-----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, FZnG0GhlZ+j8Aghc4s+GrIAg8y1RnjAxp3UglC6+Sqbn+PLQFGI7QibxINtbV5Zk zfXXZ+rx6rsZ94AlSD8kkA== 0000931763-00-000482.txt : 20000313 0000931763-00-000482.hdr.sgml : 20000313 ACCESSION NUMBER: 0000931763-00-000482 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000310 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-K SEC ACT: SEC FILE NUMBER: 001-13697 FILM NUMBER: 565682 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-K 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 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 01-19826 MOHAWK INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 52-1604305 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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 (26,551,688 shares) on March 6, 2000 was $547,628,565. 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 6, 2000: 55,046,097 shares of Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Definitive Proxy Statement for the 2000 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) and Durkan Patterned Carpets, Inc. ("Durkan")) 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 1999 net sales of approximately $3.1 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," "American Rug Craftsmen," "American Weavers," "Bigelow," "Custom Weave," "Durkan," "Galaxy," "Harbinger," "Helios," "Horizon," "Image," "Karastan," "Mohawk Commercial," "Newmark Rug," "World" and "WundaWeve," 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 approximately $63.9 million in cash 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 & James, Inc. ("Newmark") and American Weavers LLC ("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 Carpets, Inc. ("World") in exchange for approximately 4.9 million 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 $192 million, including the assumption of $30 million of tax exempt bonds, and on March 9, 1999, the Company acquired all of the outstanding capital stock of Durkan, for approximately 3.1 million 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 and Durkan mergers. 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 1.8 billion square yards in 1998. This volume represents a market in excess of approximately $10.9 billion at the "mill level," which management believes, based on standard industry mark-ups, translates into approximately $17.4 billion to $19.5 billion at the retail level. Based upon data obtained from recent industry publications, the worldwide carpet and rug sales volume of American manufacturers in 1999 was approximately 1.9 billion square yards and $11.1 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 82% of the volume shipped by the industry in 1998. Tufted broadloom carpet (a category that refers to the manner of construction in addition to size) represented 95% of the broadloom industry volume shipped in 1998. 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 1998. 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," "American Rug Craftsmen," "American Weavers," "Bigelow," "Bigelow Commercial," "Custom Weave," "Durkan," "Galaxy," "Harbinger," "Helios," "Horizon," "Image," "Karastan," "Karastan Contract," "Mohawk Commercial," "Newmark Rug," "World" and "WundaWeve," 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," "Custom Weave," "WundaWeve," "Bigelow," "Galaxy," "Horizon," "Helios," "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 primarily in the low-to-medium retail price range. The Company believes it is considered a leader within the industry of U.S. carpet manufacturers providing marketing support. Through dealer programs like Karastan Gallery, Mohawk Color Center and Mohawk FloorScapes, the Company offers intensive marketing and advertising support. These programs offer varying 3 degrees of support to dealers in sales and management training, display racks, exclusive promotions and assistance in certain administrative functions such as consumer credit, advertising 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," "Durkan Commercial," "World Contract," "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 Company has also added carpet tile to its product groups, which service the corporate space market. 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 1999, 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. 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 6% in 1999. Much of this growth has occurred at the low-to-medium retail price ranges. The distribution channels for the rug market primarily 4 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 components of the rug market through its Newmark Rug and Aladdin brand names. The Aladdin products are tufted nylon and polyester 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," "Custom Weave," "Durkan," "Galaxy," "Harbinger," "Helios," "Horizon," "Image," "Karastan," "Karastan Contract," "Mohawk," "Mohawk Commercial," "Newmark Rug," "World" and "WundaWeve" 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 $509.6 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, Solutia, Inc., BASF Corporation and Honeywell, 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 5 companies engaged in the manufacture and sale of carpet in the United States. Carpet manufacturers also face competition from 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 1998 had worldwide sales in excess of $10 billion, and the top twenty manufacturers in 1990 had sales in excess of $6 billion. In 1999, the top five manufacturers had worldwide sales in excess of $9 billion. Mohawk, with 1999 net sales of approximately $3.1 billion, is the second largest producer of carpet and rugs (in terms of sales volume). Certain of the Company's competitors may have greater financial resources than the Company. Mohawk has one competitor whose size could allow it certain manufacturing cost advantages compared to other industry participants. 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)," "Custom Weave" "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," "World" and "WundaWeve." 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 1999, 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, 1999, the Company employed 23,050 persons. Approximately 310 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. 6 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 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, 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............. 2,089,000 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..................... 820,000 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............ 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....................................... 380,000 Calhoun Falls, SC..... Yarn manufacturing....................................... 425,000 Bennettsville, SC..... Yarn manufacturing....................................... 412,000
7 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 Calhoun, GA........... Yarn manufacturing....................................... 121,000 Calhoun, GA........... Yarn manufacturing....................................... 113,800 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 Milledgeille, GA...... Yarn manufacturing....................................... 255,000 Ulmer, SC............. Yarn manufacturing....................................... 238,666 Chatsworth, GA........ Yarnset plant............................................ 121,200 Chatsworth, GA........ Commercial warehouse..................................... 128,000 Eton, GA.............. Storage warehouse........................................ 121,300 Greenville, NC........ Wool processing.......................................... 103,000 Calhoun, GA........... Textile and Rug Manufacturing............................ 287,688
________________ The following table lists the Company's material leased office, manufacturing and warehouse facilities:
Approx. Enclosed Lease Area in Term Square Through Location Primary Products or Purposes Footage (1) - ---------------------- -------------------------------------------------- ------------- -------------- Calhoun, GA........... Mat manufacturing and warehouse (2)............. 164,400 Jun-2004 La Mirada, CA......... Distribution warehouse.......................... 220,000 Jan-2011 Grand Prairie, TX..... Distribution warehouse.......................... 202,890 Jun-2012 Bowlingbrook, IL...... Distribution warehouse.......................... 201,959 Nov-2019 Glen Burnie, MD....... Distribution warehouse.......................... 187,200 Apr-2007 Pembroke Park, FL..... Distribution warehouse.......................... 186,537 Jul-2020 Pompton Plains, NJ.... Distribution warehouse.......................... 164,347 Jul-2011 Miami, FL............. Distribution warehouse (2)...................... 139,574 May-2001 Columbus, OH.......... Distribution warehouse.......................... 112,500 Sep-2004 Romeoville, IL........ Distribution warehouse.......................... 108,000 Oct-2004 Calhoun, GA........... Carpet manufacturing............................ 80,762 Jun-2000 Rome, GA.............. Warehouse....................................... 140,000 Feb-2000 Bentonville, AR....... Textile manufacturing........................... 134,067 Nov-2004 Kensington, GA........ Warehouse....................................... 277,484 May-2000
________________ (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, 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, 1999. 9 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Market for the Common Stock The Company's common stock is quoted on the New York Stock Exchange ("NYSE") under the symbol "MHK." The table below shows the high and low sales prices per share of the Common Stock as reported on the NYSE Composite Tape, for each fiscal period indicated.
Mohawk Common Stock ------------------------ High Low ---------- ---------- 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.......................................... $ 42.00 25.94 Second quarter......................................... 38.56 28.19 Third quarter.......................................... 30.44 18.38 Fourth quarter......................................... 26.81 19.69 2000 ---- First quarter (through March 6, 2000)................. $ 26.00 20.31
As of March 6, 2000, there were 463 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 within various Company loan agreements. On March 9, 1999, the Company issued approximately 3.1 million shares of Common Stock to the former shareholders of Durkan in exchange for all of their shares of Durkan. 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 issued 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 January 13, 1995, the Company acquired all of the outstanding capital stock of Galaxy. 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 approximately 4.9 million shares of the Company's common stock in a transaction recorded using the pooling-of-interests method of accounting. On January 29, 1999, the Company acquired certain assets and assumed certain liabilities of Image. The acquisition was recorded using the purchase method of accounting. On March 9, 1999, the Company acquired all of the outstanding capital stock of Durkan in exchange for approximately 3.1 million shares of the Company's common stock in a transaction recorded using the pooling-of-interests method of accounting. All financial data has been restated to include the accounts and results of operations of World and Durkan. 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, ----------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------------- -------------- ------------- ------------- ------------- (In thousands, except per share data) Statement of earnings data: Net sales............................. $ 3,083,264 2,744,620 2,429,085 2,239,471 2,041,865 Cost of sales......................... 2,306,405 2,063,333 1,869,221 1,726,765 1,594,050 --------------- ------------- ------------- ------------- ------------- Gross profit........................ 776,859 681,287 559,864 512,706 447,815 Selling, general and administrative expenses............................ 482,062 432,191 383,523 367,251 348,278 Restructuring costs (a)............... - - - 700 8,439 Carrying value reduction of property, plant and equipment and other assets (b).......................... - 2,900 5,500 3,060 23,711 Compensation expense for stock option exercises (c)................ - - 2,600 - 4,000 --------------- ------------- ------------- ------------- ------------- Operating income.................... 294,797 246,196 168,241 141,695 63,387 --------------- ------------- ------------- ------------- ------------- Interest expense...................... 32,632 31,023 36,474 39,772 42,398 Acquisition costs - World Merger (d) - 17,700 - - - Other expense, net.................... 2,266 2,667 338 4,586 1,170 --------------- ------------- ------------- ------------- ------------- 34,898 51,390 36,812 44,358 43,568 --------------- ------------- ------------- ------------- ------------- Earnings before income taxes........ 259,899 194,806 131,429 97,337 19,819 Income taxes ......................... 102,660 79,552 51,866 40,395 8,022 --------------- ------------- ------------- ------------- ------------- Net earnings........................ $ 157,239 115,254 79,563 56,942 11,797 =============== ============= ============= ============= ============= Basic earnings per share (e).......... $ 2.63 1.91 1.33 0.96 0.21 =============== ============= ============= ============= ============= Weighted-average common shares outstanding (e)..................... 59,730 60,393 59,962 59,310 57,235 =============== ============= ============= ============= ============= Diluted earnings per share (e)........ $ 2.61 1.89 1.32 0.95 0.20 =============== ============= ============= ============= ============= Weighted-average common and dilutive potential common shares outstanding (e).................... 60,349 61,134 60,453 59,899 58,485 =============== ============= ============= ============= =============
11
At or for the Years ended December 31, ----------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------------- -------------- ------------- ------------- ------------- (In thousands, except per share data) Balance sheet data: Working capital....................... $ 560,057 438,474 389,378 390,889 305,370 Total assets.......................... 1,682,873 1,405,486 1,233,361 1,226,959 1,110,438 Short-term note payable............... - - - 21,200 50,000 Long-term debt (including current portion) . 596,065 377,089 402,854 486,952 435,940 Stockholders' equity.................. 692,546 611,059 493,841 409,616 343,452
(a) During 1995 and 1996, the Company recorded pre-tax restructuring costs of $8.4 million and $0.7 million, respectively, related to certain mill closings whose operations have been consolidated into other Mohawk facilities. (b) 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. (c) Charges of $4.0 million and $2.6 million were recorded in 1995 and 1997, respectively, for income tax reimbursements to be made to certain executives related to the exercise of stock options granted in 1988 and 1989 in connection with the Company's 1988 leveraged buyout. (d) The Company recorded a one-time charge of $17.7 million in 1998 for transaction expenses related to the World Merger. (e) 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, 1999, the Company continued to experience significant growth both internally and through 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 $36.0 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 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 4.9 million 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 $192 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 approximately 3.1 million 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 was accounted for using the purchase method of accounting, and the Durkan acquisition was 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. Prior to December 31, 1999, the impact of the changeover to 2000 on computer software programs and internal operating systems was uncertain and recent publications have suggested that February 29, 2000, may cause interruptions or system failure in computer software programs and internal operating systems. In 1999, the Company spent approximately $.5 million to review and upgrade its computer and business systems in its effort to make these systems Year 2000 compliant and thereby avoid such interruptions resulting from the changeover to 2000 or the occurrence of February 29, 2000. To date the Company has not incurred, and does not expect to incur any significant interruptions as a result of the changeover to 2000 and the Company is not expecting to incur significant interruptions as a result of the occurrence of February 29, 2000. Effective January 1, 2000, the Company changed the estimated useful lives of certain property, plant and equipment. Management believes this change more accurately reflects the actual lives of these assets and is more consistent with industry practice. The prospective change is estimated to reduce annual depreciation expense by approximately $20 million in 2000. See accompanying Notes to Consolidated Financial Statements for further discussion. Results of Operations Year Ended December 31, 1999 as Compared with Year Ended December 31, 1998 - -------------------------------------------------------------------------- Net sales for the year ended December 31, 1999 were $3,083.3 million, reflecting an increase of $338.6 million, or approximately 12.3%, over the $2,744.6 million reported in the year ended December 31, 1998. All major product categories achieved sales increases in 1999 as compared to 1998. The Company believes that the 1999 net sales increase was attributable to internal growth and the acquisition of Image. 13 Quarterly net sales and the percentage changes in net sales by quarter for 1999 versus 1998 were as follows (dollars in thousands):
1999 1998 Change --------------- --------------- --------------- First quarter...................... $ 707,167 589,473 20.0% Second quarter..................... 790,617 689,488 14.7 Third quarter...................... 809,933 718,772 12.7 Fourth quarter..................... 775,547 746,887 3.8 --------------- --------------- --------------- Total year.................. $ 3,083,264 2,744,620 12.3% =============== =============== ===============
The Company's fiscal calendar reflected differences for the 1999 first quarter, with four more shipping days, when compared to 1998 and four fewer shipping days when the fourth quarter of 1999 is compared to 1998. Gross profit for 1999 was $776.9 million (25.2% of net sales) and represented an increase over the gross profit of $681.3 million (24.8% of net sales) for 1998. Gross profit dollars for the current year were impacted favorably by better absorption of fixed costs through higher production volume. Selling, general and administrative expenses for 1999 were $482.1 million (15.6% of net sales) compared to $432.2 million (15.7% of net sales) for 1998. Interest expense for the current year was $32.6 million compared to $31.0 million in 1998. The primary factor contributing to the increase was an increase in debt levels, which was attributable to acquisitions, the stock repurchase program and capital expenditures, compared to the prior year, which was offset by a decrease in the Company's weighted average interest rate in 1999. In the current year, income tax expense was $102.7 million, or 39.5% of earnings before income taxes. In 1998, income tax expense was $79.6 million, representing 40.8% of earnings before income taxes. The primary reason for the decrease in the 1999 effective income tax rate was that certain costs included in the nonrecurring pre-tax charge of $17.7 million related to the World acquisition recorded in 1998 were not deductible for income tax purposes. Year Ended December 31, 1998 as Compared with Year Ended December 31, 1997 - -------------------------------------------------------------------------- Net sales for the year ended December 31, 1998 were $2,744.6 million, reflecting an increase of $315.5 million, or approximately 13%, over the $2,429.1 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):
1999 1998 Change --------------- --------------- --------------- First quarter...................... $ 589,473 537,145 9.7% Second quarter..................... 689,488 607,059 13.6 Third quarter...................... 718,772 626,751 14.7 Fourth quarter..................... 746,887 658,130 13.5 --------------- --------------- --------------- Total year.................. $ 2,744,620 2,429,085 13.0% =============== =============== ===============
Gross profit for 1998 was $681.3 million (24.8% of net sales) and represented an increase over the gross profit of $559.9 million (23.0% of net sales) for 1997. Gross profit dollars for 1998 were impacted favorably by better absorption of fixed costs through higher production volume, and continued improvements in manufacturing efficiencies from restructuring efforts. 14 Selling, general and administrative expenses for 1998 were $432.2 million (15.7% of net sales) compared to $383.5 million (15.8% of net sales) for 1997. 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 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 nonrecurring 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 1998 was $31.0 million compared to $36.5 million in 1997. The primary factor contributing to the decrease was a significant reduction in debt levels. In 1998, income tax expense was $79.6 million, or 40.8% of earnings before income taxes. In 1997, income tax expense was $51.9 million, representing 39.5% of earnings before income taxes. The primary reason for the increase in the 1998 effective income tax rate was that certain costs included in the nonrecurring pre-tax charge of $17.7 million related to the World acquisition were not deductible for income tax purposes. 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 $331.9 million at the beginning of 1999 to $337.8 million at December 31, 1999. The $5.9 million increase was attributable to strong sales growth. Inventories increased from $423.8 million at the beginning of 1999 to $494.8 million at December 31, 1999, due primarily to acquisitions and the need for a higher level of inventory to meet the increased sales volume. Capital expenditures totaled $146 million during 1999, and the Company spent an additional $162 million related to the Image acquisition. The capital expenditures made during 1999 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 $233 million for acquisitions, have totaled $510 million over the past three years. Capital spending during 2000 is expected to range from $105 million to $120 million, the majority of which will be used to purchase equipment to increase production capacity and productivity. On November 23, 1999, 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 January 28, 2004. At December 31, 1999, the Company had credit availability of $450 million under its revolving credit line and $45 million under various short-term uncommitted credit lines. At December 31, 1999, a total of approximately $110.5 million was unused under these lines. The credit agreement contains customary financial and other covenants. 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 Company's Board of Directors approved a stock repurchase plan in September 1999, whereby the Company's management was authorized to purchase up to five million common shares. In December 1999 it amended the plan to increase the shares authorized for purchase by an additional five million shares, bringing the total authorized repurchase up to 10 million shares of its outstanding common shares. For the year ended 15 December 31, 1999, a total of approximately four million shares of the Company's common stock had been purchased at an aggregate cost of approximately $84 million. All of this repurchase has been financed through the Company's operations and revolving line of credit. 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. Certain factors affecting the Company's performance In addition to the other information provided in this Form 10-K, the following risk factors should be considered when evaluating an investment in shares of Mohawk common stock. A failure by Mohawk to complete acquisitions and successfully integrate acquired - -------------------------------------------------------------------------------- operations could materially and adversely affect its business. - -------------------------------------------------------------- Management intends to pursue acquisitions of complementary businesses as part of its business and growth strategies. Although management regularly evaluates acquisition opportunities, it cannot offer assurance that it will be able to: . successfully identify suitable acquisition candidates; . obtain sufficient financing on acceptable terms to fund acquisitions; . complete acquisitions; . integrate acquired operations into Mohawk's existing operations; or . profitably manage acquired businesses. Acquired operations may not achieve levels of sales, operating income or productivity comparable to those of Mohawk's existing operations, or otherwise perform as expected. Acquisitions may also involve a number of special risks, some or all of which could have a material adverse effect on Mohawk's business, results of operations and financial condition, including, among others: . possible adverse effects on Mohawk's operating results; . diversion of Mohawk management's attention and its resources; and . dependence on retaining and training acquired key personnel. The carpet industry is cyclical and a downturn in the overall economy could - --------------------------------------------------------------------------- lesson the demand for Mohawk's products and impair growth and profitability. - ---------------------------------------------------------------------------- The carpet industry is cyclical and is influenced by a number of general economic factors. Prevailing interest rates, consumer confidence, spending for durable goods, disposable income, turnover in housing and the condition of the residential and commercial construction industries (including the number of new housing starts and the level of new commercial construction) all have an impact on Mohawk's growth and profitability. In addition, sales of Mohawk's principal products are related to construction and renovation of commercial and residential buildings. Any adverse cycle could lessen the overall demand for Mohawk's products and could, in turn, impair Mohawk's growth and profitability. The carpet business is seasonal and this seasonality causes Mohawk's results of - ------------------------------------------------------------------------------- operations to fluctuate on a quarterly basis. - --------------------------------------------- Mohawk is a calendar year end company and its results of operations for the first quarter tend to be the weakest. Mohawk's second, third and fourth quarters typically produce higher net sales and operating income. These results are primarily due to consumer residential spending patterns and more carpet being installed in the spring and summer months. 16 Mohawk's business is competitive and a failure by Mohawk to compete effectively - ------------------------------------------------------------------------------- could have a material and adverse impact on Mohawk's results of operations. - --------------------------------------------------------------------------- Mohawk operates in a highly competitive industry. Mohawk and other manufacturers in the carpet industry compete on the basis of price, style, quality and service. Some of Mohawk's competitors may have greater financial resources at their disposal. Mohawk has one competitor whose size could allow it certain manufacturing cost advantages compared to other industry participants. If competitors substantially increase production and marketing of competing products, then Mohawk might be required to lower its prices or spend more on product development, marketing and sales, which could adversely affect Mohawk's profitability. An increase in the cost of raw materials could negatively impact Mohawk's - ------------------------------------------------------------------------- profitability. - -------------- The cost of raw materials has a significant impact on the profitability of Mohawk. In particular, Mohawk's business requires it to purchase large volumes of nylon fiber and polypropylene resin, which is used to manufacture fiber. Mohawk does not have any long-term supply contracts for any of these products. While Mohawk generally attempts to match cost increases with price increases, large increases in the cost of such raw materials could adversely affect its business, results of operations and financial condition if it is unable to pass these costs through to its customers. Mohawk may be responsible for environmental cleanup, which could negatively - --------------------------------------------------------------------------- impact profitability. - --------------------- Various federal, state and local environmental laws govern the use of Mohawk's facilities. Such laws govern: . discharges to air and water; . handling and disposal of solid and hazardous substances and waste; and . remediation of contamination from releases of hazardous substances in Mohawk's facilities and off-site disposal locations. Mohawk's operations are also governed by the laws relating to workplace safety and worker health, which, among other things, establish asbestos and noise standards and regulate the use of hazardous chemicals in the workplace. Mohawk has taken and will continue to take steps to comply with these laws. Based upon current available information, Mohawk believes that complying with environmental and safety and health requirements will not require material capital expenditures in the foreseeable future. However, Mohawk cannot provide assurance that complying with these environmental or health and safety laws and requirements will not adversely affect its business, results of operations and financial condition. Future laws, ordinances or regulations could give rise to additional compliance or remediation costs, which could have a material adverse effect on its business, results of operations and financial condition. 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 management's 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. 17 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............................................................... 19 Consolidated Balance Sheets as of December 31, 1999 and 1998................................ 21 Consolidated Statements of Earnings for the Years ended December 31, 1999, 1998 and 1997.... 22 Consolidated Statements of Stockholders' Equity for the Years ended December 31, 1999, 1998 and 1997....................................................... 23 Consolidated Statements of Cash Flows for the Years ended December 31, 1999, 1998 and 1997.. 24 Notes to Consolidated Financial Statements.................................................. 25
18 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 statements of operations and cash flows of World Carpets, Inc. and Subsidiary, a wholly owned subsidiary, for the year ended June 28, 1998 (not presented herein), which statements of operations and cash flows have been combined with those of Mohawk Industries, Inc. and subsidiaries for the year ended December 31, 1997. The consolidated statement of operations of World Carpets, Inc. and Subsidiary reflects total net sales constituting 18 percent for the year ended December 31, 1997, of the related consolidated total. 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, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, 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 11, 2000 19 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Shareholders of World Carpets, Inc. In our opinion, the consolidated statements of operations, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the results of operations and cash flows of World Carpets Inc. and its subsidiary (the "Company") for the year ended June 28, 1998 (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 audit. We conducted our audit 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 and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides 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 20 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1999 and 1998 (In thousands, except per share data)
ASSETS 1999 1998 ---------------- ------------ Current assets: Cash............................................................................... $ - 2,384 Receivables........................................................................ 337,824 331,928 Inventories........................................................................ 494,774 423,837 Prepaid expenses................................................................... 25,184 19,322 Deferred income taxes.............................................................. 76,628 69,464 ---------------- -------------- Total current assets............................................................ 934,410 846,935 Property, plant and equipment, net.................................................. 624,814 454,867 Other assets........................................................................ 123,649 103,684 ---------------- -------------- $ 1,682,873 1,405,486 ================ ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.................................................. $ 33,961 44,424 Accounts payable and accrued expenses.............................................. 340,392 364,037 ---------------- -------------- Total current liabilities....................................................... 374,353 408,461 Deferred income taxes............................................................... 53,783 47,921 Long-term debt, less current portion................................................ 562,104 332,665 Other long-term liabilities......................................................... 87 5,380 ---------------- -------------- Total liabilities............................................................... 990,327 794,427 ---------------- -------------- Stockholders' equity: Preferred stock, $.01 par value; 60 shares authorized; no shares issued............ - - Common stock, $.01 par value; 150,000 shares authorized; 60,657 and 60,533 shares issued in 1999 and 1998, respectively...................................... 607 606 Additional paid-in capital......................................................... 179,993 172,045 Retained earnings.................................................................. 595,932 438,408 ---------------- -------------- 776,532 611,059 Less treasury stock at cost; 3,952 shares in 1999................................ 83,986 - ---------------- -------------- Total stockholders' equity..................................................... 692,546 611,059 Commitments and contingencies (Notes 10 and 12)..................................... ---------------- -------------- $ 1,682,873 1,405,486 ================ ==============
See accompanying notes to consolidated financial statements. 21 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Earnings Years Ended December 31, 1999, 1998 and 1997 (In thousands, except per share data)
1999 1998 1997 ----------------- ----------- ----------- Net sales.............................................................. $ 3,083,264 2,744,620 2,429,085 Cost of sales.......................................................... 2,306,405 2,063,333 1,869,221 ----------------- ----------- ----------- Gross profit.................................................... 776,859 681,287 559,864 Selling, general and administrative expenses........................... 482,062 432,191 383,523 Carrying value reduction of property, plant and equipment and other assets....................................................... - 2,900 5,500 Compensation expense for stock option exercises........................ - - 2,600 ----------------- ------------ ----------- Operating income................................................ 294,797 246,196 168,241 ----------------- ------------ ----------- Other expense: Interest expense.................................................... 32,632 31,023 36,474 Acquisition costs - World Merger.................................... - 17,700 - Other expense, net.................................................. 2,266 2,667 338 ----------------- ------------ ----------- 34,898 51,390 36,812 ----------------- ------------ ----------- Earnings before income taxes.................................... 259,899 194,806 131,429 Income taxes........................................................... 102,660 79,552 51,866 ----------------- ------------ ----------- Net earnings.................................................... $ 157,239 115,254 79,563 ================= ============ =========== Basic earnings per share............................................... $ 2.63 1.91 1.33 ================= =========== ============ Weighted-average common shares outstanding............................. 59,730 60,393 59,962 ================== =========== =========== Diluted earnings per share............................................. $ 2.61 1.89 1.32 ================= =========== =========== Weighted-average common and dilutive potential common shares outstanding................................................. 60,349 61,134 60,453 ================= =========== ===========
See accompanying notes to consolidated financial statements. 22 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years Ended December 31, 1999, 1998 and 1997 (In thousands)
Common stock Additional Total --------------------------- paid-in Retained Treasury stockholders' Shares Amount capital earnings stock equity -------- --------- ----------- ---------- ---------- -------------- Balances at December 31, 1996........... 59,757 $ 598 162,707 246,311 - 409,616 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............................ - - - 79,563 - 79,563 --------- --------- ----------- ---------- ---------- -------------- Balances at December 31, 1997........... 60,217 603 167,388 325,850 - 493,841 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............................ - - - 115,254 - 115,254 --------- --------- ----------- ---------- ---------- -------------- Balances at December 31, 1998........... 60,533 606 172,045 438,408 - 611,059 Stock options exercised................. 124 1 1,390 - - 1,391 Purchase of treasury stock.............. - - - - (83,986) (83,986) Tax benefit from exercise of stock options............................ - - 836 - - 836 Durkan pooling adjustment............... - - 5,722 - - 5,722 Adjustments to conform fiscal year end of Durkan.......................... - - - 285 - 285 Net earnings............................ - - - 157,239 - 157,239 --------- --------- ----------- ---------- ---------- -------------- Balances at December 31, 1999........... 60,657 $ 607 179,993 595,932 (83,986) 692,546 ========= ========= =========== ========== ========== ==============
See accompanying notes to consolidated financial statements. 23 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, 1999, 1998 and 1997 (In thousands)
1999 1998 1997 -------------- -------------- -------------- Cash flows from operating activities: Net earnings...................................................... $ 157,239 115,254 79,563 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization................................... 105,297 72,591 72,893 Deferred income taxes........................................... (1,302) (14,194) (3,132) Provision for doubtful accounts................................. 15,804 13,173 8,458 Loss (gain) on sale of property, plant and equipment............ 2,516 2,121 (440) Carrying value reduction of property, plant and equipment and other assets............................................... - 2,900 5,500 Compensation expense for stock option exercises................. - - 2,600 Changes in assets and liabilities, net of effects of acquisitions: Receivables.................................................... 2,904 (36,523) (33,720) Inventories.................................................... (32,437) (31,083) 23,610 Accounts payable and accrued expenses.......................... (57,274) 57,295 29,953 Other assets and prepaid expenses.............................. (16,086) (7,653) 1,502 Other liabilities.............................................. (5,293) (1,673) (2,571) -------------- -------------- -------------- Net cash provided by operating activities..................... 171,368 172,208 184,216 -------------- -------------- -------------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment and other assets ........................................................ - - 2,168 Additions to property, plant and equipment........................ (145,621) (83,180) (47,625) Acquisitions...................................................... (162,463) (36,574) (34,141) Other............................................................. - - 895 -------------- -------------- -------------- Net cash used in investing activities......................... (308,084) (119,754) (78,703) -------------- -------------- -------------- Cash flows from financing activities: Net change in revolving line of credit............................ 255,530 83,658 (83,376) Payment of note payable........................................... - - (21,200) Payments on term loans............................................ (32,229) (38,554) (22,896) Redemption of acquisition indebtedness............................ (20,917) (102,201) - Proceeds from new loan............................................ - - 10,661 (Redemption) proceeds from Industrial Revenue Bonds and other, net of payments............................................... (7,779) 11,329 11,593 Change in outstanding checks in excess of cash.................... 15,479 (6,486) (5,841) Dividends paid.................................................... - (24) (24) Acquisition of treasury stock..................................... (83,986) - - Common stock transactions......................................... 8,234 1,988 4,686 -------------- -------------- -------------- Net cash provided by (used in) financing activities........... 134,332 (50,290) (106,397) -------------- -------------- -------------- Net change in cash............................................ (2,384) 2,164 (884) Cash, beginning of year............................................. 2,384 220 1,104 -------------- -------------- -------------- Cash, end of year................................................... $ - 2,384 220 ============== ============== ==============
See accompanying notes to consolidated financial statements. 24 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1999, 1998 and 1997 (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 4,900 shares of the Company's common stock ("World Merger"). On November 12, 1998, the Securities and Exchange Commission declared effective a shelf registration statement to register for resale 4,900 shares of Company common stock issued in connection with the World Merger. The historical consolidated financial statements have been restated to give retroactive effect to the World Merger. The World Merger is being accounted for as a pooling-of-interests in the accompanying consolidated financial statements. On March 9, 1999, the Company acquired all of the outstanding capital stock of Durkan Patterned Carpets, Inc. ("Durkan") for 3,150 shares of the Company's common stock ("Durkan Merger"). On April 28, 1999, a shelf registration statement was filed with the Securities and Exchange Commission to register for resale 3,150 shares of the Company's common stock in connection with the Durkan Merger. The historical consolidated financial statements have been restated to give retroactive effect to the Durkan Merger. The Durkan 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 principally a broadloom carpet and rug manufacturer and sells carpet and rugs throughout the United States principally for 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, which are 25 years for buildings and improvements and 5-7 years for furniture and equipment. 25 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Effective January 1, 2000, the Company changed the estimated useful lives of buildings (25 years to 35 years), tufting equipment (7 years to 10 years), extrusion equipment (7 years to 15 years) and furniture and fixtures (5 years to 7 years). Management believes this change more accurately reflects the actual lives of these assets and is more consistent with industry practice. The prospective change is estimated to reduce annual depreciation expense by approximately $20,000 in 2000. (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. (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 for the World and Durkan mergers. 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, 1999 and 1998 was $605,332 and $384,242, compared to a carrying amount of $596,065 and $377,089, 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 $2,808 in 1999, $2,437 in 1998 and $2,518 in 1997. 26 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (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. (l) Reclassifications Certain prior period financial statement balances have been reclassified to conform with the current period's presentation. (2) Acquisitions 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 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 1998 related to the World Merger, of which $17,700 of the charge was recorded as nonoperating expense and $2,900 of the charge was recorded as a write-down of World computer equipment that was disposed of. On January 29, 1999, the Company acquired certain assets of Image Industries, Inc. ("Image") for approximately $192,000, including acquisition costs and the assumption of $30,000 of tax-exempt debt. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The estimated fair values were $205,366 for assets acquired and $42,903 for liabilities assumed. The operating results of Image are included in the Company's 1999 consolidated statement of earnings from the date of acquisition. The following unaudited pro forma information presents a summary of consolidated results of operations of the Company and Image for the fiscal years ended December 31, 1999 and 1998, respectively as if the acquisition had occurred at the beginning of 1998. 27 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued)
1999 1998 ------------ ------------ Net sales........................................................... $ 3,099,113 2,946,736 Net earnings........................................................ $ 156,877 119,360 Basic earnings per share............................................ $ 2.63 1.98 Diluted earnings per share.......................................... $ 2.60 1.95
On March 9, 1999, the Company acquired all of the outstanding capital stock of Durkan for approximately 3,100 shares of the Company's common stock valued at $116,500 based on the closing price the day the letter of intent was executed. The Durkan acquisition has been accounted for under the pooling-of-interests method of accounting and, accordingly, the Company's historical consolidated financial statements have been restated to include the accounts and results of operations of Durkan. The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are presented below:
Three Months Year Ended Year Ended Ended December 31, December 31, April 3, 1999 1998 1997 --------------- --------------- -------------- (unaudited) Net sales Mohawk....................................... $ 683,494 2,638,820 2,327,341 Durkan....................................... 23,673 105,800 101,744 --------------- --------------- -------------- Combined..................................... $ 707,167 2,744,620 2,429,085 =============== =============== ============== Net earnings Mohawk....................................... $ 27,128 107,613 73,424 Durkan....................................... 764 7,641 6,139 --------------- --------------- -------------- Combined..................................... $ 27,892 115,254 79,563 =============== =============== ==============
Prior to the combination, Durkan's fiscal year ended on February 28. In recording the pooling-of-interests combination, Durkan's financial statements for the year ended December 31, 1999 were combined with Mohawk's consolidated financial statements for the same period. Durkan's financial statements for the years ended February 27, 1999 and February 28, 1998 were combined with Mohawk's financial statements for the years ended December 31, 1998 and 1997, respectively. An adjustment has been made to stockholders' equity in the year ended December 31, 1999 to eliminate the effect of including Durkan's results of operations for the two months ended February 28, 1999 in the Company's consolidated financial statements for the years ended December 31, 1999 and 1998. There were no significant inter-company transactions between Mohawk and Durkan prior to the combination. (3) Receivables Receivables are as follows:
1999 1998 ----------- ---------- Customers, trade............................................... $ 405,477 385,783 Other.......................................................... 2,826 4,378 ----------- ---------- 408,303 390,161 Less allowance for discounts, returns, claims and doubtful accounts............................................ 70,479 58,233 ----------- ---------- Net receivables.......................................... $ 337,824 331,928 =========== ==========
28 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (4) Inventories The components of inventories are as follows:
1999 1998 ---------- ---------- Finished goods..................................................... $ 254,179 219,776 Work in process.................................................... 65,456 60,266 Raw materials...................................................... 175,139 143,795 ---------- ---------- Total inventories................................... $ 494,774 423,837 ========== ==========
(5) Property, Plant and Equipment Following is a summary of property, plant and equipment:
1999 1998 ----------- ----------- Land............................................................... $ 21,767 14,320 Buildings and improvements......................................... 236,119 177,264 Machinery and equipment............................................ 791,839 613,997 Furniture and fixtures............................................. 33,436 31,666 Leasehold improvements............................................. 4,854 5,085 Construction in progress........................................... 51,645 41,576 ----------- ----------- 1,139,660 883,908 Less accumulated depreciation and amortization..................... 514,846 429,041 ----------- ----------- Net property, plant and equipment................... $ 624,814 454,867 =========== ===========
Property, plant and equipment includes capitalized interest of $3,213, $1,661 and $799 in 1999, 1998 and 1997, respectively. During 1998, the Company recorded a charge of $2,900 related to a write- down of computer equipment acquired in the World acquisition and disposed of in 1999. 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. (6) Other Assets The components of other assets are summarized below:
1999 1998 ----------- ----------- Goodwill, net of accumulated amortization of $13,171 and $10,363, respectively............................................. $ 113,560 85,972 Other assets....................................................... 10,089 17,712 ----------- ----------- Total other assets.................................. $ 123,649 103,684 =========== ===========
29 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (7) Long-Term Debt On November 23, 1999, 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 January 28, 2004. At December 31, 1999, the Company had credit availability of $450,000 under its revolving credit line and $45,000 under various short-term uncommitted credit lines. At December 31, 1999, a total of $110,548 was unused under these lines. The credit agreement contains customary financial and other covenants. 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. Long-term debt consists of the following:
1999 1998 ------------- ------------- Revolving line of credit, due January 28, 2004............................. $ 384,452 128,922 Durkan term loans, interest payable at prime or LIBOR plus 1.5% to 3%, payable in monthly installments of $207....................... - 11,696 Durkan revolving line of credit, interest payable at LIBOR plus 1.25% to 2.75%, due November 1999.................................... - 3,277 Note payable to Durkan officer, interest payable at 8.5%, due February 2000......................................................... - 5,400 8.46% senior notes, payable in annual principal installments beginning in 1998, due September 16, 2004, interest payable quarterly......................................................... 71,429 85,714 7.14%-7.23% senior notes, payable in annual principal installments beginning in 1997, due September 1, 2005, interest payable semiannually............................................. 56,666 66,111 8.48% term loans, payable in annual principal installments, due October 26, 2002, interest payable quarterly.......................... 17,143 22,857 7.58% senior notes, payable in annual principal installments beginning in 1997, due July 30, 2003, interest payable semiannually.............................................................. 5,714 7,143 6% term note, payable in annual principal and interest installments beginning in 1998, due July 23, 2004......................... 6,679 8,014 Industrial Revenue Bonds and other......................................... 53,982 37,955 ------------- ------------- Total long-term debt............................................ 596,065 377,089 Less current portion....................................................... 33,961 44,424 ------------- ------------- Long-term debt, excluding current portion....................... $ 562,104 332,665 ============= ============= The aggregate maturities of long-term debt as of December 31, 1999 are as follows: 2000....................................................................... $ 33,961 2001....................................................................... 33,593 2002....................................................................... 33,396 2003....................................................................... 27,179 2004....................................................................... 409,546 Thereafter................................................................. 58,390 ------------- $ 596,065 =============
30 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (8) Accounts Payable and Accrued Expenses Accounts payable and accrued expenses are as follows:
1999 1998 ------------ ------------ Outstanding checks in excess of cash............................. $ 42,373 26,897 Accounts payable, trade.......................................... 159,812 159,966 Accrued expenses................................................. 83,253 126,023 Accrued compensation............................................. 54,954 51,151 ------------ ------------ Total accounts payable and accrued expenses $ 340,392 364,037 ============ ============
(9) Stock Options, Stock Compensation and Treasury Stock 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 1999, options to purchase 20 and 356 shares, respectively, were granted under these plans. Options granted under each of these plans expire 10 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 nonemployee directors to receive in lieu of cash for their annual retainers. During 1999, a total of 3 shares were awarded to the nonemployee 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 1999, a total of 433 shares were awarded to employees under this plan. Additional information relating to the Company's stock option plans follows:
1999 1998 1997 ------------- ------------- ------------- Options outstanding at beginning of year ................. 1,387 1,568 2,142 Options granted........................................... 809 174 65 Options exercised......................................... (124) (316) (460) Options canceled.......................................... (29) (39) (179) ------------- ------------- ------------- Options outstanding at end of year........................ 2,043 1,387 1,568 ============= ============= ============= Options exercisable at end of year........................ 873 686 742 ============= ============= ============= Option prices per share: Options granted during the year........................... $ 19.69 - 35.13 17.23 - 32.31 5.67 - 19.38 =============== ============= ============= Options exercised during the year......................... $ 5.67 - 19.17 5.67 - 19.38 0.02 - 19.17 =============== ============= ============= Options canceled during the year.......................... $ 9.33 - 35.13 5.67 - 31.94 5.67 - 19.17 =============== ============= ============= Options outstanding at end of year........................ $ 5.61 - 35.13 5.61 - 32.31 5.61 - 19.38 =============== ============= =============
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 31 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) resulted in a direct increase in stockholders' equity of $7,606 in 1996 primarily from the exercise of these options. As allowed under FAS No. 123, the Company accounts for stock options granted as prescribed under Accounting Principles Board Opinion No. 25, which recognizes compensation cost based upon the intrinsic value of the award. Accordingly, no compensation expense has been recognized in the consolidated statement of earnings for any stock options granted in 1999, 1998 and 1997. The following table represents pro forma net income and pro forma earnings per share had the Company elected to account for stock option grants using the fair value based method.
1999 1998 1997 ------------- ------------- ------------- Net income As reported.......................................... $ 157,239 115,254 79,563 Pro forma............................................ 155,282 114,411 78,898 Net income per common share (basic) As reported.......................................... $ 2.63 1.91 1.33 Pro forma............................................ 2.60 1.89 1.32 Net income per common share (diluted) As reported.......................................... $ 2.61 1.89 1.32 Pro forma............................................ 2.57 1.87 1.31
This pro forma impact only takes into account options granted.since January 1, 1996 and is likely to increase in future years as additional options are granted and amortized ratably over the vesting period. The average.fair value of options granted during 1999, 1998 and 1997 was $15.28, $17.24 and $9.41, respectively. This fair value was estimated using the Black-Scholes option pricing model based on a weighted-average market price at grant date of $ 26.48 in 1999, $30.44 in 1998 and $17.03 in 1997 and the following weighed-average assumptions:
1999 1998 1997 -------------- --------------- -------------- Dividend yield............................................ - - - Risk-free interest rate................................... 6.4% 4.7% 6.2% Volatility................................................ 46.7% 48.9% 45.0% Expected life (years)..................................... 7 7 7
Summarized information about stock options outstanding and exercisable at December 31, 1999, is as follows:
Outstanding Exercisable -------------------------------------------------- --------------------------------- Number of Average Life Average Number of Average Exercise price range Shares (1) Price Shares (2) Life (1) - ------------------------------- -------------- -------------- ----------- -------------- ----------- Under $11.00................... 741 5.56 $ 10.54 538 $ 10.29 $12.00 to 17.00................ 204 4.63 14.40 189 14.49 $17.00 to 19.69................ 531 8.38 19.49 118 19.03 $19.94 to 31.94................ 276 8.97 29.06 25 31.11 $32.00 to 36.00................ 291 9.11 34.93 3 32.31 -------------- -------------- Total 2,043 873 ============== ==============
_____________ (1) Weighted average contractual life remaining in years. (2) Weighted average exercise price. The Company's Board of Directors approved a stock repurchase plan in September 1999, whereby the Company's management was authorized to purchase up to 5,000 common shares. In December 1999, it 32 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) amended the plan to increase the shares authorized for purchase by an additional 5,000 shares, bringing the total authorized repurchase up to 10,000 shares of its outstanding common shares. For the year ended December 31, 1999, a total of 3,952 shares of the Company's common stock had been purchased at an aggregate cost of $83,986. All of this repurchase has been financed through the Company's operations and revolving line of credit. (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. The Company amended the Plan during 1999 to match an additional $0.25 for every $1.00 of employee contribution in excess of 4% of the employee's salary up to a maximum of 6%. This change is effective January 1, 2000. Employee and employer contributions to the Plan were $14,873 and $5,080 in 1999, $12,345 and $4,213 in 1998, and $9,334 and $3,075 in 1997, respectively. The Company also made a discretionary contribution to the Plan of $2,100 during the year. 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 for the year ended December 31, 1997. The World Carpet Savings Retirement Plan (the "World Plan"), a defined contribution 401(k) plan covering substantially all World employees, was merged into the Plan on March 1, 1999. Employees were eligible to participate after completion of one year of service. Under the terms of the World Plan, World would match employee contributions up to a maximum of 2% of the employee's salary and employees vested in the contributions based on years of credited service. For the years ended December 31, 1999, 1998 and 1997, the Company contributed approximately $142, $703 and $698, respectively, to the World Plan. Durkan maintains a 401(k) retirement savings plan (the" Durkan Plan") open to substantially all Durkan employees. Durkan contributes $0.50 for every $1.00 of employee contributions up to a maximum of 6% of eligible wages. For the years ended December 31, 1999, 1998 and 1997, Durkan contributed approximately $343, $328 and $265, respectively, to the Durkan Plan. (11) Income Taxes Income tax expense attributable to earnings before income taxes for the years ended December 31, 1999, 1998 and 1997 consists of the following:
Current Deferred Total --------------- --------------- -------------- 1999: U.S. federal............................. $ 92,736 (1,928) 90,808 State and local.......................... 12,104 (252) 11,852 --------------- --------------- -------------- $ 104,840 (2,180) 102,660 =============== =============== ============== 1998: U.S. federal............................. $ 75,985 (11,485) 64,500 State and local.......................... 17,761 (2,709) 15,052 --------------- --------------- -------------- $ 93,746 (14,194) 79,552 =============== =============== ============== 1997: U.S. federal............................. $ 45,921 (2,540) 43,381 State and local.......................... 9,077 (592) 8,485 --------------- --------------- -------------- $ 54,998 (3,132) 51,866 =============== =============== ==============
33 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) Income tax expense attributable to earnings before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate to earnings before income taxes as follows:
1999 1998 1997 -------------------- --------------- --------------- Computed "expected" tax expense........ $ 90,965 68,182 46,000 State and local income taxes, net of federal income tax benefit.................. 7,704 9,784 4,810 Amortization of goodwill............... 684 746 472 Other, net............................. 3,307 840 584 -------------------- --------------- --------------- $ 102,660 79,552 51,866 ==================== =============== ===============
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1999 and 1998 are presented below:
1999 1998 ----------- ---------- Deferred tax assets: Accounts receivable............................... $ 21,621 17,860 Inventories...................................... 15,533 12,381 Accrued expenses.................................. 41,366 39,442 -------------- ------------- Gross deferred tax assets................. 78,520 69,683 -------------- ------------- Deferred tax liabilities: Plant and equipment............................... (47,138) (43,428) Prepaid expenses.................................. (1,892) (219) Other............................................. (6,645) (4,493) -------------- ------------- Gross deferred tax liabilities............ (55,675) (48,140) -------------- ------------- Net deferred tax assets................... $ 22,845 21,543 ============== =============
Based upon the level of historical and projected taxable income over periods in 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, 1999. (12) Commitments and Contingencies The Company is obligated under various capital and operating leases for office and manufacturing space, machinery and equipment. Future minimum lease payments under noncancelable capital and operating leases (with initial or remaining lease terms in excess of one year) at December 31, 1999 are: 34 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued)
Total Capital Operating Future Leases Leases Payments ------------------ -------------- -------------- 2000.................................. $ 2,009 30,168 32,177 2001.................................. 1,432 24,979 26,411 2002.................................. 1,223 19,926 21,149 2003.................................. 647 15,188 15,835 2004.................................. - 10,797 10,797 Thereafter............................ - 20,118 20,118 ------------------ -------------- ------------ Total payments........................ $ 5,311 121,176 126,487 ============== ============== Less amount representing interest..... 608 ------------------ Present value of capitalized lease payments with a weighted interest rate of 7.85%........................ $ 4,703 ==================
The Company assumed several capitalized leases from recent acquisitions for machinery and equipment, at a cost of $8,899 for both periods ended December 31, 1999 and 1998. The amortization of these capital leases is included in depreciation expense. Accumulated amortization was $3,619 at December 31, 1999 and $2,547 at December 31, 1998. Rental expense under operating leases was $28,407, $27,347 and $20,970 in 1999, 1998 and 1997, 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, 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. 35 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (13) Consolidated Statements of Cash Flows Information Supplemental disclosures of cash flow information are as follows:
1999 1998 1997 -------------------- --------------- --------------- Net cash paid during the year for: Interest....................... $ 37,740 30,852 37,849 ==================== =============== =============== Income taxes................... $ 120,371 75,640 55,882 ==================== =============== ===============
(14) Quarterly Financial Data (Unaudited) The supplemental quarterly financial data are as follows:
Quarters Ended --------------------------------------------------------------------------- April 3, July 3, October 2, Dec. 31, 1999 1999 1999 1999 ---------------- --------------- --------------- --------------- Net sales................. $ 707,167 790,617 809,933 775,547 Gross profit.............. 178,329 200,911 203,246 194,373 Net earnings.............. 27,892 44,093 45,079 40,175 Basic earnings per share.. 0.46 0.73 0.74 0.70 Diluted earnings per share.. 0.46 0.72 0.74 0.70 Quarters Ended --------------------------------------------------------------------------- March 28, June 27, Sept. 26, Dec. 31, 1998 1998 1998 1998 -------------------- --------------- --------------- --------------- Net sales................. $ 589,473 689,488 718,772 746,887 Gross profit.............. 136,389 177,606 177,762 189,530 Net earnings.............. 17,135 35,947 37,060 25,112 Basic earnings per share.. 0.28 0.60 0.61 0.42 Diluted earnings per share 0.28 0.59 0.61 0.41
36 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 2000 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 2000 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 2000 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 2000 Annual Meeting of Stockholders under the following heading: "Executive Compensation and Other Information--Certain Relationships and Related Transactions." 37 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............. 44 Schedule II-Consolidated Valuation and Qualifying Accounts........... 48 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 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.) *2.2 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.) *2.3 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 Exhibit 2 of the Mohawk Registration Statement on Form S-3, Registration No. 333-66061, as filed October 22, 1998). *2.4 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). *2.5 Agreement and Plan of Merger by and among Mohawk, Durkan Acquisition Corp., Nonpareil Acquisition Corp.,Durkan Patterned Carpets, Inc.; the shareholders of Durkan Patterned Carpets, Inc. and the shareholders of Nonpareil Dying and finishing, Inc., dated as of February 26, 1999. (Incorporated herein by reference to Exhibit 2.1 of the Mohawk Registration Statement on Form S-3, Registration No. 333-77231, as filed April 28, 1999). *3.1 Restated Certificate of Incorporation of Mohawk, as amended. (Incorporated herein by reference to Exhibit 3.1 in Mohawk's Annual report on Form 10-K for the fiscal year ended December 31, 1999.) *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). 38 *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, 1998.) *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 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.) *10.2 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.) *10.3 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.) *10.4 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.) *10.5 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.) *10.6 Lease dated May 1, 1997 between Opus East, LLC and Mohawk concerning a distribution warehouse in Glen Burnie, Maryland. (Incorporated herein by reference to Exhibit 10.8 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *10.7 Lease dated September 23, 1996 between West End Road Associates and Mohawk concerning a distribution warehouse in Pompton Plains, New Jersey. (Incorporated herein by reference to Exhibit 10.10 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *10.8 Lease dated September 1, 1996 between Catellus Development Corp. and Mohawk concerning a distribution warehouse in LaMirada, California. (Incorporated herein by reference to Exhibit 10.11 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *10.9 Lease dated November 27, 1996 between CP-Regency Business Park LTD and Aladdin concerning a distribution warehouse in Grand Prairie, Texas. (Incorporated herein by reference to Exhibit 10.12 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *10.10 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. (Incorporated herein by reference to Exhibit 10.24 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) 39 10.11 Lease dated June 1, 1998 between Intermark USA, Inc. and Aladdin Manufacturing Corporation concerning a warehouse in Kensington, Georgia. 10.12 Lease dated February 18, 1999 between Aladdin Manufacturing Corporation and Industrial Developments International Inc. concerning a warehouse in Bolingbrook, Illinois. 10.13 Lease dated February 18, 1999 between Mohawk Industries, Inc. and Senecca G&H, L.L.C. concerning a warehouse in Miami, Florida. 10.14 Lease dated December 3, 1999 between Aladdin Manufacturing Corporation and Ex-Cell Home Fashions, Inc. concerning a plant in Bentonville, Arkansas. 10.15 Fifth Amended and Restated Credit Agreement dated as of November 23, 1999 among Mohawk, Wachovia Bank, N.A. Suntrust Bank, Atlanta and First Union National Bank. *10.16 Amended and Restated Series Note Agreement dated as of August 31, 1999 for $85 million of senior notes due September 1, 2005 among Mohawk, John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, Investors Partner Life Insurance Company, Principal Life Insurance Company, The Franklin Life Insurance Company 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 2, 1999.) *10.17 Amended and Restated Note Purchase Agreement dated as of August 31, 1999 for $100 million senior notes due September 16, 2004 among Mohawk, The Prudential Insurance Company of America, Principal Life Insurance Company, John Hancock Mutual Life Insurance Company, Massachusetts Mutual Life Insurance Company, Alexander Hamilton Life Insurance Company of America and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.2 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999.) *10.18 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.) *10.19 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.) *10.20 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.) *10.21 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.) *10.22 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.) *10.23 Second Consolidated, Amended and Restated Note Agreement dated as of August 31, 1999 for $50 million of senior notes, $40,000,000 of which are due October 26, 2002 and $10,000,000 of which are due July 30, 2002, among Mohawk and The Prudential Insurance Company of America. 40 (Incorporated herein by reference to Exhibit 10.3 of Mohawk's Quarterly Report on Form 10-Q dated October 2, 1999.) Exhibits Related to Executive Compensation Plans, Contracts and other Arrangements: *10.24 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.) *10.25 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.) *10.26 World Carpets, Inc. Savings and Retirement Plan dated January 1, 1989. (Incorporated herein by reference to Exhibit 10.70 of Mohawk's Annual Report on Form 10-K for the year ended December 31, 1998) *10.27 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.) *10.28 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.) *10.29 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.) *10.30 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.) *10.31 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.) *10.32 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.) *10.33 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.) *10.34 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.) 10.35 Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Stock Option Plan. *10.36 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.) *10.37 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.) 41 10.38 Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. *10.39 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.) 10.40 First Amendment dated February 17, 2000 to Mohawk Industries, Inc. 1993 Stock Option Plan. *10.41 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.) *10.42 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.) *10.43 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.) *10.44 1997 Non-Employee Director Stock Compensation Plan. (Incorporated herein by reference to Exhibit 10.79 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) *10.45 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.) *10.46 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 1999 Financial Data Schedule. 27.2 1998 Financial Data Schedule (restated) - ----------- * Indicates exhibit incorporated by reference. (b) Reports on Form 8-K. 1. Current Report on Form 8-K: Reclassified prior period financial statements, dated October 7, 1999. 2. Current Report on Form 8-K: Third quarter earnings press release, dated October 21, 1999. 3. Current Report on Form 8-K: Stock repurchase press release dated, December 16, 1999. 4. Current Report on Form 8-K: Fourth quarter earnings press release dated, February 10, 2000. 42 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 6, 2000 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 6, 2000 /s/ David L. Kolb ------------------------------------------------- David L. Kolb, Chairman of the Board and Chief Executive Officer (principal executive officer) Dated: March 6, 2000 /s/ John D. Swift ------------------------------------------------- John D. Swift, Chief Financial Officer, Vice President-Finance and Assistant Secretary (principal financial and accounting officer) Dated: March 6, 2000 /s/ Leo Benatar ------------------------------------------------- Leo Benatar, Director Dated: March 6, 2000 /s/ Bruce C. Bruckmann ------------------------------------------------- Bruce C. Bruckmann, Director Dated: March 6, 2000 /s/ S. H. Sharpe ------------------------------------------------- S. H. Sharpe Director Dated: March 6, 2000 /s/ Jeffrey S. Lorberbaum ------------------------------------------------- Jeffrey S. Lorberbaum, Director Dated: March 6, 2000 /s/ Larry W. McCurdy ------------------------------------------------- Larry W. McCurdy, Director Dated: March 6, 2000 /s/ Robert N. Pokelwaldt ------------------------------------------------- Robert N. Pokelwaldt, Director 43 SCHEDULE I MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Condensed Financial Information Of Registrant Mohawk Industries, Inc. Balance Sheets December 31, 1999 and 1998 (In thousands, except per share data)
ASSETS 1999 1998 ------------ ---------- Current assets - intercompany receivable............................................ $ 507,386 47,734 Investment in subsidiaries.......................................................... 720,564 563,325 ------------ ---------- $ 1,227,950 611,059 ============ ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities-current portion of long-term debt............................... $ 30,873 - Long-term debt, less current portion................................................ 504,531 - ------------ ---------- Total liabilities.............................................................. 535,404 - ============ ========== Preferred stock, $.01 par value; 60 shares authorized; no shares issued............. - - Common stock, $.01 par value; 150,000 shares authorized; 60,657 and 60,533 shares issued in 1999 and 1998, respectively..................................... 607 606 Additional paid-in capital.......................................................... 179,993 172,045 Retained earnings................................................................... 595,932 438,408 ------------ ---------- 776,532 611,059 Less treasury stock at cost; 3,952 shares in 1999............................... 83,986 - ------------ ---------- Total stockholder's equity.................................................... 692,546 611,059 ------------ ---------- $ 1,227,950 611,059 ============ ==========
44 SCHEDULE I (continued) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Condensed Financial Information Of Registrant Mohawk Industries, Inc. Statements of Earnings Years Ended December 31, 1999, 1998 and 1997 (In thousands)
1999 1998 1997 --------- ------- ------- Equity in earnings of subsidiaries.................................... $ 157,239 115,254 79,563 ---------- -------- ------- Net earnings....................................................... $ 157,239 115,254 79,563 ========== ======== =======
45 SCHEDULE I (continued) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Condensed Financial Information Of Registrant Mohawk Industries, Inc. Statements of Cash Flows Years Ended December 31, 1999, 1998 and 1997 (In thousands)
1999 1998 1997 Cash flows from operating activities: ---------- -------- -------- Net earnings....................................................... $ 157,239 115,254 79,563 Adjustments to reconcile net earnings to net cash used in operating activities: Equity in earnings of subsidiaries.............................. (157,239) (115,254) (79,563) Increase in intercompany receivable............................. 459,652 1,964 4,662 ---------- -------- -------- Net cash used in operating activities........................... 459,652 1,964 4,662 ---------- -------- -------- Cash flows from financing activities: Net proceeds from revolving line of credit......................... 384,452 - - Net proceeds from term loans...................................... 150,952 - - Stock options exercised............................................ 1,391 4,417 3,636 Tax benefit from exercise of stock options......................... 216 243 1,050 Purchase of treasury stock......................................... (83,986) - - Other.............................................................. 6,627 (2,696) (24) ---------- -------- -------- Net cash provided by financing activities....................... 459,652 1,964 4,662 ---------- -------- -------- Net change in cash.......................................... - - - Cash, beginning of year............................................... - - - ---------- -------- -------- Cash, end of year..................................................... $ - - - ========== ======== ========
46 SCHEDULE I (continued) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Notes to Condensed Financial Information Of Registrant Mohawk Industries, Inc. December 31, 1999 and 1998 (In thousands, except per share data) (1) Long-Term Debt On November 23, 1999 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 January 28, 2004. At December 31, 1999, the Company had credit availability of $450,000 under its revolving credit line and $45,000 under various short-term uncommitted credit lines. At December 31, 1999, a total of $110,548 was unused under these lines. The credit agreement contains customary financial and other covenants. 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. Long term debt consists of the following
1999 1998 --------------- -------------- Revolving line of credit, due January 28, 2004................. $ 384,452 - 8.46% senior notes, payable in annual principal installments beginning in 1998, due September 16, 2004, interest payable quarterly.................................................... 71,429 - 7.14%-7.23% senior notes, payable in annual principal installments beginning in 1997, due September 1, 2005, interest payable semiannually................................ 56,666 - 8.48% term loans, payable in annual principal installments, due October 26, 2002, interest payable quarterly............. 17,143 - 7.58% senior notes, payable in annual principal installments beginning in 1997, due July 30, 2003, interest payable semiannually................................................. 5,714 - ---------------- -------------- Total long-term debt.................................. 535,404 - Less current portion.......................................... 30,873 - ---------------- -------------- Long-term debt, excluding current portion............. $ 504,531 - ================ ============== The aggregate maturities of long-term debt as of December 31, 1999 are as follows: 2000.......................................................... $ 30,873 2001.......................................................... 30,873 2002.......................................................... 30,873 2003.......................................................... 25,159 2004.......................................................... 408,182 Thereafter.................................................... 9,444 ---------------- $ 535,404 ================
47 SCHEDULE II MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Valuation and Qualifying Accounts Years Ended December 31, 1999, 1998 and 1997 (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, 1997: Allowance for doubtful accounts - trade........... $ 15,829 8,458 7,125 17,162 Provision for cash discounts...................... 7,124 51,971 49,059 10,036 Provision for claims and allowances............... 17,821 121,812 114,596 25,037 ------------- ------------- ----------------- -------------- Total.......................................... $ 40,774 182,241 170,780 52,235 ============= ============= ================= ============== Year ended December 31, 1998: Allowance for doubtful accounts - trade........... $ 17,162 13,173 7,325 23,010 Provision for cash discounts...................... 10,036 73,349 72,898 10,487 Provision for claims and allowances............... 25,037 190,730 191,031 24,736 ------------- ------------- ----------------- -------------- Total.......................................... $ 52,235 277,252 271,254 58,233 ============= ============= ================= ============== Year ended December 31, 1999: Allowance for doubtful accounts - trade........... $ 23,010 15,804 4,710 34,104 Provision for cash discounts...................... 10,487 75,155 76,680 8,962 Provision for claims and allowances............... 24,736 238,413 235,736 27,413 ------------- ------------- ----------------- -------------- Total.......................................... $ 58,233 329,372 317,126 70,479 ============= ============= ================= ==============
_______________ (1) Represents charge offs, net of recoveries, to the reserves. 48 EXHIBIT INDEX Mohawk Exhibit Number Description - ------ ----------- *2.1 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.) *2.2 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.) *2.3 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 Exhibit 2 of the Mohawk Registration Statement on Form S-3, Registration No. 333-66061, as filed October 22, 1998). *2.4 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). *2.5 Agreement and Plan of Merger by and among Mohawk, Durkan Acquisition Corp., Nonpareil Acquisition Corp.,Durkan Patterned Carpets, Inc.; the shareholders of Durkan Patterned Carpets, Inc. and the shareholders of Nonpareil Dying and finishing, Inc., dated as of February 26, 1999. (Incorporated herein by reference to Exhibit 2.1 of the Mohawk Registration Statement on Form S-3, Registration No. 333-77231, as filed April 28, 1999). *3.1 Restated Certificate of Incorporation of Mohawk, as amended. (Incorporated herein by reference to Exhibit 3.1 in Mohawk's Annual report on Form 10-K for the fiscal year ended December 31, 1999.) *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, 1998.) *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 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.) *10.2 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.) *10.3 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.) *10.4 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.) *10.5 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.) *10.6 Lease dated May 1, 1997 between Opus East, LLC and Mohawk concerning a distribution warehouse in Glen Burnie, Maryland. (Incorporated herein by reference to Exhibit 10.8 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *10.7 Lease dated September 23, 1996 between West End Road Associates and Mohawk concerning a distribution warehouse in Pompton Plains, New Jersey. (Incorporated herein by reference to Exhibit 10.10 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *10.8 Lease dated September 1, 1996 between Catellus Development Corp. and Mohawk concerning a distribution warehouse in LaMirada, California. (Incorporated herein by reference to Exhibit 10.11 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *10.9 Lease dated November 27, 1996 between CP-Regency Business Park LTD and Aladdin concerning a distribution warehouse in Grand Prairie, Texas. (Incorporated herein by reference to Exhibit 10.12 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) *10.10 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. (Incorporated herein by reference to Exhibit 10.24 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) 10.11 Lease dated June 1, 1998 between Intermark USA, Inc. and Aladdin Manufacturing Corporation concerning a warehouse in Kensington, Georgia. 10.12 Lease dated February 18, 1999 between Aladdin Manufacturing Corporation and Industrial Developments International Inc. concerning a warehouse in Bolingbrook, Illinois. 10.13 Lease dated February 18, 1999 between Mohawk Industries, Inc. and Senecca G&H, L.L.C. concerning a warehouse in Miami, Florida. 10.14 Lease dated December 3, 1999 between Aladdin Manufacturing Corporation and Ex-Cell Home Fashions, Inc. concerning a plant in Bentonville, Arkansas. 10.15 Fifth Amended and Restated Credit Agreement dated as of November 23, 1999 among Mohawk, Wachovia Bank, N.A. Suntrust Bank, Atlanta and First Union National Bank. *10.16 Amended and Restated Series Note Agreement dated as of August 31, 1999 for $85 million of senior notes due September 1, 2005 among Mohawk, John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, Investors Partner Life Insurance Company, Principal Life Insurance Company, The Franklin Life Insurance Company 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 2, 1999.) *10.17 Amended and Restated Note Purchase Agreement dated as of August 31, 1999 for $100 million senior notes due September 16, 2004 among Mohawk, The Prudential Insurance Company of America, Principal Life Insurance Company, John Hancock Mutual Life Insurance Company, Massachusetts Mutual Life Insurance Company, Alexander Hamilton Life Insurance Company of America and The Franklin Life Insurance Company. (Incorporated herein by reference to Exhibit 10.2 of Mohawk's Quarterly Report on Form 10-Q for the quarter ended October 2, 1999.) *10.18 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.) *10.19 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.) *10.20 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.) *10.21 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.) *10.22 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.) *10.23 Second Consolidated, Amended and Restated Note Agreement dated as of August 31, 1999 for $50 million of senior notes, $40,000,000 of which are due October 26, 2002 and $10,000,000 of which are due July 30, 2002, among Mohawk and The Prudential Insurance Company of America. (Incorporated herein by reference to Exhibit 10.3 of Mohawk's Quarterly Report on Form 10-Q dated October 2, 1999.) Exhibits Related to Executive Compensation Plans, Contracts and other Arrangements: *10.24 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.) *10.25 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.) *10.26 World Carpets, Inc. Savings and Retirement Plan dated January 1, 1989. (Incorporated herein by reference to Exhibit 10.70 of Mohawk's Annual Report on Form 10-K for the year ended December 31, 1998) *10.27 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.) *10.28 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.) *10.29 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.) *10.30 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.) *10.31 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.) *10.32 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.) *10.33 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.) *10.34 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.) 10.35 Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Stock Option Plan. *10.36 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.) *10.37 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.) 10.38 Second Amendment dated February 17, 2000 to the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan. *10.39 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.) 10.40 First Amendment dated February 17, 2000 to Mohawk Industries, Inc. 1993 Stock Option Plan. *10.41 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.) *10.42 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.) *10.43 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.) *10.44 1997 Non-Employee Director Stock Compensation Plan. (Incorporated herein by reference to Exhibit 10.79 of Mohawk's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) *10.45 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.) *10.46 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 1999 Financial Data Schedule. 27.2 1998 Financial Data Schedule (restated) _________ * Indicates exhibit incorporated by reference. (b) Reports on Form 8-K. 1. Current Report on Form 8-K: Reclassified prior period financial statements, dated October 7, 1999. 2. Current Report on Form 8-K: Third quarter earnings press release, dated October 21, 1999. 3. Current Report on Form 8-K: Stock repurchase press release dated, December 16, 1999. 4. Current Report on Form 8-K: Fourth quarter earnings press release dated, February 10, 2000. EX-10.11 2 LEASE BETWEEN INTERMARK USA, INC. & ALADDIN MANF. EXHIBIT 10.11 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 Aladdin Manufacturing Corporation having an address of 106 JOHN BANKSON DR. SUMMERVILLE, as Tenant (hereinafter referred to as "Tenant"). GEORGIA 30747 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 l, 1999 through May 31, 2000, 136,020 ---------------------------------------------------- square feet located in the old Archer plant, (known as Sections A-4, A-5 and A-6)); and 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, 1999, and on the first day of each month thereafter in advance during the term of this Lease, in equal monthly installments of $18,500. 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 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 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. In case this lease is terminated and/or Tenant is dispossessed from the Premises on account of Tenant's default hereunder, Landlord agrees to use good-faith, commercially reasonable efforts to re-let same and to otherwise mitigate damages. 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 within 5 working days 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 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. Within 30 days 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 within 30 days 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 Tenant's insurance carrier, and to not turn off the water supply to the sprinkler system other than for routine maintenance. IN WITNESS WHEREOF, the parties hereto have executed this lease as of the day and year first above written. LANDLORD: INTERMARK USA, INC. Signed, sealed and delivered In the presence of BY: /s/ Drennon Crutchfield - ----------------------------- ------------------------------ WITNESS /s/ Mary Smith ATTEST: - ----------------------------- -------------------------- NOTARY PUBLIC TENANT: SIGNED, SEALED AND DELIVERED ALADDIN MANUFACTURING CORPORATION IN THE PRESENCE OF: BY: /s/ Sal Perillo - ----------------------------- ------------------------------ WITNESS /s/ Mary Pritchard ATTEST: - ----------------------------- -------------------------- NOTARY PUBLIC RIDER TO INTERMARK U.S.A. A. Aladdin Manufacturing Corporation. B. In case this lease is terminated and/or Tenant is dispossessed from the Premises on account of Tenant's default hereunder, Landlord agrees to use good-faith, commercially reasonable efforts to re-let same and to otherwise mitigate damages. C. Within 5 working days. D. Within 30 days. E. Aladdin Manufacturing Corporation. EX-10.12 3 LEASE BETWEEN ALADDIN MANF. & INDUSTRIAL DEVELPMNT EXHIBIT 10.12 INDUSTRIAL LEASE AGREEMENT BETWEEN INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC. AS LANDLORD AND ALADDIN MANUFACTURING CORPORATION AS TENANT LEASE INDEX ----------- Section Subject - ------- ------- 1 Basic Lease Provisions 2 Demised Premises 3 Term 4 Base Rent 5 [INTENTIONALLY OMITTED] 6 Operating Expenses and Additional Rent 7 Use of Demised Premises 8 Insurance 9 Utilities 10 Maintenance and Repairs 11 Tenant's Personal Property; Indemnity 12 Tenant's Fixtures 13 Signs 14 No Landlord's Lien 15 Governmental Regulations 16 Environmental Matters 17 Construction of Demised Premises 18 Tenant Alterations and Additions 19 Services by Landlord 20 Fire and Other Casualty 21 Condemnation 22 Tenant's Default 23 Landlord's Right of Entry 24 Lender's Rights 25 Estoppel Certificate 26 Landlord's Liability 27 Notices 28 Brokers 29 Assignment and Subleasing 30 Termination of Expiration 31 [INTENTIONALLY OMITTED] 32 Late Payments 33 Rules and Regulations 34 Quiet Enjoyment 35 Miscellaneous 36 Lease Date 37 Authority 38 No Offer Until Executed Exhibit "A" Demised Premises Exhibit "B" Prevailing Market Rate Exhibit "C" Preliminary Plans and Specifications/Work Exhibit "D" Subordination, Nondisturbance and Attornment Agreement Exhibit "E" Rules and Regulations Exhibit "F" Certificate of Authority Exhibit "G" Special Stipulations INDUSTRIAL LEASE AGREEMENT -------------------------- THIS LEASE AGREEMENT (the "Lease") is made as of the "Lease Date" (as defined in Section 37 herein) by and between INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC., a Delaware corporation ("Landlord"), and ALADDIN MANUFACTURING CORPORATION, a Delaware corporation ("Tenant") (the words "Landlord" and "Tenant" to include their respective legal representatives, successors and permitted assigns where the context requires or permits). W I T N E S S E T H: 1. Basic Lease Provisions. The following constitute the basic provisions of ---------------------- this Lease: (a) Demised Premises Address: ____________________________ Bolingbrook, Illinois; as provided in Section 2, the Demised Premises includes the non-exclusive right of Tenant to use the parking area and driveways which are part of the Building Common Area (as defined in Section 6). (b) Demised Premises Square Footage: approximately 201,959 square feet (c) Building Square Footage: approximately 352,338 square feet (d) Annual Base Rent: Lease Years one (1) through five (5) $763,405.02 Lease Years six (6) through ten (10) $862,364.93 (e) Monthly Base Rent Installments: Lease Years one (1) through five (5) $ 63,617.09 Lease Years six (6) through ten (10) $ 71,863.74 (f) Lease Commencement Date: The date of Substantial Completion (as defined in Section 17 of this Lease). (g) Base Rent Commencement Date: The Lease Commencement Date. (h) Expiration Date: The date which is ten (10) years after the Lease Commencement Date (subject to adjustment in accordance with Section 3 of this Lease). (i) Term: Ten (10) years after the Lease Commencement Date (subject to adjustment in accordance with Section 3 of this Lease). (j) Tenant's Operating Expense Percentage: 57.32% (k) [INTENTIONALLY OMITTED] (l) Permitted Use. Storage, warehousing, and distribution of carpet and carpet sundries, and general office use related thereto. (m) Address for notice: Landlord: INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC. 3424 Peachtree Road, N.E. Suite 1500 Atlanta, Georgia 30326 Attention: Vice President - Operations Tenant: ALADDIN MANUFACTURING CORPORATION 160 South Industrial Boulevard, S.W. Calhoun, Georgia 30703-7002 Attention: Salvatore J. Perillo, Esquire General Counsel (n) Address for rental INDUSTRIAL DEVELOPMENTS payments: INTERNATIONAL, INC. c/o IDI Services Group, Inc. P.O. Box 930190 Atlanta, Georgia 31193 (o) Broker: Grubb & Ellis 2. Demised Premises. For and in consideration of the rent hereinafter ---------------- reserved and the mutual covenants hereinafter contained, Landlord does hereby lease and demise unto Tenant, and Tenant does hereby hire, lease and accept, from Landlord all upon the terms and conditions hereinafter set forth the following premises, referred to as the "Demised Premises", as outlined on Exhibit A attached hereto and incorporated herein: (i) approximately 201,959 - --------- square feet of space, approximately 10,000 square feet of which is office space, having an address as set forth in Section 1(a), located within a building known as Inventory Facility I (the "Building"), which contains a total of approximately 352,338 square feet and is located on a parcel of land ("Land") containing approximately 16.24 acres within Bolingbrook Corporate Center (the "Project"), in Bolingbrook, Illinois and (ii) a non-exclusive right to use, in common with other tenants of the Building (and the employees, guests and other invitees of such tenants), all Building Common Area. The Demised Premises will be delivered to Tenant in the condition and on the schedule described in Section 17. 3. Term. To have and to hold the Demised Premises for a term (the "Term") ---- commencing on the Lease Date and terminating on the Expiration Date, as the Lease Commencement Date and the Expiration Date may be revised pursuant to Section 17; provided that if the Lease Commencement Date is a day other than the first day of a calendar month, the Term shall expire ten (10) years after the first day of the first full calendar month after the Lease Commencement Date and shall, accordingly, include the period between the Lease Commencement Date and the end of the calendar month in which the Base Commencement Date occurs. The term "Lease Year", as used in this Lease, shall mean the 12-month period commencing on the Lease Commencement Date, and each 12-month period thereafter during the Term; provided, however, that if the first Lease Year begins on a day other than the first day of a calendar month, the first Lease Year shall include the period between the Lease Commencement Date and the end of the calendar month in which the Lease Commencement Date occurs and shall extend through the end of the twelfth (12th) full calendar month following the Lease Commencement Date. 3.1 Renewal Option. -------------- (a) Provided that no Event of Default (as defined in Section 22) has occurred and is then continuing, Tenant shall have the right and option to extend the Primary Term of this Lease for two (2) successive additional periods of five (5) years each (the "First Renewal Term" and the "Second Renewal Term", respectively, and, collectively, the "Renewal Terms") in accordance with this Section 3.1. If Tenant does not extend the Primary Term for the First Renewal Term, it shall have no right to extend the Term for the Second Renewal Term. The option for the First Renewal Term my be exercised by Tenant by written notice given to Landlord not less than nine (9) months prior to the end of the Primary Term. If Tenant properly exercises its right to the First Renewal Term, the option for the Second Renewal Term may be exercised by Tenant by written notice given to Landlord not less than nine (9) months prior to the end of the First Renewal Term. Subject to the terms of subsection (b) of this Section 3.1, all of the terms and provisions of this Lease shall govern and be applicable to the First Renewal Term and the Second Renewal Term (with the exceptions that (i) there will be no period of rent-free occupancy at the commencement of either of the Renewal Terms, (ii) Landlord will have no obligation to construct any improvements, provide any allowances or grant any rental abatement prior to commencement of accrual of Base Rent for either Renewal Term and (iii) there will be no renewal of the Term other than the Renewal Terms) if Tenant timely exercises its right to extend the Term in accordance with this subsection (a). (b) If Tenant timely and properly exercises its right to the First Renewal Term, Tenant shall pay to Landlord as Annual Base Rent during the First Renewal Term, in lawful money of the United States commencing at the commencement of the First Renewal Term, a per annum sum equal to the greater of (i) the product obtained by multiplying the square footage of the Demised Premises times an amount equal to the "Prevailing Market Rate" (as defined and calculated in the manner set forth in Exhibit B attached to this Lease and --------- incorporated herein by reference) in effect on the first day of the First Renewal Term or (ii) the Base Rent which was in effect at the end of the Primary Term. If Tenant properly exercises its right to the First Renewal Term, and thereafter timely exercises its right to the Second Renewal Term, Tenant shall pay to Landlord as Annual Base Rent during the Second Renewal Term, in lawful money of the United States commencing at the commencement of the Second Renewal Term, a per annum sum equal to the greater of (i) the product obtained by multiplying the square footage of the Demised Premises times an amount equal to the Prevailing Market Rate in effect as of the first day of the Second Renewal Term or (ii) the Base Rent which was in effect at the end of the First Renewal Term. 4. Base Rent. Tenant shall pay to Landlord at the address set forth in --------- Section 1(n), as base rent for the Demised Premises, commencing on the Base Rent Commencement Date and continuing throughout the Term in lawful money of the United States, the annual amount set forth in Section 1(d) payable in equal monthly installments as set forth in Section 1(e) (the "Base Rent"), payable in advance, -2- payable in equal monthly installments as set forth in Section 1(e) (the "Base Rent"), payable in advance, without demand and without abatement, reduction, set-off or deduction, on the first day of each calendar month during the Term. If the Base Rent Commencement Date shall fall on a day other than the first day of a calendar month, the Base Rent shall be apportioned pro rata on a per diem basis (i) for the period between the Base Rent Commencement Date and the first day of the following calendar month (which pro rata payment shall be due and payable on the Base Rent Commencement Date), and (ii) for the last partial month of the Term, if applicable. No payment by Tenant or receipt by Landlord of rent hereunder shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or any letter accompanying any check or payment of rent shall be deemed an accord and satisfaction, and Landlord may accept such check as payment without prejudice to Landlord's right to recover the balance of such installment or payment of rent or pursue any other remedies available to Landlord. 4.1 Landlord hereby agrees to provide to Tenant an allowance in the amount of $400,000.00 ("Maximum Construction Allowance") for the installation of the interior finish of the office area of the Demised Premises ("Allowance Work"). If, following the final approval of the Plans and Specifications (as defined in Section 17(a) of this Lease), Landlord reasonably determines that the cost of the Allowance Work will exceed the amount of the Maximum Construction Allowance, Landlord will give written notice of such determination to Tenant, which notice will specify the estimated amount by which the cost of the Allowance Work will exceed the Maximum Construction Allowance. Subject to the rights of review and approval granted Tenant hereinafter in this Section 4.1, Tenant agrees to deliver to Landlord such excess amount in cash within ten (10) business days following receipt of such notice. If Tenant does not utilize the full Maximum Construction Allowance, the unused portion may be applied by Tenant as a credit against Base Rent and Additional Rent (as defined in Section 6) which would otherwise accrue in accordance with this Lease. At any time after the occurrence of Substantial Completion, Landlord and Tenant shall, within thirty (30) days after receipt by Tenant of a written request from Landlord, execute and deliver an amended and restated version of this Lease which will delete this Section 4.1 in its entirety and delete any other references in this Lease to the provisions of this Section 4.1. With respect to the Maximum Construction Allowance, Landlord agrees that Landlord will give Tenant a reasonable opportunity to review and approve any bids or contracts which Landlord desires to accept from any contractor for performance of the work which will be paid from the Maximum Construction Allowance; provided that Tenant must respond in writing within five (5) business days after receipt of any written submission from Landlord. A failure to respond timely shall constitute approval. Landlord will not accept a bid or enter into a contract without the approval of Tenant; provided that Tenant acknowledges that (i) Landlord will not be in a position to submit an application for the Permits (as defined in Section 17(a)) without the required approval from Tenant and (ii) each day that elapses after such fifth (5th) business day, until the requisite approval is obtained from Tenant, will constitute a day of Tenant Delay (as defined in Section 17.1). 4.2 Additional Allowance. In addition to the Maximum Construction -------------------- Allowance, Landlord hereby agrees to provide to Tenant an additional allowance ("Supplemental Allowance") in the amount of $500,000.00, which will be available for use by Tenant in accordance with this Section 4.2. Tenant may use the Supplemental Allowance to fund the payment of the cost of any Allowance Work which exceeds the Maximum Construction Allowance and then the payment of the installation by Landlord of permanent improvements at the Demised Premises ("Additional Improvements"), in addition to the Allowance Work; provided that the nature and scope of such work will be subject to the approval of Landlord, not to be unreasonably withheld, delayed or conditioned. Landlord will, to the extent reasonably practicable, perform the Additional Work concurrently with performance of the Allowance Work, subject to the condition that Landlord will not be required to perform the Additional Work in any manner which would delay the occurrence of Substantial Completion. To the extent that Tenant does not utilize the Additional Allowance to pay excess cost for the Allowance Work or the cost of Additional Improvements, the unused portion of the Additional Allowance shall then be applied as a credit against Base Rent and Additional Rent, up to a maximum of $243,229.26, and the balance, if any, will be paid to Tenant in cash. Under no circumstances will Tenant have any right to receive the payment from the Additional Allowance (except to the extent that Landlord may be performing Additional Work), either in cash or as a credit against Base Rent, until Tenant has acknowledged in writing the occurrence of Substantial Completion. 5. [INTENTIONALLY OMITTED] 6. Operating Expenses and Additional Rent. -------------------------------------- (a) Tenant agrees to pay as Additional Rent (as defined in Section 6(b) below) its proportionate share of Operating Expenses (as hereinafter defined). "Operating Expenses" shall be defined as all reasonable expenses for operation, repair, replacement and maintenance as necessary to keep the Building and the common areas, driveways, and parking areas associated therewith (collectively, the "Building Common Area") in good order, condition and repair, including but not limited to, utilities for the Building Common Area, expenses associated with the driveways and parking areas (including sealing and restriping, and snow, trash and ice removal), security systems, fire detection and prevention systems, lighting facilities, landscaped areas, walkways, painting and caulking, directional signage, curbs, drainage strips, sewer lines, all charges assessed against or attributed to the Building pursuant to any applicable easements, covenants, restrictions, agreements, declaration of protective covenants or development standards, property management fees (provided that the amount of management fees -3- included in the Operating Expenses actually billed to Tenant shall not exceed, on an annual basis, two percent (2.0%) of the Base Rent in effect from time to time), all real property taxes and special assessments imposed upon the Building, the Building Common Area and the land on which the Building and the Building Common Area are constructed, all costs of insurance paid by Landlord with respect to the Building and the Building Common Area, and costs of improvements to the Building and the Building Common Area required by any law, ordinance or regulation applicable to the Building and the Building Common Area generally (and not because of the particular use of the Building or the Building Common Area by a particular tenant), which cost shall be amortized on a straight line basis over the useful life of such improvement, as reasonably determined by Landlord. Operating Expenses shall not include expenses for the costs of any maintenance and repair required to be performed by Landlord at its own expense under Section (10)(b). Further, Operating Expenses shall not include the costs for capital improvements unless such costs are incurred for the purpose of causing a material decrease in the Operating Expenses of the Building or the Building Common Area or are made with respect to improvements made to comply with laws, ordinances or regulations as described above. The proportionate share of Operating Expenses to be paid by Tenant shall be a percentage of the Operating Expenses based upon the proportion that the square footage of the Demised Premises bears to the total square footage of the Building (such figure referred to as "Tenant's Operating Expense Percentage" and set forth in Section 1(j)). Prior to or promptly after the beginning of each calendar year during the Term. Landlord shall estimate the total amount of Operating Expenses to be paid by Tenant during each such calendar year and Tenant shall pay to Landlord one- twelfth (1/12) of such sum on the first day of each calendar month during each such calendar year, or part thereof, during the Term. Within a reasonable time after the end of each calendar year, Landlord shall submit to Tenant a statement of the actual amount of Operating Expenses for such calendar year, and the actual amount owed by Tenant, and within thirty (30) days after receipt of such statement, Tenant shall pay any deficiency between the actual amount owed and the estimates paid during such calendar year, or in the event of overpayment. Landlord shall credit the amount of such overpayment toward the next installment of Operating Expenses owed by Tenant or remit such overpayment to Tenant if the Term has expired or has been terminated and no Event of Default exists hereunder. The obligations in the immediately preceding sentence shall survive the expiration or any earlier termination of this Lease. If the Lease Commencement Date shall fall on other than the first day of the calendar year, and/or if the Expiration Date shall fall on other than the last day of the calendar year, Tenant's proportionate share of the Operating Expenses for such calendar year shall be apportioned prorata. (b) Any amounts required to be paid by Tenant hereunder (in addition to Base Rent) and any charges or expenses incurred by Landlord on behalf of Tenant under the terms of this Lease shall be considered "Additional Rent" payable in the same manner and upon the same terms and conditions as the Base Rent reserved hereunder except as set forth herein to the contrary. Any failure on the part of Tenant to pay such Additional Rent when and as the same shall become due shall entitle Landlord to the remedies available to it for non-payment of Base Rent. Tenant's obligations for payment of Additional Rent shall begin to accrue on the Lease Commencement Date regardless of the Base Rent Commencement Date. (c) If applicable in the jurisdiction where the Demised Premises are located, Tenant shall pay and be liable for all rental, sales, use and inventory taxes or other similar taxes, if any, on the amounts payable by Tenant hereunder levied or imposed by any city, state, county or other governmental body having authority, such payments to be in addition to all other payments required to be paid Landlord by Tenant under the terms of this Lease. Such payment shall be made by Tenant directly to such governmental body if billed to Tenant, or if billed to Landlord, such payment shall be paid concurrently with the payment of the Base Rent, Additional Rent, or such other charge upon which the tax is based, all as set forth herein. (d) The books and records of Landlord pertaining to the determination of Operating Expenses for any calendar year may be reviewed and/or audited by Tenant or its representatives, at the expense of Tenant and during normal business hours at the offices of Landlord located at 3424 Peachtree Road, Suite 1500, Atlanta, Georgia 30326 at any time within thirty-six (36) months following the end of the calendar year for which review and/or the audit is to be performed, provided that Tenant shall give Landlord not less than ten (10) days prior written notice of the intent of Tenant to conduct the review and/or audit. 7. Use of Demised Premises. ----------------------- (a) The Demised Premises shall be used for the Permitted Use set forth in Section 1(1) and for no other purpose. (b) Tenant will permit no liens to attach or exist against the Demised Premises, and shall not commit any waste. (c) The Demised Premises shall not be used for any illegal purposes, and Tenant shall not allow, suffer, or permit any vibration, noise, odor, light or other effect to occur within or around the Demised Premises that could constitute a nuisance or trespass for Landlord of any occupant of the Building or an adjoining building, its customers, agents, or invitees. Upon notice by Landlord to Tenant -4- that any of the aforesaid prohibited uses are occurring. Tenant agrees to promptly remove or control the same. (d) Tenant shall not in any way violate any law, ordinance or restrictive covenant affecting the Demised Premises, and shall not in any manner use the Demised Premises so as to cause cancellation of, prevent the use of, or increase the rate of, the fire and extended coverage insurance policy required hereunder. Landlord makes no (and does hereby expressly disclaim any) covenant, representation or warranty as to the Permitted Use being allowed by or being in compliance with any applicable laws, rules, ordinances or restrictive covenants now or hereafter affecting the Demised Premises, and any zoning letters, copies of zoning ordinances or other information from any governmental agency or other third party provided to Tenant by Landlord or any of Landlord's agents or employees shall be for informational purposes only, Tenant hereby expressly acknowledging and agreeing that Tenant shall conduct and rely solely on its own due diligence and investigation with respect to the compliance of the Permitted Use with all such applicable laws, rules, ordinances and restrictive covenants and not on any such information provided by Landlord or any of its agents or employees. (e) In the event insurance premiums pertaining to the Demised Premises, the Building, or the Building Common Area, whether paid by Landlord or Tenant, are increased over the least hazardous rate available due to the nature of the use of the Demised Premises by Tenant, Tenant shall pay such additional amount as Additional Rent. 8. Insurance. --------- (a) Tenant covenants and agrees that from and after the Lease Commencement Date or any earlier date upon which Tenant enters or occupies the Demised Premises or any portion thereof, Tenant will carry and maintain, at its sole cost and expense, the following types of insurance, in the amounts specified and in the form hereinafter provided for: (i) Liability insurance in the Commercial General Liability form (or reasonable equivalent thereto) covering the Demised Premises and Tenant's use thereof against claims for bodily injury or death, property damage and product liability occurring upon, in or about the Demised Premises, such insurance to be written on an occurrence basis (not a claims made basis), to be in combined single limits amounts not less than $3,000,000.00 and to have general aggregate limits of not less than $5,000,000.00 for each policy year. The insurance coverage required under this Section 8(a)(i) shall, in addition, extend to any liability of Tenant arising out of the indemnities provided for in Section 11 and, if necessary, the policy shall contain a contractual endorsement to that effect. The liability insurance coverage required by this subsection (i) may be provided through a combination of primary and umbrella coverage as may be customarily utilized by Tenant, subject to the prior review and approval of Landlord, not to be unreasonably withheld, delayed or conditioned. (ii) Insurance covering (A) all of the items included in the leasehold improvements constructed in the Demised Premises by or at the expenses of Landlord (collectively, the "Improvements"), including but not limited to demising walls and the heating, ventilating and air conditioning system and (B) Tenant's trade fixtures, merchandise and personal property from time to time in, on or upon the Demised Premises, in an amount not less than one hundred percent (100%) of their full replacement value from time to time during the Term, providing protection against perils included within the standard form of "all- risks" fire and casualty insurance policy, together with insurance against sprinkler damage, vandalism and malicious mischief. Any policy proceeds from such insurance relating to the Improvements shall be used solely for the repair, construction and restoration or replacement of the Improvements damaged or destroyed unless this Lease shall cease and terminate under the provisions of Section 20. (b) All policies of the insurance provided for in Section 8(a) shall be issued in form reasonably acceptable to Landlord by insurance companies with a rating of not less than "A," and financial size of not less than Class XII, in the most current available "Best's Insurance Reports", and licensed to do business in the state in which the Building is located. Each and every such policy: (i) shall name Landlord, Lender (as defined in Section 24), and any other party reasonably designated by Landlord, as an additional insured. In addition, the coverage described in Section 8(a)(ii)(A) relating to the Improvements shall also name Landlord as "loss payee"; (ii) shall be delivered to Landlord, in the form of an insurance certificate acceptable to Landlord as evidence of such policy, prior to the Lease Commencement Date and thereafter within thirty (30) days prior to the expiration of each such policy, and, as often as any such policy shall expire or terminate. Renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent; (iii) shall contain a provision that the insurer will give to Landlord and such other parties in interest at least fifteen (15) days notice in writing in advance of any material change, cancellation, termination or lapse, or the effective date of any reduction in the amounts of insurance; and -5- (iv) shall be written as a primary policy which does not contribute to and is not in excess of coverage which Landlord may carry. (c) In the event that Tenant shall fail to carry and maintain the insurance coverages set forth in this Section 8, Landlord may upon thirty (30) days notice to Tenant (unless such coverages will lapse in which event no such notice shall be necessary) procure such policies of insurance and Tenant shall promptly reimburse Landlord therefor. (d) Any insurance provided for in Section 8(a) may be maintained by means of a policy or policies of blanket insurance, covering additional items or locations or insureds, provided, however, that: (i) Landlord and any Mortgagee (as defined in Section 24) shall be named as an additional insured thereunder as its interest may appear, and (ii) the requirements set forth in this Section 8 are otherwise satisfied. (e) Landlord covenants and agrees that, from and after the Lease Commencement Date, Landlord will carry and maintain the following types of insurance (with all premium costs related thereto being included in Operating Expenses), in the form and with amounts of coverage as hereinafter required: (i) Liability insurance in the commercial general liability form, covering the Building and the Land, against claims for personal injury or death and property damage upon, in or about the Land and the Building, such Insurance to be written on an occurrence basis (not a claims made basis) with combined single limit coverage of not less than $3,000,000.00 and with a general aggregate limit of not less than $5,000,000.00 for each policy year; (ii) insurance on the "all-risk" or equivalent form, on a replacement cost basis, against loss or damage to the Building (excluding foundation); and (iii) rent loss insurance covering loss of rental income under this Lease for a period of not less than twelve (12) months and such other insurance as Landlord reasonably deems necessary for prudent ownership and management of the Building. All policies of insurance required to be carried by Landlord pursuant to this Section 8(e) shall be issued by insurance companies with a rating of not less than A+, with a financial size reasonably consistent with the size and nature of the risk being insured and licensed to do business in the State of Illinois. With respect to each and every policy of insurance carried by Landlord pursuant to this subsection (e), Landlord shall, within ten (10) business days after receipt of a written request from Tenant, deliver to Tenant a certificate evidencing the required coverage and containing a provision that each insurer will give to Tenant at least thirty (30) days notice in writing in advance of any material change, cancellation, termination or lapse, or the effective date of any reduction in the amounts of insurance. (f) Landlord and Tenant hereby waive any rights each may have against the other on account of any loss or damage occasioned to Landlord or Tenant, as the case may be, their respective property, the Demised Premises, its contents or to the other portions of the Building, arising from any risk covered by all risks fire and extended coverage insurance of the type and amount required to be carried hereunder, provided that such waiver does not invalidate such policies or prohibit recovery thereunder. The parties hereto shall cause their respective insurance companies insuring the property of either Landlord or Tenant against any such loss, to waive any right of subrogation that such insurers may have against Landlord or Tenant, as the case may be. 9. Utilities. During the Term, Tenant shall promptly pay as billed to Tenant --------- all rents and charges for water and sewer services and all costs and charges for gas, steam, electricity, fuel, light, power, telephone, heat and any other utility or service used or consumed in or servicing the Demised Premises and all other costs and expenses involved in the care, management and use thereof. To the extent reasonably possible, such utilities shall be separately metered and billed to Tenant. Any utilities which are not separately metered shall be billed to Tenant by Landlord at Landlord's actual cost. In the event Tenant's use of any utility not metered is in excess of the average use by other tenants, Landlord shall have the right to install a meter for such utility, at Tenant's expense, and bill Tenant for Tenant's actual use. If Tenant fails to pay any utility bills or charges, Landlord may, at its option and upon reasonable notice to Tenant, pay the same and in such event, the amount of such payment, together with interest thereon at the Interest Rate as defined in Section 32 from the date of such payment by Landlord, will be added to Tenant's next due payment as Additional Rent. 10. Maintenance and Repairs. ----------------------- (a) Tenant shall, at its own cost and expense, maintain in good condition and repair the interior of the Demised Premises, including but not limited to the heating, air conditioning and ventilation systems, glass, windows and doors, sprinkler, all plumbing and sewage systems, fixtures, interior walls, floors (including floor slabs), ceilings, storefronts, plate glass, skylights, all electrical -6- facilities and equipment including, without limitation, lighting fixtures, lamps, fans and any exhaust equipment and systems, electrical motors, and all other appliances and equipment (including, without limitation, dock levelers, dock shelters, dock seals and dock lighting) of every kind and nature located in, upon or about the Demised Premises, except as to such maintenance and repair as is the obligation of Landlord pursuant to Section 10(b). During the Term, Tenant shall maintain in full force and effect a service contract for the maintenance of the heating, ventilation and air conditioning systems with an entity reasonably acceptable to Landlord. Tenant shall deliver to Landlord (i) a copy of said service contract prior to the Lease Commencement Date, and (ii) thereafter, a copy of a renewal or substitute service contract within thirty (30) days prior to the expiration of the existing service contract. Tenant's obligation shall exclude any maintenance and repair required because of the act or negligence of Landlord, its employees, contractors or agents, which shall be the responsibility of Landlord. Tenant shall not be required under any provision of this Lease to place the Demised Premises in better condition than the condition in which the Demised Premises was delivered to Tenant. (b) Landlord shall, at its own cost and expense, maintain in good condition and repair the roof, foundation (beneath the floor slab) and structural frame of the Building. Landlord's obligation shall exclude the cost of any maintenance or repair required because of the act or negligence of Tenant or Tenant's agents, contractors, employees and invitees (collectively, "Tenant's Affiliates"), the cost of which shall be the responsibility of Tenant. (c) Unless the same is caused solely by the negligent action or inaction of Landlord, its employees or agents, and is not covered by the insurance required to be carried by Tenant pursuant to the terms of this Lease, Landlord shall not be liable to Tenant or to any other person for any damage occasioned by failure in any utility system or by the bursting or leaking of any vessel or pipe in or about the Demised Premises, or for any damage occasioned by water coming into the Demised Premises or arising from the acts or neglects of occupants of adjacent property or the public. 11. Tenant's Personal Property; Indemnity. All of Tenant's personal property ------------------------------------- in the Demised Premises shall be and remain at Tenant's sole risk. Landlord, its agents, employees and contractors, shall not be liable for, and Tenant hereby releases Landlord from, any and all liability for theft thereof or any damage thereto occasioned by any act of God or by any acts, omissions or negligence of any persons. Landlord and Tenant each hereby agrees to indemnify, defend, protect and hold the other party harmless from and against any and all losses, costs, liabilities, damages and expenses, including, but not limited to, penalties, fines, reasonable attorney's fees and costs actually incurred, but specifically excluding consequential and indirect damages (collectively, "Claims"), to the extent such Claims (i) are caused or result from the activities (including the negligence or willfulness conduct) of the indemnifying party or its respective agents, contractors or employees in or on the Demised Premises, Building or Land, and (ii) are not insured (or required to be insured) by the indemnified party pursuant to the provisions of this Lease; provided, however, that the foregoing indemnity shall not extend to any Claims to the extent resulting from the negligence or willful misconduct of the indemnified party. The foregoing mutual indemnity is intended to be consistent with the waivers as set forth in Section 8(e) of this Lease, pursuant to which (A) each party has waived its respective rights against the other party to the extent any losses, damages or other Claims are insured or required to be insured under property damage policies by such party pursuant to the provisions of this Lease, and (B) has agreed to cause such party's respective insurance carrier to include a waiver of subrogation (to the extent obtainable) in their respective property damage insurance policies. The foregoing indemnities, and the waivers set forth in Section 8(e), are not intended to and shall not relieve any insurance carrier of its obligations to provide insurance coverage pursuant to insurance policies obtained pursuant to the provisions of this Lease. The provisions of this Section 11 shall survive the expiration or earlier termination of this Lease. 12. Tenant's Fixtures. Tenant shall have the right to install in the Demised ----------------- Premises trade fixtures required by Tenant or used by it in its business, and if installed by Tenant, to remove any or all such trade fixtures from time to time during and upon termination or expiration of this Lease, provided no Event of Default, as defined Section 22, then exists; provided, however, that Tenant -------- ------- shall repair and restore any damage or injury to the Demised Premises (to the condition in which the Demised Premises existed prior to such installation) caused by the installation and/or removal of any such trade fixtures. 13. Signs. No sign, advertisement or notice shall be inscribed, painted, ----- affixed, or displayed on the windows or exterior walls of the Demised Premises or on any public area of the Building, except in such places, numbers, sizes, colors and styles as are approved in advance in writing by Landlord, which approval will not be unreasonably withheld, delayed or conditioned, and which conform to all applicable laws, ordinances, or covenants affecting the Demised Premises. Any and all signs installed or constructed by or on behalf of Tenant pursuant hereto shall be installed, maintained and removed by Tenant at Tenant's sole cost and expense. 14. No Landlord's Lien. With the exception of any lien which Landlord may ------------------ obtain by virtue of a judgment against Tenant, Landlord hereby waives and releases any lien or claim of lien, statutory or otherwise, which Landlord may be entitled to assert under the laws of the state of Illinois upon or against any personal property and trade fixtures of Tenant situated in and upon the Demised Premises. Landlord acknowledges and agrees that Tenant will have the right to grant security interests to third parties in the personal property of Tenant at the Demised Premises. Landlord waives its rights under the laws of the state of Illinois to file or seek a distress or distraint levy or warrant with respect to any personal property -7- of Tenant at the Demised Premises which is subject to any form of security interest held by a third party unrelated to Tenant. 15. Governmental Regulations. Tenant shall promptly comply throughout the ------------------------ Term, at Tenant's sole cost and expense, with all present and future laws, ordinances, orders, rules, regulations or requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and officers thereof (collectively, "Governmental Requirements") relating to (a) all or any part of the Demised Premises, and (b) to the use or manner of use by Tenant of the Demised Premises and the Building Common Area. Tenant shall also observe and comply with the requirements of all policies of public liability, fire and other policies of insurance at any time in force with respect to the Demised Premises. 16. Environmental Matters. --------------------- (a) For purposes of this Lease: (i) "Contamination" as used herein means the presence of or release of Hazardous Substances (as hereinafter defined) into any environmental media from, upon, within, below, into or on any portion of the Demised Premises, the Building, the Building Common Area or the Project so as to require remediation, cleanup or investigation under any applicable Environmental Law (as hereinafter defined). (ii) "Environmental Laws" as used herein means all federal, state, and local laws, regulations, orders, permits, ordinances or other requirements, which exist now or as may exist hereafter, concerning protection of human health, safety and the environment, all as may be amended from time to time. (iii) "Hazardous Substances" as used herein means any hazardous or toxic substance, material, chemical, pollutant, contaminant or waste as those terms are defined by any applicable Environmental Laws (including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. ("CERCLA") and the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ["RCRA"]) and any solid wastes, polychlorinated biphenyls, urea formaldehyde, asbestos, radioactive materials, radon, explosives, petroleum products and oil. (b) Landlord represents that, except as revealed to Tenant in writing by Landlord, to Landlord's actual knowledge, Landlord has not treated, stored or disposed of any Hazardous Substances upon or within the Demised Premises, nor, to Landlord's actual knowledge, has any predecessor owner of the Demised Premises. (c) Tenant covenants that all its activities, and the activities of Tenant's Affiliates (as defined in Section 10(b)), on the Demised Premises, the Building, or the Project during the Term will be conducted in compliance with Environmental Laws. Tenant warrants that it is currently in compliance with all applicable Environmental Laws and that there are no pending or threatened notices of deficiency, notices of violation, orders, or judicial or administrative actions involving alleged violations by Tenant of any Environmental Laws. Tenant, at Tenant's sole cost and expense, shall be responsible for obtaining all permits or licenses or approvals under Environmental Laws necessary for Tenant's operation of its business on the Demised Premises and shall make all notifications and registrations required by any applicable Environmental Laws. Tenant, at Tenant's sole cost and expense, shall at all times comply with the terms and conditions of all such permits, licenses, approvals, notifications and registrations and with any other applicable Environmental Laws. Tenant warrants that it has obtained all such permits, licenses or approvals and made all such notifications and registrations required by any applicable Environmental Laws necessary for Tenant's operation of its business on the Demised Premises. (d) Tenant shall not cause or permit any Hazardous Substances to be brought upon, kept or used in or about the Demised Premises, the Building, or the Project without the prior written consent of Landlord, which consent shall not be unreasonably withheld; provided, however, that the consent of Landlord -------- ------- shall not be required for the use at the Demised Premises of cleaning supplies, toner for photocopying machines and other similar materials, in containers and quantities reasonably necessary for and consistent with normal and ordinary use by Tenant in the routine operation or maintenance of Tenant's office equipment or in the routine janitorial service, cleaning and maintenance for the Demised Premises. For purposes of this Section 16, Landlord shall be deemed to have reasonably withheld consent if Landlord determines that the presence of such Hazardous Substance within the Demised Premises could result in a risk of harm to person or property or otherwise negatively affect the value or marketability of the Building or the Project. (e) Tenant shall not cause or permit the release of any Hazardous Substances by Tenant or Tenant's Affiliates into any environmental media such as air, water or land, or into or on the Demised Premises, the Building or the Project in any manner that violates any Environmental Laws. If such release shall occur, Tenant shall (i) take all steps reasonably necessary to contain and control such release and any associated Contamination, (ii) clean up or otherwise remedy such release and any associated Contamination to the extent required by, and take any and all other actions required under, -8- applicable Environmental Laws and (iii) notify and keep Landlord reasonably informed of such release and response. (f) Regardless of any consents granted by Landlord pursuant to Section 16(d) allowing Hazardous Substances upon the Demised Premises, Tenant shall under no circumstances whatsoever cause or permit (i) any activity on the Demised Premises which would cause the Demised Premises to become subject to regulation as a hazardous waste treatment, storage or disposal facility under RCRA or the regulations promulgated thereunder, (ii) the discharge of Hazardous Substances into the storm sewer system serving the Project or (iii) the installation of any underground storage tank or underground piping on or under the Demised Premises. (g) Tenant shall and hereby does indemnify Landlord and hold Landlord harmless from and against any and all expense, loss, and liability suffered by Landlord (except to the extent that such expenses, losses, and liabilities arise out of Landlord's own negligence or willful act), by reason of the storage, generation, release, handling, treatment, transportation, disposal, or arrangement for transportation or disposal, of any Hazardous Substances (whether accidental, intentional, or negligent) by Tenant or Tenant's Affiliates or by reason of Tenant's breach of any of the provisions of this Section 16. Such expenses, losses and liabilities shall include, without limitation, (i) any and all expenses that Landlord may incur to comply with any Environmental Laws; (ii) any and all costs that Landlord may incur in studying or remedying any Contamination at or arising from the Demised Premises, the Building, or the Project; (iii) any and all costs that Landlord may incur in studying, removing, disposing or otherwise addressing any Hazardous Substances; (iv) any and all fines, penalties or other sanctions assessed upon Landlord; and (v) any and all legal and professional fees and costs incurred by Landlord in connection with the foregoing. The indemnity contained herein shall survive the expiration or earlier termination of this Lease. 17. Construction of Demised Premises. -------------------------------- (a) Landlord will submit to Tenant, within ten (10) calendar days execution of this Lease, a proposed floor plan for the interior of the Demised Premises. If Tenant does not approve the proposed floor plan within ten (10) calendar days after receipt of the proposed plan or after the Lease Date, whichever is later, each day that elapses after such tenth (10th) calendar day, until the approval is given by Tenant, will constitute a day of Tenant Delay. Within ten (10) days after the date on which Landlord receives written approval from Tenant for such floor plan for the interior of the Demised Premises, Landlord shall prepare, at Landlord's sole cost and expense (provided that all such costs incurred and payable by Landlord to third parties shall be chargeable against the Maximum Construction Allowance), and submit to Tenant a set of plans and specifications and/or construction drawings (collectively, the "Plans and Specifications") based on the preliminary plans and specifications and/or preliminary floor plans set forth on Exhibit C attached hereto and incorporated --------- herein, covering all work to be performed by Landlord in constructing the interior improvements for the Demised Premises. Tenant shall have five (5) business days to approve the Plans and Specifications. A failure of any proposed plans or specifications to conform to Exhibit C shall be a proper basis for --------- disapproval. In the process of reviewing and approving the proposed Plans and Specifications, Tenant shall not have the right to request any material change in scope of the work after final approval of the Plans and Specifications by Tenant, any subsequent changes thereto requested by Tenant shall be at Tenant's sole cost and expense and subject to Landlord's written approval, which shall not be unreasonably withheld, delayed or conditioned Landlord will, promptly after receipt of the written approval of the Plans and Specifications by Tenant, submit to the Village of Bolingbrook, such applications as may be necessary to obtain all permits (collectively, the "Permits") required for the work contemplated by the Plans and Specifications (which will include the Allowance Work). Landlord will diligently pursue issue of the Permits. (b) Landlord shall, subject to the occurrence of Permitted Delay (as defined in Section 17.1), use reasonable diligence to achieve Substantial Completion (as defined in subsection (g), below) of the improvements contemplated by the Plans and Specifications (the "Landlord's Work"), at Landlord's sole cost and expense (subject to the provisions of Section 4.1 and use of the Maximum Construction Allowance for costs incurred by Landlord and payable to third parties), and have the Demised Premises ready for occupancy not later than May 1, 1999. In the event Landlord fails to achieve Substantial Completion not later than May 1, 1999 as extended by Permitted Delay, then, in either such event, this Lease shall remain in full force and effect and the Lease Commencement Date and the Expiration Date shall be postponed one day for each day that Substantial Completion is delayed, until the Demised Premises are Substantially Complete; provided, however, that if Landlord fails to achieve Substantial Completion not later than September 1, 1999, as such date may be extended only by Tenant Delay (as defined in Section 17.1), Tenant will have the right, as its sole remedy, to terminate this Lease by giving written notice to Landlord at any time prior to the occurrence of Substantial Completion. If Tenant was entitled to give a notice of termination, but fails or elects not to do so, and Landlord achieves Substantial Completion, the right of Tenant to terminate this Lease pursuant to this subsection (b) will automatically expire. (c) Upon Substantial Completion of the Demised Premises, a representative of Landlord and a representative of Tenant together shall inspect the Demised Premises and generate a punchlist of defective or uncompleted item, relating to the completion of construction of the improvements within the Demised Premises. After such punchlist is prepared and agreed upon in writing -9- by Landlord and Tenant ("Punchlist"), with each of Landlord and Tenant acting reasonably and in good faith. Landlord shall in accordance with the terms of this Lease (i) within forty-five (45) calendar days thereafter complete such incomplete work and remedy such nonconforming or defective work as is set forth on the Punchlist, in accordance with the Plans and Specifications, and which are of such a nature that completion thereof is reasonably practicable within forty- five (45) days and (ii) complete all remaining items on the Punchlist with due diligence and within a time period, as to each particular item, which is reasonable, giving due regard for the nature of the work to be performed. (d) Upon acceptance of the Demised Premises by Tenant, Tenant shall execute and deliver to Landlord a letter of acceptance confirming that the Lease Commencement Date and Base Rent Commencement Date, and Expiration Date remain as set forth in Section 1, or if revised pursuant to the terms hereof, setting forth such dates as so revised. (e) Landlord shall, subject to the occurrence of Permitted Delay, use reasonable diligence to achieve Partial Completion (as defined in Subsection (f), below) of the Landlord's Work not later than April 1, 1999; provided that Landlord shall not incur any penalty or liability as a result of a failure to achieve Partial Completion by such date. Tenant shall have the right, upon the occurrence of Partial Completion, to enter the Demised Premises in order to install racking and otherwise prepare the Demised Premises for occupancy. In connection with such entry, (i) Tenant shall comply with all terms and conditions of this Lease other than the obligation to pay rent, (ii) Tenant shall not interfere with Landlord's completion of the Demised Premises and (iii) Tenant shall not begin operation of its business or store any inventory or equipment. (f) For purposes of this Lease, the term "Substantial Completion" shall mean completion of construction of the Landlord's Work in accordance with the Plans and Specifications, subject only to Punchlist items established pursuant to Section 17(c), so that Tenant can lawfully occupy and conduct its business at the Demised Premises, as evidenced by the delivery by Landlord to Tenant of a certificate of occupancy (or temporary certificate of occupancy or its equivalent) for the Demised Premises issued by the appropriate governmental authority. In the event Substantial Completion is delayed because of Tenant Delay (as defined in Section 17.1), then Substantial Completion shall, for the purpose of establishing the Lease Commencement Date, be deemed to mean the date when Substantial Completion would have been achieved but for such Tenant Delay. For purposes of this Lease, the term "Partial Completion" shall mean completion of Landlord's Work to the following extent: sufficient completion of the warehouse to allow installation of racking. (g) Landlord hereby warrants to Tenant that the materials and equipment furnished by Landlord's contractors in the completion of the Improvements will be of good quality and new, that during the one (1) year period following the Lease Commencement Date, such materials and equipment and the work of such contractors shall be free from defects not inherent in the quality required or permitted hereunder, that such work will conform to the Plans and Specifications and that such work will conform to applicable codes, laws and regulations of governmental authorities in effect on the date of Substantial Completion. This warranty shall exclude damages or defects caused by Tenant or Tenant's Affiliates, improper or insufficient maintenance, improper operation, or normal wear and tear under normal usage. 17.1 Delay. ----- (a) With respect to the provisions (collectively "Construction Provisions") of this Lease which govern (i) construction of the Demised Premises and (ii) restoration of the Demised Premises after the occurrence of a casualty or condemnation, neither Landlord nor Tenant shall be liable to the other nor shall either be deemed to be in default under this Lease for any failure or delay in performance of such party's obligations if and only to the extent such failure or delay is caused by any "Permitted Delay", as defined in this Section 17.1, and subject in each instance to all the requirements of this Section 17.1. Unless this Lease specifically provides otherwise, any such performance or time for performance shall be extended for the period of any Permitted Delay, provided the party claiming the benefit of the Permitted Delay adheres to the requirements of this Section 17.1. (b) An event or occurrence constituting a Permitted Delay shall include any of the following (provided, however, that the events set forth in the following subsections (i), (ii) and (iii) shall not constitute a Permitted Delay for Tenant nor extend the Lease Commencement Date): (i) any act or neglect of Tenant or of any contractor or representative or employee employed or controlled by Tenant to the extent actually causing a delay in performance by Landlord of its obligations under this Lease; (ii) any failure of Tenant to provide Landlord with any required documents, specifications, consents or approvals within the time limitations set forth in this Lease; (iii) any change in the Landlord's Work requested by Tenant after final approval by Tenant of the Plans and Specifications which provides for an extension of time for -10- performance by Landlord (the events described in the foregoing (i), (ii) and (iii) are sometimes referred to collectively as "Tenant Delay"); (iv) confiscation or requisitioning of facilities or inability to secure materials or labor solely as a result of an act, order or regulation of any governmental authority; (v) civil disturbances or acts of declared or undeclared war or the public enemy; (vi) strikes or other labor troubles; (vii) casualty or condemnation; (viii) floods or earthquakes; and (ix) adverse weather conditions. (c) The party claiming a Permitted Delay shall endeavor to use reasonable efforts to perform in spite of the Permitted Delay; provided that such reasonable efforts shall not require the incurring of any additional expense or liability. (d) This Section 17.1 shall apply only to the Construction Provisions and no other provision of this Lease. 18. Tenant Alterations and Additions. -------------------------------- (a) Tenant shall not make or permit to be made any alterations, improvements, or additions to the Demised Premises (a "Tenant's Change"), without first obtaining on each occasion Landlord's prior written consent (which consent Landlord agrees not to unreasonably withhold) and Lender's prior written consent (if such consent is required). As part of its approval process, Landlord may require that Tenant submit plans and specifications to Landlord, for Landlord's approval or disapproval, which approval shall not be unreasonably withheld. All Tenant's Changes shall be performed in accordance with all legal requirements applicable thereto and in a good and workmanlike manner with first- class materials. Tenant shall maintain insurance reasonably satisfactory to Landlord during the construction of all Tenant's Changes. If Landlord at the time of giving its approval to any Tenant's Change notifies Tenant in writing that approval is conditioned upon restoration, then Tenant shall, at its sole cost and expense and upon the termination or expiration of this Lease, remove the same and restore the Demised Premises to its condition prior to such Tenant's Change. No Tenant's Change shall be structural in nature or impair the structural strength of the Building or reduce its value. Tenant shall pay the full cost of any Tenant's Change and shall give Landlord such reasonable security as may be requested by Landlord to insure payment of such cost. Except as otherwise provided herein and in Section 12, all Tenant's Changes and all repairs and all other property attached to or installed on the Demised Premises by or on behalf of Tenant shall immediately upon completion or installation thereof be and become part of the Demised Premises and the property of Landlord without payment therefor by Landlord and shall be surrendered to Landlord upon the expiration or earlier termination of this Lease. (b) To the extent permitted by law, all of Tenant's contracts and subcontracts for such Tenant's Changes shall provide that no lien shall attach to or be claimed against the Demised Premises or any interest therein other than Tenant's leasehold interest in the Demised Premises, and that all subcontracts let thereunder shall contain the same provison. Whether or not Tenant furnishes the foregoing, Tenant agrees to hold Landlord harmless against all liens, claims and liabilities of every kind, nature and description which may arise out of or in any way be connected with such work. Tenant shall not permit the Demised Premises to become subject to any mechanics', laborers' or materialmen's lien on account of labor, material or services furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed for the Demised Premises by, or at the direction or sufferance of Tenant and if any such liens are filed against the Demised Premises, Tenant shall promptly discharge the same; provided, however, that -------- ------- Tenant shall have the right to contest, in good faith and with reasonable diligence, the validity of any such lien or claimed lien if Tenant shall give to Landlord, within fifteen days after demand, such security as may be reasonably satisfactory to Landlord to assure payment thereof and to prevent any sale, foreclosure, or forfeiture of Landlord's interest in the Demised Premises by reason of non-payment thereof, provided further that on final determination of the lien or claim for lien, Tenant shall immediately pay any judgment rendered, with all proper costs and charges, and shall have the lien released and any judgment satisfied. If Tenant fails to post such security or does not diligently contest such lien, Landlord may, without investigation of the validity of the lien claim, discharge such lien and Tenant shall reimburse Landlord upon demand for all costs and expenses incurred in connection therewith, which expenses shall include any attorneys' fees, paralegals' fees and any and all costs associated therewith, including litigation through all trial and appellate levels and any costs in posting bond to a discharge or release of the lien. Nothing contained in this Lease shall be construed as a consent on the part of Landlord to subject the Demised Premises to liability under any lien law now or hereafter existing of the state in which the Demised Premises are located. -11- 19. Services by Landlord. Landlord shall be responsible for providing for -------------------- maintenance of the Building Common Area, and, except as required by Section 10(b) hereof, Landlord shall be responsible for no other services whatsoever. Tenant, by payment of Tenant's share of the Operating Expenses, shall pay Tenant's pro rata share of the expenses incurred by Landlord hereunder. 20. Fire and Other Casualty. In the event the Demised Premises are damaged by ----------------------- fire or other casualty insured by Landlord, Landlord agrees to promptly restore and repair the Demised Premises at Landlord's expense, including the Improvements to be insured by Tenant but only to the extent Landlord receives insurance proceeds therefor, including the proceeds from the insurance required to be carried by Tenant on the improvements. Notwithstanding the foregoing, in the event that the Demised Premises are (i) in the reasonable opinion of Landlord, so destroyed that they cannot be repaired or rebuilt within one hundred eighty (180) days after the date of such damage; or (ii) destroyed by a casualty which is not covered by Landlord's insurance, or if such casualty is covered by Landlord's insurance but Lender or other party entitled to insurance proceeds fails to make such proceeds available to Landlord in an amount sufficient for restoration of the Demised Premises, then Landlord shall give written notice to Tenant of such determination (the "Determination Notice") within sixty (60) days of such casualty. Either Landlord or Tenant may terminate and cancel this lease effective as of the date of such casualty by giving written notice to the other party within thirty (30) days after Tenant's receipt of the Determination Notice. Upon the giving of such termination notice, all obligations hereunder with respect to periods from and after the effective date of termination shall thereupon cease and terminate. If no such termination notice is given, Landlord shall, to the extent of the available insurance proceeds, make such repair and restoration of the Demised Premises to the approximate condition existing prior to such casualty, promptly and in such manner as not to unreasonably interfere with Tenant's use and occupancy of the Demised Premises (if Tenant is still occupying the Demised Premises). Base Rent and Additional Rent shall proportionately abate during the time that the Demised Premises or any part thereof are unusable by reason of any such damage thereto. 21. Condemnation. ------------ (a) If all of the Demised Premises is taken or condemned for a public or quasi-public use, or if a material portion of the Demised Premises is taken or condemned for a public or quasi-public use and the remaining portion thereof is not usable by Tenant in the reasonable opinion of Landlord, this Lease shall terminate as of the earlier of the date title to the condemned real estate vests in the condemnor or the date on which Tenant is deprived of possession of the Demised Premises. In such event, the Base Rent herein reserved and all Additional Rent and other sums payable hereunder shall be apportioned and paid in full by Tenant to Landlord to that date, all Base Rent, Additional Rent and other sums payable hereunder prepaid for periods beyond that date shall forthwith be repaid by Landlord to Tenant, and neither party shall thereafter have any liability hereunder, except that any obligation or liability of either party, actual or contingent, under this Lease which has accrued on or prior to such termination date shall survive. (b) If only part of the Demised Premises is taken or condemned for a public or quasi-public use and this Lease does not terminate pursuant to Section 21(a), Landlord shall, to the extent of the award it receives, restore the Demised Premises to a condition and to a size as nearly comparable as reasonably possible to the condition and size thereof immediately prior to the taking, and there shall be an equitable adjustment to the Base Rent and Additional Rent based on the loss of use of the Demised Premise suffered by Tenant as a result of the taking. (c) Landlord shall be entitled to receive the entire award in any proceeding with respect to any taking provided for in this Section 21, without deduction therefrom for any estate vested in Tenant by this Lease, and Tenant shall receive no part of such award. Nothing herein contained shall be deemed to prohibit Tenant from making a separate claim, against the condemnor, to the extent permitted by law, for the value of Tenant's moveable trade fixtures, machinery and moving expenses, provided that the making of such claim shall not and does not adversely affect or diminish Landlord's award. 22. Tenant's Default. ---------------- (a) The occurrence of any one or more of the following events shall constitute an "Event of Default" of Tenant under this Lease: (i) if Tenant fails to pay Base Rent or any Additional Rent hereunder as and when such rent becomes due and such failure shall continue for more than ten (10) days after Landlord gives written notice to Tenant of such failure; (ii) if a lien held by a person claiming through or under Tenant is filed against the Demised Premises and Tenant fails to discharge or bond such lien, or post security with Landlord acceptable to Landlord within thirty (30) days after receipt by Tenant of written notice thereof; (iii) if Tenant fails to maintain in force all policies of insurance required by this Lease and such failure shall continue for more than ten (10) days after Landlord gives Tenant written notice of such failure; -12- (iv) if any petition is filed by or against Tenant or any guarantor of this Lease under any present or future section or chapter of the Bankruptcy Code, or under any similar law or statute of the United States or any state thereof (which, in the case of an involuntary proceeding, is not permanently discharged, dismissed, stayed, or vacated, as the case may be, within sixty (60) days of commencement), or if any final order for relief shall be entered against Tenant or any guarantor of this Lease in any such proceedings; (v) if Tenant or any guarantor of this Lease becomes insolvent or makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors; (vi) if a receiver, custodian, or trustee is appointed for the Demised Premises or for all or substantially all of the assets of Tenant or of any guarantor of this Lease, which appointment is not vacated within sixty (60) days following the date of such appointment; or (vii) if Tenant fails to perform or observe any other term of this Lease and such failure shall continue for more than thirty (30) days after Landlord gives Tenant written notice of such failure, or, if such failure cannot be corrected within such thirty (30) day period, if Tenant does not commence to correct such default within said thirty (30) day period and thereafter diligently prosecute the correction of same to completion within a reasonable time. (b) Upon the occurrence of any one or more Events of Default, Landlord may, at Landlord's option, without any demand or notice whatsoever (except as expressly required in this Lease): (i) Terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall expire and terminate on the date specified in such notice of termination and all rights of Tenant under this Lease and in and to the Demised Premises shall terminate. Tenant shall remain liable for all obligations under this Lease arising up to the date of such termination, and Tenant shall surrender the Demised Premises to Landlord on the date specified in such notice; or (ii) Terminate this Lease as provided in Section 22(b)(i) hereof and recover from Tenant all damages Landlord may incur by reason of Tenant's default, including, without limitation, an amount which, at the date of such termination, is calculated as follows: (1) the value of the excess, if any, of (A) the Base Rent, Additional Rent and all other sums which would have been payable hereunder by Tenant for the period commencing with the day following the date of such termination and ending with the Expiration Date had this Lease not been terminated (the "Remaining Term"), over (B) the aggregate reasonable rental value of the Demised Premises for the Remaining Term (which excess, if any shall be discounted to present value at the "Treasury Yield" as defined below for the Remaining Term); plus (2) the costs of recovering possession of the Demised ---- Premises and all other expenses actually incurred by Landlord due to Tenant's default, including, without limitation, reasonable attorney's fees; plus (3) the ---- unpaid Base Rent and Additional Rent earned as of the date of termination plus any interest and late fees due hereunder, plus other sums of money and damages owing on the date of termination by Tenant to Landlord under this Lease or in connection with the Demised Premises. The amount as calculated above shall be deemed immediately due and payable. The payment of the amount calculated in subparagraph (ii)(1) shall not be deemed a penalty but shall merely constitute payment of liquidated damages, it being understood and acknowledged by Landlord and Tenant that actual damages to Landlord are extremely difficult, if not impossible, to ascertain. "Treasury Yield" shall mean the rate of return in percent per annum of Treasury Constant Maturities for the length of time specified as published in document H. 15(519) (presently published by the Board of Governors of the U.S. Federal Reserve System titled "Federal Reserve Statistical Release") for the calendar week immediately preceding the calendar week in which the termination occurs. If the rate of return of Treasury Constant Maturities for the calendar week in question is not published on or before the business day preceding the date of the Treasury Yield in question is to became effective, then the Treasury Yield shall be based upon the rate of return of Treasury Constant Maturities for the length of time specified for the most recent calendar week for which such publication has occurred. If no rate of return for Treasury Constant Maturities is published for the specific length of time specified, the Treasury Yield for such length of time shall be the weighted average of the rates of return of Treasury Constant Maturities most nearly corresponding to the length of the applicable period specified. If the publishing of the rate of return of Treasury Constant Maturities is ever discontinued, then the Treasury Yield shall be based upon the index which is published by the Board of Governors of the U.S. Federal Reserve System in replacement thereof or, if no such replacement index is published, the index which, in Landlord's reasonable determination, most nearly corresponds to the rate of return of Treasury Constant Maturities. In determining the aggregate reasonable rental value pursuant to subparagraph (ii)(1)(B) above, the parties hereby agree that, at the time Landlord seeks to enforce this remedy, all relevant factors should be considered, including, but not limited to, (a) the length of time remaining in the Term, (b) the then current market conditions in the general area in which the Building is located, (c) the likelihood of reletting the Demised Premises for a period of time equal to the remainder of the Term, (d) the net effective rental rates then being obtained by landlords for similar type space of similar size in similar type buildings in the general area in which the Building is located, (e) the vacancy levels in the general area in which the Building is located, (f) current levels of new construction that will be completed during the remainder of the Term and how this construction will likely affect vacancy rates and rental rates and (g) inflation; or -13- (iii) Without terminating this Lease, in its own name but as agent for Tenant, enter into and upon and take possession of the Demised Premises or any part thereof. Upon written notice to Tenant and upon process of law, any property remaining in the Demised Premises may be removed and stored in a warehouse or elsewhere at the cost of, and for the account of, Tenant without Landlord being deemed guilty of trespass or becoming liable for any loss or damage which may be occasioned thereby unless caused by Landlord's negligence or misconduct. Thereafter, Landlord may, but shall not be obligated to, lease to a third party the Demised Premises or any portion thereof as the agent of Tenant upon such terms and conditions as Landlord may reasonably deem necessary or desirable in order to relet the Demised Premises. The remainder of any rentals received by Landlord from such reletting, after the payment of any indebtedness due hereunder from Tenant to Landlord, and the payment of any costs and expenses of such reletting, shall be held by Landlord to the extent of and for application in payment of future rent owed by Tenant, if any, as the same may become due and payable hereunder. If such rentals received from such reletting shall at any time or from time to time be less than sufficient to pay to Landlord the entire sums then due from Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for any such previous default provided same has not been cured; or (iv) Without terminating this Lease, and with or without notice to Tenant, enter into and upon the Demised Premises in a lawful manner and, without being liable for prosecution or any claim for damages therefor, maintain the Demised Premises and repair or replace any damage thereto or do anything or make any payment for which Tenant is responsible hereunder. Tenant shall reimburse Landlord immediately upon demand for any reasonable expenses which Landlord incurs in thus effecting Tenant's compliance under this Lease and Landlord shall not be liable to Tenant for any damages with respect thereto; or (v) With or without terminating this Lease, allow the Demised Premises to remain unoccupied and collect rent from Tenant as it comes due; provided, however, that nothing contained in this Lease will relieve Landlord of its obligations under the laws of the State of Illinois to mitigate the damages which may be suffered by Landlord as a result of an Event of Default or (vi) Pursue such other remedies as are available at law or equity. (c) If this Lease shall terminate as a result of or while there exists an Event of Default hereunder, any funds of Tenant held by Landlord may be applied by Landlord to any damages payable by Tenant (whether provided for herein or by law) as a result of such termination or default. (d) Neither the commencement of any action or proceeding, nor the settlement thereof, nor entry of judgment thereon shall bar Landlord from bringing subsequent actions or proceedings from time to time, nor shall the failure to include in any action or proceeding any sum or sums then due be a bar to the maintenance of any subsequent actions or proceedings for the recovery of such sum or sums so omitted. (e) No agreement to accept a, surrender of the Demised Premises and no act or omission by Landlord or Landlords agents during the Term shall constitute an acceptance or surrender of the Demised Premises unless made in writing and signed by Landlord. No re-entry or taking possession of the Demised Premises by Landlord shall constitute an election by Landlord to terminate this Lease unless a written notice of such intention is given to Tenant. No provision of this Lease shall be deemed to have been waived by either party unless such waiver is in writing and signed by the party making such waiver. Landlord's acceptance of Base Rent or Additional Rent in full or in part following an Event of Default hereunder shall not be construed as a waiver of such Event of Default. No custom or practice which may grow up between the parties in connection with the terms of this Lease shall be construed to waive or lessen either party's right to insist upon strict performance of the terms of this Lease, without a written notice thereof to the other party. (f) If an Event of Default shall occur, Tenant shall pay to Landlord, on demand, all reasonable expenses incurred by Landlord as a result thereof, including reasonable attorneys' fees, court costs and expenses actually incurred. 22.1 Landlord Default. If Landlord fails to perform or observe or ---------------- otherwise breaches any term of this Lease and such failure shall continue for more than thirty (30) days after Tenant gives Landlord written notice of such failure, or, if such failure does not arise out of a failure by Landlord to pay a sum of money and cannot reasonably be corrected within such 30-day period, if Landlord does not commence to correct such default within such 30-day period and thereafter diligently prosecute the correction of same to completion within a reasonable time, a "Landlord Event of Default" shall exist under this Lease. Upon the occurrence of a Landlord Event of Default, Tenant may at Tenant's option, cure the Landlord Event of Default and the actual cost of such cure shall be payable by Landlord to Tenant within thirty (30) calendar days after written demand; provided, however, that if a failure by Landlord to perform or observe any term of this Lease gives rise to circumstances or conditions which constitute an emergency threatening human health or safety or substantial damage to the Demised Premises or Tenant's personal property, or materially impeding the conduct of the business of Tenant at the Demised Premises, Tenant shall be entitled to take immediate curative action (prior to the expiration of any notice and cure period set forth above) to the extent necessary to eliminate the emergency. If Landlord does not pay to Tenant the -14- amount of such cost, upon written demand, Tenant may set off such cost against installments of Base Rent or other amounts due Landlord under this Lease. Such cost must be reasonably incurred and must not exceed the scope of the Landlord Event of Default in question, and if such costs are chargeable as a result of labor or materials provided directly by Tenant, rather than by unrelated third parties, the costs shall not exceed the amount which would have been charged by a qualified third party unrelated to Tenant. The quality of all work performed by Tenant must equal or exceed the quality of Landlord's Work. Such costs must be reasonably documented and copies of such documentation must be delivered to Landlord with the written demand for reimbursement. Tenant shall be permitted to continue to set off against succeeding installments of Base Rent until the total amount of such cost actually incurred by Tenant has been recovered by Tenant. If Tenant elects to exercise its right of set-off, as provided in this Section 22.1, such set-off is intended to be the exclusive remedy available to Tenant with respect to the Landlord Event of Default which gave rise to the set-off. Accordingly, once Tenant has fully set off all of the permissible cost of curing the Landlord Event of Default, Landlord shall no longer be deemed to be in default under this Lease with respect to the Landlord Event of Default that was the subject of the set off. Nothing contained in this Section 22.1 shall create or imply the existence of any obligation by Tenant to cure any Landlord Event of Default. 23. Landlord's Right of Entry. Tenant agrees to permit Landlord and the ------------------------- authorized representatives of Landlord and of Lender to enter upon the Demised Premises at all reasonable times for the purposes of inspecting the Demised Premises and Tenant's compliance with this Lease, and making any necessary repairs thereto; provided that, except in the case of an emergency, Landlord shall give Tenant reasonable prior notice of Landlord's intended entry upon the Demised Premises. Nothing herein shall imply any duty upon the part of Landlord to do any work required of Tenant hereunder, and the performance thereof by Landlord shall not constitute a waiver of Tenant's default in failing to perform it. Landlord shall not be liable for inconvenience, annoyance, disturbance or other damage to Tenant by reason of making such repairs or the performance of such work in the Demised Premises or on account of bringing materials, supplies and equipment into or through the Demised Premises during the course thereof, and the obligations of Tenant under this Lease shall not thereby be affected; provided, however, that Landlord shall use reasonable efforts not to disturb or - -------- ------- otherwise interfere with Tenant's operations in the Demised Premises in making such repairs or performing such work. Landlord also shall have the right to enter the Demised Premises at all reasonable times to exhibit the Demised Premises to any prospective purchaser, mortgagee or tenant thereof. 24. Lender's Rights. --------------- (a) Subject to all the provisions of this Section 24, this Lease may be either superior or subordinate to any "Mortgage". The term "Mortgage", as used in this Lease, shall mean any and all mortgages, deeds to secure debt, deeds of trust, or other instruments creating a lien or conveying a security title at any time and from time to time, granted by Landlord and affecting or encumbering the title of Landlord to the Demised Premises or this Lease. The term "Mortgagee" refers to the holder of the Mortgage. Landlord shall have no right to grant to any Mortgagee in any Mortgage any rights which, if exercised, would violate the obligations of Landlord or the rights of Tenant under this Lease. Landlord hereby warrants to Tenant that, on the Lease Date, the Demised Premises will not be subject to any Mortgage. (b) Unless this Lease is subordinated to a Mortgage pursuant to Section 24(c), this Lease shall be superior to such Mortgage. Upon the request by any Mortgagee, Tenant shall execute and deliver a written instrument, in a form acceptable for recording in the real estate records of Will County, Illinois, recognizing that this Lease is superior to the Mortgage held by the requesting Mortgagee and that, upon foreclosure of or exercise of the power of sale contained in the Mortgage, Tenant shall recognize and attorn to the purchaser at the foreclosure sale as the Landlord under this Lease, subject to all the terms and provisions of this Lease. If a Mortgage is subordinate to this Lease, any person who becomes the holder of the interest of the Landlord by virtue of foreclosure of the Mortgage shall be subject to and bound by all the provisions of this Lease. (c) Landlord hereby warrants and represents to Tenant that, as of the Lease Date, there will be no Mortgage encumbering the Demised Premises. If any future Mortgagee desires for this Lease to be subordinate to its Mortgage, Tenant agrees that it shall subordinate this Lease by execution and delivery of a Subordination, Non-Disturbance and Attornment Agreement in the form attached to this Lease as Exhibit "D" and by this reference made a part hereof in recordable form; provided, however, that to be effective such Agreement must be fully executed and delivered by all parties thereto. 25. Estoppel Certificate. Landlord and Tenant agree, at any time, and from -------------------- time to time, within fifteen (15) days after written request of the other, to execute, acknowledge and deliver a statement in writing in recordable form to the requesting party and/or its designee certifying that: (i) 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), (ii) the dates to which Base Rent, Additional Rent and other charges have been paid, (iii) whether or not, to the best of its knowledge, there exists any failure by the requesting party to perform any term, covenant or condition contained in this Lease, and, if so, specifying each such failure, (iv) (if such be the case) Tenant has unconditionally accepted the Demised Premises and is conducting its business therein, and (v) and as to such additional matters as may be requested, it being intended that any -15- such statement delivered pursuant hereto may be relied upon by the requesting party and by any purchaser of title to the Demised Premises or by any mortgagee or any assignee thereof or any party to any sale-leaseback of the Demised Premises, or the landlord under a ground lease affecting the Demised Premises. 26. Landlord Liability. No owner of the Demised Premises, whether or not ------------------ named herein, shall have liability hereunder after it ceases to hold title to the Demised Premises. Neither Landlord nor any officer, director, shareholder, partner or principal of Landlord, whether disclosed or undisclosed, shall be under any personal liability with respect to any of the provisions of this Lease. In the event Landlord is in breach or default with respect to Landlord's obligations or otherwise under this Lease, Tenant shall look solely to the equity of Landlord in the Building for the satisfaction of Tenant's remedies. It is expressly understood and agreed that Landlord's liability under the terms, covenants, conditions, warranties and obligations of this Lease shall in no event exceed the loss of Landlord's equity interest in the Building. Landlord hereby warrants to Tenant that, as of the Lease Date, the Demised Premises are not subject to a Mortgage and that Landlord will not, prior to the occurrence of Substantial Completion, grant a Mortgage encumbering the Demised Premises. Nothing in this Section 26 will create or imply any restriction on the right of Landlord to grant Mortgages after the occurrence of Substantial Completion. 26.1 If Landlord fails to observe and perform its obligations under Section 17 of this Lease with respect to the design, construction and delivery of the Demised Premises and the attainment of Substantial Completion of the Demised Premises, and such failure becomes a Landlord Event of Default, Tenant shall have the right, in addition to the rights otherwise available to Tenant as a result of the occurrence of a Landlord Event of Default, to file an action against Landlord in any court in the state of Illinois having jurisdiction seeking to compel specific performance by Landlord of such obligations. Any judgment obtained by Tenant enforcing specific performance of such obligations may be enforced against Landlord without regard for the limitations otherwise applicable under Section 26. Any judgment for damages, however, even if arising out of the same cause of action, will continue to be subject to the limitations imposed by Section 26. This Section 26.1 shall automatically terminate upon the occurrence of Substantial Completion of the Demised Premises in accordance with Section 17. 27. Notices. Any notice required or permitted to be given or served by either ------- party to this Lease shall be deemed given when made in writing, and either (i) personally delivered, (ii) deposited with the United States Postal Service, postage prepaid, by registered or certified mail, return receipt requested, or (iii) delivered by licensed overnight delivery service providing proof of delivery, properly addressed to the address set forth in Section 1(m) (as the same may be changed by giving written notice of the aforesaid in accordance with this Section 27). If any notice mailed is properly addressed with appropriate postage but returned for any reason, such notice shall be deemed to be effective notice and to be given on the date of mailing. 28. Brokers. Tenant represents and warrants to Landlord that, except for ------- those parties set forth in Section 1(o) (the "Brokers"), Tenant has not engaged or had any conversations or negotiations with any broker, finder or other third party concerning the leasing of the Demised Premises to Tenant who would be entitled to any commission or fee based on the execution of this Lease. Landlord acknowledges and agrees that Landlord is obligated to pay the Brokers any commission due Brokers in connection with this Lease pursuant to a separate agreement between Landlord and Brokers. Tenant hereby further represents and warrants to Landlord that Tenant is not receiving and is not entitled to receive any rebate, payment or other remuneration either directly or indirectly, from the Brokers, and that it is not otherwise sharing in or entitled to share in any commission or fee paid to the Brokers by Landlord or any other party in connection with the execution of this Lease, either directly or indirectly. Tenant hereby indemnifies Landlord against and from any claims for any brokerage commissions (except those payable to the Brokers, all of which are payable by Landlord pursuant to a separate agreement) and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, for any breach of the foregoing. Landlord hereby indemnifies Tenant against and from any claims for any brokerage commissions, including those payable to the Brokers, claimed or asserted by persons claiming through or under Landlord, and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses. The foregoing indemnifications shall survive the termination of this Lease for any reason. 29. Assignment and Subleasing. ------------------------- (a) Tenant may not assign, mortgage, pledge, encumber or otherwise transfer this Lease, or any interest hereunder, or sublet the Demised Premises, in whole or in part, without on each occasion first obtaining the prior express written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. In making a determination to grant or withhold such consent, Landlord shall be entitled to consider the creditworthiness of the proposed assignee or sublessee, the nature of the use of the Demised Premises contemplated by the proposed assignee or sublessee (to the extent such use amends or alters the Permitted Use then in effect) and whether or not the proposed use will materially increase wear and tear on the Demised Premises. Landlord shall never be required to consent to any proposed use involving heavy manufacturing or chemical processing. In addition, if the intended use by the proposed assignee or sublessee involves in any way materially different amounts or types of Hazardous Substances than the Hazardous Substances then being used or stored by Tenant at the Demised Premises, in accordance with Section 16 of this Lease, at the time of the proposed assignment or sublease, and if such materially different or additional Hazardous Substances create, in the reasonable -16- judgment of Landlord a materially increased risk of Contamination at the Demised Premises. Landlord shall be unconditionally entitled to withhold consent of the proposed assignment or sublease in its absolute discretion. Permitted subtenants or assignees shall become liable directly to Landlord for all obligations of Tenant hereunder, without, however, relieving Tenant of any of its liability hereunder unless agreed upon by the parties hereto in writing. No such assignment, subletting, occupancy or collection shall be deemed the acceptance of the assignee, tenant or occupant, as Tenant, or a release of Tenant from the further performance by Tenant of Tenant's obligations under this Lease unless agreed upon by the parties hereto in writing. (b) Notwithstanding subsections (a), (c), (d), (e) or (g) of this Section 29, provided that no Event of Default has occurred and is then continuing, Tenant shall have the right, upon thirty (30) days prior written notice to Landlord, (i) to sublet all or part of the Demised Premises to any entity which is controlled by, under common control with, or which controls Tenant (any of such entities being herein called a "Mohawk Affiliate"); or (ii) to assign this Lease (x) to a Mohawk Affiliate or to (y) a successor corporation into which or with which Tenant is merged or consolidated or which acquired substantially all of Tenant's assets and property, provided that, with respect to an assignment pursuant to (ii)(y), such successor corporation assumes substantially all of the obligations and liabilities of Tenant and, after such merger, shall have total assets and stockholder equity at least equal to the total assets and stockholder equity of Tenant immediately prior to the merger, as determined by generally accepted accounting principles. With respect to any assignment, Tenant shall provide in its notice to Landlord such information as may be reasonably required by Landlord to determine that the requirements of this subsection (b) have been satisfied. The terms "controls", "controlled by" or "under common control with", as used in this subsection (b), shall mean the ownership of a direct or indirect majority interest. (c) If Tenant should desire to assign this Lease or sublet the Demised Premises (or any part thereof), Tenant shall give Landlord written notice no later than thirty (30) days in advance of the proposed effective date of any proposed assignment or sublease, specifying (i) the name and business of the proposed assignee or sublessee, (ii) a detailed description of the intended use of the Demised Premises by the proposed assignee or sublessee, with particular detail regarding any Hazardous Substances which will be used in any manner at the Demised Premises; (iii) the amount and location of the space within the Demised Premises proposed to be so subleased, (iv) the proposed effective date and duration of the assignment or subletting, and (v) the proposed rent or consideration to be paid to Tenant by such assignee or sublessee. Tenant shall promptly supply Landlord with financial statements and other information as Landlord may reasonably request to evaluate the proposed assignment or sublease. (d) Landlord shall have a period of fifteen (15) days following receipt of such notice and other information requested by Landlord within which to notify Tenant in writing that Landlord elects: (i) to permit Tenant to assign or sublet such space; or (ii) to refuse to consent to Tenant's assignment or subleasing of such space and to continue this Lease in full force and effect as to the entire Demised Premises, any such refusal shall state with reasonable specificity the reasons for the refusal. If Landlord should fail to notify Tenant in writing of such election within the aforesaid fifteen (15) day period. Landlord shall be deemed to have consented to such assignment or sublease. Tenant agrees to reimburse Landlord for reasonable legal fees and any other reasonable costs actually incurred by Landlord in connection with any requested assignment or subletting (but in no event more than $1,000.00 per request). Tenant shall deliver to Landlord copies of all documents executed in connection with any permitted assignment or subletting, which documents shall be in form and substance reasonably satisfactory to Landlord and which shall require such assignee to assume performance of all terms of this Lease on Tenant's part to be performed. No acceptance by Landlord of any rent or any other sum of money from any assignee, sublessee or other category of transferee shall be deemed to constitute Landlord's consent to any assignment, sublease, or transfer. (e) Any attempted assignment or sublease by Tenant in violation of the terms and provisions of this Section 29 shall be void and such act shall constitute a material breach of this Lease. In no event shall any assignment, subletting or transfer, whether or not with Landlord's consent, relieve Tenant of its primary liability under this Lease for the entire Term, and Tenant shall in no way be released from the full and complete performance of all the terms hereof unless otherwise agreed by the parties hereto in writing. If Landlord takes possession of the Demised Premises before the expiration of the Term of this Lease due to an Event of Default by Tenant, Landlord shall have the right, at its option to take over any sublease of the Demised Premises or any portion thereof and such subtenant shall attorn to Landlord, as its landlord, under all the terms and obligations of such sublease occurring from and after such date, but excluding previous acts, omissions, negligence or defaults of Tenant and any repair or obligation in excess of available net insurance proceeds or condemnation award. (f) Landlord shall have the right to sell, transfer, assign, pledge, and convey all or any part of the Demised Premises and any and all of Landlord's rights under this Lease. In the event Landlord assigns or otherwise conveys its rights under this Lease, Landlord shall be entirely freed and released from any obligations accruing thereafter under this Lease, and Tenant agrees to look solely to Landlord's successor in interest for performance of such obligations. (g) If Tenant transfers or assigns this Lease or sublets the Demised Premises in whole or in part to any permitted assignee or sublessee, Landlord shall be entitled to receive, as Additional Rent, one hundred percent (100%) of any "Rental Profit" (as hereinafter defined) received by Tenant. The -17- term "Rental Profit" shall mean the amount calculated on a per square foot basis and not on an aggregate or cumulative basis, by which (i) the total rental and other consideration of any nature whatsoever and however characterized paid or delivered to Tenant (but expressly excluding any amounts ultimately payable under the terms of this Lease to third parties, including without limitation, Real Estate Taxes, utility costs and maintenance expenses) by an assignee of the interest of Tenant or sublessee of all or any part of the Demised Premises, for the purpose of compensating Tenant directly or indirectly for the assignment or sublease, exceeds (ii) the Monthly Base Rent Installments paid by Tenant to Landlord pursuant to this Lease, provided, however, that Landlord shall not be entitled to receive any Rental Profit until Tenant has received an amount of Rental Profit equal to the sum of (x) the actual, out-of-pocket cost of leasehold improvements installed by Tenant at its expense specifically for and as an inducement to the assignee or sublessee (subject to the limitation hereinafter specified), plus (y) any other reasonable, documented expenses actually paid by Tenant to a third party or reasonably incurred by Tenant in connection with the assignment of subleting, including, without limitation, reasonable attorneys' fees and expenses and brokerage commissions (but expressly excluding any overhead or other internally charged expenses of Tenant, or any amounts paid for tenant improvements, free rent or other lease concessions given as an inducement to the assignee or sublessee which materially exceed in the aggregate the tenant improvements, free rent or other lease concessions given in aggregate on the basis of then prevailing market conditions for a comparable sublease or assignment) (the sum of (x) and (y) shall collectively constitute "Rental Expenses"). By way of example, if Landlord grants the required written consent to a sublease by Tenant of 10,000 square feet of the Demised Premises and the total rental and other consideration received by Tenant for the sublease equals a per annum rate of $3.98 per square foot and the per annum rate per square foot for the Annual Base Rent then payable by Tenant is $3.78 per square foot, the Rental Profit would be 20 cents per square foot and Landlord would be entitled to received 100% of such Rental Profit concurrently with receipt of each payment by the sublessee to Tenant, provided that Rental Profit would be retained by Tenant until Tenant had fully recovered the amount of its Rental Expenses. Landlord shall be entitled to receive payment of its share of Rental Profit as and when payments are received by Tenant. 30. Termination or Expiration. -------------------------- (a) 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. (b) At the expiration of earlier termination of the Term of this Lease, Tenant shall surrender the Demised Premises and all improvements, alterations and additions thereto, and keys therefor to Landlord, clean and neat, and in the same condition as at the Lease Commitment Date, excepting normal wear and tear, condemnation and casualty other than that required to be insured against by Tenant hereunder. (c) If Tenant remains in possession of the Demised Premises after expiration of the Term, without Landlord's acquiescence and without any express agreement of the parties, Tenant shall be a tenant-at-sufferance at the greater of (i) one hundred fifty percent (150%) of the then current fair market base rental value of the Demised Premises or (ii) one hundred fifty percent (150%) of the Base Rent in effect at the end of the Term. Tenant shall also continue to pay all other Additional Rent due hereunder, and there shall be no renewal of this Lease by operation of law. In addition to the foregoing, Tenant shall be liable for all damages, direct and consequential, incurred by Landlord as a result of such holdover. No receipt of money by Landlord from Tenant after the termination of this Lease or Tenant's right of possession of the Demised Premises shall reinstate, continue or extend the Term or Tenant's right of possession. 31. [INTENTIONALLY OMITTED] 32. Late Payments. In the event any installment of rent, inclusive of ------------- Base Rent, or Additional Rent or other sums due hereunder, if any, is not paid (i) within five (5) days after Tenant's receipt of written notice of such failure to pay on the first occasion during any twelve (12) month period, or (ii) as and when due with respect to any subsequent late payments in any twelve (12) month period, Tenant shall pay an administrative fee equal to five percent (5%) of such past due amount, plus interest on the amount past due at the lesser of (i) the maximum interest rate allowed by law or (ii) a rate of fifteen percent (15%) per annum (the "Interest Rate") to defray the additional expenses incurred by Landlord in processing such payment. 33. Rules and Regulations. Tenant agrees to abide by the rules and --------------------- regulations set forth on Exhibit E attached hereto, as well as other rules and --------- regulations reasonably promulgated by Landlord from time to time, so long as such rules and regulations are uniformly enforced against all tenants of Landlord in the building. 34. Quiet Enjoyment. So long as Tenant has not committed an Event of --------------- Default hereunder, Landlord agrees that Tenant shall have the right to quietly use and enjoy the Demised Premises for the Term. -18- 35. Miscellaneous ------------- (a) The parties hereto hereby covenant and agree that Landlord shall receive the Base Rent, Additional Rent and all other sums payable by Tenant hereinabove provided as net income from the Demised Premises, without any abatement (except as set forth in Section 20 and Section 21), reduction. set- off. counterclaim, defense or deduction whatsoever. (b) If any clause or provision of this Lease is determined to be illegal, invalid or unenforceable under present or future laws effective during the Term, 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 that in lieu of such illegal, invalid or unenforceable clause or provision there shall be substituted 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. (c) All rights, powers, and privileges conferred hereunder upon the parties hereto shall be cumulative, but not restrictive to those given by law. (d) TIME IS OF THE ESSENCE OF THIS LEASE. (e) No failure of Landlord or Tenant to exercise any power given Landlord or Tenant hereunder, or to insist upon strict compliance by Landlord or Tenant with its obligations hereunder. and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's or Tenant's rights to demand exact compliance with the terms hereof. (f) This Lease contains the entire agreement of the parties hereto as to the subject matter of this Lease and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force and effect. The masculine (or neuter) pronoun, singular number shall include the masculine, feminine and neuter gender and the singular and plural number. (g) This contract shall create the relationship of landlord and tenant between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has a usufruct, not subject to levy and sale, and not assignable by Tenant except as expressly set forth herein. (h) Under no circumstances shall Tenant have the right to record this Lease or a memorandum thereof. (i) The captions of this Lease are for convenience only and are not a part of this Lease, and do not in any way define, limit, describe or amplify the terms or provisions of this Lease or the scope or intent thereof. (j) This Lease may be executed in multiple counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement. (k) This Lease shall be interpreted under the laws of the State where the Demised Premises are located. (l) The parties acknowledge that this Lease is the result of negotiations between the parties, and in construing any ambiguity hereunder no presumption shall be made in favor of either party. No inference shall be made from any item which has been stricken from this Lease other than the deletion of such item. 36. Lease Date. For purposes of this Lease, the term "Lease Date" shall mean ---------- the later date upon which this Lease is signed by Landlord and Tenant. 37. Authority. If Tenant is not a natural person, Tenant shall cause its --------- corporate secretary or general partner, as applicable, to execute the certificate attached hereto as Exhibit F. Tenant is authorized by all required --------- corporate or partnership action to enter into this Lease and the individual(s) signing this Lease on behalf of Tenant are each authorized to bind Tenant to its terms. 38. No Offer Until Executed. The submission of this Lease to Tenant for ----------------------- examination or consideration does not constitute an offer to lease the Demised Premises and this Lease shall become effective, if at all, only upon the execution and delivery thereof by Landlord and Tenant. 39. Special Stipulations. The Special Stipulations attached hereto as -------------------- Exhibit G, are incorporated herein and made a part hereof, and to the extent of - --------- any conflict between the foregoing provisions and the Special Stipulations, the Special Stipulations shall govern and control. -19- IN WITNESS WHEREOF, the parties hereto have hereunto set their hands under seals, the day and year first above written. LANDLORD: Date: February 18, 1999 INDUSTRLAL DEVELOPMENTS INTERNATIONAL, INC., a Delaware corporation By: /s/ Timothy J. Gunter ---------------------------------------- Name: Timothy J. Gunter Title: Secretary Attest: /s/ Daniel L. Webb ------------------------------------ Name: Daniel L. Webb Title: Assistant Secretary [CORPORATE SEAL) TENANT: Date: February 18, 1999 ALADDIN MANUFACTURING CORPORATION By: /s/ Salvatore J. Perillo ---------------------------------------- Name: Salvatore J. Perillo Title: Assistant Secretary Attest: /s/ John D. Shift ------------------------------------ Name: John D. Shift Title: Vice President-Finance and Assistant Secretary [CORPORATE SEAL) -20- ATTESTATION Landlord - Corporation: - ---------------------- STATE OF GEORGIA COUNTY OF FULTON BEFORE ME, a Notary Public in and for said County, personally appeared Timothy J. Gunter and Daniel L. Webb, known to me to be the person(s) who, as Secretary and Assistant Secretary, respectively, of INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC., the corporation which executed the foregoing instrument in its capacity as Landlord, signed the same, and acknowledged to me that they did so sign said instrument in the name and upon behalf of said corporation as officers of said corporation, that the same is their free act and deed as such officers, respectively, and they were duly authorized thereunto by its board of directors; and that the seal affixed to said instrument is the corporate seal of said corporation. IN TESTIMONY WHEREOF, I have hereunto subscribed my name, and affixed my official seal, this 15th day of March, 1999. /s/ Charlotte Robinson ------------------------------ Notary Public My Commission Expires: 10-06-01 Tenant - Corporation: STATE OF GEORGIA COUNTY OF GORDON BEFORE ME, a Notary Public in and for said County, personally appeared Salvatore J. Perillo and John D. Swift, known to me to be the person(s) who, as Assistant Secretary and Vice-President Finance and Assistant Secretary, respectively, of ALADDIN MANUFACTURING CORPORATION, the corporation which executed the foregoing instrument in its capacity as Tenant, signed the same, and acknowledged to me that they did so sign said instrument in the name and upon behalf of said corporation as officers of said corporation, that the same is their free act and deed as such officers, respectively, and they were duly authorized thereunto by its board of directors; and that the seal affixed to said instrument is the corporate seal of said corporation. IN TESTIMONY WHEREOF, I have hereunto subscribed my name, and affixed my official seal, this 18th day of February, 1999. /s/ Elaine Busbee ----------------------- Notary Public My Commission Expires: Notary Public, Paulding County, Georgia My Commission Expires Nov. 3, 2001 -21- EXHIBIT A [CHART TO EXHIBIT A - PROJECT INFORMATION MOHAWK INDUSTRIES INC., BOLINGBROOK CORP. CENTER APPEARS HERE] [GRAPH OF MOHAWK INDUSTRIES, INC. WAREHOUSE SPACE] MOHAWK INDUSTRIES INC. BOLINGBROOK CORPORATE CENTER I BOLINGBROOK CORPORATE CENTER BOLINGBROOK, IL PROJECT INFORMATION - ------------------- LAND 16.31 AC BUILDING 352,338 SF F.A.R. .496 TYPICAL BAY SIZE 40'x 46' CLEAR HEIGHT 30'-0' MOHAWK INDUSTRIES INC. - ---------------------- SPACE SIZE 201,679 SF OFFICE 10,045 SF WAREHOUSE 191,634 SF % SPRINKLER/ELEC. ROOM 280 SF TOTAL 201,959 SF DOCKS 29 TRUCK DOCKS CAR PARKING 102 CAR PARKING DRIVE-IN DOOR EXHIBIT B Prevailing Market Rate For purposes of this Lease, the phrase "Prevailing Market Rate" shall mean the prevailing market rate as of the first day of the First Renewal Term or as of the first day of the Second Renewal Term, as applicable, for base minimum rental calculated on a per square foot basis for leases covering space comparable to the Demised Premises within buildings comparable to the Building located in the I-55 Corridor Area within Will County, Illinois, including the Villages of Lemont, Woodridge, Bolingbrook & Romeoville, market area (hereinafter referred to as the "Market Area"). The Prevailing Market Rate shall be determined by an appraisal procedure as follows: In the event that Tenant notifies Landlord that Tenant elects to extend the Term for either or both of the First Renewal Term and the Second Renewal Term in accordance with Section 3.1 of this Lease. Landlord and Tenant shall negotiate in good faith for a period of thirty (30) calendar days after the giving of the applicable written notice from Tenant to reach mutual agreement regarding the Prevailing Market Rate. Each of Landlord and Tenant shall submit to the other during such thirty (30) day period at least one written proposal for the Prevailing Market Rate. If Landlord and Tenant are unable to reach agreement during the thirty (30) day period, each of Landlord and Tenant shall, by written notice to the other within ten (10) business days after expiration of the thirty (30) day period, select a real estate appraiser. For a period of ten (10) business days after designation of the second appraiser, the two appraisers so designated shall attempt to reach mutual agreement regarding the Prevailing Market Rate. The appraisers must give appropriate consideration to all economic terms, length of lease term, size, location and quality of premises being leased and other generally acceptable terms and conditions for the lease of the building in question. If the two appraisers are unable to reach agreement, each of the two appraisers shall, not later than the twentieth (20th) business day following the designation of the second appraiser, render a separate written determination of the Prevailing Market Rate. The two appraisers shall also select a third appraiser prior to the end of the period when their separate appraisals must be rendered. Within twenty (20) business days after the appointment of the third appraiser, the third appraiser shall render a written determination of the Prevailing Market Rate. From the three appraisals, the appraisal which is the farthest from the median appraisal shall be disregarded and the average of the remaining two appraisals shall conclusively constitute the Prevailing Market Rate. All appraisers selected in accordance with this paragraph shall have at least ten years experience in the commercial leasing market in the Market Area and shall be members of the American Institute of Real Estate Appraisers or similar professional organization. If either Landlord or Tenant fails or refuses to select an appraiser, the other appraiser shall alone determine the Prevailing Market Rate. Landlord and Tenant agree that they shall be bound by the determination of Prevailing Market Rate pursuant to this paragraph. Landlord shall bear the fee and expenses of its appraiser; Tenant shall bear the fee and expense of its appraiser; and Landlord and Tenant shall share equally the fee and expenses of the third appraiser, if any. b-1 [IDI LOGO APPEARS HERE] EXHIBIT C December 8, 1998 Revised: January 20, 1999 Revised: March 4, 1999 OUTLINE SPECIFICATION Mohawk Industries, Inc. (Aladdin Division) 1.0 GENERAL REQUIREMENTS -------------------- 1.1 Intent: This outline specification has been developed based upon the information provided by Grubb & Ellis. This specification outlines the scope of work for the complete design and construction of a 352,338 square foot office/warehouse facility with a 201,959 SF demised premises for Mohawk Industries, Inc. to be located in Bolingbrook Corporate Center, Bolingbrook, Illinois. Design and construction shall include site work, landscaping and full preparation of certified, final working drawings comprised of Architectural, Structural, Civil, Electrical, Mechanical, Plumbing, Fire Sprinkler, Landscaping and a corresponding specification. These drawings shall be submitted for approval to Tenant and used to obtain a permit and complete construction. The square footage of this facility is as follows: Total Building Mohawk Industries Demised Premises -------------- ---------------------------------- To Suit Office 10,045 SF Office 352,338 SF Warehouse 191,914 SF Warehouse ---------- ---------- 352,338 SF Total 201,959 SF Total Site Area: + 16.31 Acres - Parking: Provided - 102 Car Parking Stalls Trailer Storage: Provided - 25 Trailer Storage Stalls 1.2 Warranty: All construction will carry a standard one (1) year warranty. Any additional warranties such as equipment and roof warranties will be passed through to Tenant. 1.3 Accessibility: All design and construction shall conform to the Americans with Disabilities Act (ADA) and State Accessibility Requirements. [IDI LOGO APPEARS HERE] 1.4 Approvals: All designs, materials, equipment and finishes including, but --- not limited to, plumbing, electric, fire sprinkler, HVAC, brick, mortar, glass, flashing, roof screens, stains, floor finishes, wall finishes, paint, washroom partitions, doors, hardware and acoustic ceiling tile, shall be approved by IDI and Tenant, in writing, prior to installation. 2.0 SITE DEVELOPMENT ---------------- 2.1 Grading and Earthwork: Work necessary to excavate, backfill and fine grade the entire site is included. This shall include required preparation to complete the foundations on the site, the floor slab subgrade, the parking and truck maneuvering subgrades and good positive drainage away from the building. Tree removal required for parking and building construction shall be included. Earthwork within the construction areas shall be observed, tested and approved by an independent soils engineer. All fill areas shall be compacted and all concrete footings and foundations designed according to the recommendations of a qualified soils engineer. Areas outside the building structure shall be cut and filled to appropriate grades. Fill work in these areas shall be with suitable material of adequate bearing. Any excess soil generated in the grading operation shall be used to construct undulating decorative landscaped berms. Any excess soil remaining after construction shall be removed from the site and park. 2.2 Exterior Concrete, Sidewalks, Curbs and Truck Apron: Work necessary to furnish and install all of the exterior concrete work will be provided. Exterior concrete shall be broom-finished. Sidewalks will be 5" thick or 4" granular fill and aprons and trailer storage will be 8" thick on 6" granular fill. Included are concrete curb and gutter, concrete sidewalks up to the entrance, a concrete transformer pad, and concrete aprons at street entrances, and 65' adjacent to the overhead doors at trailer storage areas. All exterior concrete work shall be constructed from a 4,000 psi, air entrained concrete mixture. The concrete shall be properly jointed for thermal movements, and shall be placed on properly compacted material. 2.3 Bituminous Paving and Striping: Work necessary to furnish and install all bituminous parking lots and driveways as shown on the scope drawings shall be provided. 2 [IDI Logo] All bituminous paving will be constructed to conform to Highway Department Specifications. Areas designated for auto traffic shall receive a 3" thick bituminous mat over an 8" base. Areas designated for semi-truck traffic shall be constructed with a 4" bituminous mat over a 10" base. Both bituminous mats shall be installed in two (2) lifts. All paved areas will be bounded by B6:12 concrete curb and gutter. 2.4 Telephone Gas and Electric Utilities: Service entrances shall be coordinated with the telephone, gas and electric companies. Participation by Tenant shall be required for execution of the documents. Gas, electric and phone charges will be paid by contractor until Tenant takes occupancy. All meters will be read on that date and billing names changed. 2.5 Water Service: Water service from the main located in the right-of-way shall be provided. The water main to the building will be sized as required for the domestic services within the building and for the interior fire protection systems. Yard hydrants will be located around the facility per the requirements of the local fire district. 2.6 Sanitary Sewerage: A 6" sanitary sewer line from the proposed building to the sanitary main located in the right-of-way shall be provided. 2.7 Storm Sewerage: An on-site storm sewer system with catch basins and manholes shall be connected to the street storm sewer system. 2.8 Lawns and Landscaping: A complete landscaping program will be installed including seed, sod, trees, shrubs, plantings and lawn sprinkler. 2.9 Exterior Lighting: Exterior lighting for the project will be located to provide light in the parking areas, dock area and at every building entrance. 3.0 BUILDING STRUCTURES AND EXTERIOR ENVELOPE ----------------------------------------- 3.1 The general construction of this facility shall be steel columns, beams and steel bar joists carrying a metal roof deck. Bay size in the warehouse is approximately 40' x 48' with the exception of the staging bays which are 40' x 60'. The building insulation values shall consist of the following: Roof R = 12.0 Walls R = 15.0 Insulated Glass R = 2.0 3 [IDI LOGO] 3.2 Building Exterior: The warehouse wall system will be constructed of load bearing, insulated precast. The precast will be stained with a five (5) year masonry stain to accent the office design. The office facade will be precast and glass. Glass area will be "punched" windows extending from top of sill (+3'-0") to ceiling. Glass will be tinted, insulated units set in thermally broken, anodized aluminum frames. 3.3 Roofing: Shall consist of a 45 mil single-ply rubber roof system installed ---------------------- over a 2" loose laid poly-isocyanurate insulation providing a minimum R-value of 12.0 and properly covered with a stone ballast. All roof top ------------- mechanical equipment shall be properly flashed and equipped with an insulated curb of no less than 12". Metal roof deck shall be 1 1/2", 22 gauge, off-white primed steel deck. All --------- roof areas shall slope to interior roof drains which will be connected to the underground storm sewer. All roof edge facias shall be prefinished clad metal. Other flashings shall be galvanized metal and painted. One (1) 4' x 8' double dome skylight/smoke vent will be installed in every other bay to provide natural light and provide for smoke evacuation. Warranty: Ten (10) year labor and material warranty issued by Manufacturer will be provided. 3.4 Building Clear Heights: The clear height in the office area will be 9' (or to suit) to the underside of the acoustical tile. The clear height will be 30' to the underside of the bar joist. No pipe, equipment or fixtures will be placed below the bottom chord of the bar joists without specific written permission from IDI and Tenant. 3.5 The demised premises will be separated by a full height wall. The wall will be concrete block to 10'-0" AFF and 5/8" gypsum board applied to 3-5/8" thick, 25 gauge metal studs spaced at 24" o.c. above that to the underside of the roof deck. 4.0 INTERIOR FINISHES ----------------- Office build-out will be provided from an allowance of $40.00/SF ($400,000.00) to include all items except exterior shell, and floor slab. The standards to be utilized in the construction of the office will be as follows unless specifically noted: . The office floor will be a 4" slab on 2" granular. 4 [IDI LOGO] . Carpet will be direct glue down with 2 1/2" vinyl base. . Vinyl tile will be 1/8" composition tile as manufactured by Armstrong. . Quarry tile will be 6" x 6" thin set tile with quarry tile base. Ceramic tile will be 2" x 2" ceramic mosaic tile as manufactured by American Oleon. . Walls: Unless indicated otherwise, the interior walls shall be constructed with one (1) layer of 5/8" gypsum wall board applied to each side of 3-5/8" thick, 25 gauge metal stud framing members spaced at 24" o.c. Interior partitions shall extend from the floor to finished ceiling except around the washrooms, conference room and Manager's office where the walls shall penetrate the ceiling grid system and run to 3' above the ceiling with sound attenuation blankets. On walls where paint is specified, two (2) coats of flat latex will be applied. . The demising wall between the warehouse and office will be concrete block to 10'-0" AFF and 5/8" gypsum board applied to 3-5/8" thick, 25 gauge metal studs spaced at 24" o.c. above that to the underside of the roof deck. The warehouse side of the office demising wall shall be taped, sanded and painted with two (2) coats of flat latex. . Base Materials: All vinyl base adjacent to carpeted arcs shall be a 2 1/2" straight base. Quarry and ceramic tile base shall have coved profile at floor. . Ceilings: Acoustical ceiling tile shall be 2' x 4' lay-in panels with a random perforated pattern. All wall trim and column trim shall match the white painted steel 2' x 4' exposed suspension grid system. The ceiling grid system shall be continuous throughout the space. . Wood Doors: Interior office doors shall be 3' x 7', solid core, with a stained, sealed and varnished red oak veneer. All office doors will be set in painted hollow metal frames. . Hollow Metal Doors and Frames: All hollow metal doors shall be insulated and painted and set in painted hollow metal frames. 5 [IDI LOGO] . Finish Hardware: All door hardware shall be lever type as manufactured by Schlage, Yale, Corbin or an equal commercial grade with its function appropriate for its intended usage. A complete keying system allowing doors to be keyed alike within a given area and tied into a building master and grand master system shall be provided. Tenant will be responsible for re-keying of all exterior doors prior to occupancy. . Washrooms: All washroom partitions shall be ceiling hung, metal, with a baked-on enamel finish. . Each washroom shall receive soap dispensers, a recessed paper towel cabinet, a recessed trash receptacle and a mirror. The women's restroom shall receive sanitary napkin disposals in each stall. The washrooms shall each receive a plastic laminate vanity for recessed sinks. . Plumbing: A complete plumbing system shall be designed and installed for all fixtures as required by the office build-out allowance. This shall consist of all necessary sanitary waste, vent and hot and cold water piping systems. All fixtures will be wall hung, flush valve type. . Heating/Cooling: The office will be heated and air conditioned by means of commercial roof top gas-fired heating and electrical cooling units per the requirements of the office build-out allowance. The conference room and lunch area will have ceiling exhaust fans and all restrooms will have direct exhaust. Winter design will be 70 (degrees) F. inside at -10 (degrees) F. outside air temperature. Summer design will be 73 (degrees) F. inside at 93 (degrees) F. dry bulb outside temperature. All office units will have seven (7) day programmable thermostats and units over 5 ton capacity will have economizer cycles. All office roof-top mechanical equipment will be screened from view. . Lighting: 2' x 4' three (3) lamp lay-in troffer with steel hinged and latched door and parabolic lens designed for seventy (70) foot-candles at 30" above the floor as required by the office build-out allowance. . Power: Each private office will receive two (2) duplex receptacles and one (1) phone outlet. Restrooms and lunchroom will have one (1) countertop GFI outlet each. Lunch area will have two (2) duplex receptacles spaced on wall for vending machines. Large general 6 [IDI LOGO] purpose rooms will have one (1) duplex outlet on each wall and one (1) phone outlet. . Office lobby with a quarry tile floor. . An aluminum sill at all window areas. 5.0 FLOOR - All proposed building floor slabs will be concrete slab-on-grade. ----- Warehouse floor will be a 7" slab on a 3" stone base and 3,500 psi concrete. Slabs will be troweled smooth and receive a burnished finish. Slabs shall meet the following floor flatness/levelness specifications: Ff35/Fl25. 6.0 DOCK AREA EQUIPMENT AND OVERHEAD DOORS - (Twenty-nine (29) Exterior Truck -------------------------------------- Docks, one (1) Drive-in Door). Dock Equipment - Twenty-nine (29) 6' x 8' mechanically operated 30,000- pound dock levelers with safety drop, full range toe-guards, and weather seal. Overhead Doors - Twenty-nine (29) 9' x 10' and one (1) 12' x 14' exterior doors shall be prefinished, metal panel type, insulated, weather stripped and complete with lockset hardware and two (2) windows per door (Therma- core or Therma-span solid filled doors). All door tracks to be protected by rail guards. Drive-in door will be equipped with a push-button motor operator. All other doors will be manual. Each door will have a dock seal and light. 7.0 MECHANICAL ---------- 7.1 Plumbing: An interior roof drainage system shall be provided and connected to the exterior storm system. Roof drains and cleanouts shall be Josam, Smith, Wade, Zurn or equal. All drain heads and horizontal runs will be insulated to prevent condensation. 7.2 Heating, Ventilating and Air Conditioning: The work shall include the design and installation of the following: Warehouse Area: The warehouse area will be heated by a roof mounted, -------------- direct-fired positive pressure unit. Winter design will be 65 (degrees) F. inside at - 15 (degrees) F. outside air temperature. 7.3 Fire Protection System: A complete ESFR fire protection sprinkler system shall be provided for the warehouse and dock areas designed in accordance with NFPA, to allow rack or piled storage of product to a height of 30' without the need for in-rack sprinklers. The system shall include a fire department connection at the front 7 [IDI LOGO] of the building and all necessary pipes, valves, smoke detectors, strobes, alarms and fire bells as required by the municipality. Any specific insurance company requirement should be forwarded to IDI for review as soon as possible. The office areas shall be provided with a fire protection sprinkler system designed for light hazard densities in accordance with NFPA 13. Semi-recessed, chrome plated sprinkler heads shall be provided for the office areas and brass sprinkler heads shall be furnished in the warehouse and dock area. Warehouse sprinkler heads will be 75 psi ESFR heads. 8.0 ELECTRICAL ---------- 8.1 Power Distribution: Included in this proposal is a complete building power distribution system from an 800 amp, 277/480 volt, 3-phase, 4-wire, pad-mounted transformer to power and lighting panels, switches, and/or circuit breakers throughout the building; to supply heating, ventilating, air-conditioning, lighting convenience outlets, and the other building components identified in this proposal requiring electrical connections. All components and devices to be industrial grade. 8.2 Lighting: All lighting systems shall be designed and installed using the fixture types outlined below, high power factor ballasts and single phase circuits. Lighting shall be controlled by wall switches in the office and circuit breaker design for switch-on in the warehouse areas. Contractor to verify color of switches, receptacles and wall plates prior to installation. In general, the lighting systems shall be as follows: A. Warehouse - Metal Halide fixtures designed for twenty-five (25) foot- candles initial average at 30" above the floor in a general lighting pattern (quantity provided 200). All foot-candle measurements will be within +/- 25% of the overall average specified. Fixtures will be hung from the top chord of the bar joists and suspended between them. Warehouse to include a night light system with quartz restrike. B. Accent Lighting - Wall or soffit lighting at all building entrances. C. Exit Light and Emergency Battery Pack Type Fixtures - Provided where required by code. Emergency battery pack type fixtures to 8 [IDI Logo] be wired to building electrical system and batteries to be "trickle" charged. D. Parking Lot Lighting - Provided by a combination of pole and wall mounted "shoe box" type high pressure sodium fixtures. Poles to be tapered round spun, tapered aluminum and fixtures to have anodized aluminum heads. The fixtures will turn-on by photo cell and turn-off by time clock. E. Fifteen (15) 35-amp duplexes for block beaters will be provided. One outlet per pair of doors. Warehouse will have one (1) quadplex between each pair of overhead doors. 9.0 EXCLUDED ITEMS -------------- The following items shall be specifically excluded from this proposal: A. Furniture and office furnishings including demountable partitions. B. Building security, paging or phone systems. C. Time clocks, lockers, dumpster, dumpster screen, conveying system, fire extinguishers, storage racks or in-rack sprinklers. D. Power distribution to, and electrical or mechanical hook-up of, Tenant's equipment. 10.0 MISCELLANEOUS ITEMS INCLUDED ---------------------------- A. Fire department knox box. B. Fire alarm control panel with required horns, bells, strobes and pull stations. C. Full height glass entry door. D. One (1) roof access ladder and hatch. E. All necessary permits and approvals. 9 [IDI LOGO] 11.0 ALLOWANCE SUMMARY ----------------- 11.1 Cash Allowance: The following cash allowances are included in this specification. Cash allowances include all applicable tax, freight, design, materials, installation, supervision, overhead, profit, etc., unless otherwise noted, incurred by IDI to provide specific work. Overruns or credits within any specific allowance area may be applied against the total of the entire allowance fund. Tenant will be allowed to use any final cash allowance fund balance for additional items in the building. Additions shall be handled as a Change to the Lease and will carry a 12% fee for IDI. A. Tenant Improvement/Office $400,000.00 10 EXHIBIT D --------- SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement") is made as of the __ day of __________, 199_ between ____________, a ______________ (hereinafter called "Mortgagee"), which has an office at _____________________ (Attn:____________________), ___________________________, a __________________ corporation (hereinafter called "Landlord"), which has an office at __________ and ___________ , a ____________ corporation (hereinafter called "Tenant"), which has an office at ____________. W I T N E S S E T H: - - - - - - - - - - WHEREAS, Tenant has entered into that certain Lease ("Lease") dated ___________________________, 199_ with Landlord, as Landlord, which Lease demises certain premises (the "Premises") located on the real property described on Exhibit A attached hereto and made a part hereof (the "Property'); WHEREAS, Mortgagee has agreed to make a loan to Landlord in the face principal amount of $ __________, to be secured by a Mortgage and Security Agreement (herein, together with all amendments, modifications, extensions, renewals, consolidations and replacements thereof now existing or hereafter entered into, collectively called the "Mortgage") on the Property; and WHEREAS, Mortgagee, Landlord and Tenant have reached certain agreements regarding the Lease and the Mortgage hereinafter set forth in this Agreement. NOW, THEREFORE, in consideration of the sum of ________ Dollars ($_____) in hand paid by Mortgagee to Tenant and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed as follows: 1. In accordance with and subject to all the provisions of this Agreement, the Lease is and shall be subject and subordinate to the Mortgage, to the full extent of any and all amounts from time to time secured thereby and interest thereon. 2. Tenant, for itself and its successors and assigns, agrees that it will attorn to and recognize any purchaser of the Property at a foreclosure sale under the Mortgage or any transferee who acquires the Property by deed in lieu of foreclosure or otherwise, and the successors and assigns of such purchaser or transferee, as its landlord for the unexpired balance (and any extensions or renewals, whether previously, at that time or thereafter exercised by Tenant) of the term of the Lease, subject to and in accordance with the terms and conditions set forth in the Lease. Mortgagee agrees that Tenant will not be joined in any proceeding or action to foreclose the Mortgage unless Tenant is a necessary party to such proceeding or action. 3. Mortgagee, for itself and its successors and assigns, and for any purchaser at a foreclosure sale under the Mortgage, any transferee who acquires the Property by deed in lieu of foreclosure or otherwise, and the successors and assigns of such purchaser or transferee (herein, Mortgagee and each such other party is called a "New Landlord"), hereby covenants and agrees with Tenant that in the event Mortgagee shall commence any proceedings to foreclose the Mortgage for any reason whatsoever or in the event any other New Landlord shall succeed to the interest of Landlord by foreclosure, deed in lieu thereof or otherwise, that: (a) the Lease shall, in accordance with its terms, remain in full force and effect as a direct lease between Mortgagee or other New Landlord (as the case may be), and Tenant, with the same force and effect as if originally entered into with Mortgagee, or such other New Landlord (as the case may be); and (b) Tenant's possession of the Premises and Tenant's rights and privileges under the Lease shall not be diminished, interfered with or disturbed by such Mortgagee or such other New Landlord by such foreclosure under the Mortgage or by any such attempt to foreclose or to succeed to the interests of Landlord by foreclosure, deed in lieu thereof or otherwise; provided that the rights of possession of Tenant are subject to all the terms of the Lease. 4. Without the prior written consent of Mortgagee, Landlord will have no right or power to (a) enter into any agreement amending or terminating the Lease or (b) cancel the term of, or surrender, the Lease, or (c) waive or release Tenant from any obligation of Tenant under the Lease; provided that regarding only any proposed amendment of the Lease which does not reduce the amount of rental payable under the Lease by Tenant, relieve Tenant of any material obligation under the Lease, materially increase the responsibilities of Landlord or otherwise materially impair or reduce the economic value of the Lease to Mortgagee, Mortgagee agrees not unreasonably to withhold or delay its consent. Mortgagee shall approve or disapprove of such actions within thirty (30) days of request thereof, and if d-1 notice of disapproval is not received within said time deadline. Mortgagee is deemed to have approved thereof. If Mortgagee disapproves same, it shall state with specificity the reasons for such disapproval. 5. The Tenant hereby agrees to provide Mortgagee with a copy of any written notice given by Tenant to Landlord of any default under the Lease by the Landlord (such copy to Mortgagee to be given simultaneously with the giving of the notice to Landlord) and to allow Mortgagee the same right and opportunity to remedy or cure such default as may be available to Landlord under the Lease prior to exercising any right or remedy of the Tenant under the Lease. Notwithstanding the foregoing, Tenant agrees that Mortgagee shall have no obligation to remedy or cure any such default. 6. In the event that Mortgagee or any other New Landlord shall succeed to the interest of Landlord under the Lease, Tenant agrees that Mortgagee or such other New Landlord shall not be: (i) subject to any credits, offsets (except as may be expressly provided to the contrary in the Lease), defenses, claims or counterclaims which Tenant might have against any prior landlord (including Landlord) (ii) bound by any rent or additional rent which Tenant shall have paid more than one month in advance to any prior landlord (including Landlord), or (iii) bound by any amendment or modification to the Lease, after the effective date hereof, or waiver of any provision of the Lease, which has not been consented to in writing by Mortgagee or deemed approved hereunder. 7. Each notice, demand or other communication in connection with this Agreement shall be in writing and shall be deemed to be given to and served upon the addressee thereof on the earlier of (i) actual delivery to such addressee at its address set out above or (ii) the third business day after the deposit thereof in the United States mails, registered or certified mail, return receipt requested, first-class postage prepaid, addressed to such addressee at its address set out above. By notice complying with this section, any party may from time to time designate a different address in the continental United States as its address for the purpose of the receipt of notice hereunder. 8. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective successors and assigns. 9. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Illinois. d-2 EXHIBIT E Rules And Regulations These Rules and Regulations have been adopted by Landlord for the mutual benefit and protection of all the tenants of the Building in order to insure the safety, care and cleanliness of the Building and the preservation of order therein. 1. The sidewalks shall not be obstructed or used for any purpose other than ingress and egress. No tenant and no employees of any tenant shall go upon the roof of the Building without the consent of Landlord. 2. No awnings or other projections shall be attached to the outside walls of the Building. 3. The plumbing fixtures shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags or other substances, including Hazardous Substances, shall be thrown therein. 4. No tenant shall cause or permit any objectionable or offensive odors to be emitted from the Demised Premises. 5. The Demised Premises shall not be used for lodging or sleeping or for any immoral or illegal purposes. 6. No tenant shall make, or permit to be made any unseemly or disturbing noises, sounds or vibrations or disturb or interfere with tenants of this or neighboring buildings or premises or those having business with them. 7. Each tenant must, upon the termination of this tenancy, return to the Landlord all keys of stores, offices, and rooms, either furnished to, or otherwise procured by, such tenant, and in the event of the loss of any keys so furnished, such tenant shall pay to the Landlord the cost of replacing the same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such change. 8. Canvassing, soliciting and peddling in the Building and the Project are prohibited and each tenant shall cooperate to prevent such activity. 9. Landlord will direct electricians as to where and how telephone or telegraph wires are to be introduced. No boring or cutting for wires or stringing of wires will be allowed without written consent of Landlord. The location of telephones, call boxes and other office equipment affixed to the Demised Premiss shall be subject to the approval of Landlord. 10. Parking spaces associated with the Building are intended for the exclusive use of passenger automobiles. Except for intermittent deliveries, no vehicles other than passenger automobiles may be parked in a parking space without the express written permission of Landlord. Trucks and tractor trailers may only be parked at designated areas of the Building. Trucks and tractor trailers shall not block access to the Building. 11. No tenant shall use any area within the Project for storage purposes other than the interior of the Demised Premises. e-1 EXHIBIT F CERTIFICATE OF AUTHORITY CORPORATION The undersigned, Secretary of Aladdin Manufacturing Corporation ("Tenant"), hereby certifies as follows to INDUSTRIAL DEVELOPMENTS INTERNATIONAL, INC., a Delaware corporation ("Landlord"), in connection with Tenant's proposed lease of premises in Inventory Facility No. 1, at Bolingbrook Corporate Center, Bolingbrook, Illinois (the "Premises"): 1. Tenant is duly organized, validly existing and in good standing under the laws of the State of __________________, and duly qualified to do business in the State of Illinois. 2. That the following named persons, acting individually, are each authorized and empowered to negotiate and execute, on behalf of Tenant, a lease of the Premises and that the signature opposite the name of each individual is an authentic signature: - ----------------------- ---------------------- ---------------------- (name) (title) (signature) - ----------------------- ---------------------- ---------------------- (name) (title) (signature) - ----------------------- ---------------------- ---------------------- (name) (title) (signature) 3. That the foregoing authority was conferred upon the person(s) named above by the Board of Directors of Tenant, at a duly convened meeting held _____________, 19__. --------------------------- Secretary [CORPORATE SEAL] f-1 EXHIBIT G The following Special Stipulations are hereby incorporated into and made a part of the foregoing Lease ("this Lease") and, to the extent of any conflict between these Special Stipulations and all other provisions of this Lease, these Special Stipulations shall govern and control. 1. Right of First Offer. So long as this Lease is in full force and effect and --------------------- no Event of Default has occurred and is then continuing, and no facts or circumstances then exist which, with the giving of notice or the passage of time, or both, would constitute an Event of Default. Landlord hereby grants to Tenant a right of first offer (the "Right of First Offer") to expand the Demised Premises to include any space in the Building which directly adjoins the Demised Premises and becomes vacant from time to time (the "Offer Space"), subject to the following terms and conditions. The term "directly adjoins", as used in the preceding sentence, shall mean space which actually adjoins the Demised Premises. By way of example, the Demised Premises contains approximately 201,850 square feet, located at one end of the Building, leaving approximately 150,488 square feet in the remainder of the Building. Assuming, for the purposes of this example only, that no other tenants occupied any other portion of the Building, a lease by Landlord of approximately 10,000 square feet at the opposite end of the Building from the Demised Premises (thereby leaving approximately 10,000 square feet of space directly adjoining the Demised Premises) would not be subject to the Right of First Offer and would not constitute Offer Space. (a) The term of the Right of First Offer shall commence on the Lease Commencement Date and continue throughout the initial Term (the "First Offer Period"). (b) Subject to the other terms of this Right of First Offer, after any part of the Offer Space has or will "become available" (as defined herein) for leasing by the Landlord, Landlord shall not, during the term of the Right of First Offer, lease to another tenant such available portion of the Offer Space (the "Available Offer Space") without first offering Tenant the right to lease such Available Offer Space, subject to the following conditions: (i) Space shall be deemed to "become available" when Landlord desires to offer vacant space in the Building for lease or a lease for any tenant in the Building from time to time of all or a portion of the Offer Space expires or is otherwise terminated. (ii) Notwithstanding item (i) of this subparagraph b, Offer Space shall not be deemed to "become available" if the space is assigned or subleased by the then-current tenant of the space; or re-let by the then-current tenant of the space by renewal, extension, or renegotiation. (c) Consistent with subparagraph b. above, Landlord shall not lease any Available Offer Space to another tenant unless and until Landlord has first offered the Available Offer Space to Tenant in writing (the "Offer"). The Offer shall contain (i) a description of the Available Offer Space (which description shall include the square footage amount and location of such Available Offer Space) and an attached floor plan that will show the Available Offer Space; (ii) the date on which Landlord expects the Available Offer Space to become available; (iii) the increase in the Base Rent which would occur upon incorporating the Available Offer Space into this Lease; and (iv) the increase in Tenant's Operating Expense Percentage which would occur upon incorporating the Available Offer Space into this Lease. Upon receipt of the Offer, Tenant shall have the right, for a period of ten (10) calendar days after receipt of the Offer, to exercise the Right of First Offer by giving Landlord written notice that Tenant desires to lease the Offer Space at the base rent and upon the special terms and conditions as are contained in the Offer. If the term of the Offer Space expires after the Expiration Date of the Term, the Term of this Lease shall be extended to be coterminous with the term of the Offer Space and the Annual Base Rent per square foot for the Demised Premises during said extension shall be based upon the greater of (i) the base rent per square foot for the Offer Space or (ii) the Annual Base Rent per square foot of the Demised Premises for the last year of the Term. (d) If, within such ten (10)-day period, Tenant exercises the Right of First Offer, then Landlord and Tenant shall amend the Lease to include the Offer Space so that the Offer Space shall thereafter be governed by the terms and conditions of this Lease as modified by the terms and conditions of the Offer. (e) If, within such ten (10)-day period, Tenant declines or fails to exercise the Right of First Offer, Landlord shall then have the right to lease the Offer Space in portions or in its entirety to a third party, unrelated to and unaffiliated with Landlord, at any time without regard to the restrictions in this Right of First Offer and on whatever terms and conditions Landlord may decide in its sole discretion, provided the base rent, additional rent, any monetary allowances and any rent concessions are not substantially more favorable to such tenant than those set forth in the Offer, without again complying with all the provisions of this Right of First Offer. Any base rent which is at least ninety percent (90%) of the base rent specified in the Offer will conclusively be deemed to be as favorable as the base rent specified in the Offer. g-1 (f) If Landlord desires to lease the Offer Space at a base rent substantially less than the base rent set forth in the Offer, or if Landlord desires to materially alter or modify the special terms and conditions of the Offer, if any, Landlord shall be required to present the altered or modified Offer to Tenant pursuant to this Right of First Offer, in the same manner that the original Offer was submitted to Tenant. (g) With respect to any portion of the Building which is leased from time to time during the Term (subject to compliance by Landlord with this Special Stipulation 1) and which, if vacant, would constitute Offer Space, this Right of First Offer shall be subordinate to any extension or renewal options contained in any such lease. Further, if at the end of the term of any such lease, the tenant thereunder desires to remain in its space, Landlord shall be entitled to renew the lease and this Right of First Offer shall be subject and subordinate to such renewal. (h) This Right of First Offer is personal to ALADDIN MANUFACTURING CORPORATION, and shall become null and void upon the occurrence of an assignment of the Lease or a sublet of all or a part of the Demised Premises. g-2 EX-10.13 4 LEASE BETWEEN MOHAWK INDUSTRIES & SENECCA G&H EXHIBIT 10.13 WAREHOUSE LEASE THIS WAREHOUSE LEASE (herein this "Lease") is made and entered into as of October 15, 1999, by and between Seneca G&H, L.L.C., a Florida limited liability company, having an address at 2901 SW 8th Street, Suite 204, Miami, Florida 33135 ("Landlord") and ALADDIN MANUFACTURING CORPORATION, a Delaware corporation, with its home office located at 160 South Industrial Boulevard, Calhoun, Georgia 30701 ("Tenant"). ARTICLE I --------- DEMISE OF PREMISES 1.1 Premises. For and in consideration of the covenants and agreements -------- contained herein and other valuable consideration, Landlord hereby leases to Tenant the hereinafter defined "Premises" being approximately 186,537 square feet of gross leasable area, measured from the outside of exterior walls and from the midpoint of demising walls, ("GLA") in a warehouse building to be constructed containing approximately 256,592 square feet of GLA (the "Building") located on a parcel of land located in Pembroke Park, Florida, and more fully described and/or depicted on Exhibit "A-1" attached hereto and incorporated by ------------- reference herein ("Land"), together with the non-exclusive right to use the easements and appurtenances thereto being Common Areas. The portion of the Building and the Land being leased to Tenant hereunder is sometimes referred to as the "Premises".) The Premises are depicted as the crosshatched area on Exhibit "A-2" hereto (the "Site Plan"). The Premises shall include exclusive use - ------------- of approximately 48 loading docks and associated truck aprons in the leased Premises, parking spaces for Tenant's employees, customers, contractors, agents, invitees and licensees as depicted in Exhibit "A-3", and non-exclusive rights of access, ingress and egress over the driveways and other access ways on the Land and Park. If the Premises constitute the entire Building, then references to the Building shall be deemed to be the Premises, and Tenant shall have exclusive use of any and all loading docks, truck wells, compactor pads and similar appurtenances to the Building and those other areas depicted on Exhibit "A-2" as being for Tenant's exclusive use, as well as the non-exclusive use of the Common Areas (hereinafter defined). ARTICLE II ---------- APPROVALS; TENANT IMPROVEMENTS; SPECIFICATIONS/ACCESS 3 2.1 Approvals. Landlord shall be solely responsible, at Landlord's cost and --------- expense, for obtaining and maintaining all permits, approvals, zoning, variances or other matters (collectively, the "Approvals") that may be required by the applicable governmental agencies, bureau departments or any other governmental entity (a "Governmental Authority") for the use and operation of the Premises for warehouse, light industrial and freight movement use (excluding occupational licenses and other licenses required for Tenant's particular use of the Premises). Tenant shall cooperate with Landlord in Landlord's obtaining of the Approvals. Landlord warrants and represents that such use is allowed by law as of the date hereof. 2.2 Tenant Improvements. No later than the hereinafter defined Commencement ------------------- Date, Landlord shall complete the work to the Premises described in Exhibit "B" ----------- hereto ("Landlord's Improvements") and shall deliver the Premises to Tenant on the Commencement Date with all of the Tenant Improvements, as described therein, substantially completed and with a permanent or temporary certificate of occupancy for Tenant's use, operation and occupancy thereof. Landlord warrants and represents that as of the Commencement Date, the Building will be in good condition and repair and structurally sound [which condition includes, without limitation, that the roof will be leak-free and not in need, or in imminent need, of repair and that the plumbing, electrical, heating, ventilation and air-conditioning ("HVAC") systems will be in good operating condition and repair and not in need, or imminent need, of repair]. Landlord shall maintain the Building and the Land as provided for in Article IX below. 2.3 Premises Specifications/Access. Landlord warrants and represents that ------------------------------ (i) the Premises have a height clearance of no less than twenty four (24) feet, (ii) the Premises have truck loading facilities as shown on the Site Plan and including forty-eight (48) dock high doors, (iii) there is access to the Premises over the Common Areas (hereinafter defined) to publicly dedicated (and accepted) right-of-way, (iv) the office shown on the Site Plan shall be heated and air conditioned pursuant to Landlord's Work, (v) the Premises shall include men's and women's restrooms and (vi) the warehouse lighting shall be as set forth in Exhibit "B" or, if not therein set forth, then as ----------- 4 heretofore agreed to by Landlord and Tenant and shall be in good working order and repair as of the Commencement Date. ARTICLE III ----------- LEASE TERM 3.1 Initial Term. The initial term (herein sometimes referred to as the ------------ "Initial Term") of this Lease shall commence on the earlier of: (A) one hundred and eighty (180) days following the latter of (i) the full execution and delivery of this Lease, (ii) obtaining approval of all necessary plans and specifications for the intended improvements, including the tenant improvements, and (iii) obtaining of all necessary permits for the construction of the intended improvements, including the tenant improvements, or (B) the date on -- which Landlord delivers to Tenant a certificate of substantial completion issued by Landlord's architect, together with a permanent or temporary certificate of occupancy confirming that the Premises are substantially complete and available for occupancy, except only punchlist items that Landlord shall complete within thirty days thereafter (subject to availability of materials) (the "Commencement Date"). Notwithstanding anything herein to the contrary, the Commencement Date shall not be prior to August 1, 2000. The Initial Term shall terminate at the end of the last day of the tenth (10th) Lease Year. For purposes of this Lease, the term "Lease Year" shall mean each 12-month period commencing on the Commencement Date or the anniversary date thereof. If the Commencement Date does not fall on the first day of a month, the first Lease Year shall consist of the partial month in which the Commencement Date occurs and the twelve (12) consecutive months immediately following said partial month. If for any reason Landlord cannot deliver possession of the Premises to Tenant on the Commencement Date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, but in such case Tenant shall not be obligated to pay rent or any other charges hereunder until Landlord has delivered possession of the Premises to Tenant in accordance with Section 2.2 above. In the event that Landlord has not delivered the Premises to Tenant within thirty (30) days after the Commencement Date, the Base Rent and CAM Costs that would otherwise be due from Tenant will abate for the number of such delay day(s) after said thirty day period; Landlord shall deliver the Premises to Tenant as required herein as expeditiously as reasonably possible. 5 Landlord agrees to provide Tenant with at least ten (10) business days advance written notice of the date on which Landlord anticipates completion of the Premises and the obtaining of the applicable certificate of occupancy. If the Premises are ready for occupancy prior to the Commencement Date, then Tenant may enter upon the Premises to install its trade fixtures, telephone systems, computer systems and for other purposes allowed by this Lease other than the operation of its business, subject to all of the terms and conditions hereof, except that Tenant shall not, until the Commencement Date has occurred, have any obligation to pay Base Rent or Tenant's Share of CAM Costs or Real Estate Taxes, as hereinafter provided for. Tenant shall have two (2) successive year options (each such option being herein sometimes referred to as an "Extension Option") to extend the term of this Lease for five (5) Lease Years (each such five (5) year term being herein sometimes referred to as an "Extension Term"), exercisable by the delivery of written notice to Landlord by Tenant not less than 9 months prior to the expiration of the then-current Initial Term or Extension Term, as the case may be; provided, however, that, if Tenant shall fail to give any such notice within the aforesaid time limit, Tenant's right to exercise any Extension Option shall nevertheless continue until thirty (30) days after Landlord shall have given Tenant notice of Landlord's election to terminate such option, and Tenant may exercise such option at any time until the expiration of said thirty (30) day period, but under no circumstances may Tenant exercise any such option during the last sixty (60) days of the then current Initial Term or Extension Term. If the Extension Options (or any of them) are duly exercised, the term of this Lease shall be automatically extended for the applicable Extension Term, upon all of the same terms, conditions and covenants as set forth in Exhibit "C", without the requirement of any further instrument to evidence such extension. 3.2 Reversion to Landlord. On or before the last day of the Term, Tenant --------------------- shall peaceably surrender and yield up to Landlord the Premises. Tenant shall have the express right to remove and to allow any subtenants to remove any of their trade fixtures and personal property; provided, however, that the Premises shall be left in the condition existing on the Commencement Date ordinary wear and tear excepted. ARTICLE IV ---------- 6 RENT 4.1 Base Rent. Tenant covenants and agrees to pay Landlord at the above --------- referenced address, or such other place as Landlord shall designate in writing, Base Rent and all Florida Sales Taxes due under this Lease, in advance, without demand, set off or deduction, except as expressly provided for herein, in equal monthly installments, on the first day of each and every calendar month during the Term from and after the Commencement Date, as is set forth on the Rent Schedule attached as Exhibit "C" hereto. The parties acknowledge and agree that ----------- the initial Base Rent is based on five dollars and twenty cents ($5.20) per square foot of GLA per year; the Base Rent, as adjusted during the Initial Term, is set forth in Exhibit "C" hereto. Within the first ninety (90) days after the ----------- Commencement Date, Tenant may cause the Premises to be measured by a qualified engineer or architect acceptable to Landlord and, if the GLA of the Premises as properly calculated by such engineer or architect is less than 186,537 square feet, then the Base Rent shall be adjusted accordingly. If Tenant does not cause the Premises to be measured, pursuant to the foregoing, within the first ninety 90 days after the Commencement Date, then the Premises shall be deemed to contain 186,537 square feet of GLA. Landlord covenants and agrees to make good faith efforts to cause the Premises to contain 186,537 square feet of GLA. 4.2 Late Charges. If Tenant is delinquent in any monthly installment of ------------ Base Rent, Tenant shall pay to Landlord on demand a late charge equal to 5 percent of such delinquent sum. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as a penalty. ARTICLE V --------- TAXES 5.1 Real Estate Taxes ----------------- (a) During each month of the Initial Term and any Extension Term(s), on the same date that Base Rent is due, Tenant shall pay Landlord an amount equal to 1/12 of the annual cost, as estimated by Landlord from time to time, of Tenant's Share of real estate taxes and assessments for betterments and improvements that are levied or assessed by any lawful authority 7 on the Premises ("Real Estate Taxes"). Landlord shall pay all Real Estate Taxes that are levied or assessed by any lawful authority on the Premises and Landlord's other real property within the same tax parcel prior to the date same become overdue. Landlord shall take the maximum benefit of any law allowing Real Estate Taxes to be paid in installments, and in such event only the amount actually paid by Landlord during the applicable tax year shall be included in Real Estate Taxes for purposes of this Article. Landlord agrees to pay all Real Estate Taxes prior to the last date that the same may be paid without penalty or interest, or if a discount shall be available for early payment, prior to the last day that such discount is available. Without cost to Tenant, Landlord shall bear all interest, penalties, late charges and lost discount amounts incurred as a result of Landlord's failure to timely pay any installment of Real Estate Taxes. The Real Estate Taxes for any tax year shall mean such amounts as shall be finally determined to be the Real Estate Taxes payable during such tax year less any abatements, refunds or rebates made thereof. The parties shall make appropriate adjustments to previous amounts received by Landlord from Tenant on account of any abatements, refunds, rebates, or increases in Real Estate Taxes, immediately following the determination of the amount of such abatements, refunds, rebates, or increases. Prior to the Commencement Date, Landlord shall pay all Real Estate Taxes before they become overdue. (b) Real Estate Taxes to be paid by Tenant shall not include the following: (i) income, intangible, franchise, capital stock, estate or inheritance taxes or taxes substituted for or in lieu of the foregoing exclusions; (ii) any taxes or any assessment for special improvements to the Land or the Building, including but not limited to the widening of exterior roads, the installation of or hook up to sewer lines, sanitary and storm drainage systems and other utility lines and installations, provided that such assessment is made prior to the date hereof and do not benefit Tenant; (iii) taxes gross receipts or revenues of Landlord from the Premises or other portions of the Building, except for the Florida Rent Sales Tax (which shall be paid by Tenant); or (iv) impact fees. 5.2 Proration of Taxes ------------------ (a) Tenant shall pay Landlord, within fifteen (15) days following Landlord's written request and invoicing, for any amount by which the Tenant's Share of Real Estate Taxes actually 8 exceeds the sum previously paid by Tenant to Landlord for the payment of such Real Estate Taxes. Said invoice shall be accompanied by a computation of the amount payable. (b) If the term of this Lease shall terminate on any date other than the last day of a tax fiscal period, the amount payable by Tenant during the tax fiscal period in which such termination occurs shall be prorated on the basis which the number of days from the commencement of said tax fiscal period to and including said termination date bears to the number of days in the fiscal period. A similar proration shall be made for the tax fiscal period in which the Commencement Date occurs. (c) As used in this Article V, the term Tenant's "Share" shall mean a fraction, the numerator of which shall be the floor area of the Premises and the denominator of which shall be equal to the aggregate of the floor area of all buildings on the tax parcel on which the Building is located. Tenant shall pay the estimated Tenant's Share of Real Estate Taxes monthly, together with its payments of estimate CAM Costs (hereinafter defined), with adjustments to be made promptly after actual Real Estate Tax Costs are known. (d) The GLA of the Building will be approximately 256,592 square feet and (B) the GLA of the Park will be approximately 1,520,000 square feet, therefore, Tenant's Share of the Building will be approximately is 72.70% and Tenant's Share of the Park will be approximately 12.27%. 9 ARTICLE VI ---------- COMMON AREAS 6.1 Definition. "Common Areas" (or "Common Area") shall mean all ---------- exterior/outdoor areas, space, installations and equipment on the Land [and elsewhere in the business park (the "Park") of which the Land is a part, if the Land is part of a larger business park] for the common use and benefit of the tenants of the Park, their employees, agents, licensees, customers and other invitees, including without limitation parking areas, exits, entrances, access roads, driveways, sidewalks, retaining walls, loading platforms and ramps, and landscaped areas, as such Common Areas are depicted in the Site Plan (which Site Plan may be amended by Landlord from time to time). The parties acknowledge that, at this time, there are no indoor common areas on the Land or elsewhere in the Park. If the Land is not part of a larger business park, then the term "Park" shall refer only to the Land. Landlord shall be responsible, at Landlord's sole cost and expense, be responsible for the initial construction and installation of the Common Areas in good and workmanlike manner and in compliance with all governmental requirements. 6.2 Use of Common Areas. Landlord hereby grants to Tenant, its licensees, ------------------- subtenants, concessionaires, successors and assigns, and its and their employees, agents, licensees, customers, and invitees the non-exclusive right and privilege to use the Common Areas during the term hereof and any extensions of same, continuously and without interruption, in common with other tenants of the Park. Landlord shall make no material change to the Common Areas that would have a materially adverse impact on Tenant's operations. 6.3 Parking. Landlord shall maintain on the Land at least the minimum ------- number of parking spaces required by applicable governmental rules, regulations and ordinances without variance (other than variances granted prior to the date hereof). Landlord shall provide all parking without the imposition of any parking charge. 6.4 Operation and Maintenance. Landlord, as a component of CAM Costs of ------------------------- which Tenant is responsible for Tenant's Share, agrees to be responsible for the operation, maintenance, repair, and associated administration of the Common Area in good 10 condition and repair and in a clean condition, which responsibilities shall include but not be limited to sweeping of the parking area and sidewalks; arrangements for the limited removal of trash generated by the offices within the Building and trash and obstructions caused by inclement weather, lighting of the Common Area; retention of security personnel to the extent the Landlord and Tenant reasonably agree such to be appropriate; limited fire protection; paving of the parking area; and repair and maintenance of all Common Area improvements. 6.5 CAM Costs. Tenant shall be responsible to pay its CAM Share of all --------- costs incurred by Landlord in operating and maintaining the Premises, the Building, and the Common Area, which costs shall include, without limitation those relating to management, administration, insurance, real estate taxes and assessments, maintenance expenditures, etc. ("CAM Costs"). CAM Costs shall not include any Capital Expenditure, except for the amortized portion of any Capital Expenditure reasonably made for the general benefit of all tenants of the Building, which amortization shall be made over the estimated actual useful life of the improvement in question. As used herein, the term "Capital Expenditure" shall mean those expenditures which in accordance with generally accepted accounting principles are capitalized as opposed to being accounted for as expenses. As used in this Article VI, the term "CAM Share" shall mean a fraction, the numerator of which shall be the number of square feet of GLA (which shall be measured from the outside of exterior walls and from the midpoint of demising walls) in the Premises and the denominator of which shall be equal to the aggregate of the GLA of all buildings then existing in the Park; Tenant's CAM Share shall be published to Tenant periodically. CAM Costs shall be billed monthly. Estimated CAM Costs for the first Lease Year shall be based on Landlord's good faith estimate that Tenant's CAM Share of CAM Costs, together with Tenant's Share of Real Estate Taxes, will total $1.20 per square foot of GLA for the entire first Lease Year. Landlord has calculated said estimate in good faith. In addition to the foregoing, CAM Costs shall not include (i) expenses incurred in leasing space, such as legal expenses, 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 Park 11 (excluding reimbursements to Landlord for such tenants' prorata share of CAM Costs), (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 in the Park, (vii) any expenses associated with any special requirements of a particular tenant other than Tenant, (viii) any costs attributable to the original design or construction of the Premises, Building or Park (or any portion thereof), (ix) any costs associated with Y2K computer (and related) problems, (x) any Improvement except for a hereinafter defined Permitted Expenditure, (xi) any costs, fines, interest, penalties, legal fees or other expenses associated with violations by Landlord of any law, rule or other governmental requirement or with respect to late payment for utilities, taxes or any other service or product (except if caused by Tenant) or (xii) the cost of maintaining, repairing or replacing the roof, foundation and/or structural walls of the Premises (unless same have been damaged by Tenant's actions or inactions), Building or any other Building in the Park. For the purposes of this Lease, a "Permitted Expenditure" shall be Improvements made to the Building or lift station which are (a) primarily for the purpose of reducing operating expense costs or otherwise improving the operating efficiency of the Building or (b) required to comply with (A) any laws, rules or regulations of any governmental authority newly enacted after the date hereof or (B) any changes after the date hereof in the interpretation or enforcement of the existing laws, rules or regulations of any governmental authority. The cost of such Improvements shall be amortized over a period of not less than the useful life thereof and not more than ten (10) years and shall, at Landlord's option, include interest at the lesser of (yy) ten percent (10%) per annum or (zz) two percent over the prime rate of interest then in effect for NationsBank, N.A. The portion of the annual amortized cost to be included in CAM Costs in any calendar year with respect to a capital improvement which is intended to reduce expenses or improve the operating efficiency of the Building shall equal such annual amortized cost. At least sixty (60) days prior to the commencement of the second Lease Year and every Lease Year thereafter, Landlord shall deliver to Tenant a written estimate of Landlord's 12 projected CAM Costs for the forthcoming Lease Year. Within ninety (90) days after the expiration of each calendar year Landlord shall furnish Tenant a certified statement showing the CAM Costs broken down in reasonable detail, showing the items included therein, and the manner of the computation of Tenant's CAM Share for such payment and the payments made by Tenant with respect to such year. If Tenant's aggregate payments for such costs with respect to such year are greater than Tenant's CAM Share of such costs, Tenant shall receive a credit for the excess against Base Rent and other payments from Tenant next becoming due to Landlord (or refunded to Tenant, if the Term has expired); if said payments are less than said CAM Share, Tenant shall pay to Landlord the difference within thirty (30) days thereafter. Landlord shall retain its records relating to the CAM Costs at Landlord's principal office or that of the management company managing the Park, and upon reasonable prior notice to Landlord and the management company, 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 CAM Share by more than five percent (5%), the reasonable cost of such audit shall be paid on demand by Landlord to Tenant; otherwise the expenses of Tenant's audit shall be borne by Tenant and Tenant must reimburse Landlord for the costs charged by the management company with respect to such audit. Landlord shall retain its CAM Costs records for at least thirty-six (36) months after the expiration of each calendar year. ARTICLE VII ----------- UTILITIES 7.1 Utilities. Landlord shall design the Building pursuant to the plans and --------- specifications such that the applicable utility companies may provide electricity, gas, telephone, sewerage and other utilities to the Premises, in sufficient quantities to serve Tenant's needs for the use contemplated hereunder. Landlord shall install, at Landlord's expense, all utility meters necessary for measuring the consumption of utilities serving the Premises and Tenant shall pay the applicable utility companies or governmental agencies for all such utilities consumed on the Premises. 13 ARTICLE VIII ------------ USE AND ASSIGNMENT 8.1 Use. The Premises may be used for warehousing, distribution, light --- industrial uses and uses incidental thereto and, with Landlord's consent (which shall not be unreasonably withheld or delayed), any other lawful purpose. 8.2 Assignment and Subletting. Tenant shall have the right to assign this ------------------------- Lease, or to sublet all or any portion of the Premises to any party controlling, controlled by or under common control with Tenant, any entity with which Tenant is merged or consolidated or to any party that purchases all or substantially all of Tenant's assets in the geographical region where the Premises are located, provided that subsequent to such subletting or assignment Tenant remains liable for the payment and performance of Tenant's obligations under this Lease and, in the case of any assignment, the assignee assumes Tenant's obligations under this Lease. Any other assignment or subletting shall require Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. Notwithstanding anything herein to the contrary, Tenant shall not assign or sublet any, or all, of the Premises to any tenant (or affiliate thereof) leasing space in the Park or to any entity (or affiliate thereof) with which Landlord has discussed the prospect of leasing space in the Park, unless Tenant obtains Landlord's prior written consent which shall be at Landlord's sole and absolute discretion. No subletting or assignment shall (i) release Tenant from liability hereunder or (ii) release the guarantor of Tenant's performance under this Lease from liability under the applicable guaranty agreement. ARTICLE IX ---------- MAINTENANCE; ALTERATIONS; FIXTURES 9.1 Landlord's Repairs. In addition to Landlord's obligations as set forth ------------------ in Articles II and VI hereof, Landlord shall maintain in good repair the walls, foundations, roof, gutters, downspouts, exterior and all structural portions of the Building, and all plumbing, electrical, sewage and heating, ventilating and air conditioning ("HVAC") lines and ducts in or passing through the Premises that serve other tenants in the Building or that are located outside the Premises but that serve the Premises. Landlord shall in addition make such repairs, 14 replacements or modifications of building structure or component systems as are required by law as of the Commencement Date, regulation or ordinance pertaining to the Premises which are not due or attributable to Tenant's specific manner of operating in the Premises. In making any repairs hereunder, Landlord shall not unreasonably interfere with Tenant's normal operations in the Premises. 9.2 Tenant's Repairs. Subject to the provisions of Section 9.1 ---------------- hereinabove and Landlord's warranty and representation that the Premises and all the systems therein will be in good condition and repair as of the Commencement Date, Tenant shall be responsible for interior, non-structural repairs to the Premises including, without limitation, the repair of component systems serving only the Premises, entries, doors, windows, fire sprinklers, fire protection systems, etc., unless any such repairs or replacements are necessitated by Landlord's failure to promptly perform its obligations hereunder, by damage caused by the wrongful acts or negligence of Landlord, its employees, agents and contractors, or by damage by fire or other casualty for which Landlord is responsible for repairing pursuant to this Lease. In light of the substantial costs of replacing any portions of the Premises' HVAC system, the parties hereby agree that in the event such system requires any replacement during the last five (5) years of the Initial Term, Landlord shall reimburse Tenant on the expiration or earlier termination of this Lease for the unamortized portion of such expense based on the date of installation of such equipment and the useful life of such equipment, provided that such equipment is not user specific or that such equipment is not replaced as a result of damage caused by Tenant's actions or inactions. 9.3 Alterations. Tenant shall have the right to make such alterations to ----------- the Premises as Tenant shall from time to time deem necessary for the operation of Tenant's business provided that (i) Tenant shall first obtain Landlord's prior written consent, (ii) Tenant shall perform such work at Tenant's sole expense, (iii) such alterations shall not impair the structural integrity or diminish the value of the Premises, and (iv) Tenant provides Landlord with AS Built plans for such alterations and agrees to remove same, at Landlord's request, upon expiration or termination of this Lease. Landlord shall execute all necessary instruments required to obtain licenses and permits to make such alterations from the applicable governmental authorities. All 15 alterations, additions and improvements made by Tenant to the Premises ("betterments and improvements") remaining in the Premises after the expiration or other termination hereof shall become the property of Landlord upon the termination of this Lease without any compensation to Tenant and shall be surrendered at such time as a part of the Premises. 9.4 Liens. Each party hereto shall promptly pay when due the entire cost ----- of all work done by it to the Premises and shall keep the Premises free of liens for labor or materials. Should mechanics', materialmen's or other liens be filed against the Premises by reason of the acts of either party hereto, such party shall cause the lien to be canceled and discharged of record by bond or otherwise within thirty (30) days of receiving actual notice of such lien. 9.5 Trade Fixtures. Any trade fixtures, furniture and equipment that -------------- Tenant installs in the Premises at its expense prior to or during the Term hereof shall remain Tenant's property, and may be removed by Tenant, as long as Tenant repairs any damage to the Premises caused by such removal and Tenant is not in default under this Lease. ARTICLE X --------- INSURANCE 10.1 Landlord's Insurance. Landlord shall at all times maintain general -------------------- commercial liability insurance covering the Park, including but not limited to the Common Areas thereof against claims for personal injury and damage to property naming Tenant as an additional insured under a policy, with minimum limits of $1,000,000 for personal injury or death per person, $5,000,000 per occurrence and not less than $500,000 for property damage or a single limit policy in the minimum amount of $5,000,000. In addition, Landlord shall carry and maintain all-risk (Special Form) property insurance, covering the Building for the full replacement cost thereof. Landlord shall also maintain Workers' Compensation or similar insurance to the extent required by law. Throughout Landlord's construction and thereafter throughout the term of this Lease, Landlord shall maintain liability insurance in amounts reasonably acceptable to Tenant. 10.2 Tenant's Insurance. Tenant shall maintain a policy of general ------------------ commercial liability covering the Premises with minimum 16 limits of $1,000,000 for personal injury or death per person, $5,000,000 per occurrence and not less than $500,000 for property damage or a single limit policy in the minimum amount of $5,000,000. Tenant shall keep in force Workers' Compensation or similar insurance to the extent required by law. Notwithstanding anything to the contrary contained herein, as long as Tenant's net worth (or the net worth of any party guaranteeing Tenant's obligations under this Section 10.2) is at least $100,000,000.00, Tenant shall have the right to self insure part or all of any of the aforesaid insurance coverages in its sole discretion. In the event that Tenant elects to self insure all or any part of any risk that would be insured under the policies and limits described above, and an event occurs where insurance proceeds would have been available but for the election to self insure, Tenant shall make funds available to the same extent that they would have been available had such insurance policy been carried by a third party insurance company; in addition, Tenant shall indemnify Landlord and hold Landlord harmless from any losses attributed to Tenant's failure to timely make all such funds available. Notwithstanding the foregoing provisions permitting Tenant's self insurance, in the event that, at any time, Landlord's lender(s) and/or the Park insurance provider(s) require that Tenant obtain the requisite insurance from a third party insurance company, Tenant shall do so. 10.3 Insurance Certificates. All of the foregoing insurance policies ---------------------- referred to or described in Sections 10.1 and 10.2 above shall be written with companies licensed to do business in the state in which the Premises are located with a financial rating of VIII or better and a policyholder's rating of A- or better in the latest edition of Best's Rating Guide on Property and Casualty -------------------------------------------- Insurance Companies and shall provide that the other party hereto shall be given - ------------------- a minimum of ten (10) days' written notice by any such insurance company prior to the cancellation, termination or alteration of the terms or limits of such coverage. Each party shall deliver to the other party hereto the foregoing insurance policies or certificates thereof at or prior to the date that same are required to be in effect and evidence of all renewals or replacements of same not less than ten (10) days prior to the expiration date of such policies. All such policies may be maintained under a blanket insurance policy of Landlord or Tenant. 17 10.4 Mutual Release and Waiver of Subrogation. Landlord and Tenant hereby ---------------------------------------- release each other and anyone claiming through or under the other by way of subrogation or otherwise from any and all liability for any loss of or damage to property, whether caused by the negligence or fault of the other party to the extent of the property insurance required to be carried by the waiving party hereunder. In addition, Landlord and Tenant shall cause each insurance policy carried by them insuring any of the improvements on the Land or the contents thereof, to be written to provide that the insurer waives all rights of recovery by way of subrogation against the other party hereto (and any mortgagee of such party) in connection with any loss or damage covered by the policy. If no responsible and qualified insurer will provide a waiver of subrogation without extra charge or premium, then the insuring party shall inform the other party that such additional charge or premium is required and said other party may elect to (a) pay such extra charge or premium or (b) waive the requirement for the waiver of subrogation (in which case the waivers of claim set forth herein shall be ineffective to the extent that same would void, invalidate or otherwise vitiate any insurance coverage). In case such waiver cannot be obtained, even at an additional cost, then item (b) in the immediately preceding sentence shall become effective. Any liability insurance coverage carried by either party hereto shall name the other party and, upon request, any lender of such other party as additional insured thereunder and each party hereby waives claims arising from the other party's negligence to the extent of such insurance coverage. 10.5 Mutual Indemnification. Tenant and Landlord agree to indemnify and ---------------------- hold each other harmless from and against any and all claims, damages or causes of action for damages brought on account of injury to any person or persons or property, or loss of life, arising out of (i) the failure to comply with its obligations hereunder by Landlord or Tenant, respectively, or (ii) the use, operation or maintenance of the Premises by Tenant or by the use, operation or maintenance of the remainder of the Building and other improvements on the Land by Landlord, except for matters arising from the gross negligence or willful misconduct of the party seeking indemnification. Notwithstanding any other provisions set forth herein, the parties hereby agree that in the event of any damage to a party, including all personal and property damages and losses to a party's employees or invitees, each party shall resort to any and all insurance coverage available prior to asserting any 18 claim or demand against the other party or its assets. No insurer is meant to be a third party or other beneficiary of any provision contained in this Lease. ARTICLE XI ---------- DAMAGE OR DESTRUCTION 11.1 Damage and Destruction. Except as otherwise provided herein, if the ---------------------- Premises are damaged by fire or other casualty, the damage shall be promptly repaired by Landlord to the extent of the insurance proceeds available therefor, plus any deductible maintained with respect to Landlord's property insurance. Until repairs to the Premises are completed by Landlord, rent and all other amounts payable by Tenant hereunder shall be abated in proportion to the part of the Premises, if any, which is unusable by Tenant in the conduct of its business. If: (a) the Premises is damaged to the extent of more than fifty percent (50%) of the replacement cost thereof; or (b) the Park or the Building is damaged by fire or other insured casualty to the extent of thirty-five percent (35%) or more of the replacement cost thereof; or (c) any damage to the Premises cannot be repaired within one hundred twenty (120) days of the date of such damage; or (d) the Premises is materially damaged or destroyed during the last eighteen (18) months of the term hereof; then Landlord may terminate this Lease by written notice to Tenant given within thirty (30) days after the occurrence of the casualty, time being of the essence, subject to Tenant's right to exercise an Extension Option as to item (d). Landlord's repair of the Premises shall not include any of Tenant's trade fixtures or other personal property or any of Tenant's betterments or improvements to the Premises. If (a) the Premises is materially damaged or destroyed during the last eighteen (18) months of the term hereof or (b) any damage to the Premises cannot be repaired within one hundred twenty (120) days of the date of such damage; then Landlord may terminate this Lease by written notice to Tenant, given within thirty (30) days after the occurrence of the casualty, unless Tenant exercises an Extension Option(s) the term of which is no less than 80% of the economic life of the tenant improvements to be constructed. In addition, in the event that the Premises is 19 materially damaged or destroyed during the last eighteen (18) months of the term hereof and such damage cannot be repaired within one hundred twenty (120) days of the date of such damage; then Tenant may terminate this Lease by written notice to Landlord, given within thirty (30) days after the occurrence of the casualty, provided, that (i) upon expiration of said one hundred twenty day period and during the delay period, Landlord is unable to provide Tenant with additional temporary space in the Park of approximately the same size as the portion of the Premises that are being restored and (ii) Landlord is unable to complete the restoration within a reasonable period of time following said one hundred twenty day period. 11.3 Termination. In the event of any termination of this Lease as the ----------- result of the provisions of this ARTICLE XI, the parties, effective as of such termination, shall be released, each to the other, from all liability and obligations thereafter arising under this Lease. ARTICLE XII ----------- EMINENT DOMAIN 12.1 Condemnation. If after the execution of this Lease and prior to the ------------ expiration of the term hereof, the whole (or substantially the whole) of the Premises shall be taken under power of eminent domain by any public or private authority, or conveyed by Landlord to said authority in lieu of such taking, then this Lease and the term hereof shall cease and terminate as of the date of such taking, subject, however, to the right of Tenant, at its election, to continue to occupy the Premises, subject to the terms and provisions of this Lease, for all or such part, as Tenant may determine, of the period between the date of such taking and the date when possession of the Premises shall be taken by the taking authority and any unearned rent or other charges, if any, paid in advance, shall be refunded to Tenant. 12.2 Termination Right. If, after the execution of this Lease and prior to ----------------- the expiration of the term hereof, any taking under the power of eminent domain by a public or private authority or any conveyance by Landlord in lieu thereof, shall result in a taking of more than 20% of the total square footage of the Premises and Landlord is unable to deliver alternate space within the Park similar in size to the portion of the Premises taken, then Tenant may, at its election, terminate this 20 Lease by giving Landlord notice of the exercise of Tenant's election within ninety (90) days after the date when possession of the Premises shall be taken by the appropriating authority, time being of the essence 12.3 Rent Abatement. In the event of a taking in respect of which Tenant -------------- shall not have the right to elect to terminate this Lease or, having such right, shall not elect to terminate this Lease, this Lease and the term thereof shall continue in full force and effect and Tenant shall be entitled to a proportionate reduction of the rent and any other charges payable by Tenant hereunder, based on the square footage of the Premises taken under the power of eminent and the total square footage of the Premises prior to such taking. 12.4 Award. All compensation awarded for any taking, whether for the whole ----- or a portion of the Premises, shall belong to Landlord; provided that Tenant shall be entitled to any award made, whether to Landlord or to Tenant, for the unamortized cost of Tenant's betterments and improvements installed at Tenant's Cost, moving expenses and the value of Tenant's trade fixtures and further provided that Tenant may apply for and receive an award for the loss of Tenant's leasehold estate so long as such award in no way diminishes any award to Landlord or to any mortgagee of Landlord with respect to Landlord's remainder. 12.5 Termination. In the event of any termination of this Lease as the ----------- result of the provisions of this ARTICLE XII, the parties, effective as of such termination, shall be released, each to the other, from all liability and obligations thereafter arising under this Lease. ARTICLE XIII ------------ ENVIRONMENTAL MATTERS 13.1 Environmental Remediation. To the best of Landlord's knowledge, ------------------------- Landlord shall deliver the Premises to Tenant on the Commencement Date free of all Hazardous Substances (hereinafter defined) to the extent necessary to be in compliance with all environmental and other laws related to health and safety and so as to allow Tenant to operate in the Premises for its intended use hereunder without impairment, interruption, interference, liability or additional cost or expense with respect to any Hazardous Substance. 21 "Hazardous Substances" for purposes of this Lease shall be interpreted broadly to include, but not be limited to, any material or substance that is defined or classified under federal, state, or local laws as: (a) a "hazardous substance" pursuant to section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)1321(14), section 311 of the Federal Water Pollution Control Act, 33 U.S.C. (S)1321, as now or hereafter amended; (b) a "hazardous waste" pursuant to section 1004 or section 3001 of the Resource Conservation and Recovery Act, 42 U.S.C. (S)6903, 6921, as now or hereafter amended; (c) a toxic pollutant under section 307(a)(1) of the Federal Water Pollution Control Act, 33 U.S.C. (S)1317(a)(1); (d) a "hazardous air pollutant" under section 112 of the Clean Air Act, 42 U.S.C. (S)7412, as now or hereafter amended; (e) a "hazardous material" under the Hazardous Materials Transportation Uniform Safety Act of 1990, 49 U.S.C. App. (S)1802(4), as now or hereafter amended; (f) toxic or hazardous pursuant to regulations promulgated now or hereafter under the aforementioned laws; or (g) presenting a risk to human health or the environment under other applicable federal, state or local laws, ordinances, or regulations, as now or as may be passed or promulgated in the future (all of the foregoing laws, ordinances, regulations and other governmental strictures and guidelines pertaining to the environment, health and safety being herein sometimes referred to as the "Environmental Requirements"). "Hazardous Substances" specifically include, but are not limited to, asbestos, polychlorinated biphenyls ("PCBs"), radioactive substances, petroleum and petroleum-based derivatives, hydrocarbons and urea formaldehyde. 13.2 Tenant Covenant and Indemnity. Tenant shall not cause or permit the ----------------------------- storage, use, escape, disposal or release of Hazardous Substances in any manner not in compliance with the Environmental Requirements; provided, however, that nothing herein shall prevent Hazardous Substances to be brought onto the Premises in the ordinary course of Tenant's business, as long as such presence is in compliance with the Environmental Requirements. Tenant shall indemnify and hold harmless Landlord against and from any liability, claim of liability, claims, suits, costs, expenses, causes of action, personal liability and property damage (including without limitation Landlord's attorney's fees) arising out of a breach by Tenant of its covenant in the preceding sentence. The foregoing covenants and indemnities shall survive the expiration or earlier termination of this Lease; provided, however, that Tenant shall not be 22 required to indemnify Landlord from any matter arising from Landlord's gross negligence or willful misconduct. 13.3 Landlord Covenant and Indemnity. Landlord shall not cause or permit ------------------------------- the storage, use, escape, disposal or release of Hazardous Substances in, on or with respect to the Land in any manner not in compliance with the Environmental Requirements provided, however, that nothing herein shall prevent Hazardous Substances to be brought onto the Land in the ordinary course of Landlord's business or the businesses of Landlord's other Tenants, as long as such presence is in compliance with the Environmental Requirements. Landlord shall indemnify and hold Tenant harmless against and from any liability, claim of liability, claims, suits, costs, expenses, causes of action, personal liability and property damage (including without limitation reasonable attorney's fees) arising out of a breach by Landlord of its covenant in the preceding sentence. Further, Landlord shall indemnify and hold Tenant harmless against and from any liability, claim of liability, claims, suits, costs, expenses, causes of action, personal liability and property damage (including without limitation reasonable attorney's fees) arising out of a breach by Landlord of its representations, warranties and covenants in Section 13.1 above. The foregoing covenants and indemnities in this Section 13.3 shall survive the expiration or earlier termination of this Lease; provided, however, that Landlord shall not be required to indemnify Tenant from any matter arising from Tenant's gross negligence or willful misconduct. Landlord shall not be liable to Tenant under this Section 13.3 with respect to the acts of other tenants of Landlord, unless same results from Landlord's gross negligence or willful misconduct; provided, however, that if any Hazardous Substances brought onto the Land by such other tenants materially adversely affects the ability to use the Premises for the use contemplated hereunder, then Tenant may terminate this Lease by written notice to Landlord, unless Landlord agrees to promptly abate such interference. ARTICLE XIV ----------- DEFAULT 14.1 Remedies Upon Tenant's Default. In the event Tenant shall at any time ------------------------------ be in default in the payment of rent or other charges herein required to be paid by Tenant or in the observance or performance of any of the other covenants and 23 agreements required to be performed and observed by Tenant hereunder and any such default shall continue for a period of ten (10) days following the date such payment was due for monetary obligations and thirty (30) days after written notice to Tenant for all other obligations (or if such default is incapable of being cured in a reasonable manner within thirty (30) days then if Tenant has not commenced to cure the same within said thirty (30) day period and thereafter diligently prosecutes the same to completion), then Landlord shall be entitled at its election, to exercise concurrently or successively, any one or more of the following rights: (a) to bring suit for the collection of the rent or other amounts for which Tenant may be in default, or for the performance of any other covenant or agreement devolving upon Tenant, all without entering into possession or terminating this Lease; (b) to re-enter the Premises with process of law and take possession thereof, without thereby terminating this Lease, and thereupon Landlord may expel all persons and remove all property therefrom, without becoming liable to prosecution therefor, and relet the Premises and receive the rent therefrom, applying the same first to the payment of the reasonable expenses of such re-entry and the reasonable cost of such reletting, and then to the payment of the monthly rental accruing hereunder, the balance, if any, to be paid to Tenant. Tenant shall remain liable for any deficiency after such application. (c) to terminate this Lease, re-enter the Premises and take possession thereof. In the event Landlord shall elect to terminate this Lease, as aforesaid, all rights and obligations of Landlord, and of any permitted successors or assigns, shall cease and terminate, except that Landlord shall have and retain full right to sue for and collect all rents and other amounts for the payment of which Tenant shall then be in default, and all damages to Landlord by reason of any such breach, and Tenant shall surrender and deliver up the Premises to Landlord and upon any default by Tenant in so doing, Landlord shall have the right to recover possession by summary proceedings or otherwise and to apply for the appointment of a receiver and for other ancillary relief in such action, and Landlord shall again 24 have and enjoy the Premises, fully and completely, as if this Lease had never been made. In addition to Landlord's other remedies hereunder, if Tenant defaults in the performance of any obligation imposed on it by this Lease and does not cure such default within twenty (20) days after written notice from Landlord specifying the default (or does not within said period commence and diligently proceed to cure such default), Landlord, without waiver of or prejudice to any other right or remedy it may have, shall have the right, at any time thereafter, to cure such default for the account of the Tenant, and Tenant shall reimburse Landlord upon invoice for any amount paid and any expense or contractual liability so incurred. In the event of emergencies, or where necessary to prevent injury to persons or damage to property or to mitigate damages, Landlord may cure a default by Tenant before the expiration of the waiting period, but after giving such written or oral notice to Tenant as is practical under all of the circumstances. If Tenant fails to reimburse Landlord within ten (10) days after receipt of invoice, then Tenant shall also pay to Landlord interest thereon at the hereinafter defined Default Rate from date of disbursement. 14.2 Remedies Upon Landlord's Default. In the event that Landlord shall at -------------------------------- any time be in default in the observance or performance of any of the covenants and agreements required to be performed and observed by Landlord hereunder and any such default shall continue for a period of thirty (30) calendar days after written notice to Landlord (or if such default is incapable of being cured in a reasonable manner within thirty (30) calendar days then if Landlord has not commenced to cure the same within said thirty (30) calendar day period and thereafter diligently prosecutes the same to completion) and Landlord shall not thereafter cure such default, Tenant shall be entitled at its election, to bring suit for the collection of any amounts for which Landlord may be in default, or for the performance of any other covenant or agreement devolving upon Landlord, in addition to all remedies otherwise provided in this Lease and otherwise available in law or equity under the laws of the United States or the State or Commonwealth in which the Premises are located. In addition to all of Tenant's other remedies hereunder, if Landlord defaults in the performance of any obligation imposed on it by this Lease pertaining exclusively to the Premises and 25 not to any other part of the Park, and does not cure such default within twenty (20) days after written notice from Tenant specifying the default (or does not within said period commence and diligently proceed to cure such default), Tenant, without waiver of or prejudice to any other right or remedy it may have, shall have the right, at any time thereafter, to cure such default for the account of the Landlord, and Landlord shall reimburse Tenant upon invoice for any amount paid and any expense or contractual liability so incurred. If Landlord fails to reimburse Tenant within ten (10) days after invoice, then Tenant shall have the right to offset the amount due thereunder, together with interest at the Default Rate (as defined in Section 14.3 hereinbelow) from the date of disbursement against all rent and other charges due from Tenant to Landlord under this Lease until Tenant has been completely reimbursed for its expenses. In the event of emergencies, or where necessary to prevent injury to persons or damage to property or to mitigate damages, Tenant may cure a default by Landlord before the expiration of the waiting period, but after giving such written or oral notice to Landlord as is practical under all of the circumstances. 14.3 Attorneys' Fees; Remedies. In the event that either Landlord or ------------------------- Tenant commences any suit for the collection of any amounts for which the other may be in default or for the performance of any other covenant or agreement hereunder, the other party shall pay all reasonable attorneys' fees and other expenses incurred by the prevailing party enforcing such obligations and/or collecting such amounts, plus interest thereon at the highest legal rate not to exceed eighteen (18%) percent per annum (the "Default Rate"). All remedies of Landlord and/or Tenant herein created or remedies otherwise existing at law or equity are cumulative and the exercise of one or more rights or remedies shall not be taken to exclude or waive the right to the exercise of any other. All such rights and remedies may be exercised and enforced concurrently and whenever and as often as Landlord and/or Tenant shall, as applicable, deem necessary. In addition, Tenant shall be responsible for all reasonable attorneys' fees and other expenses incurred by Landlord in enforcing or seeking to enforce this Lease as a result of a default hereunder by Tenant. 26 ARTICLE XV ---------- QUIET ENJOYMENT; LANDLORD'S AND TENANT'S REPRESENTATIONS AND WARRANTIES 15.1 Covenants and Warranties. Landlord covenants and warrants that ------------------------ Landlord has good right and full power to let and lease the Premises and to enter into the agreements contained herein. Landlord agrees that, if and as long as Tenant is not in default after the applicable grace periods and any notice required under the terms hereof, Tenant shall quietly and peaceably hold, possess and enjoy the Premises for the full term of this Lease without any hindrance or molestation by Landlord or its agents or employees, and Landlord shall defend the use and occupancy of the same by Tenant against the lawful claims of all persons whomsoever, except with respect to such matters of title as affect the Premises as of the date hereof, pursuant to the title search attached hereto as Exhibit "D" (the "Permitted Exceptions"). Landlord shall ----------- execute and deliver such affidavits, certificates and other documents as may be reasonably requested by Tenant or Tenant's title insurance company to permit Tenant to obtain a title policy issued by the Title Company insuring Tenant's leasehold interest on the Premises in an amount reasonably satisfactory to Tenant, subject only to the Permitted Exceptions. Landlord covenants, warrants and represents that such matters of title, either individually or in the aggregate, do not and shall not materially interfere with Tenant's use of the Premises contemplated hereunder. 15.2 Landlord's Representations and Warranties. Landlord makes the ----------------------------------------- following representations, warranties and covenants to Tenant: (a) Landlord has complete and full authority to execute this Lease subject to the provisions hereof. (b) To Landlord's knowledge and belief, neither the entering into of this Lease nor the consummation of the transaction contemplated hereby will constitute or result in a violation or breach by Landlord of any judgment, order, writ, injunction or decree issued against or imposed upon it, or will result in a violation of any applicable law, order, rule or regulation of any governmental authority. 27 (c) Landlord has no knowledge of, nor has Landlord received any notice of, any actual or threatened action, litigation, or proceeding by any organization, person, individual or governmental agency (including governmental actions under condemnation authority or proceedings similar thereto) against the Land, the Building or Landlord, nor has any such organization, person, individual or governmental agency communicated to Landlord anything which Landlord believes to be a threat of any such action, litigation or proceeding. (d) The parties executing this Lease on behalf of Landlord have the power and authority to make the provisions hereof the legal, valid and binding obligations of Landlord. 15.3 Tenant's Representations and Warranties. Tenant makes the following --------------------------------------- representations, warranties and covenants to Landlord: (a) Tenant has complete and full authority to execute this Lease subject to the provisions hereof. (b) To Tenant's knowledge and belief, neither the entering into of this Lease nor the consummation of the transaction contemplated hereby will constitute or result in a violation or breach by Tenant of any judgment, order, writ, injunction or decree issued against or imposed upon it, or will result in a violation of any applicable law, order, rule or regulation of any governmental authority. (c) The parties executing this Lease on behalf of Tenant have the power and authority to make the provisions hereof the legal, valid and binding obligations of Tenant. 28 ARTICLE XVI ----------- SUBORDINATION 16.1 Subordination and Attornment. This Lease shall be subordinate to the ---------------------------- lien of any present or future mortgage upon the Premises; on the condition, however, that the holder of any present or future mortgage upon the Premises (the "Mortgagee") shall enter into a subordination, non-disturbance and attornment agreement ("SNDA") with Tenant, on Mortgagee's form of SNDA agreement, providing that in the event of foreclosure or other action or exercise of rights taken under the mortgage by Mortgagee, this Lease and all of the rights of Tenant hereunder shall not be disturbed, but shall continue in full force and effect. As used herein, "mortgage" shall include mortgages, deeds of trust, deeds to secure debt or other similar financing instruments. Landlord shall provide Tenant with the SNDA for any mortgage now affecting the Premises prior to the Commencement Date. ARTICLE XVII ------------ TRANSFERS BY AND LIABILITY OF LANDLORD 17.1 Transfers of Landlord's Interest. No transfer or sale of Landlord's -------------------------------- interest in the Premises or hereunder shall release Landlord from any of its obligations or duties hereunder prior thereto. Notwithstanding the foregoing, Landlord shall be released of any ongoing obligations hereunder from and after the date of such transfer upon the assumption of all such obligations and duties by the transferee of Landlord. 17.2 Landlord's Liability. Landlord's liability for its obligations -------------------- hereunder with respect to any monetary payment shall be limited to Landlord's interest in the Park and the Building and other buildings and improvements thereon, including without limitation the rents, insurance proceeds, sales proceeds and condemnation awards therefrom. ARTICLE XVIII ------------- MISCELLANEOUS 18.1 Holding Over. In the event of Tenant's continued occupancy of the ------------ Premises after the expiration of the term of this Lease or any renewal or extension thereof, or any earlier termination provided or permitted by this Lease, with the 29 consent of Landlord such tenancy shall be from month-to-month at double the Base Rent in effect on the termination date, computed on a monthly basis for each month or part thereof during such holding over, and such continued occupancy shall not defeat Landlord's right to possession of the Premises. All other covenants, provisions, obligations and conditions of this Lease shall remain in full force and effect during such month-to-month tenancy, except that the legal rights of the parties shall be governed by the principles of a month-to-month tenancy, including without limitation termination or change in rent upon thirty (30) days notice. 18.2 Non-Waiver of Default. No acquiescence by either party to any default --------------------- by the other party hereunder shall operate as a waiver of its rights with respect to any other breach or default, whether of the same or any other covenant or condition. 18.3 Recording. Neither this Lease nor any memorandum thereof may be --------- recorded in the public records of Broward County, Florida. 18.4 Notice. Any notice or consent required to be given by or on behalf of ------ any party hereto to any other party shall be in writing and sent by facsimile with written confirmation of transmittal, mailed by registered or certified mail/return receipt requested, or sent by air courier or expedited mail service or personal delivery, addressed as follows: If to Tenant: Aladdin Manufacturing Corporation 160 South Industrial Boulevard Calhoun, Georgia 30701 Att: Salvatore J. Perillo, Esq. Facsimile: 1-706-624-2483 With a copy to: Robert Adrian, Regional Manager Aladdin Manufacturing Corporation 1320 NW 163rd Street Miami, Florida 33169 Facsimile: (305) 620-7341 If to Landlord: Seneca G&H, L.L.C. 2901 SW 8th Street 30 Suite 204 Miami, Florida 33135 Attention: Jose R. Boschetti and Charles R. Abele, Jr. Facsimile: (305) 541-1314 With a copy to: Ricardo L. Fraga, Esq. Greenberg Traurig, P.A. 1221 Brickell Avenue Suite 2100 Miami, Florida 33131 Facsimile: (305) 579-0717 or at such other address as may be specified from time to time in writing. All such notices hereunder shall be deemed to have been given on the date of delivery or the date marked on the return receipt unless delivery is refused or cannot be made, in which case the date of postmark shall be deemed the date notice has been given. 18.5 Successors and Assigns. All covenants, promises, conditions, ---------------------- representations, and agreements herein contained shall be binding upon, apply, and inure to the parties hereto and their respective heirs, executors, administrators, successors, and permitted assigns. 18.6 Time is of the Essence. Time is of the essence hereof. ---------------------- 18.7 Partial Invalidity. If any provision of this Lease or the application ------------------ thereof to any person or circumstance shall to any extent be held invalid, then the remainder of this Lease or the application of such provision to persons or circumstances other than those as to which it is held invalid shall not be affected thereby, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by law. 18.8 Interpretation. In interpreting this Lease in its entirety, the -------------- printed provisions of this Lease and any additions written or typed thereon shall be given equal weight, and there shall be no inference, by operation of law or otherwise, that any provision of this Lease shall be construed against either party hereto. This Lease constitutes the complete agreement of Landlord and Tenant with respect to the subject matter hereof. No representations, inducements, promises or agreements, oral or 31 written, have been made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant, which are not contained herein, and any prior agreements, promises, negotiations, or representations are superseded by this Lease. This Lease may not be amended except by an instrument in writing signed by both parties hereto. 18.9 Headings, Captions and References. The section captions contained in --------------------------------- this Lease are for convenience only and do not in any way limit or amplify any term or provision hereof. The use of the terms "hereof," "hereunder" and "herein" shall refer to this Lease as a whole, inclusive of the Exhibits (including the Agreement), except when noted otherwise. The use of the masculine or neuter genders herein shall include the masculine, feminine and neuter genders and the singular form shall include the plural when the context so requires. 18.10 Brokerage Commissions. Landlord and Tenant each warrants and --------------------- represents to the other that there are no brokers, finders fees or any real estate commissions due to any broker, agent or other party in connection with the negotiation or execution of this Lease or on behalf of either of them except for William Webb & Associates, Inc. and Cushman & Wakefield of Florida, Inc. (collectively "Broker"), which shall be paid a commission by Landlord pursuant to a separate agreement. Under no circumstances shall Tenant be obliged to make any payment to Broker. Landlord and Tenant hereby agree to indemnify and hold the other harmless from and against any and all costs, expenses, liabilities, causes of action, claims or suits by any party for compensation, commissions, fees or other sums (including without limitation reasonable attorney's fees) claimed to be due or owing with respect to the representation of Landlord or Tenant as applicable, in effecting this Lease. William Webb & Associates represented Tenant. Cushman & Wakefield represented Landlord. 18.11 Time. Whenever the last day for the exercise of any privilege or the ---- discharge of any duty hereunder shall fall upon a Saturday, Sunday or any public or legal holiday, the party having such privilege or duty shall have until 5:00 p.m. on the next succeeding business day to exercise such privilege or to discharge such duty. 18.12 Estoppel Certificate. Either party agrees that within fifteen (15) -------------------- days following request therefor by the other 32 party to execute and deliver to the requesting party a statement, certifying to its actual knowledge (a) whether or not this Lease is in full force and effect, (b) the date of commencement and termination of the term of this Lease, (c) the date to which rental and all other charges hereunder are paid currently without any offset or defense thereto (or stating any such offset or defense), (d) the amount of rental and all other charges hereunder, if any, paid in advance, (e) whether or not this Lease has been modified and, if so, identifying the modifications, (f) that there are no uncured defaults by the other party or describing the claimed defaults and (g) such other matters as the requesting party shall reasonably request. Nothing in any such estoppel statement shall be deemed to modify or amend this Lease. 18.13 Governing Law. This Lease shall be construed under the laws of the ------------- State of Florida. 18.14 Force Majeure. In the event that either party shall be delayed or ------------- hindered in, or prevented from, the performance of any work, service, or other act required under this Lease to be performed by the party (other than monetary obligations) and such delay or hindrance is due to strikes, lockouts, acts of God, governmental restrictions, enemy act, civil commotion, unavoidable fire or other casualty, or other causes of a like nature beyond the reasonable control of the party so delayed or hindered (a "Force Majeure Event"), then performance of such work, service, or other act shall be excused for the period of such delay and the period for the performance of such work, service, or other act shall be extended for a period equivalent to the period of such delay. Lack of financial resources on the part of either party shall not be a Force Majeure Event. 18.15 Radon Gas. RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN ---------- IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC HEALTH UNIT. [NOTE: THIS PARAGRAPH IS PROVIDED FOR INFORMATIONAL PURPOSES PURSUANT TO FLORIDA STATUTES.] 18.16 Special Stipulations. If any Schedule of Special Stipulations is -------------------- attached hereto and if there is any conflict 33 with the provisions hereof, then the Special Stipulations shall govern and control. 18.17 Guaranty. At the time that this Lease is executed by Tenant, Tenant -------- shall procure that Tenant's parent company (Mohawk Industries, Inc.) executes and delivers Landlord's form of unconditional guaranty in favor of Landlord, unconditionally guarantying the payment and performance of all of Tenant's obligations under this Lease, as same may be amended by mutual written agreement executed by Landlord and Tenant. 18.18 Signs. Tenant shall not make any changes to the exterior of the ----- Premises, install any exterior lights, decorations, balloons, flags, pennants, banners, or painting, 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 of the Premises, without Landlord's prior written consent. 18.19 Access. Landlord and its agents, representatives, and contractors may ------ enter the Premises at any reasonable time to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease and for any other business purpose. Landlord and Landlord's representatives may enter the Premises during business hours for the purpose of showing the Premises to prospective purchasers and, during the last year of the Initial Term or any Extension Term, to prospective tenants, provided, that such showings do not materially interfere with Tenant's business and further provided, that Landlord gives Tenant at least 24 hours prior notice of such showings. Landlord may erect a suitable sign on the Premises stating the Premises are available to let or that the Project is available for sale. Landlord may grant easements, make public dedications, designate common areas and create restrictions on or about the Premises, provided that no such easement, dedication, designation or restriction materially interferes with Tenant's use or occupancy of the Premises. At Landlord's request, Tenant shall execute such instruments as may be necessary for such easements, dedications or restrictions. 18.20 Waiver of Jury Trial. TENANT AND LANDLORD WAIVE ANY RIGHT TO TRIAL BY -------------------- JURY OR TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LANDLORD AND TENANT ARISING OUT OF THIS LEASE OR ANY OTHER INSTRUMENT, DOCUMENT, OR AGREEMENT EXECUTED OR 34 DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. 18.21 Net Lease. Landlord and Tenant acknowledge and agree that this Lease --------- is a net lease. In this regard, except as specifically provided herein, Tenant shall be responsible and shall pay Base Rent, Florida Sales Taxes pertaining to the Premises, and any and all costs, expenses and charges of any nature or kind whatsoever relating to the operation, maintenance, repair, associated administration of the Premises, or Tenant's use and occupation of the Premises. In addition, Tenant shall be responsible for its proportionate share of said charges with respect to the Common Areas. 18.22 Rules and Regulations. Tenant shall, at all times during the Initial --------------------- Terms and any extensions thereof, comply with all reasonable rules and regulations at any time or from time to time established by Landlord covering use of the Premises, the Building, and the Park. The current rules and regulations are attached hereto. In the event of any conflict between said rules and regulations and other provisions of this Lease, the other terms and provisions of this Lease shall control. Landlord shall not have any liability or obligation for the breach of any rules or regulations by other tenants in the Park. Landlord agrees not to establish and enforce any changes in the Rules and Regulations of the Park that would have a materially adverse effect on Tenant's operation of the Premises as anticipated under this Lease. 18.23 Constituent Documents. Within five (5) days following Tenant's --------------------- execution of this Lease, Tenant shall provide Landlord with an original certificate of good standing for Tenant and Guarantor from their State of formation; said certificate to be dated within thirty days of the date on which same is delivered to Landlord. In addition, within said five (5) days, Tenant shall also provide Landlord with a copy of its corporate resolutions and that of Guarantor authorizing Tenant to enter into the Lease and Guarantor to guarantee Tenant's obligations hereunder respectively and authorizing the individual signing the Lease and Guarantee on behalf of Tenant and Guarantor respectively to do so. 18.24 First Offer of Adjacent Space. During the term of this Lease, ----------------------------- provided that Tenant is not, and has not been, in default under the Lease, Landlord shall provide Tenant with 35 written notice of any available space adjacent to the Premises in the Building. Tenant shall have a right of first offer to lease such available adjacent space on substantially the same terms and conditions provided in this Lease. The terms and conditions of the new lease for such adjacent space shall be the same as those of this Lease except that (i) base rent under such lease during the first year thereof shall be equal to the rent then in effect under this Lease, subject to annual adjustments pursuant to this Lease, (ii) the term of such lease shall be for at least five years, (iii) Tenant shall accept delivery of such space in its then AS IS condition, and (iv) such lease shall not provide for a tenant improvement allowance. In the event that Tenant does not elect to exercise said right of first offer, in writing, within fifteen (15) days following Landlord's notice of such available adjacent space, Tenant shall be deemed to have waived such right with regard to such available adjacent space at that time, however, such waiver shall not affect Tenant's right of first offer with regard to such adjacent space in the event that it subsequently becomes available again during the term of this Lease. In addition, during the term of this Lease, in the event that Tenant desires to lease all of the Building space adjacent to the Premises (which adjacent space consists of an aggregate of approximately 70,055 square feet), and such space is occupied by other tenant(s), Landlord shall exercise diligent efforts to negotiate with such tenant(s) to have same relocated to other available space in the Park, provided, that same is at no cost to Landlord. Tenant shall bear all costs associated with such relocation and shall accept such space in its then AS IS condition. 18.25 Rules and Regulations. With respect to this Lease, the following --------------------- provision of paragraph 15 of the Rules and Regulations, shall be deemed to be deleted: "The Tenant shall furnish the Landlord, upon request, with the current license numbers of all vehicles owned or used by the Tenant or its employees or agents and the Tenant thereafter shall notify the Landlord of any changes in such numbers within five (5) days after the occurrence thereof." 18.26 Credit for Unused Tenant Improvement Allowance: In the event that ---------------------------------------------- the TI Cost is less than the Tenant Improvement Allowance ($786,132.99), Landlord agrees to reduce the Base Rent by 1 cent per square foot for each whole increment of $11,000.00 in cost savings, however, in no event shall the 36 Base Rent ever be less than $5.00 per square foot. In the event that Tenant elects to utilize all or part of the above credit, a new rent schedule which is now exhibit "C" in the lease Agreement will be created and executed by the parties at the time of the rent commencement. IN WITNESS WHEREOF this Lease has been executed as a sealed instrument as of the day and year first above written. LANDLORD: Witnesses: SENECA G&H, L.L.C., a Florida limited liability company /s/ Robert W. Adrian By: /s/ Charles Roabele, Jr. - ----------------------------- ----------------------------------- Name: Robert W. Adrian Name: Charles Roabele, Jr. ---------------------------------- /s/ William C. Webb III Title: Member - ----------------------------- --------------------------------- William C. Webb III (SEAL) TENANT: Witnesses: ALADDIN MANUFACTURING CORPORATION, a Delaware corporation /s/ Elaine Busbee By: /s/ Salvatore J. Perillo - ----------------------------- ----------------------------------- Name: Elaine Busbee Name: Salvatore J. Perillo ---------------------------------- /s/ Misty Young Title: Senior Counsel - ----------------------------- --------------------------------- Name: Misty Young (CORPORATE SEAL) 37 LIST OF EXHIBITS Exhibit "A-1" Legal Description of Land - ------------- Exhibit "A-2" Site Plan - ------------- Exhibit "A-3" Parking Area - ------------- Exhibit "B" Landlord's Improvements - ----------- Exhibit "C" Rent Schedule - ----------- Exhibit "D" Permitted Exceptions - ----------- 38 EXHIBIT "A-l" LEGAL DESCRIPTION OF LAND [To be provided by Landlord] EXHIBIT "A-1" "SKETCH OF LAND" [ARTWORK] EXHIBIT "A-2" "SITE PLAN" [ARTWORK] EXHIBIT "A-3" "PARKING AREA AND PREMISES" [ARTWORK] EXHIBIT "B" ----------- LANDLORD'S IMPROVEMENTS (WORK LETTER) Section B.1 Force and Effect. The provisions of this Exhibit: "B" shall ---------------- have the same force and effect as if this Exhibit "B" were within the body of the Lease. However, in the event that there are any contradiction(s) between the other terms or conditions of this Lease and this Exhibit "B", the terms of this Exhibit "B" shall prevail. Section B.2 Plans and Specifications. Landlord agrees, at Landlord's sole ------------------------ cost and expense (subject to reimbursement from Tenant as set forth below if costs exceed the Tenant Allowance), to perform the work ("Landlord's Work") required to complete the Tenant improvements described on Schedule B-1 hereto ------------- (the "Tenant Improvements"). If the Tenant Improvements have not yet been agreed to, then the plans and specifications (the "Plans and Specifications") therefor shall be agreed upon as described on Schedule B-1. Landlord's Work shall be ------------ completed and the Tenant Improvements installed and constructed in a good and workmanlike manner, with new materials, according to sound engineering practice and in compliance with law. Section B.3 Tenant Allowance and Tenant Contribution. The Tenant ---------------------------------------- Improvement Allowance shall be $786,132.99. In addition, for the purposes of this Work Letter, Landlord's costs shall only include costs of the Tenant Improvements and shall not include any costs for the base Building, the Common Areas or other aspects of the Park, all of which shall be constructed by Landlord at Landlord's sole cost and expense. In the event that the cost for the Tenant Improvements (the "TI Cost") will result in a cost in excess of the Tenant Improvement Allowance (such excess is hereinafter defined as the "Tenant Costs"), then Tenant may elect to revise the Plans and Specifications to reduce or eliminate such increase in costs; nevertheless, Tenant shall be solely responsible for the Tenant Costs. Notwithstanding anything herein to the contrary, to the extent Landlord incurs costs and expenses for matters attributable to Landlord's negligence or misconduct, Landlord shall pay all such costs, expenses and fees and all such costs, expenses and fees shall be excluded from the cost of Landlord's Work for the purposes of this Lease. Landlord shall also pay all of the following costs, fees and expenses, which costs, fees 1 and expenses shall also be excluded from the cost of Landlord's Work for the purposes of this Lease: (i) finance charges, (ii) architectural and engineering fees (excluding revision fees) (iii) the costs of any studies and reports, (including, but not limited to, soils and geology reports), (iv) the costs of any work with respect to the Premises, Building or the Park, other than for the Tenant Improvements, (v) any internal or direct administrative or supervisory costs incurred by Landlord for Landlord's staff, (vi) the cost of any building or other permit required for the base building, and (vii) costs and expenses of any plan check or similar fee and standard building permits and fees attributed to the base building, all of which Landlord shall pay at Landlord's cost and expense (and not as part of the Tenant Allowance). Section B.4 Commencement and Completion of Construction. Landlord shall ------------------------------------------- commence and substantially complete construction of the Landlord's Work in accordance with the Plans and Specifications with due diligence no later than the date provided for in the construction schedule subject only to force majeure. "Substantial Completion" shall mean that a certificate of occupancy or a temporary certificate of occupancy has been obtained for the Premises and that Landlord's Work is sufficiently complete so as to allow Tenant to occupy the Premises for the use and purposes intended without unreasonable disturbance or interruption; provided that Landlord, its employees, agents, and contractors, shall be allowed to enter upon the Premises at any reasonable time(s) following substantial completion as necessary to complete any unfinished details pursuant to a punchlist to be prepared by Tenant and delivered to Landlord within thirty (30) days following the date of substantial completion. Section B.5 Bid List. Prior to commencement of Landlord's construction of -------- the Tenant Improvements, Landlord and Tenant shall have agreed in writing to a list of up to three general contractors who shall be designated as the parties from whom bids will be sought to construct the Premises ("Bid List"), which list shall be incorporated herein and attached hereto as Schedule "B-3" (the "Bid -------------- List"). Each of such contractors shall be reasonably acceptable to both Landlord and Tenant and shall have substantial experience in the general construction industry in the area where the Park is located in connection with similar such projects and shall base their bids on the form of 2 construction contract provided to such contractors. Upon agreement as to the Plans and Specifications, Landlord shall submit same to the parties on the Bid List for their respective bids, and upon receipt of such bids, Landlord shall deliver to Tenant copies thereof. Unless Tenant shall otherwise designate, the lowest bidder shall be awarded the construction contract for Landlord's Work. Tenant shall have the right to designate the contractor to which the general construction contract is to be awarded, however, in such event, Tenant shall guaranty such contractor's timely completion and delivery of the work contracted for. Tenant shall have access to all of the information available in connection with the bids submitted in accordance with this Section B.5. Landlord shall notify Tenant prior to opening sealed bids and Tenant shall have the right to be present when such bids are opened. Notwithstanding anything herein to the contrary, Landlord may provide the bid that Landlord and Tenant have otherwise agreed to accept (the "Pending Approved Bid") to the base Building contractor and, in the event that the Base building contractor bids or revises its prior bid to match, or be less than the Pending Approved Bid, Landlord shall be entitled to select the base Building contractor's bid, in lieu of the Pending Approved Bid. Section B.6 Delivery of Possession of the Premises. Landlord shall deliver -------------------------------------- possession of the Premises to Tenant with the Tenant Improvements substantially completed and a permanent or temporary Certificate of Occupancy for the Premises no later than the Commencement Date. As of the Commencement Date, Landlord shall have completed the Common Areas necessary for the operation of the Premises for the use contemplated hereunder (i.e. roads providing access to and from the Premises, parking for the Premises, and utilities to the Premises). Section B.7 Delays. Notwithstanding anything herein to the contrary, the ------ Base Rent under the Lease shall be abated one day for each day the Commencement Date is delayed (excluding force majeure delays) by Landlord's failure to complete the Tenant Improvements (but not to the extent the delay is caused by Tenant and not in the event that Tenant designates the contractor to which the contract was awarded). This provision is not intended to limit Tenant's rights and remedies specified in the Lease, including, without limitation, those rights specified in this Work Letter. Section B.8 Workmanlike Manner, Information to Tenant. Landlord agrees to ----------------------------------------- ensure that all work to be done by Landlord 3 on the Premises is performed in a good and workmanlike manner. During the course of Landlord's construction, Landlord shall keep Tenant apprised of the progress of same, shall provide copies of existing reports and other documents relating to same upon request and shall permit Tenant to make such inspections and audits as Tenant may deem reasonably necessary or appropriate. Section B.9 Tenant Delays. Tenant shall be responsible for any delay ------------- (including associated costs) in the substantial completion of the Premises resulting from any of the following causes: (i) Tenant's failure to pay any portion of Tenant's Costs, as hereinafter defined, when due; or (ii) Tenant's specification of special materials or finishes, or special installations, which special items cannot be delivered or completed within Landlord's construction schedule (subject to Landlord's obligation to give Tenant prior notice of same at the time of such specification); or (iii) any change in the space plan and/or the plans and specifications caused by Tenant, even though Landlord may approve such change (Landlord agrees to estimate the delay to be caused by a change order, provided Tenant expressly requests such estimate at the time it requests a change order); or (iv) any other delay in substantial completion of the Tenant Improvements directly attributable to the negligent or willful acts or omissions of Tenant, its employees, or agents. If any delay caused by Tenant results in or contributes to a delay in substantial completion of the Premises, then substantial completion shall be deemed to have occurred as of the date Landlord would have otherwise achieved substantial completion, but for Tenant's delay. Landlord will specify in writing to Tenant the Tenant delay(s) which resulted in or contributed to a delay in substantial completion of the Premises. Section B.10 Tenant Costs. To the extent that the plans and specifications ------------ reflect the scope of work described by the space plan, then Landlord, at its expense not to exceed the Tenant Improvement Allowance set forth above, shall cause the 4 construction of the Tenant Improvements, using Landlord's building-standard methods and materials as modified by Tenant's pre-approved modifications to plans and specifications. To the extent that the revised construction budget exceeds the Tenant Improvement Allowance any such excess will be at Tenants expense ("Tenant's Costs"). Tenant's Costs shall be paid to Landlord as follows: (i) Prior to commencement of construction of the Tenant Improvements, Tenant shall pay Landlord an amount equal to fifty (50%) percent of the Tenant's Costs, as such amount is then determined by reference to the construction budget. (ii) When fifty (50%) of the Tenant Improvements are complete in accordance with the plans and specifications (as verified in writing by Landlord's architect), Tenant shall pay Landlord an amount equal to the remaining unpaid balance of Tenant's Costs as such amount can then be reasonably determined by Landlord based on available information. (iii) Within ten (10) days following Landlord's submittal to Tenant of a final accounting of Tenant's Costs, Tenant shall pay Landlord the then remaining balance of Tenant's Costs, or Landlord shall reimburse Tenant as to any excess amounts previously paid, as the case may be. Tenant's Costs represent a reimbursement of monies expended by Landlord on Tenant's behalf. Payment when due shall be a condition to Landlord's continued performance under this Work Letter. Any delay in construction of the Tenant Improvements or in Tenant taking occupancy of the Premises resulting from Tenant's failure to make any Tenant's Costs payments when due shall be Tenant's responsibility. Tenant's failure to pay any portion of Tenant's Costs when due shall constitute a default under the Lease (subject to any applicable notice requirements or grace periods). 5 EXHIBIT "C" RENT SCHEDULE MOHAWK TENANT MOHAWK INDUSTRIES SQUARE FOOTAGE 186,537 ANNUAL INFLATOR ("A") 3.00% ANNUAL INFLATOR ("B") 2.00% ANNUAL INFLATOR ("C") RATE PER SF $5.20 ANNUAL MONTHLY BASE RENT BASE RENT YEAR 1 $5.20 $ 969,992.40 $ 80,832.70 YEAR 2 $5.36 $ 999,092.17 $ 83,257.68 YEAR 3 $5.52 $l,029,064.94 $ 85,755.41 YEAR 4 $5.63 $1,049,646.24 $ 87,470.52 YEAR 5 $5.74 $1,070,639.16 $ 89,219.93 YEAR 6 $5.85 $1,092,051.94 $ 91,004.33 YEAR 7 $5.97 $1,113,892.98 $ 92,824.42 YEAR 8 $6.09 $1,136,170.84 $ 94,680.90 YEAR 9 $6.21 $1,158,894.26 $ 96,574.52 YEAR 10 $6.21 $1,158,894.26 $ 96,574.52 OPTION YEARS IF APPLICABLE YEAR 11 6.21 $1,158,894.26 $ 96,574.52 YEAR 12 6.40 $1,193,661.09 $ 99,471.76 YEAR 13 6.59 $1,229,470.92 $102,455.91 YEAR 14 6.79 $1,266,355.05 $105,529.59 YEAR 15 6.79 $1,266,355.05 $105,529.59 YEAR 16 6.99 $1,304,345.70 $108,695.47 YEAR 17 7.20 $1,343,476.07 $111,956.34 YEAR 18 7.42 $1,383,780.35 $115,315.03 YEAR 19 7.64 $1,425,293.76 $118,774.48 YEAR 20 7.87 $1,468,052.58 $122,337.71 EXHIBIT "D" PERMITTED EXCEPTIONS [To be provided by Landlord] SENECA INDUSTRIAL PARK ---------------------- RULES AND REGULATIONS --------------------- 1. Security. The Landlord may from time to time adopt appropriate systems --------- and procedures for the security or safety of the Building, any persons occupying, using, or entering the same, or any equipment, furnishings, or contents thereof, and the Tenant shall comply with the Landlord's reasonable requirements relative thereto. 2. Return of Keys. At the end of the Term, the Tenant shall promptly return --------------- to the Landlord all keys for the Building and Premises which are in the possession of the Tenant. In the event any Tenant fails to return keys, Landlord may retain S50.00 of Tenant's security deposit for locksmith work and administration. 3. Repair, Maintenance, Alterations, and Improvements. The Tenant shall --------------------------------------------------- carry out Tenant's repair, maintenance, alterations, and improvements in the Premises only during times agreed to in advance by the Landlord and in a manner which will not interfere with the rights of other tenants in the Building. 4. Water Fixtures. The Tenant shall not use water fixtures for any purpose --------------- for which they are not intended, nor shall water be wasted by tampering with such fixtures. Any cost or damage resulting from such misuse by the Tenant shall be paid for by the Tenant. 5. Personal Use of Premises. The Premises shall not be used or permitted ------------------------- to be used for residential, lodging, or sleeping purposes or for the storage of personal effects or property not required for business purposes. 6. Heavy Articles. The Tenant shall not place in or move about the Premises --------------- without the Landlord's prior written consent any safe or other heavy article which in the Landlord's reasonable opinion may damage the Building, and the Landlord may designate the location of any such heavy articles in the Premises. 7. Bicyles, Animals. The Tenant shall not bring any animals or birds into ----------------- the Building, and shall not permit bicycles or other vehicles inside or on the sidewalks outside the Building except in areas designated from time to time by the Landlord for such purposes. 8. Deliveries. The Tenant shall ensure that deliveries of supplies, ----------- fixtures, equipment, furnishings, wares, and merchandise to the Premises are made through such entrances, elevators, and corridors and at such times as may from time to time be designated by the Landlord, and shall promptly pay or cause to be paid to the Landlord the cost of repairing any damage in the Building caused by any person making improper deliveries. 9. Solicitations. The Landlord reserves the right to restrict or prohibit -------------- canvassing, soliciting, or peddling in the Building. 10. Food and Beverages. Only persons approved from time to time by the ------------------- Landlord may prepare, solicit orders for, sell, serve, or distribute foods or beverages in the Building, or use the Common Areas for any such purpose. Except with the Landlord's prior written consent and in accordance with arrangements approved by the Landlord, the Tenant shall not permit on the Premises the use of equipment for dispensing food or beverages or for the preparation, solicitation of orders for, sale, serving, or distribution of food or beverages. 11. Refuse. The Tenant shall place all refuse in proper receptacles ------- provided by the Tenant at its expense in the Premises or in receptacles (if any) provided by the Landlord for the Building, and shall keep sidewalks and driveways outside the Building, and lobbies, corridors, stairwells, ducts, and shafts of the Building, free of all refuse. 12. Obstructions. The Tenant shall not obstruct or place anything in or ------------ on the sidewalks or driveways outside the Building or in the lobbies, corridors, stairwells, or other Common Areas, or use such locations for any purpose except access to and exit from the Premises without the Landlord's prior written consent. The Landlord may remove at the Tenants expense any such obstruction or thing caused or placed by the Tenant (and unauthorized by the Landlord) without notice or obligation to the Tenant. 13. Proper Conduct. The Tenant shall not conduct itself in any manner which -------------- is inconsistent with the character of the Building as a first quality building or which will impair the comfort and convenience of other tenants in the Building. 14. Employees, Agents and Invitees. In these Rules and Regulations, ------------------------------ "Tenant" includes the employees, agents, invitees and licensees of the Tenant and others permitted by the Tenant to use or occupy the Premises. 15. Parking. If the Landlord designates tenant parking areas for the ------- Building, the Tenant shall park its vehicles and cause its employees and agents to park their vehicles only in such designated parking areas. The Tenant shall furnish the Landlord, upon request, with the current license numbers of all vehicles owned or used by the Tenant or its employees or agents and the Tenant thereafter shall notify the Landlord of any changes in such numbers within five (5) days after the occurrence thereof. In the event of failure of the Tenant or its employees or agents to park their vehicles in such designated parking areas, the Tenant shall forthwith on demand pay to the Landlord the sum of Twenty and No/100 ($20.00) Dollars per day per each car so parked. Landlord may itself or through any agent designated for such purpose, make, administer, and enforce additional rules and regulations regarding parking by tenants and by their employees or agents, including, without limitation, rules and regulations permitting the Landlord or such agent to move any vehicles improperly parked to the designated tenant or employee parking areas. No disabled vehicle shall be left in the parking areas of the Building for more than 24 hours. GUARANTY OF LEASE THIS GUARANTY OF LEASE is made as of October 15, 1999, by Mohawk Industries, Inc., a Delaware corporation (the "Guarantor") in favor of Seneca G&H, L.L.C., a Florida limited liability company (the "Landlord"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Aladdin Manufacturing Corporation, a Delaware corporation (the "Tenant"), desires to lease from Landlord the premises more particularly described in Exhibit "A" attached hereto (the "Premises"); WHEREAS, Guarantor and Tenant have requested Landlord as lessor to enter into a lease agreement with Tenant as lessee dated as of the date hereof (the "Lease") for the demise of the Premises to Tenant for a term of years more particularly described therein; and WHEREAS, Landlord has declined to enter into the Lease unless Guarantor unconditionally guarantees the Lease in the manner hereinafter set forth. NOW, THEREFORE, to induce Landlord to enter into the Lease, the undersigned Guarantor hereby agrees as follows: 1. Guarantor unconditionally guarantees to Landlord the Tenant's full and punctual performance and observance of all terms, covenants and conditions contained in the Lease on Tenant's part to be kept, performed or observed. Guarantor waives notice of any breach or default by Tenant. If, at any time, default shall be made by Tenant in the performance or observance of any of the terms, covenants or conditions contained in the Lease on Tenant's part to be kept, performed or observed, Guarantor will keep, perform and observe the same, as the case may be, in place and stead of Tenant. 2. Landlord may waive any of the terms or conditions of the Lease, or give any consent to any manner or thing relating to the Lease, or grant any indulgences or extensions of time to Tenant, all without notice to Guarantor and without releasing the obligations of Guarantor hereunder. 3. The obligations of Guarantor hereunder shall not be released or diminished by: (a) Landlord's receipt, application or release of security given for the performance and observance of covenants and conditions contained in the Lease on Tenant's part to be performed or observed; nor (b) any reletting of the Premises or any related action taken by Landlord in accordance with the terms of the Lease; nor (c) any modification or renewal or extension of the Lease or any change in the size or location of the Premises agreed to by Tenant, but in case of any such modification or change, the liability of Guarantor shall be deemed modified in accordance with the terms of any such modification of the Lease or change in the Premises. 4. The liability of Guarantor hereunder shall not be affected in any way by: (a) the release or discharge of Tenant in any insolvency, receivership, bankruptcy or other proceedings; nor (b) the impairment, limitation or modification of the liability of Tenant or the estate of Tenant in bankruptcy, or of any remedy for the enforcement of Tenant's liability under the Lease, resulting from the operation of any present or future provision of the United States Bankruptcy Code or other statute or from any decision in any court; nor (c) the rejection or disaffirmance of the Lease in any such proceedings; nor (d) the assignment or transfer of the Lease by Tenant; nor (e) any subletting of all or any part of the Premises, with or without the consent of Landlord; or (f) any disability or other defense of Tenant; nor (g) the cessation of the liability of Tenant from any cause whatsoever. 5. No payments or acts of performance by Guarantor under this Guaranty shall in any way or at any time entitle Guarantor to any right, claim or cause of action against Tenant, or to any right, title or interest in or to Tenant's rights under the Lease or any rights of Landlord, and Guarantor hereby waives, for the benefit of Landlord and Tenant, any and all such rights which Guarantor might otherwise have had in the absence of this waiver and which would have otherwise entitled Guarantor to be a "creditor" of Tenant under the provisions of the U.S. Bankruptcy Code (Title 11, U.S. Code) or any other bankruptcy or insolvency law. 6. Guarantor and Landlord hereby voluntarily, knowingly and intentionally WAIVE ANY AND ALL RIGHTS TO TRIAL BY JURY in any legal action or proceeding arising under or in connection with this Guaranty or the Lease or concerning the Premises or pertaining to any transaction related to or contemplated in the Lease, regardless of whether such action or proceeding concerns any contractual or tortious or other claim. Guarantor acknowledges that this waiver of jury trial is a material inducement to Landlord in accepting this Guaranty, that Landlord would not have accepted this Guaranty without this jury trial waiver, and that Guarantor has been represented by an attorney or has had an opportunity to consult with an attorney regarding this Guaranty and understands the legal effect of this jury trial waiver. 7. In any action or proceeding brought in connection with the Lease or this instrument: (a) Landlord shall be entitled to recover Landlord's costs and expenses, including reasonable attorney's fees; (b) Guarantor submits to the jurisdiction of the state and federal courts in the State of Florida; (c) the venue of any such action or proceeding may at Landlord's option be laid in Miami-Dade County, Florida or the county in which the Premises are located, and Guarantor waives any claim that the same is an inconvenient forum; (d) Guarantor agrees that service of process may be made by delivery of the same to Robert Adrian, Regional Manager, Mohawk Industries, Inc., 1320 NW 163rd Street, Miami, Florida 33169 (with copy to Mohawk Industries, Inc., 160 South Industrial Boulevard, Calhoun Georgia 30701, Attention: Salvatore J. Perillo Tel. 1-800- 241-4494 Ext. 2660 Fax 1-706-624-2483), or such other agent as Guarantor may designate from time to time by written notice to Landlord; and (e) Guarantor waives the right to interpose any set-off or non-compulsory counterclaim, or to plead laches or any statute of limitation as a defense, or (to the extent the same may be lawfully waived). The foregoing shall not be deemed to limit Landlord's right to effect service of process in any other lawful manner or to bring any such action or proceeding in any other forum permitted by law. 8. This instrument is a continuing guaranty and shall apply to the Lease, to any extension or renewal thereof and to any holdover term following the original term or any such extension or renewal. 9. This instrument may not be changed, modified, discharged or terminated orally or in any manner other than by an agreement in writing signed by Guarantor and Landlord. 10. This instrument shall be binding upon Guarantor and Guarantor's heirs, personal representatives, successors and assigns, and this instrument shall inure to the benefit of Landlord and Landlord's successors and assigns. -2- WITNESS the due execution hereof as of the date first written above. Signed, sealed and delivered in the GUARANTOR: presence of: MOHAWK INDUSTRIES, INC., a Delaware /s/ Misty Young corporation - ----------------------- Print Name: Misty Young By: /s/ Salvatore J. Perillo --------------------------------- Print Name: Salvatore J. Perillo /s/ Amy Watson Title: General Counsel - ----------------------- Print name: Amy Watson [CORPORATE SEAL] STATE OF GEORGIA ) ) SS: COUNTY OF GORDON ) The foregoing instrument was acknowledged before me this 18th day of October, 1999 by Salvatore J. Perillo, as general counsel of Mohawk Industries, Inc., a Delaware corporation, on behalf of the corporation. /s/ Elaine Busbee ------------------------------------------------ Notary Public, State of Georgia [NOTARIAL SEAL] My commission expires: Notary Public, Paulding County, Georgia My Commission Expires Nov. 3, 2001 -3- ADDENDUM TO LEASE AGREEMENT --------------------------- THIS ADDENDUM (this "Addendum") is made as of the 15th day of October, 1999, by and between Seneca G&H, L.L.C., a Florida limited liability company, having an address at 2901 SW 8th Street, Suite 204, Miami, Florida 33135 ("Landlord") and ALADDIN MANUFACTURING - CORPORATION, a Delaware corporation, with its home office located at 160 South Industrial Boulevard, Calhoun, Georgia 30701 ("Tenant"). W H E R E A S: - - - - - - - A. Landlord and Tenant are the parties to that certain Warehouse Lease dated of even date herewith (the "Lease"), with respect to certain real property located in Broward County, Florida, more particularly described in the Lease. B. The parties desire to amend the Lease in certain respects as more particularly set forth below. NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Miscellaneous. ------------- (a) This Addendum shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the Lease. (b) All initial capitalized terms used in this Addendum shall have the same meaning as set forth in the Lease unless otherwise provided. (c) Except as specifically modified hereby, all of the provisions of the Lease which are not in conflict with the terms of this Addendum shall remain in full force and effect. 2. Within thirty (30) days following the effective date of this Addendum (the first day on which both of the parties hereto have executed this Addendum), Tenant shall have the right to increase the square footage of the Premises, by written notice of its General Counsel, up to a maximum of 256,592 square feet of GLA on the terms and conditions contained in the Lease, provided that: (i) the Premises either (a) represent an expansion within the currently proposed Building or (b) constitute the entire floor area of a newly designed Building, (ii) during said thirty (30) days, Tenant provides Landlord with written notice of its exercise of such right containing Tenant's desired square footage for the Premises, (iii) the Base Rent, as subjected to increases over the Initial Term and any Extension Term(s), is increased to reflect the additional square footage desired by Tenant, (iv) Tenant's Proportionate Share of the Project is increased to reflect the additional square footage desired by Tenant and Tenant's Proportionate share of the Building is increased to reflect the additional square footage desired by Tenant, (v) the design/dimensions of any new Building desired by Tenant is -1- such that, in Landlord's sole and absolute discretion, said Building as designed can be feasibly utilized and marketed as a multi-tenant Building upon reversion of Tenant's leasehold interest to Landlord, (vi) Tenant executes an addendum to the Lease specifically setting forth the foregoing (i.e. the adjusted square footage of the Premises, the adjusted Base Rent, the adjusted Tenant's Proportionate Share of the Project, and the adjusted Tenant's Proportionate Share of the Building), and (vii) Tenant procures the Guarantor's execution of an addendum to the Guaranty, whereby the Guarantor acknowledges and agrees with Tenant's execution of said Lease addendum. IN WITNESS WHEREOF this Addendum has been executed as a sealed instrument as of the day and year first above written. LANDLORD: --------- Witnesses: SENECA G&H, L.L.C., a Florida limited liability company /s/ Robert W. Adrian By: /s/ Charles Roabele, Jr. - ----------------------------- ----------------------------------- Name: Robert W. Adrian Name: Charles Roabele, Jr. ---------------------------------- Title: Member --------------------------------- /s/ William C. Webb III Date: October 19, 1999 - ----------------------------- ---------------------------------- Name: William C. Webb III (SEAL) TENANT: ------- ALLADIN MANUFACTURING CORPORATION, a Delaware corporation /s/ Misty Young By: /s/ Salvatore J. Perillo - ----------------------------- ----------------------------------- Name: Misty Young Name: Salvatore J. Perillo ---------------------------------- /s/ Amy Watson Title: Senior Counsel - ----------------------------- --------------------------------- Name: Amy Watson Date: October 19, 1999 ---------------------------------- (CORPORATE SEAL) -2- EX-10.14 5 LEASE BETWEEN ALADDIN MANF. & EX-CELL HOME FASHION EXHIBIT 10.14 EX-CELL HOME FASHIONS, INC. AND ALADDIN MANUFACTURING CORPORATION ------------------------------- LEASE AGREEMENT ------------------------------- Dated as of December 3, 1999 Table of Contents -----------------
Page ---- ARTICLE I DEFINITIONS...................................................... 1 ARTICLE II DEMISING CLAUSES AND RENTAL PROVISIONS........................... 3 Section 2.1. Demise of Facility........................................... 3 Section 2.2. Duration of Lease Term....................................... 3 Section 2.3. Rent......................................................... 3 ARTICLE III MAINTENANCE, USE, MODIFICATIONS, TAXES AND INSURANCE............. 5 Section 3.1. Maintenance, Use, and Modifications of Facility by Tenant.... 5 Section 3.2. Installation of Tenant-Owned Equipment....................... 8 Section 3.3. Taxes, Assessments and Utility Charges....................... 9 Section 3.4. Insurance Required........................................... 10 Section 3.5. Additional Provisions Respecting Insurance................... 10 Section 3.6. Right of Landlord to Pay Insurance Premiums and Other Charges 13 ARTICLE IV DAMAGE, DESTRUCTION AND CONDEMNATION............................. 13 Section 4.1. Damage or Destruction........................................ 13 Section 4.2. Condemnation................................................. 15 ARTICLE V SPECIAL COVENANTS................................................ 17 Section 5.1. No Warranty of Condition or Suitability Landlord............. 17 Section 5.2. Hold Harmless Provisions..................................... 18 Section 5.3. Landlord's Repairs........................................... 18 Section 5.4. Responsibility for the Sprinkler System...................... 19 Section 5.5. Right to Inspect the Facility and the Equipment.............. 19 Section 5.6. Good Standing in the State................................... 19 Section 5.7. Agreement to Provide Information............................. 19 Section 5.8. Books of Record and Account; Financial Statements............ 19 Section 5.9. Compliance with orders....................................... 20 Section 5.10. Discharge of Liens and Encumbrances.......................... 20
i Table of Contents ----------------- (continued)
Page ---- ARTICLE VI ASSIGNMENT AND SUBLEASING; MORTGAGE AND PLEDGE OF INTEREST...... 21 Section 6.1. Assignment and Subleasing.................................... 21 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES................................... 22 Section 7.1. Events of Default Defined.................................... 22 Section 7.2. Remedies on Default.......................................... 24 Section 7.3. Remedies Cumulative.......................................... 25 Section 7.4. Agreement to Pay Attorneys' Fees and Expenses................ 26 ARTICLE VIII RENEWAL OPTION................................................... 26 Section 8.1. Tenant's Renewal Option...................................... 26 ARTICLE IX PURCHASE OPTION.................................................. 27 Section 9.1. Facility Purchase Option..................................... 27 ARTICLE X RIGHT OF FIRST REFUSAL........................................... 30 Section 10.1. Right of First Refusal....................................... 30 ARTICLE XI MISCELLANEOUS.................................................... 32 Section 11.1. Surrender of Facility........................................ 32 Section 11.2. Notices...................................................... 32 Section 11.3. Binding Effect............................................... 33 Section 11.4. Severability................................................. 33 Section 11.5. Amendments, Changes and Modifications........................ 33 Section 11.6. Execution of Counterparts.................................... 33 Section 11.7. Applicable Law............................................... 33 Section 11.8. Table of Contents and Section Headings Not Controlling....... 33 Section 11.9. Estoppel Certificate......................................... 33 Section 11.10. Quiet Enjoyment.............................................. 34 Section 11.11. Security Deposit............................................. 34 Section 11.12. No Additional Waiver Implied By One Waiver................... 35 Section 11.13. Brokerage Agreement.......................................... 35
ii THIS LEASE AGREEMENT, dated as of December 3, 1999, by and between EX- CELL HOME FASHIONS, INC., a corporation organized and existing under the laws of New York with an address at 295 Fifth Avenue, New York, New York 10016 ("Landlord"), and ALADDIN MANUFACTURING CORPORATION, a corporation organized and existing under the laws of Delaware with an address at 3090 Sugar Valley Road, NW, Sugar Valley, GA 30746 ("Tenant"), W I T N E S S E T H ------------------- WHEREAS, Landlord desires to lease the real property described on Exhibit A hereto, the existing building and other improvements thereon and the Equipment (as hereinafter defined), and Tenant desires to hire such real property, existing building and other improvements thereon and Equipment from Landlord, upon the terms and conditions set forth in this Lease Agreement; NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements of the parties hereto herein contained, the parties hereto hereby covenant and agree as follows: ARTICLE I DEFINITIONS The following words and terms as used in this Lease Agreement shall have the following meanings: "Landlord" means Ex-Cell Home Fashions, Inc., a corporation duly ---------- organized and existing under the laws of New York. "Landlord's Plant" means Landlord's existing plant located on the Land ------------------ located in Bentonville, Arkansas. 1 "Condemnation" means the taking of title to, or the use of, property -------------- under the exercise of the power of eminent domain by any governmental entity or other Person acting under governmental authority. "Equipment" means all machinery, equipment and other personal property ----------- located at the Facility, except the computer equipment, checking stations, and all equipment in the office areas. "Facility" means the Land together with the Landlord's Plant ---------- (consisting of approximately 134,067 square feet), less the Storage Area. "Land" means the interest in real estate leased pursuant to this Lease ------ Agreement as more particularly described on Exhibit A attached hereto. "Lease Term" means the duration of the leasehold estate created by ------------ this Lease Agreement as specified in Section 2.2 hereof. "Storage Area" means that area of the Plant identified on Exhibit B -------------- attached hereto and consisting of approximately 3,600 square feet. "Permitted Encumbrances" means (i) this Lease Agreement, (ii) utility, ------------------------ access and other easements and rights of way, restrictions and exceptions that do not materially impair the utility or the value of the property affected thereby for the purposes for which it is intended, (iii) mechanics', materialmen's, warehousemen's, carriers' and other similar liens to the extent permitted by this Lease Agreement hereof and (iv) liens for taxes at the time not delinquent. "Person" means an individual, partnership, corporation, trust or -------- unincorporated organization, and a government or agency or political subdivision thereof. "Structural Repairs" means any repair that involves the substantial -------------------- repair, renovation or restoration of a structural component of the Facility. 2 "Tenant" means Aladdin Manufacturing Corporation, a corporation duly -------- organized under the laws of Delaware. ARTICLE II DEMISING CLAUSES AND RENTAL PROVISIONS Section 2.1. Demise of Facility. Landlord hereby demises and leases the ------------------ Facility and the Equipment to Tenant and Tenant hereby hires and leases the Facility and the Equipment from Landlord upon the terms and conditions of this Lease Agreement. Section 2.2. Duration of Lease Term. The Lease Term shall commence on ---------------------- December 3, 1999 (the "Term Commencement Date"), and end on December 31, 2002 (the "Expiration Date"), unless sooner terminated in accordance with the provisions hereof. Section 2.3. Rent. (a) Tenant shall pay to Landlord rent during the ----- Lease Term at the rate of (i) Eighteen Cents per square foot per month or Two Hundred Eighty-One Thousand Eight Hundred and Eight Dollars and 72/100 ($281,808.72) per annum, payable in equal monthly installments of Twenty-Three Thousand Four Hundred Eighty-Four Dollars and 06/100 ($23,484.06) for the Facility (the "Fixed Rent"), and (ii) Thirty-six Thousand Dollars ($36,000.00) per annum, payable in equal monthly installments of Three Thousand Dollars ($3000.00) (the "Equipment Rent"). Both Fixed Rent and Equipment Rent are payable in advance on the first day of each month during such period. (b) It is the intention of the parties that this is a gross lease, without responsibility or cost to Tenant, except as expressly set out in this Lease Agreement. (c) Tenant agrees to make the payments of Fixed Rent and Equipment Rent, without any further notice, in lawful money of the United States of America as, at the time of payment, shall be legal tender for the payment of public and private debts. In the event Tenant shall fail to timely make any payment required in this Section 2.3, Tenant shall pay the same 3 together with interest thereon at the rate equal to the then higher of (i) fifteen per centum (15%) or (ii) the prime rate as published in The Wall Street Journal on the date such payments were due plus eight and one-half per centum (8.5%) per annum, in either case as calculated from the date on which such payment was due until the date on which such payment is made. (c) In the event Tenant exercises its option for the Extended Term under Article 8 of this Lease Agreement, Landlord shall have the right to increase the base rent for the Extended Term in direct proportion to the three year aggregate of the annual percentage increase in the level of the Consumer Price Index, All Items, U.S. City Average, All Urban Consumers (1982-1984=100), published by the Bureau of Labor Statistics, U.S. Department of Labor (the "B.L.S. Index"), as published during the preceding three years. It is understood that the B.L.S. Index is now being published monthly by the Bureau of Labor Statistics of the U.S. Department of Labor. Should said Bureau of Labor Statistics change the manner of computing the B.L.S. Index, the Bureau shall be requested to furnish a conversion factor designed to adjust the B.L.S. Index to the one previously in use, and adjustment to the new Index shall be made on the basis of such conversion factor. Should the publication of a B.L.S. Index be discontinued by said Bureau of Labor Statistics, then such other index as may be published by such Bureau most nearly approaching said discontinued B.L.S. Index shall be used in making the adjustments herein provided. Should said Bureau discontinue the publication of any index approximating the B.L.S. Index, then such index as may be published by another United States Governmental Agency as most nearly approximates the B.L.S. Index shall govern and be substituted as the index to be used, subject to the application of an appropriate conversion factor to be furnished by the Governmental Agency publishing the adopted index. If such Governmental Agency will not furnish such conversion factor, then the 4 parties shall agree upon a conversion factor, or a new index, and in the event an agreement cannot be reached as to such conversion factor or such new index, then the selection of a new index approximating as nearly as can be the B.L.S. Index shall be determined by arbitration in accordance with the Rules of the American Arbitration Association and the index selected in such arbitration shall be binding upon the parties hereto. ARTICLE III MAINTENANCE, USE, MODIFICATIONS, TAXES AND INSURANCE Section 3.1. Maintenance, Use, and Modifications of Facility by Tenant. --------------------------------------------------------- (a) Tenant agrees that during the Lease Term it will at its own expense (i) keep the Facility and the Equipment in a safe condition; (ii) make all necessary nonstructural repairs and replacements to the Facility and the Equipment (whether ordinary or extraordinary, foreseen or unforeseen), which repairs and replacements shall be of a quality or class equal to the original work or construction; and (iii) make all Structural Repairs necessitated by or arising out of any act, failure to act or negligence of Tenant. Tenant shall use and operate the Facility and the Equipment for the manufacturing, assembling, warehousing and wholesale distribution of pillow filling and other pillow filling products and for other uses reasonably related to the business of assembling, warehousing and the wholesale distribution of pillow filling and for no other purpose, unless Landlord consents in writing to other uses. If Landlord consents to a different use, and such use is lawful, Tenant shall be responsible for any additional costs associated with such different use, including, but not limited to insurance costs. Landlord shall deliver the Facility to Tenant clean and free of debris on the Term Commencement Date and warrants to Tenant that all aspects of the building to be maintained and repaired by Tenant shall be in good operating condition and repair as of the Term Commencement Date. 5 (b) In the event that Tenant shall at any time during the term of this Lease receive a notice, order, or violation to the effect that Tenant's use and operation of the Facility for the manufacturing, assembling, warehousing and wholesale distribution of pillow filling and other pillow filling products is not permitted in the Facility under the provisions of the zoning code of the Town of Bentonville as existing as of the date of this Lease Agreement (the "Zoning Code"), then Tenant shall promptly give notice thereof to Landlord. Following receipt of such notice from Tenant, Landlord shall have a period of 180 days in order to obtain a variance, special exception, or otherwise cure or dismiss the notice, violation or order. During such 180 day period Landlord agrees to use good faith efforts to cure or remove such notice, violation or order and Tenant agrees to cooperate with Landlord (by joining in applications, supplying information, attending hearings and otherwise as may be necessary). If Landlord does not notify Tenant within such 180 day period that Landlord has cured or removed, or has arranged to cure or remove, such notice, violation or order, then Tenant shall have a right to terminate this Lease by notice to Landlord within 10 days following the end of such 180 day period, which notice shall specify a date for such termination which shall be not less than 30 days following the date of Tenant's notice. In such event, the date set forth in Tenant's notice shall be substituted for the Expiration Date provided for herein and the Tenant shall vacate and surrender the Facility on such Expiration Date in accordance with the terms of this Lease Agreement. Notwithstanding the foregoing, Tenant shall not have the right to terminate this Lease Agreement pursuant to this paragraph if the notice, order or violation arises as a result of Tenant's breach or violation of any law, rule or regulation other than the Zoning Code. Provided that Landlord has complied with its obligations pursuant to this paragraph, Tenant's right to terminate this Lease Agreement pursuant to this paragraph because Tenant's use and operation of the Facility for the purposes provided for 6 in this paragraph is not permitted by the Zoning Code shall be Tenant's sole remedy and Tenant hereby waives, and releases Landlord with respect to, any and all other claims for damages, equitable relief or otherwise. (c) Any structural additions, modifications or improvements to the Facility or any part thereof made by Tenant must be in accordance with plans and specifications approved in writing in advance by Landlord, which consent shall not be unreasonably withheld or delayed. Tenant shall pay to Landlord as additional rent within 20 days after demand therefor: (i) Landlord's reasonable expenses incurred as a result of having the plans, specifications, work-in- progress and as-built plans reviewed by an architect or engineer and (ii) reasonable attorneys' fees and expenses arising in connection with any such structural additions, modifications or improvements to the Facility. All such structural additions, modifications or improvements so made by Tenant shall become a part of the Facility and shall remain upon and be surrendered with the Facility at the end of the Lease Term. (d) Tenant shall use the Equipment in a careful and proper manner and shall comply with and conform to all national, state, municipal, police and other laws, ordinances and regulations in anywise relating to the possession, use or maintenance of the equipment. If at any time during the term hereof Landlord supplies Tenant with labels, plates or other markings stating that the equipment is owned by Landlord, Tenant shall affix and keep the same upon a prominent place on the equipment. (e) If Tenant fails after ten days notice to proceed with due diligence to make repairs or replacements which Tenant is required to make hereunder, the same may be made by Landlord at the expense of Tenant, and the expenses thereof incurred by Landlord shall be 7 collectible as Additional Rent and payable by Tenant within 20 days following rendition of a bill or statement therefor. (f) All repairs and replacements shall be done in a good and workmanlike manner and shall at all times comply with laws, rules, ordinances, orders, codes and regulations of governmental, quasi-governmental and regulatory authorities, and all requirements of insurance carriers issuing policies covering the Facility and the Equipment and the Board of Fire Underwriters. (g) Tenant agrees that it will not, either directly or indirectly, use any contractors and/or labor and/or materials if the use of such contractors and/or labor and/or materials would or will create any difficulty with other contractors and/or labor engaged by Tenant or Landlord or others in the maintenance and/or operation of any part of the Facility or the Equipment. Tenant shall, before making any repairs or replacements, at its sole cost and expense, obtain all permits, approvals and certificates required by any governmental or quasi-governmental bodies and (upon completion) certificates of final approval and shall deliver promptly duplicates of all such permits, approvals and certificates to Landlord, and Tenant agrees to carry, and will cause Tenant's contractors and sub-contractors to carry such workers' compensation, builder's risk, general liability, personal and property damage insurance as Landlord may reasonably require. Section 3.2. Installation of Tenant-Owned Equipment. Tenant from time to -------------------------------------- time may install its own machinery, equipment or other personal property in the Facility (which may be attached or affixed to the Facility), and such machinery, equipment or other personal property shall not become, or be deemed to become, a part of the Facility. Tenant from time to time may remove or permit the removal of such machinery, equipment and other personal property from 8 the Facility, provided that any such removal of such machinery, equipment or other personal property shall not adversely affect the structural integrity of the Facility or impair the overall operating efficiency of the Facility and provided further that if any damage is occasioned to the Facility by such removal, Tenant agrees to promptly repair such damage at its own expense. Section 3.3. Taxes, Assessments and Utility Charges. Tenant agrees to pay, -------------------------------------- (i) all taxes and governmental charges of any kind whatsoever which may at any time be assessed or levied against or with- respect to the Facility and any machinery, equipment or other property installed or brought by Landlord or Tenant therein or thereon and the employees of Tenant or Landlord located at or assigned to the Facility, including without limiting the generality of the foregoing any sales or use taxes and any taxes levied upon or with respect to the income or revenues of Tenant from the Facility, (ii) all utility and other charges, including, without limitation, "service charges", incurred or imposed for the operation, maintenance, use, occupancy, upkeep and improvement of the Facility, and (iii) all assessments and charges of any kind whatsoever made by any governmental body for public improvements. Taxes and governmental charges shall be deemed to exclude any payments in lieu of, addition to, or in partial or complete substitution for real estate related taxes, including, without limitation, (i) taxes, assessments, levies, impositions or charges (special or otherwise) wholly or partially as a capital levy or otherwise on the rents received from the Facility, (ii) taxes, assessments, levies, impositions, or charges (special or otherwise) measured by, or based in whole or in part upon the Facility and imposed upon the Landlord, (iii) license fees measured by the rent payable by the tenants in the Facility to the Landlord, and (iv) such other additional or substitute taxes, assessments, levies, impositions, or charges (special or otherwise). 9 Section 3.4. Insurance Required. At all times throughout the Lease Term, ------------------ Tenant shall maintain insurance, except general facility insurance, against such risks and for such amounts as are customarily insured against by businesses operating facilities of like size and type as the Facility in the manner and for the purposes for which the Facility will be operated by Tenant under this Lease Agreement, paying, as the same become due and payable, all premiums in respect thereto, including, but not necessarily limited to: (a) business interruption insurance or rent insurance, sufficient to cover unabated rent payments in the event of a casualty. (b) worker's compensation insurance, disability benefits insurance, and each other form of insurance which Landlord or Tenant is required by law to provide, covering loss resulting from injury, sickness, disability or death of employees of Landlord or Tenant who are located at or assigned to the Facility; and (c) insurance protecting Landlord and Tenant against loss or losses from liabilities imposed by law or assumed in any written contract and arising from personal injury and death or damage to the property of others caused by any accident or occurrence with limits of not less than $5,000,000 per accident or occurrence on account of personal injury, including death resulting therefrom and damage to the property of others. (d) Tenant shall keep the Equipment insured against all risks of loss or damage from every cause whatsoever for not less than the full replacement value thereof as determined by Landlord and shall carry public liability and property damage insurance covering the Equipment. Section 3.5. Additional Provisions Respecting Insurance. (a) All ------------------------------------------ insurance required by this Article shall be procured and maintained with responsible insurance companies which are (i) 10 financially-sound and generally-recognized and with a Best's rating of A or better, (ii) approved by Landlord and (iii) authorized to write such insurance in the State of Arkansas. The insurance coverage shall be of a type and scope and in the amounts as shall be acceptable to Landlord. Such insurance may not be written with deductible amounts in excess of such deductible amounts as Landlord may have agreed to in advance. All policies evidencing such insurance shall provide for payment of losses to Landlord and Tenant, as their respective interests may appear. (b) All policies of insurance required by this Article, or a certificate or certificates of the insurers that such insurance is in force and effect, or other evidence of such insurance satisfactory to Landlord, shall be deposited with Landlord prior to Tenant's taking possession of the Facility and the Equipment. Tenant shall deliver to Landlord on or before the first day of each calendar year thereafter certificates dated not earlier than the immediately preceding November 1 reciting that there is in full force and effect with a term covering at least the next succeeding calendar year, insurance in the amounts and of the types required by this Article. Prior to expiration of any such policy, Tenant shall furnish Landlord satisfactory evidence that the policy has been renewed or replaced. (c) All policies of insurance procured by Tenant shall contain endorsements providing that (i) such policies may not be materially changed, amended, reduced, cancelled (including for nonpayment of premium) or allowed to lapse with respect to the Landlord except after 60 days' prior notice from the insurance company to each, sent by registered or certified mail, return receipt requested to the addresses and in the manner then provided in this Lease Agreement for notices; and (ii) Tenant shall be solely responsible for the payment of all premiums under such policies and the Landlord shall have no obligation for the payment thereof notwithstanding that the Landlord is or may be named as an insured. Any endorsements to any 11 such policies shall be so deposited with the Landlord upon issuance thereof and each renewal or replacement of a policy shall be so deposited with the Landlord at least 20 days prior to the expiration of such policy. (d) Tenant shall not take out separate insurance concurrent in form or contributing in the event of loss with that required (or which may reasonably be required) pursuant to this Section to be furnished by Tenant unless Landlord are included therein as an insured, with all losses payable thereunder as provided in this Section. Tenant shall immediately notify the Landlord of the taking out of any such separate insurance and shall deliver the policy or policies as herein provided. (e) Tenant shall use its best efforts to include in each of its insurance policies (and, with respect to any equipment in the Facility leased by Tenant, in the insurance policies covering such equipment carried by Tenant or the lessors of such equipment) covering loss, damage or destruction by fire or other insured casualty, a waiver of the insurer's right of subrogation against the Landlord, or if such waiver should be unobtainable or unenforceable (i) an express agreement that such policy shall not be invalidated if the insured waives or has waived before the casualty the right of recovery against any party responsible for a casualty covered by the policy, or (ii) any other form of permission for the release of the Landlord. (f) Tenant agrees to permit any representatives of insurance companies insuring the Facility or insuring any items required by this Lease Agreement to inspect the Facility pursuant to Section 5.5 of this Lease Agreement. Tenant further agrees to comply with any and all recommendations made by such representatives in connection with inspections of the Facility. 12 Section 3.6. Right of Landlord to Pay Insurance Premiums and Other Charges. ------------------------------------------------------------- If Tenant fails (i) to maintain any insurance required to be maintained by this Article or (ii) to make any other payment required to be made by it under this Lease Agreement, Landlord may pay such premium for such insurance, or make such other payment. No such payment by Landlord shall affect or impair any rights of Landlord hereunder arising in consequence of such failure by Tenant. Tenant shall reimburse the Landlord for any amount so paid by Landlord pursuant to this Section, together with interest thereon at the rate provided for in Section 2.3(c). ARTICLE IV DAMAGE, DESTRUCTION AND CONDEMNATION Section 4.1. Damage or Destruction. (a) If the Facility shall be damaged --------------------- or destroyed (in whole or in part) at any time during the Lease Term: (i) Landlord shall have no obligation to Tenant to replace, repair of restore the Facility, except if caused by Landlord's willful misconduct; (ii) there shall be no abatement or reduction in the Fixed Rent or Equipment Rent, except if caused by Landlord's willful misconduct; (iii) Tenant shall promptly give written notice of such damage or destruction to Landlord, and (iv) Tenant shall promptly replace, repair, rebuild or restore the Facility to substantially the same condition and value as an operating entity as existed prior to such damage or destruction, in accordance with plans and specifications approved in writing in advance by Landlord; provided, however, that if by reason of the extent of such damage or -------- ------- destruction the provisions of section 4.1(b) hereof are applicable, Tenant shall not commence such replacement, repair, rebuilding or restoration until (i) Landlord notifies Tenant that Landlord does not intend to give 13 to Tenant the notice of termination provided for under Section 4.1(b) hereof or (ii) the time for the Landlord to give the notice of termination provided for in Section 4.1(b) lapses. Landlord will make available to Tenant so much of the net proceeds of the insurance maintained under Article III hereof as is necessary to pay the costs of such replacement, repair, rebuilding or restoration of the Facility, such proceeds to be made available only after actual receipt thereof by Landlord and as the work progresses, subject, however, to customary retainages and submission to ------- ------- Landlord of customary documentation to establish the percentage of completion and the absence of liens. (v) In the event the net proceeds of such insurance are not sufficient to pay in full the costs of such replacement, repair, rebuilding or restoration, Tenant shall nonetheless complete the work thereof and pay from its own moneys that portion of the costs thereof in excess of such insurance proceeds. (vi) All such replacements, repairs, rebuilding or restoration made pursuant to this Section 4.1, whether or not requiring the expenditure of Tenant's own money, shall automatically become a part of the Facility and be subject to this Lease Agreement as if the same were specifically described herein. (vii) Any balance of such insurance proceeds remaining after payment of all the costs of such replacement, repair, rebuilding or restoration returned to Landlord. (viii) Tenant shall be entitled to the proceeds of any insurance or portion thereof made for damage to any property which, at the time of such damage, is not part of the Facility and is owned by Tenant. 14 (b) Notwithstanding the provisions of Section 4.1(a) above, if more than 30% of the monetary value of the Facility (exclusive of excavations and foundations) as reasonably determined by Landlord shall be damaged or destroyed and in Landlord's judgment it is not practicable or desirable to replace, repair, rebuild or restore the Facility, Landlord shall have the right to terminate this Lease Agreement and the leasehold estate created hereby by notice in writing given to Tenant within 30 days after the date of such damage or destruction, in which case (i) this Lease Agreement and the leasehold estate created hereby shall terminate as of the date such notice is given; (ii) all Fixed Rent, additional rent, and other rents, taxes and charges hereunder shall be prorated and paid to the date of such termination; and (iii) all of the proceeds of insurance with respect to such damage or destruction shall be paid to Landlord and Tenant shall have no claim thereto. (c) Tenant hereby assumes and shall bear the entire risk of loss and damage to the Equipment from any and every cause whatsoever. No loss or damage to the equipment or any part thereof shall impair any obligation of lessee under this Lease Agreement which shall continue in full force and effect, except if caused by Landlord's willful misconduct. Section 4.2. Condemnation. (a) If at any time during the Lease Term any ------------- part of title to, or the use of, the Land shall be taken by Condemnation but such taking shall not (i) include the Plant or (ii) materially interfere with the Tenant's use or operation of the Plant, then: (i) Landlord shall have no obligation to Tenant to restore or replace the Facility; (ii) there shall be no abatement or reduction in the Fixed Rent or Equipment Rent; (iii) The entire proceeds of any award in Condemnation, whether the Condemnation be of the whole or any part of the Facility, shall belong solely to Landlord and Tenant hereby assigns all of its rights in and to such award to 15 Landlord. Landlord will make available to Tenant so much of the net proceeds of such award as is necessary to pay the costs of such restoration as may be necessary for the continued use and operation of the Plant, such proceeds to be made available only after actual receipt thereof by Landlord and as such restoration progresses, subject, however, to customary retainages and submission to Landlord ------- ------- of customary documentation to establish the percentage of completion and the absence of liens. Restoration of the Facility shall be in accordance with plans and specifications approved in writing by Landlord and on such other terms as shall be approved in writing by Landlord. (iv) The restorations to the Facility shall automatically become part of the Facility and be subject to this Lease Agreement as if the same were specifically described herein. (v) Any balance of the proceeds of any Condemnation award remaining after payment of all costs of such restoration shall be paid to Landlord. (b) Notwithstanding the provisions of Section 4.2(a) above, if at any time during the Lease Term a part of the Plant or the Land beneath the Plant shall be taken by Condemnation and as a result of such taking by Condemnation, part of the Plant is no longer useable by Tenant, then, effective as of the date of vesting of title, the Fixed Rent shall be abated in an amount apportioned according to the area of the Facility so condemned or taken. If at any time during the Lease Term a part of the Plant or the Land beneath the Plant shall be taken by Condemnation and as a result of such taking by Condemnation Tenant's use or operation of the Plant is materially impaired, then, effective as of the date of vesting of title (i) this Lease Agreement and the leasehold estate created hereby shall terminate, (ii) all Fixed Rent, additional 16 rent and other rents, and charges herewith shall be prorated and paid to the date of termination, and (iii) Landlord shall retain the full amount of any Condemnation award and Tenant shall have no claim thereto. (c) In the event the entire Facility shall be taken by Condemnation, then, effective as of the date of vesting of title (i) this Lease Agreement and the leasehold estate created hereby shall terminate, (ii) all Fixed Rent, additional rent and other rents, and charges herewith shall be prorated and paid to the date of termination, and (iii) Landlord shall retain the full amount of any Condemnation award and Tenant shall have no claim thereto. (d) Notwithstanding the provisions of Section 4.2(a) above, if more than 30% of the monetary value of the Facility (exclusive of excavations and foundations) shall be taken by Condemnation and in Landlord's reasonable judgment it is not practicable or desirable to restore the Facility, Landlord shall have the right to terminate this Lease Agreement and the leasehold estate created hereby by notice in writing given to Tenant at least 90 days (or such lesser time as may have been made available by such condemning authorities) prior to the date possession of the Facility or the part thereof taken by Condemnation is surrendered to the condemning authorities, in which case (i) this Lease Agreement and the leasehold estate created hereby shall terminate as of the date such possession is surrendered to the' condemning authorities; (ii) all rents and other charges shall be prorated and paid to such date of termination; and (iii) the entire Condemnation award shall be paid to Landlord and Tenant shall have no claim thereto. ARTICLE V SPECIAL COVENANTS Section 5.1. No Warranty of Condition or Suitability Landlord. Landlord ------------------------------------------------ makes no warranty, either express or implied, as to the condition, title, design, operation, merchantability 17 or fitness of the Facility or the Equipment or that they are or will be suitable for Tenant's purposes or needs. Section 5.2. Hold Harmless Provisions. Tenant hereby releases Landlord ------------------------ from, agrees that Landlord shall not be liable for, and agrees to indemnify and hold Landlord harmless from and against, any and all (i) liability for loss or damage to property or injury to or death of any and all persons that may be occasioned by any cause whatsoever pertaining to the Facility or the Equipment or arising by reason of or in connection with the occupation or the, use thereof or the presence on, in or about the Facility or the Equipment, except if caused by Landlord's willful misconduct, and (ii) liability arising from or expense relating to the construction, renovation, equipping, owning and leasing of the Facility, and all causes of action and attorneys' fees and any other expenses incurred in defending any suits or actions which may arise as a result of any of the foregoing, provided that any such losses, damages, liabilities or expenses of Landlord are not incurred or do not result from the willful wrongdoing of Landlord. Nothing contained herein shall inure to the benefit of any insurance company or insurer by way of subrogation or otherwise. Section 5.3. Landlord's Repairs. (a) Landlord agrees that, during the ------------------ Lease Term, it will make all necessary Structural Repairs to the Facility; provided, however, that Tenant shall be responsible for those Structural Repairs - -------- ------- caused by or arising out of any act, failure to act or negligence of Tenant. (b) Landlord shall be responsible for the repairs necessary to maintain: (i) the leak-free condition of the roof of the Plant for the Lease Term; provided, however, that Tenant shall be responsible for those repairs -------- ------- caused by or arising out of any act, failure to act or negligence of Tenant. 18 Section 5.4. Responsibility for the Sprinkler System. Tenant agrees that --------------------------------------- during the Lease Term it will at its own expense make all necessary repairs and replacements to the sprinkler system (the "Sprinkler System"), in a timely manner, and Tenant will provide Landlord with notice of such repairs and replacements. Tenant further agrees that it will, throughout the Lease Term, comply with all statutes, rules, regulations, permits, licenses, and requirements of all federal, state, county, municipal and other governments, which now or at any time hereafter may be applicable to the Sprinkler System. Section 5.5. Right to Inspect the Facility and the Equipment. Landlord and ----------------------------------------------- its respective duly authorized agents, including, but not limited to insurers, shall have the right at all reasonable times to inspect the Facility. Section 5.6. Good Standing in the State. Throughout the Lease Term, Tenant -------------------------- shall continue to maintain its corporate existence and be in good standing in the State of Arkansas. Section 5.7. Agreement to Provide Information. Tenant agrees, on each -------------------------------- anniversary of the Lease Commencement Date and whenever requested by Landlord, to provide and certify or cause to be provided and certified financial statements and such additional information concerning Tenant, its finances, its banking relationships and other topics as Landlord from time to time reasonably considers necessary or appropriate, including, without limitation, such information as reasonably may be necessary to enable them or either of them to make any reports required by law or governmental regulation. Tenant shall advise Landlord of any change in Tenant's principal banking relationships. Section 5.8. Books of Record and Account; Financial Statements. Tenant ------------------------------------------------- agrees to maintain proper accounts, records and books in which full and correct entries shall be made, in accordance with generally accepted accounting principles, of all business and affairs of Tenant. Within 120 days after the close of each fiscal year of Tenant during the Lease Term, Tenant shall 19 furnish to Landlord a copy of Tenant's certified annual financial statements for its immediately preceding fiscal year, audited by a firm of independent public accountants of recognized standing, selected by Tenant. Section 5.9. Compliance with orders. Ordinances, Etc. Tenant agrees ---------------------------------------- that it will, throughout the Lease Term, comply with all statutes, codes, laws, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations, directions and requirements of all federal, state, county, municipal and other governments, departments, commissions, boards, companies or associations insuring the premises, courts, authorities, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Facility or any part thereof or the Equipment, or to any use, manner of use or condition of the Facility or any part thereof or the Equipment, including, without limiting the generality of the foregoing, all Arkansas State and Occupational Safety and Health Act ("OSHA") regulations governing the pillow filling in plants. Section 5.10. Discharge of Liens and Encumbrances. Tenant shall not ----------------------------------- permit or create or suffer to be permitted or created any lien, except for Permitted Encumbrances, upon the Facility or any part thereof or the Equipment by reason of any labor, services or materials rendered or supplied or claimed to be rendered or supplied with respect to the Facility or any part thereof or the Equipment. If any such lien is filed against the Facility or the Equipment (other than liens arising from acts or omissions of Landlord or judgments against Landlord), Tenant shall discharge the same within thirty days of such filing and at its own expense. If Tenant fails to discharge any such lien within thirty days of filing, Landlord may discharge the same at the expense of Tenant and Tenant shall pay as additional rent the expenses thereof incurred by Landlord with interest thereon as herein provided. 20 ARTICLE VI ASSIGNMENT AND SUBLEASING; MORTGAGE AND PLEDGE OF INTEREST Section 6.1. Assignment and Subleasing. Tenant shall not assign this -------------------------- Lease Agreement in whole or in part nor sublease the Facility or the Equipment in part without the prior written consents of the Landlord, which consent shall not be unreasonably withheld or delayed. In addition, Tenant may sublease the Facility to one of its subsidiaries or divisions without Landlord's permission, provided, however, Tenant shall provide Landlord with prior written notice of - -------- ------- such sublease. Prior to requesting the approval of Landlord to an assignment or subletting of the Facility, as hereinafter provided, Tenant shall advise Landlord of (i) the name and address of the proposed subtenant or assignee; (ii) the terms, conditions and consideration of the proposed subletting or assignment; (iii) the nature and character of the business of the proposed subtenant or assignee and of its proposed use of the Facility; and (iv) current financial information and any other information as Landlord may reasonably request with respect to the proposed subtenant or assignee. Tenant shall pay to Landlord as additional rent, within twenty day after notice and demand therefor, Landlord's reasonable attorneys' fee incurred as a result of having any proposal reviewed or consent documented. In the case of an assignment, Landlord may withhold its consent if the nature and character or the financial condition of the proposed assignee is not equal to or better than that of Tenant. In the event Tenant proposes to sublease more than 75% of the Facility for all or substantially all of the duration of the Lease Term, Landlord may withhold its consent and require that such transaction be structured as an assignment: (1) No assignment or sublease shall relieve Tenant from primary liability for any of its obligations hereunder; 21 (2) The assignee or sublessee shall assume the obligations of Tenant hereunder to the extent of the interest assigned or subleased; (3) Tenant shall, within ten days after the delivery thereof, furnish or cause to be furnished to the Landlord a true and complete copy of each such assignment or sublease, as the case may be, and the instrument of assumption; and (4) Tenant shall pay to Landlord as additional rent, as and when paid by any subtenant to Tenant, one-half of any rents, additional charges or other consideration payable under the sublease to Tenant by the subtenant which is in excess of the Fixed Rent accruing during the term of the sublease in respect of the subleased space (at the rate per square foot payable by Tenant hereunder) pursuant to the terms hereof. ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.1. Events of Default Defined. (a) The following shall be ------------------------- "Events of Default" under this Lease Agreement and the term "Event of Default" or "Default" shall mean, whenever they are used in this Lease Agreement, any one or more of the following events: (1) The failure by Tenant to pay the Fixed Rent and Equipment Rent within five days of the date when due; (2) The failure by Tenant to pay any additional rent within ten days after notice and demand by Landlord to Tenant; (3) The failure by Tenant to observe or perform any covenant, condition or agreement hereunder on its part to be observed or performed (except obligations referred to in 22 Sections 7.1(a) (1) and (2) above) for a period of thirty days after written notice, specifying such failure and requesting that it be remedied, given to Tenant by Landlord; (4) The filing by Tenant of a voluntary petition in bankruptcy, or the failure by Tenant within sixty days to lift any execution, garnishment or attachment of such consequence as will impair its ability to carry on its operations at the Facility, or the commission by Tenant of any act of bankruptcy, or the adjudication of Tenant as a bankrupt, or the assignment of assets by Tenant for the benefit of its creditors, or the entry by Tenant into an agreement of composition with its creditors, or the approval by a court of competent jurisdiction of a petition applicable to Tenant in any proceeding for its reorganization instituted under the provisions of any state or federal bankruptcy or similar law, or appointment by order, judgment or decree of a court of competent jurisdiction of a receiver of the whole or a substantial portion of the properties of Tenant (unless such receiver is removed or discharged within sixty days of the date of his qualification). (b) Notwithstanding the provisions of Section 7.1(a), if by reason of force majeure either party hereto shall be unable in whole or in part to carry out its obligations under this Lease Agreement and if such party shall give notice and full particulars of such force majeure in writing to the other party within a reasonable time after the occurrence of the event or cause relied upon, the obligations under this Lease Agreement of the party giving such notice, so far as they are affected by such force majeure, shall be suspended during the continuance of the inability, which shall include a reasonable time for the removal of the effect thereof. The suspension of such obligations for such period pursuant to this subsection (b) shall not be deemed an event of default under this Section 7.1. Notwithstanding anything to the contrary in this subsection (b), an event of force majeure shall not excuse, delay or in any way diminish the 23 obligations of Tenant to pay the Fixed Rent and Equipment Rent when due or to provide the indemnity required by Section 5.2 hereof. The term "force majeure" as used herein shall include, without limitation, acts of God, strikes, lockouts or other industrial disturbances, acts of public enemies, orders of the State or any of their departments, agencies, governmental subdivisions, or officials, or any civil or military authority, insurrections, riots, epidemics, landslides, lightning, earthquakes, fire, hurricanes, storms, floods, washouts, disturbances, explosions, breakage or accident to machinery, transmission pipes or canals, partial or entire failure of utilities, or any other cause or event not reasonably within the control of the party claiming such inability. It is agreed that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the discretion of the party having difficulty, and the party having difficulty shall not be required to settle any strike, lockout and other industrial disturbances by acceding to the demands of the opposing party or parties. Section 7.2. Remedies on Default. (a) Whenever any Event of Default ------------------- shall have occurred and be continuing, Landlord may take any one or more of the following steps: (1) Declare, by written notice to Tenant, to be immediately due and payable, whereupon the same shall become immediately due and payable to the extent permitted by law all unpaid installments of Fixed Rent or Equipment Rent. (2) Re-enter and take possession of the Facility (without terminating this Lease Agreement and without being liable for any prosecution or damages therefor) and sublease the Facility for the account of Tenant, holding Tenant liable for the amount, if any, by which the aggregate of the Fixed Rent payable by Tenant hereunder exceeds the aggregate of the rents and other amounts received from the sublessee under such sublease. 24 (3) Terminate the Lease Term and this Lease Agreement and, without being liable for any prosecution or damages therefor, exclude Tenant from possession of the Facility and use its best efforts to lease the Facility to another Person for the account of Tenant, holding Tenant liable for the amount, if any, by which the aggregate of the Fixed Rent payable by Tenant hereunder exceeds the aggregate of the rents and other amounts received from such other Person under the new lease. (4) Take any other action at law or in equity which may appear to Landlord necessary or desirable to collect the payments then due or thereafter to become due hereunder, to secure possession of the Facility, and to enforce the obligations, agreements or covenants of Tenant under this Lease Agreement. (b) In the event the Facility is subleased or leased to another Person pursuant to Section 7.2 (a) (2) or (3) hereof, Landlord may (but shall be under no obligation to) make such repairs or alterations in or to the Facility and the Equipment as it may deem necessary or desirable for the implementation of such sublease or lease and Tenant shall be liable and agrees to pay the costs of such repairs or alterations and the expenses incidental to the effecting of such sublease or lease, together with interest thereon at the rate herein provided, notwithstanding that this Lease Agreement may have been terminated pursuant to Section 7.2(a)(3) hereof. Section 7.3. Remedies Cumulative. No remedy herein conferred upon or ------------------- reserved to Landlord is intended to be exclusive of any other available remedy, but each and every such remedy shall be cumulative and in addition to every other remedy given under this Lease Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to 25 time and as often as may be deemed expedient. In order to entitle Landlord to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be herein expressly required in this Lease Agreement. Section 7.4. Agreement to Pay Attorneys' Fees and Expenses. In the ---------------------------------------------- event Tenant should default under any of the provisions of this Lease Agreement and Landlord should employ attorneys or incur other expenses for the collection of amounts payable hereunder or the enforcement of performance or observance of any obligations or agreements on the part of Tenant herein contained, Tenant shall, on demand therefor, pay to Landlord the reasonable fees of such attorneys and such other expenses so incurred. ARTICLE VIII RENEWAL OPTION Section 8.1. Tenant's Renewal Option. Tenant shall have the option, to ----------------------- be exercised as hereinafter provided, to extend the term of this Lease Agreement for succeeding periods of one year (each, an "Extended Term") upon the following terms and conditions: (A) That at the time of the exercise of such option and the commencement of the Extended Term, Tenant shall not be in default in the performance of any of the terms, covenants or conditions herein contained. (B) That at the time of the exercise of such option and the commencement of the Extended Term, the Tenant named herein or any permitted assignee of Tenant shall be in actual occupancy of the entire Facility. (C) Except as provided herein, that the extension shall be upon terms, covenants and conditions as mutually agreed between the parties. (E) Tenant shall exercise its right to extend the term of this lease by notifying Landlord of Tenant's election to exercise such option not later than six months prior to the 26 Expiration Date or the end of any Renewal Term. Upon the giving of such notice, this Lease Agreement shall be deemed extended for the specified period, subject to the provisions of this Article, without execution of any further instrument. In the event that Tenant exercises the option provided for in this Article, then the term "Lease Term" as used herein shall be deemed to include the Extended Term. (F) Time shall be of the essence with respect to the exercise by Tenant of the option set forth in this Article. ARTICLE IX PURCHASE OPTION Section 9.1. Facility Purchase Option. (a) Provided that Tenant ------------------------- shall (i) not be in default in the performance of any of the terms, covenants or conditions herein contained on the date the option shall be exercised and on the date title shall be transferred pursuant to this Article, and (ii) that Tenant herein named, or any permitted assignee of Tenant shall be in occupancy of the entire Facility the date the option shall be exercised and on the date title shall be transferred pursuant to this Section, Tenant shall have the option to purchase the Facility upon terms and subject to the conditions and at the purchase price hereinafter set forth. Tenant shall exercise the option provided for by first giving Landlord notice of its election to so exercise the option (the "First Notice"). In the event Tenant gives such First Notice, then the purchase price shall be determined as provided in paragraph (c) below. Once the purchase price has been finally determined, then Tenant shall within 60 days of such determination notify Landlord that Tenant is proceeding with the purchase (the "Second Notice") and in such Second Notice set a date for closing which is at least 30 days but not more than 45 days following the date of such Second Notice. In the event that Tenant fails to give the Second Notice on a timely basis, then (i) Tenant shall pay to Landlord within 10 days following Landlord's demand therefor Landlord's 27 appraisal costs and additional costs incurred in determining the purchase price all costs and (which payment by Tenant to Landlord shall constitute additional rent) and (ii) this Lease Agreement, including but not limited to Tenant's rights pursuant to this Article, shall remain in full force and effect. (b) The purchase price shall be the fair market value of the Facility, excluding any leasehold improvements made by Tenant, determined as follows: (i) Within 20 days following the giving of the First Notice, Landlord and Tenant shall each designate an appraiser who shall be an M.A.I. in good standing having at least 10 years of experience in appraising buildings in Benton County, Arkansas. The two appraisers so chosen shall meet within 10 days after the second appraiser is appointed and if, within 20 days after the second appraiser is appointed, the two appraisers shall not agree upon a determination of the fair market value of the Facility by 10% or less, then the Purchase Price shall be the amount exactly in between the appraisers' determinations. If the two appraisers shall not agree upon a determination of the fair market value of the Facility by greater than 10%, they shall together appoint a third appraiser. If said two appraisers cannot agree upon the appointment of a third appraiser within 10 days after the expiration of such 20 day period, then either party, on behalf of both, and on notice to the other may request such appointment by the American Arbitration Association (or any successor organization, or if no successor organization exists, a comparable organization) in accordance with its then prevailing rules. If the American Arbitration Association shall fail to appoint said third appraiser within 10 days after such request is made, then either party may apply, on notice to the 28 other, to the state court in Benton County, Arkansas (or any other court having jurisdiction and exercising functions similar to those now exercised by the foregoing court) for the appointment of such third appraiser. Each party shall pay the fees and expenses of the appraiser selected by it. The fees and expenses of the third appraiser and all other expenses (not including the attorney's fees, witness fees and similar expenses of the parties which shall be borne separately by each of the parties) of the arbitration shall be borne equally by the parties hereto. Such appraisers shall, by majority thereof, appraise the Facility in order to determine the fair market value thereof in accordance with generally accepted appraisal methods as promulgated and endorsed by the American Institute of Appraisers. It is the intention of the foregoing provisions that a final determination as to the purchase price should be reached within 90 days following the giving of the First Notice. (ii) If the Tenant exercises its option to purchase the Facility within two years of the Term Commencement Date, Fifty Percent (50%) of all Fixed Rent paid at the time of the exercise of such option shall be credited towards such purchase price. (c) If Tenant shall have elected to purchase the Facility by delivery of the Second Notice to Landlord, the parties hereto shall enter into a contract of sale in substantially the same form as the standard form of commercial contract of sale accepted in the State of Arkansas. Such contract of sale shall be dated the date that a final determination of the purchase price is made and shall provide for a closing sixty days after such date (subject to such reasonable extensions as the parties shall reasonably determine to be necessary). 29 (d) In the event that (i) Tenant elects to purchase the Facility by delivery of the Second Notice to Landlord; and (ii) the title to the Facility fails to be transferred due to or arising out of any act, failure to act or negligence of Tenant, then this Lease Agreement and all of its terms shall remain in full force and effect for the then remaining balance of the Lease Term. Section 9.2 Equipment Purchase Option. Provided that Tenant shall (i) not ------------------------- be in default in the performance of any of the terms, covenants or conditions herein contained on the date the option shall be exercised and on the date title shall be transferred pursuant to this Article, and (ii) that Tenant herein named, or any permitted assignee of Tenant shall be in occupancy of the entire Facility the date the option shall be exercised and on the date title shall be transferred pursuant to this Section, Tenant shall have the option to purchase the Equipment during the Lease Term for Seventy-Five Thousand Dollars ($75,000.00) (the "Purchase Option"). If the Purchase Option is exercised within twelve months of the Term Commencement Date. One Hundred Percent (100%) of all Equipment Rent paid at the time of the exercise of such option shall be credited towards such purchase price. ARTICLE X RIGHT OF FIRST REFUSAL Section 10.1. Right of First Refusal. Notwithstanding anything ---------------------- contained in Section 9.1 of this Lease Agreement, Landlord can sell, transfer, or otherwise dispose of the Facility if Landlord complies with the requirements set forth in this Section 10.1. Landlord shall not, during the Lease Term, sell, transfer, or otherwise dispose of the Facility unless Landlord first shall have received a bona fide offer for the purchase of the Facility and shall have notified Tenant in writing of the names of the party or parties making the offer, the price and the terms and conditions thereof. Tenant shall have the prior right, at its option, for a period of 30 days following receipt by Tenant of Landlord's notice of the offer, by notice to the Landlord of its 30 intention to do so, to purchase the Facility, at the same price and upon the same terms and conditions as are contained in such offer. In the event that Tenant exercises its option to purchase, Tenant shall be obligated to pay the purchase price or accept title to the premises in accordance with the provisions of the offer and to close the transfer of title on the date provided for in such offer, but in no event before the sixtieth day following the date of the giving of such notice of exercise. If Tenant fails to exercise its right to purchase the Facility, and for any reason Landlord shall not thereafter sell or convey the Facility, to the party or parties making the offer at a price not less than that contained in the offer and upon substantially the same terms and conditions contained therein, the foregoing restriction against Landlord's sale or other disposition of the Facility set forth in this Section shall continue in full force and effect and Tenant's prior right to purchase shall apply with respect to any new offer relating to the Facility received by Landlord, all as more particularly provided above. If Tenant fails to exercise its right to purchase the Facility, and Landlord thereafter sells or conveys the Facility to the party or parties making the offer, this Lease Agreement will terminate and Tenant shall have six months to vacate the Facility. The provisions of this Section shall not apply to transfers of ownership interests in Landlord or to a transfer to an entity within the corporate family or other entity to which substantially all of Landlord's assets are transferred, or to any other change in the beneficial ownership of Landlord. In the event that Tenant elects to purchase the Facility pursuant to this Section and the title to the Facility fails to be transferred due to or arising out of any act, failure to act or negligence of Tenant, then in addition to any other rights or claims Landlord will have at law, equity or otherwise, such failure will be considered an Event of Default under this Lease Agreement. 31 ARTICLE XI MISCELLANEOUS Section 11.1. Surrender of Facility. At the termination of the Lease --------------------- Term Tenant shall surrender possession of the Facility peacefully and promptly to Landlord in good repair and good order. Section 11.2. Notices. All notices and other communications hereunder ------- shall be in writing and shall be deemed given if hand delivered or if sent by registered or certified mail, return receipt requested, when deposited in the mails, by first class postage prepaid, addressed as follows: To Landlord: Ex-Cell Home Fashions, Inc. 295 Fifth Avenue New York, New York 10016 Attention: Samuel Samelson, President with a copy to: Ex-Cell Home Fashions, Inc. P.O. Box 1879 Goldsboro, NC 27533 Attention: Jerry Bankhead, V.P. of Manufacturing & Distribution with a copy to: Glenoit Corporation 111 West 40th Street New York, NY 10018 Attention: Dupuy Sears, Chief Financial Officer with a copy to: Winston & Strawn 200 Park Avenue New York, New York 10166 Attention: John C. Phelan, Esq. To Tenant: Aladdin Manufacturing Corporation c/o Mohawk Rug & Textiles Division P.O. Box 130 3090 Sugar Valley Road, NW Sugar Valley, GA 30746 with a copy to: Mohawk Industries, Inc. 160 South Industrial Blvd. P.O. Box 12069 32 Calhoun, GA 30703 Attention: Salvatore J. Perillo, General Counsel Landlord and Tenant may, by notice given hereunder, designate any further or different addresses to which subsequent notices and other communications shall be sent. Section 11.3. Binding Effect. This Lease Agreement shall inure to the -------------- benefit of and shall be binding upon Landlord, Tenant and their respective successors and permitted assigns. Section 11.4. Severability. In the event any provision of this Lease ------------ Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 11.5. Amendments, Changes and Modifications. This Lease Agreement ------------------------------------- may not be amended, changed, modified or altered except by a writing executed by the parties. Section 11.6. Execution of Counterparts. This Lease Agreement may be ------------------------- executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 11.7. Applicable Law. This Lease Agreement shall be governed by -------------- the laws of the State of Arkansas. Section 11.8. Table of Contents and Section Headings Not Controlling. ------------------------------------------------------ The Table of Contents and the headings of the several sections in this Lease Agreement have been prepared for convenience of reference only and shall not control, affect the meaning or be taken as an interpretation of any provision of this Lease Agreement. Section 11.9. Estoppel Certificate. Tenant agrees at any time and from -------------------- time to time to execute and deliver to the Landlord a statement (i) certifying that this Lease Agreement 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 reciting such modifications) and whether any options 33 granted to Tenant pursuant to the provisions of this Lease Agreement have been exercised, (ii) certifying the dates to which the Fixed Rent and Additional Rent have been paid and the amounts thereof, and (iii) stating whether or not, to the best knowledge of Tenant, the Landlord is in default in performance of any of its obligations under the Lease Agreement, and, if so, specifying each such default of which Tenant may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by others with whom the Landlord may be dealing. Section 11.10. Quiet Enjoyment. The Landlord covenants and agrees with --------------- Tenant that upon Tenant paying the Fixed and, Additional Rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the Facility. Section 11.11. Security Deposit. Tenant has deposited with Landlord a sum ---------------- equal to one monthly installment of Fixed Rent, as security for the full and punctual performance by Tenant of all of the terms of this Lease Agreement. Landlord agrees to pay to Tenant, promptly following each anniversary of the Term Commencement Date, interest on such security deposit at the rate of four percent per annum. In the event Tenant defaults in the performance of any of the terms of this Lease Agreement, Landlord may apply the whole or any part of the security so deposited to the extent required for the payment of (i) any rent or (ii) any sum which Landlord may expend or may be required to expend by reason of Tenant's default including, without limitation, any damages or deficiency in the reletting of the Facility, whether accruing before or after summary proceedings or other re-entry by Landlord. Upon each such application, Tenant shall, on demand, pay to Landlord the sum so applied which shall be added to the security deposit so that the same shall be restored to the amount first set forth above. if Tenant shall fully 34 and punctually comply with all of the terms of this Lease Agreement, the amount of the security deposit, without interest, shall be returned to Tenant after the termination of this Lease Agreement and delivery of exclusive possession of the Facility, Landlord shall have the right to transfer the security to the vendee or lessee and Landlord shall ipso facto be released by Tenant from all liability for the return of such security; and Tenant agrees to look solely to the new landlord for the return of said security and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new landlord. Tenant shall not assign or encumber or attempt to assign or encumber the monies deposited herein as security and neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, or attempted assignment or encumbrance. Section 11.12. No Additional Waiver Implied By One Waiver. In the event ------------------------------------------ any agreement contained herein should be breached by Tenant and thereafter waived by Landlord, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 11.13. Brokerage Agreement. Tenant represents and warrants to ------------------- Landlord that no broker brought about this lease transaction, and that neither Tenant nor its respective employees or agents had any conversations or other' contract with any in regard to this lease transaction. Tenant acknowledges that Landlord is entering into this lease in reliance upon the foregoing warranty and representation. Tenant agrees to cooperate with Landlord and to provide testimony in any action, or proceeding brought against Landlord based upon a claim by a broker for a commission or other such payment in connection with this lease transaction. Section 11.14 Excluded Equipment. The pillow closing sewing machines ------------------ will be included in this Lease Agreement as Equipment for a period of one month following the Term 35 Commencement Date, at which time such pillow closing sewing machines shall no longer be included as Equipment hereunder and shall, at Landlord's sole cost and expense, be disassembled, properly packaged and shipped to Landlord at Ex-Cell Home Fashions, Inc., P.O. Box 1879, Goldsboro, NC 27533, Attention: Jerry Bankhead, V.P. of Manufacturing & Distribution. Section 11.15 Storage Area. Landlord may, at its option, vacate the ------------ Storage Area currently excludes from the Initial Space (as hereinafter defined) leased under the Lease Agreement, and lease such Storage Area to Tenant at an annual rental rate per rentable square foot equal to the then payable fixed annual base under this Lease Agreement and otherwise on the same terms and as are set forth in this Lease Agreement. (a) Landlord shall give Tenant a notice (the "Storage Area Notice") not less than thirty days prior to the date Tenant would be required to accept possession of same hereunder. The Storage Area Notice shall (i) indicate the date on which the Storage Area shall become available and (ii) specify Landlord's determination of the rent for the Storage Area. Tenant shall lease the Storage Area at the fixed annual rent specified in the Storage Area Notice, subject to adjustment as hereinafter provided, for a term commencing on the "Storage Area Term Commencement Date" (as hereinafter defined) and continuing for the balance of the Term on the terms and conditions hereinafter specified. (b) This Lease Agreement shall automatically be amended to include the Storage Area effective as of the Storage Area Term Commencement Date upon the terms and conditions herein specified: (i) Landlord hereby leases to Tenant and Tenant hereby rents from Landlord the Storage Area on the terms and conditions hereinafter set forth for a term (the 36 "Storage Area Term") commencing on the date set forth in such Storage Area Notice as the date the Storage Area was to become available, (the "Storage Area Term Commencement Date") and ending on the expiration date of the term for the space initially leased by Tenant hereunder (the "Initial Space") (ii) The fixed annual base rent payable under this lease as the same may have been increased from time to time pursuant to the terms of this lease shall be further increased by an amount equal to rentable space feet of the Storage Area multiplied by the fixed annual rent per rentable square foot for such Storage Area specified in the Storage Area Notice. (iii) Tenant will accept said Storage Area in its "as is" condition on the Storage Area Term Commencement Date. (c) Except as otherwise specifically provided in this Article, from and after the Storage Area Term Commencement Date, all references in the lease to the demised premises shall be deemed to apply to the Storage Area as well as to the Initial Space and all of the terms, provisions and conditions of this lease shall apply to the Storage Area with the same force and effect as if it were leased to Tenant initially together with the Initial Space. (d) Should the Storage Area Term Commencement Date for the Storage Area fall on any day other than the first day of a month, then the fixed annual rent attributable to the Storage Area shall be prorated on a per diem basis, and Tenant agrees to pay the amount thereof for such partial month on the Storage Area Term Commencement Date. (e) In no event shall the fixed annual rent payable with respect to the Storage Area on a per square foot basis determined as herein provided be less than the fixed annual rent per square foot than being paid under this lease for the Initial Space. 37 (f) From and after the first day of the Storage Area Term, all references in the lease to the demised premises shall be deemed to apply to the Storage Area and Initial Space. (g) Except as expressly permitted by this lease, Tenant shall not be permitted to sublet or assign all or any part of the Storage Area. (h) Except as otherwise specifically provided in this Article, all of the terms, provisions and conditions of the lease shall apply to the Storage Area with the same force and effect as if it were leased to Tenant initially together with the Initial Space demised hereunder. (i) The termination, cancellation or surrender of this lease as to the entire demised premises shall terminate any rights of Tenant pursuant to this Article. Section 11.16 Personal Property. The Equipment is, and shall at all ----------------- times be and remain, personal property notwithstanding that the Equipment or any part thereof may now be, or hereafter become, in any matter affixed or attached to, or imbedded in, or permanently resting upon, real property or any building thereon, or attached in any manner to what is permanent as by means of cement, plaster nails, bolts, screws or otherwise. Section 11.17 Ownership. The Equipment is, and shall at all times be --------- an remain, the sole and exclusive property of Landlord; and Tenant shall have no right, title or interest therein or thereto except as expressly set forth in this Lease Agreement. 38 IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease Agreement to be executed in their respective corporate names and their respective corporate seals to be hereunto affixed and attested by their duly authorized officers, all as of the date first above written. EX-CELL HOME FASHIONS, INC. By: /s/ Samuel Samelson ------------------------- Name: Samuel Samelson Title: President ALADDIN MANUFACTURING CORPORATION By: /s/ Salvatore J. Perillo -------------------------- Name: Salvatore J. Perillo Title: Asst Secretary General Council 39 EXHIBIT A Description of Land SURVEY FOR BEAR BRAND - --------------------- EX-10.15 6 FIFTH AMENDED AND RESTATED CREDIT AGREEMENT EXHIBIT 10.15 FIFTH AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 23, 1999 among MOHAWK INDUSTRIES, INC., FIRST UNION NATIONAL BANK, as Agent, SUNTRUST BANK, ATLANTA, as Agent, and WACHOVIA BANK, N.A., as Agent TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS........................................................................ 1 SECTION 1.01. Definitions............................................................... 1 SECTION 1.02. Accounting Terms and Determinations....................................... 13 SECTION 1.03. References................................................................ 14 SECTION 1.04. Use of Defined Terms...................................................... 14 SECTION 1.05. Terminology............................................................... 14 ARTICLE II THE CREDITS........................................................................ 14 SECTION 2.01. Commitments to Lend....................................................... 14 SECTION 2.02. Method of Borrowing....................................................... 14 SECTION 2.03. Notes..................................................................... 16 SECTION 2.04. Maturity of Loans......................................................... 16 SECTION 2.05. Interest Rates............................................................ 16 SECTION 2.06. Fees...................................................................... 18 SECTION 2.07. Optional Termination or Reduction of Commitments.......................... 19 SECTION 2.08. Mandatory Reduction and Termination of Commitments........................ 19 SECTION 2.09. Optional Prepayments...................................................... 19 SECTION 2.10. Mandatory Prepayments..................................................... 20
(i)
Page ---- SECTION 2.11. General Provisions as to Payments........................................ 20 SECTION 2.12. Computation of Interest and Fees......................................... 20 SECTION 2.13. Letters of Credit........................................................ 20 SECTION 2.14. Guarantee of Reimbursement Obligations................................... 22 SECTION 2.15. Assignments of Loans under Original Credit Agreement; Effective Date..... 24 ARTICLE III CONDITIONS TO BORROWINGS.......................................................... 25 SECTION 3.01. Conditions to Initial Borrowing.......................................... 25 SECTION 3.02. Conditions to All Borrowings............................................. 26 ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................................... 27 SECTION 4.01. Corporate Existence and Power............................................ 27 SECTION 4.02. Corporate and Governmental Authorization; No Contravention............... 27 SECTION 4.03. Binding Effect........................................................... 27 SECTION 4.04. Financial Information.................................................... 27 SECTION 4.05. No Litigation............................................................ 28 SECTION 4.06. Compliance with ERISA.................................................... 28 SECTION 4.07. Taxes.................................................................... 28 SECTION 4.08. Subsidiaries............................................................. 28 SECTION 4.09. Not an Investment Company................................................ 28 SECTION 4.10. Ownership of Property; Liens............................................. 28
(ii)
Page ---- SECTION 4.11. No Default.............................................................. 29 SECTION 4.12. Full Disclosure......................................................... 29 SECTION 4.13. Environmental Matters................................................... 29 SECTION 4.14. Capital Stock........................................................... 29 SECTION 4.15. Margin Stock............................................................ 30 SECTION 4.16. Insolvency.............................................................. 30 SECTION 4.17. Year 2000 Issues........................................................ 30 ARTICLE V COVENANTS........................................................................ 30 SECTION 5.01. Information............................................................. 30 SECTION 5.02. Inspection of Property, Books and Records............................... 32 SECTION 5.03. Year 2000 Issues........................................................ 32 SECTION 5.04. Debt to Capitalization Ratio............................................ 33 SECTION 5.05. Debt to EBITDA Ratio.................................................... 33 SECTION 5.06. Restricted Payments..................................................... 33 SECTION 5.07. Investments............................................................. 33 SECTION 5.08. Negative Pledge......................................................... 33 SECTION 5.09. Maintenance of Existence................................................ 34 SECTION 5.10. Dissolution............................................................. 34 SECTION 5.11. Consolidations, Mergers and Sales of Assets............................. 35
(iii)
Page ---- SECTION 5.12. Use of Proceeds.......................................................... 35 SECTION 5.13. Compliance with Laws; Payment of Taxes................................... 35 SECTION 5.14. Insurance................................................................ 36 SECTION 5.15. Change in Fiscal Year.................................................... 36 SECTION 5.16. Maintenance of Property.................................................. 36 SECTION 5.17. Environmental Notices.................................................... 36 SECTION 5.18. Environmental Matters.................................................... 36 SECTION 5.19. Environmental Release.................................................... 36 SECTION 5.20. Debt of Subsidiaries..................................................... 36 ARTICLE VI DEFAULTS.......................................................................... 37 SECTION 6.01. Events of Default........................................................ 37 ARTICLE VII CHANGE IN CIRCUMSTANCES; COMPENSATION............................................. 39 SECTION 7.01. Basis for Determining Interest Rate Inadequate or Unfair................. 39 SECTION 7.02. Illegality............................................................... 40 SECTION 7.03. Increased Cost and Reduced Return........................................ 40 SECTION 7.04. Base Rate Loans Substituted for Euro-Dollar Loans........................ 42 SECTION 7.05. Compensation............................................................. 42 SECTION 7.06. Replacement of Banks..................................................... 43
(iv)
Page ---- ARTICLE VIII MISCELLANEOUS..................................................................... 43 SECTION 8.01. Notices.................................................................. 43 SECTION 8.02. No Waivers............................................................... 43 SECTION 8.03. Expenses; Documentary Taxes.............................................. 44 SECTION 8.04. Indemnification.......................................................... 44 SECTION 8.05. Sharing of Setoffs....................................................... 44 SECTION 8.06. Amendments and Waivers................................................... 45 SECTION 8.07. No Margin Stock Collateral............................................... 45 SECTION 8.08. Successors and Assigns................................................... 45 SECTION 8.09. Confidentiality.......................................................... 47 SECTION 8.10. Representation by Banks.................................................. 47 SECTION 8.11. Obligations Several...................................................... 47 SECTION 8.12. Georgia Law.............................................................. 48 SECTION 8.13. Interpretation........................................................... 48 SECTION 8.14. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION............................ 48 SECTION 8.15. Counterparts............................................................. 48
(v) EXHIBIT A Form of Note EXHIBIT B Form of Opinion of Counsel for the Borrower EXHIBIT C Form of Assignment and Acceptance EXHIBIT D Form of Notice of Borrowing EXHIBIT E Form of Compliance Certificate Schedule 4.05 Litigation Schedule 4.08 Subsidiaries (vi) FIFTH AMENDED AND RESTATED CREDIT AGREEMENT THIS FIFTH AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 23, 1999, among MOHAWK INDUSTRIES, INC., FIRST UNION NATIONAL BANK, SUNTRUST BANK, ATLANTA, WACHOVIA BANK, N.A., and the other Banks from time to time party hereto. This Agreement is an amendment and restatement of that certain Fourth Amended and Restated Credit Agreement, dated as of January 28, 1999 (as amended and in effect immediately prior to the date hereof, the "Original Credit Agreement"; as amended and restated hereby, the "Agreement"). The parties hereto agree that the Original Credit Agreement is hereby amended, restated and superceded in its entirety as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions. The terms as defined in this Section 1.01 ----------- shall, for all purposes of this Agreement and any amendment hereto (except as herein otherwise expressly provided or unless the context otherwise requires), have the meanings set forth herein: "Adjusted London Interbank Offered Rate" has the meaning set forth in Section 2.05(c). "Affected Bank" has the meaning set forth in Section 7.06. "Affiliate" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Borrower (a "Controlling Person"), (ii) any Person (other than the Borrower or a Subsidiary) which is controlled by or is under common control with a Controlling Person, or (iii) any Person (other than a Subsidiary) of which the Borrower owns, directly or indirectly, 20% or more of the common stock or equivalent equity interests. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Fifth Amended and Restated Credit Agreement, together with all amendments and modifications hereto. "Aladdin" means Aladdin Manufacturing Corporation, a Delaware corporation. "Amortization" means for any period the sum of all amortization expenses of the Borrower and its Consolidated Subsidiaries for such period, as determined in accordance with GAAP. "Applicant" means each Person which, as the initial applicant or a Person that has assumed, pursuant to a written agreement in a form reasonably acceptable to the Required Banks, the obligations of an applicant, is liable for the reimbursement obligations with respect to a Letter of Credit. "Applicable Margin" has the meaning set forth in Section 2.05(a). "Approved Investment" means an Investment in compliance with the Investment Guidelines. "Asset Securitization" means the sale of accounts receivable and related assets of a Person in connection with a bona fide asset securitization program. "Assignee" has the meaning set forth in Section 8.08(c). "Assignment and Acceptance" means an Assignment and Acceptance executed in accordance with Section 8.08(c) in the form of Exhibit C. --------- "Authority" has the meaning set forth in Section 7.02. "Banks" collectively means First Union, SunTrust, Wachovia, and the other Banks from time to time party hereto. "Base Rate" means that interest rate as denominated and publicly announced by Wachovia from time to time as its "prime rate". The Base Rate is but one of several interest rate bases used by Wachovia. Each of Wachovia, First Union and SunTrust lends at interest rates above and below the Base Rate. "Base Rate Loan" means a Loan to be made as a Base Rate Loan pursuant to the applicable Notice of Borrowing, Section 2.02(f), or Article VII, as applicable. "Borrower" means Mohawk Industries, Inc., a Delaware corporation, and its successors and assigns. "Borrowing" means a borrowing hereunder consisting of Loans made to the Borrower at the same time by the Banks pursuant to Article II. A Borrowing is a "Base Rate Borrowing" if such Loans are Base Rate Loans or a "Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans. 2 "Capital Stock" means any nonredeemable capital stock of the Borrower or any Consolidated Subsidiary (to the extent issued to a Person other than the Borrower), whether common or preferred. "Catoosa Co. IRB" means that issuance of certain bonds by The Development Authority of Catoosa County, Georgia, pursuant to the terms and conditions set forth in that certain Indenture of Trust dated as of November 1, 1991. "CERCLA" means the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. (S) 9601 et. seq. and its implementing regulations and amendments. "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Inventory System established pursuant to CERCLA. "Change of Law" shall have the meaning set forth in Section 7.02. "Closing Date" means November 23, 1999. "Code" means the Internal Revenue Code of 1986, as amended, or any successor Federal tax code. "Commitment" means, with respect to each Bank, the amount set forth opposite the name of such Bank in the signature pages hereof as its Commitment, or in the Assignment and Acceptance by which such Bank became a party hereto, as such amount may be reduced from time to time pursuant to Sections 2.07 and 2.08. "Compliance Certificate" has the meaning set forth in Section 5.01(c). "Consolidated Debt" means at any date the Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Interest Expense" for any period means interest, whether expensed or capitalized, in respect of Debt of the Borrower or any of its Consolidated Subsidiaries outstanding during such period. "Consolidated Lease Expense" for any period means all rental payments, paid or accrued during such period, of the Borrower and its Consolidated Subsidiaries under all operating leases and rental agreements. "Consolidated Net Income" means, for any period, the Net Income of the Borrower and its Consolidated Subsidiaries for such period determined on a consolidated basis, but excluding (i) extraordinary items and (ii) any equity interests of the Borrower or any Subsidiary in the unremitted earnings of any Person that is not a Subsidiary. 3 "Consolidated Net Worth" means at any time Stockholder's Equity. Notwithstanding the foregoing, the Banks hereby agree that the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 121 ("FAS 121") relating to, among other things, the accounting for the impairment of long-lived assets, and its effect upon the consolidated financial statements of the Borrower as of and for the Fiscal Year ended December 31, 1996, shall be disregarded for the purposes of determining Stockholders' Equity, provided that any charge against income for the Fiscal Year ended December 31, 1996, resulting from the impairment of long-lived assets not exceed $2,000,000. In addition, the Banks agree that the effect of that certain non-recurring $4,000,000 charge, incurred by Borrower during the fourth Fiscal Quarter of 1995 as a result of income tax reimbursements made to certain executives of Borrower relating to their exercise of certain stock options, shall be disregarded when determining Stockholders' Equity. "Consolidated Operating Profits" means, for any period, the Operating Profits of the Borrower and its Consolidated Subsidiaries during such period. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of the Borrower in its consolidated financial statements as of such date. "Consolidated Total Assets" means, at any time, (x) the total assets of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries, prepared in accordance with GAAP, plus (y) the accounts receivable balance reported as of the last day of the calendar month most recently ended by the Borrower or a Subsidiary with respect to an Asset Securitization. "Consolidated Total Capital" means, at any time, the sum of the following as of such time (i) Consolidated Net Worth, and (ii) Consolidated Debt. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code. "Debt" of any Person means at any date, without duplication, all of the following as of such date (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker's acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar 4 instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (ix) all Debt of others Guaranteed by such Person, and (x) the total accounts receivable reported as sold as of the last day of the calendar month most recently ended by the Borrower or a Subsidiary with respect to an Asset Securitization. For all purposes of this Agreement, the amount of a Person's Debt under a loan or lease agreement between such Person and a governmental agency that has issued industrial development bonds or similar instruments, the repayment of which is secured by the payment obligations of such Person under such loan or lease agreement, shall be equal to the aggregate principal amount of such bonds or instruments outstanding at the time of determination less the amount of proceeds of such bonds or instruments which at such time are on deposit with a trustee or other fiduciary in a "construction" fund, or other similar fund which would be available to such trustee or other fiduciary to repay the bonds or other instruments if then due and payable. "Debt to Capitalization Ratio" means the ratio of Consolidated Debt to Consolidated Total Capital. "Default" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Default Rate" means, with respect to any Loan, on any day, the sum of 2% plus the then highest interest rate (including the Applicable Margin) which may be applicable to any Loans hereunder, including, without limitation, under Section 7.06, (irrespective of whether any such class of Loans are actually outstanding hereunder). "Depreciation" means for any period the sum of all depreciation expenses of the Borrower and its Consolidated Subsidiaries for such period, as determined in accordance with GAAP. "Dividends" means for any period the sum of all dividends paid or declared during such period in respect of any Capital Stock and Redeemable Preferred Stock (other than dividends paid or payable in the form of additional Capital Stock). "Dollars" or "$" means dollars in lawful currency of the United States of America. "Domestic Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in Georgia are authorized by law to close. "Environmental Authorizations" means all licenses, permits, orders, approvals, notices, registrations or other legal prerequisites for conducting the business of either the Borrower or any Subsidiary required by any Environmental Requirement. 5 "Environmental Authority" means any foreign, federal, state, local or regional government that exercises any form of jurisdiction or authority under any Environmental Requirement. "Environmental Judgments and Orders" means all judgments, decrees or orders arising from or in any way associated with any Environmental Requirements, whether or not entered upon consent or written agreements with an Environmental Authority or other entity arising from or in any way associated with any Environmental Requirement, whether or not incorporated in a judgment, decree or order. "Environmental Liabilities" means any liabilities, whether pending or, to the knowledge of the Borrower or any Subsidiary threatened, arising from and in any way associated with any Environmental Requirements and which would have or create a reasonable possibility of causing a Material Adverse Effect. "Environmental Notices" means notice from any Environmental Authority or by any other person or entity, of possible or alleged noncompliance with or liability under any Environmental Requirement, including without limitation any complaints, citations, demands or requests from any Environmental Authority or from any other person or entity for correction of any, violation of any Environmental Requirement or any investigations concerning any violation of any Environmental Requirement. "Environmental Proceedings" means any judicial or administrative proceedings arising from or in any way associated with any Environmental Requirement. "Environmental Releases" means releases as defined in CERCLA or under any applicable state or local environmental law or regulation. "Environmental Requirements" means any legal requirement relating to health, safety or the environment and applicable to any of the Borrower, any Subsidiary, or the Properties, including but not limited to any such requirement under CERCLA or similar state legislation and all federal, state and local laws, ordinances, regulations, orders, writs, decrees and common law. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor law. Any reference to any provision of ERISA shall also be deemed to be a reference to any successor provision or provisions thereof. "Euro-Dollar Business Day" means any Domestic Business Day on which dealings in Dollar deposits are carried out in the London interbank market. "Euro-Dollar Loan" means a Loan to be made as a Euro-Dollar Loan pursuant to the applicable Notice of Borrowing. 6 "Euro-Dollar Reserve Percentage" has the meaning set forth in Section 2.05(c). "Event of Default" has the meaning set forth in Section 6.01. "Federal Funds Rate" means, for any day, the rate per annum (rounded upward, if necessary, to the next higher 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to Wachovia on such day on such transactions, as determined by Wachovia. "First Union" means First Union National Bank, a national banking association, and its successors and, as the context requires, its permitted assigns. "First Union Letter of Credit" means that certain irrevocable direct- pay letter of credit issued by First Union, on behalf of Image Industries, Inc., as Applicant, dated as of September 17, 1997, designated as no. S130879, for the benefit of Reliance Trust Company, as trustee under the Summerville City IRB. "Fiscal Quarter" means any fiscal quarter of the Borrower. "Fiscal Year" means any fiscal year of the Borrower. "GAAP" means generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.02, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "Galaxy" means Galaxy Carpet Mills, Inc., a Delaware corporation, which corporation was liquidated into the Borrower as successor thereto. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect 7 thereof (in whole or in part), provided that the term Guarantee shall not -------- include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Materials" includes, without limitation, (a) solid or hazardous waste, as defined in the Resource Conservation and Recovery Act of 1980, 42 U.S.C. (S) 6901 et seq. and its implementing regulations and amendments, or in any applicable state or local law or regulation, (b) "hazardous substance", "pollutant", or "contaminant" as defined in CERCLA, or in any applicable state or local law or regulation, (c) gasoline, or any other petroleum product or by-product, including, crude oil or any fraction thereof (d) toxic substances, as defined in the Toxic Substances Control Act of 1976, or in any applicable state or local law or regulation or (e) insecticides, fungicides, or rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or in any applicable state or local law or regulation, as each such Act, statute or regulation may be amended from time to time. "Interest Period" means: (1) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the first, second, third or sixth month thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that: - -------- (a) any Interest Period (other than an Interest Period determined pursuant to paragraph (c) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall, subject to paragraph (c) below, end on the last Euro-Dollar Business Day of the appropriate subsequent calendar month; and (c) any Interest Period which begins before the Termination Date and would otherwise end after the Termination Date shall end on the Termination Date. (2) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that: -------- (a) any Interest Period (other than an Interest Period determined pursuant to paragraph (b) below) which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and (b) any Interest Period which begins before the Termination Date and would otherwise end after the Termination Date shall end on the Termination Date. 8 "Investment" means any investment in any Person, whether by means of purchase or acquisition of obligations or securities of such Person, capital contribution to such Person, loan or advance to such Person, making of a time deposit with such Person, Guarantee or assumption of any obligation of such Person or otherwise. "Investment Guidelines" means the guidelines for investment of funds of the Borrower and the Subsidiaries as approved by the Board of Directors of the Borrower or an authorized executive committee thereof and in effect on the Closing Date, as modified or supplemented from time to time with the approval of the Board of Directors of the Borrower or an authorized executive committee. "Issuer" means either Wachovia or First Union in its capacity as issuer of a Letter of Credit. "LC Commitment Percentage" means, with respect to a Bank, the ratio, expressed as a percentage, of (a) the amount of such Bank's Commitment to (b) the aggregate amount of the Commitments of all Banks hereunder; provided, however, that if at the time of determination the Commitments have terminated or been reduced to zero, the "LC Commitment Percentage" of each Bank shall be the LC Commitment Percentage of such Bank in effect immediately prior to such termination or reduction. "Lending Office" means, as to each Bank, its office located at its address set forth on the signature pages hereof (or identified on the signature pages hereof as its Lending Office) or such other office as such Bank may hereafter designate as its Lending Office by notice to the Borrower. "Letter of Credit Fee" means a letter of credit fee in an amount equal to the Applicable Margin for Euro-Dollar Loans multiplied times the average daily amount of the Letter of Credit Obligations, computed for the actual number of days elapsed on the basis of a 360 day year. "Letter of Credit Obligations" shall mean, at any time, the aggregate unfunded amount of the outstanding Letters of Credit. "Letter(s) of Credit" means (i) the Wachovia Letter of Credit, and, (ii) the First Union Letter of Credit. "Lien" means, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement, which has the practical effect of constituting a security interest or encumbrance, or encumbrance or servitude of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a 9 Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" means a Base Rate Loan or a Euro-Dollar Loan and "Loans" means Base Rate Loans or Euro-Dollar Loans, or either or each of them, as the context shall require. "Loan Documents" means this Agreement, the Notes, and any other document evidencing, relating to or securing the Loans, and any other document or instrument delivered in connection with this Agreement, the Notes or the Loans, as such documents and instruments may be amended or modified from time to time. "London Interbank Offered Rate" has the meaning set forth in Section 2.05(c). "Margin Stock" means "margin stock" as defined in Regulations T, U or X. "Material Adverse Effect" means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the financial condition, operations, business, properties or prospects of the Borrower and its Consolidated Subsidiaries taken as a whole, (b) the rights and remedies of the Banks under the Loan Documents, or the ability of the Borrower to perform its obligations under the Loan Documents to which it is a party, as applicable, or (c) the legality, validity or enforceability of any Loan Document. "Material Subsidiary" means, as of the date of any determination thereof, any Subsidiary that either: (a) owns assets having a book value equal to or greater than 5.0% of Consolidated Total Assets, or (b) had Net Income for any prior period of four consecutive Fiscal Quarters equal to or greater than 5.0% of Consolidated Net Income for the same four Fiscal Quarter period. "Multiemployer Plan" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "Net Income" means, as applied to any Person for any period, the aggregate amount of net income of such Person, after taxes, for such period, as determined in accordance with GAAP. "Notes" means the promissory notes of the Borrower, substantially in the form of Exhibit A, evidencing the obligation of the Borrower to repay the --------- Loans, together with all amendments, consolidations, modifications, renewals, and supplements thereto. 10 "Notice of Borrowing" has the meaning set forth in Section 2.02. "Operating Profits" means, as applied to any Person for any period, the operating income of such Person for such period, as determined in accordance with GAAP. "Original Credit Agreement" has the meaning set forth in the preamble to this Agreement. "Participant" has the meaning set forth in Section 8.08(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Performance Pricing Determination Date" has the meaning set forth in Section 2.05(a). "Permitted Acquisition" means a non-hostile acquisition, however structured, of all or substantially all of the assets of, or a majority of all the issued and outstanding capital stock of, a Person in a Permitted Line or Business. "Permitted Line of Business" means the manufacturing, marketing and/or distribution of commercial or home furnishings and floor coverings and other reasonably related products and any "vertical integration" with respect thereto. "Person" means an individual, a corporation, a partnership, an unincorporated association, joint venture, limited liability company, a trust or any other entity or organization, including, but not limited to, a government or political subdivision or an agency or instrumentality thereof. "Plan" means at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "Properties" means all real property owned, leased or otherwise used or occupied by the Borrower or any Subsidiary (including, without limitation, the Borrower), wherever located. "Redeemable Preferred Stock" of any Person means any preferred stock issued by such Person which is at any time prior to the Termination Date either (i) mandatorily redeemable 11 (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation T" means Regulation T of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Regulation X" means Regulation X of the Board of Governors of the Federal Reserve System, as in effect from time to time, together with all official rulings and interpretations issued thereunder. "Reimbursement Agreement" means each reimbursement agreement executed and delivered by an Applicant with respect to a Letter of Credit, as amended from time to time. "Related Fund" means, with respect to any Bank, a special purpose entity that purchases or participates in such Bank's loans and for which such Bank is agent, advisor or manager for such special purpose entity. "Replacement Bank" has the meaning set forth in Section 7.06. "Required Banks" means at any time Banks having at least 70% of the aggregate amount of the Commitments, or if the Commitments are no longer in effect, holding at least 70% of the aggregate outstanding principal amount of the Notes. "Restricted Payment" means (i) any dividend or other distribution on any shares of the Borrower's capital stock (except dividends payable solely in shares of its capital stock) or (ii) any payment on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Borrower's capital stock (except shares acquired upon the conversion thereof into other shares of its capital stock) or (b) any option, warrant or other right to acquire shares of the Borrower's capital stock. "Stockholders' Equity" means, at any time, the stockholders' equity of the Borrower and its Consolidated Subsidiaries, as set forth or reflected on the most recent consolidated balance sheet of the Borrower and its Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any Redeemable --- --------- Preferred Stock of the Borrower or any 12 of its Consolidated Subsidiaries. Shareholders' equity generally would include, but not be limited to, (i) the par or stated value of all outstanding Capital Stock, (ii) capital surplus, (iii) retained earnings, and (iv) various deductions such as (A) purchases of treasury stock, (B) valuation allowances, (C) receivables due from an employee stock ownership plan, (D) employee stock ownership plan debt guarantees, and (E) foreign currency translation adjustments. "Subsidiary" means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower. "Summerville City IRB" means that issuance of certain bonds by The Development Authority of the City of Summerville, Georgia, pursuant to the terms and conditions set forth in that certain Trust Indenture dated as of September 1, 1997. "SunTrust" means SunTrust Bank, Atlanta, a Georgia state banking corporation, and its successors and, as the context requires, its permitted assigns. "Termination Date" means January 28, 2004. "Third Parties" means all lessees, sublessees, licensees and other users of the Properties, excluding those users of the Properties in the ordinary course of the Borrower's business and on a temporary basis. "Transferee" has the meaning set forth in Section 8.08(d). "Unused Commitment" means at any date, with respect to any Bank, an amount equal to its Commitment less the aggregate outstanding principal amount of its Loans. "Wachovia" means Wachovia Bank, N.A., a national banking association, and its successors and, as the context requires, its permitted assigns. "Wachovia Letter of Credit" means that certain irrevocable direct-pay letter of credit issued by Wachovia, on behalf of Aladdin, successor by merger to Galaxy, as Applicant, dated as of January 13, 1995, designated with I.D. Number LC870-007339, for the benefit of NationsBank of Georgia, N.A., as trustee under the Industrial Revenue Bond referenced therein. "Wholly Owned Subsidiary" means any Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Borrower or a Consolidated Subsidiary. "Year 2000 Issues" shall mean the actual and reasonably anticipated costs, claims, losses, and liabilities associated with the inability of certain computer applications to handle effectively data that includes dates on and after January 1, 2000, as such inability in respect of the 13 Borrower or any Subsidiary and in respect of their respective material customers, suppliers and vendors affects the business, operations, and financial condition of the Borrower or any Subsidiary. SECTION 1.02. Accounting Terms and Determinations. Unless otherwise ----------------------------------- specified herein, all terms of an accounting character used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants or otherwise required by a change in GAAP) with the most recent audited consolidated financial statements of the Borrower delivered to the Banks unless with respect to any such change concurred in by the Borrower's independent public accountants or required by GAAP, in determining compliance with any of the provisions of any of the Loan Documents: (i) the Borrower shall have objected to determining such compliance on such basis at the time of delivery of such financial statements, or (ii) the Required Banks shall so object in writing within 30 days after the delivery of such financial statements, in either of which events the Banks and the Borrower shall negotiate in good faith to resolve any existing disagreements regarding such calculations, provided, that if such disagreements are not resolved within 30 days after receipt of a notice of objection, such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under Section 5.01, shall mean the financial statements referred to in Section 4.04). SECTION 1.03. References. Unless otherwise indicated, references in ---------- this Agreement to "Articles", "Exhibits", "Schedules", "Sections" and other Subdivisions are references to Articles, exhibits, schedules, sections and other subdivisions hereof. SECTION 1.04. Use of Defined Terms. All terms defined in this -------------------- Agreement shall have the same defined meanings when used in any of the other Loan Documents, unless otherwise defined therein or unless the context shall require otherwise. SECTION 1.05. Terminology. All personal pronouns used in this ----------- Agreement, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and the plural shall include the singular. Titles of Articles and Sections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. 14 ARTICLE II THE CREDITS SECTION 2.01. Commitments to Lend. (a) Each Bank severally agrees, on ------------------- the terms and conditions set forth herein, to make Loans to the Borrower from time to time before the Termination Date; provided, that, immediately after -------- ---- each such Loan is made, the aggregate outstanding principal amount of Loans by such Bank shall not exceed the amount of its Commitment. Each Base Rate Borrowing under this Section shall be in an aggregate principal amount of $100,000 or any larger amount (except that any such Borrowing may be in the aggregate amount of the Unused Commitments) and shall be made from the several Banks ratably in proportion to their respective Commitments. Each Euro-Dollar Borrowing under this Section shall be in an aggregate principal amount of $2,000,000 or any larger multiple of $500,000 and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay, reborrow, and to the extent permitted by Section 2.09, prepay Loans, under this Section at any time before the Termination Date. As of the date of this Agreement, the outstanding Loans are due and owing in accordance with the terms hereof without counterclaim, offset or other defense. (b) Notwithstanding the foregoing Section 2.01(a), in no event shall the principal amount of all Loans made by any Bank outstanding at any one time exceed the total amount of such Bank's Commitment minus such Bank's pro rata ----- share of the Letter of Credit Obligations (whether as issuer or participant). SECTION 2.02. Method of Borrowing. (a) The Borrower shall give each ------------------- Bank notice (a "Notice of Borrowing"), which shall be substantially in the form of Exhibit D, on the same day for each Base Rate Borrowing but, in any case, --------- prior to 12:00 P.M., and at least 3 Euro-Dollar Business Days before each Euro- Dollar Borrowing, specifying: (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (ii) the aggregate amount of such Borrowing, (iii) whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, and (iv) in the case of a Euro-Dollar Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. (b) Upon receipt of a Notice of Borrowing by any Bank, such Notice of Borrowing shall not thereafter be revocable. 15 (c) Not later than 4:00 P.M. (Atlanta, Georgia time) on the date of each Borrowing, each Bank shall (except as provided in paragraph (d) of this Section) make available its ratable share of such Borrowing, in Federal or other funds immediately available in Atlanta, Georgia, to the Borrower at such Bank's Lending Office. (d) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Borrower as provided in paragraph (c) of this Section, or remitted by the Borrower to such Bank as provided in Section 2.11, as the case may be. (e) Notwithstanding anything to the contrary contained in this Agreement, no Euro-Dollar Borrowing may be made if there shall have occurred a Default or an Event of Default, which Default or Event of Default shall not have been cured or waived. (f) In the event that a Notice of Borrowing fails to specify whether the Loans comprising such Borrowing are to be Base Rate Loans or Euro-Dollar Loans, such Loans shall be made as Base Rate Loans. If the Borrower is otherwise entitled under this Agreement to repay any Loans maturing at the end of an Interest Period applicable thereto with the proceeds of a new Borrowing, and the Borrower fails to repay such Loans using its own moneys and fails to give a Notice of Borrowing in connection with such new Borrowing, a new Borrowing shall be deemed to be made on the date such Loans mature in an amount equal to the principal amount of the Loans so maturing, and the Loans comprising such new Borrowing shall be Base Rate Loans. (g) Notwithstanding anything to the contrary contained herein, there shall not be more than 12 interest rates (including the Applicable Margins) applicable to the Loans at any given time. SECTION 2.03. Notes. (a) The Loans of each Bank shall be evidenced ----- by a single Note made by the Borrower payable to the order of such Bank for the account of its Lending Office in an amount equal to the original principal amount of such Bank's Commitment. (b) Each Bank shall record, and prior to any transfer of its Note shall endorse on the schedule forming a part thereof appropriate notations to evidence the date, amount and maturity of each Loan made by it, the date and amount of each payment of principal made by the Borrower with respect thereto and whether such Loan is a Base Rate Loan or Euro-Dollar Loan, and such schedule shall constitute rebuttable presumptive evidence of the principal amount owing and unpaid on such Bank's Note; provided that the failure of any Bank to make -------- any such recordation or endorsement shall not affect the obligation of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. 16 SECTION 2.04. Maturity of Loans. Each Loan included in any Borrowing ----------------- shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing (subject to subsequent refundings thereof) and all Loans shall mature and be due and payable in full (without further refundings thereof) on the applicable Termination Date. SECTION 2.05. Interest Rates. (a) "Applicable Margin" means at all -------------- times: (i) -1.0% (negative) for all Base Rate Loans outstanding at any time in an amount less than or equal to $10,000,000.00, and -0.25% (negative) for all Base Rate Loans outstanding at any time in an amount greater than $10,000,000.00 (provided, however, in no event shall the amount of (x) the Applicable Margin for any Base Rate Loan plus the Base Rate, be less than (y) the higher of (a) the Federal Funds Rate plus one-half of one percent, or (b) the corresponding amount of the Applicable Margin for any Euro- Dollar Loan plus the Adjusted London Interbank Offered Rate); (ii) for the period commencing on the Closing Date to and including the first Performance Pricing Determination Date, for each Euro-Dollar Loan 0.275%; and (iii) from and after the first Performance Pricing Determination Date, for each Euro-Dollar Loan, the percentage determined on each Performance Pricing Determination Date by reference to the table set forth below as to such type of Loan and the Debt to Capitalization Ratio for the quarterly or annual period ending immediately prior to such Performance Pricing Determination Date. Debt to Capitalization Ratio Applicable Margin -------------- ----------------- (greater than or equal to) 0.50 to 1.0 0.500% (greater than or equal to) 0.45 to 1.0 but (less than) 0.50 to 1.0 0.375% (greater than or equal to) 0.40 to 1.0 but (less than) 0.45 to 1.0 0.275% (greater than or equal to) 0.30 to 1.0 but (less than) 0.40 to 1.0 0.250% (less than) 0.30 to 1.0 0.200% 17 In determining interest for purposes of this Section 2.05 and fees for purposes of Section 2.06, the Borrower and the Banks shall refer to the Borrower's most recent consolidated quarterly and annual (as the case may be) financial statements delivered pursuant to Section 5.01(a) or (b), as the case may be. The "Performance Pricing Determination Date" is the date which is the last date on which such financial statements are permitted to be delivered pursuant to Section 5.01(a) or (b), as applicable. Any such required change in interest and fees shall become effective on such Performance Pricing Determination Date, and shall be in effect until the next Performance Pricing Determination Date, provided that no fees or interest shall be decreased -------- pursuant to this Section 2.05 or Section 2.06 if an Event of Default is in existence on the Performance Pricing Determination Date. (b) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day plus (or minus) the Applicable Margin. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of and, to the extent permitted by applicable law, overdue interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin plus the applicable Adjusted London Interbank Offered Rate for such Interest Period; provided that if any -------- Euro-Dollar Loan shall, as a result of paragraph (1)(c) of the definition of Interest Period, have an Interest Period of less than one month, such Euro- Dollar Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 3 months, at intervals of 3 months after the first day thereof. Any overdue principal of and, to the extent permitted by law, overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the Default Rate. The "Adjusted London Interbank Offered Rate" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upwards, if necessary, to the next higher 1/100th of 1%) by dividing (i) the applicable London Interbank Offered Rate for such Interest Period by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "London Interbank Offered Rate" applicable to any Euro-Dollar Loan means for the Interest Period of such Euro-Dollar Loan, the rate per annum determined on the basis of the offered rate for deposits in Dollars of amounts equal or comparable to the principal amount of such Euro-Dollar Loan offered for a term comparable to such Interest Period, which rates appear on Telerate Page 3750 effective as of 11:00 A.M., London time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period, provided that (i) if more than one such offered rate appears on Telerate Page 3750, the "London Interbank Offered Rate" will be the arithmetic average (rounded upward, if necessary, to the next higher 1/100th of 1%) of such offered rates; 18 (ii) if no such offered rates appear on such page, the "London Interbank Offered Rate" for such Interest Period will be the arithmetic average (rounded upward, if necessary, to the next higher 1/100th of 1%) of rates quoted by not less than two major banks in New York City, selected by Wachovia, at approximately 10:00 A.M., New York City time, 2 Euro-Dollar Business Days prior to the first day of such Interest Period, for deposits in Dollars offered to leading European banks for a period comparable to such Interest Period in an amount comparable to the principal amount of such Euro-Dollar Loan. "Euro-Dollar Reserve Percentage" means, with respect to a given Bank, for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the actual reserve requirement for such Bank in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Wachovia shall determine the interest rates applicable to the Loans hereunder. Wachovia shall give prompt notice to the Borrower and the other Banks (by telephone or facsimile transmission) of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. SECTION 2.06. Fees. (a) The Borrower shall pay to each Bank, for the ---- ratable account of such Bank, a facility fee, calculated in the manner provided in the last paragraph of Section 2.05(a)(iii), on the aggregate amount of such Bank's Commitment (without taking into account the amount of the outstanding Loans made by such Bank), at a rate per annum equal to: (i) for the period commencing on the Closing Date to and including the first Performance Pricing Determination Date, 0.20%; and (ii) from and after the first Performance Pricing Determination Date, the percentage determined on each Performance Pricing Determination Date by reference to the table set forth below and the Debt to Capitalization Ratio for the quarterly or annual period ending immediately prior to such Performance Pricing Determination Date: Debt to Capitalization Ratio Facility Fee -------------- ------------ (greater than or equal to) 0.45 to 1.0 0.25% (greater than or equal to) 0.40 to 1.0 but (less than) 0.45 to 1.0 0.20% 19 (less than) 0.40 to 1.0 0.15% Such facility fees shall accrue from and including the Closing Date to (but excluding the Termination Date) and shall be payable on each December 31, March 31, June 30, and September 30 and on the Termination Date. (b) The Borrower shall pay to each Bank the fees payable to such Bank as mutually agreed in writing as of the Closing Date. SECTION 2.07. Optional Termination or Reduction of Commitments. The ------------------------------------------------ Borrower may, upon at least 3 Domestic Business Days' notice to the Banks, terminate at any time, or proportionately reduce the Unused Commitments from time to time by an aggregate amount of at least $10,000,000. Upon a reduction of the Unused Commitments, each Bank's Commitments shall be permanently and ratably reduced. SECTION 2.08. Mandatory Reduction and Termination of Commitments. The -------------------------------------------------- Commitments shall terminate on the Termination Date and any Loans then outstanding (together with accrued interest thereon) shall be due and payable by the Borrower on such date. SECTION 2.09. Optional Prepayments. (a) The Borrower may, upon notice -------------------- to the Banks on the same day, prepay any Base Rate Borrowing in whole at any time, or from time to time in part in amounts aggregating at least $100,000 or any larger amount, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. (b) Subject to Section 7.05, the Borrower may, upon at least 2 Euro- Dollar Business Days' notice to the Banks, prepay any Euro-Dollar Loan in whole at any time, or from time to time in part, prior to the maturity thereof, in amounts aggregating at least $1,000,000 or any larger multiple of $100,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of the prepayment. (c) Upon any Bank's receipt of a notice of prepayment pursuant to this Section, such notice shall not thereafter be revocable by the Borrower. SECTION 2.10. Mandatory Prepayments. On each date on which the --------------------- Commitments are reduced pursuant to Section 2.07 or Section 2.08, the Borrower shall repay or prepay such principal amount of the outstanding Loans, if any (together with interest accrued thereon), as may be necessary so that after such payment the aggregate unpaid principal amount of the Loans does not exceed the aggregate amount of the Commitments as then reduced. SECTION 2.11. General Provisions as to Payments. (a) The Borrower --------------------------------- shall make each payment of principal of, and interest on, each Bank's Loans and of each Bank's fees hereunder, not later than 11:00 A.M. (Atlanta, Georgia time) on the date when due, in Federal or other funds immediately available at the place where payment is due, to such Bank at its address 20 set forth on the signature pages hereof or at such other address as such Bank may notify the Borrower in writing from time to time. (b) Whenever any payment of principal of, or interest on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro- Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. SECTION 2.12. Computation of Interest and Fees. Interest on Base Rate -------------------------------- Loans shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Interest on Euro-Dollar Loans shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed, calculated as to each Interest Period from and including the first day thereof to but excluding the last day thereof. Any fees payable hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.13. Letters of Credit. (a) Subject to the terms and ----------------- conditions contained in this Agreement, with respect to the Letters of Credit, the Borrower shall pay to the order of each Issuer the amount of the Letter of Credit Fee payable with respect to its Letter of Credit (and such Issuer shall pay to each other Bank such Bank's respective pro rata share thereof) (A) on the first day of each Fiscal Quarter, (B) on the Termination Date and (C) if there are any Letter of Credit Obligations on the Termination Date, on the first date thereafter on which there are no Letter of Credit Obligations, in each case for the previous period. Any payments made by the Issuers in honoring a draft or other demand for payment presented in accordance with the terms of the Letters of Credit shall be deemed to constitute a Borrowing of Base Rate Loans and which shall be evidenced by the Notes. After the occurrence and during the continuation of an Event of Default, or upon the termination of this Agreement, to the extent of any Letter of Credit Obligations, the Issuers may, as separate collateral security to be held by the Banks for reimbursement of amounts of the Letter of Credit Obligations which are subsequently funded by an Issuer (and for which the other Banks have purchased a participation therein as set forth below), either (x) immediately advance the principal amount thereof as Loans, and set aside the amounts so advanced as such collateral security, or (y) demand from the Borrower cash collateral in an amount equal to 100% of such Letter of Credit Obligations with respect to each Letter of Credit as such collateral security. The Borrower hereby agrees that the Banks shall have a right of setoff against and security interest in such collateral reserve. After a Letter of Credit has been canceled and all Letter of Credit Obligations with respect to such Letter of Credit have been satisfied, and the Issuer (or participant) has been reimbursed all amounts funded by the Issuer with respect thereto, any balance remaining in said collateral reserve with respect to such 21 Letter of Credit may be applied to other unpaid obligations of the Borrower hereunder, and, if none, shall be remitted to the Borrower. (b) Purchase of Participations. Each Bank hereby irrevocably and --------------------------- unconditionally purchases and receives from each Issuer, without recourse or warranty, an undivided interest and participation, equal to the amount of such Bank's LC Commitment Percentage in each Letter of Credit issued by such Issuer. Each Bank acknowledges receipt of a copy of each Letter of Credit. (c) Sharing of Letters of Credit Payments. In the event that an -------------------------------------- Issuer makes any payment under a Letter of Credit issued by it for which the Borrower shall not have repaid such amount to such Issuer pursuant to this Section, such Issuer shall promptly notify the other Banks of such failure, and each other Bank shall promptly and unconditionally pay to such Issuer the LC Commitment Percentage of the amount of such payment in Dollars and in same day funds. If an Issuer so notifies the other Banks prior to 10:00 A.M. (Atlanta, Georgia time) on any Domestic Business Day, such other Banks shall make available to such Issuer the LC Commitment Percentage of the amount of such payment on such Domestic Business Day in same day funds. If and to the extent any of such other Banks shall not have so made its LC Commitment Percentage of the amount of such payment available to such Issuer, such other Bank agrees to pay to such Issuer forthwith on demand such amount together with interest thereon, for each day from the date such payment was first due until the date such amount is paid to such Issuer at the Federal Funds Rate. (d) Sharing of Reimbursement Obligation Payments. Whenever an Issuer --------------------------------------------- receives a payment from the Borrower or any guarantor on account of Letter of Credit Obligations owing in respect of a Letter of Credit issued by such Issuer including any interest thereon, as to which such Issuer has received any payments from the other Banks pursuant to this Section, such Issuer shall promptly pay to each other Bank its participating interest therein, in Dollars and in the kind of funds so received, an amount equal to such other Bank's LC Commitment Percentage thereof. Each such payment shall be made by such Issuer on the Domestic Business Day on which the funds are paid to such Person, if received prior to 10:00 a.m. (Atlanta, Georgia time) on such Domestic Business Day, and otherwise on the next succeeding Domestic Business Day. Each Bank agrees that letter of credit fees (other than the Letter of Credit Fee) payable under an Issuer's Reimbursement Agreement are solely for the account of such Issuer, notwithstanding any provision contained herein to the contrary. (e) Obligations Irrevocable. The obligations of each Bank to make ------------------------ payments to an Issuer with respect to a Letter of Credit shall be irrevocable, not subject to any qualification or exception whatsoever and shall be made in accordance with, but not subject to, the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; 22 (ii) the existence of any claim, set-off, defense or other right which the Borrower may have at any time against a beneficiary named in the Letters of Credit or any transferee of the Letters of Credit (or any Person for whom any such transferee may be acting), an Issuer, any Bank or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions; (iii) any draft, certificate or any other document presented under a Letter of Credit proves to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; (v) payment by an Issuer under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (vi) payment by an Issuer under a Letter of Credit against presentation of any draft or certificate that does not comply with the terms of such Letter of Credit, except payment resulting from the gross negligence or willful misconduct of an Issuer; or (vii) any other circumstances or happenings whatsoever, whether or not similar to any of the foregoing, except circumstances or happenings resulting from the gross negligence or willful misconduct of the Issuer. (f) Amendments to Letters of Credit and Reimbursement Agreements. ------------------------------------------------------------ Neither Issuer shall agree to an amendment or modification to its Reimbursement Agreement or Letter of Credit unless the Required Banks have granted their prior written consent thereto, which consent shall not be unreasonably withheld or delayed. SECTION 2.14. Guarantee of Reimbursement Obligations. The following -------------------------------------- provisions of this Section 2.14 shall apply solely to each Reimbursement Agreement for which the Borrower is not the Applicant. (a) The Borrower hereby absolutely and unconditionally, guarantees the due and punctual payment and performance of the Letter of Credit Obligations. Upon failure by an Applicant to pay any such amount in accordance with the terms of its Reimbursement Agreement, the Borrower agrees that it shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Reimbursement Agreement. 23 (b) The obligations of the Borrower under this Section 2.14 shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of an Applicant under the Reimbursement Agreement, by operation of law or otherwise or any obligation of any other guarantor of any of the Letter of Credit Obligations; (ii) any modification or amendment of or supplement to the Reimbursement Agreement; (iii) any release, nonperfection or invalidity of any direct or indirect security for any obligation of an Applicant under the Reimbursement Agreement, or any obligations of any other guarantor of any of the Letter of Credit Obligations; (iv) any change in the corporate existence, structure or ownership of an Applicant or any other guarantor of any of the Letter of Credit Obligations, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting an Applicant, or any other guarantor of the Letter of Credit Obligations, or its assets or any resulting release or discharge of any obligation of an Applicant, or any other guarantor of any of the Letter of Credit Obligations; (v) the existence of any claim, setoff or other rights which the Borrower may have at any time against an Applicant, any other guarantor of any of the Letter of Credit Obligations, any Bank or any other Person, whether in connection herewith or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against an Applicant, or any other guarantor of any of the Letter of Credit Obligations, for any reason related to the Reimbursement Agreement, or any other Guaranty, or any provision of applicable law or regulation purporting to prohibit the payment of the Letter of Credit Obligations by an Applicant, or any other guarantor of the Letter of Credit Obligations; and (vii) any other act or omission to act or delay of any kind by an Applicant, any other guarantor of the Letter of Credit Obligations, any Bank or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the Borrower's obligations hereunder, including without limitation, any failure, omission, delay or inability on the part of any Bank to enforce, assert or exercise any right power or remedy conferred on any Bank under the Reimbursement Agreement or any other Loan Documents. (c) The Borrower's obligations hereunder shall remain in full force and effect until all Letter of Credit Obligations shall have been paid in full and the relevant Reimbursement Agreement shall have terminated or expired. If at any time any amount payable by an Applicant under a Reimbursement Agreement or any other Loan Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of an Applicant or otherwise, the Borrower's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. (d) The Borrower irrevocably waives any requirement that at any time any action be taken by any Person against an Applicant, any other guarantor of the Letter of Credit Obligations, or any other Person. SECTION 2.15. Assignments of Loans under Original Credit Agreement; ----------------------------------------------------- Effective Date. (a) This Agreement shall become effective on December 15, 1999 - -------------- (the "Target 24 Date"), upon compliance by the parties to this Agreement with the conditions listed in clauses (i) and (ii) in this Section 2.15(a) below before 5:00 p.m. Atlanta, Georgia, time on the Target Date and with the conditions set forth in Sections 3.01 and 3.02 (the "Effective Date Conditions") (upon compliance with the Effective Date Conditions on the Target Date, the Target Date shall be referred to herein as the "Effective Date"): (i) SunTrust shall have purchased from Wachovia and Wachovia shall have assigned, as evidenced by SunTrust's Federal Funds wire transfer in an amount equal to the Purchase Price in accordance with Wachovia's written instructions, a 33.3333% interest in and to (terms in quotations in this clause (i) have the meaning set forth in the Original Credit Agreement): (A) Wachovia's rights and obligations under the Original Credit Agreement (exclusive of accrued interest, fees and other amounts earned prior to the Target Date); (B) the aggregate principal amount of Wachovia's total "Commitments" equal to $225,000,000, which 33.3333% interest shall be deemed to equal $75,000,000 (subject to reduction of the Commitments prior to the Target Date); (C) Wachovia's outstanding "Tranche A Loans" and the "Tranche A Note"; and (D) Wachovia's outstanding "Tranche B Loans" and the "Tranche B Note"; and (ii) SunTrust shall have purchased from First Union and First Union shall have assigned, as evidenced by SunTrust's Federal Funds wire transfer in an amount equal to the Purchase Price in accordance with First Union's written instructions, a 33.3333% interest in and to (terms in quotations in this clause (ii) have the meaning set forth in the Original Credit Agreement): (A) First Union's rights and obligations under the Original Credit Agreement (exclusive of accrued interest, fees and other amounts earned prior to the Target Date); (B) the aggregate principal amount of First Union's total "Commitments" equal to $225,000,000, which 33.3333% interest shall be deemed to equal $75,000,000 (subject to reduction of the Commitments prior to the Target Date); (C) First Union's outstanding "Tranche A Loans" and the "Tranche A Note"; and (D) First Union's outstanding "Tranche B Loans" and the "Tranche B Note." (b) The parties to this Agreement agree that: (i) the interests in the Original Credit Agreement and the "Notes" issued thereunder purchased by SunTrust under Section 2.15(a) are evidenced by this Agreement and no other instrument is necessary to evidence such purchased interests; (ii) the "Tranche A Commitments" and "Tranche B Commitments" under the Original Credit Agreement are hereby replaced in their entirety by the Commitments under this Agreement; and (iii) the outstanding principal amount of the "Tranche A Loans" and "Tranche B Loans" held by each Bank under the Original Credit Agreement are hereby consolidated and shall be evidenced by the Note issued to each Bank in accordance with the terms of this Agreement. (c) The "Purchase Price" shall mean, with respect to each of Wachovia and First Union, the principal amount of the outstanding "Loans" divided by three under the Original Credit Agreement held by each of Wachovia and First Union on the Target Date. 25 (d) SunTrust acknowledges and agrees that neither Wachovia nor First Union (i) has made any representation or warranty or assumed any responsibility with respect to any statements, warranties or representations made in or in connection with the Original Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Original Credit Agreement or any other "Loan Documents" under the Original Credit Agreement furnished pursuant thereto, other than that (A) it is the legal and beneficial owner of its interests being purchased by SunTrust pursuant to Section 2.15(a), (B) such interest is free and clear of any adverse claim, and (C) its Purchase Price equals the aggregate outstanding principal amount of all "Loans" under the Original Credit Agreement owed by the Borrower to it as of the Target Date; and (ii) makes any representation or warranty or assumes any responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Original Credit Agreement or any other instrument or document furnished pursuant thereto. (e) Notwithstanding anything contained in this Agreement to the contrary, in the event that the Effective Date Conditions are not satisfied on the Target Date, the parties to this Agreement agree that: (i) the Effective Date shall not have occurred, (ii) this Agreement and the Notes executed and delivered in connection with this Agreement shall be null and void, and of no force or effect, and (iii) the Original Credit Agreement and "Notes" issued in connection therewith shall remain in full force and effect and the Borrower will be deemed to have ratified and reaffirmed all terms, covenants, conditions and provisions of the Original Credit Agreement and such "Notes." ARTICLE III CONDITIONS TO BORROWINGS SECTION 3.01. Conditions to Initial Borrowing. The obligations of ------------------------------- each Bank under this Agreement are subject to the satisfaction of the conditions set forth in Section 3.02 and receipt by the Banks of the following (in sufficient number of counterparts (except as to the Notes) for delivery of a counterpart to each Bank): (a) from each of the parties hereto a duly executed counterpart of this Agreement; (b) a duly executed Note by the Borrower for the account of each Bank complying with the provisions of Section 2.03; (c) an opinion of Alston & Bird LLP, counsel for the Borrower, dated as of the Target Date, substantially in the form of Exhibit B; --------- 26 (d) the Borrower's most recent audited consolidated financial statements, including, without limitation, a balance sheet and income statement and its most recent 10-K filed with the Securities and Exchange Commission, in such form and substance satisfactory to the Banks in their sole discretion; (e) a certificate, dated as of the Target Date, signed by a principal financial officer of the Borrower, to the effect that (i) no Default has occurred and is continuing on the Target Date and (ii) the representations and warranties of the Borrower contained in Article IV are true on and as of the Target Date; (f) all documents which any Bank may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of the Loan Documents to which the Borrower is a party, and any other matters relevant thereto, all in form and substance satisfactory to the Banks, including, without limitation, a certificate of incumbency of the Borrower, signed by the Secretary or an Assistant Secretary of the Borrower, certifying as to the names, true signatures and incumbency of the officer or officers of the Borrower, authorized to execute and deliver the Loan Documents, and certified copies of the following items as to the Borrower: (i) its Certificate of Incorporation, (ii) its Bylaws, (iii) a certificate of the Secretary of State of the State of Delaware as to the good standing of the Borrower as a Delaware corporation, and (iv) the action taken by its Board of Directors (or a duly authorized committee thereof) authorizing its execution, delivery and performance of the Loan Documents to which it is a party; and (g) a Notice of Borrowing, if necessary. SECTION 3.02. Conditions to All Borrowings. The obligation of each ---------------------------- Bank to make a Loan on the occasion of each Borrowing is subject to the satisfaction of the following conditions: (a) receipt by the Banks of a Notice of Borrowing; (b) the fact that, immediately after such Borrowing, no Default shall have occurred and be continuing; (c) the fact that the representations and warranties contained in Article IV of this Agreement shall be true on and as of the date of such Borrowing except for changes permitted by this Agreement and except to the extent they relate solely to an earlier date; and (d) the fact that, immediately after such Borrowing, the sum of (x) the aggregate outstanding principal amount of the Loans plus the Letter of Credit Obligations of the Banks will not exceed (y) the amount of the aggregate Commitments. 27 Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in paragraphs (b), (c) and (d) of this Section. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a ----------------------------- corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary and where failure to be so qualified could have or create a reasonable possibility of causing a Material Adverse Effect, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.02. Corporate and Governmental Authorization; No -------------------------------------------- Contravention. The execution, delivery and performance by the Borrower of this - ------------- Agreement, the Notes and the other Loan Documents to which it is a party (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of or filing with, any governmental body, agency or official (other than routine filings with the Securities and Exchange Commission), (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries, and (v) do not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and -------------- binding agreement of the Borrower enforceable in accordance with its terms, and the Notes and the other Loan Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower (provided that the Borrower is a party to any such Loan Document) enforceable in accordance with their respective terms, provided that the -------- enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors' rights generally. SECTION 4.04. Financial Information. (a) The consolidated balance --------------------- sheet of the Borrower and its Consolidated Subsidiaries as of December 31, 1998, and the related consolidated statements of income, shareholders' equity and cash flows for the Fiscal Year then ended, reported on by KPMG LLP, copies of which have been delivered to each of the Banks, and the unaudited consolidated financial statements of the Borrower for the interim period ended 28 September 30, 1999, copies of which have been delivered to each of the Banks, fairly present in all material respects, in conformity with GAAP, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such dates and their consolidated results of operations and cash flows for such periods stated. (b) Since December 31, 1998, there has been no event, act, condition or occurrence having, or which could reasonably be expected to have a Material Adverse Effect. SECTION 4.05. No Litigation. Except as set forth on Schedule 4.05, as ------------- of the date hereof, there is no action, suit or proceeding pending, or to the knowledge of the Borrower threatened in writing, against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which could reasonably be expected to have a Material Adverse Effect. SECTION 4.06. Compliance with ERISA. (a) The Borrower and each member --------------------- of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance with the presently applicable provisions of ERISA and the Code (except where such noncompliance could not reasonably be expected to have a Material Adverse Effect), and have not incurred any liability to the PBGC under Title IV of ERISA. (b) Neither the Borrower nor any member of the Controlled Group is or ever has been obligated to contribute to any Multiemployer Plan. SECTION 4.07. Taxes. There have been filed on behalf of the Borrower ----- and its Subsidiaries all Federal, state and local income, excise, property and other tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of the Borrower or any Subsidiary have been paid or valid and effective extensions therefor have been obtained. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate. United States income tax returns of the Borrower and its Subsidiaries' have been examined and closed through the Fiscal Year ended 1994. SECTION 4.08. Subsidiaries. Each of the Borrower's Subsidiaries is ------------ duly organized or formed, validly existing and in good standing under the laws of the jurisdiction of its creation and organization, and has all powers (by virtue of its creation and organization) and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. As of the date hereof, the Borrower has no Subsidiaries except for those Subsidiaries listed on Schedule 4.08, which accurately sets forth each such Subsidiary's complete name and jurisdiction of creation and organization. SECTION 4.09. Not an Investment Company. The Borrower is not an ------------------------- "investment company" within the meaning of the Investment Company Act of 1940, as amended. 29 SECTION 4.10. Ownership of Property; Liens. Each of the Borrower and ---------------------------- its Consolidated Subsidiaries has title to its properties sufficient for the conduct of its business, and none of such property is subject to any Lien except as permitted in Section 5.09. SECTION 4.11. No Default. Neither the Borrower nor any of its ---------- Consolidated Subsidiaries is in default under or with respect to any agreement, instrument or undertaking to which it is a party or by which it or any of its property is bound which could reasonably be expected to have or cause a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 4.12. Full Disclosure. All information heretofore furnished --------------- by the Borrower to any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to any Bank will be, true, accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts which would have or create a reasonable possibility of causing a Material Adverse Effect. SECTION 4.13. Environmental Matters. To the best knowledge of the --------------------- Borrower, after due inquiry (which does not necessarily mean the performance of a phase I environmental audit), (a) neither the Borrower nor any Subsidiary is subject to any Environmental Liability and (b) neither the Borrower nor any Subsidiary has been designated as a potentially responsible party under CERCLA or under any state statute similar to CERCLA. To the best knowledge of the Borrower, after due inquiry (which does not necessarily mean the performance of a phase I environmental audit), none of the Properties has been identified on any current or proposed (i) National Priorities List under 40 C.F.R. Section 300, (ii) CERCLIS list or (iii) any list arising from a state statute similar to CERCLA. (b) To the best knowledge of the Borrower, after due inquiry (which does not necessarily mean the performance of a phase I environmental audit), no Hazardous Materials have been or are being used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed or otherwise handled at, or shipped or transported to or from the Properties or are otherwise present at, on, in or under the Properties, or, to the best of the knowledge of the Borrower, at or from any adjacent site or facility, except for (i) Hazardous Materials, such as cleaning solvents, combustion enhancers, pesticides and other materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed of, managed, or otherwise handled in the ordinary course of business in compliance with all applicable Environmental Requirements, and (ii) Hazardous Materials with respect to which the presence thereof, any required remediation with respect thereto, or the expenses, fines, penalties and other costs relating thereto could not reasonably be expected to have a Material Adverse Effect. (c) Except for non-compliance which could not reasonably be expected to have a Material Adverse Effect, the Borrower, and each of its Subsidiaries is in compliance with 30 all Environmental Requirements in connection with the operation of the Properties and each of the Borrower's and its Subsidiary's respective businesses. SECTION 4.14. Capital Stock. All Capital Stock, debentures, bonds, ------------- notes and all other securities of the Borrower and its Subsidiaries presently issued and outstanding are validly and properly issued in accordance with all applicable laws, including but not limited to, the "Blue Sky" laws of all applicable states and the federal securities laws. At least a majority of the issued shares of capital stock of each of the Borrower's other Subsidiaries, if any, (other than Wholly Owned Subsidiaries) is owned by the Borrower free and clear of any Lien or adverse claim. SECTION 4.15. Margin Stock. Neither the Borrower nor any of its ------------ Subsidiaries is engaged principally, or as one of its important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan will be used, except as permitted by Section 5.12, (a) to purchase or carry any Margin Stock or (b) to extend credit to others for the purpose of purchasing or carrying any Margin Stock. SECTION 4.16. Insolvency. After giving effect to the execution and ---------- delivery of the Loan Documents and the making of the Loans under this Agreement, the Borrower will not be "insolvent," within the meaning of such term as used in O.C.G.A. (S) 18-2-22 or as defined in (S) 101 of Title 11 of the United States Code, as amended from time to time, or be unable to pay its debts generally as such debts become due, or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated. SECTION 4.17. Year 2000 Issues. The Borrower and its Subsidiaries ---------------- (i) have initiated a comprehensive review of their computer programs to identify the systems that could give rise to Year 2000 Issues as the same pertains to the computer programs and systems of the Borrower and the Subsidiaries (but not those of their third party customers, suppliers, or vendors), and are in the process of reviewing their Year 2000 Issues exposure to third party customers, suppliers and vendors, and evaluating the costs of modifications to program logic control systems, (ii) have developed or are in the process of developing a realistic and achievable program for remediating in all material respects all currently known Year 2000 Issues on a timely basis as such Issues pertain to the computer programs and systems of the Borrower and its Subsidiaries (but not those of their third party customers, suppliers, or vendors), and (iii) based on their review, consultants' reports, and all other information currently available to them, do not reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect. 31 ARTICLE V COVENANTS 32 The Borrower agrees that, so long as any Commitment shall remain in effect, any Letter of Credit Obligations are outstanding or any amount payable hereunder or under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the ----------- Banks: (a) as soon as available and in any event within 90 days after the end of each Fiscal Year, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of earnings, stockholders' equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the figures for the previous Fiscal Year, including the related unqualified audit opinion issued by KPMG LLP or other independent public accountants of nationally recognized standing, with such certification to be free of exceptions and qualifications not acceptable to the Required Banks; (b) as soon as available and in any event within 45 days after the end of each Fiscal Quarter (other than the fourth Fiscal Quarter), a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such Fiscal Quarter and the related consolidated statements of earnings and statements of cash flows for such quarter and for the portion of the Fiscal Year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the previous Fiscal Year, all certified (subject to normal year-end adjustments) as to fairness of presentation, GAAP (except for the failure to provide footnotes thereto) and consistency by the chief financial officer or the corporate controller of the Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in paragraphs (a) and (b) above, a certificate, substantially in the form of Exhibit E (a "Compliance Certificate"), of the --------- chief financial officer, treasurer or the corporate controller of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.04, 5.05, and Section 5.08, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of annual financial statements referred to in paragraph (a) above, operations and cash flow projections (indicating projected earnings and significant cash sources and uses) prepared by the Borrower for the Fiscal Year following the Fiscal Year reported on in such statements referred to in paragraph (a), in such form and substance as is acceptable to the Required Banks, in their sole discretion; 33 (e) within 1 Domestic Business Day after the Borrower becomes aware of the occurrence of any Default, telephonic notice to each of the Banks of the occurrence of a Default (which telephonic notice shall set forth the details thereof), followed, within 10 Domestic Business Days after the date of such telephonic notice, with a certificate of the chief financial officer or the treasurer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Borrower shall have filed with the Securities and Exchange Commission; (h) if and when any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice; and (i) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as any Bank may reasonably request, including, without limitation, consolidating balance sheets and statements of earnings of the Borrower and the Borrower's Subsidiaries, in existence at such time, as at the end of any fiscal period. SECTION 5.02. Inspection of Property, Books and Records. The Borrower ----------------------------------------- will (i) keep, and cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit, and cause each Subsidiary to permit, representatives of any Bank at such Bank's expense prior to the occurrence of a Default and at the Borrower's expense after the occurrence of a Default to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. The Borrower agrees to cooperate and assist in such visits and inspections, in each case upon reasonable notice, at such reasonable times and as often as may reasonably be desired. 34 SECTION 5.03. Year 2000 Issues. The Borrower shall take, and cause its ---------------- Subsidiaries to take, all actions reasonably necessary to assure that the Year 2000 Issues, as such Year 2000 Issues pertain to the computer programs and systems of the Borrower and its Subsidiaries, will not have a Material Adverse Effect. The Borrower and its Subsidiaries will use commercially reasonable efforts to assure that their third-party customers, suppliers and vendors develop and implement programs to remediate, in all material respects, all Year 2000 Issues reasonably anticipated by Borrower and its Subsidiaries to have a Material Adverse Effect. Upon written request by the Banks, Borrower will provide the Banks a written description of its program for assessing Year 2000 Issues, including updates and progress reports. The Borrower will advise the Banks promptly of any reasonably anticipated Material Adverse Effect as a result of Year 2000 Issues. SECTION 5.04. Debt to Capitalization Ratio. The Debt to ---------------------------- Capitalization Ratio shall be less than 0.60 to 1.0 at the end of each Fiscal Quarter. SECTION 5.05. Debt to EBITDA Ratio. The ratio of the Borrower's (a) -------------------- Consolidated Debt to (b) the sum of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) taxes on the Borrower's consolidated pre- tax income, and (iv) Depreciation and Amortization shall not be greater than 3.5 to 1.0 at the end of each Fiscal Quarter. Clause (b) in this Section 5.05 shall be calculated on a trailing 4 quarter basis as at the end of each such Fiscal Quarter. SECTION 5.06. Restricted Payments. The Borrower shall not declare or ------------------- make any Restricted Payment unless, after giving effect thereto, no Default shall exist. SECTION 5.07. Investments. The Borrower will not, and will not permit ----------- any of its Subsidiaries to, make or maintain any Investments except (a) Investments in the Borrower or any Subsidiary, including without limitation, advances or loans between or among the Borrower or any Subsidiary and loans and advances to officers and employees of the Borrower or any Subsidiary in the ordinary course of business; (b) Investments in Persons engaged in a Permitted Line of Business (whether or not such Person is, or after giving effect to any such Investment becomes, a Subsidiary); (c) Investments in Persons in connection with Permitted Acquisitions; and (d) Investments in Approved Investments; provided, however, during the existence of an Event of Default, neither the Borrower nor any of its Subsidiaries may make any new Investments without the prior written consent of the Required Banks. SECTION 5.08. Negative Pledge. Neither the Borrower nor any of its --------------- Subsidiaries will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal amount not exceeding $5,000,000; 35 (b) any Lien existing on any asset of any Person at the time such Person becomes a Consolidated Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset, provided that such Lien attaches to such asset -------- concurrently with or within 18 months after the acquisition or completion of construction thereof; (d) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower or a Consolidated Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Consolidated Subsidiary and not created in contemplation of such acquisition; (f) Liens securing Debt owing by any Subsidiary to the Borrower; (g) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing paragraphs of this Section, provided that (i) such Debt is not secured by -------- any additional assets, and (ii) the amount of such Debt secured by any such Lien is not increased; (h) Liens incidental to the conduct of its business or the ownership of its assets which (i) do not secure Debt and (ii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (i) any Lien on Margin Stock; (j) Liens in connection with an Asset Securitization permitted under Section 5.11; (k) Liens involuntarily imposed and being contested in good faith, subject to the Borrower or such Subsidiary having established reasonable reserves therefor to the extent required under GAAP; (l) Liens against the assets of Aladdin (formerly owned by Galaxy) under the Catoosa Co. IRB solely to the extent existing as of the date hereof; and (m) Liens against the assets of Aladdin (formerly owned by Image Industries, Inc.) under the Summerville City IRB solely to the extent existing as of the date of the Image Acquisition. 36 provided that Liens permitted by the foregoing paragraphs (a) through (i) shall - -------- at no time secure Debt in an aggregate amount exceeding the greater of (x) $90,000,000 or (y) 15% of Consolidated Net Worth. SECTION 5.09. Maintenance of Existence. Other than as permitted by ------------------------ Section 5.10 or 5.11, the Borrower shall, and shall cause each Subsidiary to, maintain its corporate existence and carry on its business in a Permitted Line of Business. SECTION 5.10. Dissolution. Neither the Borrower nor any of its ----------- Subsidiaries shall suffer or permit dissolution or liquidation either in whole or in part or redeem or retire any shares of its own stock or that of any Subsidiary, except through corporate reorganization to the extent permitted by Section 5.11 or in connection with a Restricted Payment which is permitted pursuant to Section 5.06. SECTION 5.11. Consolidations, Mergers and Sales of Assets. The ------------------------------------------- Borrower will not, nor will the Borrower permit any Subsidiary to, consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of its assets to, any other Person, provided that (a) the -------- Borrower may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) the Borrower is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, (b) Subsidiaries of the Borrower may merge with and into the Borrower, any other Subsidiary, or any other Person if after giving effect thereto such other Person would be a Subsidiary, (c) assets may be transferred from a Subsidiary to the Borrower or another Subsidiary, (d) any Wholly-Owned Subsidiary may dissolve or liquidate so long as the assets of such Subsidiary at the time of such dissolution or liquidation are transferred to such Subsidiary's shareholder and such shareholder assumes all of the liabilities of such Subsidiary at the time of such dissolution or liquidation, (e) the Borrower and its Subsidiaries may factor receivables, (f) the Borrower and its Subsidiaries may effect Asset Securitizations, and (g) the foregoing limitation on the sale, lease or other transfer of assets shall not prohibit, during any Fiscal Quarter, a transfer of assets by the Borrower or any Subsidiary (in a single transaction or in a series of related transactions) unless (x) the proceeds thereof are not reinvested within 180 days thereafter in a Permitted Line of Business owned by the Borrower or such Subsidiary or (y) the aggregate assets to be so transferred or utilized in a business line or segment to be so discontinued, when combined with all other assets transferred, and all other assets utilized in all other business lines or segments discontinued, during such Fiscal Quarter and the immediately preceding three Fiscal Quarters, constituted more than 20% of Consolidated Total Assets at the end of the fourth Fiscal Quarter immediately preceding such Fiscal Quarter. SECTION 5.12. Use of Proceeds. The proceeds of the Loans shall be --------------- used by the Borrower to provide for working capital, to finance capital expenditures, to finance Investments permitted under Section 5.07, and for the other general corporate purposes of the Borrower and its Subsidiaries. In no event shall any portion of the proceeds of the Loans be used by the Borrower (i) except for Permitted Acquisitions, in connection with any tender offer for, or other 37 acquisition of, stock of any corporation with a view towards obtaining control of such other corporation, (ii) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock other than the common stock or other capital stock of the Borrower, or (iii) for any purpose in violation of any applicable law or regulation. SECTION 5.13. Compliance with Laws; Payment of Taxes. The Borrower -------------------------------------- will, and will cause each of its Subsidiaries to, comply in all material respects with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to PBGC), except where the necessity of such compliance is being contested in good faith through appropriate proceedings or where noncompliance would not have or create a reasonable possibility of causing a Material Adverse Effect. The Borrower will, and will cause each of its Subsidiaries to, pay promptly when due, giving regard for any extensions obtained, all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the property of either the Borrower or any Subsidiary, except liabilities being contested in good faith and against which, if requested by the Banks, either the Borrower or such Subsidiary will set up reserves in accordance with GAAP. SECTION 5.14. Insurance. The Borrower will maintain, and will cause --------- each of its Subsidiaries to maintain (either in the name of the Borrower or in such Subsidiary's own name), with financially sound and reputable insurance companies, insurance on all its property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar business, subject to the Borrower's right to self-insure with respect to loss or damage to property in an amount reasonably acceptable to the Banks. SECTION 5.15. Change in Fiscal Year. The Borrower shall give the --------------------- Banks at least 30 day's prior written notice of any change in the determination of its Fiscal Year. SECTION 5.16. Maintenance of Property. Subject to the rights of the ----------------------- Borrower or any Subsidiary to discontinue certain operations under Section 5.10 or 5.11, the Borrower shall, and shall cause each Subsidiary to, maintain all of its properties and assets in good working order, ordinary wear and tear and obsolescence excepted (excluding losses due to fully insured, subject to commercially reasonable deductibles, casualties). SECTION 5.17. Environmental Notices. The Borrower shall furnish to --------------------- the Banks prompt written notice of all Environmental Liabilities, pending, threatened or anticipated Environmental Proceedings, Environmental Notices, Environmental Judgments and Orders, and Environmental Releases at, on, in, under or in any way affecting the Properties or any adjacent property which would have a Material Adverse Effect, and all facts, events, or conditions that could lead to any of the foregoing. 38 SECTION 5.18. Environmental Matters. The Borrower will not, nor will --------------------- it permit any Third Party to, use, produce, manufacture, process, treat, recycle, generate, store, dispose of, manage at, or otherwise handle, or ship or transport to or from the Properties any Hazardous Materials except for Hazardous Materials such as cleaning solvents, combustion enhancers, pesticides and other similar materials used, produced, manufactured, processed, treated, recycled, generated, stored, disposed, managed, or otherwise handled in the ordinary course of business in compliance with all applicable Environmental Requirements. SECTION 5.19. Environmental Release. The Borrower agrees that upon --------------------- the occurrence of an Environmental Release which would have a Material Adverse Effect and which violates any Environmental Requirement it will promptly investigate the extent of, and take appropriate action to remediate such Environmental Release, whether or not ordered or otherwise directed to do so by any Environmental Authority. SECTION 5.20. Debt of Subsidiaries. The Borrower shall not permit any -------------------- Subsidiary to incur any Debt except for (i) Debt owed by a Subsidiary to the Borrower or another Subsidiary, (ii) Debt deemed incurred in connection with an Asset Securitization permitted under Section 5.11; (iii) (A) Debt of Subsidiaries arising in connection with the Summerville City IRB and the Catoosa Co. IRB and incurrence of reimbursement obligations with respect to the Letters of Credit and (B) other Debt of Subsidiaries arising in connection with the issuance of bonds by governmental authorities so long as such Debt is supported by a letter of credit issued by a financial institution for the benefit of the Borrower and the Borrower is obligated to such financial institution under a reimbursement agreement for the reimbursement of amounts drawn under such letter of credit; and (iv) in addition to Debt incurred under clauses (i) through (iii) of this Section, other Debt of Subsidiaries not exceeding in the aggregate amount outstanding at any time 15% of Consolidated Net Worth. ARTICLE VI DEFAULTS SECTION 6.01. Events of Default. If one or more of the following ----------------- events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail to pay when due any principal or any interest on any Loan or any fee or other amount payable hereunder within 5 Domestic Business Days after such principal, interest, fee or other amount shall become due (except at maturity on the applicable Termination Date); or (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.02(ii), 5.03 through 5.12, inclusive, or 5.20; or 39 (c) the Borrower shall fail to observe or perform any covenant or agreement contained or incorporated by reference in this Agreement (other than those covered by paragraph (a) or (b) above) and such failure shall not have been cured within 30 days after the earlier to occur of (i) written notice thereof has been given to the Borrower by the Banks or (ii) the Borrower otherwise becomes aware of any such failure; or (d) any representation, warranty, certification or statement made by the Borrower in Article IV of this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement or any of the other Loan Documents shall prove to have been incorrect or misleading in any material respect when made (or deemed made); or (e) the Borrower or any Subsidiary shall fail to make any payment in respect of Debt in excess of $25,000,000 in the aggregate outstanding (other than the Notes or pursuant to any of the other Loan Documents) when due or within any applicable grace period; or (f) any event or condition shall occur which results in the acceleration of the maturity of Debt in excess of $25,000,000 in the aggregate outstanding of the Borrower or any Subsidiary (including, without limitation, any "put" of such Debt to the Borrower or any Subsidiary) or enables or, with the giving of notice or lapse of time or both, would enable, the holders of such Debt or any Person acting on such holders' behalf to accelerate the maturity thereof (including, without limitation, any "put" of such Debt to the Borrower or any Subsidiary); or (g) the Borrower or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or 40 (i) the Borrower or any member of the Controlled Group shall fail to pay when due any material amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans (other than pursuant to a standard termination) shall be filed under Title IV of ERISA by the Borrower, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or (j) one or more judgments or orders for the payment of money in an aggregate amount in excess of $25,000,000 (exclusive of insurance coverage if any insurer shall have acknowledged such coverage in writing) shall be rendered against the Borrower or any Material Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or (k) one or more federal tax liens securing an aggregate amount in excess of $5,000,000 shall be filed against the Borrower or any Material Subsidiary under Section 6323 of the Code or a lien of the PBGC shall be filed against the Borrower or any Material Subsidiary under Section 4068 of ERISA and in either case such lien shall remain undischarged for a period of 25 days after the date of filing; or (l) (i) any Person or two or more Persons acting in concert shall have acquired, after February 24, 1995, beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of the voting stock of the Borrower; or (ii) as of any date a majority of the Board of Directors of the Borrower consists of individuals who were not either (A) directors of the Borrower, as appropriate, as of the corresponding date of the previous year, (B) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A), or (C) selected or nominated to become directors by the Board of Directors of the Borrower of which a majority consisted of individuals described in clause (A) and individuals described in clause (B); or (m) an "Event of Default" shall occur under any of the other Loan Documents; or (n) (i) any of the Loan Documents shall cease to be enforceable, or (ii) the Borrower shall assert that any Loan Document shall cease to be enforceable. 41 then, and in every such event, the Required Banks may (i) by notice to the Borrower terminate the Commitments or and they shall thereupon terminate, and (ii) by notice to the Borrower declare the Notes (together with accrued interest thereon) to be, and the Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower together with interest at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default; provided that if any Event of Default specified in paragraph -------- (g) or (h) above occurs with respect to the Borrower, without any notice to the Borrower or any other act by the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower together with interest thereon at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default. Notwithstanding the foregoing, each of the Banks shall have available to it all other remedies at law or equity. ARTICLE VII CHANGE IN CIRCUMSTANCES; COMPENSATION SECTION 7.01. Basis for Determining Interest Rate Inadequate or ------------------------------------------------- Unfair. If on or prior to the first day of any Interest Period: (a) any Bank determines that deposits in Dollars (in the applicable amounts) are not being offered in the relevant market for such Interest Period, or (b) any Bank determines that the London Interbank Offered Rate, as the case may be, as determined by Wachovia will not adequately and fairly reflect the cost to such Bank of funding the relevant Euro-Dollar Loan for such Interest Period, such Bank shall forthwith give notice thereof to the Borrower, whereupon until such Bank notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of such Bank to make any Euro-Dollar Loan specified in such notice shall be suspended. Unless the Borrower notifies such Bank at least 2 Domestic Business Days before the date of any Borrowing of such Euro-Dollar Loan for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, such Borrowing shall instead be made as a Base Rate Borrowing. SECTION 7.02. Illegality. If, after the date hereof, the adoption of ---------- any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof (any such agency being referred to as an "Authority" and any such event being referred to as a "Change of Law"), or compliance by any 42 Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority shall make it unlawful or impossible for any Bank (or its Lending Office) to make, maintain or fund its Euro-Dollar Loans, such Bank shall forthwith give notice thereof to the Borrower, whereupon until such Bank notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, shall be suspended. Before giving any notice to the Borrower pursuant to this Section, such Bank shall designate a different Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise materially disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each Euro-Dollar Loan of such Bank, together with accrued interest thereon. Concurrently with prepaying each such Euro- Dollar Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan. SECTION 7.03. Increased Cost and Reduced Return. (a) If after the --------------------------------- date hereof, a Change of Law or compliance by any Bank (or its Lending Office) with any request or directive (whether or not having the force of law) of any Authority: (i) shall subject any Bank (or its Lending Office) to any tax, duty or other charge with respect to its Euro-Dollar Loans, its Note or its obligation to make Euro-Dollar Loans, or shall change the basis of taxation of payments to any Bank (or its Lending Office) of the principal of or interest on its Euro-Dollar Loans or any other amounts due under this Agreement in respect of its Euro-Dollar Loans or its obligation to make Euro-Dollar Loans (except for changes in the rate of tax on the overall net income of such Bank or its Lending Office imposed by the jurisdiction in which such Bank's principal executive office or Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Lending Office); or (iii) shall impose on any Bank (or its Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Euro-Dollar Loans, its Note or its obligation to make Euro-Dollar Loans; and the result of any of the foregoing is to increase the cost to such Bank (or its Lending Office) of making or maintaining any Euro-Dollar Rate Loan, or to reduce the amount of any sum 43 received or receivable by such Bank (or its Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof, or compliance by any Bank (or its Lending Office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any Authority, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank, the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. (c) Each Bank will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise materially disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods. (d) The provisions of this Section 7.03 shall be applicable with respect to any Participant, Assignee or other Transferee (unless the date of any such assignment or transfer, a condition listed under Section 7.02 or 7.03 existed with respect to any such Participant, Assignee or other Transferee), and any calculations required by such provisions shall be made based upon the circumstances of such Participant, Assignee or other Transferee. SECTION 7.04. Base Rate Loans Substituted for Euro-Dollar Loans. If ------------------------------------------------- (i) the obligation of any Bank to make or maintain Euro-Dollar Loans has been suspended pursuant to Section 7.02 or (ii) any Bank has demanded compensation under Section 7.03, and the Borrower shall, by at least 5 Euro-Dollar Business Days' prior notice to such Bank have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply: (a) all Loans which would otherwise be made by such Bank as Euro- Dollar Loans, as the case may be, shall be made instead as Base Rate Loans; provided, that 44 interest and principal on such Loans shall be payable contemporaneously with the related Euro-Dollar Loans of the other Bank), and (b) after each of its Euro-Dollar Loan, has been repaid, all payments of principal which would otherwise be applied to repay such Euro-Dollar Loans shall be applied to repay its Base Rate Loans instead. SECTION 7.05. Compensation. Upon the request of any Bank, the ------------ Borrower shall pay to such Bank such amount or amounts as shall compensate such Bank for any loss, cost or expense actually incurred by such Bank and not compensated pursuant to Section 7.03 as a result of: (a) any payment or prepayment (pursuant to Section 2.09(b), Section 7.02 or otherwise) of a Euro-Dollar Loan on a date other than the last day of an Interest Period for such Euro-Dollar Loan; or (b) any failure by the Borrower to prepay a Euro-Dollar Loan on the date for such prepayment specified in the relevant notice of prepayment hereunder; or (c) any failure by the Borrower to borrow a Euro-Dollar Loan on the date for the Euro-Dollar Borrowing of which such Euro-Dollar Loan is a part specified in the applicable Notice of Borrowing delivered pursuant to Section 2.02; such compensation to include, without limitation, an amount equal to the excess, if any, of (x) the amount of interest which would have accrued on the amount so paid or prepaid or not prepaid or borrowed for the period from the date of such payment, prepayment or failure to prepay or borrow to the last day of the then current Interest Period for such Euro-Dollar Loan (or, in the case of a failure to prepay or borrow, the Interest Period for such Euro-Dollar Loan which would have commenced on the date of such failure to prepay or borrow) at the applicable rate of interest for such Euro-Dollar Loan provided for herein over (y) the amount of interest (as reasonably determined by such Bank) such Bank would have paid on deposits in Dollars of comparable amounts having terms comparable to such period placed with it by leading banks in the London interbank market. SECTION 7.06. Replacement of Banks. If any Bank (an "Affected Bank") -------------------- makes demand for amounts owed under Section 7.03 (other than due to any change in the Eurodollar Reserve Percentage), or gives notice under Section 7.01 or 7.02 that it can no longer participate in Euro-Dollar Loans, then in each case the Borrower shall have the right, if no Default or Event of Default exists, and subject to the terms and conditions set forth in Section 8.08(c), to designate an Assignee (a "Replacement Bank") to purchase the Affected Bank's share of outstanding Loans and all other obligations hereunder and to assume the Affected Bank's obligations to the Borrower under this Agreement; provided, that, any -------- ---- Replacement Bank must be reasonably acceptable to the Required Banks (and, in any event, may not be an Affiliate of the Borrower). 45 Subject to the foregoing, the Affected Bank agrees to assign without recourse to the Replacement Bank its share of outstanding Loans and its Commitment, and to delegate to the Replacement Bank its obligations to the Borrower under this Agreement. Upon such sale and delegation by the Affected Bank and the purchase and assumption by the Replacement Bank, and compliance with the provisions of Section 8.08(c), the Affected Bank shall cease to be a "Bank" hereunder and the Replacement Bank shall become a "Bank" under this Agreement; provided, however, -------- ------- that any Affected Bank shall continue to be entitled to the indemnification provisions contained elsewhere herein. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Notices. All notices, requests and other communications ------- to any party hereunder shall be in writing (including bank wire, telecopier or similar writing) and shall be given to such party at its address or telecopier number set forth on the signature pages hereof or such other address or telecopier number as such party may hereafter specify for the purpose by notice to each other party. Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified in this Section and the appropriate confirmation is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails, certified or registered mail, with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section; provided, that notices to the Banks under Article II shall not be effective until received. SECTION 8.02. No Waivers. No failure or delay by any Bank in ---------- exercising any right, power or privilege hereunder or under its Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 8.03. Expenses; Documentary Taxes. The Borrower shall pay (i) --------------------------- all out-of-pocket expenses of the Banks, including reasonable fees and disbursements actually incurred of special counsel for the Banks in connection with the preparation of this Agreement and the other Loan Documents, any waiver or consent hereunder or thereunder or any amendment hereof or thereof or any Default or alleged Default hereunder or thereunder and (ii) if a Default occurs, all out-of-pocket expenses incurred by any Bank, including reasonable fees and disbursements of counsel, actually incurred in connection with such Default and collection and other enforcement proceedings resulting therefrom, including out- of-pocket expenses incurred in enforcing this Agreement and the other Loan Documents. The Borrower shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or charges made by any Authority by reason of the execution and delivery of this Agreement or the other Loan 46 Documents but not by reason of any participation or assignment by the Banks, their successors or assigns. SECTION 8.04. Indemnification. The Borrower shall indemnify the Banks --------------- and each affiliate thereof and their respective directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from any actual or proposed use by the Borrower of the proceeds of any extension of credit by any Bank hereunder or breach by the Borrower of this Agreement or any other Loan Document or from any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing, and the Borrower shall reimburse each Bank, and each affiliate thereof and their respective directors, officers, employees and agents, upon demand for any expenses (including, without limitation, legal fees) incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or wilful misconduct of the Person to be indemnified. SECTION 8.05. Sharing of Setoffs. Each Bank agrees that if it shall, ------------------ by exercising any right of setoff or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest owing with respect to the Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of all principal and interest owing with respect to the Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks owing to such other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Note held by the Bank owing to such other Banks shall be shared by the Banks pro rata; provided that (i) nothing in this Section -------- shall impair the right of any Bank to exercise any right of setoff or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under the Notes, and (ii) if all or any portion of such payment received by the purchasing Bank is thereafter recovered from such purchasing Bank, such purchase from such other Banks shall be rescinded and such other Bank shall repay to the purchasing Bank the purchase price of such participation to the extent of such recovery together with an amount equal to such other Banks' ratable share (according to the proportion of (x) the amount of such other Banks' required repayment to (y) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 8.06. Amendments and Waivers. (a) Any provision of this ---------------------- Agreement, the Notes or any other Loan Documents may be amended or waived if, but only if, such 47 amendment or waiver is in writing and is signed by the Borrower and the Required Banks; provided that, no such amendment or waiver shall, unless signed by all -------- Banks, (i) change the Commitments of any Bank or subject any Bank to any additional obligation, (ii) change the principal of or decrease the rate of interest on any Loan or decrease any fees hereunder, (iii) extend the date fixed for any payment of principal of or interest on any Loan or any fees hereunder, (iv) change the amount of principal, interest or fees due on any date fixed for the payment thereof, (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, (vi) change the manner of application of any payments made under this Agreement or the Notes, (vii) release or substitute all or any substantial part of the collateral (if any) held as security for the Loans, or (viii) release any Guarantee (if any) given to support payment of the Loans. (b) The Borrower will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement unless each Bank shall be informed thereof by the Borrower and shall be afforded an opportunity of considering the same and shall be supplied by the Borrower with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this Agreement shall be delivered by the Borrower to each Bank forthwith following the date on which the same shall have been executed and delivered by the requisite percentage of Banks. The Borrower will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Bank (in its capacity as such) as consideration for or as an inducement to the entering into by such Bank of any waiver or amendment of any of the terms and provisions of this Agreement unless such remuneration is concurrently paid, on the same terms, ratably to each of the Banks. SECTION 8.07. No Margin Stock Collateral. Each of the Banks -------------------------- represents to the other Banks that it in good faith is not, directly or indirectly (by negative pledge or otherwise), relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 8.08. Successors and Assigns. (a) The provisions of this ---------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that the Borrower may not assign or otherwise transfer any of its rights under this Agreement. (b) Any Bank may at any time sell to one or more Persons (each a "Participant") participating interests in any Loan owing to such Bank, its Note, its Commitment hereunder or any other interest of such Bank hereunder. In the event of any such sale by a Bank of a participating interest to a Participant, such Bank's obligations under this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Note for all purposes under this Agreement, and the 48 Borrower shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. In no event shall a Bank that sells a participation be obligated to the Participant to take or refrain from taking any action hereunder except that such Bank may agree that it will not (except as provided below), without the consent of the Participant, agree to (i) extend any date fixed for the payment of principal of or interest on the related loan or loans, (ii) the change of the amount of any principal, interest or fees due on any date fixed for the payment thereof with respect to the related loan or loans, (iii) the change of the principal of the related loan or loans, (iv) any decrease in the rate at which either interest is payable thereon or (if the Participant is entitled to any part thereof) commitment fee is payable hereunder from the rate at which the Participant is entitled to receive interest or commitment fee (as the case may be) in respect of such participation, (v) the release or substitution of all or any substantial part of the collateral (if any) held as security for the Loans, or (vi) the release of any Guarantee (if any) given to support payment of the Loans. Unless such Participant is a Related Fund with respect to such Bank, each Bank selling a participating interest in any Loan, Note, Commitment or other interest under this Agreement shall, within 10 Domestic Business Days of such sale, provide the Borrower and the other Banks with written notification stating that such sale has occurred and identifying the Participant and the interest purchased by such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Article VII with respect to its participation in Loans outstanding from time to time. (c) Any Bank may at any time assign to one or more banks or financial institutions (each an "Assignee") all, or a proportionate part of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume all such rights and obligations, pursuant to an Assignment and Acceptance in the form attached hereto as Exhibit C, executed by such Assignee --------- and such transferor Bank; provided that (i) no interest may be sold by a Bank pursuant to this paragraph (c) unless the Assignee shall agree to assume ratably equivalent portions of the transferor Bank's Commitment, (ii) the amount of the Commitment of the assigning Bank subject to such assignment (determined as of the effective date of the assignment) shall be equal to $10,000,000 (or any larger multiple of $1,000,000), and (iii) no interest may be sold by a Bank pursuant to this paragraph (c) to any Assignee that is not then a Bank without the consent of the Borrower, which shall not be unreasonably withheld or delayed, and (iv) a Bank may not have more than 2 Assignees that are not then Banks at any one time. Each Bank agrees to notify the other Banks of any assignment hereunder. Upon (A) execution of the Assignment and Acceptance by such transferor Bank, such Assignee, and the Borrower, (B) delivery of an executed copy of the Assignment and Acceptance to the Borrower, and (C) payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall for all purposes be a Bank party to this Agreement and shall have all the rights and obligations of a Bank under this Agreement to the same extent as if it were an original party hereto with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by the Borrower or the Banks shall be required. Upon the consummation of any transfer to an Assignee pursuant to this 49 paragraph (c), the transferor Bank and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to such Assignee. (d) Subject to the provisions of Section 8.09, the Borrower authorizes each Bank to disclose to any Participant, Assignee or other transferee (each a "Transferee") and any prospective Transferee any and all financial information in such Bank's possession concerning the Borrower which has been delivered to such Bank by the Borrower pursuant to this Agreement or which has been delivered to such Bank by the Borrower in connection with such Bank's credit evaluation prior to entering into this Agreement. (e) No Transferee shall be entitled to receive any greater payment under Section 7.03 than the transferor Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 7.02 or 7.03 requiring such Bank to designate a different Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. SECTION 8.09. Confidentiality. Each Bank agrees to exercise its best --------------- efforts to keep any information delivered or made available by the Borrower to it which is clearly indicated to be confidential information, confidential from any one other than persons employed or retained by such Bank who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided, however that nothing herein shall prevent any -------- ------- Bank from disclosing such information (i) to any other Bank, (ii) upon the order of any court or administrative agency, (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank, (iv) which has been publicly disclosed, (v) to the extent reasonably required in connection with any litigation to which any Bank or its respective Affiliates may be a party, (vi) to the extent reasonably required in connection with the exercise of any remedy hereunder, (vii) to such Bank's legal counsel and independent auditors and (viii) to any actual or proposed Participant, Assignee or other Transferee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 8.09. SECTION 8.10. Representation by Banks. Each Bank hereby represents ----------------------- that it is a commercial lender or financial institution which makes Loans in the ordinary course of its business and that it will make its Loans hereunder for its own account in the ordinary course of such business; provided, however that, ----------------- subject to Section 8.08, the disposition of the Note or Notes held by that Bank shall at all times be within its exclusive control. SECTION 8.11. Obligations Several. The obligations of each Bank ------------------- hereunder are several, and no Bank shall be responsible for the obligations or commitment of any other Bank hereunder. Nothing contained in this Agreement and no action taken by Banks pursuant hereto shall be deemed to constitute the Banks to be a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Bank shall be a separate 50 and independent debt, and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement or any other Loan Document, subject to any restrictions requiring actions to be taken upon the consent of the Required Banks, and it shall not be necessary for any other Bank to be joined as an additional party in any proceeding for such purpose. SECTION 8.12. Georgia Law. This Agreement and each Note shall be ----------- construed in accordance with and governed by the law of the State of Georgia. SECTION 8.13. Interpretation. No provision of this Agreement or any -------------- of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. SECTION 8.14. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION. TO THE --------------------------------------------- FULLEST EXTENT PERMITTED BY LAW, THE BORROWER (A) AND EACH OF THE BANKS IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (B) SUBMITS TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF GEORGIA, THE COURTS THEREOF AND THE UNITED STATES DISTRICT COURTS SITTING THEREIN, FOR THE ENFORCEMENT OF THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, (C) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO OBJECT ON ANY BASIS (INCLUDING, WITHOUT LIMITATION, INCONVENIENCE OF FORUM) TO JURISDICTION OR VENUE WITHIN THE STATE OF GEORGIA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, AND (D) AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN THE MANNER PRESCRIBED IN SECTION 8.01 FOR THE GIVING OF NOTICE TO THE BORROWER. NOTHING HEREIN CONTAINED, HOWEVER, SHALL PREVENT THE BANKS FROM BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY AND AGAINST THE BORROWER PERSONALLY, AND AGAINST ANY ASSETS OF THE BORROWER WITHIN ANY OTHER STATE OR JURISDICTION. SECTION 8.15. Counterparts. This Agreement may be signed in any ------------ number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 51 [signatures on the following pages] 52 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, under seal, by their respective authorized officers as of the day and year first above written. MOHAWK INDUSTRIES, INC. (SEAL) By: -------------------------------------- Title: 160 South Industrial Boulevard Calhoun, Georgia 30703-7002 Attention: Chief Financial Officer or Treasurer Telecopier number: 706-625-3851 Confirmation number: 706-629-7721 53 COMMITMENTS: WACHOVIA BANK, N.A. (SEAL) - ----------- $150,000,000 By: -------------------------------------- Title: Lending Office -------------- Wachovia Bank, N.A. 191 Peachtree Street, N.E. Atlanta, Georgia 30303-1757 Attention: Lanny Nixon Telecopier number: 404-332-5016 Confirmation number: 404-332-5920 54 FIRST UNION NATIONAL BANK (SEAL) $150,000,000 By: --------------------------------------- Title: Lending Office -------------- First Union National Bank 301 South College St., DC-5 Charlotte, North Carolina 28288-0737 Attention: David Silander Telecopier number: 704-374-4793 Confirmation number: 704-383-5124 55 $150,000,000 SUNTRUST BANK, ATLANTA By: -------------------------------------- Title: By: -------------------------------------- Title: Lending Office -------------- SunTrust Bank, Atlanta 303 Peachtree Street, 3rd Floor Atlanta, Georgia 30308 Telecopier number.: 404-575-2594 Confirmation number: 404-230-5099 Attention: Bradley J. Staples, Director - ----------------- TOTAL COMMITMENTS: $450,000,000 56 Exhibit A --------- NOTE Atlanta, Georgia As of November 23, 1999 For value received, MOHAWK INDUSTRIES, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of , (the ---------------- "Bank"), for the account of its Lending Office, the principal sum of ----------- MILLION DOLLARS ($ ), or such lesser amount as shall equal the unpaid ------------ principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below, on the dates and in the amounts provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of this Note on the dates and at the rate or rates provided for in the Credit Agreement referred to below. Interest on any overdue principal of and, to the extent permitted by law, overdue interest on the principal amount hereof shall bear interest at the Default Rate, as provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of the Bank located at , or such other ---------------------- address as may be specified from time to time pursuant to the Credit Agreement. All Loans made by the Bank, the respective maturities thereof, the interest rates from time to time applicable thereto, and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that -------- the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This Note is one of the "Notes" referred to in the Fifth Amended and Restated Credit Agreement of even date herewith among the Borrower, First Union National Bank, SunTrust Bank, Atlanta, Wachovia Bank, N.A., and the other banks from time to time party thereto (as the same may be amended and modified from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the optional and mandatory prepayment and the repayment hereof and the acceleration of the maturity hereof. 57 IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed, under seal, by its duly authorized officer as of the day and year first above written. MOHAWK INDUSTRIES, INC. (SEAL) By: -------------------------- Title: 58 Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL ------------------------------------------------ Date Base Rate or Amount of Amount of Maturity Date Notation Euro-Dollar Loan Principal Made By Loan Repaid - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- 59 Exhibit B --------- OPINION OF COUNSEL FOR THE BORROWER ------------------------ To be dated as of the Effective Date and in the form attached hereto. 60 Exhibit C --------- ASSIGNMENT AND ACCEPTANCE ------------------------- Dated ____________ __,____ Reference is made to the Fifth Amended and Restated Credit Agreement dated as of November 23, 1999 (together with all amendments and modifications thereto, the "Credit Agreement") among Mohawk Industries, Inc., a Delaware corporation (the "Borrower"), First Union National Bank, SunTrust Bank, Atlanta, Wachovia Bank, N.A., and the other banks from time to time party thereto (collectively, the "Banks"). Terms defined in the Credit Agreement are used herein with the same meaning. ________________ (the "Assignor") and ________________________________________ (the "Assignee") agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, a ______% interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the Effective Date (as defined below) (including, without limitation, a _____% interest (which on the Effective Date hereof is $_______________) in the aggregate principal amount of the Assignor's Commitment and a ______ interest (which on the Effective Date hereof is $_____________) in the Loans owing to the Assignor and a __________ interest (which on the Effective Date hereof is $__________) in the Note held by the Assignor (which on the Effective Date hereof is $___________________). 2. The Assignor (i) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other Loan Documents furnished pursuant thereto, other than that it is the legal and beneficial owner of the interest being assigned by it hereunder, that such interest is free and clear of any adverse claim and that as of the date hereof the aggregate principal amount of the Assignor's Commitments (without giving effect to assignments thereof which have not yet become effective) is $_________________ and the aggregate outstanding principal amount of all Loans owing to it (without giving effect to assignments thereof which have not yet become effective) is $_________________; (ii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) requests that the Borrower execute a new Note dated ________________, ____ in the principal amount of $______________ payable to the order of the Assignee. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.04(a) thereof (or any more recent 61 financial statements of the Borrower delivered pursuant to Section 5.01(a) or (b) thereof) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is a bank or financial institution; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank; (v) specifies as its Lending Office (and address for notices) the office set forth beneath its name on the signature pages hereof, (vi) represents and warrants that the execution, delivery and performance of this Assignment and Acceptance are within its corporate powers and have been duly authorized by all necessary corporate action[, and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and the Notes or such other documents as are necessary to indicate that all such payments are subject to such taxes at a rate reduced by an applicable tax treaty]. 4. The Effective Date for this Assignment and Acceptance shall be _______________ (the "Effective Date"). 5. From and after the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent rights and obligations have been transferred to it by this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent its rights and obligations have been transferred to the Assignee by this Assignment and Acceptance, relinquish its rights (other than under Section 7.03 of the Credit Agreement) and be released from its obligations under the Credit Agreement. 6. From and after the Effective Date, the Borrower shall make all payments in respect of the interest assigned hereby to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments for periods prior to such acceptance by the Borrower directly between themselves. 62 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Georgia. [NAME OF ASSIGNOR] By:___________________________ Title: [NAME OF ASSIGNEE] By:___________________________ Title: Lending Office: [Address] CONSENTED AND AGREED TO: MOHAWK INDUSTRIES, INC. By:_______________________ Title: 63 Exhibit D --------- NOTICE OF BORROWING ------------------- _______________, _______ [Wachovia Bank, N.A. 191 Peachtree Street, N.W. Atlanta, Georgia 30303-1757 Attention: SouthEast Corporate Loan Unit] [First Union National Bank 999 Peachtree Street, 9th Floor Atlanta, Georgia 30309 Attention: Donald Dalton] [SunTrust Bank, Atlanta 303 Peachtree Street, 3rd Floor Atlanta, Georgia 30308 Attention: Bradley J. Staples] Re: Fifth Amended and Restated Credit Agreement (as amended and modified from time to time, the "Credit Agreement") dated as of November 23, 1999 by and among MOHAWK INDUSTRIES, INC., FIRST UNION NATIONAL BANK, SUNTRUST BANK, ATLANTA, WACHOVIA BANK, N.A., and the other Banks from time to time party thereto. Ladies and Gentlemen: Unless otherwise defined herein, capitalized terms used herein shall have the meanings attributable thereto in the Credit Agreement. This Notice of Borrowing is delivered to you pursuant to Section 2.02 of the Credit Agreement. The Borrower hereby requests a [Euro-Dollar Borrowing] [Base Rate Borrowing] in the aggregate principal amount of $___________ to be made on ______________, ______, and for interest to accrue thereon at the rate established by the Credit Agreement for [Base Rate Loans] [Euro-Dollar Loans]. 64 [First Union] [SunTrust] [Wachovia] is hereby requested to fund $_____________ (33.3333%) of such Borrowing. [The duration of the Interest Period with respect thereto shall be [1 month] [2 months] [3 months] [6 months]. The Borrower hereby represents and warrants that on the date the Borrowing requested hereunder is made (both before and after giving effect to the making of such and after giving effect to the application, directly or indirectly, of the proceeds thereof): (a) no Default has occurred and is continuing; and (b) the representations and warranties of the Borrower contained in Article IV of the Credit Agreement are true on and as of the date hereof except for changes permitted by the Credit Agreement and except to the extent that such representations and warranties relate solely to an earlier date. The Borrower has caused this Notice of Borrowing to be executed and delivered by its duly authorized officer this _____ day of __________, ______. MOHAWK INDUSTRIES, INC. By:______________________ Title: 65 Exhibit E --------- COMPLIANCE CERTIFICATE ---------------------- Reference is made to the Fifth Amended and Restated Credit Agreement dated as of November 23, 1999 (as modified and supplemented and in effect from time to time, the "Credit Agreement") among Mohawk Industries, Inc., First Union National Bank, SunTrust Bank, Atlanta, Wachovia Bank, N.A., and the other Banks from time to time party thereto. Capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement. Pursuant to Section 5.01(c) of the Credit Agreement, ________________, the duly authorized ____________________________ of Mohawk Industries, Inc. hereby certifies, on behalf of the Borrower, to the Banks that the information contained in the Compliance Check List attached hereto is true, accurate and complete as of ______________________, _____, and that no Defaults or Events of Default exist. By:___________________________ Title: 66 COMPLIANCE CHECK LIST (Mohawk Industries, Inc.) -------------------------- ________________________, __________ 1. Debt to Capitalization Ratio (Section 5.04) The Debt to Capitalization Ratio shall be less than 0.60 to 1.0 at the end of each Fiscal Quarter. (a) Consolidated Debt $ ____ (b) Consolidated Total Capital $ ____ Actual Ratio of (a) to (b) ____ Maximum Ratio (less than) 0.60 to 1.0 Applicable Margin ____ %* Facility Fee ____ %* 2. Debt to EBITDA Ratio (Section 5.05) The ratio of the Borrower's (a) Consolidated Debt to (b) the sum of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) taxes on the Borrower's consolidated pre-tax income, and (iv) Depreciation and Amortization shall not be greater than 3.5 to 1.0 at the end of each Fiscal Quarter. Clause (b) in this Section 5.05 shall be calculated on a trailing 4 quarter basis as at the end of each such Fiscal Quarter. (a) Consolidated Debt $ ____ (b) Consolidated Net Income $ ____ (c) Consolidated Interest Expense $ ____ (d) Taxes on the Borrower's consolidated pre-tax income $ ____ (e) Depreciation $ ____ - ---------------------- * Subject to verification by the Banks. 67 COMPLIANCE CHECKLIST (Mohawk Industries, Inc.) ------------- ______, 199_ (f) Amortization $ ____ (e) The sum of (b) plus (c) plus (d) plus (e) plus (f) $ ____ Actual Ratio of (a) to (e) ____ Maximum Ratio (less than) 3.5 to 1.0 3. Negative Pledge (Section 5.08) Liens permitted under paragraphs (a) through (i) $ ____ Limitation -- greater of (x) $90,000,000 or (y) 15% of Consolidated Net Worth $ ____ 4. Calculations with respect to Asset Securitizations: (a) Accounts receivable balance reported as of the last day of the calendar month most recently ended in such Fiscal Quarter by the Borrower or a Subsidiary with respect to an Asset Securitization $ ____________ (b) Total accounts receivable reported as sold as of the last day of the calendar month most recently ended in such Fiscal Quarter by the Borrower or a Subsidiary with respect to an Asset Securitization $ ____________ 68 Schedule 4.08 ------------- Subsidiaries ------------ Jurisdiction Holders of Equity Name of Subsidiary of Formation Interest Mohawk Carpet Corporation Delaware Borrower World Carpets, Inc. Georgia Borrower World Commercial Carpets, Inc. Georgia World Carpets, Inc. Mohawk Servicing, Inc. Delaware Mohawk Carpet Corporation Mohawk Factoring, Inc. Delaware Mohawk Carpet Corporation Aladdin Manufacturing Corporation Delaware Mohawk Carpet Corporation Mohawk International FSC, Inc. Barbados Mohawk Carpet Corporation Mohawk Commercial, Inc. Delaware Mohawk Carpet Corporation Mohawk Marketing, Inc. Georgia Aladdin Manufacturing Corporation Newmark & James, Inc. Georgia Aladdin Manufacturing Corporation Horizon Europe, Inc. Georgia Aladdin Manufacturing Corporation Delaware Valley Wool Scouring, Inc. Pennsylvania Aladdin Manufacturing Corporation Mohawk Mills, Inc. Delaware Aladdin Manufacturing Corporation American Weavers LLC Tennessee Aladdin Manufacturing Corporation Mohawk Marketing, Inc. 69 EX-10.35 7 1992 STOCK OPTION PLAN EXHIBIT 10.35 SECOND AMENDMENT TO THE MOHAWK INDUSTRIES, INC. 1992 STOCK OPTION PLAN THIS SECOND AMENDMENT, made as of the 17th day of February, 2000, by MOHAWK INDUSTRIES, INC., a corporation duly organized and existing under the laws of the State of Delaware (the "Company"): W I T N E S S E T H: WHEREAS, the Company has established the Mohawk Industries, Inc. 1992 Stock Option Plan (the "Plan"); and WHEREAS, the Board of Directors deems it advisable to amend the Plan as of the effective date hereof; NOW, THEREFORE, the Plan is hereby amended, effective as of the effective date hereof, by substituting the following for Plan Section 5(g): "(g) provide that, if an optionee dies or becomes disabled (as defined in Code Section 22(e)(3)) while he or she is a director or employee of the Company or a Subsidiary, as applicable, the Option shall become immediately vested and exercisable in full and may be exercised by the optionee or by a legatee or legatees of the optionee under his or her last will, or by his or her personal representative or representatives, at any time until the first anniversary of the optionee's death or disability or, if earlier, the expiration of the Option term." Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Second Amendment. IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed as of the day and year first above written. MOHAWK INDUSTRIES, INC. By: ----------------------------------- ATTEST: By: ------------------------------ [CORPORATE SEAL] EX-10.38 8 1992 MOHAWK-HORIZON STOCK OPTION PLAN EXHIBIT 10.38 SECOND AMENDMENT TO THE MOHAWK INDUSTRIES, INC. 1992 MOHAWK-HORIZON STOCK OPTION PLAN THIS SECOND AMENDMENT, made as of the 17th day of February, 2000, by MOHAWK INDUSTRIES, INC., a corporation duly organized and existing under the laws of the State of Delaware (the "Company"): W I T N E S S E T H: WHEREAS, the Company has established the Mohawk Industries, Inc. 1992 Mohawk-Horizon Stock Option Plan (the "Plan"); and WHEREAS, the Board of Directors deems it advisable to amend the Plan as of the effective date hereof; NOW, THEREFORE, the Plan is hereby amended, effective as of the effective date hereof, by substituting the following for Plan Section 5(g): "(g) provide that, if an optionee dies or becomes disabled (as defined in Code Section 22(e)(3)) while he or she is a director or employee of the Company or a Subsidiary, as applicable, the Option shall become immediately vested and exercisable in full and may be exercised by the optionee or by a legatee or legatees of the optionee under his or her last will, or by his or her personal representative or representatives, at any time until the first anniversary of the optionee's death or disability or, if earlier, the expiration of the Option term." Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Second Amendment. IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed as of the day and year first above written. MOHAWK INDUSTRIES, INC. By: ----------------------------------- ATTEST: By: ----------------------------- [CORPORATE SEAL] EX-10.40 9 1993 STOCK OPTION PLAN EXHIBIT 10.40 FIRST AMENDMENT TO THE MOHAWK INDUSTRIES, INC. 1993 STOCK OPTION PLAN THIS FIRST AMENDMENT, made as of the 17th day of February, 2000, by MOHAWK INDUSTRIES, INC., a corporation duly organized and existing under the laws of the State of Delaware (the "Company"): W I T N E S S E T H: WHEREAS, the Company has established the Mohawk Industries, Inc. 1993 Stock Option Plan (the "Plan"); and WHEREAS, the Board of Directors deems it advisable to amend the Plan as of the effective date hereof; NOW, THEREFORE, the Plan is hereby amended, effective as of the effective date hereof, by substituting the following for Plan Section 5(g): "(g) provide that, if an optionee dies or becomes disabled (as defined in Code Section 22(e)(3)) while he or she is a director or employee of the Company or a Subsidiary, as applicable, the Option shall become immediately vested and exercisable in full and may be exercised by the optionee or by a legatee or legatees of the optionee under his or her last will, or by his or her personal representative or representatives, at any time until the first anniversary of the optionee's death or disability or, if earlier, the expiration of the Option term." Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this First Amendment. IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed as of the day and year first above written. MOHAWK INDUSTRIES, INC. By: ----------------------------------- ATTEST: By: ---------------------------- [CORPORATE SEAL] EX-11 10 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 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, 1999 1998 1997 ----------------- ----------------- ----------------- Regulation S-K: Net earnings....................................................... $ 157,239 115,254 79,563 ================= ================= ================= Weighted-average common and dilutive potential common shares outstanding: Weighted-average common shares outstanding....................... 59,730 60,393 59,962 Add weighted-average dilutive potential common shares - options to purchase common shares, net.................................. 619 741 491 Weighted-average common and dilutive potential common ----------------- ----------------- ----------------- shares outstanding............................................... 60,349 61,134 60,453 ================= ================= ================= Basic earnings per share........................................... $ 2.63 1.91 1.33 ================= ================= ================= Diluted earnings per share......................................... $ 2.61 1.89 1.32 ================= ================= ================= FAS No. 128: Net earnings....................................................... $ 157,239 115,254 79,563 ================= ================= ================= Weighted-average common and dilutive potential common shares outstanding: Weighted-average common shares outstanding....................... 59,730 60,393 59,962 Add weighted-average dilutive potential common shares - options to purchase common shares, net.................................. 619 741 491 Weighted-average common and dilutive potential common shares ----------------- ----------------- ----------------- outstanding...................................................... 60,349 61,134 60,453 ================= ================= ================= Basic earnings per share........................................... $ 2.63 1.91 1.33 ================= ================= ================= Diluted earnings per share......................................... $ 2.61 1.89 1.32 ================= ================= =================
EX-21 11 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Mohawk Carpet Corporation ..................................... Delaware Aladdin Manufacturing Corporation ............................. Delaware Durkan Patterned Carpets, Inc.................................. Georgia Mohawk Commercial, Inc......................................... Delaware Mohawk Factoring, Inc.......................................... Delaware Mohawk Servicing, Inc.......................................... Delaware EX-23.1 12 INDEPENDENT AUDITORS' CONSENT 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 statements (No. 333-66061 and No. 333-77231) on Form S-3 of Mohawk Industries, Inc. and subsidiaries of our report dated February 11, 2000, relating to the consolidated balance sheets of Mohawk Industries, Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999, and all related schedules, which report appears in the December 31, 1999, annual report on Form 10-K of Mohawk Industries, Inc. KPMG LLP Atlanta, Georgia March 6, 2000 EX-23.2 13 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-66061 and 333-77231) of Mohawk Industries, Inc. of our report dated September 21, 1998 relating to the financial statements of World Carpets, Inc., and its subsidiary which appears in this Form-10-K. PricewaterhouseCoopers LLP Atlanta, Georgia March 3, 2000 EX-27.1 14 1999 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOHAWK INDUSTRIES INC., ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 0 0 408,303 70,479 494,774 934,410 1,139,660 514,846 1,682,873 374,353 562,104 0 0 607 691,939 1,682,873 3,083,264 3,083,264 2,306,405 2,306,405 0 15,804 32,632 259,899 102,660 157,239 0 0 0 157,239 2.63 2.61
EX-27.2 15 1998 FINANCIAL DATA SCHEDULE (RESTATED)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MOHAWK INDUSTRIES INC., ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1998. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 2,384 0 390,161 58,233 423,837 846,935 883,908 429,041 1,405,486 408,461 332,665 0 0 606 610,453 1,405,486 2,744,620 2,744,620 2,063,333 2,063,333 20,600 13,190 31,023 194,806 79,552 115,254 0 0 0 115,254 1.91 1.89 NON RECURRING CHARGES OF $17,700 FOR ACQUISITION COSTS RELATED TO WORLD MERGER AND $2,900 FOR CARRYING VALUE REDUCTION OF ASSETS HELD FOR SALE PURSUANT TO FAS 121.
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