UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 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 1-9487 ATLANTIS PLASTICS, INC. (Exact name of registrant as specified in its charter) FLORIDA 06-1088270 ------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1870 The Exchange, Suite 200, Atlanta, Georgia 30339 ------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including Area Code) (800) 497-7659 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 the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Shares Outstanding at June 30, 2000 ------------- ---------------------------- A, $.10 par value 4,846,846 B, $.10 par value 2,676,947 ATLANTIS PLASTICS, INC. TABLE OF CONTENTS Page No. -------- Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999.............................1 Condensed Consolidated Statements of Income for the three months and six months ended June 30, 2000 and 1999........2 Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999.........................3 Notes to Consolidated Financial Statements......................4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................7 Part II. Other Information Item 1 - Legal Proceedings.................................................................10 Item 4 - Submission of Matters to a Vote of Security-Holders.............10 Item 6 - Exhibits and Reports on Form 8-K................................10 Signatures..................................................................11 ATLANTIS PLASTICS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, 2000 1999 --------- --------- (Unaudited) (Note A) ASSETS Cash and cash equivalents ................................................ $ 1,126 $ 2,288 Accounts receivable, net ................................................. 30,954 30,987 Inventories .............................................................. 19,462 17,556 Other current assets ..................................................... 6,337 7,248 --------- --------- Current assets ....................................................... 57,879 58,079 Property and equipment, net .............................................. 69,061 65,580 Goodwill, net of accumulated amortization ................................ 45,195 45,957 Other assets ............................................................. 829 1,050 --------- --------- Total assets ......................................................... $ 172,964 $ 170,666 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses .................................... $ 19,600 $ 22,565 Current portion of long-term debt ........................................ 14,601 10,846 --------- --------- Current liabilities .................................................. 34,201 33,411 Long-term debt, less current portion ..................................... 80,722 80,888 Deferred income taxes .................................................... 10,456 10,258 Other liabilities ........................................................ -- 95 --------- --------- Total liabilities .................................................... 125,379 124,652 Commitments and contingencies ............................................ -- -- Shareholders' equity: Class A Common Stock, $.10 par value, 20,000,000 shares authorized, 4,846,846 and 4,752,991 shares issued and outstanding in 2000 and 1999 485 475 Class B Common Stock, $.10 par value, 7,000,000 shares authorized, 2,676,947 shares issued and outstanding in 2000 and 1999 ............. 268 268 Additional paid-in capital ............................................. 10,656 10,046 Notes receivable from sale of Common Stock ............................. (1,552) (1,410) Retained earnings ...................................................... 37,728 36,635 --------- --------- Total shareholders' equity ........................................... 47,585 46,014 --------- --------- Total liabilities and shareholders' equity ........................... $ 172,964 $ 170,666 ========= =========
See accompanying notes to consolidated financial statements (unaudited). 1 ATLANTIS PLASTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited - in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2000 1999 2000 1999 ----------------------- ----------------------- Net sales ............................................................. $ 65,251 $ 65,052 $ 129,725 $ 124,025 Cost of sales ......................................................... 55,718 51,830 109,200 98,389 --------- --------- --------- --------- Gross profit ....................................... 9,533 13,222 20,525 25,636 Selling, general and administrative expenses .......................... 6,211 6,490 12,787 12,990 --------- --------- --------- --------- Operating income .................................... 3,322 6,732 7,738 12,646 Net interest expense .................................................. (2,546) (2,285) (5,052) (4,600) --------- --------- --------- --------- Income from continuing operations before income taxes 776 4,447 2,686 8,046 Income tax provision ................................................. (420) (1,816) (1,271) (3,309) --------- --------- --------- --------- Net income .......................................... $ 356 $ 2,631 $ 1,415 $ 4,737 ========= ========= ========= ========= Earnings per Common Share (Basic) --------- --------- --------- --------- Net income .......................................... $ 0.05 $ 0.35 $ 0.19 $ 0.63 ========= ========= ========= ========= Weighted -average number of shares outstanding - Basic ................ 7,520 7,585 7,511 7,536 Earnings per Common Share (Diluted) --------- --------- --------- --------- Net income .......................................... $ 0.05 $ 0.33 $ 0.18 $ 0.61 ========= ========= ========= ========= Weighted -average number of shares outstanding - Diluted .............. 7,621 7,897 7,691 7,821
See accompanying notes to consolidated financial statements (unaudited). 2 ATLANTIS PLASTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - in thousands)
Six Months Ended June 30, ------------------- 2000 1999 ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................ $ 1,415 $ 4,737 ------- ------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ...................................................... 4,545 4,154 (Gain) loss on disposal of assets ................................. (6) 19 Amortization of goodwill .......................................... 791 786 Loan fee and other amortization ................................... 258 218 Interest receivable ............................................... (67) (43) Deferred income taxes ............................................. 198 (388) Changes in operating assets and liabilities, net .................. (3,917) (1,662) ------- ------- Total adjustments ............................................. 1,802 3,084 ------- ------- Net cash provided by operating activities ................. 3,217 7,821 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................................ (8,087) (7,050) Proceeds from asset dispositions .................................... 67 -- ------- ------- Net cash used in investing activities ....................... (8,020) (7,050) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit agreements ........................ 4,900 -- Payments on long-term debt .......................................... (1,311) (1,258) Payments on notes receivable from shareholders ...................... 193 75 Purchase of Common stock ............................................ (389) -- Proceeds from exercise of stock options ............................. 248 168 ------- ------- Net cash provided by (used) in financing activities ......... 3,641 (1,015) ------- ------- Net decrease in cash and cash equivalents ............................. (1,162) (244) Cash and cash equivalents at beginning of period ...................... 2,288 2,879 ------- ------- Cash and cash equivalents at end of period ............................ $ 1,126 $ 2,635 ======= =======
See accompanying notes to consolidated financial statements (unaudited). 3 ATLANTIS PLASTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2000 Note A. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Atlantis Plastics, Inc. annual report on Form 10-K for the year ended December 31, 1999. Note B. Inventories The components of inventory consist of the following: June 30 December 31 2000 1999 ------- ------- In Thousands Raw Materials $11,065 $ 9,396 Work in Process 116 76 Finished Products 8,281 8,084 ------- ------- $19,462 $17,556 ======= ======= The increase in raw material inventory is principally associated with a four cent per pound price increase as well as additional resins purchased in the Plastic Films segment in preparation for the introduction of revised and improved film structures as well as an alternative resin required for production of certain films during high ambient heat conditions during the summer months. It is anticipated that these inventories will be reduced to lower levels by the end of the third quarter of 2000. 4 Note C. Segment Information The Company has two operating segments: Atlantis Plastic Films and Atlantis Molded Plastics. Information related to such segments is as follows:
Six Months Ended June 30, 2000 Segment ------------------------------------------------------- Atlantis Atlantis Plastics Molded Films Plastics Corporate Consolidated --------- --------- --------- ------------ In Thousands Net Sales $ 89,507 $ 40,218 -- $ 129,725 Operating Income 3,947 3,791 -- 7,738 Identifiable Assets 109,528 60,108 $ 3,328(1) 172,964 Capital Expenditures 5,967 1,726 394 8,087 Depreciation and Amortization 2,343 1,907 1,344 5,594 Six Months Ended June 30, 1999 Segment ------------------------------------------------------- Atlantis Atlantis Plastics Molded Films Plastics Corporate Consolidated --------- --------- --------- ------------ In Thousands Net Sales $ 85,215 $ 38,810 -- $124,025 Operating Income 9,570 3,076 -- 12,646 Identifiable Assets 111,603 57,124 $ (5,509)(1) 163,218 Capital Expenditures 3,498 2,049 1,493 7,040 Depreciation and Amortization 2,306 1,785 1,067 5,158
(1) Corporate identifiable assets are primarily intercompany receivables. 5 Note D. Earnings Per Share Data The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.
Three Months Six Months Ended June 30 Ended June 30 2000 1999 2000 1999 ------ ------ ------ ------ In thousands, except per share data Basic: Net income $ 356 $2,631 $1,415 $4,737 Weighted average shares outstanding 7,520 7,585 7,511 7,536 ------ ------ ------ ------ Basic earnings per share $ 0.05 $ 0.35 $ 0.19 $ 0.63 ====== ====== ====== ====== Diluted: Net income $ 356 $2,631 $1,415 $4,737 Weighted average shares outstanding 7,520 7,585 7,511 7,536 Net effect of dilutive stock options-based on treasury stock method 101 312 180 285 ------ ------ ------ ------ 7,621 7,897 7,691 7,821 Diluted earnings per share $ 0.05 $ 0.33 $ 0.18 $ 0.61 ====== ====== ====== ======
6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Atlantis is a leading U.S. manufacturer of polyethylene stretch and custom films used in a variety of industrial and consumer applications and molded plastic products for the appliance, automotive, building supply, and recreational vehicle industries. Atlantis Plastic Films accounts for approximately 70% of the Company's net sales and produces: (i) stretch films (multilayer plastic films that are used principally to wrap pallets of materials for shipping or storage), (ii) custom film products (high-grade laminating films, embossed films, and specialty film products targeted primarily to industrial and packaging markets), and (iii) institutional products such as aprons, gloves, and tablecloths which are converted from polyethylene films. Atlantis Molded Plastics accounts for approximately 30% of the Company's net sales and employs two principal technologies, serving a wide variety of specific market segments, described as follows: (i) injection molded thermoplastic parts that are sold primarily to original equipment manufacturers and used in major household goods and appliances, power tools, building supplies, and agricultural and automotive products, and (ii) a variety of custom and proprietary extruded plastic parts (profile extrusion) for both trim and functional application that are incorporated into a broad range of consumer and commercial products such as recreational vehicles, residential windows and doors, office furniture, building supplies, and retail store fixtures. All material intercompany balances and transactions have been eliminated. Certain amounts included in prior period financial statements have been reclassified to conform to the current period presentation. Selected income statement data for the quarterly periods ended March 31, 1999 through June 30, 2000 are as follows:
($ in millions) 2000 1999 -------------------- ---------------------------------------------- Q2 Q1 Q4 Q3 Q2 Q1 ------- ------- ------- ------- ------- ------- NET SALES Plastic Films $ 45.9 $ 43.6 $ 47.2 $ 44.7 $ 44.5 $ 40.7 Molded Plastics 19.4 20.9 17.7 20.4 20.6 18.3 ------- ------- ------- ------- ------- ------- TOTAL $ 65.3 $ 64.5 $ 64.9 $ 65.1 $ 65.1 $ 59.0 ======= ======= ======= ======= ======= ======= Percentage of Net Sales GROSS PROFIT Plastic Films 13% 15% 17% 19% 21% 22% Molded Plastics 18% 21% 22% 19% 19% 18% ------- ------- ------- ------- ------- ------- TOTAL 15% 17% 19% 19% 20% 21% ======= ======= ======= ======= ======= ======= OPERATING INCOME Plastic Films 4% 5% 9% 10% 11% 12% Molded Plastics 9% 10% 10% 10% 9% 7% ------- ------- ------- ------- ------- ------- TOTAL 5% 7% 9% 10% 10% 10% ======= ======= ======= ======= ======= ======= NET INTEREST EXPENSE $ 2.6 $ 2.5 $ 2.4 $ 2.2 $ 2.3 $ 2.3 ======= ======= ======= ======= ======= =======
7 RESULTS OF OPERATIONS The Company's 2000 second quarter and year-to-date net sales were $65.3 million and $129.7 million compared with $65.1 million and $124.0 million for the same periods of 1999. Atlantis Plastic Films' volume (measured in pounds) for the second quarter was 4% below the second quarter of 1999 and the first six months volume for 2000 was 5% below the comparable period of 1999. First half net sales for Atlantis Plastic films were 5% above 1999 due to higher average selling prices resulting from increases in polyethylene resin prices. Atlantis Molded Products' net sales for the second quarter and first half of 2000 were $19.3 million and $40.2 million, compared with $20.5 million and $38.8 million respectively. Atlantis' second quarter and year-to-date gross margins equaled 15% and 16% respectively compared with 20% and 21% for the comparable periods of 1999. Plastic Films accounted for most of the decline, with gross margins in the second quarter and year-to-date periods of 2000 of 13% and 14% respectively, compared to 21% and 22% for the same periods of 1999. The declines were largely due to increased polyethylene resin prices and lower sales volumes. Molded Plastics' second quarter and year-to-date gross margins of 18% and 19% were similar to 1999 levels of 19% and 18% for comparable periods. The molded products 1999 improvements in operational efficiencies, reduced scrap rates, and reduced overhead were sustained through the first six months of this year. Selling, general, and administrative ("SG&A") expenses for the second quarter of 2000 were $6.2 million compared with $6.5 million in 1999. For the first half, SG&A expense was $12.8 million compared to $13.0 million for 1999. For both the second quarter and first half, the year to year decline reflects reduced accruals for incentive compensation programs. Second quarter and year-to-date net interest expense of $2.5 million and $5.1 million respectively were higher than comparable levels in 1999 by approximately 11% and 10%. These increases were a result of increased borrowing on the Company's revolving credit facility. Effective income tax rates differed from applicable statutory rates in both 2000 and 1999, primarily due to nondeductible goodwill amortization. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital at June 30, 2000 totaled $23.7 million (including cash and cash equivalents of $1.1 million), compared to $24.7 million (including cash and cash equivalents of $2.3 million) at December 31, 1999. At June 30, 2000, borrowings on the Company's $25 million revolving credit facility were $12 million and unused availability, net of outstanding letters of credit of approximately $1.3 million, equaled $11.7 million. The present credit agreement was renewed effective May 12, 2000 and expires November 12, 2000. Interest is computed using LIBOR or prime-based rates plus a margin. The LIBOR and prime-based rates are determined by a formula based upon the Company's ratio of cash flow to net indebtedness. At June 30, 2000 these rates were 8.86% and 10%, respectively. The Company's new 120 inch five layer cast extrusion line presently is being tested in the Sapulpa, OK stretch film facility and a new coextrusion line for custom films is on order with delivery expected September 2000. Atlantis signed a 10 year lease in May 2000 and presently is outfitting the Fontana, CA stretch film facility with production expected to commence in the fourth quarter of 2000. The Company's principal needs for liquidity, on both a short- and long-term basis, relate to working capital (principally accounts receivable and inventories), debt service, and capital expenditures (see above). The Company expects to fund the above capital expenditure requirements as well as its short and long-term liquidity needs with cash on hand, funds generated from operations, and funds available under its revolving credit facility. In March 8 2000 Atlantis announced that it is exploring alternatives which would allow it to refinance its long term debt including its 11% Senior Notes due February 2003. Cash Flows from Operating Activities In the first six months of 2000, net cash provided by operating activities was approximately $3.3 million, compared to $7.8 million for the same period last year. Net income through June 2000 was $1.4 million compared to $4.7 million through June 1999. During the first half of 2000 accounts receivable decreased by $33,000 compared to an increase of $2.4 million for the same period of 1999. Inventories increased by approximately $1.9 million during the first six months of 2000 compared to $1.5 million in 1999. The year 2000 increase is principally associated with a four cent per pound price increase as well as additional resins purchased in the Plastic Films segment in preparation for the introduction of revised and improved film structures as well as an alternative resin required for production of certain films during high ambient heat conditions during the summer months. Accounts payable and accrued expenses decreased $3.0 million during the first half of 2000 compared to an increase of $770,000 during the same period of 1999. This decrease is primarily timing differences in payments of normal operating expenses and taxes. Cash Flows from Investing Activities Net cash used in investing activities during the first six months of 2000 consisted of capital expenditures (net of dispositions) totaling $8.1 million, compared to capital expenditures (net of dispositions) of $7.1 million for the same period last year. Cash Flows from Financing Activities Net cash provided by financing activities for the first six months of 2000 was $3.6 million, compared to $1.0 million cash used during this period last year. Net borrowings under the revolving credit agreement equaled $4.9 million during the first half of 2000 compared to none in 1999. Proceeds from the exercise of stock options were $248,000 during the first six months of 2000, and $168,000 during the same period, 1999. During the first half of 2000, $389,000 was used to repurchase the Company's Common stock. There were no repurchases in the comparable period, 1999. Forward Looking Statements This Form 10-Q contains certain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, projections of revenues, income or losses, capital expenditures, plans for future operations, financing needs or plans, compliance with financial covenants in loan agreements, plans for liquidation or sale of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events, the ability to obtain additional financing, the Company's ability to meet obligations as they become due, the impact of pending and possible litigation, as well as assumptions relating to the foregoing. In addition, when used in this discussion, the words "anticipates," "believes," "estimates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, including, but not limited to, the impact of leverage, dependence on major customers, fluctuating demand for the Company's products, risks in product and technology development, fluctuating resin prices, competition, litigation, labor disputes, capital requirements, and other risk factors detailed in the Company's Securities and Exchange Commission filings, some of which cannot be predicted or quantified based on current expectations. 9 Part II. Other Information Item 1. Legal Proceedings. The Company is not a party to any legal proceeding other than routine litigation incidental to its business, none of which is material. Item 4. Submission of Matters to a Vote of Security-Holders (a) The Registrant held its Annual Meeting of Shareholders on June 13, 2000. (b) Not Required (c) The matter voted on at the Annual Meeting of Shareholders, and the tabulation of votes on such matter are as follows: Election of Directors --------------------- Name For Withheld ---- --- -------- CLASS A ------- Charles D. Murphy, III 4,445,351 1,165 Chester B. Vanatta 4,445,351 1,165 CLASS B ------- Cesar L. Alvarez 2,676,947 -0- Anthony F. Bova 2,676,947 -0- Phillip T. George, M.D. 2,676,947 -0- Larry D. Horner 2,676,947 -0- Earl W. Powell 2,676,947 -0- Paul Rudovsky 2,676,947 -0- (d) Not applicable Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.1 Second Amendment and Restatement of Promissory Note by and between Atlantis Plastics Injection Molding, Inc. and the Registrant and National City Bank, dated as of May 17, 2000 10.2 Lease between Principal Life Insurance Company and Atlantis Plastic Films, Inc., dated as of March 8, 2000 10.3 Guaranty of Lease by Registrant of the obligations of Atlantis Plastics Films, dated as of March 8, 2000 27.1 Financial Data Schedule - ------------------- (b) Reports on Form 8-K: During the quarter for which this Quarterly Report on Form 10-Q is filed, the Registrant filed no reports on Form 8-K. 10 SIGNATURES Pursuant to the requirements 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. ATLANTIS PLASTICS, INC. Date: July 27, 2000 /s/ Anthony F. Bova ------------------- ANTHONY F. BOVA President and Chief Executive Officer Date: July 27, 2000 /s/ Paul Rudovsky ----------------- PAUL RUDOVSKY Executive Vice President, Finance and Administration 11 EXHIBIT INDEX EXHIBIT NO. EXHIBIT DESCRIPTION - ----------- ------------------- 10.1 Second Amendment and Restatement of Promissory Note by and between Atlantis Plastics Injection Molding, Inc. and the Registrant and National City Bank, dated as of May 17, 2000 10.2 Lease between Principal Life Insurance Company and Atlantis Plastic Films, Inc., dated as of March 8, 2000 10.3 Guaranty of Lease by Registrant of the obligations of Atlantis Plastics Films, dated as of March 8, 2000 27.1 Financial Data Schedule EX-10.1 2 0002.txt EXHIBIT 10.1 SECOND AMENDMENT AND RESTATEMENT OF PROMISSORY NOTE This Second Amendment and Restatement of Promissory Note is executed at Youngstown, Ohio, on May_17_, 2000 by and between ATLANTIS PLASTICS INJECTION MOLDING, INC., a Kentucky corporation, and ATLANTIS PLASTICS, INC., a Florida corporation (collectively, the "Borrower") and NATIONAL CITY BANK (the "Bank"). PRELIMINARY STATEMENTS 1. Bank extended a loan to the Borrower in the amount of Five Hundred Seventy-eight Thousand and No/100ths Dollars ($578,000.00) as evidenced by a promissory note dated May 17, 1995 as amended by an Amendment and Restatement of Promissory Note dated January 30, 1997 (the "Note"). 2. The Note has an outstanding principal balance of Three Hundred Eighty Eight Thousand Five Hundred Fifty-One and No/100ths Dollars ($388,551.00). 3. The Bank and the Borrower desire to modify the Note and to restate the terms, conditions, and provisions thereof to reflect such modification. 4. Borrower and Bank ratify and confirm all of the terms and conditions of the Note not specifically amended herein and all of those terms and conditions of all other documents between Borrower and Bank pertaining to the indebtedness evidenced by the Note, including, without limitation, the Open End Mortgage and Security Agreement given by Borrower dated May 17, 1995 for the purpose of securing the Note, as recorded in Official Record 933, Page 40 of Trumbull County, Ohio Records (the "Mortgage"). 5. Borrower does not have any claim, offset, or defense against the Bank. AGREEMENT For valuable considerations as hereinafter granted each to the other and intending to be legally bound, the parties acknowledge the preliminary statements and amend and restate the terms, conditions, and provisions of the Note as follows: FOR VALUE RECEIVED, ATLANTIS PLASTICS INJECTION MOLDING, INC., a Kentucky corporation whose address is Highway 60, West, P.O. Box 3, Henderson, Kentucky 42420 and ATLANTIS PLASTICS, INC., a Florida corporation whose address is 1870 The Exchange, Suite 200, Atlanta, Georgia 30339 (collectively, the "Borrower") promise to pay to the order of NATIONAL CITY BANK (the "Bank"), a national banking association having its main office at One Cascade Plaza, Akron, Ohio 44308, at Bank's main office (or at such other place as Bank may from time to time designate by written notice) in lawful money of the United States of America, the principal sum of THREE HUNDRED EIGHTY EIGHT THOUSANDFIVE HUNDRED FIFTY-ONE AND NO/1OOTHS DOLLARS together with interest, all as provided below. 1. Interest. The Principal Balance shall at all times bear interest at a rate equal to the Contract Rate, provided that so long as any principal of or accrued interest on any this Note overdue, the Principal Balance and all overdue interest thereon shall bear interest at a fluctuating rate equal to two percent (2%) per annum above the rate that would otherwise be applicable, but in no case less than two percent (2%) per annum above the Prime Rate; provided further that in no event shall any principal of or interest on this Note bear interest at any time after Maturity at a lesser rate than the rate applicable thereto immediately after Maturity. The "Contract Rate" shall at all times be a fluctuating rate equal to the Prime Rate, provided that Borrower shall have the right from time to time to irrevocably elect a fixed rate (the "LIBOR Margin Rate") equal to the sum of one and three quarters percent (1-3/4%) per annum plus LIBOR as the Contract Rate applicable to the Principal Balance during a Contract Period by specifying the term of the Contract Period and the Principal Balance that such Borrower expects to have outstanding on the first day thereof (giving effect to any payments to be made on or before that day) in a notice given to Bank orally or in writing not later than 10:00 a. m., Main-Office Time, of the third (3rd) Eurodollar Banking Day preceding the first day of that Contract Period, and stating that such Borrower is electing the LIBOR Margin Rate. Interest on this Note shall be payable monthly commencing on June 20, 2000 and continuing on the twentieth day of each month until Maturity, and on demand thereafter. At the end of each Contract Period during which the LIBOR Margin Rate is the Contract Rate, the Principal Balance shall bear interest at the Prime Rate unless either Borrower shall have elected otherwise as hereinbefore provided. Bank shall be entitled to fund and maintain its funding of all or any part of the Principal Balance in any manner Bank may from time to time deem advisable, Borrower acknowledging that all determinations relating to the LIBOR Margin Rate shall be made as if Bank had actually funded and maintained the Principal Balance by the purchase of deposits in an amount similar to the amount of the Principal Balance, with a maturity similar to the Contract Period during which the LIBOR Margin Rate was elected, and bearing interest at LIBOR. 2. Ineffective Elections. Notwithstanding any provision or inference to the contrary, Bank shall have the right in its discretion, without notice to Borrower, to deem ineffective any election of a Contract Rate if (a) at the time of that election or on the first day of the Contract Period specified in the notice thereof, there shall exist or there would occur any Event of Default, (b) any representation, warranty, or other statement made by any Person (other than Bank) in any Related Writing (other than any financial statement) would, if made either at the time of that election or on the first day of the Contract Period specified in the notice thereof, be untrue or incomplete in any respect, (c) after giving effect to that election, more than one Contract Rate would be applicable to the Principal Balance, (d) Bank shall determine that (i) dollar deposits of the appropriate amount and maturity are not available in the market selected by Bank for the purpose of funding the Principal Balance at LIBOR, (ii) circumstances affecting that market make it impracticable for Bank to ascertain LIBOR, or (iii) any governmental authority has 2 asserted that it is unlawful for Bank to fund, make, or maintain loans bearing interest based on LIBOR, (e) after giving effect to that election, the actual Principal Balance is or would be, on the first day of the Contract Period specified in the notice of that election, different than the expected Principal Balance specified in that notice, (f) any principal payment is scheduled to become due during the Contract Period specified in the notice of that election, (g) the expected Principal Balance specified in the notice of that election is less than Fifty Thousand and No/100ths Dollars ($50,000.00), or (h) the Contract Period specified in the notice of that election would end after the scheduled due date of the last principal payment under this Note, giving effect to any prepayments. Bank's books and records shall be conclusive (absent manifest error) as to whether Bank shall have deemed any such election ineffective. 3. Premium. Ineffective and Unlawful Elections. If Bank shall deem ineffective any election of any Contract Rate, Borrower shall pay to Bank, on Bank's demand, a premium based on the amount the expected Principal Balance specified in the notice of that election and computed for the Contract Period specified in that notice at a rate per annum equal to the excess, if any, of the Contract Rate so elected over the Reinvestment Rate. If any governmental authority shall assert that it is unlawful for Bank to fund, make or maintain loans bearing interest based on LIBOR, then, and in each such case, notwithstanding any provision or inference to the contrary, the Principal Balance shall thereupon bear interest at the Prime Margin Rate, and Borrower shall pay to Bank, on Bank's demand, (a) all unpaid interest theretofore accruing at the LIBOR Margin Rate and (b) a premium based on the amount of the principal theretofore bearing interest at the LIBOR Margin Rate and computed for the remainder of the Contract Period therefor, at a rate equal to the excess, if any, of the Contract Rate theretofore applicable over the Reinvestment Rate. 4. Repayment. Subject to section 7, the principal of this Note shall be due and payable in sixty (60) instalments, commencing on June 20, 2000, and continuing on the twentieth day of each month thereafter until paid in full, each such instalment except the final instalment to be in a principal amount equal to Three Thousand Two Hundred Thirty-Eight and No/100ths Dollars ($3,238.00), and the final instalment to be an amount equal to all unpaid principal of this Note. Borrower shall have the right to prepay the principal of this Note in whole or in part at any time before maturity, provided that if any payment (whether a prepayment or a payment following any acceleration of the due date thereof) is made before the last day of a Contract Period during which the LIBOR Margin Rate is the Contract Rate applicable to the Principal Balance, then, and in each such case, Borrower shall, concurrently with the payment, pay to Bank (i) the interest on the principal being paid and (ii) a premium based on the principal amount paid and computed for the period from the date of payment to the last day of the Contract Period in question at a rate per annum equal to the excess, if any, of the Contract Rate theretofore applicable over the Reinvestment Rate. 5. Collateral. This Note is secured by a mortgage dated May 17, 1995 on property located in the Township of Howland, Trumbull County Ohio. Reference is made thereto for rights as to acceleration or default of this Note. 3 6. Definitions. As used in this Note, except where the context clearly requires otherwise, "Banking Day" means any day (other than any Saturday, Sunday or legal holiday) on which Bank's main office is open to the public for carrying on substantially all of its banking functions; "Contract Period" means a period selected by a Borrower, provided that each Contract Period shall commence on a Eurodollar Banking Day and end one (1) month, three months (3), or six (6) months thereafter, provided that (a) if any such Contract Period otherwise would end on a day that is not a Eurodollar Banking Day, it shall end instead on the next following Eurodollar Banking Day unless that day falls in another calendar month, in which latter case the Contract Period shall end instead on the next preceding Eurodollar Banking Day and (b) if any such Contract Period commences on a day for which there is no numerical equivalent in the calendar month in which that Contract Period is to end, it shall end on the last Eurodollar Banking Day of that calendar month; "Eurodollar Banking Day" means any Banking Day on which banks in the London Interbank Market deal in United States dollar deposits and on which banking institutions are generally open for domestic and international business at the place where Bank's main office is located and in New York City; "LIBOR" means, with respect to a given Contract Period, the rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) determined by Bank to equal the average rate per annum at which deposits (denominated in United States dollars) in an amount similar to the then Principal Balance and with a maturity similar to that Contract Period are offered to Bank at 11:00 A.M. London time (or as soon thereafter as practicable) two (2) Eurodollar Banking Days prior to the first day of that Contract Period by banking institutions in any Eurodollar market selected by Bank; "Note" means this promissory note (including, without limitation, each addendum, allonge, or amendment, if any, hereto); "Obligor" means any Person who, or any of whose property, shall at the time in question be obligated in respect of all or any part of the Indebtedness evidenced by this Note of Borrower and in addition to Borrower, includes, without limitation, co-makers, endorsers, guarantors, pledgors, hypothecators, mortgagors, and any other Person who agrees, conditionally or otherwise, to make any loan to, purchase from, or investment in, any other Obligor or otherwise assure such other Obligor's creditors or any of them against loss; "Person" means an individual or entity of any kind, including, without limitation, any association, company, cooperative, corporation, partnership, trust, governmental body, or any other form or kind of entity; "Prime Rate" means the fluctuating rate per annum which is publicly announced from time to time by Bank at its main office as being its so-called "prime rate" or "base rate" thereafter in effect, with each change in the Prime Rate automatically, immediately, and without notice changing the Prime Rate thereafter applicable hereunder, it being acknowledged that the Prime Rate is not necessarily the lowest rate of interest then available from Bank on fluctuating-rate loans; "Principal Balance" means, at a given time, the entire unpaid principal balance of the this Note; "Reinvestment Rate" means, when used with respect to any period, a per annum rate of interest equal to the "bond equivalent yield" for the most actively traded issues of U. S. Treasury Bills, U. S. Treasury Notes, or U. S. Treasury Bonds for a term similar to the period in question; "Related Writing" means this Note and any indenture, note, guaranty, assignment, mortgage, security agreement, subordination agreement, notice, financial statement, legal opinion, certificate, or other writing of any kind pursuant to which all or any part of the Indebtedness evidenced by this Note of Borrower is issued, which evidences or secures all or any part of the Indebtedness evidenced by this Note of Borrower, which governs the relative rights and priorities of Bank and one or more other Persons to payments made by, or the property of, any Obligor, which is delivered to Bank pursuant to another such writing, or which is otherwise delivered to Bank by or on behalf of any 4 Person (or any employee, officer, auditor, counsel, or agent of any Person) in respect of or in connection with all or any part of the Indebtedness evidenced by this Note of Borrower or either of them; and the foregoing definitions shall be applicable to the respective plurals of the foregoing defined terms. 7. Events of Default. It shall be an "Event of Default" if (a) there is a failure of the Borrower to make any payment within ten (10) days of when due hereunder; (b) there is an occurrence of a default or Event of Default under, or as defined in, the Mortgage or any other instrument given as security for this note; (c ) there occurs a default or "Event of Default" as defined in the promissory note given by Borrower to Bank dated May 17, 1995 in the amount of $1,739,000.00; (d); Atlantis Plastics, Inc.'s will not, during any fiscal year (commencing with the present fiscal year), suffer or permit the ratio of 1) the aggregate of its net income for that year plus interest expense for that year plus its federal, state and local income taxes for that year plus depreciation expense for that year plus amortization expense for that year (EBITDA) to 2) its net interest expense (excluding amortization of loan fees) for that year to be less than 2.0:1 or (e) there is a filing by, or against, Borrower of any complaint or action for relief under any bankruptcy or insolvency laws, or for the appointment of a receiver, which is not dismissed within sixty (60) days of filing. 8. Effects of Default. If any Event of Default occurs, Bank may, at its option, accelerate the maturity of this note. If Bank chooses to accelerate, the entire unpaid principal amount, together with interest at the default rate set forth above, shall be immediately due and payable, without demand or notice, both of which are expressly waived by Borrower. 9. Late Charges. In each case in which any principal of or interest on this Note is not paid within ten (10) days after its due date, Bank shall have the right to assess a late charge, payable by Borrower on demand, equal to the greater of twenty dollars ($20.00) or five percent (5%) of the unpaid amount. The payment of a late charge will not cure or constitute a waiver of any default under this Note. 10. Indemnity: Administration and Enforcement. Borrower will pay to Bank all costs and expenses of collection of this Note, including, without limitation, attorneys' fees. If any amount (other than the principal of any Subject Loan and any interest and late charges) owing under this Note is not paid when due, then, and in each such case, Borrower shall pay, on Bank's demand, interest on that amount from the due date thereof until paid in full at a fluctuating rate equal to four percent (4%) per annum plus the Prime Rate. 11. Indemnity: Governmental Costs. If (a) there shall be enacted any law (including, without limitation, any change in any law or in its interpretation or administration and any request by any governmental authority) relating to any interest rate or any reserve or special deposit requirements against assets held by, deposits in, or loans by Bank or to any tax (other than any tax on Bank's overall net income) and (b) in Bank's sole opinion any such event increases the cost of funding or maintaining any LIBOR Rate Unit or reduces the amount of any payment to be made to Bank in respect thereof, then, and in each such case, upon Bank's demand, Borrower shall pay Bank an amount equal to each such cost increase or reduced payment, as the case may 5 be. In determining any such amount, Bank may use reasonable averaging and attribution methods. Each determination by Bank shall be conclusive absent manifest error. 12. Application of Payments. Payments other than prepayments will be applied first to instalments in the order of their respective due dates; provided, however, that if a payment so applied would pay the principal amount of the note in full, but would leave late charges outstanding, the payment will instead be applied to late charges prior to being applied to the principal amount of the final instalment. 13. Other Provisions. All fees, interest, and premiums for any given period shall be computed on the basis of a 360-day year and the actual number of days in the period. Any term used in this Note shall have the meaning ascribed thereto by the Uniform Commercial Code as in effect on the date hereof in the jurisdiction in which Bank's main office is located, subject, however, to such modification, if any, as may be provided in this Note. This Note shall be governed by the laws of the State of Ohio. 14. Warrant of Attorney. Borrower authorizes any attorney at law at any time or times to appear in any state or federal court of record in the United States of America after all or any part of the obligations created by this Note shall have become due, whether by lapse of time, by acceleration of the due date thereof, or otherwise, and in each case to waive the issuance and service of process, to present to the court this Note and any other writing (if any) evidencing the obligation or obligations in question, to admit the due date thereof and the nonpayment thereof when due, to confess judgment against Borrower in favor of Bank for the full amount then appearing due, together with interest and costs of suit, and thereupon to release all errors and waive all rights of appeal and any stay of execution. The foregoing warrant of attorney shall survive any judgment, it being understood that should any judgment against Borrower be vacated for any reason, Bank may nevertheless utilize the foregoing warrant of attorney in thereafter obtaining one or more additional judgments against Borrower. --------------------------------------------------------------------- WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAYT ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND 6 THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR REGURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREMEENT, OR ANY OTHER CAUSE. --------------------------------------------------------------------- BORROWERS: ATLANTIS PLASTICS INJECTION MOLDING, INC. By: _____________________________________ PAUL RUDOVSKY Title: Executive Vice President ATLANTIS PLASTICS, INC. By: _____________________________________ PAUL RUDOVSKY Title: Executive Vice President Accepted by Bank: NATIONAL CITY BANK By: ______________________________ BRIAN V. KOCHUNAS Title: Vice President STATE OF GEORGIA ) ) SS. COUNTY OF COBB ) 7 BEFORE ME, a Notary Public in and for said County and State, personally appeared the above-named PAUL RUDOVSKY as Executive Vice President of Atlantis Plastics Injection Molding, Inc., who acknowledged that he did sign the foregoing instrument on behalf of such entity, and that the same is the free act and deed of such entity and the free act and deed of him personally. IN TESTIMONY, I set my hand and official seal, this _____ day of ___________, 2000. ------------------------------------ NOTARY PUBLIC STATE OF GEORGIA ) ) SS. COUNTY OF COBB ) BEFORE ME, a Notary Public in and for said County and State, personally appeared the above-named PAUL RUDOVSKY as Executive Vice President of Atlantis Plastics, Inc., who acknowledged that he did sign the foregoing instrument on behalf of such entity, and that the same is the free act and deed of such entity and the free act and deed of him personally. IN TESTIMONY, I set my hand and official seal, this _____ day of ___________, 2000. ------------------------------------ NOTARY PUBLIC 8 EX-10.2 3 0003.txt EXHIBIT 10.2 STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Basic Provisions ("Basic Provisions"). 1.1. Parties. This Lease ("Lease"), dated for reference purposes only March 8, 2000, is made by and between Principal Life Insurance Company, an Iowa Corporation, c/o Principal Capital Management, LLC, a Delaware Limited Liability Company ("Lessor"), and Atlantis Plastics Films, Inc., a Delaware Corporation ("Lessee"), (collectively the "Parties", or individually a "Party"). 1.2.(a) Premises. That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of 13170 Marlay Avenue, located in the City of Fontana, County of San Bernardino, State of California, with zip code 92337, as outlined on Exhibit ___ attached hereto ("Premises") and generally described as (describe briefly the nature of the Premises): Approximately 94,803 square feet located at the southern portion of a 153,104 square foot industrial building, and the exclusive right to use the railroad spur track and certain outdoor installations, such as silos and silo pad. In addition to Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the building containing the Premises ("Building") or to any other buildings in the Project. The Premises ("Building") or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the "Project". (See also Paragraph 2). 1.2(b) Parking: 8.4 unreserved vehicle parking spaces ("Unreserved Parking Spaces") and N/A reserved vehicle parking spaces ("Reserved Parking Spaces"). (See also Paragraph 2.6). 1.3. Term: 10 years and -0- months ("Original Term") commencing November 1, 2000 ("Commencement Date") and ending October 31, 2010 ("Expiration Date"). (See also Paragraph 3). 1.4. Early Possession: August 1, 2000 ("Early Possession Date"). (See also Paragraphs 3.2 and 3.3) 1.5. Base Rent: $35,077.11 per month ("Base Rent"), payable on the 1st day of each month commencing Refer to Exhibit "B" - Paragraph 7. (See also paragraph 4). [X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 Lessee's Share of Common Area Operating Expenses: Sixty-one point nine percent (61.9%) ("Lessee's Share"). 1.7. Base Rent and Other Monies Paid Upon Execution: (a) Base Rent: $35,077.11 for the period November 1, 2000 - November 30, 2000. (b) Common Area Operating Expenses: $______________ for the period ___________________. (c) Security Deposit: $35,077.11 ("Security Deposit"). (See also Paragraph 5.) (d) Other: $_____________________ for _______________________. (e) Total Due Upon Execution of this Lease: $70,154.22. 1.8. Agreed Use: Manufacturing/warehousing and distribution of plastic stretch film and plastic products including general offices and related uses. (See also Paragraph 5). 1.9. Insuring Party. Lessor is the "Insuring Party". (See also Paragraph 8). 1.10. Real Estate Brokers: (See also Paragraph 15). (a) Representation: The following real estate brokers (the "Brokers") and brokerage relationships exist in this transaction (check applicable boxes): [X] Grubb & Ellis Company represents Lessor exclusively ("Lessor's Broker"); [X] Commercial Realty Advisors represents Lessee exclusively ("Lessee's Broker"); or (b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a separate written agreement (or if there is no such - 1 - agreement the sum of per separate agreement or __% of the total Base Rent for the brokerage services rendered by the Brokers). 1.11. Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("Guarantor"). (See also Paragraph 37). 1.12. Addenda and Exhibits. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49.1 through 49.4 and Exhibits "A" through "D", all of which constitute a part of this Lease. 2. Premises. 2.1. Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants, and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. 2.2. Condition. Lessor shall deliver that portion of the Premises contained within the Building ("Unit") to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs, Commencement Date and, so long s the required service contracts described in paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Commencement Date warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, if any and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects. If a non-compliance with such warranty exists as of the Commencement Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction of failure, rectify same at Lessor's expense. The warranty periods shown as follows: (i) 5 months as to the HVAC systems, and (ii) 6 months as to the remaining systems and other elements of the Unit, and (iii) one ____ as to the Tenant improvements installed by Lessor as part of the Work Letter Agreement attached hereto as Exhibit "B". If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessor's sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7). As stated in Paragraph 7.2 it is Lessor's obligation to keep the roof and roof membrane in good order, condition and repair. 2.3. Compliance. Lessor warrants that the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such Improvement, or portion thereof, was constructed, and also With all applicable laws, Covenants or restrictions of record, regulations, and ordinances in effect on the Start Date ("Applicable Requirements"). Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a).) made or to be mate by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's Intended use, and acknowledges that past uses of the Premises may no longer be allowed, If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessors expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of `any Hazardous Substance, or the reinforcement or otter physical modification of the Unit, Premises and/or Building ("Capital Expenditure'), Lessor and Lessee shall allocate the cost of such work as follows: (a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however, that it such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months' Base Rent If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the lest day that lessee could legally utilize the Premises without commencing such Capital Expenditure. (b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during lire last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay Its share (hereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. if Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance Such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor. - 2 - (c) Notwithstanding the above, the provisions concerning Capital Expenditures are Intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. if the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease. (d) Lessor must give Lessee the opportunity to contest the applicability of the change in the Applicable Requirements after making a Capital Expenditure in which Lessee is allocated part or all of the costs of such work. Notwithstanding anything in 2.3, Lessor shall be responsible for the cost of the remediation of any Hazardous Substance that existed at the Premises on the Start Date. 2.4. Acknowledgements. Lessee acknowledges that: (a) It has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee's intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor. Lessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this lease In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (ii) It is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants. 2.6. Vehicle Parking. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) Lessee shall not service or store any vehicles in the Common Areas. (c) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.7. Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceweys and installations within the Unit that are provided and designated by the Lessor from time to liens for the general non-exclusive. use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers. Contractors and invitees. including parking areas, loading and unloading amass, trash areas, roadways, walkways, driveways and landscaped areas. Notwithstanding the foregoing, `the definition of "Common Areas" shall not include the rail spur track, the Silo Fad and the area designated on the Site Plan attached thereto as Exhibit "C", for the exclusive use of the Lessee. 2.8. Common Areas - Lessee's Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lesser under the terms hereunder or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the might to store any property, temporarily or permanently, in the Common Areas, Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time, in the event that any unauthorized storage shall occur, hen Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9. Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations "Rules and Regulations") for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their lnvitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project. - 3 - 2.10. Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time:" (d) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas. walkways and utility raceways; (e) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (f) To designate other land outside the boundaries of the Project to be a part of the Common Areas: (g) To add additional buildings and improvements to the Common Areas; (h) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof: (i) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate. Provided the use of the Premises lay Lessee including ingress, egress and parking are not adversely affected or interfered with, and upon reasonable written notice from Lessor, not to unreasonably interfere with Lessee's business, and in no event more than two times in any lease year. 3. Term. 3.1. Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2. Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease excluding the obligations to pay Lessee's Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date. 3.3. Delay in Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Remit or perform its other obligations until it receives possession of the Premises. If possession is not delivered within 60 days after the Commencement Date, Leases may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If Such written notice is not received by Lessor within said 10 day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within 4 months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing. 3.4. Lessee Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.6). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other Conditions prior to or concurrent with the Start Date, the Start Data shall occur but Lessor may elect to withhold possession until such conditions are satisfied. 4. Rent. 4.1. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("Rent"). 4.2. Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) "Common Area Operating Expenses" are defined, for purposes of this Lease, as the costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following: - 4 - (i) The operation, repair and maintenance, in neat, clean, good order and condition, but not the replacement (see subparagraph (e)), of the following: (aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems. Common Area lighting facilities, fences and gates elevators, roofs, and roof drainage systems. (bb) Exterior signs and any tenant directories, (cc) Any fire sprinkler systems. (ii) The Cost of water, gas, electricity and telephone to service the Common Areas and any utilities sot separately metered. (iii) Trash disposal, pest control services, property management, security services, and the costs of any environmental inspections. (iv) Reserves set aside for maintenance and repair of Common Areas, (v) Any increase above the Base Real Property Taxes (as defined in Paragraph 10). (vi) Any "Insurance Cost Increase" (as defined in Paragraph 8). (vii) Any deductible portion of en insured loss concerning the Building on the Common Areas, (viii) The cost of any Capital Expenditure to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such Capital Expenditure over 5 12 year period and Lessee shall not be required to pay more than Lessee's Share of 1/144th of the cost of such Capital Expenditure in any given month. (ix) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expanse. (b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Rest Property Taxes that are not specifically attributable to the Building or to any other building or to the operation. repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project. (c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation noon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. (d) Lessee's Share of Common Area Operating Expenses shall be payable by Lessee within 10 days after a reasonably detailed statement of actual expenses is presented to Lessee. At Lessor's option, however, an amount may be estimated by Lessor from time to time of Lessee's Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12 month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 clays after the expiration of each calendar year a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessee's payments under this Paragraph 4.2(d) during the preceding year exceed Lessee's Share as indicated on such statement, Lessor shall be credited the amount of such over-payment against Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d) during the preceding year were less than Lessee's Share as indicated on such statement, Lessee shall pay to Lessor the amount of the deficiency within 10 days after deliver by Lessor to Lessee of the statement. (e) When a capital component such as the roof, foundations, exterior walls or a Common Area capital improvement, such as the parking ml paving. elevators, fences, etc. requires replacement, rather than repair or maintenance, Lessor shall at Lessor's expense, be responsible for such replacement, Such expenses and/or costs are not Common Area Operating Expenses. 4.3. Payment. Lessee shall cause payment of Rent lobe received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which ills due. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address staled herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, - 5 - or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. if Lessee falls to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease, If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at alt times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the Initial Base Rent Should the Agreed Use be amended to accommodate s material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase he Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from is general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor, No part of the Security Deposit shall be considered to be held in trust, to bear Interest or to be prepayment for any monies to be paid by Lessee under this Lease. 6. Use. 6.1. Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable therein, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall Include an explanation of Lessor's objections to the change in the Agreed Use. 6.2. Hazardous Substances. Refer to Paragraph 49.1 7. Maintenance; Repairs; Utility installations; Trade Fixtures and Alterations. 7.1. Lessee's Obligations. (a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2 Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform 1300.1 maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (b) Service Contracts. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements. if any. If and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers., and (iv) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof. (c) Failure to Perform. If Lessee falls to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of en emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly reimburse Lessor for the cost thereof. (d) Replacement. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee 01 liability resulting from Lessee's failure to exercise and - 6 - perform good maintenance practices, If an Item described in Paragraph 7.1 (b) cannot be repaired other than at a cost witch is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month daring the remainder of the term of this Lease, on the date on which Ease Rent is due. an amount squat to the product of multiplying the cost of such replacement by a traction, the numerator of which is one, and the denominator of which is 144 (i.e. 1/144th of the cost per month). Lessee shall pay Interest on the unamortized balance at a rate that is commercially reasonable in the Judgment of Lessor's accountants, Lessee may, however, prepay its obligation at any time. 7.2. Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, the hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the 5ervicea for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior wells nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of army statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. Notwithstanding any provision set forth in the Lease to the contrary, if Lessee provides written notice to Lessor of an event or circumstance which requires the action of Lessor with respect to repair and/or maintenance, and Lessor fails to provide such action within the period of time set forth in subparagraph 7.2 of the Lease, then Lessee may proceed to take the required action upon delivery of an additional ten (10) business days' written notice to Lessor specifying that Lessee is taking such required action, and if such action is required under the terms of the Lease to be taken by Lessor and is not taken by Lessor within such ten (10) business day period following service of the additional ten (10) business day notice, then Lessee shall be entitled to prompt reimbursement by Lessor of Lessee's reasonable cost and expenses in taking such action. If Lessor does not deliver a detailed written objection to Lessee within thirty (30) days after receipt of an invoice by Lessee of its costs of taking action which Lessee claims should have been taken by Lessor, and if such invoice from Lessee sets forth a reasonable particularized breakdown of its costs and expenses in connection with taking such action on behalf of Lessor, then Lessee shall be entitled to deduct from Basic Monthly Rent payable by Lessee under the Lease the amount set forth in such invoice. If, however, Lessor delivers to Lessee, within thirty (30) days after receipt of Lessee's invoice, a written objection to the payment of such invoice, setting forth with reasonable particularity Lessor's reasons for its claim that such action did not have to be taken by Lessor pursuant to the terms of the lease or that the charges are excessive (in which case Lessor shall pay the amount it contends would not have been excessive), then Lessee shall not then be entitled to such deduction from Basic Monthly Rent, but as Lessee's sole remedy, Lessee may proceed to claim a default by Lessor. 7.3. Utility Installations; Trade Fixtures; Alterations. (a) Definitions. The term "Utility Installations" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtres, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). (b) Consent. Lessee shall not make any Alterations or Utility Installations to the Promises without Lessor's prior written consent. Lessor has consented to the Tenant Improvements to be installed at the Premises by Lessor as stated in the Work Letter Agreement attached hereto as Exhibit "B". Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Remit in the aggregate or a sum equal to one month's Pass Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner wilt good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of as. six (6) month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal in 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim - 7 - to demand, than Lessee shall, at its sole expanse defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim on demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs. 7.4. Ownership; Removal; Surrender; and Restoration. (a) Ownership. Subject to Lessor's right to require removal or elect ownership an. hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise Instructed pan paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at The expiration or termination of Ibis Lease, become the property of Lessor and be surrendered by Lessee with the Premises, (b) Removal. By delivery to Lessee of written notice from Lessor at the time consent for the Alteration or Utility Installation is given by Lessor, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent. Lessee shall not be required to remove the roof extension, silo pad or spur track. (c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and slate of repair, ordinary wear and tear excepted, and damage due to fire or other casualty excepted, unless caused by Lessee. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for (12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Leases shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. 8. Insurance; Indemnity. 8.1. Payment of Premium Increases. (a) As used herein, the term "Insurance Cost Increase" is defined as any increase in the actual cost of the insurance applicable to the Building and/or the Project and required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter defined, calculated on an annual basis, Insurance Cost Increase shall include, but not be limited to, requirements of the holder of a mortgage or deed of trust covering the Premises, Building and/or Project, Increased valuation of the Premises, Building and/or Project, end/on a general premium rate increase. The term Insurance Cost Increase shall not, however, include any premium increases resulting from the nature of the occupancy of any other tenant of the Building. If the parties inserts dollar amount in Paragraph 1.9, such amount shall be considered the "Base Premium," The Base Premium shall be the annual premium applicable to the 12 month period immediately preceding the Commencement Date. If, however, the Project was not insured for the entirety of such 12 month period, then the Base Premium shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the Commencement Date, assuming the most nominal use possible of the Building. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $2,000,000 procured under Paragraph 8.2(b). (b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date. 8.2. Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an "Additional Insured-Managers or Lessors of Premises Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. - 8 - (b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3. Property Insurance - Building, Improvements and Rental Value. (a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where thee Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence. (b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("Rental Value Insurance"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to Insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease, The following Tenant Improvements to be installed under the Work Letter Agreement are the property of the Lessor and will be covered by the Lessor Property Insurance: the roof extension, the silo pad and the spur track. 8.4. Lessee's Property; Business Interruption Insurance. (a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $50,000.00 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations., Lessee shall provide Lessor with written evidence that such insurance is in force. (b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils. (c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease. 8.5. Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies or such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same. 8.6. Waiver of Subrogation. Without affecting any other rights or remedies. Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive - 9 - any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7. Indemnity. Except for Lessor's negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with the rise and/or occupancy of the Premises by Lessee. If any action or proceeding to brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense, Lessor need not have first paid any such claim in order to be defended or indemnified. 8.8. Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee. Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources on places. Lessor shall not be liable for any damages arising from any act en neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 8.9. Except for claims for which Lessee is required to obtain insurance ("Lessee Insured Claims"), Lessor shall indemnify, defend, and hold Lessee and its officers, directors, shareholders, agents, employees, and contractors (collectively, "Lessee Parties") harmless from all Claims arising from the conduct of Lessor's business or from activity, work or thing done, permitted or suffered by Lessor in or about the Building, the Common Areas, or any other part of the Project. Except for Lessee Insured Claims, Lessor shall further indemnify, defend, and hold the Lessee Parties harmless from all Claims or omission of Lessor or of its agents , employees, or contractors, and from and against all Claims incurred in, or arising out of, such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against the Lessee Parties or any of them by reason of any such Claim, Lessor, upon notice from Lessee, shall defend the same at Lessor's expense by counsel approved in writing by Lessee. 9. Damage or Destruction. 9.1. Definitions. (a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations, other than the initial tenant improvements installed by Lessor at the commencement of the Term, and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 months Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (b) "Premises Total Destruction" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations, other than the Initial Tenant Improvements installed by Lessor at the commencement of the Term, and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 months Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, other than the Initial Tenant Improvements installed by Lessor at the commencement of the Term, and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(s), Irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the. presence of, or a contamination by. a Hazardous Substance as defined in Paragraph 6,2(a), in, on, or under the Premises. 9.2. Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect: provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $5,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee one reasonable basis for that purpose. Notwithstanding the foregoing, if the required Insurance, was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, - 10 - however, such shortage was due to the fact that, by reason of tile unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor, If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (Ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of arty such insurance shall be made available for the repairs it made by either Party. 9.3. Partial Damage Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either (i) repair such damage as soon as reasonably possible at Lessor's expense. in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice., in the event the cost exceeds $200,000.00. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from sewn Lessee shall provide Lesser with said fund, or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available, If Lessee does not make the required commitment, this Less. shall terminate as of the date specified in the termination notice. 9.4. Total Destruction. Notwithstanding any other provision hereof, If a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6. 9.5. Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, but does not constitute a premises total destr