U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-21423
CHICAGO PIZZA & BREWERY, INC.
(Name of small business issuer as specified in its charter)
CALIFORNIA 33-0485615
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
26131 MARGUERITE PARKWAY, SUITE A, MISSION VIEJO, CA 92692
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (949) 367-8616
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
twelve 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.
---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of equity, as of the latest practicable date: At May 8, 1998, 6,408,321 shares
of the small business issuer's common stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
---
<PAGE>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 1
Consolidated Statements of Operations -
Three Months Ended March 31, 1998
and March 31, 1997 2
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998
and March 31, 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Results of Operations 6
Liquidity and Capital Resources 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ` 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES
<PAGE>
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
------------ --------------
ASSETS
- ---------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 1,350,596 $ 1,705,349
Restricted cash . . . . . . . . . . . . . . . . . . 100,000 200,000
Accounts receivable . . . . . . . . . . . . . . . . 174,702 161,649
Inventory . . . . . . . . . . . . . . . . . . . . . 341,072 361,299
Prepaids and other current assets . . . . . . . . . 618,516 646,700
------------ ------------
Total current assets. . . . . . . . . . . . . . . . 2,584,886 3,074,997
Property and equipment, net . . . . . . . . . . . . 9,090,479 8,673,831
Other assets. . . . . . . . . . . . . . . . . . . . 197,788 207,138
Restricted cash . . . . . . . . . . . . . . . . . . 369,123 369,123
Intangible assets, net. . . . . . . . . . . . . . . 5,475,739 5,516,662
------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $17,718,015 $17,841,751
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . $ 1,151,373 $ 1,042,856
Accrued expenses. . . . . . . . . . . . . . . . . . 1,139,528 1,101,177
Notes payable to related parties. . . . . . . . . . 334,277 336,306
Current portion of long-term debt . . . . . . . . . 242,050 265,079
Current portion of obligations under capital lease. 114,815 97,844
------------ ------------
Total current liabilities . . . . . . . . . . . . . 2,982,043 2,843,262
Notes payable to related parties. . . . . . . . . . 1,979,251 2,058,681
Obligations under capital lease . . . . . . . . . . 232,048 199,265
Long-term debt. . . . . . . . . . . . . . . . . . . 535,700 585,751
Other liabilities . . . . . . . . . . . . . . . . . 131,825 135,067
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . 5,860,867 5,822,026
------------ ------------
Minority interest in partnership. . . . . . . . . . 228,283 211,357
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized, none
issued or outstanding
Common stock, no par value, 60,000,000 shares
authorized, 6,408,321 issued and outstanding 15,039,646 15,039,646
Capital surplus . . . . . . . . . . . . . . . . . . 1,196,029 1,196,029
Accumulated deficit . . . . . . . . . . . . . . . . (4,606,810) (4,427,307)
------------ ------------
Total shareholders' equity. . . . . . . . . . . . . 11,628,865 11,808,368
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . $17,718,015 $17,841,751
============ ============
</TABLE>
See accompanying notes.
1
<PAGE>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . $6,888,256 $5,783,196
Cost of sales . . . . . . . . . . . . . . . . . 2,012,326 1,707,859
----------- -----------
Gross profit. . . . . . . . . . . . . . . . . . 4,875,930 4,075,337
----------- -----------
Cost and Expenses:
Labor and benefits. . . . . . . . . . . . . . . 2,500,720 1,954,783
Occupancy . . . . . . . . . . . . . . . . . . . 593,506 575,616
Operating expenses. . . . . . . . . . . . . . . 872,411 780,274
General and administrative. . . . . . . . . . . 593,209 663,566
Depreciation and amortization . . . . . . . . . 452,445 268,859
----------- -----------
Total cost and expenses . . . . . . . . . . . . 5,012,291 4,243,098
----------- -----------
Loss from operations. . . . . . . . . . . . . . (136,361) (167,761)
----------- -----------
Other Income (Expense):
Interest expense, net . . . . . . . . . . . . . (34,664) (17,240)
Other . . . . . . . . . . . . . . . . . . . . . 9,249 10,219
----------- -----------
Total other income (expense). . . . . . . . . . (25,415) (7,021)
----------- -----------
Loss before minority interest and income taxes. (161,776) (174,782)
Minority interest in partnership. . . . . . . . (16,925) 3,618
----------- -----------
Loss before income taxes. . . . . . . . . . . . (178,701) (171,164)
Income tax expense. . . . . . . . . . . . . . . (800) (800)
----------- -----------
Net loss. . . . . . . . . . . . . . . . . . . . ($179,501) ($171,964)
=========== ===========
Basic and dilutive net loss per common share. . ($0.03) ($0.03)
=========== ===========
Basic and dilutive weighted average number of
common shares outstanding . . . . . . . . 6,408,321 6,408,321
=========== ===========
</TABLE>
See accompanying notes.
2
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CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . ($179,501) ($171,964)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . 452,445 268,859
Minority interest in partnership . . . . . . . . . . . 16,925 (3,618)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . (13,053) (4,645)
Inventory . . . . . . . . . . . . . . . . . . . . 20,228 6,464
Prepaids and other current assets . . . . . . . . 15,196 30,784
Other assets. . . . . . . . . . . . . . . . . . . 7,579 36,630
Accounts payable. . . . . . . . . . . . . . . . . 108,517 (77,897)
Accrued expenses. . . . . . . . . . . . . . . . . 38,351 139,284
Other liabilities . . . . . . . . . . . . . . . . (3,242) (2,977)
----------- -----------
Net cash provided by operating
activities. . . . . . . . . . . . . . . . . . . . . . 463,445 220,920
----------- -----------
Cash flows used in investing activities:
Purchase of equipment. . . . . . . . . . . . . . . . . (629,835) (793,941)
----------- -----------
Cash flows used in financing activities:
Payments on related party debt . . . . . . . . . . . . (81,459) (100,398)
Payments on long-term debt . . . . . . . . . . . . . . (73,079) (65,308)
Capital lease payments . . . . . . . . . . . . . . . . (33,825) (17,366)
----------- -----------
Net cash used in financing activities . . . . . . . . (188,363) (183,072)
----------- -----------
Net decrease in cash and cash equivalent. . . . . . . (354,753) (756,093)
Cash and cash equivalents, beginning of period . . . . 1,705,349 5,485,808
----------- -----------
Cash and cash equivalents, end of period . . . . . . . $1,350,596 $4,729,715
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
CHICAGO PIZZA & BREWERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements of Chicago Pizza &
Brewery, Inc. and its subsidiaries (the "Company") for the three months ended
March 31, 1998 and 1997 have been prepared in accordance with generally
accepted accounting principles, and with the instructions to Form 10-QSB and
Item 310 (b) of Regulation S-B. These financial statements have not been
audited by independent accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in Management's opinion, necessary
for a fair presentation of the financial condition, results of operations and
cash flows for such periods. However, these results are not necessarily
indicative of results for any other interim period or for the full year.
Certain information and footnote disclosures normally included in
financial statements in accordance with generally accepted accounting
principles have been omitted pursuant to requirements of the Securities and
Exchange Commission (SEC). A description of the Company's accounting policies
and other financial information is included in the audited consolidated
financial statements as filed with the SEC on Form 10-KSB for the year ended
December 31, 1997. Management believes that the disclosures included in the
accompanying interim financial statements and footnotes are adequate to make
the information not misleading, but should be read in conjunction with the
consolidated financial statements and notes thereto included in the Form
10-KSB. The accompanying consolidated balance sheet as of December 31, 1997
has been derived from the audited financial statements.
2. ORGANIZATION:
The accompanying financial statements of the Company for the three months
ended March 31, 1998 and 1997 are presented on a consolidated basis, and
include the accounts of the Company, Chicago Pizza Northwest, Inc. and BJ's
Lahaina, L.P. All significant intercompany transactions and balances have been
eliminated.
On March 29, 1996, the Company acquired 26 restaurants located in Oregon
and Washington by providing the funding for the Debtor's (Pietro's Corp.) Plan
of Reorganization. The Company funded the Debtor's Plan of Reorganization on
March 29, 1996, and thereby acquired all the stock in the reorganized entity
known as Chicago Pizza Northwest, Inc. On May 15, 1996, the Company agreed to
sell seven of the restaurants purchased from Pietro's Holdings. Two of the
restaurants were sold on May 31, 1996, two additional restaurants were sold on
June 24, 1996 and three additional restaurants were sold on June 26, 1996. On
June 1, 1997, an additional restaurant acquired from Pietro's Holdings was
sold to an independent operator. This restaurant, located in North Bend,
Oregon did not figure significantly in the Company's future plans and would
have required a commitment by the Company to a long-term lease extension.
On February 19, 1997, the Pietro's restaurant located in Aloha, Oregon
was heavily damaged by fire. The Company maintained insurance for such an
event and intends to refurbish the restaurant and resume operations at this
location. The Company received $260,691 during the second quarter of 1997 from
its insurance carrier for this loss and is presently negotiating with the
carrier any additional amount that may be due for the loss or damage of this
property covered by its replacement cost policy. It is possible the Company
will recognize a gain on the involuntary loss of its property when the final
settlement amount is determined. A business interruption insurance policy will
substantially offset the loss of business during the rebuilding period.
4
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3. INTANGIBLE ASSETS:
The Company periodically evaluates the carrying value of goodwill
including the related amortization periods. The Company determines whether
there has been impairment by comparing the anticipated undiscounted future
cash flows from operations of the acquired restaurants with the carrying value
of the goodwill.
4. PER SHARE INFORMATION:
SFAS 128, "Earnings Per Share", was adopted in the fourth quarter of 1997
and supersedes previous standards for computing net income per share under
Accounting Principles Board ("APB") Opinion No. 15. The new standard requires
dual presentation of basic net income per common share and net income per
common share assuming dilution on the face of the income statement. Basic net
income per share is computed by dividing the net income attributable to common
stockholders by the weighted average number of common shares outstanding
during the period. Dilutive net income per share is equal to basic net income
per share as both stock options and warrants are antidilutive for the periods
presented.
5. INCOME TAXES:
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state purposes of approximately $4,225,000 and $2,194,000,
respectively. The utilization of net operating loss and credit carryforwards
may be limited under the provisions of the Internal Revenue Code Section 382
and similar state provisions due to the initial public offering in 1996. The
Company has not previously generated taxable income, and there is no
opportunity to carryback losses to prior periods. The Company therefore has
not recognized a net deferred tax asset as of March 31, 1998.
6. SUBSEQUENT EVENTS:
On April 30,1998 the Company's lease for its delivery-only Pietro's
restaurant on Woodstock Road in Portland, Oregon expired. Due to its
delivery-only suitability, this location was not included in the Company's
plans for conversions to the BJ's format, and the Company did not pursue a
lease extension. A portion of the equipment at this location was sold to an
independent operator; additional restaurant equipment was removed and will be
used in future conversions to the BJ's restaurant format.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements and notes thereto included elsewhere in
this Form 10-QSB. Except for the historical information contained herein, the
discussion in this Form 10-QSB contains certain forward looking statements
that involve risks and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions. The cautionary statements made
in this Form 10-QSB should be read as being applicable to all related
forward-looking statements wherever they appear in this Form 10-QSB. The
Company's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, without
limitation, those factors discussed herein and in the Company's prospectus
dated October 8, 1996 (the "Prospectus"), including, without limitation: (i)
the Company's ability to manage growth and conversions, (ii) construction
delays, (iii) marketing and other limitations as a result of the Company's
historic concentration in Southern California and current concentration in the
Northwest, (iv) restaurant and brewery industry competition, (v) impact of
certain brewery business considerations, including without limitation,
dependence upon suppliers and related hazards, (vi) increase in food costs and
wages, including without limitation the recent increase in minimum wage, (vii)
consumer trends,
5
<PAGE>
(viii) potential uninsured losses and liabilities, (ix) trademark and
servicemark risks, and (x) other general economic and regulatory conditions
and requirements.
GENERAL
The Company developed a restaurant and microbrewery in Boulder, Colorado
in February 1997 and converted five of the Pietro's restaurants to the BJ's
restaurant and/or brewery concept during April through December 1997. Two
additional Pietro's restaurants were converted to the BJ's restaurant concept
in the first quarter of 1998. Consequently, the results of operations for the
three-month period ended March 31, 1998 are not necessarily comparable to the
results of operations for the same period in 1997.
The Company's revenues are derived primarily from food and beverage sales
at its restaurants. The Company's expenses consist primarily of food and
beverage costs, labor costs (consisting of wages and benefits), operating
expenses (consisting of marketing costs, repairs and maintenance, supplies,
utilities and other operating expenses), occupancy costs, general and
administrative expenses and depreciation and amortization expenses.
Certain pre-opening costs, including direct and incremental costs
associated with the opening of a new or converted restaurant, are amortized
over a period of one year from the opening date of such restaurant. These
costs include primarily those incurred to train a new restaurant management
team, food, beverage and supply costs incurred to test all equipment and
systems, and any rent or operating expenses incurred prior to opening.
Construction costs, including leasehold capital improvements are amortized
over the remaining useful life of the related asset, or, for leasehold
improvements, over the initial term, if less.
Management believes the Company can be profitable through increased sales
relating to its extended menu developed in 1996 and the continuing conversion
and refurbishment of the Northwest restaurants. Management also believes that
profitability may be enhanced by reduced costs associated with Company
produced beer and vendor volume purchasing made possible with the acquisition
of the Northwest Restaurants.
The Company utilizes a calendar year-end for financial reporting
purposes.
RESULTS OF OPERATIONS
Three-Month Period Ended March 31, 1998 Compared to Three-Month Period Ended
March 31, 1997.
Revenues Total revenues for the three-month period ended March 31, 1998
increased to $6,888,000 from $5,783,000 for the comparable period in 1997, an
increase of $1,105,000 or 19.1%. The increase is primarily the result of (i)
the opening of a BJ's Pizza, Grill & Brewery in Boulder, Colorado in February
1997, (ii) an increase in same store sales at the BJ's restaurants open both
periods of $430,000 or 15.1%, and (iii) an increase in same store sales at the
restaurants operated as Pietro's during the first quarter of 1997 and
converted and operated as BJ's restaurants for the entire three-month period
ended March 31, 1998 of $664,000 or 95.2%. The increase in revenues resulting
from the above-mentioned factors was partially offset by (i) a decrease in
sales at the restaurants operated as Pietro's for the entire comparable
periods of $56,000 or 3.7% and (ii) the sale of the Pietro's restaurant in
North Bend, Oregon in June 1997 which had revenues of $96,000 for the
three-month period ended March 31, 1997.
Cost of Sales. Cost of food, beverages and paper (cost of sales) for the
restaurants increased to $2,012,000 for the three-month period ended March 31,
1998 from $1,708,000 for the comparable period in 1997, an increase of
$304,000 or 17.8%. However, as a percentage of revenues, cost of sales
decreased to 29.2% during the 1998 period from 29.5% in the 1997 period. The
decrease in cost of sales as a
percentage of revenues was primarily due to efficiencies achieved at the BJ's
restaurants in Southern
6
<PAGE>
California, Hawaii and Colorado. Cost of sales at those restaurants decreased
to 27.3% of sales during the
three-month period ended March 31, 1998 from 28.4% of sales during the
comparable period in 1997. This decrease was partially offset by an increase
in cost of sales at the restaurants in the Northwest which were converted to
the BJ's concept. Management believes the increase in cost of sales at these
restaurants is the result of expected operational inefficiencies experienced
at these newly-opened restaurants.
Labor. Labor costs for the restaurants increased to $2,501,000 for the
three-month period ended March 31, 1998 from $1,955,000 for the comparable
period in 1997, an increase of $546,000 or 27.9%. As a percentage of revenues,
labor costs increased to 36.3% in 1998 period from 33.8% for the comparable
period in 1997. The factors which contributed to the increase in labor costs
as a percentage of revenue were:
The federal, California and Oregon minimum wages increased substantially
between the first quarter 1997 and the first quarter 1998. These increases
resulted in a greater than 9% increase in the wages paid to the Company's
minimum wage employees from the 1997 period to the 1998 period.
Planned increased staffing was effected at the newly converted Pietro's
restaurants in order to provide our guests with the best possible dining
experience despite a relatively inexperienced staff. Management anticipates
that staffing levels at these restaurants will be reduced as they mature.
Occupancy. Occupancy costs increased to $594,000 for the three-month
period ended March 31, 1998 from $576,000 for the comparable period in 1997,
an increase of $18,000 or 3.1%. As a percentage of revenues, occupancy costs
decreased to 8.6% for the three-month period in 1998 from 10.0% for the
comparable period in 1997. The primary reason for the decrease in occupancy
costs relative to revenues was the increase in comparable store sales.
Operating Expenses. Operating expenses increased to $872,000 for the
three-month period ended March 31, 1998 from $780,000 for the comparable
period in 1997, an increase of $92,000 or 11.8%. However, as a percentage of
revenues, operating expenses decreased to 12.7% for the three-month period in
1998 from 13.5% for the comparable period in 1997. The primary reason for the
decrease in operating expenses as a percentage of revenue were (i) the
increase in same store sales, and (ii) an increased focus on operating the
restaurants more efficiently as well as the implementation of improved
expense monitoring systems at the BJ's restaurants in Southern California.
Operating expenses included restaurant-level operating costs, the major
components being marketing, repairs and maintenance, supplies and utilities.
General and Administrative Expenses. General and administrative expenses
decreased to $593,000 for the three-month period ended March 31, 1998 from
$663,000 for the comparable period in 1997, a decrease of $70,000 or 10.6%.
The decrease in general and administrative expenses was primarily due to
additional legal and accounting fees incurred during 1997 associated with the
Company's first year of being a public company.
Depreciation and Amortization. Depreciation and amortization increased
to $453,000 for the three-month period ended March 31, 1998 from $269,000 for
the comparable period in 1997, an increase of $184,000 or 68.3%. The increase
was primarily due to (i) the amortization of pre-opening costs associated with
the Boulder, Colorado restaurant and the converted Pietro's restaurants and
(ii) the depreciation associated with the renovation costs of the Boulder,
Colorado restaurant and the Pietro's restaurants converted to the BJ's
concept.
Interest Expense, Net. Interest expense, net of interest income,
increased to $35,000 for the three-month period ended March 31, 1998 from
$17,000 for the comparable period in 1997, an increase of
$18,000 or 105.9%. The increase was primarily due to a reduction of interest
income experienced as the Company's invested cash was utilized in the
renovation and conversion of the Pietro's units.
7
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LIQUIDITY AND CAPITAL RESOURCES
On October 15, 1996 the Company completed its initial public offering
(the "Offering") of 1,800,000 shares of Common Stock and 1,800,000 Redeemable
Warrants pursuant to the Prospectus. On November 26, 1996, the Representative
of the underwriters of the Offering exercised the over-allotment option
pursuant to the Prospectus to purchase 270,000 additional Redeemable Warrants
(the "Over-Allotment Option"). The Offering, including the Over-Allotment
Option resulted in approximately $6,804,000 in net proceeds. The funds have
been and will be used for the continued development of the Northwest
Restaurants, the Boulder, Colorado restaurant, and other sites, if possible,
as well as for the reduction of debt and increased working capital.
Since the completion of the Offering in October of 1996, the Company has
invested in restaurant development and reduced debt. Net cash provided by
operating activities for the three-month periods ended March 31, 1998 and
March 31, 1997 were $463,000 and $221,000, respectively. Capital expenditures
for the three-month periods ended March 31, 1998 and March 31, 1997 were
$630,000 and $794,000, respectively. Total capital expenditures for the
three-month periods ending March 31, 1998 and 1997 were for the acquisition of
restaurant and brewery equipment and leasehold improvements to develop or
convert the acquired restaurants.
Management believes the Company can be profitable through increased sales
relating to its extended menu developed in 1996 and the continuing conversion
and refurbishment of the Northwest restaurants. Management also believes that
profitability may be enhanced by reduced costs associated with Company
produced beer and vendor volume purchasing made possible with the acquisition
of the Northwest Restaurants.
The Company currently intends to utilize cash and cash equivalents
primarily for the conversion and refurbishment of restaurants in the Northwest
and the acquisition of other sites, if possible, as well as for working
capital purposes. Management currently anticipates a total of $2,000,000 in
additional capital expenditure requirements for 1998, which includes
requirements for the Northwest Restaurant conversions and other sites that
Management is currently considering. Management believes that cash and cash
equivalents available at March 31, 1998 and future operating cash flow will be
sufficient for the Company to fund its operations and continue to meet its
business plan through the end of the fiscal year. However, no assurance can be
given that Management can successfully implement such objectives. Further,
there can be no assurance that future events, including problems, delays,
additional expenses and difficulties encountered in expansion and conversion
of restaurants, will not require additional financing, or that such financing
will be available if necessary.
SEASONALITY AND ADVERSE WEATHER
The Company's results of operations have historically been impacted by
seasonality, which directly impacts tourism at the Company's coastal
locations. The summer months (June through August) have traditionally been
higher volume periods than other periods of the year.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued two statements - SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information", which are effective for the Company in
the current fiscal year. In addition, in February 1998, the FASB issued SFAS
No. 132, "Employers Disclosure About Pensions and Other Retirement Benefits"
which will also be
effective for the Company in the current fiscal year. Presently, those
standards have no impact on the
Company's consolidated financial statements.
Consistent with the restaurant industry, the Company defers its
restaurant preopening costs and amortizes them over a twelve-month period
following the opening of the respective restaurant. In April
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1998, The American Institute of Certified Public Accounts ("AICPA") issued
Statement of Position
("SOP") 98-5 entitled "Reporting on the Costs of Start-Up Activities". The SOP
requires entities to expense as incurred all start-up and preopening costs
that are not otherwise capitalizable as long-lived assets. The SOP is
effective for fiscal years beginning after December 15, 1998, with earlier
adoption encouraged. Restatement of previously issued financial statement
statements is not permitted by the SOP, and entities are not required to
report the pro forma effects of the retroactive application of the new
accounting standard. The Company's adoption of the required new accounting
principle will involve the recognition of the cumulative effect of the change
in accounting principle required by the SOP as a one-time charge against
earnings, net of any related income tax effect, retroactive to the beginning
of the fiscal year of adoption. Total deferred preopening costs were
approximately $354,000 at March 31, 1998.
Other recently issued standards of the FASB are not expected to affect
the Company as conditions to which those standards apply are absent.
PART II
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------ -------------------------------------------------------
10.1 Real Estate Lease, dated April 4, 1998, between
Chicago Pizza Northwest and U.S. National Bank of
Oregon for a restaurant location on Burnside Road in
Portland, Oregon
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
9
<PAGE>
SIGNATURES
In accordance with 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.
CHICAGO PIZZA & BREWERY, INC.
(Registrant)
May 14, 1998 By: /s/ PAUL A. MOTENKO
--------------------
Paul A. Motenko
Chief Executive Officer, Vice
President, Secretary and Chairman
of the Board of Directors
By: /s/JEREMIAH J. HENNESSY
------------------------
Jeremiah J. Hennessy
President, Chief Operating Officer,
Chief Financial Officer and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Chicago
Pizza & Brewery, Inc. Consolidated financial statements for the three month
period ended March 31, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,351
<SECURITIES> 0
<RECEIVABLES> 175
<ALLOWANCES> 0
<INVENTORY> 341
<CURRENT-ASSETS> 2,585
<PP&E> 11,258
<DEPRECIATION> 2,168
<TOTAL-ASSETS> 17,718
<CURRENT-LIABILITIES> 2,982
<BONDS> 0
0
0
<COMMON> 15,040
<OTHER-SE> 1,196
<TOTAL-LIABILITY-AND-EQUITY> 17,718
<SALES> 6,888
<TOTAL-REVENUES> 6,888
<CGS> 2,012
<TOTAL-COSTS> 7,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> (179)
<INCOME-TAX> 1
<INCOME-CONTINUING> (180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (180)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
LEASE
-----
Portland, Oregon
Date: January 1, 1998
PARTIES
The parties to this lease are U.S. Bank, as Conservator for Ardarth
Windolph, U.S. Bank as Trustee for Joan Johnson, and U.S. Bank as Agent for
the AlRose LLC - hereinafter referred to collectively as "Landlord," and
Chicago Pizza, N.Whereinafter referred to as "Tenant".
PREMISES
The property subject to this lease, hereinafter referred to as the
"Premises", is described as follows:
A commercial property containing a 1 story building approximately 2,550 square
feet situated on a site consisting of approximately 16,763 aquare feet loacted
at 1933 W. Burnside, Portland, Oregon, including an ingress and egress
easement agreement executed between Herfy's Corporation and Shell Oil company,
a Delawara Corporation herein attached for referene.
TERM: RENT, DEPOSIT
The original term of this lease shall commence on January 1, 1997 and
continue through the expiration date of December 31, 2002 at a monthly base
rental rate as follows:
BASE RENT:
The monthly base rental rate shall be $2,125.00 per month, triple net
commencing January 1, 1998
through December 31, 2002
In addition to the monthly base rental rate of $2,125.00, and other terms and
conditions setforth herein, Tenant shall pay, as additional rent 4% of gross
sales on all sales as defined herein over an annual base gross sales amount of
$637,500.00
The gross sales amount shall be calculated as follows:
Gross sales: $700.000.00 (example only)
Base Gross Sales: $637,500.00 (defined by lease)
-----------
Gross Sales over base $ 62,500.00
Percentage Due under lease - 4% 4.00% (defined by lease)
-----------
Additional Rent Due $2,500.00
Gross sales shall be defined as:
a) Gross sales as used in this lease shall include all sums of money,
check, credit card purchases, exchange, or other forms of payment, or value
received by, or paid to, Tenant from all sources of business conducted upon or
from the premises and shall include income from all direct sales of any goods,
food, beverages, vending machines (including but not limited to any lottery
ticket dispensers, lottery ticks, video porker, video gams, pinball machines,
cigarette machines, candy machines, sport action videos, or related products,
etc.) wares and merchandise, or for services performed on/or at the leased
promises and shall also include any additional sales of goods or services by
any concessionaire, subtenant, or licensee and whether such sales and services
shall be evidenced
by check, credit, charge account, exchange or otherwise and shall include, but
not be limited to the payments received by Tenant.
Each charge or sale upon installment sale, exchange, or credit shall be
treated as a sale for the full price in the lease year during which such
charge or sale was made, irrespective of the time when Tenant shall receive
full or partial payment.
Gross sales shall not include sales for which cash has been refunded. Gross
receipts shall not include the amount of sales taxes, or excise taxes based
upon sales price collected from customers, provided that the amount thereof is
added to the selling price or absorbed therein, and for which Tenant is
accountable to or is required to pay directly to any government or
governmental agency. No franchise, capital stock tax, business license tax, no
income or similar tax based upon profits, as such, operating expenses, or
other costs on or at the premises, or business costs, shall be deducted form
gross receipts of sales in any event for whatever purposes of the Gross Sales
computation.
b) Percentage: Percentage: Percentage Rent shall be an amount equal to
4% of the Tenant's "Gross Sales" as defined above annually. Percentage Rent
when applicable shall be paid, on an annual basis by January 30th following
the preceding lease year. For the purposes of the lease, each lease year is
defined as January 1 through December 31 of the current year.
c) Statement of Gross Sales: 1) On or before the 10th day of each
month, following the preceding month, whether on not percentage rent is
payable, Tenant shall deliver to Landlord a complete and correct statement
showing in reasonable detail all Gross Sales for the immeadiate preceding
calendar month, which statement shall be signed by an officer or authorized
agent of Tenant certifying it to be true and accurate. 2) By January 30th
following the preceding lease year Tenant shall deliver to Landlord a complete
and correct statement showing in reasonable detail all Gross Sales for the
immeadiate preceding lease year, which statement shall be signed by an officer
or authorized agent of Tenant certifying it to be true and accurate. 3) Within
15 days after Tenant's annual income tax returns are files, the preparer of
the Tenant's income tax return shall be furnished to Landlord with a signed
statement certifying the amount of Gross Sales reported by Tenant on Tenant's
income tax return attributed to the premises.
d) Records of Gross Sales: Tenant shall keep complete
and proper books of account and other records pertaining to Gross Sales. The
books and records shall be kept or made available at a location reasonably
accessible to Landlord, who may inspect all such books and records at all
reasonable times to verify Tenant's Gross Sales. Within three years after
each statement of Gross Sales for a lease year is due, whether or not it has
been submitted or whether or not Landlord has accepted a deficiency payment or
refunded an excess, Landlord may request and audit of Tenant's Gross Sales by
an independent Certified Public Accountant chosen by Tenant from a list of not
fewer than three submitted by Landlord in connection with the request. If
Tenant does not make the choice within five days, Landlord may do so. The
accountant shall have access to all of Tenant's books and records, without
cost to Landlord, necessary to complete the audit. The accountant's report,
or findings shall be final and binding upon Landlord and Tenant and payments
required to make adjustments in Percentage Rent to conform to the report shall
be made within ten days after receipt of the report. If the Gross Sales for
any lease year shall be found by the accountant to be understated by more than
two (2%) percent, Tenant shall immediately pay Landlord the cost of such
audit; other the cost of said audit shall be paid for by the Landlord.
THIS LEASE IS SUBJECT TO THE ADDITIONAL TERMS AND CONDITIONS AS FOLLOWS, TO
WHICH THE PARTIES AGREE:
SECTION 1. OCCUPANCY
1.1 PAYMENT OF RENT The monthly base rental rate herein stated shall be
due and payable by the 1st day of each and every month through the above
designated term. Tenant shall pay the specified rent, and any other charges
due under the lease when due in lawful money of the United States at
Landlord's address stated in this lease, or such other address as Landlord
shall designate by notice to Tenant. Any rent, or other charges due under the
lease, which are not paid within 10 days shall bear a 5% late charge for each
$1.00 and shall be paid to Landlord in 5 days of notice or billing from
Landlord as additional rent.
1.2 CONDITION OF PREMISES Landlord makes no warranty as to
the condition of the Premises, or any improvements thereon or the adequacy of
the Premises for Tenant's intended use, and Tenant accepts the Premises "As
Is", including but not limited to all, exterior walls, doors, windows, fences,
parking area, landscaping, interior walls, doors, windows, floors, ceilings,
electrical, heating and cooling, systems, exposed plumbing, underground
storage tanks, if any, and all other building and site components based upon
Tenant's own inspection and not upon any representation by Landlord, or
Landlord's agent, except as may be stated in this lease
1.3 SECURITY DEPOSIT To secure Tenant's compliance with all terms of
this lease, Tenant shall paid Landlord, at the commencement of said lease, the
sum of $.00 as a deposit. The deposit shall be a debt from Landlord owing to
Tenant, refundable within 30 days following the expiration of the lease term,
or any option term exercised under the lease, or other termination not caused
by Tenant's default. Landlord shall have the right to offset against the
deposit a) for any sums owing from Tenant to Landlord under the lease which
have not been paid when due, b) any damages caused by Tenant's default, c) the
cost of curing any failure by Tenant to comply with any term or provision of
said lease, should the Landlord elect to do so, d) and the cost of performing
any repair or cleanup that is Tenant's responsibility under this lease.
Offset against the deposit shall not be an exclusive remedy in any of the
above cases, but may be invoked by Landlord, at its option, in addition to any
other remedy provided by law or this lease for Tenant's non-performance.
Landlord shall give notice to Tenant each time an offset is claimed against
the deposit unless this lease is terminated, Tenant shall within 10 days
following such notice deposit with Landlord a sum equal to the amount of the
offset so that the total deposit amount, net of offset, shall remain constant
throughout the lease term. Landlord may deliver the funds deposited herein by
Tenant to the purchaser or assignee of Landlord's interest in the leased
premises, in the event that such interest be sold or transferred, and
thereupon Landlord shall be discharged from any further liability with respect
to such deposit. If tenant exercises their option(s) under paragraph 15.1 of
the lease the Landlord at Landlord's option may increase the amount of
Tenant's security deposit to an amount equal to one months rent, which shall
be equal to the last months rent due and payable upon the option period.
SECTION 2. USE OF THE PREMISES
2.1 PERMITTED USE Tenant shall use and permit the Premises to be used
for the following purposes only: All sales activities associated with
Tenant's primary business.
Tenant shall operate the above business every day during the hours and in the
manner customary for such businesses, except during the time and to the extent
such use is prevented by fire, flood, labor disputes, government edict or any
other cause beyond Tenant's control. Should Tenant fail to continually
operate Tenant's primary business in a manner consistent to those times
associate to Tenant's primary business, the monthly rent during those times
Tenant fails to operate Tenant's primary business, shall be adjusted by
Landlord to the highest combined base rental rate and percentage rate paid
under the lease in any preceding period. The monthly rent under the lease
payment shall than become the monthly base rent stated herein and 1/12th of
the highest percentage rent paid in any preceding lease period, due monthly.
This adjustment shall apply whether said failure to operate Tenant's business
is caused by the Tenant's own action, or is prevented from operating Tenant's
business due to being declared in default by Landlord.
2.2 RESTRICTIONS ON USE In connection with its use of the Premises,
Tenant shall:
a) Refrain from conducting any activity or creating any condition on the
Premises in violation of any federal, state or municipal laws or orders, which
shall include any violation of any applicable ADA, environmental laws,
regulations, or ordinances. Tenant has verfied that tenant's use complies with
all zoning codes and regulations and has not relied on any representation(s)
by the Landlord, or Landlord's agent.
b) Refrain from selling alcoholic beverages on the Premises unless
expressly permitted by this lease: which herein is approved and premitted by
Landlord.
c) Refrain from any activity or the maintenance of any condition that
would in any way tend to create a nuisance, damage the reputation of the
Premises, or be reasonably offensive to Landlord, or other tenants of the
building in which the Premises may be located.
d) Refrain from any use of the Premises that would cause the fire
insurance rate on the Premises or the Building to be increased or that will
prevent Landlord from taking advantage of any future ruling of the Oregon
Insurance Rating Bureau or its successor that would permit reduced premium
rates for long-term fire insurance policies on the Premises. If Tenant shall
fail to comply with this restriction upon reasonable notice from Landlord,
Tenant shall pay any resulting extra cost of fire
insurance upon receipt of billings from Landlord; refers only to any
substantial change in use and not to increase in rate arising out of present
use.
e) Refrain from any activity or installation that will, in the opinion
of a qualified engineer or architect selected by Landlord, overload the floors
or create undue stress upon any part of the Premises;
f) Refrain from the use of any electrical equipment that will, in the
opinion of a qualified electrician selected by Landlord, overload the
electrical circuits from which Tenant obtains current or interfere with the
reasonable use of such circuits by Landlord or other tenants of Landlord using
the same circuits. Any changes to the wiring necessary to prevent Tenant's
use from overloading the circuits shall be paid for by Tenant.
g) Refrain from acting in any manner or conducting any
activity, that will create a safety hazard to the public, other tenants,
tenant's employees, or patrons, near or upon the premises.
h) Refrain from, or permit, the premises to be maintained
or repaired in such a manner that
will, or may, create a safety hazard to the public, other tenants, tenant's
employees, or patrons, near or upon the premises.
2.3 SIGNS AND ATTACHMENTS Tenant at Tenants expense shall be
responsible for obtaining all necessary permits, and installing Tenant's
signage. Tenant shall not, without Landlord's prior written consent, which
shall not be unreasonably withheld, place any permanent sign, advertisement,
notice, marquee, awning, decoration, aerial or attachment in, on or to the
roof, canopy, windows, doors or exterior walls of the Premises or the
Building. Any such sign, or attachment, placed upon the Premises by Tenant,
with or without Landlord's consent shall be removed, at Landlord's option, by
Tenant at Tenant's expense upon termination of this lease, and all damage
caused by installation and/or removal of said sign shall be repaired at
Tenant's expense. However, Tenant shall be able to place any temporary sign,
advertisement, notice, marquee, awning, decoration, aerial or attachment on
the premises without further consent of the Landlord.
2.4 REMOVAL OF SNOW, ICE AND DEBRIS: Tenant shall keep the
sidewalks abutting the Premises or the separate entrance free and clear of
snow, ice, debris and obstructions of every kind. If the Premises consist of
an entire building, Tenant shall keep the roof and drains leading from the
roof free and clear of snow, ice, debris, or other obstruction which might
overload or endanger the roof or adjoining Premises, sidewalks or streets. In
performing such work, Tenant shall take all necessary precautions to avoid
damage to the roof.
2.5 ALTERATIONS Unless herein stated or agreed upon during the
term of the lease, Tenant shall neither make alterations, additions nor
improvements to the Premises, nor paint the outside walls without Landlord's
prior written consent, which shall not be unreasonably withheld. Any such
additions, alterations or improvements, except for unattached movable trade
fixtures, shall at once become part of the realty and belong to Landlord and
shall not be removed later by Tenant unless the terms of the applicable
consent provide otherwise. Should the Tenant commence any alterations,
improvements, or upgrades, to the premises which requires further improvement
to the building by any City, County, or State agency, or department, in
connection with said alteration, improvement, or upgrade Tenant, at Tenant's
expense shall comply with said directive. Said improvements may include but,
not be limited to, additional fire exits, sprinklers, larger water and sewer
capacity, back flow installation, additional restroom facilities,
landscaping, initial or otherwise, seismic upgrades, ADA compliance, etc.
Tenant shall be require to obtain any necessary permits in connection with
said alteration, improvement, or upgrade, and provide Landlord with proof of
said permit prior to construction. Upon completion of said alteration,
improvement or, upgrade Tenant shall provide Landlord with a copy of any
completion notices, permits, and any drawings, architectural or otherwise, to
Landlord.
SECTION 3. MAINTENANCE AND REPAIR
3.1 TENANT'S OBLIGATION TO MAINTAIN, REPLACE AND REPAIR Tenant shall at
all times maintain the Premises in a neat condition, free of trash and debris
and in good order and repair. Tenant's responsibilities shall include,
without limitation, maitnenace, repair, and replacement of any and all
components located on the premises to include, but not limitied by, the
following:
a) Performance of all necessary maintenance, replacement, and repair
upon the electrical fixtures, interior lighting, interior and exterior
lighting fixtures, switches and wiring from the service panel, all doors and
windows and related hardware, window coverings, alarm system, concealed and
exposed plumbing, indoor ceilings, walls, floors and floor coverings, heating
and air conditioning units, roof,
parking lot, and all exterior improvements to include, but not limited signs,
sidewalks, curbs, and fencing.
b) Performance of all routine maintenance, replacemnt, and repairs on
all heating and air conditioning unit where these items are used solely in
connection with the Premises. Tenant shall, upon execution of this lease,
maintain a servicing agreement which requires each and every heating and air
conditioning unit being used in connection with the premises to be serviced at
least quarterly. Tenant shall provide Landlord with a copy of said agreement
on an annual basis which shall be the anniversary date of said contract.
c) Tenant shall not penetrate the roofing system with any type or
heating or cooling equipment, electrical conduit, drain, skylight, opening,
cable, antenna or any other item without prior written consent of Landlord.
Tenant shall ensure that any penetration or installation to or through the
roof system is completed in a professional manner and Tenant shall be
responsible for, at tenant's expense, for any repairs to the roof, over or
around the area of penetration or installation.
d) Not permitting or suffering any waste upon the Premises.
e) No rent abatement shall occur during periods when repairs or
replacements are being performed.
f) Tenant shall be required to comply with current ADA laws
specifically relating to Tenant's business activities which shall include all
existing and future requirements whether these requirements are associated
with the interior space, access to and from the site, access to and from the
building, or require modification to the existing structure.
g) Tenant shall insure, when required, that all work is
done by a licensed and bonded contractor, and specifically licensed in an area
where a separate licensed is required, and that all work
performed by Tenant's selected contractor shall comply with all building
codes, and any rules, regulations, and/or standards set forth by any entity
with authority to set said rules and regulations, and all work performed shall
be completed in a professional manner.
h) Said repairs or replacements shall be completed whether the condition
requiring such repair existed at the execution of this lease or occurs after
occupancy.
3.2 LANDLORD'S OBLIGATIONS TO REPAIR: Landlord shall have no
responsibility or obligation to provide any services, or make any repairs, or
replacement during the term of this lease or any extensions or options thereof
unless agreed upon by both parites.
3.3 CONDITIONS OF LANDLORD'S LIABILITY: Landlord shall only be
deemed to be in default under the terms of this Lease in the event Landlord
shall violate, neglect, or fail to observe, keep or perform any covenant or
agreement which is not observed, kept or performed by Landlord within ten (10)
days after the receipt by Landlord of written notice by Tenant of such breach
which notice shall specifically set out the breach. Landlord shall not be
considered in default so long as Landlord commences to cure the breach in a
diligent and prudent manner and is allowed such additional time as reasonably
necessary to correct the breach.
SECTION 4. UTILITIES, TAXES AND ASSESSMENTS
4.1 UTILITIES Tenant shall pay when due all charges for light, heat,
water, garbage collection, janitorial service, sewer disposal, monthly alarm
monitoring fee, phone, or other utilities of any kind furnished to the
Premises. Tenant shall be responsible to contact all utility companies
furnishing utilities to said premises and have said utilities place in
Tenant's name upon the lease commencement date or occupancy which ever occurs
sooner. If any utility services are provided by or through Landlord, charges
to Tenant shall be comparable with prevailing rates for comparable services.
If Landlord receives and pays bills for any utilities furnished to the
Premises, Tenant shall reimburse Landlord upon demand.
4.2 PAYMENT OF REAL PROPERTY TAXES: During the term of this lease,
Tenant shall pay as additional rent, when due, all real property taxes
assessed against the property directly to Multnomah County, unless directed
otherwise by Landlord. Landlord hereby agrees that it will promptly, upon
receipt, furnish Tenant copies of all notices of assessment of taxes. Should
said notices not be received by Tenant, Tenant shall be responsible for
obtaining said amounts due directly from Multnomah County prior to the real
property taxes becoming due and/or delinquent. Tenant shall pay, when due, all
those taxes assessed against its personal property located on the premises.
Any real property taxes that become due and payable which do not coincide with
the lease term herein, and/or coincides with a period the tenant does not
actually occupy the premises, said taxes shall be prorated from the date
tenant vacates the property to the end of the appropriate tax year. In
addition, to the real property taxes, Tenant shall pay taxes applicable to
the demised land and all improvements comprising the demised premises assessed
by any additional appropriate taxing authority.
4.3 INSURANCE PREMISES: Tenant shall, to Landlord's
satisfaction, with an insurance company maintaining an A+ rating, maintian
fire and extended coverage insurance to include earthquake coverage at full
replacement value of said building and all associated improvements, including
Tenant's property and fixtures. Tenant shall provide evidence of insurance at
all times during the lease term. Failure to maintain insurance, or evidence
said insurance to Landlord, shall immediately constitute a default under the
lease. Landlord may upon failure of Tenant to provide insurance, or evidence
thereof, place the property under Landlord's insurance and bill Tenant for
all costs associated with said placement. Within 10 days of receipt of said
notice that Landlord has placed insurance on the premises Tenant shall
reimburse Landlord for said costs. In the event of a loss all insurance
proceeds, if any, shall be used to replace the building to a fully restored
condition. Should insurnace proceeds for whatever reason not be sufficient,
or avialable, to replace the building to a fully restored condition, Tenant
shall at Tenant's sole cost and expense, pay any costs necessary to fully
restore the premises. Landlord shall be named as an additional insured under
Tenant's policy. All proceeds issued under said insurance that may be
directly issued in the event of a loss at the leased premises, shall be in the
form as co-payee's between Landlord and Tenant.
Said insurance shall be delivered prior to, or at, the Commencement Date of
this lease.
4.4 SPECIAL ASSESSMENTS If an assessment for a public improvement is
made against the leased premises landlord shall, if possible, elect to cause
such assessment to be paid in installments. Tenants reimbursement to Landlord
shall be treated in the same manner as general real property taxes for
purposes of 4.2 provided, however, proration of any assessment not payable in
installments shall be prorated over the useful life of the improvement to
include a fair market interest for which such assessment is made which shall
in no event exceed twenty (20) years.
SECTION 5. DAMAGE TO OR DESTRUCTION OF THE PREMISES
5.1 PARTIAL DAMAGE If either the Building or the Premises shall be
partially damaged by fire, windstorm, or other casualty and paragraph 5.2 does
not apply, Tenant shall immediately restore the
premises to a fully restored condition.
Repair shall be accomplished with all reasonable dispatch, subject to
interruptions and delays from labor disputes and other causes beyond Tenant's
reasonable control. Rent shall not be abated during the period of
restoration.
5.2 DESTRUCTION If either the Building or Premises is damaged such that
the cost of restoration is reasonably estimated by Landlord to equal or exceed
50 percent of the value of the Premises (or the Building), exclusive of
foundations, just prior to the occurrence of the damage, or if the damage
occurs when the remaining term of this lease (excluding any optional renewal
periods) is 20 percent or less of the original term, then the parties shall
proceed as follows:
a) Landlord may elect to terminate this lease by written notice to
Tenant given within 90 days following the date of damage;
b) Should the Landlord elect to terminate the lease all available
insurance proceeds shall
become payable directly to, and for the benefit of Landlord.
c) Should the Landlord elect to terminate the lease, the tenant shall
pay to Landlord all costs associated with removing the building from the
premises, all costs with capping off all utilities furnished to the premises,
and all costs restoring the land to a paved condition satisfactory to
Landlord.
5.3 REPAIR OF TENANT'S PROPERTY subject to paragraph 5.2 repair,
replacement or restoration of any fixtures and personal property owned by
Tenant or any additions or improvements to the Premises constructed or owned
by Tenant shall be the responsibility of Tenant regardless of the cause of the
damage. Tenant shall pay all costs of moving its property when this is
required in connection with repairs of the Premises for which Landlord is
responsible.
5.4 WAIVERS OF SUBROGATION The parties shall obtain from their
respective insurance carriers waivers of Subrogation against the other party.
Neither party shall be liable to the other for any loss nor damage caused by
fire nor any of the events enumerated in a standard fire insurance policy with
an
extended coverage endorsement except to the extent such loss is not actually
paid for out of the proceeds of such insurance.
SECTION 6. EMINENT DOMAIN
6.1 PARTIAL TAKING If a portion of the Premises is condemned or
purchased in lieu of condemnation and paragraph 6.2 does not apply, this lease
shall continue on the following terms:
a) Landlord shall be entitled to all of the proceeds of condemnation and
Tenant shall have no claim against the Landlord as a result of the
condemnation.
b) Subject to paragraph 5.3 relating to Tenant's improvements and
property, Landlord shall proceed as soon as reasonably possible to make such
repairs and alterations to the Premises as are necessary to restore the
remaining Premises to a condition as comparable as reasonably practicable to
that existing at the time of the condemnation. Landlord may, but shall not be
required to, perform alterations prior to the actual taking after the portion
to be taken has been finally determined. Rents shall be abated to the extent
the Premises are untenantable during the period of alteration and repair.
c) After the date on which title vests in the condemning authority or an
earlier date on which alterations are commenced by Owner to restore the
balance of the Premises in anticipation of taking, the rent shall be reduced
in proportion to the reduction in reasonable rental value of the Premises for
Tenant's use caused by the condemnation.
6.2 TOTAL TAKING If a condemning authority condemns or purchases in
lieu of condemnation all of the Premises or a proportion sufficient to render
the remaining Premises unsuitable for the permitted use despite restoration as
provided in paragraph 6.1, the lease shall terminate as of the date that title
vests in the condemning authority or to the date that Tenant surrenders
possession of the Property, whichever is later, and the provisions of Section
l2 covering termination shall apply. Tenant shall be entitled to no
condemnation proceeds attributable to the value of its leasehold interest or
any improvements placed by it upon the Premises. Tenant shall be entitled to
any award made to it from the condemning authority for the removal of its
property so long as such award does not diminish the amount to be received by
Landlord.
SECTION 7. LIABILITY TO THIRD PERSONS; LANDLORD'S LIABILITY TO TENANT
7.1 INDEMNIFICATION OF LANDLORD. Tenant shall indemnify and hold
Landlord harmless from any claim, demand liability, damage, costs, expense
(including attorney fees), or loss arising out of or related to any activity
of Tenant, its agents, or invitee's on the Premises or any condition existing
in the Premises, including any such claim, loss or liability that may be
caused or contributed to in whole or in part by Landlord, unless caused by the
Landlord's own negligence.
7.1.A) ENVIRONMENTAL INDEMNIFICATION: Notwithstanding any other provision
of the lease, and without limiting the generality of Paragraph 7.1, Tenant
shall indemnify, defend, and hold Landlord harmless for any damages,
penalties, fines, costs, liabilities, or losses (including, without
limitation, diminution in value of the Premises, damages for the loss or
restriction on the use of rental or usable space or of any amenity of the
Premises, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorneys' fees, consultant fees, and
expert fees) which arise during or after the lease term as a result of
contamination by Hazardous Substances as a result of Tenant's use or activity,
or by Tenant's agents or contractors. This indemnification of Landlord by
Tenant includes, without limitation, costs and expenses for Attorney's,
Engineer's, and other professionals, and their assistants, incurred in
connection with any investigation of site conditions or any cleanup, remedial,
removal, or restoration work required by a federal, state, or local government
agency or political subdivision because of Hazardous Substances present in the
soil or ground water on or under the
Premises. Without limiting the foregoing, if the presence of any Hazardous
Substances on the Premise caused or permitted by Tenant or its agents or
contractors results in any contamination of the Premises, Tenant shall
promptly take all actions at its sole expense as are necessary to return the
Premises to the condition existing prior to the release of any such Hazardous
Substances to the Premises, provided that Landlord's approval of such actions
shall first be obtained, which approval shall not be unreasonably withheld so
long as such actions would not potentially have any material adverse long-term
or short-term effect on the Premises.
7.1.B) SURVIVAL. Tenant's indemnification obligations under this lease
shall survive the expiration or earlier termination of the lease.
7.2 ACTS OF OTHER TENANTS Landlord shall have no liability for acts of
other tenants who may be occupying the Building or adjacent Premises.
7.3 LIENS Tenant shall pay as due all claims for work done on and for
services rendered or materials furnished to the Premises at its request and
shall keep the Premises free from any liens. If Tenant fails to pay any such
claims or to discharge any lien, Landlord may do so and collect all costs of
such discharge, including its reasonable attorneys' fees. Such action by
Landlord shall not constitute a waiver of any right or remedy which Landlord
may have on account of Tenant's default. Tenant may withhold payment of any
claim in connection with a good-faith dispute over the obligation to pay, so
long as Landlord's property interests are not jeopardized. If a lien is filed
as a result of nonpayment, Tenant shall, within 10 days after knowledge of the
filing, secure the discharge of the lien.
7.4 LIABILITY INSURANCE At all times during the term of this lease and
renewals thereof, Tenant shall, at Tenant's expense, obtain and keep in force
and effect during the terms of this Lease a policy of Combined Single Limit,
Bodily Injury, and Property Damage Insurance, insuring Landlord, by
endorsement, naming the Landlord as an additional insured and Tenant against
any liability arising out of the ownership, use, occupancy, or maintenance of
the Premises and all areas appurtenance thereto. Such insurance shall be a
combined single limit policy in an amount not less than $1,000,000.00 per
occurrence. The limits of said insurance shall not, however, limit the
liability of Tenant hereunder.
All insurance herein required shall be in a form acceptable to Landlord and
obtained from an insurance carrier licensed to do business in the state in
which the property is located. The insurance carrier at all
times during the term of the lease shall have a policyholders rating of not
less than an A+ in the most current edition of Best's Insurance Reports (Said
rating standard shall also apply to paragraph 4.3)
Said insurance shall be delivered prior to, or at, the Commencement Date of
this lease.
In the event Tenant fails to procure, maintain, and/or pay for the insurance
required by this lease said failure shall be an immediate default of said
lease.
Such policy shall provide that the insurance shall not be cancelable or
modified without at least ten (10) days prior written notice to Landlord and
shall be deemed primary and non-contributing with other insurance available to
Landlord.
SECTION 8. LANDLORD'S WARRANTY
POSSESSION AND ENJOYMENT OF PREMISES Subject to paragraph 14.5, relating
to inspection of the Premises, Landlord warrants that, so long as this lease
is not in default, it shall not do any act which will interfere with Tenant's
right to possession and enjoyment of the Premises during the term of this
lease.
SECTION 9. ASSIGNMENT AND SUBLEASE
9.1 ASSIGNMENT AND SUBLEASING No part of the premises may be assigned,
mortgaged or subleased by Tenant, nor may a right to use any portion of the
premises be conferred on any third person by any other means without
Landlord's prior written consent. If Tenant desires to enter into a sublease
or assignment, Tenant shall first give to Landlord sixty (60) days prior
written notice, to the proposed effective date of the sublease or assignment.
9.2 THE PROPOSED SUBLEASE REQUEST SHALL BE ACCOMPANIED BY:
a) The name of proposed assignee/sublessee.
b) The nature of the proposed transferee's business to be conducted
upon the premises.
c) The most recent financial statement of proposed transferee.
d) A check payable to Landlord in the amount of $500.00.
e) Submit an "Assignment of Lease" (except for rent as stated herein)
in which the lease terms remain unchanged and no variations from
the existing lease be granted to the proposed sublessee. In
addition, U.S. Bank requires a non-release of liability clause be
contained in the sublessee/assignment agreement.
9.3 INTENT The intent of the sublease and provision for not
unreasonably withholding consent to an assignment or sublet is designed purely
to create an avenue by which the Tenant may dispose of an unwanted financial
burden and not to permit the Tenant to profit from the assignment or sublet.
Thus, any profit intent, direct or indirect, by the Tenant, would be
reasonable basis for withholding consent.
9.3.1. WITHHOLDING CONSENT: The Landlord at Landlord's sole discretion
may withhold Landlord's consent under the following circumstances which shall
include but not be limited to:
a) The proposed assignee or sublessee or its business is subject to
compliance with additional requirements of the law (including related
regulations) commonly known as the "American with Disabilities Act" beyond
those requirements which are applicable to the Tenant desiring to assign or
sublease. Should Tenant pay any additional costs necessary to comply with
these additional laws or requirements Landlord's consent shall not be withheld
on this basis.
b) The proposed assignee or sublessee does not possess equal business
experience or financial capability as the Tenant desiring to assign or
sublease.
c) The proposed assignee or sublessee or its business may create a change
in use, creates a non conforming use, does not comply with the current
zoning, or creates a greater environmental risk than the existing tenant.
d) The propsoed assignee or sublessee does produce percentage rents.
9.4 ASSIGNMENT AND SUBLETTING If an assignment or subletting is
permitted, any cash profit, or the net value of any other consideration
received by Tenant as a result of such transaction shall be paid to Landlord
promptly following its receipt by Tenant. Tenant shall pay any costs incurred
by Landlord in connection with a request for assignment or subletting,
including reasonable attorney's fees.
9.5 FAILURE BY TENANT TO COMPLY: Landlord shall have no liability to
Tenant for Tenant's failure to comply with all requirements set forth in
section 9 of this lease. Landlord shall have no liability for
said denial of sublease or assignment.
SECTION 10. DEFAULT
The following shall be events of default:
10.1 NONPAYMENT BY TENANT: Tenant's failure to pay rent or any other
charge under this lease within l0 days after it is due.
10.2 NONCOMPLIANCE BY TENANT: Tenant's failure to comply with any term
or condition, except for insurance coverage which must be continuous and
corrected immediately upon notice, or fulfill any obligation of this lease
(other than the payment of rent or other charges) within 15 days after written
notice by Landlord, specifying the nature of the default. If the default
cannot be completely cured within the 15-day period, this provision shall be
satisfied if Tenant commences correction of the default within the 15-day
period and thereafter proceeds with reasonable diligence and in good faith to
effect the remedy as soon as possible.
10.3 INSOLVENCY OF TENANT Tenant's insolvency; an assignment by Tenant
for the benefit of creditors; the filing by Tenant of a voluntary petition in
bankruptcy, an adjudication that Tenant is bankrupt or the appointment of a
receiver of the properties of Tenant; the filing of an involuntary petition of
bankruptcy and Tenant's failure to secure a dismissal of such petition within
30 days after filing; attachment or levying of execution upon the leasehold
interest and failure of Tenant to secure discharge of such attachment or
release of such levy within 10 days. If Tenant consists of two or more
individuals or business entities, the events of default specified in this
paragraph shall apply to each individual unless within 10 days after an event
of default occurs, the remaining individuals produce evidence satisfactory to
Landlord that they have unconditionally acquired the interest of the one
causing the default.
SECTION 11. REMEDIES ON DEFAULT
11.1 RE-ENTRY In the event of a default, Tenant's right to possession
of the Premises shall immediately terminate. Thereafter, Landlord may
re-enter, take possession of the Premises and remove any persons or property
by legal action or by self-help, with the use of reasonable force and without
liability for damages. Landlord shall have a security interest in Tenant's
property on the Premises at the time of re-entry to secure all sums owed or to
become owing Landlord under the lease. Perfection of such security interest
shall be by taking possession of the property or otherwise as provided by law.
11.2 RELETTING Following re-entry by Landlord because of Tenant's
default, Landlord may relet the Premises for a term longer or shorter than the
term of his lease and upon any reasonable term, including the granting of rent
concessions to the new tenant. Landlord may alter, refurbish or change the
character or use of the Premises in connection with such reletting. No such
reletting by Landlord following Tenant's default shall be construed as an
acceptance of a surrender of the Premises. If rent received upon reletting
exceeds the rent received under this lease, Tenant shall have no claim to the
excess.
11.3 DAMAGES FOR DEFAULT Following re-entry, Landlord shall have the
right to recover from Tenant the following damages:
a) All unpaid rent or other charges for the period prior to re- entry,
plus interest as provided in paragraph 14.6;
b) An amount equal to the rental lost during any period in which the
Premises are not releted if Landlord continuously use reasonable efforts to
relet the Premises during such period. If Landlord lists the Premises with a
real estate broker experienced in leasing commercial properties in the area of
the Premises, this shall constitute the taking of reasonable efforts to relet
the Premises;
c) All costs incurred in reletting or attempting to relet the Premises,
including without limitation, the cost of cleanup and repair in preparation
for a new tenant, the cost of correcting any default or restoring any
unauthorized alterations and the amount of any real estate commissions or
advertising expenses;
d) The difference between the rent reserved under this lease and the
amount actually received by Landlord upon any reletting;
e) Landlord shall have the right to collect from Tenant any reasonable
attorney's fees incurred in connection with any default under the lease,
whether such default occurs prior to, or after, Landlord's necessity to
re-enter the premises, and for collection activity undertaken by Landlord,
whether or not any litigation is commenced.
11.4 ACTIONS ON DEFAULT Landlord may sue periodically to recover
damages as they accrue throughout the lease term and no action for accrued
damages shall be a bar to a later action for damages subsequently accruing.
To avoid a multiplicity of actions, Landlord may obtain a decree of specific
performance requiring Tenant to pay the damages stated in paragraph 11.3 as
they accrue. Alternatively, Landlord may in any one action elect to recover
accrued damages plus damages attributable to the remaining term of the lease
equal to the difference between the rent under this lease and the reasonable
rental value of the Premises for the remainder of the term, discounted to the
time of the judgment at the rate of three percent per annum.
11.5 TENANT'S POSSESSION FOLLOWING DEFAULT In the event that Tenant
remains in possession following default and Landlord does not elect to
re-enter, Landlord may recover all unpaid rent and other charges, and shall
have the right to cure any non-monetary default and recover the cost of such
cure from Tenant, plus interest at the maximum legal rate from the date of the
expenditure. In addition, Landlord shall be entitled to recover attorney's
fees and costs reasonably incurred in connection with the default, whether or
not litigation is commenced. Landlord may sue to recover such amounts as they
accrue, and no one action for accrued damages shall bar a later action for
damages subsequently accruing.
11.6 REMEDIES CUMULATIVE The foregoing remedies shall not be exclusive
but shall be in addition to all other remedies and rights provided under
applicable law, and no election to pursue one remedy shall preclude the
Landlord from pursuing any and all other remedies available.
SECTION 12. SURRENDER ON TERMINATION
12.1 SURRENDER OF PREMISES Upon expiration of the lease term or earlier
termination because of default, Tenant shall deliver all keys to Landlord and
surrender the Premises to Landlord in same condition as it was at the time of
the signing of this lease, broom clean, and free of any outstanding utility
charges, or other charges which are the responsibility of Tenant under the
lease. Alterations constructed by Tenant pursuant to Landlord's permission
shall not be removed or restored to the original condition unless the terms of
permission for the alterations so require. Depreciation, and wear from
ordinary use for the purposes for which the Premises were let need not be
restored, but all repair for which Tenant is responsible shall be completed
prior to such surrender. Tenant's obligation under this paragraph shall not
apply in case of termination of the lease because of destruction of the
Premises.
12.2 FIXTURES With the exception of Tenant's movable trade fixtures,
all other fixtures placed upon the Premises during the term shall, at
Landlord's option, become the property of Landlord. Landlord may elect to
require Tenant to remove all such fixtures, which would otherwise remain the
property of Landlord, and to repair any damage resulting from the removal.
Should Tenant fail to effect such removals or make such repairs, Landlord may
do so and charge the cost to Tenant with interest at the maximum legal rate
from the date of the expenditure.
12.3 REMOVAL OF TENANT'S PROPERTY If tenant is not in default of its
payment obligations under this lease at the time of termination Tenant shall
remove all furnishings, furniture, trade fixtures, and all items of personal
property that remain the property of Tenant. Failure to do by the end of the
lease term shall be an abandonment of the property and Tenant shall have no
further rights therein except as provided below. Landlord may elect to
proceed as follows with respect to such abandoned property:
a) Retain or dispose of the property as it sees fit; without recourse to
Landlord;
b) Following 20-days written notice to Tenant, remove the property and
place it in public storage for Tenant's account, in which case Tenant shall be
liable for the cost of removal, transportation and storage, plus interest at
the maximum legal rate from the date of all expenditures.
12.4 HOLDOVER Should Tenant fail to vacate the Premises when required,
Landlord's rights shall be as follows:
a) Landlord may elect to treat Tenant as a tenant from month to month
subject to all the provisions of this lease except the provisions for term;
b) Upon 30 days written notice Landlord may establish a new
monthly base rental rate, or percentage rent.
c) Landlord shall not be require to make any repairs, and or major
component replacement during said holdover period, unless agreed to by
Landlord;
d) Landlord may elect to take legal action to eject Tenant from the
Premises and to collect any damages caused by Tenant's wrongful holding over.
12.5 Tenant's failure to remove property as required by paragraph 12.3
above shall constitute a failure to vacate to which paragraph 12.4 shall apply
if the property not removed will substantially interfere with occupancy of the
Premises by another tenant or with occupancy by Landlord for any purpose
including preparation for a new tenant.
SECTION 13. ARBITRATION
13.1 DISPUTES ARBITRABLE If any dispute arises between the parties to
this lease regarding the extent of rent abatement under paragraph 5.1, the
extent of damage under 5.2, the extent of rent reduction to be made under
paragraph 6.1(c), or whether paragraph 6.2 applies following a partial taking
of the Premises by condemnation, either party may request arbitration and
appoint as arbitrator one independent real estate broker or appraiser having
knowledge regarding valuation of rental properties comparable to the Premises.
If the dispute is not resolved within 10 days after such notice, the
responding party shall likewise choose an arbitrator meeting the above
qualifications. The two arbitrators shall within 5 days choose a third having
the above qualifications. If the choice of the second or third arbitrator is
not made within 5 days after the end of the period in which the choice is to
be made, then either party may apply to the presiding judge of the Judicial
District in which the Premises are located who shall appoint the required
arbitrator.
13.2 SUBMISSION OF DISPUTE At any time within 20 days after appointment
of the third arbitrator either party may submit the dispute for settlement by
the arbitrators.
13.3 ARBITRATION PROCEEDINGS The arbitrators to whom a dispute is
submitted shall conduct such investigations and hearings as they shall
consider necessary. Each party shall be afforded the opportunity to make a
presentation of its position to the arbitrators. The written decision of the
majority shall be submitted to both parties within 30 days after the referral
unless the arbitrators determine that further time is reasonably required to
make a proper investigation of the relevant facts. In addition, to other
powers conferred by law or this agreement, a majority of the arbitrators shall
have the power to compel oral or documentary evidence from either party or any
other person or firm at the request of either party for discovery purposes.
The arbitration shall take place in the State of Oregon.
13.4 DECISION The decision of the Arbitrators shall be final and
binding, and no party shall have any right to appeal therefrom including any
decision as to whether or not the question was subject to arbitration.
13.5 COST OF ARBITRATION The cost of arbitration shall be allocated
between the parties by the arbitrators on the basis of the extent to which the
position of one or the other party is adopted in the arbitrators' decision.
SECTION 14. GENERAL PROVISIONS
14.1 NONWAIVER Waiver by either party of strict performance of any
provision of this lease shall not be a waiver of or prejudice the parties'
right otherwise to require strict performance of the same provision or of any
other provision.
14.2 ACTIONS AND SUITS If suit or action is instituted in connection
with any controversy arising out of this lease, the prevailing party shall be
entitled to recover in addition to costs such sum as the court may adjudge,
reasonable attorneys' fees, at trial and on any appeal of such suit or action,
expert witness fees, and adminstration costs.
14.3 NOTICES Any notice required by the terms of this lease to be given
by one party hereto to the other or desired so to be given, shall be
sufficient if it is in writing contained in a sealed envelope, deposited in
the United States Mail with postage thereon fully prepaid, certified mail
return receipt requested, and addressed to the respective party at the address
of such party hereinafter set forth. Any such notice shall be deemed
conclusively to be delivered to the addressee thereof 24 hours after the
deposit thereof in said United States Mail.
14.4 SUCCESSION Subject to the prescribed limitations on transfer of
Tenant's interest, this lease shall be binding upon and inure to the benefit
of the parties, their respective successors and assigns.
14.5 ENTRY FOR INSPECTION Landlord shall have the right to enter upon
the Premises at any time to determine Tenant's compliance with this lease, to
make necessary repairs to the Building or to the Premises, or to show the
Premises to any prospective tenant or purchaser, and in addition have the
right, at any time during the last two months of the term of this lease, to
place and maintain upon the Premises notices for leasing or selling of the
Premises.
14.6 INTEREST ON RENT AND OTHER CHARGES Any rent or other payment
required of Tenant by this lease shall, if not paid within 10 days after it is
due, bear interest at the maximum legal rate from the due date until paid.
14.7 PRORATION OF RENT In the event of commencement or termination of
this lease at a time other than the beginning or end of one of the specified
rental periods, then the rent shall be prorated as of the date of commencement
or termination and in the event of termination for reasons other than default,
all prepaid rent shall be refunded to Tenant or paid on his account.
14.8 LANDLORD'S CONVEYANCE Any conveyance of the Premises by Landlord
during the term of this lease shall be subject to his lease, and following any
such conveyance, Landlord shall be discharged from all obligations under this
lease except those already accrued.
14.9 REPRESENTATION BY ATTORNEY'S: The parties agree and acknowledge
that each party has been represented by an attorney of its own choosing in the
preparation of this lease. Consequently the shall not be construed either in
favor or against any party.
14.10 LANDLORD'S LIEN WAIVER: Landlord shall not be required to execute
any Lien Waiver's, or subordinate any of Landlord's rights in connection with
any financing provided to Tenant by a third party during the term of this
lease.
15.1 OPTION TO RENEW: If all terms and conditions of this lease have
been met and Tenant has not previously been in default of any provision of the
Lease, or has failed to perform any provision of the lease whether a default
has actually been imposed by Landlord Tenant shall have the option to renew
the Lease for 1 additional five year period at the "Fair Market Rental Value"
as determined by Landlord and to be agreed upon by both parties. Said option
to extend shall be delivered to Landlord in writing but no later than 180 days
prior to the expiration of the original term. If this lease is renewed, all
terms of this Lease shall remain in full force and effect except for the
revised rental rate and term of this Lease. In any event the base rental rate
during said option period shall not be less than the amount equal to the last
month's rent due under the initial term of the lease. If Landlord and Tenant
cannot agree upon the fair market rental rate prior to the commencement of the
option term, and Tenant still occupies the premises, the rental rate at the
commencement of the option term shall not be less than $2,500.00 per month, in
addition to the percent rents seth forth in this lease and all other terms and
conditions set forth under the lease. If the parties cannot agree on the base
rent to be paid during the option period within three months form the
expiration date of the initial term of this lease, said lease shall thereby
terminate.
IN WITNESS WHEREOF, the parties hereto have executed this instrument in
duplicate at the place and on the day and year first above written, any
corporate signature being by authority of the board of directors.
LANDLORD TENANT
U.S. National Bank of Oregon, as Trustee Chicago Pizza N.W.
Corporation
By: /s/ John Wagner By: /s/ Ramon David
-------------------- ---------------------
John Wagner
Title: Vice President Title: President
------------------- -------------
Vice President
Date: 4/10/98
-----------------
Action Administrative Services, Inc.
ADDRESS FOR NOTICES: ADDRESS FOR NOTICES:
U. S. National Bank of Oregon Chicargo Pizza N.W.
P. O. Box 3168 Lynwood Corporate Center
Portland, Oregon 97208 19401 40th Avenue West - Suite 312
Lynwood Washington 98036
<PAGE>
ADDENDUM "A"
1995
LEGAL DESCRIPTION
-----------------
A parcel of land situated in lots 3 & 4 block 94, East Portland, in the City
of Portland, County of Multnomah, and State of Oregon.
