Master Lease Agreement Processing Equipment Schedule - General Electric Capital Corp. and Star Scientific Inc.
SLB/CS(R070101)4122182001 *LEAS8760* PROCESSING EQUIPMENT SCHEDULE SCHEDULE NO. 001 DATED THIS ____________ TO MASTER LEASE AGREEMENT DATED AS OF ____________________ Lessor & Mailing Address: General Electric Capital Corporation 1000 Windward Concourse Suite 403 Alpharetta, GA 30005 Lessee & Mailing Address: Star Scientific, Inc. 801 Liberty Way Chester, VA 23836 This Schedule is executed pursuant to, and incorporates by reference the terms and conditions of, and capitalized terms not defined herein shall have the meanings assigned to them in, the Master Lease Agreement identified above ("Agreement" said Agreement and this Schedule being collectively referred to as "Lease"). This Schedule, incorporating by reference the Agreement, constitutes a separate instrument of lease. A. Equipment: Subject to the terms and conditions of the Lease, Lessor agrees to Lessee the Equipment described below (the "Equipment"). Model and Number Capitalized Manufacturer Serial Type of of Units Lessor's Cost Number Equipment *1 $532,429.00* Fette 659 P3200 TSC Double-Sided Rotary Press ** $1,267,580.00* All-Fill Moist Snuff Filling System * $1,647,510.00* All-Fill Packaging Line 2 Complete Tobacco Lines more fully described in Exhibit 1 attached together with (a) all machinery, equipment, tooling, components, attachments, parts, fittings, accessories, replacements, upgrades, now existing or hereafter becoming a part thereof and (b) to the extent related to any Line including all additions, attachments, accessories and accessions thereto, and any and all substitutions, replacements or exchanges therefor, and all insurance and/or other proceeds thereof by and between Lessee and Lessor whether now owned or hereafter acquired. Equipment referenced above is located at the following locations *168 Duckworth Dr., Chase City, Mecklenberg County, VA 23924 **16 South Market St., Petersburg, Petersburg (Ind. City), VA 23803 1 <PAGE> B. Financial Terms 1. Advance Rent (if any): $109,870.70 2. Capitalized Lessor's Cost: $3,447,519.00 3. Basic Term (No. of Months): 60 Months 4. Basic Term Lease Rate Factor: .01593475 5. Basic Term Commencement Date: July 1, 2001 6. Lessee Federal Tax ID No.: 521402131 7. Last Delivery Date: July 1, 2001 8. Daily Lease Rate Factor: .00072001 9. First Termination Date: Thirty-six (36) months after the Basic Term Commencement Date. 10. Interim Rent: For the period from and including the Lease Commencement Date to but not including the Basic Term Commencement Date ("Interim Period"), Lessee shall pay as rent ("Interim Rent") for each unit of Equipment, the product of the Daily Lease Rate Factor times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period. Interim Rent shall be due on the Lease Commencement Date. 11. Basic Term Rent: Commencing on July 1, 2001 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. C. Tax Benefits Depreciation Deductions: 1. Depreciation method is the 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance. 2 <PAGE> 2. Recovery Period: 7 years. 3. Basis: 100% of the Capitalized Lessor's Cost. D. Property Tax APPLICABLE TO EQUIPMENT LOCATED IN VIRGINIA: Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense. Lessor may notify Lessee (and Lessee agrees to follow such notification) regarding any changes in property tax reporting and payment responsibilities. E. Article 2A Notice IN ACCORDANCE WITH THE REQUIREMENTS OF ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AS ADOPTED IN THE APPLICABLE STATE, LESSOR HEREBY MAKES THE FOLLOWING DISCLOSURES TO LESSEE PRIOR TO EXECUTION OF THE LEASE, (A) THE PERSON(S) SUPPLYING THE EQUIPMENT IS Fette America, Inc., All Fill, and Richmond Plastics Inc. (THE "SUPPLIER(S)"), (B) LESSEE IS ENTITLED TO THE PROMISES AND WARRANTIES, INCLUDING THOSE OF ANY THIRD PARTY, PROVIDED TO THE LESSOR BY SUPPLIER(S), WHICH IS SUPPLYING THE EQUIPMENT IN CONNECTION WITH OR AS PART OF THE CONTRACT BY WHICH LESSOR ACQUIRED THE EQUIPMENT AND (C) WITH RESPECT TO SUCH EQUIPMENT, LESSEE MAY COMMUNICATE WITH SUPPLIER(S) AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF SUCH PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM 3 <PAGE> OR OF REMEDIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE IN ARTICLE 2A AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY LIMIT OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES UNDER THE DEFAULT AND REMEDIES SECTION OF THE AGREEMENT. F. Stipulated Loss and Termination Value Table* # of base payments termination value % of cost stipulated loss value % of cost 1 102.076 106.007 2 101.198 105.110 3 100.301 104.194 4 99.384 103.258 5 98.453 102.307 6 97.504 101.339 7 96.540 100.355 8 95.559 99.356 9 94.564 98.341 10 93.550 97.308 11 92.519 96.257 12 91.468 95.187 13 90.400 94.099 14 89.315 92.995 15 88.212 91.873 16 87.090 90.732 17 85.952 89.575 18 84.795 88.398 19 83.620 87.203 4 <PAGE> 20 82.428 85.992 21 81.219 84.764 22 79.995 83.521 23 78.756 82.262 24 77.500 80.987 25 76.229 79.697 26 74.941 78.389 27 73.637 77.066 28 72.316 75.726 29 70.979 74.370 30 69.625 72.996 31 68.255 71.607 32 66.867 70.200 33 65.462 68.775 34 64.042 67.337 35 62.609 65.884 36 61.161 64.417 37 59.699 62.935 38 58.218 61.435 39 56.723 59.921 40 55.213 58.391 41 53.685 56.844 42 52.141 55.281 43 50.583 53.703 44 49.006 52.107 45 47.409 50.491 46 45.801 48.863 47 44.179 47.222 48 42.544 45.568 49 40.895 43.900 5 <PAGE> 50 39.229 42.214 51 37.549 40.515 52 35.856 38.802 53 34.144 37.071 54 32.419 35.327 55 30.788 33.677 56 29.194 32.064 57 27.601 30.451 58 26.008 28.838 59 24.414 27.226 60 22.821 25.613 *The Stipulated Loss Value or Termination Value for any unit of Equipment shall be the Capitalized Lessor's Cost of such unit multiplied by the appropriate percentage derived from the above table. In the event that the Lease is for any reason extended, then the last percentage figure shown above shall control throughout any such extended term. G. Modifications and Additions for This Schedule Only For purposes of this Schedule only, the Agreement is amended as follows: 1. The LEASING Section subsection (b) of the Lease is hereby deleted in its entirety and the following substituted in its stead: b) The obligation of Lessor to purchase the Equipment from Lessee and to lease the same to Lessee shall be subject to receipt by Lessor, on or prior to the earlier of the Lease Commencement Date or Last Delivery Date therefor, of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule for the Equipment, (ii) evidence of insurance which complies with the requirements of the INSURANCE 6 <PAGE> Section of the Lease, and (iii) such other documents as Lessor may reasonably request. Once the Schedule is signed, the Lessee may not cancel the Lease. 2. The DELIVERY, USE AND OPERATION Section subsection (a) of the Lease shall be deleted and the following substituted in its stead: The parties acknowledge that this is a sale/leaseback transaction and the Equipment is in Lessee's possession as of the Lease Commencement Date. 3. BILL OF SALE Lessee, in consideration of the Lessor's payment of the amount set forth in B2. above, which includes any applicable sales taxes (which payment Lessee acknowledges), hereby grants, sells, assigns, transfers and delivers to Lessor the Equipment along with whatever claims and rights Seller may have against the manufacturer and/or Supplier of the Equipment, including but not limited to all warranties and representations. At Lessors request Lessee will cause Supplier to deliver to Lessor a written statement wherein the Supplier (i) consents to the assignment to Lessor of whatever claims and rights Lessee may have against Supplier, (ii) agrees not to retain any security interest, lien or other encumbrance in or upon the Equipment at any time, and to execute such documents as Lessor may request to evidence the release of any such encumbrance, and (iii) represents and warrants to Lessor (x) that Supplier has previously conveyed full title to the Equipment to Lessee, (y) that the Equipment was delivered to Lessee and installation completed, and (z) that the final purchase price of the Equipment (or a specified portion of such purchase price) has been paid by Lessee. Lessor is purchasing the Equipment for leasing back to Lessee pursuant to the Lease. Lessee represents and warrants to Lessor that (i) Lessor will acquire by the terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever; (ii) Lessee has the right to sell the Equipment; and (iii) the Equipment has been delivered to Lessee in good order and condition, and conforms to the specifications, requirements 7 <PAGE> and standards applicable thereto; and (iv) the equipment has been accurately labeled, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with a controlled (ozone-depleting) substance. Lessee agrees to save and hold harmless Lessor from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature, including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Lessor as a consequence of the sale of the Equipment to Lessor. 4. ACCEPTANCE Pursuant to the provisions of the Lease, as it relates to this Schedule, Lessee hereby certifies and warrants that (i) all Equipment listed above has been delivered and installed (if applicable); (ii) Lessee has inspected the Equipment, and all such testing as it deems necessary has been performed by Lessee, Supplier or the manufacturer; and (iii) Lessee accepts the Equipment for all purposes of the Lease, the purchase documents and all attendant documents. Lessee does further certify that as of the date hereof (i) Lessee is not in default under the Lease; (ii) the representations and warranties made by Lessee pursuant to or under the Lease are true and correct on the date hereof and (iii) Lessee has reviewed and approves of the purchase documents for the Equipment, if any. 5. EQUIPMENT SPECIFIC PROVISIONS MAINTENANCE PROVISIONS: In addition to the provisions provided for in the MAINTENANCE Section of the Lease, Lessee shall, at its expense: (a) maintain the Equipment in a manner and frequency suggested by the manufacturer. 8 <PAGE> (b) maintain the Equipment in an operable state and shall not discontinue operation of the Equipment throughout the Lease term. (c) maintain the Equipment to industry standards. (d) maintain the Equipment in a similar manner and fashion as if the Equipment were owned by the Lessee. (e) maintain the Equipment under a preventive maintenance program by qualified professionals who possess a working knowledge of the mechanical operation of the Equipment including electrical systems, motors, drives, controls, accessories, lubricants and all other items necessary to make the machine operate to its original manufacturer's specifications. (f) have the Equipment meet all local, state, and federal laws, regulations and codes that regulate the use and operation of such Equipment and will not contribute to or be used in any way as to directly or indirectly violate any local, state or federal law including Food and Drug Administration and Environmental Protection Agency. (g) maintain a maintenance log on the Equipment showing all routine and non-routine maintenance and repairs. Said log shall list in summary form maintenance, repairs or modifications performed on the Equipment, the date any and all of such service and by whom the service was performed. This log shall be made available to the Lessor at its request during normal working hours or the Lessee. INSPECTION: The REPORTS Section subsection (c) of the Lease is deleted and replaced with the following: (c) Lessor at its sole discretion, may from time to time, inspect the Equipment at the Lessors sole expense. If any discrepancies are found as they pertain to the general 9 <PAGE> condition of the Equipment as required hereunder, the Lessor will, communicate these discrepancies to the Lessee in writing. The Lessee shall have thirty (30) days to rectify these discrepancies at his sole expense. The Lessee should pay all expenses for a re-inspection by a Lessor appointed expert if corrective measures are required. RETURN PROVISIONS: In addition to the provisions provided for in the RETURN OF EQUIPMENT Section of the Lease, and provided that Lessee has elected not to exercise its option to purchase the Equipment, Lessee shall, at its expense: (a) At least ninety (90) days and not more than one hundred twenty (120) days prior to lease termination: (i) ensure Equipment has been maintained, and is operating within manufacturer's specifications, as well as all local, state and federal laws and regulations, including those of the Food and Drug Administration and Environmental Protection Agency and; (ii) cause manufacturer's representative or other qualified maintenance provider, acceptable to Lessor, to perform a physical inspection and test of all the components and capabilities of the Equipment and to provide a full inspection report to Lessor. (b) Upon lease termination: (i) fill to operation levels all internal fluids, secure filler caps, seal disconnection hoses, reinstall, and match mark all connections; (ii) have the manufacturer deinstall all equipment; (iii) properly skid and pack and transport the Equipment per the manufacturer's requirements to any location(s) within the continental United States as Lessor shall direct; (iv) at lessor's choice, either (1) allow Lessor, at Lessor's expense, and provided Lessor has provided reasonable notice to Lessee, arrange for an on-site auction of the Equipment which will be conducted in a manner which will not interfere with Lessee's business operations, or (2) at the request of Lessor, provide safe, secure storage for the Equipment for sixty (60) days after expiration or earlier termination of the Lease at an accessible location satisfactory to Lessor. H. Payment Authorization 10 <PAGE> You are hereby irrevocably authorized and directed to deliver and apply the proceeds due under this Schedule as follows: Company Name Address Amount Fette America, Inc. 400 Forge Way, Rockaway, NJ 07865 $372.700.00 All Fill 418 Creamery Way, Eaton, PA 19341 $513,894.00 Star Scientific, Inc. 801 Liberty Way, Chester, VA $1,292,366.26 General Electric Capital Corporation Security Deposit $1,268,558.74 This authorization and direction is given pursuant to the same authority authorizing the above-mentioned financing. Lessee hereby authorizes Lessor to file a financing statement and amendments thereto describing the Equipment described in this Schedule and adding any other collateral described herein and containing any other information required by the applicable Uniform Commercial Code. Further, Lessee irrevocably grants to Lessor the power to sign Lessee's name and generally to act on behalf of Lessee to execute and file financing statements and other documents pertaining to any or all of the Equipment. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSOR: General Electric Capital Corporation By: Mike Caruso Name: Mike Caruso Title: Sr. Risk Analyst 11 <PAGE> LESSEE: Star Scientific, Inc. By: Christopher G. Miller Name: Christopher G. Miller Title: Chief Financial Officer Exhibit 1 QUANTITY DESCRIPTION UNIT PRICE AMOUNT 1 Moist Snuff Filling System to include the following equipment: A. Stricklin Ribbon Blender ($180.00) B. Palace Pkg Unscrambler Model CB-42/P-5438 C. Nerak Bucket Elevator NS-P2008-2401-100 D. All-Fill Belt Conveyor Serial #50230-1 E. System Vibrator Model BF-2-AS F. All-Fill Rotary Filler Serial #50230 G. Alpha Checkweigher Serial #195178 H. Goring Kerr Metal Detector Model #DSP 2SS4X3 I. Palace Pkg Lidder Model # CB42/P-5439 J. Garvey Accumulating Conveyor Series #9700 K. Quadrell Labeler #Q60/CG12 L. All-Fill 900 Conveyor (added 5/16/01) Serial #700182 M. EDL Shrink Wrapper System #2000 - 3071-00R QUANTITY DESCRIPTION UNIT PRICE AMOUNT 1 Complete Packaging Line for Aviva Tablets to Include the Following Equipment: A) Klockner Thermometer Model #1200 B) Scandia Cartoner Model #Ahm Serial #4558 12 <PAGE> C) Schroeder Case Packer Model #2600 D) Revision (1) on Scandia Cartoner (3-26-01) @ $7,000 E) Revision (2) on Schroeder Case Packer (5-10-01) @ $14,200 F) Revision (3) on Schroeder Case Packer (6-27-01) @ $7,060. 13