributions has been suspended because of an election not to participate; and (iii) an Employee who cannot make a contribution or receive matching contributions because the limitations of Section 415(c)(l) or Section 415(e) of the Internal Revenue Code prevents the Employee from making or receiving annual additions. In the case of an eligible Employee who makes no Employee contributions and who receives no matching contributions, the contribution ratio that is to be included in determining the Actual Contribution Percentage is zero. (c) For purposes of determining the "Actual Contribution Percentage" and the amount of Excess Aggregate Contributions pursuant to Paragraph 4.7 only Employer matching contributions contributed to the Plan prior - ------------- to the end of the 37 succeeding Plan Year shall be considered. In addition, the Administrator may elect to take into account, with respect to Employees eligible to have Employer matching contributions made pursuant to Paragraph 1.6(b), elective deferrals (as ---------------- defined in Regulation 1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code Section 401(m)(4)(C)) contributed to any plan maintained by the Employer. Such elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Regulation l.401(m)-l(b)(2) which is incorporated herein by reference. However, the Plan Year must be the same as the plan year of the plan to which the elective deferrals and the qualified non-elective contributions are made. (d) For the purpose of determining the actual contribution ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Employee is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual contribution ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be the greater of: (i) the ratio determined by aggregating Employer matching contributions made pursuant to Paragraph 1.7(b) (to the extent such matching ---------------- contributions are not used to satisfy the tests set forth in Paragraph 4.4) and -------------- "414(s) Compensation" of all eligible Family Members who are Highly Compensated Participants without regard to family aggregation; and (ii) the ratio determined by aggregating Employer matching contributions made pursuant to Paragraph --------- 1.11(b) (to the extent such matching contributions are not used to satisfy the - ------- tests set forth in Paragraph 4.4) and "414(s) Compensation" of all eligible ------------- Family Members (including Highly Compensated Participants). However, in applying the $200,000 limit to "414(s) Compensation" Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. (2) The Employer matching contributions made pursuant to Paragraph 1.6 (to the extent such matching contributions are not used to satisfy - ------------- the tests set forth in Paragraph 4.4, and "414(s) Compensation" of all Family ------------- Members shall be disregarded for purposes of determining the "Actual Contribution Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that 38 include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. (e) For purposes of this Paragraph and Code Sections 401(a)(4), 410(b) and 401(m), if two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made are treated as one plan for purposes of Code Sections 401(a)(4) or 410(b) (other than the average benefits test under Code Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988), such plans shall be treated as one plan. In addition, two or more plans of the Employer to which matching contributions, Employee contributions, or both, are made may be considered as a single plan for purposes of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such a case, the aggregated plans must satisfy this Section and Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were a single plan. For plan years beginning after December 31, 1989, plans may be aggregated under this paragraph only if they have the same plan year. Notwithstanding the above, for Plan Years beginning after December 31, 1988, an employee stock ownership plan described in Code Section 4975(e)(7) may not be aggregated with this Plan for purposes of determining whether the employee stock ownership plan or this Plan satisfies this Section and Code Sections 401(a)(4), 410(b) and 401(m). (f) If a Highly Compensated Participant is a Participant under two or more plans (other than an employee stock ownership plan as defined in Code Section 4975(e)(7) for Plan Years beginning after December 31, 1988) which are maintained by the Employer or an Affiliated Employer to which matching contributions, Employee contributions, or both, are made, all such contributions on behalf of such Highly Compensated Participant shall be aggregated for purposes of determining such Highly Compensated Participant's actual contribution ratio. However, for Plan Years beginning after December 31, 1988, if the plans have different plan years, this paragraph shall be applied by treating all plans ending with or within the same calendar year as a single plan. (g) For purposes of Paragraph 4.6, a Highly Compensated ------------- Participant and a Non-Highly Compensated Participant shall include any Employee eligible to have matching contributions made pursuant to Paragraph 1.6(b) ---------------- (whether or not a deferral election was made or suspended) allocated to his account for the Plan Year or to make salary deferrals pursuant to Paragraph 4.4 ------------- (if the Employer uses salary deferrals to satisfy the provisions of this Section). (h) For purposes of this Paragraph, "Matching 39 Contribution" shall mean an Employer contribution made to the Plan, or to a contract described in Code Section 403(b), on behalf of a Participant on account of an Employee contribution made by such Participant, or on account of a participant's deferred compensation, under a plan maintained by the Employer. (i) If one or more Highly Compensated Employees participates in the Plan and the sum of the Actual Deferral Percentages, as calculated under Paragraph 4.4 above, or the Actual Contribution Percentages, as determined under - ------------- Subparagraph (a) of this Paragraph, of those Highly Compensated Employees - ---------------- exceeds the aggregate limit provided in Paragraph 4.6 (a), then the Actual ----------------- Contribution Percentage of those Highly Compensated Employees will be reduced (beginning with the Highly Compensated Employee whose Actual Contribution Percentage is the highest) so that the limit provided in Subparagraph (a) of this Paragraph 4.6 is not exceeded. The amount by which the matching ------------- contributions each Highly Compensated Employee is reduced shall be treated as an Excess Aggregate Contribution and shall be forfeited, if forfeitable, or distributed to the Highly Compensated Employee (including income allocable to such contributions) on or before the 15th day of the third month after the end of the Plan Year. The Actual Deferral Percentage and the Actual Contribution Percentage of each such Highly Compensated Employee is determined after any corrections required to meet the Actual Deferral Percentage and the Actual Contribution Percentage Test. Multiple use does not occur if either the Actual Deferral Percentage or the Actual Contribution Percentage of the Highly Compensated Employees does not exceed 1.25 multiplied by the Actual Deferral Percentage and Actual Contribution Percentage of the Non-highly Compensated Employees. 4.7 Adjustment to Actual Contribution Percentage Tests. -------------------------------------------------- (a) In the event that the "Actual Compensation Percentage" for the Highly Compensated Participant group exceeds the "Actual Contribution Percentage" for the non-Highly Compensated Participant group pursuant to Paragraph 4.6, the Administrator (on or before the fifteenth day of the third - ------------- month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated participant having the highest actual contribution ratio, his portion of Excess Aggregate Contributions (and Income allocable to such contributions) or, if forfeitable, forfeit such non-Vested Excess Aggregate Contributions attributable to Employer matching contributions (and Income allocable to such Forfeitures) until either one of the tests set forth in Paragraph 4.6(a) is satisfied, or until his actual contribution ratio equals the - ---------------- actual contribution ratio of the Highly Compensated Participant having the second highest actual contribution ration. This process shall continue until one of the tests set forth in 40 Paragraph 4.6 (a) is satisfied. The distribution and/or Forfeiture of Excess - ----------------- Aggregate Contributions shall be made in the following order: (1) Employer matching contributions distributed and/or forfeited pursuant to Paragraph 4.4 (h). ----------------- (2) Voluntary Employee contributions, if permitted under the Plan. (3) Remaining Employer matching contributions. (b) Any distribution or Forfeiture of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution of Excess Aggregate Contributions shall be designated by the Employer as a distribution of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate Contributions shall be treated in accordance with Article 5. However, no such Forfeiture may be allocated to a Highly --------- Compensated Participant whose contributions are reduced pursuant to this Section. (c) Excess Aggregate Contributions attributable to amounts other than voluntary Employee contributions, including forfeited matching contributions, shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. (d) For the purposes of this Paragraph and Paragraph 4.6, "Excess ------------- Aggregate Contributions" means, with respect to any Plan year, the excess of: (1) the aggregate amount of Employer matching contributions made pursuant to Paragraph 1.6 (to the extent such contributions are taken into ------------- account pursuant to Paragraph 4.6 and any qualified non-elective contributions ------------- or elective deferrals taken into account pursuant to Paragraph 4.6 actually made ------------- on behalf of the Highly Compensated Participant group of such Plan Year, (2) the maximum amount of such contributions permitted under the limitations of Paragraph 4.6(a). ---------------- (e) For each Highly Compensated Participant, the amount of Excess Aggregate Contributions is equal to the total Employer matching contributions made pursuant to Paragraph 1.7 (to the extent taken into account pursuant to ------------- Paragraph 4.6 and any Qualified Non-Elective Contributions or elective deferrals - ------------- taken into account pursuant to Paragraph 4.6 on behalf of the Highly Compensated ------------- Participant (determined prior to the application of this paragraph) minus the amount determined by 41 multiplying the Highly Compensated Participant's actual contributions ratio (determined after application of this paragraph) by his "414(s) Compensation". The actual contribution ratio must be rounded to the nearest one-hundredth of one percent for Plan Years beginning after December 31, 1988. In no case shall the amount of Excess Aggregate Contribution with respect to any Highly Compensated Participant exceed the amount of Employer matching contributions made pursuant to Paragraph 1.7 (to the extent taken into account pursuant to ------------- Paragraph 4.6(a), and any Qualified Non-Elective Contributions or elective - ---------------- deferrals taken into account pursuant to Paragraph 4.6 on behalf of such Highly ------------- Compensated Participant for such Plan Year. (f) The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as voluntary Employee contributions due to recharacterization for the Plan Year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year. (g) The determination and correction of Excess Aggregate Contributions of a Highly Compensated Participant whose actual contribution ratio is determined under the family aggregation rules shall be accomplished as follows: (1) If the actual contribution ratio for the Highly Compensated Participant is determined in accordance with Paragraph 4.6 , then ------------- the actual contribution ratio shall be reduced and the Excess Aggregate Contributions for the family unit shall be allocated among the family members in proportion to the sum of Employer matching contributions made pursuant to Paragraph 1.11 (to the extent taken into account pursuant to Paragraph 4.6, and - -------------- ------------- any qualified non-elective contributions or elective deferrals taken into account pursuant to Paragraph 4.6 of each Family Member that were combined to ------------- determine the group actual contribution ratio. (2) If the actual contribution ratio for the Highly Compensated Participant is determined under Paragraph 4.6, then the actual ------------- contribution ratio shall first be reduced, as required herein, but not below the actual contribution ratio of the group of Family Members who are not Highly Compensated Participants without regard to family aggregation. The Excess Aggregate Contributions resulting from this initial reduction shall be allocated among the Highly Compensated Participants whose Employer matching contributions made pursuant to Paragraph 1.11 (to the extent taken into account pursuant to -------------- Paragraph 4.6, and any qualified non-elective contributions or elective - ------------- deferrals taken into account pursuant to Paragraph 4.6. ------------- 42 (h) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, the Employer may make a special qualified non-elective contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Paragraph 4.6. Such ------------- contribution shall be allocated to the Participant's Qualified Non-Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated participants. A Separate accounting shall be maintained for the purpose of excluding such contributions from the "Actual Deferral Percentage" tests pursuant to Paragraph 4.4. ------------- (i) For purposes of this Section, "Income" means the income or loss allocable to Excess Aggregate Contributions which shall equal the sum of the allocable gain or loss for the Plan Year. The income or loss allocable to Excess Aggregate Contributions for the Plan Year is calculated separately and is determined by multiplying the income or loss for the Plan year or the "gap Period" by a fraction. The numerator for the fraction is the Excess Aggregate Contributions for the Plan Year. The denominator for the fraction is the total Participant's Account attributable to Employer matching contributions subject to Paragraph 4.6 and any elective deferrals taken into account pursuant to - ------------- Paragraph 4.6 as of the end of the Plan year, reduced by the gain allocable to - ------------- such total amount for the Plan year and increased by the loss allocable to such total amount for the Plan Year. The income allocable to Excess Aggregate Contributions resulting from recharacterization of Elective Contribution shall be determined and distributed as if such recharacterized Elective Contributions had been distributed as Excess Contributions. 4.8 Transfer of Assets from Another Qualified Plan (Other Than HR-10 ---------------------------------------------------------------- Plan). The Administrator, pursuant to a uniform nondiscriminatory policy - ----- established by it, may direct the Trustee to accept assets from another qualified plan if the trustee of such other qualified plan is authorized to transfer such assets to this Plan. Any assets transferred to this Plan from another qualified plan for an Employee shall be one hundred percent (100%) vested and shall be maintained in a separate account for the Employee. No transfer of assets from another qualified plan shall affect in any way the Employer's obligations under this Plan. The distribution of any assets transferred to this Plan from another qualified Plan for an Employee shall be made in accordance with the provisions of Article 8 (Distributions and Loans) --------- and the other provisions of this Plan. 4.9 Limitations on Distributions. Amounts held in the Participant's ---------------------------- Elective Salary Reduction Account may be 43 distributable as permitted under the Plan, but in no event prior to the earlier of: (1) a Participant's termination of employment, total and permanent disability, or death; (2) a Participant's attainment of age 59 1/2; (3) the proven financial hardship of a Participant, subject to the limitations of Paragraph 8.9; ------------- (4) the termination of the Plan without the existence at the time of Plan termination of another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) or the establishment of a successor defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e)(7)) by the employer or an affiliated employer within the period ending twelve months after distribution of all assets from the Plan maintained by the employer; (5) the date of the sale by the Employer to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409(d) (2)) with respect to a Participant who continues employment with the corporation acquiring such assets; or (6) the date of the sale by the employer or an affiliated employer of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity that is not an affiliated employer with respect to a Participant who continues employment with such subsidiary. 44 ARTICLE 5 --------- ALLOCATION OF CONTRIBUTIONS --------------------------- 5.1 Accounts. The Administrator shall establish and maintain for each -------- Participant an account to be known as his "Employer Contribution Account" that will reflect his share of the Employer's contributions and forfeitures and the share of the income, losses, appreciation, and depreciation of the commingled portion of the Fund attributable to the account. If Article I permits salary reduction contributions, the Administrator shall also establish and maintain for each Participant a Salary Reduction Contribution Account and such other accounts as the Administrator deems necessary or appropriate to reflect the Participant's interest in the Plan. Each such account shall share in the income, losses, appreciation, and depreciation of the commingled portion of the Fund, to the extent attributable thereto. 5.2 Allocation Dates. ---------------- (a) The regular Allocation Dates for the Plan shall be those specified in Article 1. --------- (b) The Administrator shall have the right and power at any time and from time to time to designate additional dates (other than the dates specified in Article 1) as Allocation Dates. On each designated Allocation Date, --------- the Administrator shall perform the allocation procedures outlined in Paragraph --------- 5.3 (Allocation Procedure), except those for the allocation and crediting of - --- Employer contributions and forfeitures. The allocation and crediting of Employer contributions shall be performed only on regular Allocation Dates. 5.3 Allocation Procedure. As of each Allocation Date, the -------------------- Administrator shall -- (i) First, charge to the proper accounts all payments, distributions, or transfers made since the last preceding Allocation Date that have not been charged previously, as provided in Paragraph 5.4 (Charging of ------------- Payments and Distributions); (ii) Next, if a regular Allocation Date, adjust any deficiencies in the Employer Contribution Accounts of Participants who during the Plan year repaid a distribution described in Paragraph 9.12 (Right to Repay -------------- Distribution Received on Termination of Participation in the Plan) and who are therefore entitled to have their accounts restored to their pre-distribution levels; 45 (iii) Next, adjust the net credit balances in the accounts, exclusive of Participant Directed Investment Accounts, upward or downward, pro rata, so that the total of such balances will equal the net value of the commingled portion of the Fund on such date, excluding the value of any Contracts purchased for the benefit of a particular Participant; (iv) Next, if a regular Allocation Date, allocate and credit forfeitures, if any, that are to be allocated and credited as of such date in accordance with Paragraph 5.5 (Allocation and Crediting of Forfeitures); ------------- (v) Next, if a regular Allocation Date, allocate and credit Employer contributions, if any, that are to be allocated as of such date in accordance with Paragraph 5.6 (Allocation and Crediting of Employer ------------- Contributions); (vi) Next, credit Participant contributions, if any, that are to be credited as of such date in accordance with Paragraph 5.8 (Crediting ------------- of Participant Contributions); and (vii) Finally, adjust the balance of each Participant Directed Investment Account to reflect its current value. 5.4 Charging of Payments and Distributions. As of each Allocation -------------------------------------- Date, all payments, distributions, and transfers made under the Plan since the last preceding Allocation Date to or for the benefit of a Participant or his Beneficiary shall be charged to the proper account of the Participant. 5.5 Allocation and Crediting of Forfeitures. Subject to the --------------------------------------- conditions and limitations of Paragraph 5.7 (Participants to Whom Employer ------------- Contributions and Forfeitures Will Be Allocated.) and Paragraph 5.9 (Section 415 ------------- Limitations), as of each regular Allocation Date, any unallocated forfeitures that remain after making up any deficiencies shall be allocated and credited to the Employer Contribution Accounts of Participants who are entitled to share in Employer contributions for the Plan Year (as provided in Paragraph 5.7 ------------- (Participants to Whom Employer Contributions and Forfeitures Will Be Allocated)) in accordance with the formula for the allocation of forfeitures specified in Article 1; provided, however, that if this Plan is integrated with Social - --------- Security the maximum amount that shall be allocated to the Employer Contribution Account of a Participant for a Plan Year under the combined provisions of Paragraph 5.6 (Allocation and Crediting of Employer Contributions) and this - ------------- Paragraph 5.5 with respect to the Participant's excess compensation (as defined - ------------- in Article 1) shall be determined by multiplying the Participant's compensation --------- by the integration percentage specified in Article 1. For purposes of the --------- preceding sentence, 46 "deficiencies" shall mean deficiencies in the Employer Contribution Accounts of Participants who during the Plan Year repaid a distribution described in Paragraph 9.12 (Right to Repay Distribution Received on Termination of - -------------- Participation in the Plan) and who are therefore entitled to have their accounts restored to their pre-distribution levels. 5.6 Allocation and Crediting of Employer Contributions. -------------------------------------------------- (a) Subject to the conditions and limitations of Paragraph 5.7 ------------- (Participants to Whom Employer Contributions and Forfeitures Will Be Allocated) and Paragraph 5.9 (Section 415 Limitations), as of each regular Allocation Date, ------------- any unallocated Employer contributions that remain after making up any deficiencies shall be allocated and credited to the Employer Contribution Accounts of Participants who are entitled to share in Employer contributions for the Plan Year (as provided in Paragraph 5.7 (Participants to Whom Employer ------------- Contributions and Forfeitures Will Be Allocated)) in accordance with the formula for the allocation of Employer contributions specified in Article 1. For --------- purposes of the preceding sentence, "deficiencies" shall mean deficiencies in the Employer Contribution Accounts of Participants who during the Plan Year repaid a distribution described in Paragraph 9.12 (Right to Repay Distribution -------------- Received on Termination of Participation in the Plan) and who are therefore entitled to have their accounts restored to their pre-distribution levels. (b) The amount of Compensation considered in determining a Participant's share of Employer contributions for the Plan Year in which he enters or reenters the Plan shall be determined in accordance with Article 1. --------- (c) If the Employer makes any portion of its contributions for a Plan Year in advance, that is, before the last day of the Plan Year, for allocation purposes, the dollar amount of such advance contributions shall be deemed to be their fair market value determined as of the date of contribution. (d) If the Employer makes any portion of its contributions for a Plan Year in advance, that is, before the last day of the Plan Year, and if such advance contributions are allocated before the last day of the Plan Year, the allocation of such advance contributions shall be made on a basis that is consistent with the allocation formula specified in Article 1 and with the --------- allocation procedure contained in this Article 5, with any adjustments that are --------- necessary in order to fully comply with such formula and allocation procedure being made as of the last day of the Plan Year. 47 (e) For purposes of this Article 5, all contributions made to the Plan by the Employer for a Plan Year that are not actually paid to the Trustee during the Plan Year shall be deemed to have been paid to the Trustee on the last day of the Plan Year. 5.7 Participants to Whom Employer Contributions and Forfeitures Will ---------------------------------------------------------------- Be Allocated. - ------------ (a) The Employer contributions for each Plan Year, plus any amounts forfeited during the Plan Year, shall be allocated and credited to the Employer Contribution Accounts of the Participants described in Article 1. --------- (b) Notwithstanding the provisions of Subparagraph (a) of this ---------------- Paragraph 5.7, no portion of any forfeiture that is attributable to - ------------- contributions made by the Employer for Fiscal Years beginning after December 31, 1970, shall be allocated to the Employer contribution Account of any Participant who is a Shareholder-Employee. The portion of any forfeiture that would be allocated to the account of a Participant who is a Shareholder-Employee if it were not for this Subparagraph (b), shall be allocated to the Employer ---------------- Contribution Accounts of Participants who are not Shareholder-Employees in accordance with the formula for the allocation of forfeitures specified in Article 1. The restrictions of this Subparagraph (b) shall only apply to - --------- ---------------- forfeitures that are attributable to contributions made by the Employer for Fiscal Years for which the Employer is an electing small business corporation under the provisions of Subchapter S of the Code. 5.8 Crediting of Participant Contributions. All voluntary -------------------------------------- contributions made by a Participant for a Plan Year shall be credited to his Participant Voluntary Contribution Account not less often than quarterly. All required contributions made by a Participant for a Plan Year shall be credited to his Participant Required Contribution Account not less often than quarterly. 5.9 Section 415 Limitations. The rules of interpretation contained in ----------------------- Subparagraph (b) and the definitions contained in Subparagraph (d) of this - ---------------- ---------------- Paragraph 5.9 shall apply for purposes of the limitations of this Paragraph 5.9. - ------------- ------------- (a) Limitation on Annual Additions. ------------------------------ (i) Notwithstanding any other provision of this Plan, the amount of Annual Additions allocated under this Plan to a Participant for a Limitation Year shall not exceed the Maximum Permissible Defined Contribution Amount reduced by the sum of any Annual Additions allocated under all other defined contribution plans, defined benefit plans, and welfare benefit 48 funds, as defined in Section 419(e) of the Code, or an individual medical account (as defined in Section 415(1) (2) of the Code) maintained by the Employer to the Participant for the Limitation Year. For purposes of the preceding sentence, "Annual Additions allocated under this Plan" shall mean the amounts allocated to a Participant under Paragraph 5.3 (Allocation Procedure) of ------------- this Plan. (ii) If the Annual Additions allocated under all other defined contribution plans, defined benefit plans, and welfare benefit funds and individual medical accounts maintained by the Employer to a Participant under this Plan for a Limitation Year are less than the Maximum Permissible Defined Contribution Amount, and if the Annual Additions that would otherwise be allocated under this Plan to the Participant would cause the Annual Additions for the Limitation Year to exceed the Maximum Permissible Defined Contribution Amount, the Annual Additions to be allocated under this Plan to the Participant for the Limitation Year shall be reduced, so that the aggregate Annual Additions allocated under all such plans to the Participant for the Limitation Year shall not exceed the Maximum Permissible Defined Contribution Amount. (iii) If the Annual Additions allocated under all other defined contribution plans, defined benefit plans, and welfare benefit funds and individual medical accounts maintained by the Employer to a Participant under this Plan for the Limitation Year are equal to or greater than the Maximum Permissible Defined Contribution Amount, no Annual Additions shall be allocated under this Plan to the Participant for the Limitation Year. (iv) Prior to determining a Participant's actual Annual Compensation for a Limitation Year, the Administrator may determine the Maximum Permissible Defined Contribution Account for a Participant on the basis of a reasonable estimate of the Participant's Annual Compensation for the Limitation Year. (v) As soon as administratively feasible after the end of a Limitation Year, the Administrator shall determine the Maximum Permissible Defined Contribution Amount for a Participant on the basis of the Participant's actual Annual Compensation for the Limitation Year. (vi) If, as a result of either an error in estimating a Participant's Annual Compensation for a Limitation Year or the allocation of forfeitures, there is an Excess Amount for a Participant for a Limitation Year, such Excess Amount shall be deemed to consist of the Annual Additions last allocated, except that Annual Additions attributable to a 49 welfare benefit fund shall be deemed to have been allocated first regardless of the actual Allocation Date. (vii) If an Excess Amount is allocated to a Participant as of an Allocation Date of this Plan that coincides with an allocation date of another plan, the portion of such Excess Amount to be attributed to this Plan shall be the product of (A) and (B) where (A) is the total Excess Amount allocated to the Participant as of such Allocation Date, and (B) is a fraction, the numerator of which is the Annual Additions allocated under this Plan to the Participant as of such Allocation Date, and the denominator of which is the total Annual Additions allocated to the Participant under this Plan and under all other defined contribution plans, defined benefit plans, and welfare benefit funds maintained by the Employer as of such Allocation Date. (viii) The portion of such Excess Amount attributable to this Plan shall be disposed of as follows: (A) Any voluntary nondeductible employee contributions, and any increment attributable thereto, to the extent they would reduce such Excess Amount, shall be distributed to the Participant as soon as administratively feasible. (B) Any remainder of such Excess Amount shall be allocated to a suspense account and held therein until the next Limitation Year. (C) If the Participant is a Participant under this Plan as of the close of the next Limitation Year, such suspense account shall be used to reduce Employer contributions and forfeitures allocated to the Participant under this Plan for such Limitation Year and for succeeding Limitation Years, as necessary. (D) If the Participant is not a Participant under this Plan as of the close of the next Limitation Year, such suspense account shall be used to reduce Employer contributions and forfeitures allocated to each other remaining Participant under this Plan for such Limitation Year and for succeeding Limitation Years, as necessary. (E) Except as provided in Subparagraph (A) of this ---------------- Subparagraph (viii), no part of such Excess Amount shall be distributed to any - ------------------- Participant or former Participant. 50 (F) Such suspense account shall share in the income, losses, appreciation, and depreciation of the commingled portion of the Fund to the extent attributable thereto. (G) If this Plan is terminated while a suspense account is in existence, any amount in the suspense account that cannot be reallocated to any Participant, because of the limitations of this Paragraph --------- 5.9, shall revert to the Employer. - --- (ix) Notwithstanding any other provision of this Plan, the Employer shall not contribute any amount to this Plan for a Participant for a Limitation Year that cannot be allocated to the Participant for the Limitation Year. (b) Rules of Interpretation. The following rules of ----------------------- interpretation shall apply for purposes of the limitations of this Paragraph --------- 5.9: - --- (i) Affiliated Employers. All employees of each member of a -------------------- group described below shall be treated as if employed by the Employer: (A) a group that constitutes a controlled group of corporations, as defined in Section 414(b) of the Code as modified by Section 415(h) of the Code, if the Employer is a member of the group; (B) a group that conducts a trade or business, whether or not incorporated, that is under common control, as defined in Section 414(c) of the Code as modified by Section 415(h) of the Code, if the Employer is a member of the group; or (C) a group that constitutes an affiliated service group, as defined in Section 414(m) of the Code, if the Employer is a member of the group. (ii) Aggregation of Plans. All defined benefit plans -------------------- (whether or not terminated) ever maintained by the Employer shall be treated as one defined benefit plan, and all defined contribution plans (whether or not terminated) ever maintained by the Employer shall be treated as one defined contribution plan. (c) Definitions. When used in this Paragraph 5.9, each term ----------- ------------- defined in this Subparagraph (c) shall have the following meaning unless a ---------------- different meaning is clearly required by the context. (i) Annual Addition - shall mean, with --------------- 51 respect to a Participant for any Limitation Year, the sum of the amounts described below that are allocated to the Participant -- (A) under a defined contribution plan maintained by the Employer -- (1) all Employer contributions, (2) all forfeitures, and (3) all employee contributions; (B) under a defined benefit plan maintained by the Employer -- (1) all amounts allocated to an individual medical account, as defined in Section 415(l)(1) of the Code, after March 31, 1984, and (2) the Participant's employee contributions; and (C) under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Employer -- (D) under an individual medical account plan -- all amounts allocated to the separate account of a key employee, as defined in Section 419A(d)(3) of the Code, that are attributable to post-retirement medical benefits and that are derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date. For purposes of the preceding sentence, "Employer contributions" and "forfeitures" shall include amounts reapplied to reduce Employer contributions and forfeitures under Subparagraph (b) of this Paragraph 5.9. ---------------- ------------- (ii) Annual Compensation - shall mean, with respect to a ------------------- Participant for any Limitation Year, except a Participant described in Subparagraph (C) of this Subparagraph (ii), only those amounts described in - ---------------- ----------------- Subparagraph (A) of this Subparagraph (ii) that were actually paid or made - ---------------- ----------------- available to the Participant within the Limitation Year, and shall be limited to $200,000 (unless adjusted as permitted under Section 415(d) of the Code). Annual Compensation shall not include those amounts described in Subparagraph (B) of ---------------- this Subparagraph (ii). ----------------- 52 (A) Annual Compensation shall include: (1) the wages, salaries, fees for professional services, and other amounts received by the Participant for personal services actually rendered in the course of employment with the Employer including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses; (2) in the case of a Participant who is an employee within the meaning of Section 401(c)(1) of the Code, the earned income (as described in Section 401(c) (2) of the Code) of the Participant; (3) for purposes of Subparagraphs (1) and (2) of ----------------- --- this Subparagraph (A), the earned income from sources outside the United States ---------------- (as defined in Section 911(b) of the Code) of the Participant, whether or not excludable from gross income under Section 911 of the Code or deductible under Section 913 of the Code; (4) the amounts described in Sections 104(a)(3), 105(a), and 105(h) of the Code of the Participant, but only to the extent such amounts are includable in the gross income of the Participant; (5) the amounts paid to the Participant or reimbursed by the Employer for moving expenses incurred by the Participant, but only to the extent such amounts are not deductible by the Participant under Section 217 of the Code; (6) the value of a non-qualified stock option granted to the Participant by the Employer, but only to the extent that the value of the option is includable in the gross income of the Participant for the taxable year in which granted; and (7) the amounts includable in the gross income of the Participant upon making the election described in Section 83(b) of the Code. (B) Annual Compensation shall not include: (1) amounts contributed by the Employer to a plan of deferred compensation on behalf of a Participant that are not includable in the Participant's gross income for the taxable year in which contributed, or amounts contributed by the Employer under a simplified employee pension plan on behalf of a Participant to the extent such amounts are 53 deductible by the Participant under Section 219(b)(2) of the Code, or amounts distributed to a Participant from a plan of deferred compensation regardless of whether or not such amounts are includable in the Participant's gross income when distributed; (2) amounts realized from the exercise of a non- qualified stock option, or when restricted stock (or property) held by a Participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option; and (4) other amounts that receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the Participant) and contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Section 403(b) of the Code (whether or not the contributions are excludable from the gross income of the Participant). Annual Compensation, in the case of a Participant who is permanently and totally - ------------------- disabled, as defined in Section 22(e)(3) of the Code, and who is not a highly compensated employee, within the meaning of Section 414(q) of the Code, is the amount of compensation the disabled Participant would have received for the Limitation Year if the Participant had been paid at the rate paid immediately before becoming permanently and totally disabled. Contributions made with respect to amounts treated as Annual Compensation of a disabled Participant shall be nonforfeitable when made. (iii) Excess Amount - shall mean, with respect to a Participant ------------- for any Limitation Year, the excess of the Participant's Annual Additions for the Limitation Year over the Maximum Permissible Defined Contribution Amount, less loading and other administrative charges allocable to such excess. (iv) Limitation Year - shall mean a period of twelve (12) --------------- consecutive months adopted by the Employer pursuant to a written resolution. (v) Maximum Permissible Defined Contribution Amount - shall ----------------------------------------------- mean, with respect to a Participant for any Limitation Year, the lesser of the amounts determined under Subparagraphs (A) and (B) of this Subparagraph (v), ----------------- --- ---------------- subject to 54 the rules of Subparagraphs (C) and (D) of this Subparagraph (v), where -- ----------------- --- ---------------- (A) is Thirty Thousand Dollars ($30,000.00) or, if greater, one-fourth of the dollar limitation in effect under Code Section 415(b) (1) (A) as automatically adjusted in accordance with regulations prescribed by the Secretary of Treasury, and (B) is twenty-five percent (25%) of the Participant's Annual Compensation for the Limitation Year. (C) As of January 1 of each calendar year, beginning with the calendar year 1988, the dollar limitation in Subparagraph (A) of this ---------------- Subparagraph (v) shall be automatically adjusted to equal the dollar limitation - ---------------- prescribed for the calendar year by the Secretary of the Treasury. The adjusted dollar limitation shall apply for the Limitation Year ending within the calendar year. (D) If a short Limitation Year is created because of an amendment changing the Limitation Year to a different twelve-consecutive- month period, the Maximum Permissible Defined Contribution Amount for the short Limitation Year shall be the dollar limitation in Subparagraph (A) of this ---------------- Subparagraph (v) multiplied by a fraction, the numerator of which is the number - ---------------- of months in the short Limitation Year and the denominator of which is twelve (12), and the dollar limitation in Subparagraph B above shall be 25% of the -------------- Participant's Annual Compensation for such short Plan Year. (E) Special Rule For Participants Who Also Participate -------------------------------------------------- In A Defined Benefit Plan Maintained By The Employer. For any participant in the - ---------------------------------------------------- Plan who is also a participant in one or more defined benefit plans (as defined in Section 414(j) of the Code) maintained by the Employer, the Annual Addition with respect to such Participant under this Plan during a Plan Year shall be further limited (in addition to the limitation under Subparagraph (a) of this Paragraph 5.9) to the extent necessary to prevent the sum of the fractions in (i) and (ii) below, computed as of the close of the Plan Year, from exceeding 1.0: (i) The Projected Annual Benefit (as defined in Treasury Regulation (S)1.415-7(b)(3)) of the Participant, divided by the lesser of: (A) the product of $90,000 (as such amount shall be adjusted automatically in accordance with regulations promulgated by the Secretary of the Treasury) multiplied by 1.25, or 55 (B) the product of 100% of the Participant's average Annual Compensation for the period of three (3) consecutive Plan Years (or, if less, the actual number of consecutive years of employment with the Employer) during which the Participant had the greatest aggregate Annual Compensation, multiplied by 1.4; plus (ii) The sum of the Participant's Annual Additions under this Plan and all other defined contribution plans (as defined in Section 414(i) of the Code) maintained by the Employer for such Plan Year and for all prior Plan Years divided by the sum of the lesser of the following amounts determined for such Plan Year and all prior Plan Years: (A) the product of $30,000 (or, if greater, 1/4 of the dollar limitation in effect under Section 415(b)(l) (A) of the Code) multiplied by 1.25, or (B) the product of 25% of the Participant's Annual Compensation for the clan Year multiplied by 1.4. 56 ARTICLE 6 --------- FUNDING MEDIUM AND INVESTMENTS ------------------------------ 6.1 Funding Medium. For a new Plan the Employer will enter into a -------------- trust agreement with the Trustee to create a Trust that will serve as the funding medium for the Plan. For an existing Plan the Employer will continue the existing Trust. All contributions made to the Plan shall be deposited into the Fund maintained under the Trust. The Trust shall be deemed a part of the Plan and all rights that accrue to any Participant, Beneficiary or other person under the Plan shall be subject to the terms of the Trust. 6.2 Direction of Investments by Investment Manager. The Employer ---------------------------------------------- shall have the right and power at any time and from time to time to appoint one or more Investment Managers having the power to manage (including the power to acquire and dispose of) the investment of all or any portion of the Fund. 6.3 Direction of Investments by Participants. If Article 1 so ---------------------------------------- --------- provides, each Participant shall have the right and power at any time and from time to time to manage (including the power to acquire and dispose of) the investment of his account or accounts, or such portion thereof, as the Administrator may specify. In such event, the Administrator shall from time to time establish such rules with respect to Participant directed investments as deemed appropriate and shall advise the Trustee of such rules. 6.4 Direction of Investments by Employer. If Article 1 so provides, ------------------------------------ --------- the Employer shall have the right and power at any time and from time to time to manage (including the power to acquire and dispose of) the investment of all or any portion of the Fund. 6.5 Purchase of Contracts. --------------------- (a) The purchase of Contracts on the lives of the Participants with the funds in their Employer Contribution Accounts shall be subject to the provisions of Article 1. Upon direction from the Administrator, the Trustee --------- shall purchase Contracts on the life of a Participant from an Insurer with the funds in the Participant's Employer Contribution Account within the limits, if any, specified in Article 1 and in Paragraph 6.6 (Limitations on the Payment of --------- ------------- Premiums for Contracts). With respect to any Contract providing ordinary life insurance that is purchased upon a Participant's life and held for his benefit, the Administrator shall direct the Trustee on or before the Participant's actual retirement date (i) to convert the entire value of any such Contract into cash, (ii) to convert any such Contract so as to provide periodic income for the Participant, or 57 (iii) to distribute any such Contract to the Participant at his retirement date. (b) The Trustee shall be the sole owner of and shall be named beneficiary of all Contracts purchased under the Plan, and the Trustee shall be so designated in each Contract. Each application for a Contract may be signed by either the Administrator or the Trustee. (c) All premiums and other sums due to an Insurer with respect to any Contract on the life of a Participant that is held for his benefit shall be paid by the Trustee. Such premiums and other sums shall be charged against the Participant's Employer Contribution Account. If at any time there are not sufficient funds in a Participant's Employer Contribution Account to permit the payment by the Trustee of the premiums and other sums then due, or if the limitations of Paragraph 6.6 (Limitations on the Payment of Premiums for ------------- Contracts) would not permit the payment of the premiums and other sums then due from such account, such premiums and other sums may be paid by the Trustee with funds advanced by the Participant or may be paid from and charged against his Participant Voluntary Contribution Account, if any, or his Participant Required Contribution Account, if any. If the Trustee is unable to pay the premiums, the Trustee shall surrender the Contract for its cash value, if any, and deposit the cash value in the Participant's Employer Contribution Account or use the cash value to purchase paid-up insurance or take such other action with respect to the Contract as the Trustee deems appropriate. (d) All Contracts purchased by the Trustee for the benefit of a Participant with funds from a Participant's account shall constitute a directed investment of that Account and shall be considered to be a part thereof for all purposes. Any dividend paid on a Contract that is a part of an account shall also be considered to be a part of the account. (e) In the event of a conflict between the provisions of the Plan and the terms of a Contract purchased under the Plan, the provisions of the Plan shall control for purposes of the operation of the Plan. 6.6 Limitations on the Payment of Premiums for Contracts. ---------------------------------------------------- (a) If one or more Contracts providing ordinary life insurance coverage are purchased upon a Participant's life and held for his benefit, the aggregate premiums paid from his Employer Contribution Account shall at all times be less than fifty percent (50%) of the aggregate Employer contributions and forfeitures allocated to such Participant. (b) If one or more Contracts providing term, 58 accident or health insurance coverage, or any or all such coverages, are purchased upon a Participant's life and held for his benefit, the aggregate premiums paid from his Employer Contribution Account shall at all times be less than twenty-five percent (25%) of the aggregate Employer contributions and forfeitures allocated to such Participant. (c) If one or more Contracts providing both ordinary life insurance coverage and term, accident or health insurance coverage, or any or all such coverages, are purchased upon a Participant's life and held for his benefit, the aggregate premiums paid from his Employer Contribution Account for term, accident or health insurance coverage plus one-half of the premiums paid for ordinary life insurance coverage shall at all times be less than twenty-five percent (25%) of the aggregate Employer contributions and forfeitures allocated to such Participant. (d) The limitations of this Paragraph 6.6 shall be of no effect ------------- if such premiums are paid from contributions of the Employer that have been accumulated by the Trustee for two (2) or more years. 6.7 Cancellation of Contracts. The Administrator may at any time ------------------------- direct the Trustee to cancel any Contract purchased by the Trustee for the benefit of a Participant, except any Contract purchased at the direction of a Participant who is still entitled to share in Employer contributions. However, before directing the cancellation of any such Contract, the Administrator shall direct the Trustee to offer such Contract to the Participant in the manner specified in Paragraph 8.8 (Distribution of Contracts). ------------- 6.8 Status of Insurer. No Insurer that issues any Contract under the ----------------- Plan shall be required to take or permit any action contrary to the provisions of such Contract; be bound to allow any benefit or privilege to any person interested in any Contract it has issued that is not provided in such Contract; be deemed to be a party to the Plan; or be responsible for the validity of the Plan. Any such Insurer shall be fully discharged from all liability for any amount paid to the Trustee or paid in accordance with the direction of the Trustee and no Insurer shall be obligated to see to the distribution or application of any monies so paid by it. Any such Insurer shall not be liable for taking or permitting any action directed by the Trustee. However, if any such Insurer is also serving as an Investment Manager or as a custodian of Plan assets, or as a fiduciary with respect to the Plan, such Insurer shall be liable for its actions in accordance with the provisions of the Plan governing such activities. Furthermore, if an Insurer is providing administrative services to the Plan, it shall be liable to the same extent as any other person providing such services. 59 ARTICLE 7 --------- RETIREMENT DATES ---------------- 7.1 Normal Retirement Date. A Participant may retire on his Normal ---------------------- Retirement Date. 7.2 Delayed Retirement Date. ----------------------- (a) If Article 1 so provides, a Participant who has attained his --------- Normal Retirement Date may delay his retirement, but not beyond age sixty-nine (69) unless the Employer so requests. A Participant who delays his retirement may, however, retire on the last day of any calendar month. (b) If Article 1 so provides, a Participant who has attained age --------- seventy (70) may, at the request of the Employer, delay his retirement and remain in the active employ of the Employer for such period or periods as shall be agreed upon by the Participant and the Employer, but not beyond the attainment of any maximum age specified in Article 1. Any such request of the --------- Employer and the Participant's consent to such request shall be made in writing. At the request of the Administrator, the Employer shall provide the Administrator with copies of the request and the consent. The Participant shall retire on whichever of the following dates shall first occur: (i) the last day of the last agreed period or (ii) the last day of the calendar month in which the Participant attains any maximum age specified in Article 1. --------- (c) The date on which a Participant retires pursuant to this Paragraph 7.2 shall be his Delayed Retirement Date. - ------------- 7.3 Early Retirement Date. If Article 1 provides for early --------------------- --------- retirement, a Participant who satisfies the requirements specified in Article 1 --------- may retire on the last day of any calendar month prior to his Normal Retirement Date. Such date shall be the Early Retirement Date of the Participant. 7.4 Disability Retirement Date. -------------------------- (a) If Article 1 provides for disability retirement, a --------- Participant who satisfies the requirements, if any, specified in Article 1, who --------- is Disabled, and whose disability the Administrator has determined is likely to be permanent or of indefinite duration shall retire on the last day of the calendar month in which the Administrator determines that he is Disabled, which date shall be the Disability Retirement Date of the Participant. 60 (b) The Administrator shall have the exclusive authority to determine whether a Participant is Disabled and whether the such disability is likely to be permanent or of indefinite duration for purposes of the plan. The Administrator may secure such medical and other evidence as deemed necessary and appropriate. The determination of the Administrator shall be made in accordance with a uniform nondiscriminatory policy established by it. 61 ARTICLE 8 --------- DISTRIBUTIONS AND LOANS ----------------------- 8.1 Distributions - Normal Retirement. A Participant who has attained --------------------------------- his Normal Retirement Date and who has retired shall have a one hundred percent (100%) vested interest in his Employer Contribution Account on his Normal Retirement Date. He shall be entitled to have the value of his accounts distributed to him in a lump sum payment as of the Allocation Date coinciding with or next following his Normal Retirement Date, but in no event later than sixty (60) days after the end of the Plan Year in which his Normal Retirement Date occurs. The value of his accounts shall be determined in accordance with Paragraph 8.7 (Valuation of Accounts). He shall share in Employer contributions - ------------- and in forfeitures for the Plan Year in which his Normal Retirement Date occurs, but not thereafter. Any distribution shall be made in accordance with the Provisions of Paragraph 9.2 (Restrictions on Distributions) and Paragraph 9.3 ------------- ------------- (Date Distribution of Accounts Must Begin). 8.2 Distributions - Delayed Retirement. If Article 1 provides for ---------------------------------- --------- delayed retirement, a Participant who has attained his Normal Retirement Date and whose retirement is delayed shall have a one hundred percent (100%) vested interest in his Employer Contribution Account on his Normal Retirement Date. He shall be entitled to have the value of his accounts distributed to him in a lump sum payment as of the Allocation Date coinciding with or next following his Delayed Retirement Date, but in no event later than sixty (60) days after the end of the Plan Year in which his Delayed Retirement Date occurs. The value of his accounts shall be determined in accordance with Paragraph 8.7 (Valuation of ------------- Accounts). He shall share in Employer contributions and in forfeitures for the Plan Year in which his Delayed Retirement Date occurs, but not thereafter. In lieu of deferring the distribution of his accounts until his Delayed Retirement Date, the value of his accounts shall, at the request of the Participant be distributed to him as of his Normal Retirement Date, just as if he had retired on his Normal Retirement Date. If distribution is made as of his Normal Retirement Date, the value of his accounts shall be determined as of his Normal Retirement Date in accordance with Paragraph 8.7 (Valuation of Accounts). Any ------------- distribution shall be made in accordance with the Provisions of Paragraph 9.2 ------------- (Restrictions on Distributions) and Paragraph 9.3 (Date Distribution of Accounts ------------- Must Begin). 8.3 Distributions - Early Retirement. If Article 1 provides for early -------------------------------- --------- retirement, a Participant who has attained his Early Retirement Date and who has retired shall have a one hundred percent (100%) vested interest in his Employer Contribution Account on his Early Retirement Date. He shall be 62 entitled to have the value of his accounts distributed to him in a lump sum payment as of the Allocation Date coinciding with or next following his Normal Retirement Date, but in no event later than sixty (60) days after the end of the Plan Year in which his Normal Retirement Date occurs. The value of his accounts shall be determined in accordance with Paragraph 8.7 (Valuation of Accounts). He ------------- shall share in Employer contributions and in forfeitures for the Plan Year in which his Early Retirement Date occurs, but not thereafter. Any distribution shall be made in accordance with the Provisions of Paragraph 9.2 (Restrictions ------------- on Distributions) and Paragraph 9.3 (Date Distribution of Accounts Must Begin). ------------- 8.4 Distributions - Disability Retirement. If Article 1 provides for ------------------------------------- --------- disability retirement, a Participant who is Disabled and who has retired shall have a one hundred percent (100%) vested interest in his Employer Contribution Account on his Disability Retirement Date. He shall be entitled to have the value of his accounts distributed to him in a lump sum payment as of the Allocation Date coinciding with or next following his Disability Retirement Date, but in no event later than sixty (60) days after the end of the Plan Year in which his Disability Retirement Date occurs. The value of his accounts shall be determined in accordance with Paragraph 8.7 (Valuation of Accounts). He shall ------------- share in Employer contributions and in forfeitures until the end of the Plan Year in which his Disability Retirement Date occurs, but not thereafter. Any distribution shall be made in accordance with the Provisions of Paragraph 9.2 ------------- (Restrictions of Distributions) and Paragraph 9.3 (Date Distribution of Accounts ------------- Must Begin). 8.5 Distributions - Death. --------------------- (a) The Beneficiary of a deceased Participant shall have a one hundred percent (100%) vested interest in the Employer Contribution Account of the deceased Participant on the date of the Participant's death. The Beneficiary shall be entitled to have the value of the deceased Participant's accounts distributed to him in a lump sum payment as of the Allocation Date coinciding with or next following the date of the Participant's death, but in no event later than sixty (60) days after the end of the Plan Year in which the Participant's death occurs. The value of the accounts of the deceased Participant shall be determined in accordance with Paragraph 8.7 (Valuation of ------------- Accounts). The deceased Participant shall share in Employer contributions and in forfeitures for the Plan Year in which death occurs, but not thereafter. (b) Notwithstanding any other provision of this Plan, if the deceased Participant is survived by a spouse, the spouse shall be the Participant's Beneficiary, unless the Participant designated a Beneficiary other than his spouse and 63 the spouse consented to the specific designation of another Beneficiary in accordance with the provisions of this Paragraph 8.5. For purposes of this ------------- Subparagraph (b), "spouse" shall mean the wife or husband to whom a deceased - ---------------- Participant is married on the date of death, except that a former spouse of a deceased Participant shall be treated as the Participant's spouse to the extent required under a qualified domestic relations order described in Section 414(p) of the Code. (i) A married Participant may designate a Beneficiary other than his spouse by completion and filing with the Administrator of a beneficiary designation on a form presented by the Administrator if the spouse has consented to the specific designation of another Beneficiary. (ii) Notwithstanding the requirements of Subparagraph (i) ---------------- of this Subparagraph (b), a written consent of the spouse of a deceased ---------------- Participant shall not be required if, before his death, the Participant had established to the satisfaction of the Administrator that he did not have a spouse or that his spouse could not be located. (iii) The consent of the spouse to the designation by the participant of another Beneficiary shall be valid only if -- (A) it is in writing, (B) it is witnessed by either a notary public or the Administrator, and (C) it acknowledges the effect of the Participant's election not to have his accounts paid the Spouse. (c) Subject to the conditions and restrictions of Subparagraph ------------ (b) a Participant may designate a Beneficiary subject to the following - --- conditions and restrictions: (i) A designation or the revocation of a designation shall be made in writing on a form prescribed by the Administrator. (ii) A designation may be made by a Participant at any time. (iii) A designation shall be effective as of the date the prescribed form is filed with the Administrator regardless of whether or not the Participant is living at the time the form is filed with the Administrator. (iv) A designation may be revoked and a new designation may be made at any time if the new designation 64 otherwise complies with this Subparagraph (c). The revocation of a designation ---------------- shall be effective as of the date the prescribed form is filed with the Administrator. (d) If a Participant dies without a spouse or other designated Beneficiary, whether designated by the Plan or by the Participant, or if no designated Beneficiary survives a Participant or survives long enough to receive complete distribution of the Participant's accounts, the Account of the deceased Participant shall be said by the Administrator to one or more of the following: children or other descendants, adopted children or descendants of adopted children, next of kin of the deceased Participant, or the executor or administrator of the deceased Participant's estate; and the Participant's accounts may be distributed entirely to any one of them or in such shares to any two or more of them as the Administrator in its discretion may direct. (e) If the Trustee has applied to an Insurer for a Contract on a Participant's life and has remitted the initial premium, then the amount of the death benefit payable under such contract shall be whatever amount is payable by the Insurer in accordance with the terms of the application, and the rules and regulations of the Insurer. 8.6 Distributions - Termination of Employment. ----------------------------------------- (a) A Participant whose employment with the Employer is terminated for any reason other than retirement or death before his Normal Retirement Date shall have on the date his employment is terminated such vested interest in his Employer Contribution Account as is provided by the Plan vesting schedule or schedules. The Plan vesting schedule or schedules and the Participant's vested interest shall be determined in accordance with the provisions of Subparagraph (b) and the other provisions of this Paragraph 8.6. ---------------- ------------- If Paragraph 5.7 (Participants to Whom Employer Contributions and Forfeitures ------------- Will Be Allocated) and Article 1 so provide, the Participant shall share in --------- Employer contributions and in forfeitures for the Plan Year in which his employment is terminated. The Participant shall not share in Employer contributions nor in forfeitures for any Plan Year thereafter. The Administrator shall distribute the Participant's vested interest in the value of his Accounts to the Participant as of the Allocation Date coinciding with or next following the date his employment is terminated; provided, however, that if the value of the participant's Employer Contribution Account exceeds Three Thousand Five Hundred Dollars ($3,500.00), no distribution shall be made to a Participant from his Employer Contribution Account unless the Participant consents to the distribution. The value of the Participant's accounts shall be determined in accordance with Paragraph 8.7 (Valuation of Accounts). The ------------- 65 value of the Participant's accounts shall be determined in accordance with Paragraph 8.7 (Valuation of Accounts). The distribution of the Participant's - ------------- vested interest in his accounts shall be made in a lump sum payment. (b) The vested interest of a Participant whose employment with the Employer is terminated for any reason other than retirement or death before his Normal Retirement Date in the value of his Employer Contribution Account shall be determined in accordance with the vesting schedule or schedules specified in Article 1. If Article 1 provides a special vesting schedule for life insurance and annuity contracts and a special vesting schedule for benefits under a predecessor plan, or a special vesting schedule for either, a Participant's vested interest in the portion of his Employer Contribution Account attributable to either or both of such items, shall be determined in accordance with such special vesting schedules. (c) A Participant whose employment with the Employer is terminated for any reason other than retirement or death before his Normal Retirement Date shall forfeit the portion of his Employer Contribution Account that is not vested under Subparagraph (b) of this Paragraph 8.6 on the earlier ---------------- ------------- of the following dates: the date he incurs a period of five (5) consecutive One- Year Breaks in service or the date specified in Subparagraph (e) of this ---------------- Paragraph 8.6. The forfeited portion of the Participant's Employer Contribution - ------------- Account shall be reallocated as of the last day of the Plan Year in which such forfeiture occurs to the Participants who are entitled to share in forfeitures for such Plan Year. The value of the forfeited portion of the Participant's Employer Contribution Account shall be determined as of the date of reallocation. (d) In lieu of distributing the vested interest of a Participant whose employment with the Employer is terminated as of the Allocation Date coinciding with or next following the date his employment with the Employer is terminated, the Administrator at the request of a Participant whose Employer Contribution Account exceeds Three Thousand Five Hundred Dollars ($3,500.00) may delay the distribution of the Participant's vested interest in the value of his Employer Contribution Account to the Participant until the Allocation Date coinciding with or next following his Normal Retirement Date or such earlier Allocation Date as the Participant may specify. The value of the Participant's accounts shall be determined in accordance with Paragraph 8.7 (Valuation of ------------- Accounts). (e) If a distribution described in Subparagraph (d) of this Paragraph 8.6 is made before a Participant incurs a period of five (5) consecutive One-Year Breaks in Service and-- 66 Contribution Account, the Participant shall forfeit the non-vested portion of his Employer Contribution Account on the date of the distribution, or (ii) if the distribution represents less than the entire vested interest of the Participant in his Employer Contribution Account, the Participant shall forfeit an amount of the non-vested portion of his Employer Contribution Account on the date of the distribution, such amount to be determined by first multiplying the pre-distribution amount of the Participant's Employer Contribution Account (the vested portion plus the non-vested portion) by a fraction, the numerator of which is the amount of the distribution and the denominator of which is the pre-distribution amount of the vested portion of the Participant's Employer Contribution Account and then reducing the product of step one by the amount of the distribution. The remainder of the Participant's Employer Contribution Account shall be subject to the following rules: (A) If the Participant is not reemployed by the Employer or if he is reemployed after he incurs a period of five (5) consecutive One-Year Breaks in Service, the Participant shall forfeit the non-vested portion of such Employer Contribution Account on the date he incurs a period of five (5) consecutive One-Year Breaks in Service. (B) If the Participant is reemployed by the Employer before he incurs a period of five (5) consecutive One-Year Breaks in Service, the Participant's vested interest in such Employer Contribution Account shall continue to increase in accordance with the Plan vesting schedule. (C) Such Employer Contribution Account shall continue to share in the income, losses, appreciation, and depreciation of the commingled portion of the Fund, to the extent attributable thereto. (D) No Employer contributions or forfeitures shall be allocated or credited to such Employer Contribution Account; the participant's share, if any, of future Employer contributions and forfeitures shall be allocated and credited to a new Employer Contribution Account established for the Participant pursuant to Subparagraph (c) of Paragraph 3.1 (Participation). ---------------- ------------- (E) If the Participant repays a distribution described in Subparagraph (d) of this Paragraph 8.6 before he incurs a period of five (5) ---------------- ------------- consecutive One-Year Breaks in Service, and if the distribution qualified as either an involuntary cash-out or a voluntary cash-out, and if the value of such Employer Contribution Account immediately after the 67 repayment (the repayment value) is less than the value immediately preceding the distribution (the pre-distribution value), such Employer Contribution Account shall be restored to its predistribution value in the manner specified in Subparagraph (c) of Paragraph 9.12 (Right to Repay Distribution Received on - ---------------- -------------- Termination of Participation in the Plan). (f) Notwithstanding any other provision of the Plan, if Article ------- 1 provides for early retirement and if the eligibility requirements for early - - retirement provide that a Participant must satisfy both a service requirement and an age requirement, a Participant who satisfied the service requirement but not the age requirement at the time his employment was terminated may elect to have the distribution of his accounts begin not later than sixty (60) days after the close of the Plan Year in which he satisfies the age requirement. The election provided for under Subparagraph (g) shall be made in the manner ---------------- specified in, and shall be subject to the conditions and restriction in, Subparagraph (d) of Paragraph 9.3 , ( Date Distribution of Accounts Must Begin) - ---------------- ------------- and Paragraph 9.4, (Date Distribution of Accounts Must be Completed). ------------- (g) Notwithstanding any other provision of this Plan, if Article ------- 1 provides for early retirement and if the eligibility requirements for early - - retirement provide that a Participant must satisfy both a service requirement and an age requirement, a Participant who satisfied the service requirement but not the age requirement at the time his employment was terminated may elect to have the distribution of his accounts begin not later than sixty (60) days after the close of the Plan Year in which he satisfies the age requirement. The election provided for under this Subparagraph (g) shall be made in the manner ---------------- specified in, and shall be subject to the conditions and restrictions in, Subparagraph (d) of Paragraph 9.5 (Date Distribution of Accounts Must Begin). - ---------------- ------------- (h) If the vesting schedule or any other provision of this Plan that directly or indirectly affects the computation of a Participant's vested interest is amended, Paragraph 10.7 (Amendment of Vesting Schedule - Right to -------------- Elect Former Vesting Schedule) provides that a Participant who has completed three (3) or more Years of Service may elect to have his vested interest in his Employer Contribution Account determined without regard to the Plan amendment. 8.7 Valuation of Accounts. The accounts of a retired, deceased or --------------------- terminated Participant, except his Participant Directed Investment Accounts, shall be valued as of the date specified in Article 1. His Participant Directed --------- Investment Accounts shall be valued as of the date of distribution. 68 8.8 Distribution of Contracts. ------------------------- (a) The Administrator shall offer to distribute to a Participant who has retired all Contracts, if any, on his life that are held for his benefit. If the Participant elects in writing to receive his Contracts in kind, the Administrator shall direct the Trustee to distribute the Participant's Contracts to him. If the Participant elects not to receive his Contracts in kind, or fails to make an election within thirty (30) days after notice from the Administrator, the Administrator shall direct the Trustee to dispose of the Participant's Contracts in any one or more of the methods specified in Article 9 --------- (Methods and Mediums of Distribution, Limitations, Etc.). (b) If a Participant ceases to participate in the Plan for any reason other than retirement or death, the offer to sell all or any one or more of such Contracts to the Participant at a price equal to their cash value, if the Participant does not elect to purchase such Contracts, the Trustee shall dispose of all or any ore or more of such Contracts in any one or more of the methods specified in Article 9 (Methods and Mediums of Distribution, --------- Limitations, Etc.). 8.9 Pre-Termination Distributions. ----------------------------- (a) If Article 1 provides for pre-termination distributions, the --------- Administrator, upon the request of a Participant, shall direct the Trustee to make a distribution to the Participant from his accounts listed in, and for the purposes authorized in, Article 1, each request for a pre-termination --------- distribution shall be made by filing a written application with the Administrator. The application shall be supported by such evidence as the Administrator may require. (b) The Administrator may authorize pre-termination distributions to be made to a Participant by the Trustee where the distribution is necessary to satisfy an immediate and heavy financial need of the Participant on account of: (i) medical expenses described in Section 213(d) of the Code incurred by (or necessary to obtain care for) the Participant, his spouse, or any of his dependents; (ii) payment of tuition and related educational fees for the next 12 months of post-secondary education of a Participant, his spouse, children or any of his dependents; (iii) the purchase (excluding mortgage payments) of a principal residence for the Participant; or 69 (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (v) funeral expenses for the spouse or a dependent of the Participant. (c) Notwithstanding any other provision of this Plan, the amount of a pre-termination distribution made to a Participant from an account listed in Article 1 shall not exceed the value (determined as of the Allocation Date --------- coinciding with or next preceding the date of such distribution) of the Participant's vested interest in the account, except that (i) if the Employer's Plan is integrated with Social Security, then in the case of a pre-termination distribution made from a Participant's Employer Contribution Account, the amount of the distribution shall not exceed the value (determined as of the Allocation Date coinciding with or next preceding the date of such distribution) of the Participant's vested interest in the portion of the account that is not attributable to allocations based on Compensation in excess of the integration level specified in Article 1; --------- (ii) in the case of a pre-termination distribution made from a Participant's Salary Reduction Contribution Account, (A) the purpose of the distribution shall be to enable the Participant to meet immediate and heavy financial needs, (B) the amount required to meet such financial needs shall not be reasonably available from the resources of the Participant, and (C) the amount of the distribution shall not exceed the amount required to meet such financial needs. (d) A distribution will be deemed to be necessary to satisfy an immediate and heavy financial need of an Employee if the Participant provides the Administrator reasonable representation that the need cannot be relieved-- (i) Through reimbursement or compensation by insurance or otherwise, 70 (ii) By reasonable liquidation of the employee's assets, to the extent such liquidation would not itself cause an immediate heavy financial need, (iii) By cessation of elective contributions or employee contributions under the Plan, or (iv) By other distributions or non-taxable at the time of the loan(s) from the Plan by the employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms. If a Participant receives a distribution pursuant to this Paragraph 8.9, the ------------- Participant's Salary Reduction Contributions shall be suspended for twelve (12) months after receipt of the distribution. For purposes of this Subparagraph (d), the Participant's resources shall be ---------------- deemed to include those assets of his spouse and minor children that are reasonably available to the Participant but which do not include assets held for a child of the Participant under any revocable trusts or under the Uniform Gift to Minors Act. Any distribution under this Paragraph 8.9 shall not exceed the ------------- amount of the immediate financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from such distribution). 8.10 Loans to Participants. --------------------- (a) If Article 1 provides for loans to Participants, the --------- Administrator, upon the request of a Participant, may direct the Trustee to make a loan or loans to the Participant. In no event shall the total amount of any loan or loans, plus unpaid interest, to a Participant exceed the lesser of the following amounts: (i) Fifty Thousand Dollars ($50,000.00) reduced by the excess (if any) of - (A) the highest outstanding balance of loans from the Plan during the one-year period ending on the day before the date on which such loan was made, or (B) the outstanding balance of loans from the Plan on the date on which such loan was made; (ii) fifty percent (50%) of the value of the Participant's vested interest in his accounts; or 71 (iii) the value (determined as of the Allocation Date coinciding with or next preceding the date of such loan) of the Participant's accounts. Further, if the Employer's Plan is integrated with Social Security, in no event shall the total amount of any loan or loans, plus unpaid interest, from a Participant's Employer contribution Account exceed the value (determined as of the Allocation Date coinciding with or next preceding the date of such loan) of the portion of the Participant's Employer contribution Account that is not attributable to allocations based on Compensation in excess of the integration level specified in Article 1. --------- (b) In no event shall the term of any loan exceed five (5) years unless the proceeds of the loan are used to acquire the principal residence of the Participant. (c) The Administrator shall establish the interest rate and the repayment schedule for each loan, including the term of the loan and the maturity date, all of which shall be acceptable to the Trustee and shall be subject to the provisions of this Paragraph 8.10. -------------- (d) Each loan shall -- (i) be evidenced by a note; (ii) have a fixed maturity date; (iii) require substantially level amortization of the loan with payments not less frequently than quarterly over the term of the loan; (iv) bear interest at a reasonable rate, but in no event at a rate that is less than the rate currently being charged by institutional lenders in the area of the Employer's principal place of business for loans of the same type; and (v) be secured by adequate collateral. The collateral shall include the assignment of the participant's entire interest in his accounts and the Participant, by accepting the loan, automatically assigns as security for the loan his entire interest in his accounts. (e) If Article 1 provides that a loan to a Participant shall --------- be considered an investment of the Participant's accounts, the loan shall be charged to the account or accounts from which the loan was made and all payments on the loan, both principal and interest, shall be credited to the account or accounts from which the loan was made. 72 (f) If the Participant defaults on his payment obligations under the loan, the Administrator shall direct the Trustee to take such action as shall be necessary or appropriate under the circumstances to realize upon the Trust's security interest in the collateral or to deduct from the Participant's accounts the amount required to cure the default. (g) The Administrator shall provide each loan applicant with a clear statement of the charges involved in each loan transaction. Such statement shall include the dollar amount and the annual interest rate of the finance charge. (h) Loans shall be made available to all Participants in accordance with a uniform non-discriminatory policy established by the Administrator, except that no loans shall be made to Owner-Employees or to Shareholder-Employees. (i) No loan shall be made to a Participant who is married on the date the loan is made unless the spouse of the Participant consents to the loan. The consent of the spouse to a loan described in this Paragraph 8.10 shall -------------- be valid only if - (i) it is made within the ninety (90) day period before the date the loan is made to the Participant, and (ii) it is witnessed by either a Notary Public or the Administrator or a designated agent of the Administrator, and (iii) it acknowledges that the right of the Administrator to reduce the Participant's Employer Contribution Account balance in the event of default by the Participant of the terms of the loan may defeat the rights of the spouse to the Participant's Employer Contribution Account. 73 ARTICLE 9 --------- METHODS AND MEDIUMS OF DISTRIBUTION, LIMITATIONS, ETC. ----------------------------------------------------- 9.1 Claim Forms. In order to receive any distribution under ----------- this Plan, a Participant or Beneficiary must file a written claim with the Administrator. Each claim shall be made on forms acceptable to the Administrator and Trustee and shall be filed in such manner as the Administrator may specify. The Administrator may require a Participant or Beneficiary filing a claim to furnish such information as the Administrator deems pertinent to the determination of the amount of the claim. The Administrator may also require a Participant or Beneficiary filing a claim to furnish such proof of death and such evidence of the right to receive payment of the accounts of a deceased Participant as the Administrator deems appropriate. 9.2 Restrictions on Distributions. Distributions from a ----------------------------- Participant's accounts shall be made to or for the benefit of the Participant or, in the event of his death, to or for the benefit of his Beneficiary in accordance with the other provisions of the Article 9 and shall comply with the --------- requirements of Section 401(a)(9) of the Code and the regulations thereunder, including Regulation Section 1.401(a)(9)-2 which is incorporated herein by reference. Notwithstanding any other provision of the Plan, however, no distribution of a Participant's accounts will be made under any form of payment unless the present value of the payments projected to be made to the Participant during his life exceeds the present value of the total payments to be made to the Participant and the Participant's Beneficiary. 9.3 Date Distribution of Accounts Must Begin. ---------------------------------------- (a) Notwithstanding any other provision of this Plan, unless a Participant elects otherwise, the distribution of his accounts shall begin no later than sixty (60) days after the end of the Plan Year in which the latest of the following events occurs: (i) the Participant attains his sixty-fifth (65th) birthday, or, if earlier, reaches his Normal Retirement Date; (ii) the tenth (10th anniversary of the Plan Year in which the Participant began to participate in the Plan; or (iii) the termination of the Participant's employment with the Employer. 74 (b) A Participant may elect, prior to the date the distribution of his accounts is to be made, to have the distribution of his accounts begin on a later date than that specified in Subparagraph (a) of this Paragraph 9.3 if ---------------- ------------- that date is no later than the latest date specified in Paragraph 9.4 (Date ------------- Distribution of Accounts Must Be Completed). (c) If the distribution of a Participant's accounts cannot begin on the date specified in Subparagraph (a) of this Paragraph 9.3 because the ---------------- ------------- Administrator either cannot ascertain the amount of the Participant's accounts or cannot locate the Participant after making reasonable efforts to do so, the distribution of the Participant's accounts shall begin no later than sixty (60) days after the date on which the amount can be ascertained or the Participant is located, whichever is applicable. Any such distribution shall be made retroactive to a date that is no earlier than the date on which distribution of the Participant's accounts was scheduled to begin but no later than the date specified in Subparagraph (a) of this Paragraph 9.3. ---------------- ------------- (d) The election provided for under this Paragraph 9.3 shall be ------------- subject to the following conditions and restrictions: (i) An election or the revocation of an election shall be made in writing on a form prescribed by the Administrator and shall specify the date on which the distribution of the Participant's accounts shall begin. (ii) An election may be made at any time during the six (6) month period preceding the date the distribution of the Participant's accounts is scheduled to begin. (iii) An election, if timely made, shall be effective as of the date the prescribed form is filed with the Administrator. (iv) An election may be revoked and a new election may be made at any time during the same election period if the new election otherwise complies with this Paragraph 9.3. The revocation of an election, if timely made, ------------- shall be effective as of the date the prescribed form is filed with the Administrator. 9.4 Date Distribution of Accounts Must be Completed. ----------------------------------------------- (a) Notwithstanding any other provision of this Plan, a Participant's accounts shall be distributed to the Participant no later than the "Required Distribution Date," which 75 shall mean April 1 of the calendar year following the calendar year in which a Participant attains age seventy and one-half (70 1/2). 9.5 Distributions Upon Death of Participant. Notwithstanding any --------------------------------------- provision of the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. (a) If it is determined, pursuant to Regulations, that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Paragraph 9.3 as of his date of death. ------------- (b) If a Participant dies before he has begun to receive any distributions of his interest in the Plan or before distributions are deemed to have begun pursuant to Regulations, then, subject to the provisions of Paragraph --------- 8.5 regarding distributions to the spouse of a married Participant, the deceased - --- Participant's accounts shall be distributed to his Beneficiary in a lump sum payment as soon as practical; provided, however, that the accounts shall be distributed to the Participant's Beneficiaries by December 31st of the calendar year in which the fifth anniversary of the Participant's death occurs. 9.6 Distributions to Incompetents. In the event that a distribution is ----------------------------- payable to a minor or other legally incompetent person or to any person who in the judgment of the Administrator is unable to handle funds paid directly to such person, the Administrator may direct that such distribution be made in any one or more of the following ways: (i) directly to such minor or other person; (ii) to the legal representative of such minor or other person; (iii) to any relative of such minor or other person who shall have custody and care of such person; (iv) directly in payment of the support, maintenance, or education of such minor or other person; or (v) to a trust created for the benefit of such minor or other person. The Administrator shall not be required to see to the proper application of any distribution so made and the receipt of the payee shall be a complete discharge of any liability under the Plan for such distribution. 9.7 Duty of Administrator to Inform Participants of Right to -------------------------------------------------------- Distribution. The Administrator shall notify a Participant or Beneficiary who is - ------------ or may become entitled to a distribution of his right to receive the distribution. Such notice shall be given no later than six (6) months after the Participant's termination of employment with the Employer and 76 again six (6) months before the Participant or Beneficiary becomes entitled to the distribution. Such notice shall inform the Participant or Beneficiary of his duty to file his address with the Administrator from time to time, as provided in Paragraph 9.8 (Duty of Participants to Inform Administrator of Address). If ------------- the address of the Participant or Beneficiary is unknown, the Administrator shall send such notice to the Participant or Beneficiary by registered mail directed to his last known address. 9.8 Duty of Participants to Inform Administrator of Address. Each ------------------------------------------------------- Participant and each Beneficiary designated by a Participant must file with the Administrator from time to time in writing his address and each change of address. Any communication, statement or notice addressed to a Participant or Beneficiary at his last address filed with the Administrator (or if no address is filed with the Administrator, then at his last address as shown on the Administrator's records) shall be binding on the Participant and his Beneficiary for all purposes of the Plan. Neither the Administrator nor the Trustee shall be required to search for or locate a Participant or Beneficiary. If the Administrator notifies a Participant or Beneficiary that he is or may become entitled to a distribution in accordance with the provisions of Paragraph 9.7 ------------- (Duty of Administrator to Inform Participants of Right to Distribution), and also notifies him of the provisions of this Paragraph 9.8, and the Participant ------------- or Beneficiary fails to claim the distribution or to make his address known to the Administrator within three (3) years after he has become entitled to the distribution, the distribution shall be disposed of as follows: (i) If the address of the Participant is unknown but the address of the Beneficiary designated by the Participant is known to the Administrator, distribution shall be made to such Beneficiary. (ii) If the address of neither the Participant nor the Beneficiary designated by the Participant is known to the Administrator, but the address of one or more relatives by adoption, blood, or marriage of the Participant is known to the Administrator, distribution shall be made to any one or more of such relatives in such proportions as the Administrator determines. 9.9 Right to Make Partial Distributions. Since it may not be ----------------------------------- possible to determine the value of a Participant's accounts until the Allocation Date next following his retirement, death, or termination, the Administrator in its discretion may direct the Trustee to make a partial distribution to the Participant or to his Beneficiary from his accounts prior to such Allocation Date so long as the amount of such partial distribution does not jeopardize the interests of the other 77 Participants by exceeding the value of the Participant's accounts on such Allocation Date. 9.10 Transfer to Plan of New Employer. Upon the request of a -------------------------------- Participant who has retired or otherwise terminated his employment with the Employer, the Administrator, pursuant to the provisions of Article 15, may ---------- direct the Trustee to transfer, as of the Allocation Date coinciding with or next following the date of the Participant's request, the value of the Participant's accounts, to the extent that they are vested, in the form of cash or other property, to the plan of the Participant's new employer, provided the trustee or other funding agent of such plan is authorized to accept such assets, such assets are maintained in a separate account under such plan, such assets are nonforfeitable, and such assets do not in any way reduce the obligation of the Participant's new employer under such plan. 9.11 Date Employer Contribution Account Must Be 100% Vested. ------------------------------------------------------ Notwithstanding any other provision of this Plan, a Participant shall have a one hundred percent (100%) vested interest in his Employer Contribution Account on the earlier of the following dates: (i) his Normal Retirement Date, or (ii) the later of -- (A) the date on which he attains his sixty-fifth (65th) birthday, or (B) the tenth (10th) anniversary of his Entry Date. 9.12 Right to Repay Distribution Received on Termination of ------------------------------------------------------ Participation in the Plan. - ------------------------- (a) If a Participant is reemployed by the Employer before incurring a period of five (5) consecutive One-Year Breaks in Service, and such Participant received a distribution that qualified as either an involuntary cash-out or a voluntary cash-out (as defined in Subparagraphs (d) and (e) of ----------------- --- this Paragraph 9.12) while less than one hundred percent (100%) vested in his -------------- Employer Contribution Account, the Participant may repay the full amount of the distribution to the Trustee. Such repayment shall be made not later than the earlier of (i) five (5) years after the date such Participant was reemployed, or (ii) the date he incurs five (5) consecutive One-Year Breaks in Service following the payment of the vested portion of his Employer Contribution Account. 78 (b) The Administrator shall provide each Participant who is eligible to repay a distribution that qualified as either an involuntary cash- out or a voluntary cash-out with a written general explanation of the Participant's right to make such repayment and the consequences of making or failing to make such repayment. Such written explanation shall be provided within six (6) months of the Participant's reemployment. (c) If a Participant, before he incurs a period of five (5) consecutive One-Year Breaks in Service, repays a distribution that qualified as either an involuntary cash-out or a voluntary cash-out, the repayment shall be credited to the Participant's Employer Contribution Account. If the value of the Participant's Employer Contribution Account immediately after the repayment (the repayment value) is less than the value immediately preceding the distribution (the pre-distribution value), such account shall be restored to its pre- distribution value. The repayment value of such account shall be determined as of the next Allocation Date before any amount is credited to such account under the allocation procedure specified in Paragraph 5.3 (Allocation Procedure). Such ------------- restoration shall be made from forfeitures occurring during the current Plan Year, that is, the Plan Year in which such repayment is made; provided however, that if such forfeitures are not sufficient, such restoration shall be made either from Employer contributions for the current Plan Year or from the income and appreciation of the Fund for the current Plan Year. (d) An involuntary cash-out is a distribution to a Participant that meets each of the following requirements: (i) the value of the Participant's Employer Contribution Account and Participant Voluntary Contribution Account does not exceed Three Thousand Five Hundred Dollars ($3,500.00); (ii) the distribution constitutes one hundred percent (100%) of the value of the Participant's vested interest in his Employer Contribution Account and one hundred percent (100%) of the value of any other accounts that are held for his benefit; and (iii) the distribution is made because the Participant's participation in the Plan has ended. (e) A voluntary cash-out is a distribution to a Participant that meets each of the following requirements: (i) the value of the Participant's Employer Contribution Account and Participant Voluntary Contribution Account exceeds Three Thousand Five Hundred Dollars ($3,500.00); 79 (ii) the distribution constitutes one hundred percent (100%) of the value of the Participant's vested interest in his Employer Contribution Account and one hundred percent (100%) of the value of any other accounts that are held for his benefit; (iii) the distribution is made pursuant to the Participant's written consent; and (iv) the distribution is made because the Participant's participation in the Plan has ended. (f) For purposes of determining whether a distribution qualifies as either an involuntary cash-out or a voluntary cash-out, any service of a Participant after the distribution shall be disregarded. 80 ARTICLE 10 ---------- AMENDMENT AND TERMINATION OF THE PLAN ------------------------------------- 10.1 Right of Employer to Amend the Plan. The Employer shall ----------------------------------- have the right at any time and from time to time to amend the Plan in whole or in part. 10.2 Limitations on Right of Employer to Amend the Plan. -------------------------------------------------- Notwithstanding any other provision of this Plan, no amendment to the Plan shall -- (i) cause any reduction in the amount of a Participant's accounts, (ii) cause any reduction in a Participant's vested interest in his accounts, (iii) eliminate a method of distribution contained in Paragraph 9.2 (Restrictions on Distribution), or - ------------- (iv) authorize or permit any part of the Fund to revert to the Employer or to be diverted to any purpose other than the exclusive benefit of the Participants or their Beneficiaries, except for any part that is required to pay taxes and administration expenses or any part that may revert to the Employer under the provisions of Paragraph 5.9 (Section 415 Limitations) and ------------- Paragraph 10.9 (Return of Employer Contributions Because of Failure of the Plan - -------------- to Qualify, Mistake of Fact, or Disallowance of Deduction). 10.3 Partial Termination of the Plan by Employer. ------------------------------------------- (a) The Employer shall have the right at any time to terminate the Plan with respect to a group of Participants (which shall constitute a partial termination of the Plan) by delivering to the Administrator and the Trustee written notice of such partial termination. (b) Upon the partial termination of the Plan by the Employer with respect to a group of Participants or upon any other partial termination of the Plan, the Employer Contribution Account of each affected Participant shall become one hundred percent (100%) vested and shall not thereafter be subject to forfeiture. 10.4 Termination of the Plan by Employer. The Employer shall ----------------------------------- have the right at any time to terminate the Plan or its contributions to the Plan (which shall be deemed a termination) by delivering to the Administrator and the Trustee written notice of such termination or of permanent discontinuance of its contributions. Upon termination of the Plan or upon the 81 permanent discontinuance of contributions, the Employer Contribution Account of each Participant shall become one hundred percent (100%) vested and shall not thereafter be subject to forfeiture. 10.5 Procedure for Termination of the Plan. In the event of full or ------------------------------------- partial termination of the Plan or of permanent discontinuance of contributions, the Administrator shall instruct the Trustee to determine the value of the Fund (after payment of any expenses properly chargeable against the Fund) and to adjust each Participant's accounts in the manner provided in Article 5 --------- (Allocation of Contributions). The Administrator shall also furnish instructions to the Trustee concerning the distribution to the affected Participants of their accounts. In either event, the distribution to the affected Participants of their accounts may be accomplished by (i) the continuance of the Trust and the Fund (despite the termination of the Plan) until such time as the Administrator in its discretion deems appropriate, or (ii) distribution, whether immediate or deferred, in any one or more of the methods specified in Article 9 (Methods and --------- Mediums of Distribution, Limitations, Etc.). 10.6 Merger and Consolidation of the Plan - Transfer of Plan Assets. -------------------------------------------------------------- This Plan shall not be merged or consolidated with, nor shall any assets or liabilities be transferred to, any other plan, unless the benefits payable to each Participant if the other plan were to terminate after such merger, consolidation, or transfer would be equal to or greater than the benefits to which such Participant would have been entitled had this Plan been terminated immediately before such merger, consolidation, or transfer. The Trustee shall not transfer any assets or liabilities of this Plan until it has received written assurance from the Administrator that the provisions of this Paragraph --------- 10.6 have been complied with. - ---- 10.7 Amendment of Vesting Schedule - Right to Elect Former Vesting ------------------------------------------------------------- Schedule. - -------- (a) If the vesting schedule or any other provision of the Plan that directly or indirectly affects the computation of a Participant's vested interest is amended, a Participant who has completed three (3) or more Years of Service may elect, during the election period specified in Subparagraph (d) of ---------------- this Paragraph 10.7, to have his vested interest in his Employer Contribution -------------- Account determined without regard to the Plan amendment. (b) Years of Service that are disregarded under the provisions of Subparagraph (c) of Paragraph 3.2 (Service) shall not be disregarded for ---------------- ------------- purposes of this Paragraph 10.7. A Participant shall be considered to have -------------- completed three (3) Years of Service if he has completed three 82 completed three (3) Years of Service if he has completed three (3) Years of Service before the end of the election period specified in Subparagraph (d) of ---------------- this Paragraph 10.7. -------------- (c) The Administrator shall provide each Participant who is entitled to make an election under this paragraph 10.7 with a written general -------------- explanation of (i) the Plan amendment and (ii) the Participant's right to elect to have his vested interest determined without regard to the Plan amendment. (d) The election provided for under this Paragraph 10.7 shall be -------------- subject to the following conditions and restrictions: (i) An election shall be made in writing on a form prescribed by the Administrator. (ii) An election may be made at any time during the period beginning on the date the Plan amendment is adopted and ending sixty (60) days after the latest of the following dates: (A) the date the Plan amendment is adopted; (B) the date the Plan amendment becomes effective; or (C) the date the Participant is provided written notice of the Plan amendment. (iii) An election, if timely made, shall be effective as of the date the prescribed form is filed with the Administrator. (iv) An election, once made, shall be irrevocable. 10.8 Exclusive Benefit of Fund. No part of the Fund shall ------------------------- revert to the Employer or be diverted to any purpose other than the exclusive benefit of the Participants or their Beneficiaries, except for any part that is required to pay taxes or administrative expenses or any part that may revert to the Employer under the provisions of Paragraph 5.9 (Section 415 Limitations) and ------------- Paragraph 10.9 (Return of Employer Contributions Because of Failure of the Plan - -------------- to Qualify, Mistake of Fact, or Disallowance of Deduction). 83 10.9 Return of Employer Contributions Because of Failure of the Plan --------------------------------------------------------------- to Qualify, Mistake of Fact, or Disallowance of Deduction. Notwithstanding any - --------------------------------------------------------- other provision of this Plan -- (i) if the Internal Revenue Service determines that the Plan fails to qualify initially, the Administrator in its discretion may direct the Trustee to return to the Employer the portion of the Fund contributed by the Employer, less any expenses of the Trustee, and to return to each Participant the portion of the Fund contributed by the Participant, provided that the Fund be returned within one (1) year after the denial of qualification; (ii) if a contribution is made to the Plan by the Employer under a mistake of fact, the Administrator in its discretion may direct the Trustee to return to the Employer the contribution (or the portion of the contribution that is attributable to the mistake), reduced by any loss attributable to the contribution (or the portion that is attributable to the mistake), provided that the contribution (or the portion that is attributable to the mistake) be returned within one (1) year after its payment; or (iii) if a contribution made to the Plan by the Employer is disallowed in whole or in part as a deduction under Section 404 of the Code, the Administrator in its discretion may direct the Trustee to return to the Employer the contribution (or the portion of the contribution that was disallowed), reduced by any loss attributable to the contribution (or the portion that was disallowed), provided that the contribution (or the portion that was disallowed) be returned within one (1) year after the disallowance. 84 ARTICLE 11 ---------- ADMINISTRATION OF THE PLAN -------------------------- 11.1 Employer to be Administrator of the Plan. The Employer shall be ---------------------------------------- the Administrator of the Plan, unless the Employer has designated a person or committee as Administrator of the Plan in Article 1 and has delegated --------- appropriate powers and duties and allocated appropriate responsibilities to such Administrator in accordance with Paragraph 11.2 (Delegation of Powers and Duties -------------- and Allocation of Fiduciary Responsibilities). The Employer, Trustee, and Administrator shall be "named fiduciaries" of the Plan within the meaning of Section 402 of ERISA. 11.2 Delegation of Powers and Duties and Allocation of Fiduciary ----------------------------------------------------------- Responsibilities. The Employer shall have the power to delegate any of its - ---------------- powers or duties and to allocate fiduciary responsibilities, other than Trustee responsibilities relating to the control of Plan assets, to the Administrator and to such other fiduciaries and agents as it deems proper. The Employer shall make such delegations or allocations by means of a signed written document and shall deliver a copy of said document to the Trustee and to any other affected fiduciaries and agents. The Employer may revoke any such delegation or allocation by delivering a signed written document evidencing such revocation to the Trustee and to any other affected fiduciaries and agents. Any fiduciary or agent to whom powers or duties have been delegated or to whom responsibilities have been allocated by the Employer may resign by delivering a written resignation to the Employer and to any other affected fiduciaries and agents. If the Employer revokes any delegation of powers and duties or any allocation of fiduciary responsibilities that it has previously made, or if any fiduciary or agent appointed by the Employer shall resign, the Employer may re-delegate such powers and duties or reallocate such responsibilities as it deems appropriate. 11.3 Powers of Administrator. The Administrator shall have the sole ----------------------- power, duty, and responsibility to direct the administration of the Plan in accordance with the provisions of Article 11, except for any powers, duties, or ---------- responsibilities allocated to other persons pursuant to Paragraph 11.2 -------------- (Delegation of Powers and Duties and Allocation of Fiduciary Responsibilities), and except for those powers and rights reserved to the Trustee that are necessary to enable it to properly administer the Trust. The Administrator shall administer the Plan for the best interests of the Participants and Beneficiaries and shall have among its powers, duties, and responsibilities the following: 85 (i) to construe and interpret any provision of the Plan and Trust and to supply any omission or reconcile any inconsistency in such manner as it deems proper and to decide all questions that shall arise under the Plan; (ii) to decide all questions relating to the eligibility of Employees to participate in the Plan and to determine the amount, manner, and time of payment of any benefit to which any Participant or Beneficiary may be entitled; (iii) to make a determination as to the right of any Employee, Participant, or Beneficiary to any benefit under the Plan and to afford any person dissatisfied with such determination the right to a hearing thereon; (iv) to establish uniform rules and procedures to be followed by Participants and Beneficiaries in filing claims for benefits; (v) to receive from Employees and Participants such information as shall be necessary for the proper administration of the Plan; (vi) to prepare and distribute, in such manner as it determines to be appropriate, information explaining the Plan; (vii) to furnish Employees and Participants, upon request, such reports with respect to the administration of the Plan as are reasonable and appropriate; (viii) to file such reports and statements with the Secretary of Labor and the Secretary of the Treasury as are required by law; (ix) to receive and review the Trustee's reports of the financial condition and of the receipts and disbursements of the Fund; (x) to adopt such rules and actuarial tables as it deems necessary or desirable; (xi) to maintain and preserve a record for each Employee and Participant that shows all items of data and account balances required for the administration of the Plan; and (xii) to appoint such agents, whether ministerial or discretionary, as it deems necessary or desirable and to fix their compensation, within such limits as the Employer may have set. 86 All directions by the Administrator shall be conclusive on all parties concerned, including the Trustee, and all decisions of the Administrator as to the facts of any claim and the meaning, intent, or proper construction of any provision of the Plan, or as to the application of any rule or regulation to any claim shall be final and conclusive if no request for a review of such decision is filed pursuant to the provisions of Paragraph 11.12 (Claims Procedure). --------------- 11.4 Rules for Operation of Committee. -------------------------------- (a) If the Employer has designated a committee to serve as Administrator of the Plan, or if the Employer has delegated any of its powers or duties or allocated any of its fiduciary responsibilities to a committee that is not the Administrator, the operation of such committee shall be governed by the rules specified in this Paragraph 11.4. The members of the committee shall serve -------------- at the pleasure of the Employer. The Employer may remove any member of the committee at any time and may appoint a successor by notifying all committee members in writing of such action. In addition, a member may resign at any time by delivering a written resignation to the Employer. The Employer shall notify the Trustee and any other affected fiduciaries and agents in writing of the membership of the committee if one is appointed, and of any changes therein as they occur from time to time. The Trustee and any other affected fiduciaries and agents shall be entitled to rely on the last such notification received until written notification to the contrary has been received from the Employer. The Employer shall also furnish the Trustee and any other affected fiduciaries and agents a certified copy of the signatures of the secretary and other members of the committee and the Trustee and any other affected fiduciaries and agents shall be entitled to rely upon such certified signatures. (b) The committee shall elect a chairman and a secretary from among its members. The committee shall act by majority vote. The members of the committee shall serve as such without compensation if they are Employees of the Employer. The committee may authorize one or more of its members to execute any document or documents on behalf of the committee, in which event the committee shall notify the Trustee and any other affected fiduciaries and agents in writing of the name or names of the person or persons so designated. (c) All acts and determinations of the committee shall be duly recorded by the secretary of the committee, or under his supervision, and all such records, together with such other documents as may be necessary for the administration of the Plan, shall be preserved in the custody of the secretary. 87 (d) When making a determination or calculation, the committee shall be entitled to rely upon all information furnished by the Employer, Trustee, or any other fiduciary or agent and shall be fully protected by the Employer in respect of any action taken by the committee in good faith in reliance upon such information. (e) No member of the committee who is a Participant shall take any part in any action in connection with his participation as an individual. Such action shall be voted or decided by the remaining members of the committee. 11.5 Records. All acts and determinations of the Employer and ------- Administrator shall be duly recorded and all such records, together with such other documents as may be necessary for the administration of the Plan, shall be preserved in the custody of the Administrator. Copies of the Plan, Trust Agreement, and all forms and procedures shall be available to Employees, Participants, and Beneficiaries for examination at all reasonable times. 11.6 Roster of Parties in Interest. If requested by the Trustee, the ----------------------------- Administrator shall assist the Trustee with the preparation of a roster of parties in interest with respect to the Plan. 11.7 Good Faith Reliance on Records and Reports. The Employer, ------------------------------------------ Administrator, Trustee, Investment Manager, and any other fiduciaries or agents shall be entitled to rely in good faith upon all certificates and reports furnished by any consultant, actuary or other person or organization hired to render services in connection with the administration of the Plan. 11.8 Standard of Conduct. The Employer, Administrator, Trustee, and ------------------- any other fiduciary appointed pursuant to the provisions of Paragraph 11.2 -------------- (Delegation of Powers and Duties and Allocation of Fiduciary Responsibilities), shall act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. 11.9 Indemnification by Employer. The Employer shall indemnify all --------------------------- persons to whom the Employer has delegated fiduciary duties, except the Trustee and any Investment Manager, consultant, actuary, or other person or organization hired to render services in connection with the administration of the Plan against any and all claims, loss, damages, expense, and liability 88 arising from their responsibilities in connection with the Plan, unless the same is determined to be due to a breach of fiduciary obligation. 11.10 Fiduciary Liability Insurance. The Employer may purchase ----------------------------- fiduciary liability insurance from its own funds covering itself and any fiduciary to whom it has delegated powers or duties or allocated fiduciary responsibilities, to cover any expense, loss, or liability resulting from any act or omission of such fiduciary or resulting from good faith reliance on advice rendered by any agent, including any consultant, actuary, or other person or organization hired to render services in connection with the administration of the Plan. If the Employer does not purchase such fiduciary liability insurance, the Administrator may purchase such insurance from the assets of the Plan for the benefit of itself and any other fiduciary, provided that such insurance permits recourse by the insurance carrier against the fiduciary in the case of a breach of fiduciary obligation, and provided, further, that such insurance shall not be purchased with assets of the Plan for the benefit of any fiduciary who is hired to render services to the Plan. 11.11 Bonding. Any person serving in a fiduciary capacity under the ------- Plan shall be bonded unless specifically exempted from this requirement under ERISA. The amount of such bond shall be the greater of One Thousand Dollars ($1,000.00) or ten percent (10%) of the funds handled by that fiduciary, not exceeding Five Hundred Thousand Dollars ($500,000.00). Any person required to be bonded under this Paragraph 11.11 shall furnish the Administrator with evidence --------------- that an appropriate bond has been obtained. 11.12 Claims Procedure. If the claim of an Employee, Participant, or ---------------- Beneficiary is wholly or partially denied, the Administrator, pursuant to procedures established by the Administrator, shall furnish the Employee, Participant, or Beneficiary whose claim for benefits has been denied written notice of such denial within a reasonable period of time after the date the original claim was filed. Such denial notice shall be written in language calculated to be understood by the average Participant and shall contain (i) the reason for denial, (ii) specific reference to pertinent Plan provisions on which the denial is based, (iii) a description of any additional information needed to perfect the claim and an explanation of why such information is needed, and (iv) an explanation of the Plan's claim procedure. Such denial notice shall also advise the Employee, Participant, or Beneficiary of his right to make written application for review of his claim within a reasonable time (not less than sixty (60) days after his receipt of the denial notice) and of his right to request that the review be in the nature of a hearing. The Employee, Participant, or Beneficiary shall have the right to (i) be represented by 89 counsel, (ii) review pertinent documents, and (iii) submit comments in writing. A decision on any such review shall be rendered promptly but not later than sixty (60) days after receipt of the Employee's, Participant's, or Beneficiary's application for review unless circumstances beyond the control of the Administrator require an extension of time for processing, in which case a decision shall be rendered as soon as possible but not later than one hundred twenty (120) days after receipt of the application for review. 11.13 Procedure for Establishing Funding Policy. As of the last day ----------------------------------------- of each Plan Year, the Administrator shall compile a list of the Participants, their ages, and such other information as the Employer may request. After reviewing this information, the Employer shall determine the financial needs of the Plan and adopt an appropriate funding policy. The funding policy, together with the reasons for its adoption, shall be reduced to writing and a copy shall be furnished to the Administrator, the Trustee, and any other affected fiduciaries and agents. 90 ARTICLE 12 ---------- GENERAL PROVISIONS ------------------ 12.1 Construction. The Employer's intent and purpose in executing ------------ this instrument is to establish or to continue a qualified plan to which its contributions will be deductible. All questions arising in the construction and administration of the Plan shall be resolved accordingly. In the construction of the Plan the masculine shall include the feminine and the singular the plural in all cases where such meanings would be appropriate. The Plan shall be construed in accordance with ERISA. To the extent that ERISA shall be held not to have preempted local law, the Plan shall be construed in accordance with the laws of the State of Tennessee. The headings and subheadings in the Plan have been inserted for convenience of reference only and are to be ignored in any construction of its provisions. 12.2 Prohibition Against Assignment, Etc. ----------------------------------- (a) No Participant or Beneficiary shall have the right to assign, mortgage, pledge, hypothecate, alienate, commute, or anticipate any benefit, payment, or distribution under this Plan. (b) Except as provided in Subparagraphs (c) and (d) of this ----------------- --- Paragraph 12.2, neither the Administrator nor the Trustee shall recognize any - -------------- assignment, mortgage, pledge, hypothecation, alienation, or other transfer by a Participant or Beneficiary of all or any part of his interest under this Plan, and such interest shall not be subject to transfer by operation of law, and shall be exempt from any claim of any creditor of a Participant or Beneficiary or from any order, decree, levy, garnishment, execution, or other legal or equitable process against a Participant or Beneficiary, to the fullest extent permitted by law. (c) Subparagraph (b) of this Paragraph 12.2 shall not apply to ---------------- -------------- any claim that the Trustee may have against a Participant or Beneficiary for any debt owed to this Plan. Whenever any benefit, payment, or distribution is to be made to or for the benefit of a Participant or Beneficiary, the Trustee shall retain from such benefit, payment, or distribution an amount equal to such debt, which amount shall be applied by the Trustee against such debt. Prior to retaining any such amount, the Administrator shall notify the Participant or Beneficiary, in writing, that such debt is to be paid, in whole or in part, from such benefit, payment, or distribution. If the Participant or Beneficiary does not agree that such debt is a valid claim, the Participant or Beneficiary shall be entitled to review the 91 validity of the claim in accordance with the procedure established in Paragraph --------- 11.12 (Claims Procedure). - ----- (d) Subparagraph (b) of this Paragraph 12.2 shall not apply ---------------- -------------- to a domestic relations order that the Administrator determines to be a "qualified domestic relations order" as described in Section 414(p) of the Code or to any other domestic relations order permitted to be treated as a qualified domestic relations order under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine if a domestic relations order is a qualified domestic relations order and to administer distributions under qualified domestic relations orders. (e) Notwithstanding any other provision of this Plan, a former spouse of a Participant shall be treated as the Participant's spouse to the extent required under a qualified domestic relations order. 12.3 Discrimination. The Administrator shall administer the Plan in a -------------- uniform and consistent manner with respect to all Participants and shall not permit discrimination in favor of officers, stockholders, or highly-paid Employees. 12.4 Benefits Supported Only by Plan Assets. Any person having any -------------------------------------- claim under the Plan shall look solely to the assets of the Plan for satisfaction. 12.5 Notification of Employees and Participants Regarding Applications ----------------------------------------------------------------- for Determination and Declaratory Judgments. The Administrator shall notify each - ------------------------------------------- Employee and Participant of -- (i) any application to the Internal Revenue Service for a determination as to the qualified status of the Plan and Trust under Sections 401 and 501 of the Code and shall inform him of his rights to comment upon the application and to request the Department of Labor also to comment upon the application; and (ii) his right to file an action for a declaratory judgment in the United States Tax Court if he disagrees with the determination made by the Internal Revenue Service, provided he has first exhausted all of his administrative remedies. 12.6 Legal Actions. The Administrator, Employer, and Trustee shall be ------------- the only necessary parties to any action or proceeding involving the Plan or its administration. Process may be served upon the agent designated in Article 1, --------- and no Participant, Beneficiary, or any other person having or claiming an interest in the Plan shall be entitled to any notice or 92 process. Any final judgment that is not appealed or appealable that may be entered in any such action or proceeding shall be binding and conclusive on the Administrator, Employer, Trustee, and all persons having or claiming an interest in the Plan. 12.7 Payment of Claims. Any payment to a Participant or Beneficiary, ----------------- or to the legal representatives of either, in accordance with the provisions of the Plan, shall, to the extent of such payment, be in full satisfaction of all claims against the Trustee, Administrator, and Employer. The Trustee, Administrator, and Employer may require such Participant, Beneficiary, or legal representative, as a condition precedent to such payment, to execute a receipt and release therefor in such form as shall be determined by the Trustee, Administrator, and Employer. 93 ARTICLE 13 ---------- TOP-HEAVY PLAN REQUIREMENTS --------------------------- 13.1 General Limitation. ------------------ (a) For any Plan Year beginning after December 31, 1983, in which this Plan is a Top-Heavy Plan or a Super Top-Heavy Plan, the provisions of this Article 13 shall supersede any conflicting provisions of this Plan. ---------- (b) Notwithstanding any other provision of this Article 13, the ---------- provisions of the following paragraphs of this Article 13 shall not apply to any ---------- person included in a unit of Employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and the Employer, if there is evidence that retirement benefits were the subject of good faith bargaining between Employee representatives and the Employer: Paragraph 13.2 (Limitation on Annual Compensation) -------------- Paragraph 13.3 (Vesting) -------------- Paragraph 13.4 (Minimum Benefit) -------------- Paragraph 13.5 (Additional Minimum Benefit) -------------- 13.2 Limitation on Annual Compensation. For any Plan Year in which --------------------------------- this Plan is a Top-Heavy Plan, only the first Two Hundred Thousand Dollars ($200,000.00) of the Annual Compensation of a Participating Employee shall be taken into account for purposes of determining the minimum benefit of the Participating Employee under Paragraph 13.4 (Minimum Benefit) and Paragraph 13.5 -------------- -------------- (Additional Minimum Benefit). The dollar amount in the preceding sentence shall be automatically adjusted each year, beginning with the calendar year 1988, for cost-of-living increases under Section 415(d) of the Code. 13.3 Vesting. ------- (a) For any Plan Year in which this Plan is a Top-Heavy Plan, the vested interest of a Participating Employee, except a Participating Employee described in Subparagraph (b) of this Paragraph 13.3, in his Employer ---------------- -------------- Contribution Account shall be determined in accordance with the top-heavy vesting schedule specified in Article 1. --------- (b) If this Plan becomes a Top-Heavy Plan, the top-heavy vesting schedule specified in Article 1 shall not apply --------- 94 to a Participating Employee who is not credited with an Hour of Service after this Plan becomes top-heavy. (c) If this Plan becomes a Top-Heavy Plan and later ceases to be top-heavy -- (i) the vesting schedule that shall apply for Plan Years after the Plan ceases to be top-heavy shall be determined in accordance with Article 1, - --------- (ii) the portion of a Participating Employee's Employer Contribution Account that was vested when the Plan ceased to be top-heavy shall remain vested, (iii) a Participating Employee with three (3) or more Years of Service when the Plan ceases to be top-heavy may elect to remain under the top-heavy vesting schedule specified in Article 1 in accordance with Paragraph --------- --------- 10.7 (Amendment of Vesting Schedule - Right to Elect Former Vesting Schedule), - --- and (iv) the vested interest of a Participating Employee in his Employer Contribution Account shall not be forfeited under any other provision of this Plan relating to -- (A) a forfeiture upon withdrawal of mandatory employee contributions, or (B) a suspension of benefits upon reemployment. 13.4 Minimum Benefit. --------------- (a) Except as provided in Subparagraphs (d) and (e) of this ----------------- --- Paragraph 13.4, for any Plan Year in which this Plan is a Top-Heavy Plan, each - -------------- Participating Employee, as defined in Subparagraph (b) of this Paragraph 13.4, ---------------- -------------- shall be entitled to receive a minimum benefit (consisting of Employer contributions or forfeitures, or both) for the Plan Year as specified in Article ------- 1. Such minimum benefit shall not be less than the smaller of the following - - percentages of the Participating Employee's Annual Compensation for the Plan Year: (i) three percent (3%), or (ii) the largest percentage of Annual Compensation received by any Key Employee for the Plan Year. (b) "Participating Employee" shall mean either a Participant or an Employee, but not a Key Employee, who satisfies the eligibility requirements specified in Article 1 and who is employed by the Employer on the last day of --------- the Plan Year. 95 (c) A Participating Employee shall be entitled to receive a minimum benefit for a Plan Year even though -- (i) he fails to make mandatory employee contributions to the Plan, (ii) he has Compensation of less than a stated dollar amount, or (iii) he is credited with less than one thousand (1,000) Hours of Service for the Plan Year. (d) If the amount of Employer contributions and forfeitures allocated to a Participating Employee under Article 5 (Allocation of --------- Contributions) for a Plan Year is equal to or greater than the minimum benefit and, if applicable, the additional minimum benefit to which the Participating Employee is entitled under this Article 13, no additional Employer contributions ---------- and forfeitures shall be allocated to the Participating Employee under this Article 13 for the Plan Year. - ---------- (e) The minimum benefit requirements of this Article 13 shall ---------- not apply to a Participating Employee who is participating under another Top- Heavy Plan maintained by the Employer, to the extent that the Employer has provided that the minimum benefit requirement that applies to Top-Heavy Plans will be satisfied in such other plan. 13.5 Additional Minimum Benefit. If, for any Plan Year in which this -------------------------- Plan is a Top-Heavy Plan, a Participating Employee is also participating under a defined benefit Top-Heavy Plan maintained by the Employer, such Participating Employee shall be entitled to receive an additional minimum benefit (consisting of Employer contributions or forfeitures, or both) for the Plan Year as specified in Article 1. --------- 13.6 Modification of Section 415 Limitations. --------------------------------------- (a) Except as provided in Subparagraph (b) of this Paragraph ---------------- --------- 13.6, if, for any Plan Year in which this Plan is a Top-Heavy Plan, a - ---- Participating Employee is also participating under a defined benefit Top-Heavy Plan maintained by the Employer (i) the dollar limitations in Subparagraphs (d)(i)(A) and ----------------------- (d)(ii)(A) of Paragraph 5.9 (Section 415 Limitations) shall be multiplied by 1.0 - ---------- ------------- instead of 1.25; and (ii) the transition fraction for defined contribution plans contained in Subparagraph (e)(v) of Paragraph 5.9 (Section 415 ------------------- ------------- Limitations) and in Section 415(e)(6) of the Code shall be applied by substituting "$41,500.00" for "$51,875.00." 96 (b) Subparagraph (a) of this Paragraph 13.6 shall not apply for ---------------- -------------- any Plan Year in which this Plan satisfies both of the following conditions: (i) this Plan is not a Super Top-Heavy Plan, and (ii) this Plan would satisfy the minimum benefit requirements of Paragraph 13.4 (Minimum Benefit) if the percentage of Annual -------------- Compensation contained in Subparagraph (a)(i) of Paragraph 13.4 (Minimum ------------------- -------------- Benefit) was increased to four percent (4%). No increase would be made in "the largest percentage of Annual Compensation received by any Key Employee for the Plan Year." (c) If the provisions of Subparagraph (a) of this Paragraph ---------------- --------- 13.6 would cause the combined Section 415 limitations on benefits and - ---- contributions contained in Subparagraph (c) of Paragraph 5.9 (Section 415 ---------------- ------------- Limitations) to be exceeded for a Participating Employee, the provisions of Subparagraph (a) of this Paragraph 13.6 shall be suspended as to the - ---------------- -------------- Participating Employee until such time as he no longer exceeds the combined Section 415 limitations on benefits and contributions as modified by Subparagraph (a) of this Paragraph 13.6. During the period of such suspension, - ---------------- -------------- no Employer contributions, forfeitures, or voluntary nondeductible employee contributions shall be allocated to such Participating Employee under this Plan or under any other defined contribution plan maintained by the Employer, and no additional benefit accruals shall be provided such Participating Employee under any defined benefit plan maintained by the Employer. 13.7 Coordination of Minimum Benefits If Employer Maintains Other ------------------------------------------------------------ Top-Heavy Plans. If, for any Plan Year in which this Plan is a Top-Heavy Plan, - --------------- the Employer maintains other Top-Heavy Plans, and if a Participating Employee is also participating under another Top-Heavy Plan maintained by the Employer, the minimum benefit requirement that applies to Top-Heavy Plans shall be satisfied in the manner specified in Article 1. --------- 13.8 Determination of Top-Heaviness. ------------------------------ (a) For any Plan Year beginning after December 31, 1983, a plan shall be a Top-Heavy Plan and an aggregation group shall be a Top-Heavy Group if any one of the conditions in the following subparagraphs of this Subparagraph ------------ (a) exists: - --- (i) A defined benefit plan shall be a Top-Heavy Plan if, as of the Determination Date -- 97 (A) the sum of the present values of the Accrued Benefits of all Key Employees exceeds sixty percent (60%) of the sum of the present values of the Accrued Benefits of all Participating Employees, and (B) the plan is not part of a Required Aggregation Group or a Permissive Aggregation Group. (ii) A defined contribution plan shall be a Top--Heavy Plan if, as of the Determination Date -- (A) the sum of the Account Balances of all Key Employees exceeds sixty percent (60%) of the sum of the Account Balances of all Participating Employees, and (B) the plan is not part of a Required Aggregation Group or a Permissive Aggregation Group. (iii) A Required Aggregation Group or a Permissive Aggregation Group shall be a Top-Heavy Group if, as of the Determination Date, the sum of -- (A) the present values of the Accrued Benefits of all Key Employees under all defined benefit plans included in the aggregation group and (B) the Account Balances of all Key Employees under all defined contribution plans included in the aggregation group exceeds sixty percent (60%) of a similar sum determined for all Participating Employees under all plans included in the aggregation group. (iv) A plan that, when considered by itself, is not a Top-Heavy Plan, but that is part of a Required Aggregation Group but is not part of a Permissive Aggregation Group, shall be a Top-Heavy Plan if, as of the Determination Date, the Required Aggregation Group is a Top-Heavy Group. (v) A plan that, when considered by itself, is not a Top-Heavy Plan, but that is part of a Required Aggregation Group and of a Permissive Aggregation Group, shall be a Top-Heavy Plan if, as of the Determination Date, the Permissive Aggregation Group is a Top-Heavy Group. (b) A plan that, when considered by itself, is not a Top-Heavy Plan, and that is not part of a Required Aggregation Group, but that is part of a Permissive Aggregation Group, shall not be a Top-Heavy Plan although, as of the Determination Date, the Permissive Aggregation Group is a Top-Heavy Group. 98 13.9 Determination of Super Top-Heaviness. For any Plan Year ------------------------------------ beginning after December 31, 1983, a Top-Heavy Plan shall be a Super Top-Heavy Plan if any one of the conditions in Paragraph 13.8 (Determination of Top- -------------- Heaviness) would exist if "ninety percent (90%)" were substituted for "sixty percent (60%)" at each place "sixty percent (60%)" appears in Paragraph 13.8 -------------- (Determination of Top-Heaviness). 13.10 Determination of Accrued Benefit and Account Balance. ---------------------------------------------------- (a) The Accrued Benefit of a Participating Employee shall be determined as follows: (i) In the case of a Participating Employee under an unaggregated defined benefit plan, "Accrued Benefit" shall mean the present value of the Participating Employee's accrued benefit under the defined benefit plan, and, in the case of a Participating Employee under an aggregated defined benefit plan, shall mean the sum of the present values of the Participating Employee's accrued benefits under all defined benefit plans included in the aggregation group, determined, in both cases, as of the most recent valuation date that falls within or ends with the twelve-month period ending on a Determination Date. (ii) For the first Plan Year only, the Accrued Benefit of an active Participating Employee shall be determined either -- (A) as if the Participating Employee terminated service on the last day of the Plan Year, or (B) as if the Participating Employee terminated service as of the valuation date, but taking into account the Participating Employee's estimated Accrued Benefit as of the Determination Date. For succeeding Plan Years, the Accrued Benefit of an active Participating Employee shall be determined as if the Participating Employee terminated service as of the most recent valuation date that falls within or ends with the twelve-month period ending on the Determination Date. (iii) The actuarial assumptions used to determine present value shall be reasonable. They shall include an interest assumption and a post- retirement mortality assumption. They may include a pre-retirement mortality assumption and an assumption as to future increases in the cost of living. They shall not include assumptions as to future withdrawals or future salary increases. In the case of a plan for which the qualified joint and survivor annuity is the normal form, the spouse of a Participating Employee may be assumed to be the same age as the Participating Employee. 99 (b) The Account Balance of a Participating Employee shall be determined as follows: (i) In the case of a Participating Employee under an unaggregated defined contribution plan, "Account Balance" shall mean the sum of a Participating Employee's accounts under the defined contribution plan, and, in the case of a Participating Employee under an aggregated defined contribution plan, shall mean the sum of the Participating Employee's accounts under all defined contribution plans included in the aggregation group, determined, in both cases, as of the most recent valuation date that falls within or ends with the twelve-month period ending on a Determination Date. (ii) In the case of a simplified employee pension plan, at the election of the Administrator, the sum of the Employer's contributions to the plan may be considered to be the Account Balance of a Participating Employee. (c) The Accrued Benefit and the Account Balance of a Participating Employee shall include any Employer contributions and employee contributions, except voluntary deductible employee contributions, that may be due but are unpaid as of a Determination Date. (d) The Accrued Benefit and the Account Balance of a Participating Employee shall include any distributions that were made to (or with respect to) the Participating Employee from a plan during the five-year period ending on a Determination Date, or from a terminated plan that, if it had not been terminated, would have been required to be included in an aggregation group. (e) The Accrued Benefit and the Account Balance of a Participating Employee shall include or shall not include rollover distributions and direct plan-to-plan transfers in accordance with the following rules: (i) If the transfer is an unrelated transfer (a transfer that is initiated by the Participating Employee and that is made from a plan maintained by the Employer to a plan maintained by an unrelated employer), the transferring plan shall include the amount transferred. The receiving plan shall also include the amount transferred if it was accepted prior to December 31, 1983, but shall not include it if it was accepted after December 31, 1983. (ii) If the transfer is a related transfer (a transfer that is not initiated by the Participating Employee or that is made between plans maintained by the Employer), the transferring plan shall not include the amount transferred, but the receiving plan shall include the amount transferred. 100 For purposes of this Subparagraph (e), all employers aggregated under the rules ---------------- of Sections 414(b), (c), and (m) of the Code shall be considered to be a single employer. (f) The Accrued Benefit and the Account Balance of a Participating Employee who has been, but no longer is, a Key Employee shall be disregarded. (g) The Accrued Benefit and the Account Balance of a Participating Employee who has not performed any service for the Employer during the five-year period ending on a Determination Date shall be disregarded. (h) For an aggregated plan, the value of the Accrued Benefit and the Account Balance of a Participating Employee shall be calculated with reference to the Determination Date that falls within the same calendar year. 13.11 Aggregation of Plans. For purposes of determining whether a -------------------- plan is part of a Top-Heavy Group, the following rules shall apply: (i) All qualified plans maintained by the Employer in which a Key Employee participates shall be aggregated with each other. Each other qualified plan maintained by the Employer that enables a plan in which a Key Employee participates to meet the requirements of Section 401(a) (4) or Section 410 of the Code shall also be aggregated. Such plans shall comprise a "Required Aggregation Group." (ii) One or more other qualified plans maintained by the Employer that are not required to be aggregated, may be aggregated either with each other or with a Required Aggregation Group, if such Required Aggregation Group would continue to meet the requirements of Section 410(a) (4) and Section 410 of the Code with such other plan or plans being taken into account. Such plans shall comprise a "Permissive Aggregation Group." (iii) Collectively-bargained plans that include a Key Employee shall be aggregated with any Required Aggregation Group of plans maintained by the Employer. Collectively-bargained plans that do not include a Key Employee may be aggregated with a Permissive Aggregation Group of plans maintained by the Employer. 13.12 Affiliated Employers. The purposes of this Article 13, all -------------------- ---------- employees of each member of a group described below shall be treated as if employed by the Employer: 101 (i) a group that constitutes a controlled group of corporations, as defined in Section 414(b) of the Code as modified by Section 415(h) of the Code, if the Employer is a member of the group; (ii) a group that conducts a trade or business, whether or not incorporated, that is under common control, as defined in Section 414(c) of the Code as modified by Section 415(h) of the Code, if the Employer is a member of the group; or (iii) a group that constitutes an affiliated service group, as defined in Section 414(m) of the Code, if the Employer is a member of the group. 13.13 Definitions That Relate to Top-Heavy Plans. When used in this ------------------------------------------ Article 13, each term defined in this Paragraph 13.13 shall have the following - ---------- --------------- meaning unless a different meaning is clearly required by the context. Each such defined term shall be construed in accordance with the provisions of Section 416 of the Code and the regulations thereunder. (a) Account Balance - shall have the meaning specified in --------------- Paragraph 13.10 (Determination of Accrued Benefit and Account Balance). - --------------- (b) Accrued Benefit - shall have the meaning specified in --------------- Paragraph 13.10 (Determination of Accrued Benefit and Account Balance). - --------------- (c) Annual Compensation - shall have the meaning specified in ------------------- Subparagraph (c)(ii) of Paragraph 5.9 (Section 415 Limitations). - -------------------- ------------- (d) Determination Date - shall mean, with respect to any Plan ------------------ Year -- (i) the last day of the preceding Plan Year, or (ii) in the case of the first Plan Year of a plan, the last day of such Plan Year. (e) Employee - shall mean an individual who is employed by the -------- Employer and the beneficiary of such individual. (f) Participating Employee - shall mean an Employee who ---------------------- becomes a Participant in accordance with the provisions of Article 3 --------- (Participation, Service, Etc.) and any other Employee who is entitled to a minimum benefit under Paragraph 13.4 (Minimum Benefit). -------------- 102 (g) Permissive Aggregation Group - shall have the meaning ---------------------------- specified in Paragraph 13.11 (Aggregation of Plans). --------------- (h) Required Aggregation Group - shall have the meaning -------------------------- specified in Paragraph 13.11 (Aggregation of Plans). --------------- (i) Super Top-Heavy Plan - shall have the meaning specified in -------------------- Paragraph 13.9 (Determination of Super Top-Heaviness). - -------------- (j) Top-heavy Group - shall have the meaning specified in --------------- Paragraph 13.8 (Determination of Top-Heaviness). - --------------- (k) Top-Heavy Plan - shall have the meaning specified in -------------- Paragraph 13.8 (Determination of Top-Heaviness). - -------------- 103 ARTICLE 14 ---------- ADOPTION OF PLAN BY PARTICIPATING EMPLOYERS ------------------------------------------- 14.1 Adoption of the Plan by Participating Employers. Notwithstanding ----------------------------------------------- any other provision of this Plan, the Employer may authorize any corporation or other business organization, whether or not an affiliate or subsidiary of the Employer, to adopt this Plan for the benefit of its employees and to participate herein and to be known as a Participating Employer. Any such adoption by a Participating Employer and the Employer's authorization of such adoption shall be made in writing by execution of this document or by execution of a separate adoption agreement. 14.2 Construction of the Plan with Respect to Participating ------------------------------------------------------ Employers. Except as provided in Paragraph 14.3 (Employer Appointed Agent of - --------- -------------- Participating Employers) and in Paragraph 14.4 (Decisions and Directions of -------------- Employer and Administrator Binding Upon Participating Employers), whenever Articles 1 through 13 of the Plan are to be construed with respect to a matter - ---------- -- involving a Participating Employer and its Employees, then, in all cases where such meanings would be appropriate, "Employer" shall mean the Participating Employer, "Employee" shall mean an individual who is employed by the Participating Employer, and "Participant" shall mean an employee of the Participating Employer who becomes a Participant. 14.3 Employer Appointed Agent of Participating Employers. Each --------------------------------------------------- Participating Employer shall appoint the Employer as its agent to exercise on its behalf all of the powers and authority conferred upon the Employer and the Administrator by the Plan and the Trust, including, with limitation, the power to amend and to terminate the Plan and the Trust. The authority of the Employer to act as the agent of a Participating Employer shall terminate only if the Participating Employer ceases to participate in the Plan as provided in Paragraph 14.7 (Termination of Participation by Participating Employers). - -------------- 14.4 Decisions and Directions of Employer and Administrator Binding -------------------------------------------------------------- Upon Participating Employers. All decisions and Directions of the Employer and - ---------------------------- the Administrator shall be binding upon a Participating Employer and upon its Employees who are Participants. 14.5 Participating Employer's Contribution. All contributions made by ------------------------------------- a Participating Employer to this plan shall be determined separately on the basis of its Net Profit and shall be paid to and held by the Trustee for the exclusive benefit of the employees of such Participating Employer and the beneficiaries of such employees, subject to all the terms and conditions of this Plan. Any forfeiture by an employee of a 104 Participating Employer which is to be allocated during a Plan Year shall be allocated only for the exclusive benefit of the employees of such Participating Employer in accordance with the provisions of this Plan. On the basis of this information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of each Participating Employer and the Accounts of the employees of each Participating Employer. 14.6 Trust for Participating Employer. Each Participating Employer -------------------------------- shall be required to use the Trustee designed by the Employer for this plan. The Trustee may, but shall not be required to, commingle, hold and invest as one Trust Fund all contributions made by the Employer and all Participating Employers, as well as all earnings thereon. The Trustee shall maintain records showing the respective interests of the Employer and each Participating Employer. Any expenses of the Trust shall be paid by the Employer or by the Trust Fund of each Participating Employer in the same proportion that the total value of the Accounts of Participants employed by such Participating Employer bears to the total value of the Accounts of all Participants. 14.7 Termination of Participation by Participating Employers. A ------------------------------------------------------- Participating Employer shall have the right at any time to terminate its participation in the Plan, and the Employer shall have the right at any time to terminate the participation in the Plan or any Participating Employer, by delivering to both the Administrator and the Trustee a written notice of such termination. Upon the termination of participation by a Participating Employer, the Administrator shall direct the Trustee to transfer the Accounts of the employees (including former employees and beneficiaries of such employees) of the Participating Employer to the successor trustee or other funding agent designated by the terminating Participating Employer. If the terminating Participating Employer does not establish a separate plan for its Employees, the assets allocated by the affected Participants shall be used by the Trustee solely to provide benefits to or on behalf of the affected Participants. 105 ARTICLE 15 ---------- ELIGIBLE ROLLOVERS ------------------ 15.1 This Article applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Article, a distributee may elect, at any time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 15.2 Definitions. ----------- (i) Eligible rollover distribution: An eligible rollover ------------------------------ distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life) expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401 (a) (9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (ii) Eligible retirement plan: An eligible retirement plan is ------------------------ an individual retirement account described in Section 48(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (iii) Distributee: A distributee includes an Employee or former ----------- Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (iv) Direct rollover: A direct rollover is a payment by the --------------- Plan to the eligible retirement plan specified by the distributee. 106 IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has executed this Amended and Restated Plan as of the 21st day of October, 1993. WORLD CARPETS, INC. /s/ Martha A. McCorkle By Vice President of Financial Services --------------------------------------- (Title) 107 EX-11 23 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE: Earnings per share presented in the first table is in accordance with Regulation S-K, Item 601(b)(11), while earnings per share on the Company's consolidated statements of earnings presented in the second table is in accordance with FAS No. 128.
YEARS ENDED DECEMBER 31, ------------------------------------- 1998 1997 1996 ---------- ---------- ---------- REGULATION S-K: Net earnings................................................................ $ 107,612 73,424 53,378 ========== ========== ========== Weighted-average common and dilutive potential common shares outstanding: Weighted-average common shares outstanding............................... 57,243 56,812 56,160 Add weighted-average dilutive potential common shares - options to purchase common shares, net............................................ 741 491 589 ---------- ---------- ---------- Weighted-average common and dilutive potential common shares outstanding.... 57,984 57,303 56,749 ========== ========== ========== Basic earnings per share.................................................... $ 1.88 1.29 0.95 ========== ========== ========== Diluted earnings per share.................................................. $ 1.86 1.28 0.94 ========== ========== ========== FAS NO. 128 : Net earnings................................................................ $ 107,612 73,424 53,378 ========== ========== ========== Weighted-average common and dilutive potential common shares outstanding: Weighted-average common shares outstanding............................... 57,243 56,812 56,160 Add weighted-average dilutive potential common shares - options to purchase common shares, net............................................ 741 491 589 ---------- ---------- ---------- Weighted-average common and dilutive potential common shares outstanding.... 57,984 57,303 56,749 ========== ========== ========== Basic earnings per share.................................................... $ 1.88 1.29 0.95 ========== ========== ========== Diluted earnings per share.................................................. $ 1.86 1.28 0.94 ========== ========== ==========
EX-21 24 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Mohawk Carpet Corporation........................................... Delaware Aladdin Manufacturing Corporation................................... Delaware American Weavers, LLC............................................... Tennessee Durkan Patterned Carpets, Inc....................................... Georgia Mohawk Commercial, Inc.............................................. Delaware Mohawk Factoring, Inc............................................... Delaware Mohawk Servicing, Inc............................................... Delaware Newmark & James, Inc................................................ Georgia World Carpets, Inc.................................................. Georgia EX-23.1 25 CONSENT OF KPMG LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Mohawk Industries, Inc.: We consent to incorporation by reference in the registration statements (No. 33-52070, No. 33-52544, No. 33-67282, No. 33-87998 and No. 333-23577) on Form S- 8 and the registration statement (No. 333-66061) on Form S-3 of Mohawk Industries, Inc. and subsidiaries of our report dated February 5, 1999, except for the seventh paragraph of note 2 as to which the date is March 9, 1999, relating to the consolidated balance sheets of Mohawk Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, and all related schedules, which report appears in the December 31, 1998, annual report on Form 10-K of Mohawk Industries, Inc. KPMG LLP Atlanta, Georgia March 4, 1999 EX-23.2 26 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use, in the Form 10-K, of our report dated September 21, 1998 relating to the financial statements of World Carpets, Inc. and Subsidiary as of June 28, 1998 and for the years ended June 28, 1998 and June 29, 1997 which appears in Form 10-K. PricewaterhouseCoopers LLP Atlanta, Georgia March 4, 1999 EX-27.1 27 FINANCIAL DATA SCHEDULE 1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOHAWK INDUSTIRES, INC.'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 0 0 378,367 57,241 412,194 806,907 825,227 402,305 1,331,406 387,690 321,792 0 0 574 586,135 1,331,406 2,639,200 2,639,200 1,998,903 1,998,903 2,900 13,173 29,290 182,388 74,776 107,612 0 0 0 107,612 1.88 1.86
EX-27.2 28 FINANCIAL DATA SCHEDULE 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOHAWK INDUSTRIES, INC.'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 145 0 338,476 51,605 367,076 708,721 735,962 344,861 1,176,557 326,613 336,209 0 0 571 476,562 1,176,557 2,327,341 2,327,341 1,808,137 1,808,137 8,100 8,434 34,551 121,578 48,154 73,424 0 0 0 73,424 1.29 1.28 Amounts have been restated to reflect the acquisition of World Carpets, Inc. which has been accounted for under the pooling-of-interests basis of accounting.
EX-27.3 29 FINANCIAL DATA SCHEDULE 1996
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOHAWK INDUSTRIES INC.'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED, DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 898 0 309,241 40,000 380,828 700,415 674,779 281,509 1,177,510 313,348 432,852 0 0 566 398,481 1,177,510 2,153,016 2,153,016 1,675,221 1,675,221 3,760 13,213 37,522 91,663 38,285 53,378 0 0 0 53,378 .95 .94 Amounts have been restated to reflect the acquisition of World Carpets, Inc. which has been accounted for under the pooling-of-interests basis of accounting.
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